Penumbra Q2 2024 Earnings Call Transcript

There are 12 speakers on the call.

Operator

Good afternoon. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everybody to Penumbra's 2nd Quarter 2024 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.

Operator

With that, I would like to introduce Ms. Cecilia Furlong, Business Development and Investor Relations for Penumbra. Ms. Furlong, you may begin your conference.

Speaker 1

Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the Q2 of 2024. A copy of the press release and financial tables, which includes a GAAP to non GAAP reconciliation, can be viewed under the Investors tab on our Company website at www.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 ks for the year ended December 31, 2023, filed with the SEC. As a result, we caution you against placing undue reliance on these forward looking statements and we encourage you to review our periodic filings with the SEC, including the 10 ks 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.

Speaker 1

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, financial results for revenue are presented on a GAAP basis, while gross margin, operating expenses, operating income and adjusted EBITDA 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 gross margin, operating expenses, and operating income exclude amortization of acquired intangible assets in the Q2 of 20242023 and an impairment of our immersive healthcare business in the Q2 of 2024. Adjusted EBITDA excludes impairment expenses, stock compensation expense, depreciation and amortization, benefit from income taxes, and interest income expenses.

Speaker 1

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 Q2 of 2024 and Jason Mills, our Executive Vice President of Strategy, will discuss our updated 2024 guidance. With that, I would like to turn the call over to Adam Elsesser.

Speaker 2

Thank you, Cecilia. Good afternoon. Thank you for joining Penumbra's Q2 2024 Conference Call. Our total revenue for the 2nd quarter was $299,400,000 a year over year increase of 14.5% as reported and 14.7% on a constant currency basis. Our U.

Speaker 2

S. Thrombectomy revenue grew 25% compared to the same quarter a year ago to $153,700,000 29.8% year over year in the first half of 2024, driven by our CAVT products in VTE and arterial. Our international thrombectomy revenue $49,800,000 growing 26% year over year. On a worldwide basis, total thrombectomy revenue was $203,500,000 growing 25% year over year. Our global embolization and access revenue declined slightly year over year to $95,900,000 but improved sequentially by 5%, driven by our U.

Speaker 2

S. Business, which grew 9% sequentially and 1% year over year to $64,500,000 This strong sequential growth in the U. S. Was due to our sales team responding to the Q1 competitive launches. Non GAAP gross margins expanded to 65.5%, up 170 basis points year over year.

Speaker 2

Non GAAP operating income in the 2nd quarter was $31,700,000 representing 10.6 percent of revenue, increasing 280 basis points over the same period a year ago and 370 basis points improvement sequentially. We continue to see a path to gross margins over 70% over the next 21 to 27 months, and we expect operating margin expansion to outpace gross margin expansion for the foreseeable future. Clinically significant clot burden in the arteries and veins of the body and the brain is still one of the most undertreated acute issues in healthcare today. For 20 years, Penumbra has innovated and innovated our thrombectomy products to make them effective in removing clot in the safest, fastest and simplest way possible. With the launch of CAVT last year, we can now say that our products are the safest and most effective in removing blood clots compared to other mechanical systems and other modalities.

Speaker 2

Therefore, Penumbra is in a period of transformation from a company solely innovating and treating the patients that were deemed treatable to a company that has a genuine responsibility over the next 5 plus years to reach the majority of the 125,000,000 annual thrombectomy patients in the United States. Meanwhile, we are multiple years into the process of building toward a similarly unique opportunity in international markets with the work we are doing in reimbursement, clinical evidence and commercial expansion. Now let's focus on what specifically happened in the Q2 and how we see the next several quarters. Starting with our vascular business, we had our first available Flash 2.0 units in late April, which was later than we had hoped, but the initial cases showed that it was worth waiting for. For experienced users of Flash 1.0, the reaction to Flash 2.0 has been positive, but more that it is a very good iterative product.

Speaker 2

For new first time users of Flash, Flash 2.0 generated an extremely positive reaction. The feedback starts with excitement that the speed of the cases was much faster than their current cases with a much safer profile, less worry about cardiac decompensation because of the smaller catheter used, no need to deal with returning potentially compromised blood, and clinically very acceptable blood loss that had the benefit of being contained in our pump canister and not uncontained in the room. This feedback, particularly on the issue of returning compromised blood, was highlighted at a recent San Diego VTE Summit, citing data from extensive testing, the growing body of evidence, and existing guidelines. Physicians are starting to become aware of this issue and not surprisingly, this issue is likely going to be discussed at upcoming medical conferences where experts will continue to educate on the known risks of returning potentially compromised blood. Given the feedback we are getting from FLASH 2.0, we have seen particularly competitive tactics in the second half of the quarter in VTE.

Speaker 2

I want to stress that we are no strangers to competition and we are motivated to compete, particularly when the feedback on our products is that they are the best for patients. Our experience of competing over 17 years against some of the best companies in medtech has shown that physicians ultimately choose the best product. This work is important and exciting. However, it takes time and does not happen in a straight line quarter to quarter. We saw the same dynamic in the stroke market years ago when that market was equally underpenetrated and growing at a similar pace.

Speaker 2

Penumbra emerged as the clear leader and we continue to expand our position today. With Flash 2.0, we gained significant share in VTE in Q2, growing within our stated guidance range, and we expect to continue to do so in the second half of the year and beyond. Our Arterial business, led by Lightning Bolt in the US, also continues to perform extremely well. The technology we call modulated aspiration and Lightning Bolt continues to remove blood clot very easily compared to prior modalities. In Q2, our U.

Speaker 2

S. Arterial business grew year over year significantly above our stated guidance range. The 12 month STRIDE study results were also recently published in the Journal of Vascular Surgery, showing higher target limb salvage rates at 1 year of 88.5% versus historical literature rates for CDT and open surgery, which are as low as 57% 65%, respectively. This continues to make the case for an endovascular first approach to arterial thrombus removal and is reflected in the strength of our growing arterial business. Moving to our neurovascular business, we saw another good quarter with our U.

Speaker 2

S. Stroke business growing 19% year over year. Our Neuro Access business also saw good momentum, including the launch of our Midway Access catheters. Just last week at the Society of Interventional Surgery, Neuro Interventional Surgery meeting in Colorado Springs, Doctor. David Fiorella, one of the principal investigators of the THUNDER study, highlighted Thunderbolt in a late breaking session, showing a few case examples of how easily Thunderbolt removes clot.

Speaker 2

This success puts us in a strong position as we focus on completing the Thunder study and prepare to bring Thunderbolt to the market. Finally, we are encouraged to hear a lot of conversations among physicians regarding making sure that the right sized catheters are used for stroke cases so as not to stretch an artery with an oversized catheter. Now I'd like to spend a few minutes discussing our comprehensive market access initiatives, which I think are very important to both the near term and long term as we develop these underpenetrated thrombectomy markets. Over the past 12 months, we have spent significant time and effort both internally and with an excellent team of third party analytical partners engaged in generating evidence from large third party hospital datasets to better understand how CABT performs versus other therapies, including anticoagulation alone across a wide range of metrics. Our rigor has resulted in the completion of studies in PE and DVT that we believe set a high bar for data quality and independence.

Speaker 2

As we hoped and expected, CAVT outperforms other advanced therapies across a wide range of parameters related to hospital efficiency and cost, but most importantly, procedural effectiveness and safety. Because of our persistent and rapid innovation cycles, we expect this growing relative outperformance to be reflected in the evidence that we will generate continuously from this point forward. We also plan to generate similar high quality data sets across every vascular bed and patient population we serve with CAVT. We've recently started the process of discussing the results of these high quality studies with some of the largest hospital systems in the U. S.

Speaker 2

And supporting these partners in whatever ways are appropriate to offer CABT to a growing number of patients that could benefit from access to this technology. We very much look forward communicating these results to our partners and the physician community at large in the months years ahead. Now I'd like to give an update on our immersive healthcare business. We have developed an extraordinary set of products that have shown to greatly benefit patients. I could not be prouder of our amazing immersive healthcare team.

Speaker 2

Even with this confidence in the long term benefit and likely success of our immersive healthcare platform and technology, our current focus needs to be on helping as many patients as possible in our interventional business, particularly in this critical moment where we believe our CAVT technology can help most patients who need thrombectomy. Therefore, we have begun to explore alternative avenues for the immersive healthcare business. Because of that decision, we are taking a one time non cash accounting charge. As we explore these alternatives, we expect to reduce our ongoing operating expenses, thereby further increasing our operating margin and cash flow trajectory going forward. This strategic move allows us to focus 100% of our time, energy and resources to help as many patients as possible while increasing our company's profitability.

Speaker 2

I know many of you have come to expect me to be very confident about the future of our business, But my confidence is grounded in what I and our team are seeing every day in the field. The 3 new CAVT products that we expect to launch over the next 9 months should augment our strong position as we enter and move through 2025. We are also confident about both market growth and our market share trends in VTE, arterial and stroke in the United States next year. Obviously, having the best products is a key factor, but our confidence is further buoyed by our expansive market access work and our strong commercial footprint. We also will not have the same difficult year over year growth challenges in 2025 in key international markets, namely China and Europe, that we are facing throughout 2024.

Speaker 2

And we expect the launch of Flash 2.0 and Lightning Bolt 7 in Europe late this year to have a more pronounced impact on our international growth next year. That being said, we have traditionally set revenue guidance in line with our best assessment of what we can achieve. Going forward, our guidance will reflect a comfortable level of conservatism. Jason will discuss this updated guidance at the end of our prepared remarks. For now, I will say that we see very favorable prospects for our business for the remainder of this year.

Speaker 2

And in 2025, we have the benefit of new product launches, continued share gains and the abatement of the transient headwinds impacting 2024. I'll now turn the call over to Maggie to go over our financial results for the Q2 of 2024.

Speaker 3

Thank you, Adam. Good afternoon, everyone. Today, I will discuss the financial results for the Q2 of 2024. Financial results on this call for revenue are on a GAAP basis, while gross margin, 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.

Speaker 3

For the Q2 ended June 30, 2024, our total revenues were $299,400,000 an increase of 14.5% reported and 14.7% in constant currency compared to the Q2 of 2023. Our geographic mix of sales for the Q2 of 2024 was 72.9 percent U. S. And 27.1 percent International. Our U.

Speaker 3

S. Region reported growth of 16.8 percent driven by 24.9% growth in our thrombectomy franchise. Our international regions increased 8.7% reported and 9.4% in constant currency, primarily driven by growth in overall thrombectomy revenue, partially offset by decline in embolization and access franchise in several regions. Sequential growth in our total revenues of 7.4% was primarily driven by an increase in our global thrombectomy revenue of $15,800,000 or 8.4%. Moving to revenue by products.

Speaker 3

Revenue from global thrombectomy business grew to $203,500,000 in the Q2 of 2024, an increase of 25.2 percent reported and 25.4 percent in constant currency compared to the same period last year. Our U. S. Growth of 24.9 percent driven by volume growth in newer accounts since last year And our international growth of 26.2% compared to the same period last year reflect continuous strong momentum in CAVT products. Revenue from embolization and access business was $95,900,000 in the Q2 of 2024, a decline of 3.1% reported and 3% in constant currency, primarily driven by an overall decline in international regions as we indicated at the beginning of the year.

Speaker 3

Non GAAP gross margin, operating expenses and operating income exclude amortization of acquired intangible assets of $2,400,000 in the Q2 of 20242023 respectively and a $110,300,000 impairment of our immersive healthcare business in the Q2 of 2024. Adjusted EBITDA excludes the impairment expenses of $110,300,000 and stock compensation, depreciation and amortization benefit from income taxes and interest income expenses of $3,800,000 Gross margin for the Q2 of 2024 is 65.5 percent compared to 63.8% for the Q2 of 2023. We delivered 170 basis point improvements driven by favorable thrombectomy product mix across all regions and productivity improvements. We expect steady improvements in the second half of the year and are on track to deliver 100 to 150 basis point gross margin expansion in 2024. Total operating expense for the quarter was $164,500,000 or 54.9 percent of revenue compared to $146,600,000 or 56.1 percent of revenue for the same quarter last year.

Speaker 3

Our research and development expenses for Q2, 2024 were $24,900,000 compared to $21,500,000 for Q2 2023. SG and A expenses for Q2 2024 were $139,600,000 or 46.6 percent of revenue compared to $125,100,000 or 47.8 percent of revenue for Q2 2023. We recorded operating income of $31,700,000 or 10.6 percent of revenue in the Q2 of 2024 compared to an operating income of $20,300,000 or 7.8 percent of revenue for the same period last year. As Adam discussed in our strategic move for immersive healthcare, we expect to reduce over $20,000,000 in ongoing operating expense and save over $20,000,000 in cash over the next 12 months. This will contribute to our operating margin expansion in 2025.

Speaker 3

We posted adjusted EBITDA of $46,300,000 or 15.5 percent of total revenue compared to 14.6 percent in the Q2 of last year. Turning to cash flow and balance sheet. We ended the 2nd quarter with cash, cash equivalents and marketable securities balance of $339,700,000 and no debt, an increase of $26,200,000 driven by operational profitability and improvements in working capital turns. We continue to expect operating cash flow trends for the rest of 2024. And now, I'd like to turn the call over to Jason to discuss our guidance.

Speaker 4

Thank you, Maggie. Our updated guidance range for 2024 includes total revenue of $1,180,000,000 to $1,200,000,000 which is a reduction of $60,000,000 at the midpoint from our previous guidance range. The $60,000,000 change in guidance comes from 4 distinct components impacting our revenue in the second half of the year: $20,000,000 reduction to our business in China due to much more challenging economic backdrop for medical devices in the near term, dollars 15,000,000 from our European business primarily as a result of a slight delay to our expected launch timing of Flash and Volt 7 CAVT products in Europe, $5,000,000 in revenue from our immersive healthcare business due to our strategic move, and approximately $20,000,000 change to our guidance for U. S. Thrombectomy growth for full year 2024 which is now expected to be 23% to 25% year over year compared to 2023.

Speaker 4

This change aligns with our new guidance philosophy. We continue to expect non GAAP gross margin expansion in the range of 100 to 150 basis points in 2024 compared to full year 2023. We also continue to expect non GAAP operating margin expansion of 100 to 200 basis points in 2024 with the timing of the reduction of immersive healthcare expenses being a primary driver of where we will land relative to this range. I will wrap up our prepared remarks there to allow ample time for Q and A. We look forward to your questions.

Speaker 4

Operator, we can now open the call to questions.

Speaker 5

Thank you.

Operator

Our first question comes from the line of Michael Sarcone with Jefferies. Your line is live.

Speaker 6

Good afternoon and thanks for taking the question. Just to start, do you think maybe you could delve a little bit more into kind of the new guidance philosophy that you mentioned? Jason, I know Adam, you also mentioned kind of you're taking a more conservative tack. But would love if you could flesh that out a little bit more for us. And really just curious about kind of the moving pieces that got you from U.

Speaker 6

S. Thrombectomy plus 27 to 30 to down 23 to 25. Percent?

Speaker 2

Yes. Thank you, Michael, for the questions, Adam. Look, we've over the course of the almost 10 years, not quite that we've been a public company, we've obviously evolved a great deal from the kind of what we sold. We started out focusing just on stroke and expanded pretty dramatically, almost the size of the company over that time. And by definition, it's time obviously for our guidance philosophy to expand and grow with that.

Speaker 2

When we were a much smaller company, guiding was a lot easier. There was very few moving parts. And we did a pretty credible job of guiding based on what we knew we could achieve. I think we're at a point now where there are a lot of variables. We've obviously heard the market talk about that and how we guide and we wanted to build a little bit more comfort into the way we guide.

Speaker 2

That being said, I'm not saying guides are now like layups, but we still have a lot of work to do every quarter to continue to grow the business at the rate we think we can grow. But I think it's an important acknowledgment and moment in our time to make sure that that's not the topic that we're talking about all the time. I think we've lost something in the story of the company when we're spending most of our time talking about our guide and not the extraordinary strength of the innovation that has brought us here with products that have totally transformed the way thrombectomy works. That's the story of the company. That's the success that we have.

Speaker 2

That's our future, And it's time we don't spend a lot of time talking about the guiding philosophy of our company, more the innovation and the extraordinary road ahead we have through this year into 2025 beyond.

Speaker 6

Understood. Thanks, Adam. And just my follow-up figured out at Trifer, you talked about some of the tougher comps that you're facing this year. When we look to 2025, particularly on U. S.

Speaker 6

Thrombectomy, do you think you could talk about either quantitatively what we might see versus 24 for U. S. Thrombectomy growth? Or if not qualitatively, what are kind of the key moving pieces for that trajectory? Thank you.

Speaker 2

Yes. Well, first of all, I absolutely appreciate the question. And I don't think you would expect me to potentially make maybe the mistake I made in 2024 by answering that with a quantitative answer. So I will respectfully decline. But I will tell you what we did, what we have looking forward to and I alluded to this a little bit in the prepared remarks.

Speaker 2

There are things about 2025 that are a little different. First of all, we don't have some of the same transient headwinds that we talked about on the last quarter's call and we reiterated on this related to the MBO and Access business and exiting some of those markets that will be we'll anniversary that, that will be behind us. There's some issues with China that we've talked about in the past on the last call. We highlighted again with a particular number this time. That will be behind us.

Speaker 2

And then we will have the benefit of new product launches that we've talked about in terms of new products in the U. S, but also in Europe with Flash 2.0 and Lightning Bolt coming. So, there's a lot to look forward to in the back half of this year, but there's also, I think, a lot to look forward to in 2025. And again, I'm not going to quantify that, but I can I hope you can hear that I think with 2024 and some of the things we're sort of working through this year to get past 2025 is going to be another really fun year for us?

Speaker 6

Got it. Figured I'd try. Thanks, Ed.

Speaker 2

Thank you. I appreciate that.

Operator

Thanks for your question. Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Speaker 7

Hey, this is Phil on for Matt. Thanks for taking our questions. And I guess for starters on U. S. Thrombectomy, how should we think about, call it, the 20% growth for the second half of the year in the context of the rest of the market?

Speaker 7

Understanding you're lapping some difficult comps, but is this more on just your general shift to the conservative guidance philosophy? And I guess more acutely, any further commentary on some incremental competitive pressures?

Speaker 2

Yes. I think what we were talking about on our guidance was pretty clear. If you look at what we just did this quarter, we're extraordinary leap route of that. Let's start and sort of go through it. Our stroke business, which is now pretty mature, still grew 19% year over year.

Speaker 2

So I hope people understand that that is a position of strength, that is not what other companies that we compete against. As you remember, there's something like 30 some odd catheters in the market we compete against. To do that is pretty significant. And the feeling and the mood and the morale at the S and AS meeting just last week was, you know, I've been going to that meeting, I think, 21 years, and I've never seen it around our technology and our success. It was a lot of fun to be at S and IS this year.

Speaker 2

So that's on the stroke side. On VTE, what I said is we grew in the high end of our pre stated range. So that's in the very high 20% range. Obviously, that meant we took share and the market grew significantly. That's a great setup for the back half of the year when we have full quarters with Flash 2.0 and we really move into this next phase.

Speaker 2

And again, the feedback I laid out, not only on the speed of the cases, which is really the first thing people recognize, and then, some of the issues around safety and performance that that I highlighted in prepared remarks. And then, then we also have Arterial, which grew way above that range. And that's a year into the launch. So that's coming up against the launch quarter comparing to, and we still did really, really well. So I think we're really set up again for an extraordinary rest of this year, but into a really great 2025.

Speaker 2

And we might have just gotten ahead of ourselves a little bit. It's pretty hard not to when you get the kind of feedback we get every day from customers. And and and, you know, that's on me personally. Obviously, I take that responsibility, but it really doesn't have an impact in the underlying success and innovation and performance of our company right now.

Speaker 7

That's helpful. Thank you. And then I just have a quick follow-up on the solid U. S. Thrombectomy growth in Q2.

Speaker 7

As we start to lap some of the ASP mix benefits, can you help parse out the underlying volumes, how those trended in the quarter and your expectations for the rest of the year?

Speaker 2

Yes. In those in our thrombectomy business, the underlying volumes are all up in correlation to the numbers that I was talking about. As you know, we've anniversaried a lot of the price aspect. So at this point, it's the vast majority is solely volume and unit based and that will continue obviously going forward.

Speaker 4

Yes, this is Jason just adding to that. We get asked a lot about that with respect to our VTE business. And indeed, the entirety of the growth this quarter year over year was increasing cases or unit volume.

Speaker 7

Great to hear. Thanks so much.

Speaker 2

Thank you.

Operator

Thanks for your question. Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is live.

Speaker 5

Hi, it's Lei calling in for Larry. Thanks for taking the question. Your Q2 or U. S. Thrombectomy numbers came in stronger than we expected, up 25% -plus year over year.

Speaker 5

Can you just talk about what drove the

Speaker 8

growth rate?

Speaker 5

Was there anything one time? And related to that, if you can comment on outlook for OUS thrombectomy, I think you were looking for mid to high single digit growth for the year. What does that mean now given the delay in lightning bolt, lightning flash, but feature was strong? And if you can just comment generally about U. S.

Speaker 5

And OUS Embo and Access for the rest of the year if your growth outlook has changed for any of those segments?

Speaker 2

All right. So great question. The way I interpret it is we're going to talk about our thrombectomy business worldwide and our M bone access business worldwide. So let me try to make the the best of that. Our our OUS, thrombectomy business was sort of inside the general range, give or take a little.

Speaker 2

There's nothing unique to call out about what happened this quarter. And again, going forward, we called out both China and then Europe. Europe is very clear, just so you know as we go forward, which is, we a slight delay in regulatory clearance of both Lightning Flash 2.0 and Lightning Bolt 7. Nothing about that has given us any indication at all that there's any issue with the approvals that they're not in jeopardy, and we fully expect them to launch later this year, just not with the same timeframe to generate that full amount of expected revenue. So that will again come to help that revenue is not lost obviously, it will just come to help more in 2025 and beyond.

Speaker 2

And in China, that business, as you know, we have 3 revenue streams there. We have licensing. We have royalties and distribution. And we're moving as we move from the licensing from our older generation products that are sort of labeled for local use, we're moving we have gotten approval for sort of more of our current flagship products that come with a higher price and given the economy and everything else that is not going to be as viable a revenue stream in the short term. But everything we've talked to, we have an incredible distributor a partner in China, they think that that likely will come back sometime next year and again will continue to be a valuable part of our business.

Speaker 2

Just as a level setting, China's sort of 2% or so of our business. It's not a substantial amount to put us at risk. As it relates to M bone Access, it's really related to our getting out of certain countries with both those product categories and moving through that this year. And again, without that as the comparable, we'll be in really good shape for growth in those markets. And again, just to finally call out the one thing, last quarter, there was discussion and obviously our Emblem Access business came slightly under the expected numbers.

Speaker 2

And this time we responded to the competitive threats and launches. And I got to tell you, I'm extremely proud of our team. It helps to have the best product in the market. It certainly helps to remind physicians that they always want to use the best product and I think that business is in really good shape moving forward.

Speaker 4

Yeah and Leigh just to add a little bit to what Adam said again echoing his comments about the comps in 2025 being much better. He mentioned that in China the economic conditions affect mostly our distribution and royalty streams of our business. And that is that $20,000,000 that I called out in my prepared remarks and that's about $10,000,000 per quarter. And if you couple that with the delay in the European CAVT launch, that will result in relative to the Q2 our OUS thrombectomy coming down sequentially about $10,000,000 from the second and then sort of flat into the 4th. Again, we'll benefit from all this as we turn into 2025, but that should give you a little bit more context.

Speaker 5

That's super helpful. If I can just sneak in one more. Jason, you mentioned the 100 to 200 basis points of operating margin improvement year over year and where you land depends on immersive health. I guess I'm a little surprised if the margin guidance doesn't change with the Immersive Health decision. The 100 to 200 basis point improvement was something we talked about earlier in the year.

Speaker 5

I assume the move in immersive health was not in those numbers to begin with.

Speaker 3

Yes, Leigh. This is Maggie. Thanks for the question. There's actually quite a few factors that affect our range of operating margin, especially with our updated revenue guidance that will have approximately $30,000,000 of reduced gross profit that the impact will pull through to the bottom line in the operating profit. But at the same time, I mean, given our first half of the year, we are more than 200 basis point operating margin expansion.

Speaker 3

So we are already in a good start. And then so it depends on the timing of the immersive healthcare savings in the second half of the year. This will give us a good range between 102 100 basis point expansion.

Speaker 5

That's helpful. Thank you so much.

Speaker 2

Yes. Thank you, Lai.

Operator

Our next question comes from the line of Pito Chickering with Deutsche Bank. Your line is live.

Speaker 9

Hey, good afternoon. Back short of the guidance question for U. S. Chemical arthrombectomy, there's the 24% growth rate still implies a pretty steep sequential growth for U. S.

Speaker 9

Arthrombectomy versus what we saw in 2Q. What gives you guys confidence you can get to that sequential growth sort of embedded within the guidance?

Speaker 4

So Peter, the 23% to 25% for U. S. Thrombectomy is an annual number. And so what that implies for the 3rd Q4 year over year growth respectively is about the same about 20% growth on a year over year basis.

Speaker 9

Right. So I guess let me ask about sequentially U. S, it grew $3,000,000 sequentially in 2Q. This 19% growth at the midpoint applies $6,000,000 growth in the 3rd quarter and then $9,000,000 in the 4th quarter. So pretty steep sequential ramps.

Speaker 9

I guess, what gives you guys the confidence that you can get to that growth rate?

Speaker 2

Yes. This is Adam. I mean, on the prepared remarks, we laid out how the first of our new products are doing Flash 2.0 and what we're seeing with that. So now we are not just guessing. We have a half plus of a quarter, 6 weeks plus to really understand how that's going.

Speaker 2

We did not put a lot of revenue on the other new products for obvious reasons because we don't totally control the regulatory process. But obviously that's not impossible. One of them is under submission and it's not possible it can add to it. When you add that up and add the level of discussion around the speed of Flash, the success with Lightning Bolt on the arterial side, some of the safety issues I brought up. I think the momentum is clearly on our side.

Speaker 2

I think you can see that obviously today in a broader review of the field and the market. We're in the driver's seat on this now. And I think that's crystal clear. And I think that the new numbers, obviously are we wouldn't have put them out and not thought they were very doable.

Speaker 9

Okay, great. And then a question on 25%, and I understand that we're not going to give guidance here, but your sort of 3rd, Q4 growth rates are applying 10%. You talked about the transient issues, the China comping out and new launches. Is it fair to still think about an acceleration from the 10% exit rate into 2025?

Speaker 2

So again, I'm going to stick with my more qualitative language and not actually use the terms that you just said or quantify them for obvious reasons and I please hope you will respect that and indulge me. But yes, you obviously understood the point of what 2025 looks like through my qualitative discussion.

Speaker 9

Great. Thanks so much.

Operator

Our next question comes from the line of Robbie Marcus with JPMorgan. Your line is live.

Speaker 8

Hi. This is Alan on for Robbie.

Operator

I had one question and then

Speaker 8

a quick follow-up. I hate to belabor it, but kind of just looking at the back half guide, right, the kind of paraphrase your new guidance, it does. It sounds like you're talking to a range that you feel like should be conservative and should be achievable. So when we think about how you get to maybe the guidance range that you had previously, right, if we're talking about potentially outperforming that, What really gets you there? And are there any market dynamics you would call out that led to you to take a bit of a more conservative route on the guide this quarter?

Speaker 2

Yes, it's a really good question. There aren't anything new or unexpected in the market. And I think if you look at our if you just focus, for example, on VTE, we did better than anyone else. We did really well this quarter. Obviously, Arterial is a little bit different dynamic.

Speaker 2

We're not competing really with other companies and products, but sort of decades of tradition around treatment. And then stroke continued to do well with a crowded field. Those are the positive dynamics that have played out now. And really will we think will continue to play out throughout the quarter. What I said earlier is, given the success of where we are, given the strength in our innovation, given the continued innovation coming, it just seemed to not make sense that we would be spending all of our time talking about our guidance and our justification for our guidance.

Speaker 2

Let's just spend our time performing and putting up the kind of numbers that we just described. So that's really the point more than anything. And I know more than anything that you guys appreciate that and respect it. So now we get to work and that's where we're in our best spot when we're out in the field doing the work, talking about the success of the products, the safety element of the products and it's more important than ever right now that we have those conversations.

Speaker 8

Got it. And then just a quick follow-up is, again, to kind of maybe get to some upside, how should we think about the you talked about how you had some competitive dynamics that surfaced in the quarter in response to the new launch? At least relative to our expectations, it looks like U. S. Thymectomy still good year over year growth, but definitely it looks like it slowed down a little bit sequentially.

Speaker 8

So when we think about the potential for those competitive dynamics to continue into the back half And even for your new product launches that you have benefiting you in 2025, the potential for high end competitive dynamics, How do you plan to work through those going forward? Thank you.

Speaker 2

Yes. Look, I want to make sure when we talk about competitive dynamics, we've always competed. And obviously, you guys have covered us since we went public and we competed against some of the biggest best companies in medtech and in stroke and we emerged obviously in a pretty good spot. So we're not this was not unexpected. I think the only thing that may be unexpected was the tactics given the circumstances.

Speaker 2

I think we were a little surprised at some of those tactics. I'm not sure that it made sense, but that's okay. We're used to that. I think the other thing that changed that on the other side of the ledger is the level of interest, the level of conversations physicians are having. Physicians are initiating, not us, we're not talking about this around the safety elements, particularly around cardiac decompensation, particularly around putting in compromised blood.

Speaker 2

Those are conversations that are happening with physicians all over the place. And I think that's great because it's information that we knew about, but it wasn't really our place to talk about other people's products. And now physicians are doing it, not us. And I think that is great for the field in the long run because obviously the field needs to grow and it's only going to grow if you're using safe products. So I think it puts us in the field in a really good spot going forward.

Operator

Thanks for your questions.

Speaker 2

Thank you.

Operator

Our next question is from the line of Richard Newitter with Truist Securities. Your line is live.

Speaker 10

Great. Thanks for taking the questions. Maybe to start off, with respect to the U. S. Thrombectomy business, I'm just looking at the components that we have modeled.

Speaker 10

Obviously, venous is growing faster in the U. S. Thrombectomy than neuro, but neuro is really posting some nice performance in the first half, 27% 1Q, 90% 2Q. That's above what we were thinking. I guess the question here is, should we be thinking about the components of the U.

Speaker 10

S. Thrombectomy being a little more maybe driven relative to your thoughts heading into the year with a boost up for U. S. Neuro thrombectomy. And that maybe to get to the earlier question of sequential growth, that buoyes the sequential growth pattern a little bit into the back half and that allows the Venus maybe to come down a little bit, but you still are able to get to that healthy 23% to 25%?

Speaker 2

Yes. To give you answers to that like detailed modeling question is is not something I can do right now. I I can tell you qualitatively, our again, sort of going through it, the momentum we have with Flash 2.0 and VTE is great. I don't expect that momentum to abate. So that's just a qualitative answer.

Speaker 2

The success of our Arterial franchise with Lightning Bolt, obviously you've seen the numbers now, it's done incredibly well. I don't have the exact number, but I think we've done over 20,000 cases with lightning bolt, 7 technology, which by the way is very similar technology, almost identical to what we're using with Thunderbolt. So it bodes really well for when Thunderbolt comes, obviously. But to speak to specifically the success of Neuro, we have we're pretty proud of our products. We've done a really good job.

Speaker 2

I alluded to the feeling at S and IS. There was, again, a year or 2 where we had a ton of competitors and everyone was coming, 30 some odd catheters, all these large catheters, this and that. And I think that moment has now passed. People are coming back to the best products. They've tried stuff, they know what works best.

Speaker 2

And I think that sets us up again for some real success going forward. And then the setup for Thunderbolt is exactly what I had hoped for, which is the more and more people are using our catheter, the easier it is to launch Thunderbolt, because Thunderbolt then is just an add on. We don't have to convince them to switch catheters. So again, I can't totally predict exactly the future, but I like our chances. The setup is really good for us.

Speaker 4

And, Rich, just to

Speaker 6

add

Speaker 4

just to add to that as well. So, and what's implicit in our updated guidance is, a trend because we don't guide by category of U. S. Thrombectomy, but just qualitatively help is, a similar pattern to what we've seen in the first half

Speaker 9

of the year, where VTE and arterial are expected to grow above that range, stroke close to it and coronary likely in the double digits, but low double digits.

Speaker 10

Okay. Thank you for that, Jason. And then just going back to the competitive dynamic questions that you talked to in Venus. I'm trying to just understand what the underlying market rate is and kind of where you are relative to that rate? And did you just gain a little less share?

Speaker 10

I understand it's not always going to be linear. And do you feel good in the 1st few weeks of 3Q that you're back on a share gain trajectory that you were on? What's the message that we should be taking around competition, underlying market growth and kind of where you were and where you're going?

Speaker 2

Well, listen, I mean, obviously in Q1, the market grew well and was healthy and we also took share. We are I'm at a touch of a disadvantage because the our BT competitor is having their call at the exact same time. So, you know, I I can't tell you all the details of their number at this point, but from the headline that I seem to get right before we went on to this call, we again, the market grew and we took share. And so as long as those two things are happening, the first is critical that the market is growing and the second is equally critical that we're taking share 2 quarters in a row. Now we're going to have a couple of full quarters of Lightning Flash 2.0.

Speaker 2

I think it really sets us up again for a really good continued improvement in share as well as market growth.

Speaker 10

Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Bill Plavonic with Canaccord Genuity. Your line is live.

Speaker 8

Hey, it's Zachary on for Bill. Thanks for taking the question. To dive a little more on the coronary performance, I know you just touched on it briefly there, but can you provide any incremental details on the growth? Do you think you'll need to conduct another trial to drive that?

Speaker 2

Yes, that's a good question. So and we haven't spent a lot of time talking about the coronary space. As you remember, we don't have CAVT in the coronary. And I think if you remember, the trial that we did run showed a case time of around 1 minute for the product sort of being in the body. Hard to get faster than that.

Speaker 2

So the product already works. Coronary clots, mostly different. There are some exceptions, and there's a small category cases where it's a little harder to get out and maybe having a CVT product, but it's a small number comparatively. So really, you're looking at a dynamic where you're seeing steady sort of movement toward our product because obviously it works incredibly well, but it's just a different animal. And the question that you're asking is would that work better, would we get more share if we ran a randomized trial that could affect guidelines?

Speaker 2

We've looked at that. We had talked about that a few years ago. I think you remember that. The decision around the cost trade off of that, that product again doesn't use ABT. It's a it doesn't have its own reimbursement.

Speaker 2

It's sort of tucked into procedural reimbursement. We made a decision that wasn't a logical thing to do, but we constantly look at that issue and if it changes or there are elements of that decision that change, we would potentially make a different decision. But right now, if you think about the benefit that we can have to patients, the benefit is in the vascular beds, VTE, PE, arterial and stroke, where CAVT will be front and center. The reimbursement's unique and separate. And I think that's where we can have the biggest impact.

Speaker 2

So that's where our focus is going to be in the short term. That being said, cataracts, which is the product for coronary is still an extraordinary product and those who use it, it remains tied as one of the stickiest products with our new CABT products of anything we've ever done.

Speaker 8

Great. Thank you very much. And just as a follow-up, is there any update that you can provide on the Thunder study?

Speaker 2

Well, I sort of did. In my prepared remarks, Doctor. Fiorella did a great job of summarizing the trial and the design and the technology, showed some cases. So I think we're very excited. I'm going to not give particularly commentary around timing.

Speaker 2

I obviously, particularly with the Thunder study, have made that mistake in the past as well. So I'm going to be disciplined, which is kind of an awesome thing to not give you an update. But I think if you listen to my words particularly, you would get a sense of my excitement about it.

Speaker 8

Thank you very much.

Operator

Thanks for your question.

Speaker 2

Thanks.

Operator

We have a final question from the line of Margaret Kaczor Andrew from William Blair. Your line is live.

Speaker 11

Hi, everyone. This is Macaulay on for Margaret. Thanks for taking our question. So one on margins, you obviously reiterated the gross and operating guide for this year. Wondering if you could kind of help bridge the gap towards the 70% longer term gross margin, which kind of put it around that first half twenty twenty six timeframe.

Speaker 11

Should we think of that as expedited now that the decision with the immersive healthcare exit? And what could we see within leverage, specifically within that OpEx that you mentioned in the prepared remarks?

Speaker 3

Thanks for the question. For gross margin, the decision on immersive healthcare will have minimal impact on our gross margin. But since the last few quarters since we launch of CABD, we have seen quite a gradual expansion on our gross margin due to product mix. So we expect in the near term to continue to see that trend. But then I'm also very pleased to see that our operation team actually continue to execute and improve on their manufacturing process.

Speaker 3

So, I think in the longer term, it will allow us to achieve a larger scale cost improvement to take us to the 70% plus target. In terms of operating expense, as I discussed in the remarks, within the next 12 months, we'll see more than $20,000,000 of savings, operating savings for the immersive healthcare business.

Speaker 11

Got it. And then if I could add one more real quick. I know you mentioned the competitive dynamics weren't necessarily different and you've gone through similar dynamics in stroke. So what steps, I guess, have you taken more recently within that thrombectomy kind of competitive dynamics in BT overall? Is it more about being aggressive with the new sales force or more about the continuous generation of the clinical data that you expect to produce?

Speaker 2

Yes, I think it's a fair question. Obviously, some of what we're doing, I'm not going to announce, you know, on a call, so that, you know, we're alerting our competitors to what we're doing. And I know that you would appreciate and understand that. I think it really comes down to allowing and engaging with customers around what is happening, what are people doing, what are the products actually doing. And I think when you do that, and again, we've not always done that, but I think doors open.

Speaker 2

And for people who have been really pretty adamant that they're fine with what they use a year ago to see their openness now to using Flash 2.0 and then their openness to talk about the benefit of 2.0 in comparison, that's the most heartening thing. And I think that's given us the ability to really go after business everywhere versus we have our accounts, somebody else has their accounts. I think it's permission. And I think if you were to do work in the field and talk to folks, like that's happening. It's happening everywhere.

Speaker 2

And you can talk to former reps, everything, the mood, the morale is clearly moving in our direction. And that's because at the end of the day, and look, competition isn't so much about tactics. You can have them, they don't always work. It's always about having the best products in the field. At the end of the day, I will tell you honestly, 20 some odd years of doing this, I've always known that physicians ultimately use the best product.

Speaker 2

And for that, that's how you compete. You have the best products and you're not shy about talking about them and educating people about them. And that's the winning strategy. And it's gotten us this far for 20 years and that's what we're going to do going forward.

Speaker 11

Very helpful. Thanks again for fitting us then.

Operator

Thank you for your questions. And with that, Ms. Furlong, I'll turn the call back over to you.

Speaker 1

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 Q3 call.

Earnings Conference Call
Penumbra Q2 2024
00:00 / 00:00