Good afternoon. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's First Quarter 2019 Conference Call. [Operator instructions] Thank you. I would now like to introduce Mr. Dan Wilson, Director and Head of Business Development for Penumbra. Mr. Wilson, you may begin your conference.

Thank you, Emily. And thank you all for joining us on today's call to discuss Penumbra's Earnings Release for the First Quarter 2019. 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-Q for the quarter ended March 31, 2019, which will be filed with the SEC on May 7, 2019, as well as those described in our 10-K for the year ended December 31, 2018, which was filed with the SEC on February 26, 2019. 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-Q and 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. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted press release. We anticipate that prepared comments on today's call will run approximately 12 minutes. Adam Elsesser, Penumbra's Chairman and CEO will provide a business update; and then Sri Kosaraju, our CFO and Head of Strategy, will discuss our financial results for the quarter. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Dan. Good afternoon and thank you for joining Penumbra's First Quarter 2019 Conference Call. Our total revenues for the first quarter were $128.4 million, an increase of 25.1% as reported and 27.2% in constant currency from the first quarter last year. We had operating income in the quarter of $11.2 million compared to $4 million for the same period last year. 2019 began with great momentum across our entire business. We saw strong sequential revenue growth over the fourth quarter of 2018. This growth is being driven by our ability to treat a growing number of patients in large patient end markets and our ability to continuously innovate within our existing areas such as stroke and vascular thrombectomy, as well as within new areas. I will share a few updates and developments from the first quarter, focusing on these themes. Beginning with our patient end markets, our primary discussion with investors, over the past 4 years, has been on ischemic stroke. We have detailed the impact of the disease on patients across the world. We also outlined our views on how we saw the future opportunity in terms of the addressable patients, the expected growth of patients treated and the likely role of aspiration in the procedure. 4 years later, we are here talking about a larger addressable patient population, faster growth in patients treated and the validation of aspiration as the preferred frontline mechanism for stroke thrombectomy. There has been great progress, and we believe the foundation is set for continued growth. We are now on the process of introducing a second meaningful patient end market for Penumbra. Recently, investors have taken notice of the results in our vascular business. We have learned a lot over the past few years about the disease states and the potential…

Thank you, Adam. For the first quarter ended March 31, 2019, our total revenues were $128.4 million, an increase of 25.1% reported and 27.2% in constant currency compared to the first quarter of 2018. Our geographic mix of sales in the quarter were 64%, U.S. and 36%, International. Neuro and vascular represented 63% and 37% of sales, respectively. In the quarter, we saw very strong momentum across our entire business demonstrated by strong sequential growth and strong year-over-year growth despite difficult comparables. Revenue from our neuro business grew to $81.5 million in the first quarter of 2019, an increase of 14.1% reported and 16.5% in constant currency compared to the same period a year ago. Our neuro growth was primarily driven by sales of our Penumbra system for ischemic stroke where we saw a strong sequential growth. Within the United States, our sense is that the ischemic stroke market is growing according to our expectations and that physician preference for frontline aspiration continues to grow. The COMPASS trial in recent publication validate this strength. Outside of the United States, we saw strong growth as well. And as a reminder, our results can vary on a quarterly basis as we enter new geographies. Revenue from our vascular business grew to $47 million in the first quarter of 2019, an increase of 50.2% reported and 51.8% in constant currency compared to the same period last year. In the quarter, our vascular growth was driven by results from both our thrombectomy and embolization businesses. We are increasingly encouraged by the future long-term growth potential of this business. As a reminder, our growth accelerated, beginning in the second quarter of last year, with the addition of new customers and the introduction of new products. Our gross margin in the quarter was 65.3% of revenues…

Thank you, Sri. Normally, we would end of our remarks by highlighting a particular patient story, as an acknowledgment to everyone, including the Penumbra team, of the critical importance of the work we do every day. This quarter, I would like to slightly alter that tradition and instead end our remarks by highlighting the physicians who are on the front lines of the significant change taking place, removing blood clot in the peripheral arteries and veins. I spent the last several weeks traveling with our commercial team throughout the United States meeting with physicians. We learned a great deal from them about their practices and the challenges they face. We've also been able to share our vision of how we are trying to shift the paradigm regarding blood clot in the body. I would like to share a representative story from a few weeks ago. We visited a physician in the Hartland who had not yet used our Indigo System for clot removal. His approach was to use older legacy tools and techniques. Our commercial team recently approached him and began to share how Penumbra's approach could change his practice over time. Following that work, I joined our team in discussing with him, our long-term ambition in this area. After careful deliberation, he agreed to consider our approach. Soon after these discussions, he asked our team to come to the hospital because he was treating a teenage girl with a very complex issue in her veins. In his first case using Indigo System, he was able to successfully remove the clot and resolve the symptoms. The result was great for this young girl, but it also represented the start of new opportunity for this physician and his practice. This illustrates how our amazing team is tackling this challenge and the opportunity to fundamentally change the paradigm of treatment. Thank you for your attention on this call, and we look forward to further update on our progress. We would now like to open the call for questions. Thank you.

[Operator Instructions] Your first question comes from the line of Robbie Marcus with JPMorgan.

Great and congrats on the good quarter. So maybe I'll just -- couple of my two questions here. First, there was a lot of noise out in the market about competition coming from your competitors in the first quarter. Doesn't look like we've seen it yet. In the first quarter, you've put up really good numbers in neurovascular. So maybe talk about what you're seeing out in the market. And then second follow-up question. In peripheral vascular, you made the comment that the ischemic stroke is 4 years ago. This is a market I think people are -- understand a little less and there's no big clinical catalyst coming. So help us understand why you made that statement and how do we get it to where stroke is today?

Great. Well, thanks Robbie for both those questions. Let me start with the first question around competition in the stroke market. Really, I think there are three sort of points to make here. The first, we have not seen really or experienced any competitive activity that we haven't seen during the last three years or that was really unexpected by us. But there is, I think, a little bit different dynamic here sort of, if you will, a potential benefit to this round of competition that is actually very helpful to Penumbra. Right now there are so many aspiration systems out there from big companies and small companies, and that has really validated what we have said for a long time, that aspiration is the primary frontline tool. And I think the market now has embraced that. They know that because everyone has joined that market. So this for us has been really helpful because as you know, we've never had 100% market share in the stroke market. And this allows us the chance to go educate new customers on our devices that we haven't been able to do before. That's sort of the first point. The second is we're saying that we feel really good about where we are right now in terms of our place in the market in a competitive way, but we're also extremely confident about where we will lead the market in the next several years. And then finally, and this might be the most important point, when you take our incredible stroke franchise that we're obviously very proud on, you add it to our faster-growing vascular business and then you add some of the new opportunities that one of which we talked about today, Penumbra as a company is really well positioned for growth…

Your next question comes from the line of Bob Hopkins with Bank of America Merrill Lynch. Your line is open.

Can you hear me okay?

Yes.

So, Adam, you don't often proactively talk about your pipeline, and I heard something on the stroke side that I wanted to get a little bit more color on because you talked about fundamentally reshaping the market, and you talked about new technology launches coming this year and next year. So I was wondering if you could just develop those comments a little bit more for us because they obviously sound pretty interesting.

No. I always like my one-word answers with you. Listen, it's not actually a new comment other than putting out a little bit of a time frame. When we launched Penumbra JET Engine, we went, I think out of our way to say we renamed the sort of series, if you will. And every time we do that, it's the beginning of what will be a series of new things coming, not a one-off product. And by putting a time frame out there, it obviously -- it's simply sort of giving you guys a sense of our confidence of where we are between this year and next. And there's a long -- there's a lot of work to still be done. We aren't yet at a point where treating stroke is just so benign and easy that it's sort of an expected thing that we can remove clot in every patient easily. But that's where we have to keep heading and that's where our -- just constant work and innovation and our team, I really want to give a shout out to the -- what we call the Pengineers. They've never given up, and they have just continued to do things that really have never been done, never thought was possible. And we're just getting closer to it and have a higher confidence than ever before that we can do that.

Sure. These new -- maybe I'll try Sri. So are these new relative to the guidance? Are these incremental to the guidance? Or these things were contemplated at the beginning of the year?

Yes. I -- Bob, we -- our sort of historical approach in the guidance is to update it based on everything that we know at the time. And as you know, we try not to go into a lot of specific detail about specific areas, products or geographies. But I guess the fair thing to say is it's updated based on sort of everything as we sit here today that we know.

Okay. And then lastly, Adam, you also talked with peripheral and Indigo with some sort of new confidence in kind of quantifying the market opportunity. Or at least that's what I thought I heard. So is there an update to how you guys are thinking about the market opportunity for Indigo, specifically? And I hear you on the 1 million patients, but I'm just -- sounded like something a little bit more specific as it related to Indigo in terms of how you think about the market opportunity?

So maybe just something on the market sizing, and Adam can jump in on this as well. But I think most of the industries are used to hearing us talk about the incidents that the 1 million patients that Adam referenced in the United States and the treatable patients of 150,000, which is somewhat analogous to how we describe the addressable market on the stroke side. But I think what we said, pretty more directly in this call, was we see the visibility and being able to grow the opportunity where Indigo can be used. We see as a strong likelihood and with greater visibility so the opportunity to be in greater markets for that number to grow, I think is an opportunity for us that could benefit Indigo and our results. And the second thing is we mentioned that we feel like we're only in 10% of that initial addressable market. And naturally as that market gets bigger, we'll be a smaller percentage. So the opportunity to kind of penetrate that market, and we talked about all the ways in which you do that and the catalysts, whether it's on the technology side or clinical data side, those are the two opportunities that give us a great deal of confidence that there's some pretty long-term sustainable growth for us to have in that part of the business.

Your next question comes from the line of Larry Biegelsen with Wells Fargo.

One on stroke, one on the new REAL System. So it looks like you had a pretty big acceleration in neuro on a stack two year basis in Q1. So my question is, was that driven by U.S. or OUS? I remember in Q4, you said the U.S. market grew by over 30% for stroke and International was relatively, well, flattish. I think you could back into that. So I'm just curious how those 2 trended in Q1? And on the stroke market, I think you had guided -- your guidance assumed only about 5,000 new cases in 2019 versus 8,000 to 10,000 last year. Has anything changed? And you're thinking about the stroke market growth for 2019? I had one follow up.

Sure. Larry, those are great clarifying questions. On the neuro side of the business, I think as you look at this against last quarter, and I think the thing that becomes somewhat challenging for folks who tend to look at this on a year-over-year basis, the comps, and even last quarter when we talked about the dynamics in Japan make it hard sometimes to look at that. But if you just look sequentially from last quarter, the neuro business grew 10%. And we saw, and I mentioned in my commentary, strong sequential growth on the stroke side. The comment that we also made, we said the feelings about how the stroke business is in the United States but also the comments about how it is outside of the United States. We're confident in the opportunity, and we think there's a lot of runway outside the United States for us. As you now, stroke is a global disease. And we're just entering some parts of the world newly. And in much of those areas, those are with a little bit of a different commercial model too, that being working with distributor partners. So where you see us entering a new geography, where you see us launching new products, both with distributors like we did in Japan, you're going to see some variability. The International results, you could tell last quarter, looked a little bit lighter than previously. This quarter, you can tell, are stronger and what we're saying is there's some variability to that, and particularly as we go into Q2 as well. So that's I think some help on sort of the dynamics if you look at the U.S. or outside of the U.S. and a little more pointed commentary around what to expect. On the stroke side, you're absolutely right. Last quarter, we talked about our guidance reflecting an expectation. We said it was around 6000 or 7000 patient -- additional patients treated in 2019 over 2018. And that's simply just looking at sort of the last -- an average of the last 3 years of patient growth that we've seen. So that's what's reflective in our guidance and what we continue to believe and what we are currently reflecting in our updated guidance today.

Thank you. And then on the REAL Immersive System. Adam, you commented on that earlier. I guess my question is, Adam, any color you can provide on the business model? I mean it seems like a significant opportunity, but at this point, it's hard to give you any credit for it today. I mean, could this be as big, for example, as neuro or vascular over time? Any color would be helpful. Thank you.

That's a great question, and I give you credit for tempting me to answer in sort of a more detailed way than I really am prepared to do now. I will just point. The answer is if you measure the number of patients we can help and we said that -- I said that in my prepared remarks, we can help an awful lot of patients when you look at all of neuro rehab, it really touches people into the millions a year. And so that by definition matters and it is a significant effort and journey for us to do that. We want to be able to do that. So if we just stay with that way of talking about it, I think you will understand how important it is for those people that we can help. In terms of trying to quantify it in dollars and all that, it is just premature, and we will promise, we will do that later this year.

Thanks for taking the questions, guys.

Thanks Larry. Thank you.

[Operator Instructions] Your next question comes from the line of Jason Mills with Canaccord Genuity. Your line is open.

Thank you Sri and Adam. Can you hear me okay?

Yes. Hi Jason.

Good afternoon. How are you? I wanted to start with peripheral thrombectomy. So I'm going to do my best at making a simple question hard because that's just my thing. But you have a market or business that's doubled in two years. So 72% -- 35% growth, but you've accelerated that in the last year. At a physician level, you've talked a lot about triazine and the development of the market in stroke. What's going on in taking the flight out of the peripheral veins and arteries at a customer level that might explain this acceleration? And what are you doing to exacerbate it due to the sales force? And you haven't given us granular detail there but maybe qualitatively you could talk about, what you're doing there? And to your previous question about data, what was clear -- 2015 that the stroke conference was the paradigm-changing data that changed stroke. Understand there is nothing in the pipeline right now but do you think that, that will be something that will drive market acceleration again at some point in the future? And what can we look for in that regard?

Jason, I think it's really good question. Let me try to just answer it sort of the -- just in sort of trying to describe what we've actually done, both in the field and with sort of how we think about the market. So we started out addressing and sort of focusing on the patients that were already getting intervened on. That's the sort of 150,000, roughly, patients that have some form of clot in their peripheral arteries or veins that are having some form of interventions that could be cathetered or directed lysis or some combination of our legacy tools or us. And that was the group that we started. They're already there. They're already being treated by a physician, either a interventional radiologist, a vascular surgeon or in some cases interventional cardiologist. And so we started sort of one group. The interventional radiologist, started working and last year with the vascular surgeons and obviously, now the interventional cardiologist. And we're just starting to educate them. It was sort of the representative story that I told. Somebody who hadn't used our product, who really spent the time with our team and then me to understand its benefits, its limitations, its techniques and then used it to great success on a really kind of a profoundly satisfying case with that teenage girl. So that's the effort that we've been doing. I think what you are hearing is two things. One is, our confidence in that effort and the sort of ability to continue to have those dialogues, continue to have those interactions and see the success that comes from that. And that's what you're seeing in our numbers, and that's what you're seeing in sort of our comments today. The other part that you talked about sort of with data is still relevant. We indicated that we think there is a possibility of expanding that 150,000 patients to be a much larger number. And that's going to have to come from data over time, and that is a really a cool opportunity, an important opportunity for us to take on, on top of the continued penetration of the 150,000. When you add both those together, there's just an awful lot of room for us to have success in this field, really, for a number of years ahead of us. And that's what you're hearing in our voice right now.

That's helpful. And then, I'm going to ask you about intracerebral hemorrhage because I care about it. You haven't talked about it much. It's another opportunity that you mentioned without mentioning it today, I think. But what struck me when -- at the ISC meeting or tree meeting in Hawaii were -- was the level of discussion about endoscopic techniques for evacuation. And clearly, you have an advanced effort there. And what also struck me is the -- it was just the position of the physicians that care and those that actually are doing stroke and many of them are seem to be stent-retriever people. So if you're helping them with ICH, and maybe you can give us an update on the trials. Maybe also talk about the leverage that you can bring to bear with respect to technology, not just in stroke, to Bob's question, but also in evacuation of ICH and its ability to augment over time their stroke business or am I overreaching there, which is entirely possible. Thanks.

It's a great question, Jason. So before I, sort of, talk about the relationship between the physicians doing this procedure and our products. Let me sort of address, ISC, the International Stroke Conference, and the trial, just to remind everyone the misty tree study was presented, it turned out not to be successful, but it wasn't using our product or technique but an older idea. And it showed though the one thing that if you remove enough of the clot, if you will, there's a better chance for patients to do better, which is really what our whole premise has been and don't use lytic, don't open up a big hole, do a minimal evasive approach and remove an awful lot of the clot. And so I think that trial opened the door for a lot of people to be confident in our approach, and what we think we can do with this group of patients. I think this will be different than the peripheral opportunity and that it does, I think require our trial to show that this is the right way to go. I don't have any specific updates on this call. We've announced in the past that trial's going to take several years, that hasn't changed in the couple of months since we last said that. So we're going to just do the hard work and hope that we can bring to bear something that will help this group of patients. As it relates to the neurosurgeons who also do endovascular work, who would do -- use Artemis for hemorrhage, there is some overlap. There is obviously lots of open neurosurgeons who don't do endovascular work, who aren't an overlap. It is certainly not impossible that as you spend time with one customer, they may not -- they may hear and understand our other approach, but it's not typically how we sort of think about things. We're -- we've remained pretty focused clinically on what we're doing, particularly when we're in a experimental study like the MIND trial, and we remain pretty serious about that. So I don't think that's something that we would look at and count on as a driver there. It doesn't mean we won't go to them separately on a different time and place and make sure that they're using the right tool for stroke.

And your last question comes from the line of Joanne Wuensch with Bank of America -- with BMO, sorry.

So, my first question is on CAT RX. I haven't heard much about it, if at all, during the call. Could you provide us an update on that launch? And then has that taken a backseat on the priority basis to the REAL System, that seems to be getting more attention lately?

Yes. It's a great question. I'm actually grateful you brought it up. So CAT RX is one of the three or four devices that make up the Indigo System. So when we talked about Indigo and removing clot, the CAT RX is part of that. And it is -- I think as we said, I think on the last call or maybe the one before, the product itself is performing incredibly well. The three physician groups or train type of physicians that use all of these products, our interventional radiologists, vascular surgeons and interventional cardiologists. So the CAT RX is a really important tool in its own right, in terms of removing clot from the coronary arteries, and there are an awful lot of patients that have it, that this tool has been very effective on. At the same time, it's also really helpful tool as we move into that third group of physicians that also do a lot of the peripheral work. So there is just a lot to cover, and we certainly didn't call out every product sort of by subcategory. But it has definitely been a well-received product and is part of our longer-term strategy that we're talking about in the vascular business. It is not at all taking a backseat to REAL. That's really a separate opportunity. And as I said on the call in my prepared remarks, we really have built a whole new team around that product so that we can do more than one thing at once. And there will be no effort lost on any of our current business because of REAL and what we're trying to accomplish there.

That's helpful. And then lastly for me, just an accountings question. Sri, you talked about the OUS neuro business, the results can vary on a quarterly basis. Was there any stocking that took place this quarter? Or anything else that we should be aware of as we look at the first quarter and second quarter or even just the quarterly cadence throughout the year?

The comment about variability in International, and we talked about moving into new geographies, and I think you've heard this commentary from us before about that and in some of these countries, we're working with distributors. So whether you call it -- it's really a function of them launching newly into a geography, and until we see that sort of normalize, you're going to see a couple of quarters that don't look even. Stocking is -- it sometimes is used interchangeably with that concept. But in the case of stroke, these are largely devices that we're selling that aren't sort of sitting on a shelf or consigned. So they are -- the usage is what we're going to start to see after a couple of quarters in some of these newer geographies that we enter. But there are new entries into new geographies that we're seeing in the first quarter.

That make sense. Thank you very much.

Thank you.

We have no further questions at this time. Mr. Wilson, I turn the call back over to you.

Thank you, Emily. 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.

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