Penumbra, Inc.
Q1 2021 Earnings Call Transcript

Published: 4 May 2021

[Operator:]

Good afternoon. My name is Katrina, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's First Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would like to introduce Mr. Stephen Dobson, Investor Relations for Penumbra. Mr. Dobson, you may begin your conference.

[Stephen Dobson:]

Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the first quarter of 2021. A copy of the press release and financial tables, which includes the GAAP to non-GAAP reconciliation, can be viewed under the Investors tab on our company website at www.penumbrainc.com.

[Adam Elsesser:]

Thank you, Stephen, and I appreciate you filling in for Jee while she is on maternity leave. Good afternoon, everybody. Thank you for joining Penumbra's first quarter 2021 conference call. Our total revenues for the first quarter were $169.2 million, a year-over-year increase of 23.2% as reported and 21.5% in constant currency. For the first quarter of 2021, we recorded operating income of $13.5 million or 8% of revenue, compared to operating income of $0.6 million during the same period last year. Our Vascular business produced outstanding growth again this quarter, with revenue expanding 50.5% year-over-year to $89.2 million, and we believe we are just getting started in Vascular.

[Maggie Yuen:]

Thank you, Adam. Good afternoon everyone. Today I will discuss the financial results for the first quarter 2021. Additional details will be contained within our quarterly reports on Form 10-Q. For the first quarter ended March 31st 2021, our total revenues were $169.2 million, an increase of 23.2% reported and 21.5% in constant currency, compared to the first quarter of 2020. Our geographic mix of sales in the quarter, were 71% U.S. and 29% international. U.S. and international reported growth of 25.4% and 18.2% respectively, compared to the same period in 2020. Revenue from our, Vascular business, grew to $89.2 million in the first quarter of 2021, an increase of 50.5% reported of 49.1% in constant currency compared to the same period last year. In the quarter, our Vascular performance were driven by growth in both, thrombectomy and embolization franchises with growth across the Europe and U.S. Revenue from our Neuro business was $80 million in the first quarter of 2021, an increase of 2.5% reported and 0.6% in constant currency, compared to the same period a year ago, driven by growth in our Access franchise across all regions. Our Neuro business increased 0.3% sequentially, driven by growth in the U.S. Japan and China, partially offset by decline in Europe and Latin America with the resurgence of COVID impact. Gross margin in the first quarter was 65.8%, compared to 64.1% in the same quarter last year, and compared to Q4 2020 gross margin of 56.5% and non-GAAP gross margin of 65.2% excluding the product recall impact. We have implemented additional safety protocols in our manufacturing facilities with the resurgence of COVID cases in California in the beginning of the year. And I'm proud of our ability to continue to scale production capacity to support our expanding portfolio of products. Looking forward, our gross margin could fluctuate slightly due to price and product mix. Total operating expense for the quarter was $97.9 million, or 57.8% of revenue, compared to $87.4 million or 63.6% of revenue for the same quarter last year. Our research and development expense for Q1 2021 were $18.1 million, compared to $12.9 million for Q1 2020. We will continue to invest in product development and platform capabilities.

[Jason Mills:]

Thank you, Maggie, and good afternoon, everybody. With the update of our first quarter results, we are formally increasing our 2021 revenue guidance range to $695 million to $705 million, which would represent 24% to 26% growth over 2020 revenue of $560.4 million, illustrating continued momentum expected in our business. This updated guidance compares to our original 2021 guidance range of $675 million to $685 million, given on our fourth quarter call in February. We see multiple drivers of growth and continue to expect our revenue to increase throughout the year. From a year-over-year standpoint, we expect our second quarter growth rate to be higher given the outsized impact of the COVID pandemic during the second quarter of 2020. On a quarter-over-quarter basis, we expect growth to be higher in the second half of the year as we expand the rollout of new products including Lightning seven and the RED Series of stroke catheters as hospital value analysis committee's work through several products introduced during the pandemic. Overall consistent with our approach to setting guidance in the past, our updated 2021 revenue guidance represents current views on our markets, timing of new product launches and other relevant inputs. I will now turn the call back to Adam for closing remarks.

[Adam Elsesser:]

Thank you, Jason. In the last several earnings calls, I have acknowledged the amazing work our customers have done, the dedication of our production workers and the entire team that has supported their work, during the heart of the pandemic and the extraordinary innovation from our engineers. Today, I would like to specifically call out our field-based sales and clinical teams throughout the world. You all have stayed so focused and passionate on being available for your customers and through them the patients they treat. Your work has always been best-in-class. But during the past 12 months, watching your engagement and dedication has been inspiring. I also want to say that this past quarter we lost a valued member of our sales team to an untimely passing. I know the entire team will join me in acknowledging his character and his extraordinary contribution as well as our deepest condolences to his wife and children. We love and we'll miss you. Thank you. And now we'd like to open the call to questions. Operator, please go ahead.

[Operator:]

Your first question comes from the line of Robbie Marcus from JPMorgan. Your line is open.

[Robbie Marcus:]

Great. First off, congratulations on a really nice quarter.

[Adam Elsesser:]

Thanks.

[Robbie Marcus:]

So Adam it'd be great -- really got two questions. I'll just ask them upfront here. One it seems like you have some really good momentum coming out of first quarter. It'd be great to get a sense of how it progressed and really importantly how you exited and the trends into second quarter here so far? And then maybe just probably part of that is a lot of people after XTRA FLEX was pulled in fourth quarter were concerned that you'd lose a good chunk of those sales. Maybe just speak to what you've seen within stroke in -- around the world and have users migrated and stayed within the Penumbra platform? Thanks.

[Adam Elsesser:]

Yes. Thanks, Robbie. Those are great questions. So I'll start with the first and sort of the trends. There's no question that some of our business in the early weeks of the quarter in January when things were looking a little more difficult or feeling a little more difficult with the pandemic were a little lighter. But as you know a lot of our business is more sort of emergent and therefore wasn't as impacted maybe as others. But there's no question we saw that improve throughout the quarter. Hard to tell again given the nature of our business how much of that was the normal sort of quarterly sort of rhythm versus the pandemic. But obviously, we're feeling confident about where we sit right now and the business going forward. As it relates to stroke and that business we've been very fortunate. There's no question that the -- there's been a lot of sort of trialing and moving around. We commented on that earlier and in the fourth quarter call around that business. But the success of our product line in stroke the whole product line the JET 7 Standard Tip as well as the ACE68 in markets where that is have continued to perform really well. And we have seen doctors who have tried other products and other companies aspiration catheters come back to us. We think there's more room to go there and we think we're really positioned quite well as both the RED62 comes out but also the other catheters in that series in the back half of the year. So we're feeling optimistic.

[Robbie Marcus:]

Great. Thanks, Adam.

[Adam Elsesser:]

Thank you, Robbie.

[Operator:]

Your next question is from the line of Larry Biegelsen from Wells Fargo. Your line is open. Once again, Larry Biegelsen from Wells Fargo. Your line is open.

[Larry Biegelsen:]

Hi, Adam. Can you hear me?

[Adam Elsesser:]

Yes, Larry.

[Larry Biegelsen:]

Okay. There was a problem with I think my phone. Apologies for that. And I missed the last part. I did want to ask about RED62. Can you comment on the timing? Is this the next-generation workhorse kind of aspiration catheter which will kind of replace ACE68, JET 7? And kind of what are the benefits of this catheter over current catheters? And I did have one follow-up.

[Adam Elsesser:]

Yes. Thanks, Larry. So we -- in the prepared remarks and I realize everyone's got a busy day and other companies. So in my prepared remarks, I commented that we're hoping to be able to have that product in a couple of months RED62. So RED62 is obviously a little smaller than the other catheters and we think it will play a big role in the sort of growing interest in discussions around treating more distal strokes. Right now there's some limitation on some of the technologies to do that and we think RED62 will play a pretty important role in helping to treat more and more of those strokes that are -- that may not be treated now because of technology limitation. As it relates to other sizes in the RED Series we did -- I did comment that we will have additional catheters in the RED Series that will follow the introduction of RED62, but I didn't give a more specific time frame. But it will follow that time frame that I outlined for 62. So yes we think 62 will matter, but it won't -- it's not meant to replace the larger catheters that will be coming after that.

[Larry Biegelsen:]

That's very helpful. And then one on Lightning 7. Indigo has historically been stronger I think on the arterial side than the venous side. In the past it was about two-thirds to one-third in favor of arterial. How do you see that changing in 2021 and beyond? And can you put the launch of Lightning 7 at the end of Q1 in context for us? Thanks for taking the questions.

[Adam Elsesser:]

Yes. No, that's a really good question. And if I had different sales teams selling the -- Lightning 7 versus Lightning 12, I would absolutely use your question to challenge both of them to outdo each other. But since it's the same team, I can't get away with that. We look at those two products really as complementary. And the scale of work to be done both on the venous PE versus arterial is so open. There are so many PE patients that we can still help. So we don't really look at it as, which will grow faster per se. I think it will depend obviously on each physician and region and so on. But the opportunity now that, we have brought Lightning technology to both sides of that, and really updated the catheter technology with sort of CAT7, CAT12 with the new – sorry, hypotube technology that we're finding really, really successful, I think we're going to have some real success in both of those areas. Which will outgrow the other? It's hard to know right now. And let's hope they're pretty – they're both successful. I think patients will benefit.

[Larry Biegelsen:]

All right. Thanks for taking the questions.

[Adam Elsesser:]

Sure.

[Operator:]

Next question is from Margaret Kaczor from William Blair. Your line is open.

[Brandon Vazquez:]

Hi, everyone. This is Brandon on for Margaret. First, just a question on guidance. If I'm assuming kind of, relatively small sequential increases in the Vascular segment, maybe that's arguably a little conservative given the strength in the product launches coming up. It kind of – it seems like it implies a low double-digit growth rate is implied in guidance for the Neuro portfolio. Is that math fair? And is that kind of how you all are internally thinking of the split between the peripheral and Neuro growth through the year?

[Jason Mills:]

Hey, Brandon good to hear your voice. It's Jason. So I'll take that one, and then maybe Adam can add on, if he wants to. So we don't obviously break out the growth expectations between Vascular and Neuro. And so the commentary was meant to help sort of on a – both a year-over-year and a quarter-over-quarter basis. I think it sounds like you heard and understood that guidance from an overall perspective pretty well. We also commented that, the back half of the year we expected sequential growth to be larger. And we highlighted products on both the Vascular and the Neuro side. And so I think those comments about the overall business, obviously, given we were highlighting products in both franchises apply respectively.

[Brandon Vazquez:]

Okay. That's helpful. And on the Vascular side, this business just continues to perform really well. I was curious, if you could kind of give us on the – in the field what's kind of different than a year ago? A year ago, the business was growing really well on both a year-over-year basis and a sequential basis. And it seems like in the last maybe two quarters, it's really inflected to the positive side, and it's gotten even better. What's kind of changed out in the field in the last couple of quarters? And I guess, part of the question is trying to understand, what's changed and how durable is that change?

[Adam Elsesser:]

Yeah. Brandon thanks. It's a great question. A couple of things have changed and maybe it's sort of a combination of all of this. The first and most obvious, of course is, the launch of our new catheters in Lightning. The combination of those really with the technology in those catheters to allow them to perform the way, they do track as well as have sort of the larger lumen with the smaller outer diameter has been hugely valuable. And then combine that with Lightning, which both, for blood saving, but most -- as important ease of use for the customers, the feedback has just been extraordinary. So the product has really evolved. As you know, we take on these areas like, blood clot in the body. And we just keep innovating and innovating, until the cases become easier-and-easier. And this is a big step forward in that technology. You combine that with the focus around a need for single-session treatment, where the patient wouldn't have to go to an ICU or a monitored bed for a period of time like, when they are treated with lysis. And the need for that during the pandemic last year, I think gave -- a more attention to the need to remove blood clot in single-sessions. So I think it's a combination of those things. I also -- there's other companies who are doing the same thing with different technology that is bringing more-and-more awareness. When you add it all up, I think people are just now focused on the idea that, there are a lot of folks who have blood clots in their body. And what we were doing is not as good as what we can do. And so we have a lot of optimism. As it relates to how durable, I think it's quite durable, and as you know, from our history where even though Lightning and CAT7 and 12 are really a huge step-up, we're not done innovating. And so we want to keep pushing this, and pushing this to the point where removing blood clot becomes a relatively straightforward and not a significant procedure. And we think we can get there. So yes, I do think this is going to be durable for quite some time.

[Brandon Vazquez:]

Got it. Thank you.

[Jason Mills:]

Yeah. Thank you.

[Adam Elsesser:]

Thanks, Brandon.

[Operator:]

Next question, we have Bob Hopkins from Bank of America. Your line is open.

[Bob Hopkins:]

Hello. Thank you and good afternoon. Just want to follow-up on, two things, if okay. The first one is on China, and you guys had put in some disclosures of a pretty robust amount of revenue from China in the fourth quarter. I'm just curious, as to kind of how that played out in the first quarter? Did you see sort of the same level of revenue? And then maybe, if you could just talk about the outlook for China broadly this year would be great.

[Adam Elsesser:]

Yeah. Thanks Bob. It's a great question. As we announced -- when we had that announced quarter the deal we signed with Genesis is really a multifaceted deal that -- around five of our Neuro products. And we think it has a great potential for us over the next number of years. But we also -- as I said in the prepared remarks today, it's the beginning. It's -- we think there's more we can do even than that in China. So yes, we had another good quarter with China. And we think going forward we will continue to see that playing an important role for us. And we're excited about it to bring this technology first with these products in neuro and then across our larger portfolio to that country.

[Bob Hopkins:]

So, two other things on that. One is just going back to the 2019 Analyst Day, you guys highlighted a lot of new opportunities. I mean, China I realized as something that was going to be over many, many years, but you did highlight it as a multi-billion-dollar opportunity. And that's what I'm trying to dig here a little bit and understand when that could become a more important part of the story? So I guess, just to drill down a little bit more to the degree, you're willing to disclose do you think you'll see continued improvement off of that Q4 base? I mean, did you see that in Q1? Would you expect that for the rest of the year? And then the other thing I'd love to hear your thoughts around this. On the stroke side you had talked about a couple of things this year, some new product launches and then a paradigm shift. I assume we have yet to hear about the paradigm shift.

[Adam Elsesser:]

Yes. So, great questions. So we're not going to start calling out specific numbers in our markets, but the business needless to say for us in China, we think is quite substantial. And again, quarter-by-quarter we're not going to call out those specific numbers, but it performed again this quarter. We called that out in the prepared remarks and was not insignificant benefit, but not dominant. The rest of the business also performed. So I don't want it to be considered either/or. As it relates to stroke we -- as soon as we can, as soon as it's sort of appropriate from a competitive landscape, I cannot wait to share the products that -- the product that I have alluded to as part of a paradigm shift. But for obvious competitive reasons, which I think everyone would understand as you know we have something like 15 companies now competing in stroke. We're going to wait to share that until the last possible moment, but it's coming. And I feel as confident as ever about it. And I think it will be really, really important for patients.

[Bob Hopkins:]

Perfect. Thanks for taking the questions.

[Adam Elsesser:]

Yes. Thanks, Bob.

[Operator:]

There are no further questions at this time. Mr. Dobson, I turn the call back over to you.

[Stephen Dobson:]

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 second quarter call.

[Operator:]

This concludes today's conference call. You may now disconnect.