Good afternoon. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's Second 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. [Operator Instructions] Thank you. I would like to introduce Ms. Jee Hamlyn-Harris, Investor Relations for Penumbra. Ms. Hamlyn-Harris, you may begin your conference.

Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the second 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. 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 year ended December 31, 2020 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-K previously mentioned, for a more complete review of these factors and other risks that may affect our future results or the market price of our stock, including, but not limited to, the impact of the COVID-19 pandemic on our business, results of operations and financial condition. 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 the prepared comments on today's call will run approximately 18 minutes. 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 second quarter; and Jason Mills, our Executive Vice President of Strategy, will discuss our updated 2021 guidance. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Jee and welcome back from your maternity leave. Good afternoon, everybody. Thank you for joining Penumbra's second quarter 2021 conference call. Our total revenues for the second quarter were $184.3 million, a year-over-year increase of 75.3% as reported and 72.7% in constant currency and a 9% sequential increase from the prior quarter. For the second quarter of 2021, we recorded operating income of $10.3 million or 6% of revenue, compared to an operating loss of $18 million during the same period last year. Both our Vascular and Neuro businesses performed well in the quarter driven by the breadth and robustness of our product portfolios, diligent work by our outstanding sales teams, as well as an uptick in our elective procedures likely caused both by the fact that COVID vaccination rates increased in some locations and the backlog of elective cases. We obviously are paying close attention to the current news about the spread of the Delta variant. However, we are not seeing a negative impact on our overall business and believe any future impact will not be different than any of our peers in this industry. Overall, notwithstanding the news, we are optimistic about our ability to help more and more patients and continue to see a lot of opportunities in our target markets to drive strong, durable growth over the coming years and we continue to see a strong symbiosis between our Thrombectomy and Embolization franchises in both Neuro and Vascular through which purposeful innovation in one area augments our presence in both. We also are adding great new people to the Penumbra team, both in our commercial organization, as well as in our senior leadership team. Starting first with our Vascular business, we reported growth of 117.6% year-over-year to 100.7 million in the second quarter. We…

Thank you for your patience. We will now resume the call.

All right, sorry guys. I really apologize. We had a malfunction over the phone here and I apologize. I'm going to start where I think we left off, which is further the breadth of our Neuro portfolio shine through again this quarter. Both our Embolization and Neuro Access portfolios had record quarters. The BMX96, which launched late last year continues to see increased adoption and utilization across the Neuro interventional field. In sum, our Neuro business continues to build back significant momentum, thanks to the same foundational elements that have made this team and the franchise, the best of its kind in the world for many years. Our focus on innovation that delivers better outcomes for patients, and a broad portfolio of unique products that help our physician customers treat more patients successfully. Our Neuro team is energized, engaged and prepared to deliver, and our innovation engine is running extraordinary well. In the near future we look forward to discussing our new paradigm in stroke intervention, Thunderbolt. Moving to our Virtual Reality business, we have made enormous progress with our REAL VR platform, and are increasingly optimistic this proprietary platform can help millions of patients across many different clinical and cognitive health care conditions. In order to help many distinct patient groups throughout the variety of healthcare settings, a few things are very important. First, proprietary VR technology that can deliver a fully immersive mobile experience for patients; second, a platform that is adaptable thus applicable to many distinct healthcare settings; third, a VR experience that can be customized for the needs of patients within each setting; and fourth, a purposeful engaging rich content library that meets the needs of patients in different settings, with different healthcare needs. With this in mind, we will be offering three hardware configurations in…

Thank you, Adam. Good afternoon everyone. Today, I will discuss the financial results for the second quarter 2021. Additional details will be contained within our quarterly reports on Form 10-Q. For the second quarter ended June 30 2021, our total revenues were $184.3 million, an increase of 75.3% reported and 72.7% in constant currency, compared to the second quarter of 2020. Our geographic mix of sales in the quarter were 69.7% U.S. and 30.3% international. U.S. and international reported growth of 64.5% and 106.4% respectively, compared to the same period in 2020. Moving to revenue by franchise. Revenue from our Vascular business grew to $100.7 million in the second quarter of 2021, an increase of 117.6% reported and 115.8% in constant currency, compared to the same period last year. Compared to prior quarter, revenue from our Vascular business grew by 12.9%, driven by strong performance in peripheral thrombectomy and increases in embolization procedure volume in the U.S. Revenue from our Neuro business was $83.6 million in the second quarter of 2021, an increase the 42% reported and 38.8% in constant currency compared to the same period a year ago. Compared to our performance in this period last year with this its COVID-19 impact, we see material growth across Neuro, Access, Embolization and Neuro thrombectomy businesses and growth in all regions. I am pleased to report all international regions grew sequentially compared to the prior quarter. Growth margin in the second quarter was 64.4%, compared to 61.8% in the same quarter last year due to volume leverage and we continue to invest in resources to meet demand and new product launches in the second half of 2021. Looking forward to the balance of this year, we expect our gross margins will normalize to around the same levels as the first six months of the year. Total operating expense for the quarter was $108.4 million or 59% of revenue, compared to $82.6 million or 79% of revenue for the same quarter last year. Our research and development expenses for Q2 2021 were $17.7 million compared to $22.7 million dollars for Q2 2020. We expect R&D investments to accelerate in the second half of 2021 for new product launches and Thunderbolt. SG&A expenses for Q2 2021 were $90.6 million, compared to $59.9 million dollars for Q2 2020. We had temporary cost reduction measures during this quarter in the prior year such as executive salary reduction, while we continue to invest in commercial resources to support increasing demand for our products. In addition, multi domestic travel and other in-person activities are returning to 2019 levels. For the second quarter of 2021, we recorded operating income of $10.3 million or 6% of revenue, compared to an operating loss of $17.6 million for the same period last year. We ended the second quarter with cash, cash equivalents and marketable security balance of $239 million at steady working capital. And now I'd like to turn the call over to Jason to discuss our 2021 guidance.

Thank you, Maggie, and good afternoon everybody. With the update of our second quarter results, we are formally increasing our 2021 revenue guidance range to $720 million to $730 million, which would represent 28% to 30% growth over 2020 revenue of $560.4 million. This updated guidance compares to our previous 2021 guidance range of $695 million to $705 million given on our first quarter call in May. We've see multiple drivers of growth going forward and thus expect our total revenue to increase in the second half of the year as compared to the first half. We anticipate strong growth in the third quarter compared to the year ago period during which we had one of our best product launches ever in Lightning 12. On a sequential basis we expect our revenue in the third quarter to approach our strong second quarter results as we account for the mix dynamics of the current environment. Thinking further ahead to the fourth quarter, we expect solid sequential growth via continued strong trends within our vascular business as well as increasing contributions and new products in Neuro, namely the RED series of catheters for stroke intervention. Overall, consistent with our approach to setting guidance in the past, our updated 2021 revenue guidance represents our 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.

Thank you, Jason and Maggie and Jee. This past year and a half has brought huge challenges and unspeakable loss throughout the world. However, it has also shown how resilient we all are, especially with the continuous wave of changing news. It is with these ideas in mind that the extraordinary team at Penumbra continuously, year-after-year, looks at areas where people are suffering from medical conditions and works to find new solutions to make them better. This drive has been more visible during this past year and a half than ever before and it is the reason we are so well positioned to help more and more people in the months and years ahead. I want to thank everyone on the Penumbra team for doing so much to help so many. Thank you for your attention. And now I would like to open the call to questions. Operator, please go ahead.

Thank you [Operator Instructions]. Your question comes from the line of Bob Hopkins with Bank of America. Your line is open.

Well great and congratulations on a fantastic quarter. I just have two quick questions. First on the pipeline side and those are some nice updates, thank you for that. Just curious on [indiscernible] just can you give us a sense of when we'll learn more about that product? And then on REAL, I appreciate that it's being shown in a meeting this week, but maybe you can give us a sense for when that will be, this latest version will be in full launch? Thank you.

Yes Bob, great questions and thanks for your comments. As it relates to Thunderbolt, I promise you we will tell you as soon as we can. Obviously, we don't always control the full side of that timing, but we will as soon as we can. And obviously, you know I'm anxious to share what I can with you when it's possible. So stay tuned, we will let you guys know as soon as possible. As it relates to REAL, we're getting it out there in the earliest stages and showing it at this obviously important conference, the HIMSS conference with the Healthcare Community. We will update you all at the Investor Day on September 21, with much more detail on timing and sort of what does that whole business look like, and I think it will make a lot more sense after the Investor Day.

Okay, so stay tuned basically, we did, we always do. So on the vascular side of things specifically on mechanical thrombectomy, so just wondering if you give us just a little more detail on the phenomenal results here. So you've got arterial, venous and coronary here. Can you just give us a sense is arterial still over 50% of that business and are all these different indications growing at a higher rate or is there a real divergence in the growth rates among those three? And I'll get back in queue, thank you.

Yes, it's a great question. The growth rates are all strong. Do they change a little bit based on our product launch, of course they do. We obviously saw Lightning 12 have a significant trajectory when we launched it, Lightning 7 has done well, but all of the franchises are doing well, and I'm very, very optimistic about how they will all contribute to our growth as we continue on.

Is arterial still over 50%?

I don't think we've broken down those numbers, but…

Yes Bob, it's Jason. We have not broken down those numbers specifically. What we've said in the past is that the venous mix is obviously increased significantly since we launched Lightening 12 and that continues to, the venous and arterial besides the business are now both growing quite well. So we're not going to break it out specifically. The numbers I will talk to you though, they are very similar with those two genres. The penetration rates, obviously we have, we think somewhere around 90% of the applicable patient populations that can be helped by both products and both genres to go here with single session therapy. I know you've heard us say that in the past, but I think it's worth reminding everybody.

Thank you.

Thanks Bob.

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

Good afternoon. Thanks for taking the question and I would like to add to Bob's congratulations. One just Adam on the on the COVID trends and the second half guidance and one on vascular embolization which was quite strong this quarter. So first on the recovery, I heard your prepared remarks, it sounds like so far so good, Adam in terms of trends through July and August and when I look at the second half guidance, third quarter sales approaching Q2, that's a little bit lower than we've seen sequentially and even looking at the guidance, what it implies for Q4, it's a little bit lower than what we saw in 2018 and 2019. So my question is, is there some conservatism built into the guidance from potential impact from COVID-19? And I had one follow up.

Yes, let me sort of just give a quick general sort of trend answering and then Jason maybe can pick up there on this specific guidance question, and why, what are sort of quarter-by-quarter implication was versus the actual guidance number. Overall, we feel extraordinarily comfortable and confident about the business, obviously the guidance the number itself is not an insignificant raise and that gives us a lot of confidence. The news and we put that in the prepared remarks that's going on and what is happening, you do have to sort of just catch your breath for a second. There are a few other specifics that Jason can cover, but I would look at the full range of the back half of the year as the relevant question, and that we feel incredibly strongly about. But Jason, do you want to add a few things?

Yes, just a few things to point out, but the guidance increase, obviously, we feel, obviously feel good about and the increase is a healthy step above the number in the quarter relative to the expectations. And so, I think if you look at sort of the preponderance of the year, what's transpired is fairly positive across our business in both Neuro and Vascular driving stronger growth than expected. As it relates to the sequential comments or questions that you had, we may comment in the prepared remarks obviously about elective procedures in the second quarter. Thankfully we saw during the quarter vaccinations increased throughout the country that obviously gave the ability for hospitals to do more elective cases. And we think that that probably helped get into the elective cases or the volume on the immobilization side, specifically in Peripheral Embolization around $3.5 to $4 million. So we've benefited from that during the quarter and we're hoping that continues, but we have to be cognizant of the current environment with respect to the Delta variant.

That's very helpful. Thank you. And on the peripheral embolization, even taking into account I guess the $3 to $4 million, maybe catch up Jason if that's what you're referring to a second ago, still had a quite a good quarter, Adam. So I'm just curious, by our math over $40 million in the quarter, a new high. So how do you see that playing out and what are the growth drivers because you know that's probably the least understood of your businesses? Thanks guys.

Yes, thank you Larry for that question. We are continually pleased and thrilled to watch and be part of that business. We have continued to innovate in the embolization on the peripheral side for a while. We've added a number of new products over the past couple of years, including the Ruby LP line last year, and the benefit of that technology is really extraordinary, and we've seen it over and over again, as people start to try it, they migrate to it. The success we're having. It's not, the field is not as sort of established if you will, as one might have thought, and there's a lot of room for innovation and a lot of sort of conditions that can use Coil technology that might not be using other things. They can now move to Coils, because of the sort of unique nature of our Coil technology, which as you know, they tend to be bigger, softer, easier to deploy in many cases, and we're really finding that is starting to continue to win over new converts. So I think there's a lot of continued room to grow that business, both here in the U.S., as we said, but also internationally in the years ahead.

Thank you.

Thanks.

Your next question comes from Bill Plovanic with Canaccord. Your line is open.

Great, thanks. Good evening, thanks for taking my questions. Firstly, before we can start off, with the neurovascular business, I mean that's a number that we haven't seen since 2019 and almost reaching new highs and I'm just kind of curious the impact of the Jet 7 Xtra Flex recall and I hate to bring up the past, but just making sure where are we, in terms of moving through that? How many accounts did you think you lost or ended up coming back and kind of, are we done seeing any impact from that, and it's kind of base move forward from here?

You know Bill, it’s a really good question. I think worth the impact of that obviously, there was a lot of competitive trialing and as people were looking to find a replacement for the Xtra Flex catheter, I think we think on our commentary supports this. With the new RED series, both that's really great success we're seeing right out of the box with RED62, but also with RED68 coming in the subsequent RED catheter coming sort of leader in the quarter. I think we looked at the back half, particularly in the fourth quarter as an opportunity to really reestablish ourselves in the stroke field, and we're looking forward to it. So, there is a real need for continued innovation in this field, that's obvious talking to customers. We just had a really successful SNIS meeting as first in-person medical meeting I've been to in a long time since the pandemic, and the support we heard from physicians, the excitement around the fact that we are continually innovating, notwithstanding the recall and everything, it was as strong as I've heard it in a long, long time, and it gave me a huge amount of confidence that we're doing the right thing, we're on the right track, and we are getting a lot of encouragement from our physician customers. So I'm pretty excited about how our stroke business will unfold over the next sort of two to three to four quarters.

Okay, and then if I could follow up with your SG&A spend was up about $10 million and about $15 [ph] million in revenues, so it seems like you're investing forward pretty significantly. You know is that in people in O.U.S., any color would be greatly appreciated? Thanks.

Yes. Anyways, previously we did continue to invest in commercial resources in terms of human resources, but at the same time, a lot of the domestic travel and in-person activities we also see it rapidly come back to pretty much pre-COVID level, and then at a third leg where we would continue to invest in G&A infrastructure to prepare us to scale.

Great, thanks for taking my question.

Thanks Bill.

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

Oh great, congrats on a great quarter.

Thank you.

Maybe another financial question here. There's not much to nitpick at the quarter, but one thing gross margin came in a little bit below where the Street was thinking. Anything one-time in nature or anything we should know and how should we think about maybe the balance of third and fourth quarter?

Yes thanks for the question, Robbie. There are no major one-time cost charges in the gross margin. I think in the last quarter, we did mention that the gross margin can often slightly fluctuate with product and [indiscernible] this quarter is just right slight fluctuation of some product mix. We have no plan to remove any of the COVID safety measure and cost structure that we have put in place, given the current Delta variant causes that we have. But meanwhile, we continue to maintain strong productivity, and we continue to invest in our capacity as well. So we do expect the second half of 2021, the gross margin will be continue at similar level with the first half of the year.

Okay, great. Maybe just a quick followup, REAL VR looks like four or three versions you're spreading out. Can you give us any sense of what each are tailored for, what the market receptivity has been like so far and what you think the demand is in the field now that there's better reimbursement that allows for remote usage of this? Thanks.

Yes, it's a great question, and without solely saying, please come to our Investor Day on September 21. I'll try to just give it a little bit of very general color because I really don't want to steal the thunder of the team presenting really in great detail. The key here is as you know, we initially worked on a product solely tailored for a very specific group of patients, those were folks who had some form of neurological damage in the brain, typically from ischemia stoke could have been a different type of damage and they needed to recover some physical movement and the REAL system was the first application, which you all saw at our first Investor Day. It was called Happy Valley [ph] that's focused on that. We are clearly aware of the huge just extraordinary sort of body of clinical data that supports the use of VR in a host of other conditions. And we'll go through this again at the Investor Day, but not just that relatively obvious use case, but into mental health and memory and depression and anxiety and a number of other things that people really suffer from and the benefits of VR. So the hardware configurations are really geared toward being appropriate for the variety of settings and types of needs that we are tackling. And we'll go through that in greater detail. We're not yet sort of commercializing all of these. As I said the I series is simply being shown this week at the HIMSS meeting. We will go through the timetable of and the plan around commercializing at the Investor Day in the month as well.

Great, thanks a lot.

Yes, thanks Robbie.

Thanks Robbie.

Your next question comes from the line of Joanne Wuensch with Citi Bank. Your line is open.

Thank you for taking the question and nice quarter. Two things I want to talk about or ask about. I wondered you used the word symbiosis at the beginning of this call, and I'd like you to expand on that a little bit and maybe it is a portfolio management term, but that would be helpful? And then my second question has to do with the RED series. I'd like to get a better understanding of which or what is the difference between each one of these aspiration catheters and what is more call it on the third generation of the series? Thank you.

Yes, great question. The word -- I like the word symbiosis. It is really how the two distinct, at least how we are interpreting the meaning and we got it wrong, I apologize. But really the two distinct parts of our business in both Neuro and Vascular, the coil business and the thrombectomy business which are treating diseases, how those franchises, those product lines have worked sort of in the field with our customers, how one success in one area has sort of opened up opportunities in the other, how innovation in one has been led to sort of an interest in the rest of our portfolio from physicians. And it's really been remarkable, and something that to me is kind of as pure as it can be, which is the -- as we introduce the company and our products to new physicians who don't know us, know the performance of just a pure clinical performance and utility of our products on one side is allowing interest and access to the rest of our business, so that's what we meant by that. As it relates to the RED series on RED62 as we talked about is a brand new catheter particularly sized to treat typically more distal clots, an area we think can have more innovation, needs more innovation. The reaction to that product has been really strong so far. First of all its tractability is really doing really well. We're also hearing some people using it in more proximal locations like M1 [ph] which to me is a testament to its tractability and ability to hold its shape when you're aspirating through it. RED68 obviously is the size of RED68 and it was the workhorse product for many years. The A68, we've just improved the tractability of that catheter in a nice way. And then the next one that's coming we haven’t really announced or talked about, but we will certainly. We look forward to having that on the market as well. So really the goal of all of these catheters is what it's always been is tractability for us, and you can't do much until you can easily get it there and then its ability to hold its shape and effectively and safely aspirate our clot.

Thank you.

Yes, thank you.

Thanks Joanne.

[Operator Instructions] Your next question comes from the line of Margaret Kaczor with William Blair. Your line is open.

Hi guys, thanks for taking the question.

Hi there.

And I do have a followup on vascular, I think you guys said the operative physicians are increasing or adopting single session therapies. So I was curious if you're sensing of a broader market trend and was that being driven by something that you're doing or specific to you all and what I'm trying to get at is, are clinicians just broadly saying I get, I'm here, I'm ready to go and so this is true market penetration or is it still kind of early stage where that is fewer cases and increasing when there are more patients on?

I think it’s a really, really good question. I would still put us in the early stages. It's starting to happen. That term for example is out there. A year ago, a year and a half ago, no one would have talked about it as the goal is to do single session thrombectomy. So the very fact that we use that term you use that term, it's become very obvious that that is a purposeful goal that is not -- that is good. And so, that for me, is a great sign to the field. And I think there are lots of other companies pursuing this. I think that's been very, very valuable to the field. You don't, unlike in some areas where the field is crowded and competitive in a negative way in other markets this is so large and so under tapped. I think it has been very beneficial to have companies all sort of in sync on the goal. And then, doctors start to move in that direction, the best technology will ultimately win out and obviously we feel very confident that between this current version and future versions we're going to stay in a really good spot. But I still think we're in the early stages. We're still the vast, vast majority of clickable patients or eligible patients are still not getting single session therapy and they are getting multiple-day dripping of GPA and that means we have a lot of work in the years ahead. But it feels like the conversation from hearing what the field is saying, you can now have, there is some open mindedness at least in the beginning. So I think there's beginning of a moment. How long will it take? How much effort? We'll be, I think we're looking at years of work not months of work, but it feels like we're -- we've turned a little bit of a corner here.

Okay, so maybe let's take that a little bit further in some of those existing doubts where you guys are an already bad -- are you saying clinicians may be felt selecting certain patients rather by risk profile or indication and that's how you're seeing kind of adoption in the field, Adam?

Yes, I don’t know if can be, answer that with the kind of specificity that the question warrants. I am sure there are physicians who are -- who still do a little of each. I don't know of those people, but I don't want to say it is not true. That doesn't sound impossible to me. Certainly the customers that are making up the bulk of our current business are mostly people who have sort of turned that corner and believe in it and believe in the benefits of the technology. And so therefore, I'm reusing it in almost all of their cases.

Okay, fantastic. Thanks guys.

Thank you.

Thanks Margaret.

I have no further questions at this time. Ms. Hamlyn-Harris I'll turn the call back over to you.

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 third quarter call.

This concludes the conference call. You may now disconnect.