Penumbra, Inc. (PEN) Earnings Call Transcript & Summary

Okay, everybody. Thank you very much for joining us this afternoon for the next fireside chat that we're hosting here as part of the Bank of America, virtual Vegas healthcare conference. We appreciate everybody joining us today. Very happy. The next company for our fireside chat is Penumbra, one we've been around for a long time. We're happy to have several members of the Penumbra executive team here, including Adam Elsesser, the company's founder and CEO, Sri Kosaraju is on the line, Maggie, the recently announced CFO and Jason Mills as well, who's new Head of Strategy. So thank you, everybody, for being here. I'm going to let Adam make a quick intro comment, and then we'll get into some Q&A and to the Penumbra team. Thank you for joining us.

Well, Bob, thank you for hosting us and my compliments to you and the entire BofA team for pulling off a virtual conference. From our perspective, it's gone very smoothly. So congratulations for that. I just want to make a quick opening comment around the management transition that we announced yesterday. Sri, I think everyone who has followed us over the last 5 years as a public company, has watched Sri and I help build this company and bring it into the state that it's at. You've seen Sri and I interact, you know that we are incredibly good colleagues together. We've had a lot of fun doing this together. I don't think I'm going too far to say, in addition to being work colleagues, we're very close personal friends as well. Sri came to me and indicated he wanted the opportunity to do this next step and help in this sort of moment of crisis for our country. And anyone who knows me knows that I would have and did support him totally. I admired him for wanting to do it. I'm very proud that he sees the world that way and is willing to devote precious time in a very important manner. It happened -- it's never a good time to lose a really valued member of our team, and I'll certainly miss his friendship every day. But if there is going to be a moment at the company level, this is a good moment for that. And I don't say that taking away anything from Sri, but we did bring Maggie Yuen on board at the end of last year. With just deep operational finance experience. She's been invaluable really since the day she got here within that function. And I feel very confident the rest of our management team and deeper into the organization has stepped up something I talked about at the Investor Day and more recently on our earnings call, if there is a silver lining to this really horrible pandemic, it is the sort of coalescing of our team around the shared mission. And I think that our capabilities are to lead and do this is at an all-time high. Adding Jason, I think, only gives us more capacity going forward. So again, not to take anything away from Sri and my longtime friendship with him. But I think at a company level, we will be in a very, very good shape. And can not only navigate this crisis, but continue our mission to help as many people as possible going forward. So I wanted to put that out there. Bob, I'll give it back to you to answer -- ask questions.

Great. I appreciate the perspective. Maybe one follow-up to that because I think investors would appreciate, Sri, if you wouldn't mind giving your perspective. And the question that I've gotten just over the last 24 hours since the announcement was made, it was really just one like the promotion to President was just 6 months ago, and now you're -- it was a very big deal, obviously, and a lot of responsibility. And now moving on to a new endeavor, obviously, a very important one. But just wanted to get kind of your perspective on trying to understand the decision-making process that you went through, and thank you for your willingness to answer the question.

Yes. Bob, it's Sri. Thanks for having us on. And I'll provide a few points of background, maybe which help the question and lend further my perspective in addition to Adams, which is very consistent. 6 years ago, when we met, I understood Adam's vision in where he was heading. And I joined a year later in 2015, it kind of helped support them along that journey. I very much believe we're still in the early innings of that. I think you and others recall the Investor Day that we did in December, which showed the next phase of the company. And that, from my perspective, is what it is. It's the next phase, which means there's many more beyond it. There's a ton of momentum behind the company. There's a ton as it relates to talent and execution behind the company to support the vision that Adam is going down. I believe in that 100%. But what is also, I guess, part of this as well is all the learning from being alongside Adam and watching and learning from his leadership, is it inspired me also to think a little bit differently about the mission. Penumbra is a mission-driven company as I think everyone knows, and so there is a ton of missions still to accomplish at Penumbra. But obviously, in this pandemic, there is a ton of mission as well. And I had the great opportunity to jump into something where I can help and hopefully make a difference. And to make that decision together with Adam, I think, we both had the extreme confidence that the leadership team with everyone that's here with Maggie's edition with Jason coming on board, I'm not afraid to say it. Net-net puts us in a better position. So the final thing I'll say, Bob, is I'm not going too far. Adam and I are friends, I'm going to continue to be close to the company. And I intend to continue to be an investor and a strong support of the company because I believe in it. So it's been a tremendous experience. And I'd tell you one other thing just from inside the walls of Penumbra, just the resounding sort of comments and feedback and how fired up people are about the mission. And I thank everyone for that. And I am looking forward to the future because I think it's going to be awesome.

Great. Well, thank you, Sri. I appreciate your comments. I just think it's important to hear your thoughts directly. So thank you for that. Now maybe to just sort of jump right in now to a couple of questions that I had. And we've got roughly 20 minutes. I don't want to spend too much time on it in terms of just sort of COVID-related follow-ups from the first quarter call, but maybe for the next 5 minutes or so, we'll spend a little bit of time on that, and then we'll ask some more strategic and longer-term oriented questions. First thing I wanted to ask is just a quick clarification. You guys highlighted that the April declines that you quantified were declines from pre-COVID levels and not declines year-over-year necessarily. So you just cautioned us to be a little careful with the math there. And I was just wondering if -- is it safe to assume that the year-over-year declines would have been directionally kind of less just given that the comp you're using is probably tougher, if that makes sense. Just wanted to get a -- make sure we had a really good sense for what you're trying to communicate with those numbers?

Bob, this is Maggie. Correct that for the month of April, the year-over-year decline is directionally less. However, for the entire quarter, the year-over-year performance will still be more in line with how we describe as compared to the pre-COVID level due to the ordering timing. For our Q2 forecast assumption, it is still based on what we see in April and will carry forward for the entire quarter.

Okay. That's helpful. That's kind of what I thought. Just sort of a comp issue. So the numbers that you gave, the business is doing a little bit better than those numbers on a year-over-year basis. And then a couple of other quick follow-ups. From what you saw, again, mostly in April, since you're willing to discuss that a little bit. Within neuro, which obviously did a little bit better, was there a big difference between ischemic and hemorrhagic stroke kind of in this environment. I would assume that ischemic could do better, but just curious what you saw.

Yes. Your perception is true. We have, obviously, both a small part of coil business in hemorrhagic and then ischemic. Ischemic has done better than that. So there is a little bit of a difference. But I know there was some surprise a little bit that stroke numbers would be down, stroke, that really is coming from the issue of folks we think being anxious about going into hospital settings, that was widely reported in the mainstream media, both for heart attacks, STEMIs as well as stroke so hopefully, people have followed that part of the news. We're seeing hospitals now really work hard to address that and deal with their own issues just like we as a company are addressing how we operate and manufacture product to do it in a way that keeps all of our employees safe hospitals are, as you know, adjusting and dealing with the same exact issue. And particularly in areas where they've been harder hit, they're now having a little bit more bandwidth to do that. So with a little luck the hospitals will continue that work. Patients will hear about it and feel more comfortable and therefore, go into the hospital, be treated, both for emergent cases. And really, as I'm talking about it, sort of urgent elective cases. There's a wide range of elective cases. Some are truly elective, some are really urgent elective, if you will, most of our cases fall on that urgent elective side. So with a little luck, we'll see those patients get the care they need going forward.

And then 2 more follow-ups on this topic, and we'll move on. But I'm just curious, Adam, as you think about the path forward and maybe breaking down the business in terms of hemorrhagic stroke and ischemic stroke. And then on the vascular side, do you think there'll be a big difference in terms of which businesses come back faster? Or do you expect it to be a little bit more uniform?

It's hard to know exactly. I think the dip was a little stronger on the vascular side. Those are the numbers we presented. So one can imagine that, that would come back a little faster or stronger because the dip was more and we saw that -- if you can look at a week or 2 trend and read anything into it, we started to see that. But I do think that it really requires the overall sort of nature of the patient's viewpoint to change, which is, do I feel safe going into that setting. And that -- if you read and look at all the national polls, I've not seen a poll about that particular topic, but you see the polls in general about whether people feel like they want to ease general restrictions, most still don't. And so I think as this evolves and hospitals are doing the work necessary to make people feel safe, and get the word out, I think we will see this start to adjust. And even if we are living with some form of restrictions in the pandemic in second waves or third waves, hopefully, patients will start to feel more comfortable going to the hospital when they have either emergent cases or urgent elective cases to be treated.

And one last question on this. I realize there's a lot of uncertainty, so it's challenging. But you've had a lot of medical device companies, over the course of the first quarter, talk about the notion that fourth quarter demand could approach normal levels. And I recognize there's a lot of variables, but those comments have impacted sell-side models. So a lot of companies, including Penumbra, consensus assumes decent year-over-year growth. And I'm not going to ask you to be specific about guidance and exit rates and all that kind of stuff. But is -- what's your view on -- like should we be assuming that as a base case that we're kind of close to back to normal for the fourth quarter based on everything that you're seeing in your business? And just in hospitals, generally, does that seem like a reasonable base case?

If I had the ability to know that with any kind of definitive confidence the way you articulated that, I'd be in good shape. The answer is really -- we don't know that. It's certainly highly possible. That -- I mean, let me back up. We have figured out at Penumbra how to operate our business in this new world order. I said that on our earnings call, that means we have fundamentally changed the way we manufacture product to ensure as much as humanly possible that our employees are safe while they're coming on to our headquarters and manufacturing sites. We have otherwise figured out how to operate most of the functions that don't require that remotely. So we can do this and therefore, have the product available and supply chains to do it. The real question is, do patients feel comfortable going into the hospital to be treated. Most of the procedures that we support are urgent or emergent. Therefore, they hopefully will feel that. How -- what happens between now and the fourth quarter is hard to know. There are been -- there are so many variables that are happening and unfolding every day around the sort of are we opening? Are we not opening? Are we going backwards? Are new hotspots being created? And I think that is going to be out there for a while. But with a little luck for patient's sake, they will start to feel comfortable that the risk of going to a hospital is mitigated by the hospitals themselves and all the work that hospitals are doing to ensure safety from getting COVID in a hospital if you go in for another procedure. If that continues and that they are as successful as I think they will be, then your premise is 100% right. But I think it would be naive, might not be the right word, but maybe for me to be able to predict that, given that the control over that is really not a company, Penumbra company event, as much as the feeling that people have about their own safety.

Yes. And maybe just one follow-up to that is just, do you think that one of the biggest variables that will determine how patients feel about getting procedures done by the fourth quarter is the availability of testing broadly? And I bring it up, obviously, given Sri's new venture, do you think that's like one of the most critical variables determining like if we can have widespread testing availability? I mean viral testing availability in most hospitals across the U.S. that, that would be the one of the most major gating factors. And Sri, I don't know if you have a thought on whether or not you think that's possible by the fourth quarter. But just curious, is that one of the most critical variables in your mind?

Yes. Every public health official has indicated that is true. Well, testing and then contact tracing, all are going to be a critical part of giving people the ability to feel comfortable sort of getting back to some kind of normal life. But the leading edge of that, of course, will be the sense that they can be protected and will be safe in a hospital setting. And I think hospitals are already on the leading edge of that. But you're 100% accurate. And so more than ever, we need to wish Sri and the rest of his colleagues in testing for America, the best of luck because it will benefit not only the company's financial success, but a lot of people be directly in having medical conditions taken care of quickly. So I think you're spot on that.

Yes. And maybe just one thing to add. I think a lot of folks are finding this of the utmost urgency and importance, Bob, because the conversations of reopening not only are happening, but it is actually occurring. And people are finding this to be the critical thing you can reopen, but people need to feel comfortable going back to work. And I think you're going to start hearing that some folks do not until there is some sort of form of understanding those around them even asymptomatic people are not infected. And I think the other thing that's out there for folks are to try to get this solved over the summer so that our kids can go back-to-school in the fall. And I know I speak for a lot of us that for a variety of reasons, we all want our kids to go back-to-school in the fall. So there's a lot of motivations to try to get this done quickly. And hopefully well before Q4.

Yes. Okay. We could go on forever on that topic, but it's -- there are a lot of companies working on testing and Penumbra is not one of them. So let me ask Penumbra's specific questions here. Adam, we don't need to spend too much time on this, but I'd love your quick comment on all the press reports about the pro thrombotic nature of COVID, seems to me like a, hopefully, a very temporary phenomenon. Are there any kind of longer-term implications for that, perhaps just around awareness of clot management. I would love your quick thoughts on that topic.

Yes. Thanks for raising that. It is one of those just kind of horrific side effects here, not only do you get this virus and likely are suffering from severe respiratory issues. And now you might beat that, and then you get nailed with these sort of hypercoagulable issues and large clot burdens. So yes, I -- it's a terrible byproduct, but it is creating a dynamic where people are talking about clot management in a way that it is very different than they have talked about it in the past. As an example, we sponsored a webinar several weeks ago with 4 very well-known physicians across subspecialties, and we had 450 or so physicians register and log in and participate to some random webinar around the protocols around clot management of COVID patients. And I think it is bringing a heightened intensity to the question around this. So yes, I think it is valuable discussion in the field. Is it possible that it has a lasting impact on the use of our products? Likely -- that I wish it wasn't this way. I wish it could happen in a more normal course, but that is likely. We talked about on the earnings call a little. We have new product that was cleared right before our headquarters went on lockdown or shelter-at-home by our local government or county order. And so we really haven't been able to launch it as sort of everyone has stood down from sort of direct selling. But there's a real interest in that particular product, it will make the removal of large clot burdens easier, likely faster and less training involved. And so there's an ability, I think, to get that product out to the market even in this moment in time because of these issues and the ability to help COVID patients directly. So there are some abilities for us to be helpful because of that issue.

Is that new technology, a pulmonary embolism-focused technology? Or is it something that's applicable across the Indigo platform?

It is technology that is applicable across our whole platform. It will have a primary benefit in both PE and DVT.

And is the only gating item between sort of now and for launch, just waiting for COVID to subside, so you can get access to customers? Or are there other issues that would be gating items pre-approval or pre-launch?

It's a good question. The primary is just finding the right moment and making sure that we're helpful and not going in the systems and hospitals that are dealing with the last month or 2 of their own financial issues and saying, time to buy new product. And I think those -- that time frame is going to reveal itself sooner than later, but we have to wait till the right moment to be appropriate. But that's the biggest gating item.

And then a big part of the story on the vascular side is kind of going out and developing these markets and creating awareness. And obviously, you've done a good job with that. The growth rates have been super strong. I'm just curious, like over the next, I don't know, 6 to 9 months or whatever it's going to be, you won't have the ability to address your customer base the way you have in the past. Does that affect your views on the timing of how the peripheral and vascular markets will develop for you? How much of a hindrance is the current environment on kind of market building and market development efforts?

That's a really good question. I alluded to this, I think, on the earnings call, and I won't go into a lot of detail for obvious reasons. But one of the things that we have been working on, and we actually started this -- these thoughts in a project around this before COVID -- totally unrelated. But it became obvious that with COVID, it became a much higher priority. And that was to think about how we do our commercial activities in the first place. And are there ways, we've -- you've asked me questions about this in the past, and my answers have always been, particularly in the peripheral space, sort of it's physician by physician. We go and we meet each physician one at a time, we talk about the technology and the benefits of thinking about clot management differently. And that takes time. That's labor-intensive. It's sort of high touch. And we had started to think about other ways to do it that were equally effective, maybe even more effective but with a much lighter touch. And without revealing competitive secrets, I think we have found ways to do that. And I'm excited about them. And they're not sort of webinars and things like that. They're a little more involved and I'm pretty excited. So I do think this gives us -- if they're successful, and we'll wait and see, they may not be. But if they are, I do think it is possible that we could accelerate some of those conversations. But it's early, and let's wait and see if we can pull it off first.

So I've waited until we've got about 40 seconds left in our presentation to ask about stroke competition. It used to be the first, second, third, fourth question we asked and -- obviously, a lot has changed since then. And so perhaps the quick way I'll ask it is just to say kind of from your perspective, Adam, anything new on that front that's worth calling out that you'd like investors to be aware of, or is it the same kind of response as usual that it's a competitive marketplace? Do you expect that competition and you're ready to deal with it? Just anything worth calling out on that front from your perspective?

Yes. There's nothing wildly different other than, obviously, during the last several months, there really isn't competition directly. Nobody is really interacting in a competitive way in accounts. And those few times where that might have happened really backfired pretty dramatically. Physicians were busy, they didn't find it appropriate. So everything sort of been relatively quiet on that front in the last few months. If you were a company trying to launch a product right now in a competitive way, that would be really hard to do. Again, that's going to change and evolve in the next time, but that becomes challenging. And to some degree, we might have been the beneficiary of being sort of the name brand, if you will. But that's going to be -- that's going to keep changing, and we'll expect to be back competing with everyone the way we have been for the last how many years. So I don't think it will fundamentally change things.

Great. Well, that's all we have time for. I want to thank you, Adam, and the entire Penumbra team for participating in our virtual experiment here. Again, so thank you. And that concludes the Penumbra fireside chat. Thanks to everybody for joining and stay well. And again, thank you very much.

Thank you. Appreciate it, Bob.

Thank you. Okay.