PEN - NYSE

Good afternoon. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's Third Quarter 2022 Conference Call. [Operator Instructions] Thank you. I would now 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 third quarter of 2022. 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-K for the year ended December 31, 2021, 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 discussion of these factors and other risks that may affect our future results or the market price of our stocks, including, but not limited to the impact of the COVID-19 pandemic on our business, results of operations and financial conditions. 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 are provided in our posted press release. Adam Elsesser, Penumbra's Chairman and CEO; and Sandra Lesenfants, our President of Interventional, will provide a business update. Maggie Yuen, our Chief Financial Officer, will then discuss our financial results for the third quarter. And Jason Mills, our Executive Vice President of Strategy, will discuss our guidance. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Jee. Good afternoon. Thank you for joining Penumbra's third quarter 2022 conference call. Our total revenues for the third quarter were $213.7 million, a year-over-year increase of 12.4% as reported, and 15.1% in constant currency. Our global vascular revenue grew to $123.4 million, up 17% year-over-year, while our global neuro revenue increased to $90.3 million, growing 6.7% compared to the same quarter a year ago. Growth in our vascular business was driven by a peripheral thrombectomy franchise, which increased 19.8% year-over-year led by share gains in venous, while our peripheral embolization business grew 12.4% year-over-year. In neuro, our global stroke business grew 16% year-over-year, partially offset by our embolization and access businesses. Our gross margins were 63.3% up slightly year-over-year and down sequentially due to product mix. We significantly increased our non-GAAP operating income to $7.8 million, representing 3.7% of revenue in the third quarter, which does not yet include any material benefit from the reorganization of our immersive healthcare business that we did during the second quarter. It is also important to note that we are having a very strong start to the fourth quarter. Now, looking forward to next year, we expect to accelerate our growth and achieve at least $1 billion in total revenue. We are excited to launch three paradigm changing products, Lightning Flash, Lightning Bolt, and Thunderbolt, that we believe will fundamentally change how clot is removed from the body and the brain. We expect these three product launches will drive significant share gain for Penumbra in PE, DVT, arterial and stroke, as well as accelerate physicians’ conversion to computer-orchestrated aspiration from lytics, surgery and medical management. Moreover, we reiterate that we expect our gross margins to expand in 2023 and beyond exceeding the 70% level in a few years. Well, gross margin improvement won't be linear. We have confidence in the work we are doing to deliver higher gross margins over this time period. Further, and perhaps more importantly, we expect to continue driving higher operating profitability in 2023, notwithstanding prevailing macroeconomic headwinds. In sum, reflecting on this, our 29th earnings call as a public company, we believe that the combination of our strong innovation engine and our prospects for accelerating growth, expanding gross margins and increasing profitability makes this upcoming year the most exciting in our company's history. I would like to spend most of my time on this call talking about what's to come next year and why we think it matters so much to patients. Sandra and I have spent a large portion of the last three months meeting with physicians and attending medical meetings in both vascular and neuro. Without question, the prevailing theme permeating these conversations has been a focus on advancing solutions for removing more clot, faster, easier, less traumatically to patients and with even less blood loss. With this in mind, we are very excited to say that what the world wants today is here. The latest advances to our proprietary computer-orchestrated technology will be delivered through the anticipated launches of Lightning Flash, Lightning Bolt, and Thunderbolt, which accelerate our journey along arc of innovation and thrombectomy in both vascular and neuro. These advancements have been made possible because of our microprocessor controlled software algorithms that orchestrate the interaction of our pump and our catheters giving us the ability to innovate even faster. In sum, our proprietary computer-orchestrated innovation gives us the unique ability to deliver exponential advancements within the field of thrombectomy that are simply not possible with mechanical devices alone. Lightning Flash will be the first of these new products launching in 2023, and it will be focused on the venous anatomy. We expect Lightning Flash will be the most impactful product launch in the company's history to date, building on the momentum of Lightening 12. Indeed, Lightening 12 had its best quarter ever in the third quarter, continuing to take share in both U.S. and international venous thrombectomy, both of which grew double digits sequentially. Lightning 12 is continuing to take share in DVT and PE through the current quarter and we expect our growth and share gain in venous thrombectomy will accelerate with the launch of Lightning Flash, which we are planning for January rather than mid-fourth quarter. Well, this six weeks change in the timing of Lightning Flash changes our fourth quarter projections, the positive impact we expect this product to have on our business in 2023 has only grown, as Jason will discuss later in the call. The advancements in both software and catheter technology built into Lightning Flash produce a revolutionary breakthrough in how our proprietary computer-orchestrated technology makes aspiration decisions. Flash makes these decisions automatically and much faster. In sum, the power, speed and blood loss mitigation profile of Lightning Flash will, I believe, make Flash the market defining technology for both pulmonary embolism and deep vein thrombosis, once it is launched. Moving to the arterial side, our team continues to do important work to develop this underpenetrated market, yet we still have a long way to go as most arterial thrombus is still treated with lytics or open surgery today. Therein lies the huge opportunity we see with Lightning Bolt. Lightning Bolt incorporates two distinct algorithm sets. One, is our proprietary modulating aspiration technology used in Thunderbolt, and the other is the technology that distinguishes clot from blood to maximize clot removal and minimize blood loss used in Lightning Flash. In Lightning Bolt both of these algorithm sets are customized to pair with our arterial catheter system. We are as excited about Lightning Bolt’s potential in arterial as we are about Lightning Flash’s opportunity in venous. We expect both products to have a huge impact on vascular patients as well as our business. We plan to launch Lightning Bolt during the second quarter of 2023. Now let me turn to Thunderbolt and our Neuro business. Earlier this quarter we began treating patients with Thunderbolt in the THUNDER study and we can say that this product is performing exactly as we had hoped. Because of this, we have even more confidence today that Thunderbolt could completely change the paradigm in ischemic stroke treatment, driving better patient outcomes. We also think Thunderbolt could drive an increase in stroke procedure volume. There are over 200,000 patients who suffer a large-vessel stroke in the U.S. annually. We think Thunderbolt could be the technology that energizes expansion in the number of these patients treated each year. And finally, we continue to think Thunderbolt will allow doctors to use smaller catheters, while getting the unique benefits of our proprietary modulating aspiration faster, more complete clot removal. This could allow physicians to treat even more stroke patients in the future by advancing routine treatment of both large vessel and distal occlusions. We continue to expect to launch Thunderbolt in the United States in the second half of 2023. Before I ask Sandra to discuss our robust clinical evidence strategy, it is important to mention that the product development and geographic growth opportunities we have in front of us go even further than the three cornerstone products I have focused my comments on so far. We anticipate launching additional new products in 2023 making next year likely the largest number of new products launched in a single year in our history. Moreover, in Europe, the recent launch of our RED family of stroke catheters drove sequential growth for our stroke business in the third quarter while the launch of Lightning 12 and 7 accelerated our peripheral thrombectomy growth. In 2023, we expect continued adoption of these products to drive accelerating growth from our European business. We are also excited about our growth opportunities in China and Japan going forward. In China, Genesis has proven to be an extraordinary partner with whom we hope to expand our business with additional products. In Japan, we are very excited to bring our peripheral thrombectomy products to Japanese physicians and patients in 2023, in collaboration with our newest vascular partner, Asahi Intecc, whose management team culture and reputation are very impressive. I'll now turn the call over to Sandra Lesenfants, President of our Interventional business to give an update on our clinical work.

Thank you, Adam, and good afternoon. This has been a very productive and exciting quarter for Penumbra and our team in both the United States and international markets. Penumbra further expanded the number of patients we help globally during the third quarter. The commencement of the STANDARD trial gives us great confidence. We can bring this unique and revolutionary system to ischemic stroke patients in the U.S. within a year's time. We gain share in the U.S. venous and arterial markets with Lightning 12 and Lightning 7, and we believe the launches of Lightning Flash and Lightning Bolt will accelerate our growth. Our European vascular thrombectomy revenue grew sequentially, while the launch of our RED catheters in Europe simulated growth in our Neuro business within which we are seeing large opportunities open up for us in high volume European accounts since the RED launch. In addition to our continuous and impactful innovation, our investments in clinical research and scientific data will be very important to achieving both our near- and long-term growth objectives. We are embarking on the most robust era of clinical evidence generation in our company’s history. In addition to the important standard study in stroke, we announced details over the past couple of months about two randomized, controlled trials that will commence in coming months. Stroke PE a first of its kind RCT will study our computer history aspiration with anticoagulation in pulmonary embolism patients compared to the use of anticoagulation alone, which is the treatment still used in the vast majority of intermediate/high risk p patients today. The second is CHEETAH-ACS, which is also a first of its kind RCT and will be a 1000 plus patient study focused on acute coronary syndrome patients with high thrombus burden. This study will evaluate CAT RX power aspiration as an adjunct to standard PCI compared to PCI alone. We expect both trials to produce evidence showing better outcomes for patients treated with Lightning Flash in pulmonary embolism and CAT RX in acute coronary syndrome, and we think these studies will significantly expand the number of patients in both PE and coronary population who could benefit from treatment with our technologies. In addition to standard STORM-PE and CHEETAH-ACS, we have four clinical studies currently enrolling, including STRIKE-PE, STRIDE in arterial both in DVT and MIND in intracerebral hemorrhage. In STRIKE-PE, a cohort of 60 patients was recently presented showing among all the positive data points that both right ventricle left ventricle ratio at 48 hours and pulmonary artery pressure significantly decreased immediately after the procedure in patients on the table. Moreover, we recently presented 30-day data from STRIDE showing a significantly lower amputation rate in arterial patients treated with our technology compared to historical rates with traditional therapies. In sum, we will continue to build our body of clinical evidence to prove computer-orchestrated innovation is impactful, an transformational as it significantly improves outcomes in stroke, PE, DVT, arteria and acute coronary patients, the vast majority of whom to receive lytics, surgery or medical management today. I will now turn the call back to Adam.

Thank you, Sandra. Before I turn the call over to Maggie, I'd like to give an update on our immersive healthcare business. We made great progress over the past three months. On our second quarter earnings call, I talked about the extremely innovative work the United States Department of Veterans Affairs was doing using immersive computing or VR to help our veterans. We recently commenced work under a contract with the VA for targeted mental health therapy. We are excited about this and additional opportunities to bring this technology to help our veterans and show how to implement it into the therapeutic workflow for patients. In addition, it is noteworthy that Novant Health recently announced that they are offering cancer patients our REAL® i-Series while receiving infusion treatments or undergoing diagnostic imaging. We will remain disciplined in our investments as we discussed last quarter, while continuing the important work to scale our platform and help many more patients. For example, today we are launching our full-body Avatar technology, including legs. With this technology, we are also launching a series of activities for therapists to focus on the lower body. The continued development of our hardware and software together with the work we are doing with the VA and other leading partners in healthcare is important. I'll now turn the call over to Maggie to go over a financial results for the quarter.

Thank you, Adam. Good afternoon everyone. Today I will discuss the financial results for the third quarter of 2022. Financial results on this call for revenue and growth margin are on a GAAP basis while operating expenses and operating income are 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. For the third quarter end of September 30, 2022, our total revenues were $213.7 million, an increase of 12.4% reported and 15.1% in constant currencies compared to the third quarter of 2021, with current year-to-date foreign exchange headwind of $11.6 million and projected full year foreign exchange headwind of $18 million to $19 million. Our geographic mix of sales in the quarter were 69.6% U.S. and 30.4% international. U.S. reported growth of 10.4% and now international regions increased 17.3% reported and 26.8% in constant currency. Moving to revenue by franchise. Revenue from our vascular business grew to $123.4 million in the third quarter of 2022, an increase of 17% reported and 18.8% in constant currency compared to the same period last year. We saw strong double digit growth across U.S., EMEA, APAC and Latin America regions. Revenue from our Neuro business was $90.3 million in the third quarter of 2022, an increase of 6.7% reported and 10.5% in constant currency compared to the same period a year ago, driven by growth in the neuro thrombectomy franchise. Moving to gross margin. Gross margin in the third quarter was relatively flat at 63.3% compared to 63.1% in the same quarter last year. Productivity improvement savings continued to offset the heightened inflation and supply chain pressures. Gross margin sequentially declined by 120 basis point, primarily driven by distributor and country mix timing In general, our thrombectomy products and direct channels have higher margins than embolization products and distributor channels. Looking forward to 2023, we expect to see continued margin expansion as all the new product launches will have favorable product mix impact with volume leverage to our gross margin. Now onto our non-GAAP operating expenses, excluding the amortization of acquired intangible assets of $2.4 million and $1.8 million for this quarter and last quarter respectively. Total operating expense for the quarter was $127.5 million or 6% of revenue compared to $111.1 million or 59% of revenue for the same quarter last year. Our research and development expenses for Q3 2022 were $21.3 million compared to $16.7 million for Q3 2021. SG&A expenses for Q3 2022 were $106.2 million or 49.7% of revenue compared to $94.4 million or 49.7% of revenue for Q3 2021 and $112.8 million compared to last quarter. While we have invested in commercial resources and infrastructure to enable us to scale and support growing demands, our SG&A expenses have reduced by $6.6 million sequentially by discipline discretionary spend control. Our overall operating expense reflect our philosophy of discipline, this discretionary spend, and we expect an additional reduction in operating expenses of $2.5 million in immersive healthcare spend for Q4 and as part of our baseline expenses moving forward. We recorded operating income of $7.8 million or 3.7% of revenue in the third quarter 2022, excluding the amortization of acquired intangible assets compared to an operating income of $8.8 million for the same period last year. We ended the third quarter with a cash, cash equivalence and marketable securities balance of $184 million. The cash usage in the quarter reflected increasing raw material purchases for new product launches and higher working capital. And now I would like to turn the call over to Jason to discuss our guidance.

Thank you, Maggie. And good afternoon everyone. We were having a very strong start to our fourth quarter led by our computer-orchestrated product, franchise in vascular thrombectomy and our stroke business. As the THUNDER trial enrollment is gaining momentum. Notwithstanding this strong start, we want to be prudent about our 2022 guidance, given two near term dynamics, neither of which impact our confidence about 2023, which I'll touch on in a moment. First, the Lightning Flash product launch is now expected to occur in the first quarter of 2023, six weeks later than the previous mid fourth quarter 2022 estimate. And second, an incremental $4 million to $6 million from currency translations. Our updated 2022 guidance for total revenue is now $840 million to $845 million compared to the low end of our original range of $860 million to $875 million, given on our second quarter call. Updated revenue guidance calls for growth on a reported basis of 12% to 13% and 15% to 16% on a constant currency basis, which is within our original expectations. Moving to 2023, we expect Lightning Flash, Lightning Bolt, and Thunderbolt will fuel accelerating growth and drive significant share gain in PE, venous, arterial and stroke thrombectomy respectively, first in the United States, then around the world in 2024 and beyond. We expect to achieve the $1 billion total revenue level in 2023. In addition, we expect to see more significant expansion to our gross margins next year owing to favorable mix in realization of productivity gains. And finally, we expect to increase our operating profitability in 2023 and beyond. I will now turn the call back to Adam for closing remarks.

Thank you, Jason, Maggie, Sandra, and Jee. It's obvious to everyone that the environment that most businesses are operating in is particularly challenging right now. I want to acknowledge everyone on the Penumbra team for their work in this challenging environment with a particular acknowledgement of three amazing achievements. First, for the world-class innovation over the past year. This incredible development work has not just continued but has actually accelerated. Second, our operations and quality teams and the groups that support them for keeping up with growing demand while working hard to become even more efficient, all in the phase of constant supply chain challenges this year. And finally, our commercial team for their dedication and integrity to their customers and the patients they're helping. I could not be prouder of the people who work at Penumbra. Thank you. Operator, we can now open a call to questions.

Thank you. [Operator Instructions] Our first question comes from Bill Plovanic from Canaccord Genuity. Please go ahead your line is open.

Hi. It's Sean [ph] on for Bill tonight. Thanks for taking our questions.

Hi, Sean [ph].

When you say you are taking share in venous, could you provide some color if you are taking a share from other interventional players, or are you converting users of medical management?

Yes, when we said that we're alluding to or talking about share from other interventional devices at this point.

Great, thanks. And then thoughts on any impact in China from the volume-based procurement and neurovascular?

I'm sorry, say that one more time.

Sorry. Just thoughts on any impact in China from the volume-based procurement policies in neurovascular, a competitor called them out, just want to see if you are seeing any?

Yes, sure. Jason can answer that question.

Yes, thanks for the question, John. It’ a great question. So as you know we have a very strong partnership with Genesis and we're really just getting started there. The VVP policies we've been tracking closely at Genesis, and we've been factoring them into our thoughts about our business in China for some time. So nothing really has changed with respect to our current business in China or how we're thinking about our prospects for growth in 2023.

Thank you.

Thanks.

Thank you.

Our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead, your line is open.

Hi, Larry.

Thanks. It's Leah [ph] calling for Larry. Thanks for taking the question.

Hello.

Hi. So I just want to start with – sorry, start with the 2023. You talked about still achieving a $1 billion plus revenue next year, the midpoint of your guidance for 2022 if you grow from that implies 19% reported growth and on constant currency basis, probably somewhere a little north of 20%. Can you talk a little more about your confidence in hitting that number and the key growth drivers there, which you touched on? But if you can give more color and also if we should think about that maybe more second half weighted, just based on the timing of the different launches.

Yes it’s a great question. And I can't wait to answer it. We have a lot of confidence in that number, probably more than we've ever had. Don't forget, we originally gave that number in the end of 2019 when we were about half the size that we are now. And here we are right on track. So something we're particularly proud of. The confidence we have comes from the three cornerstone launches, primarily starting with Lightning Flash. And I got to tell you it might be easy if you haven't seen it, to underestimate it, but once you've seen it, it will be hard to overestimate it. It is a really extraordinary development. So I'm pretty excited about it. I think the whole team is and physicians, I think, are ready to embark on that new era. So we are particularly confident about the lay of the land here with Lightning Flash, Lightning Bolt, and of course, Thunderbolt, where the trials are underway.

Yes, Leah [ph] this is Jason. Thanks for the question. Just to follow-up a little bit on that, with respect to your question about sort of the cadence, certainly we are very excited and I think we mentioned in our prepared remarks, we expect Lightning Flash to be the most successful product launch in our company's history to date when it's launched. That will be first to launch and should contribute as the year goes on. And we expect contribution to increase as the year goes on. Lightning Bolt, we expect to launch not until the second quarter. And that will follow a similar cadence. And with respect to Thunderbolt, we qualitatively continue to believe that a second half launch is where that product will land. But honestly, quantitatively it is not factored into the forecast that we just gave very much with respect to that north of $1 billion level.

Just to be clear, Thunderbolt is not in that billion plus target for next year.

No, what Jason said is not factored in as a huge part of that. It's definitely in there, but it is not the majority or the substantive driver of that.

Got it. Okay. That's helpful. And then if I can just ask to quick follow-up. Just on your Q4 guidance that implies about call it low teens growth year-over-year, but sequentially it's a low-single-digit growth versus Q3 and that's a little softer than what you've done historically. What's different about this Q4? I know you talked about year-over-year, there is the FX headwind, you have a new product launch delay, but even just kind of looking at the base business, there tends to be a little more growth in Q4 versus what you're guiding to.

Yes, Leah [ph] I'll take a first path at that then Adam may want to follow-up. Thanks for the question. So, the two dynamics obviously impact the fourth quarter, but importantly they don't impact 2023. So clearly if you look at those two dynamics, we called out quantitatively, one, $46 million of incremental impact from FX over and above what we anticipated three months ago. So that's part of that sequential dynamic. You can look at our previous guidance and our current guidance and see the differential number, around $20 million or so. So, the rest of that correlates to that six-week delay in the Lightning Flash launch.

And you can do the math obviously, of what we had expected for that and why we think that no one likes to spend time and call things delays. But we discovered an opportunity, we developed a way to improve upon when you're working on, it's sometimes easier than working on hard catheters, and so on. You can do things faster. A way to make Lightning Flash even better than it was. And I am willing to bet that we're going to look back and say that the best six weeks that proved to be the best investment in time that we've ever had. So again, no one likes to do it, but I think, it was well worth it and it's only increased our excitement around this product.

Got it. Thank you so much.

Of course. Thank you.

Our next question comes from Robbie Marcus from JPMorgan. Please go ahead your line is open.

Hi, this is actually Lilly [ph] on for Robbie. Thanks for taking the question.

Hello Lilly [ph].

Hi. First quarter was flat sequentially, which was a little softer than what we were thinking. So what was the driver of that? Is it staffing or seasonality or is there some other reason that didn't grow quarter-over-quarter?

Yes, thanks for the question. So first it's important to point out that our business in the United States was strong and we continued to take share. We were up over 10% sequentially in our peripheral thrombectomy business in the United States. Year-over-year every region grew, sequentially there is some lumpiness in distributor markets, and that's specific to the third quarter.

Got it. That's helpful. And then maybe just on the broader neuro market obviously it's had some challenges in terms of competition and market growth. So can you give us an update on what you're seeing in terms of underlying growth in neuro and how you're thinking about the outlook into 2023? And does that $1 billion number assume some sort of market acceleration? Thanks.

Yes, it's a great question. I think you are accurate in that the market growth has been slower than anyone would want, particularly all of us who want to have our technology help as many of these people as possible. And that that is probably related to staffing, and post-COVID and everything else. That being said, we continue with the RED series to do really well on a competitive basis. And for the meantime that's where the focus is going to continue. I believe and we said that pretty clearly in the prepared remarks, that with the continued excitement that Thunderbolt is having once that data we've finished the trial and it's all out, we think that will have the effect of potentially reigniting the interest and desire to continue to grow this market. That's our hope. We think it's a huge market that needs to be grown. But I think the technology might help do that as we get further. But for now our growth is coming from share and we're really quite proud of the RED series they're doing really well.

That's helpful, thank you.

Thank you.

Thank you.

Our next question comes from David Rescott from Truist Securities. Please go ahead, your line is open.

Hey guys.

Hey David.

Thanks for taking the question. Hey, Jason, hey Adam, thanks for taking the question. [Indiscernible] in the quarter. I wanted to follow-up on, I think, some of the comments that you made about the updated guide for 2022. I think if you do some of the back-of-the-envelope math, which I think, you guys walked through, if you take out the incremental $4 million to $6 million in FX that, I think, implied about $20 million contribution from Flash for about six or so weeks in the quarter. So I guess, if you were to extrapolate that out to 2023 that certainly implies something north of maybe $150 million or so from that product specifically next year. So I guess just wondering if we're doing the math there, right, and also what led to that delay about by six weeks.

Yes, well, a couple of things. First of all, I think, the total was 20, when you take out the four to six, the flash contribution is less than 20. So I want to make sure we get the math right. It's a little less than the total if you ran that out just to be accurate. But yes, once you do that correction in math that is an accurate assessment. We said pretty clearly we expect it to be the most impactful launch. It is one of those products, let me just put it this way, when a physician sees the demo, it takes him about 40 seconds to understand the power and impact that this product is going to have. And it's just something. So we're pretty excited about it. And what was the last question? It was about timing on something, I apologize, I missed the last one.

The timing on yes the reason behind…

The reason, yes, I think, I addressed that in one of the early questions, but I'll reiterate it. We had the opportunity to improve upon the algorithm a little bit. We took that opportunity because it made what was then a really, really good product, it made it that much better. And as I've said, that might be the best six weeks we've ever invested in. So, that's the reason for the delay.

Yes. And David, it's important to underline this point, I think, that Adam just made software innovation as you know, probably following the tech industry moves faster and therefore our discovery of advancements in our computer-orchestrated portfolio by definition can move faster.

Okay. That's yes, very helpful. And I guess second question, so I think maybe you mentioned even in the Q&A, five or six times that pretty clear about gaining share in the U.S. thrombectomy market in venous. So I'm just wondering where maybe specifically you've been seeing those gains coming from. I mean, does it have to do with new accounts? Is it utilization within new accounts? Maybe just capturing a higher dollar share per procedure. And just wondering, why that's occurring even ahead of Flash and is that something that kind of occurred throughout the quarter or was there may be a point within the quarter where you started to see a little bit of acceleration in those share gains? Thank you.

Yes, so let me just go back to our second quarter call where we raised this topic for the first time and said that we had started to see some gain in share, particularly in DVT. So, we called that out. As you know there were lots of discussions about that topic with lots of different people and investors. That share continued to go in our direction throughout the quarter. And doctors have gone to meetings and meetings, we've been at them and that the topics raised that generated that share shift have continued and continued to stay. We just finished the VIVA Meeting, the topic was raised again to us, not by us, to people many, many times. And we think that led to the strong gain in DVT.

Okay, thank you.

Our next question comes from Shagun Singh from RBC. Please go ahead. Your line is open.

Great. Can you hear me okay?

Yes. Hi Shagun.

Hey. So I just want to better understand the change in guidance. So, it does assume about $20 million or so and pretty big numbers that you talked about in 2023. What's behind those assumptions? How do you get to those big numbers? It definitely suggest that your $1 billion number in 2023 could be could be a base case within that. And then how should we think about other products on a relative basis in terms of revenue contribution? So Thunderbolt, is it similar, more or less and then also Lightning Bolt, how should we think about the relative contribution of those products? And then I have a follow-up.

Well, there is a lot of questions, so let me try to answer them and then we'll get to the follow-up. But they are great questions. So, I think we answered the question of what is in that $20 million. It is a combination of the delay of the six weeks of launching Lightning Flash together with the additional FX, which we've quantified. So, the number is fairly good. We also want to remind you, we made it clear in our prepared remarks that this quarter is off to a really strong start. So there is absolutely nothing in our mind wrong with our base business today. In fact, it's strong as it's ever been. So that needs to be said again I think we said it. The delay was very purposeful because we wanted to make this product even better. It was a great product, but we had the opportunity to change or tweak the algorithm to make it even better. I think that's going to prove to be a really, really smart decision. And it's that simple. And it's literally a six-week topic. And I don't know how else to say that. You're not wrong, the $1 billion number is the number we put out there again in 2019. And by reiterating it, we want to make sure we are not giving formal guidance. We'll do that on our fourth quarter call. But we are giving clear guidance that that's the number that we'll at least be at. So we're not giving specific numbers beyond that or additional to that yet which we will do. But that is, I guess, in your language, a good starting base case.

Sorry, just to clarify. So I guess my question is just if you annualize the $20 million into 2023, you do come up with $160 million number. Maybe it's slightly smaller than that. I'm just wondering what is driving those assumptions, like what are the assumptions behind those numbers? And then as we think about Lightning Bolt and Thunderbolt in terms of revenue contribution, should we expect them to be similar or less impactful just on a relative basis? How should we think about it? Sorry, I wasn't clear earlier.

No. So again, the $20 million, some of that was FX, so you got to take that out. Then if you look and do the math around that, you come up with a number smaller than the number you just did, but still significant. And then you add in the contribution on top of that from Lightning Bolt, which will come earlier. And Thunderbolt, which we've already said is a relatively small portion of that. That's how you build the math around it. So again, we're not giving specific numbers on each of those products now, that wouldn't make sense. But directionally, I think, you have it.

Got it. And just as a follow-up, I just wanted to get some sense of how you are thinking about OpEx next year. I think you have indicated that you expect to grow it at a slower rate, at a lower rate than sales growth. Can you help us think through that a little better, is it half the rate of sales growth, is it below but still in the double digits? And then anything you can share with respect to getting to, I don't know, the first 20% operating margin goals? That would be great. Thank you for taking the questions.

Great. Thanks for the question. I mean, although, as I mentioned, we're not giving a formal guidance in our future operating margin, our goal is to continue to improve both our growth margin and the bottom line operating margin. But I'm really excited that we are at a point that we are setting our business for accelerated growth as well as continued margin expansion.

Thank you.

Thank you.

Our next question comes from Pito Chickering from Deutsche Bank. Please go ahead, your line is open.

Hey guys. Thanks for taking my questions. So [indiscernible] next year from these new launches. Any color on how these new products will be priced? For example, if we take the ballpark of $150 million from Lightning Flash, how much of that is coming from revenues – sorry, from volumes versus pricing?

Yes, it's a great question. We have not said or announced the pricing. There may be an element of that, but the vast majority is increased in usage and procedures. As I said, once you see this product working it's hard to not see the value that this product will bring to patients.

Okay. And then, so back on the margin question, if you're growing revenues $160 million next year, I understand you aren't giving formal guidance here, but do you plan to maintain current investments in immersive healthcare despite that revenue growth, or do you plan on scaling up those investments as you are growing revenues?

Yes, that's a great question. We're certainly not – there is no current plan to cut those investments anymore. We reorganize that department to spend a little less and be more disciplined last quarter, as we said. That's proving to be a very effective decision. And we're getting a lot out of that. As you heard, we announced on this call the full body avatar, including the use of legs. If you look at follow VR [ph] that's a huge topic. In healthcare it matters because there are parts of the body in the legs that need to be rehabbed and it allows you to experience and be fully more fully immersed and therefore get better. But also in the non-healthcare world, that's an issue that lots of other companies, particularly some big companies, haven't yet been able to achieve. So we're pretty proud of that. And again the work with the VA so far, it's early but it's really been profound. So we're going to continue to do that work. I think it's important work and it's going to, I think, help a lot of people. I don't expect to need to scale the spend from generally where we are until revenue is in effect adding enough contribution to make that valuable.

So I don't suppose you want to sort of give us any range as for where this costs are running at this point through the P&L. Thanks.

Pito are you asking specifically on the immersive healthcare side or general OpEx?

Just on the immersive healthcare, what is the cost structure at this point in the P&L say for immersive healthcare?

Yes, we're not prepared to sort of go into those details. We did quantify in Maggie's section the general quarterly savings that you'll start to see next quarter. And beyond that that's sort of the extent of those numbers that we're going to share right now.

Great. Thanks so much.

All right thank you.

Thank you, Peter.

Our next question comes from Mike Matson from Needham. Please go ahead your line is open.

Yes, thanks for taking my questions. I guess first, just with all these intelligent aspirations which you're going to be launching they are all, I guess electronic. So you feel like you've got either adequate number of semiconductors components on hand to meet all the demand and or visibility into getting those next year to meet the demand?

Yes, that's actually a very, very good question. And one that I started asking some time ago of our operations team as we were getting ready for this and making sure we were okay. As you heard in Maggie's section, we were getting ahead of that a little by buying materials in anticipation of these launches. So, any supply chain question, I hesitate to be definitive because that has been a huge challenge for every company and we're not immune from it. But I can tell you at this stage, so far so good. And we've been working incredibly hard to get ahead of that. And I think we're in in pretty good shape at this point.

Okay. And then as far as the THUNDER trial goes, will the results that be made public at some point in advance of either submission to the FDA or some point before the products actually cleared and launched? Like, will we get to see that and can that be like sort of a positive catalyst if the data's good?

Yes, that certainly depending on the timing at what meeting happens to come along that will be the biggest question. If there is a neuro meeting that lines up with being able to do that before clearance, we certainly want to do that. I can't totally predict the timing down to which meeting we're going to be able to do that at, but that would be certainly a logical expectation.

Okay. And then just the RED catheters in Europe, I mean, that was launched fairly late in the third quarter, so to what degree did that help? I mean, it looked like your Neuro business was a bit stronger, but was there a material impact or is that going to be more in the fourth quarter?

Yes, the RED catheters are doing well in Europe. And we called that out. It's been a lot of fun. There has been a lot of waiting for them, once they finally came, people are excited, they are working well. But the Neuro business in the U.S. has continued to do really well too we call that out. The share gain those catheters are doing well. And there is a lot of excitement about us as a company and our products again in stroke. So we feel very, very positive. And I think that is in large part because of the catheter, some part because of the excitement around Thunderbolt as people talk about it. I think combination has set us up for some real success going forward.

Okay. Got it. Thank you.

Thank you.

Thanks Mike.

Our next question comes from Michael Sarcone from Jefferies. Please go ahead, your line is open.

Hey Mike.

Good afternoon.

Hey, good afternoon. Thanks for taking my question. Just my first one on Thunderbolt, was hoping to hear your thinking about product uptake once you receive approval. So for existing [indiscernible] cost per number of customers, could you talk about your expectations for the timeline around adoption? Should this be a pretty quick, seamless conversion or are there gain factors we should be thinking about?

Yes it's a great question. And again, one that it’s sort of back half of 2023, not as front half as Lightning Flash and Lightning Bolt, which I think will be, as we've said, this coming year more significant. But with Thunderbolt both existing customers and new customers, I think, are a similar thing. The only group that will be faster will be the people in the trial. They've already used it. They don't have to have even an in-service because they have been doing cases that will be the fastest group. But whether you currently use a RED catheter and do continuous aspiration or you want to use other people's catheters or a combination of tools, the in service around how to use Thunderbolt will be the same. And so there isn't going to be a fundamental difference between those people that are sort of picking up this. And we've even seen that in the trial where people who have joined the trial and started who really haven't been big active users of our products before again the in-service is the same and the uptick is pretty quick for both groups of people.

Got it. Okay. That's helpful. And then just my follow-up could you talk about peripheral vascular trends in Europe? Just particularly interested in how the Lightening 7 and Lightening 12 products are progressing?

Yes, so Lightning – we again called that out Lightning is continuing to do pretty well in Europe. Again, every country is a little different around the reimbursement strategy, but those people who are using it are sticking with, again, both Lightening 12 and Lightning 7 depending on the location. And so we call that out has been a very positive momentum. Again, the numbers are relatively small compared to the rest of our Lightning 12 and Lightening 7 business, but certainly positive.

Got it. Thank you.

Yes, thank you.

Our next question comes from Margaret Kaczor from William Blair. Please go ahead, your line is open.

Hi Margaret.

Good afternoon everyone. Thanks for taking my questions. Yes, I apologize kind of hopping in between calls if this was asked. Hopefully it won't take too much of your time. Maybe just first of all, you guys have a series of product launches as we look out over the next 12 to 18 months, I think, the thought process for us and others is that there is going to hopefully a nice accelerating both unit growth, as well as market share gains and pricing. And so I was just curious as we look at that $1 billion target for 2023 could you give us any color or flavor as to kind of the individual pieces relating specifically to market share, whether it’s in Vascular or stroke, RED Lightening price anything of this thought? Thanks.

Yes. It's a good question. So the majority or the biggest piece will obviously come from Lightning Flash. We talked about that in PE and DVT. The second biggest, and that's partly just because it will have the whole year, Lightning Bolt will have hopefully around three quarters of that. So that would be the next biggest. And then stroke, which is Thunderbolt will be in the second half. So by definition that will be the smallest of the contribution. And we did answer a question or comment that amount is relatively on a quantitative basis, relatively small amount of our growth next year.

Okay. And that's the volume side. Anything you can share in terms of your assumptions around market share or kind of market growth dynamics within those [indiscernible]?

Yes, well most of that growth will come from share and/or market growth. A combination of those two. The implication that most of that would come from price is, if that was the question is not accurate, most of that. Again, we haven't announced the price and all that, there might be a little part of price, but most of it is coming from share and market growth.

Okay. And then just as a follow-up, given some of the staffing issues are you guys seeing any change in terms of enrollment for any of your clinical trials or things kind of progressing as normal for you? Thanks.

Yes, it's a really good question. It's hard to give you a definitive answer on that. On a comparative basis we haven't run a trial in neuro like this in a while. So, it's hard to know. It's continuing to enroll. So on a comparative basis, I think, it's pretty normal. There is no doubt that people complain about their staffing issues all the time and they have less help than they used to. But so far that does not seem to have an impact on either our core business or our clinical trials at this point.

Okay. Great. Thanks guys.

Yes, thank you.

Thanks Margaret.

We have no further questions. I would like to turn the call back over to Ms. Hamlyn-Harris for closing remarks.

Thank you, operator. On behalf of everyone at Penumbra, thank you for listening. We look forward to updating you on our fourth quarter call.