Good afternoon. My name is Sidarius, and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra's Second Quarter 2020 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. Thank you. It is now my pleasure to turn the conference over to 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 2020. A copy of the press release and financial tables, which include a GAAP to non-GAAP reconciliation, can be viewed under the Investors tab on our company website at www.penumbrainc.com. During the course of this conference call, the company will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those referenced in our 10-Q for the quarter ended June 30, 2020, which is scheduled to be filed with the SEC on August 3, 2020, as well as those described in our 10-K for the year ended December 31, 2019, which was filed with the SEC on February 26, 2020. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our periodic filings with the SEC, including the 10-Q and 10-K previously mentioned, for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock, 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 19 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 quarter; and Jason Mills, our Executive Vice President of Strategy, will join Adam and Maggie for Q&A. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Jee, and good afternoon, everybody. Thank you for joining Penumbra's second quarter 2020 Conference Call. Our total revenues for the second quarter were $105.1 million, a year-over-year decrease of 21.7% as reported and 21.3% in constant currency. Maggie will further review the financials as well as more details on our balance sheet in her commentary. I will organize my comments today into three distinct topics. First, I will address the issues we have faced due to the COVID-19 pandemic and our view of the road forward. Second, I will review the developments since our last earnings call related to the company as a whole and our specific products. And finally, I will touch on the issue of racial injustice that has come to the surface this past quarter, and how Penumbra is addressing it both internally and externally. First, as we discussed on our last earnings call, Penumbra confronted the COVID-19 pandemic by first making sure all of our employees could work safely. Over the past few months, we have continued to iterate how we conduct business, specifically how we manufacture our products and communicate with our customers. With respect to product manufacturing, our team has done an extraordinary job executing on two key objectives: ensuring a safe workplace and keeping up with demand. In terms of the overall business, we have also focused on cost reduction wherever possible and prudent. On the customer side, we are very pleased with our team's ability to strengthen customer relationships during this challenging time, including perhaps our most successful new product launch in our company's history, which I will discuss in a moment. With these important structural iterations in place, we have great confidence that our team will continue to operate successfully throughout the duration of this pandemic. Now, let me outline some of the specific revenue numbers and trends from the quarter. Overall, we saw uniform improvement as the quarter progressed. Specifically, in direct selling markets, our business achieved slightly less than 90% of pre-COVID levels in the second half of the quarter. In fact, trends in June were even better than this. As a reminder, we highlighted last quarter that the portion of our international business that is handled by distributors, a majority of which has our stroke products, carried more uncertainty last quarter because of the pandemic, as our distributors were trying to navigate the crisis and its impact on their own businesses. Having said that, this observation does not raise concerns about our long-term business opportunities in these regions, as we get beyond the pandemic. Notwithstanding our positive recovery in June, we think that the acceleration of the spread of COVID-19 in the United States and other parts of the world where we sell our products is a reason to be cautious about projecting late Q2 trends into the second half of the year. I want to be clear, however, that we do not believe that disruption in our revenue trends caused by the pandemic should fundamentally deviate from the general revenue trends of our medical device peers. Beyond the numbers, the Penumbra team has put forth extraordinary effort in the second quarter to navigate the company through this phase of the pandemic, from which we will emerge even stronger. Further, while the COVID-19 pandemic will continue to pose challenges, I am convinced that Penumbra's culture prepares our team to meet this challenge confidently, and with a sustained focus on things that matter to our physicians and the patients they treat. Now moving to the second topic, updates to the company and our product portfolio since our last call. This may come as a surprising statement to some, but the last three months have been one of the most productive periods in our company's history. First, we fortified our already strong balance sheet during the second quarter, in addition to the previously announced $100 million revolving line of credit with JP Morgan, Bank of America, and Citibank, on which we have not drawn. In late May, we executed a follow-on offering that netted the company approximately $135 million. We believe these were prudent ways to give us additional access to capital to both navigate the current environment and continue investing in important opportunities. Of particular note, because of the financing, we have felt comfortable accelerating three existing internal development programs, one of the three being new opportunities for the REAL system that emerged directly from this pandemic, and the other two we have not disclosed. In addition, we attracted additional leadership to the company, augmenting an already strong deep leadership team, with whom I am truly proud to work. Specifically, in mid-May, we welcomed Jason Mills to Penumbra as Executive Vice President of Strategy. A few weeks ago, we announced the appointment of Dr. Corey Teigen as Chief Scientific Officer and Dr. Jim Benenati as Chief Medical Officer, two newly created positions. It is an ideal time for us to welcome Jason, Corey, and Jim to Penumbra's leadership team as we move into our next phase of growth. Now, I would like to highlight a few developments with our products that occurred during the first half of 2020 that I believe are very important to Penumbra. During our December Investor Day, we stated that we expected one stroke and two peripheral thrombectomy products to be cleared by the FDA in 2020. All three of those products were cleared in the first half of the year. In addition, we received clearance for a neuro access product. We think both the stroke and the neuro access products are important components of our future development work in stroke, which we expect to see in 2021. As for the peripheral thrombectomy products, we announced the US launch of two extraordinary products on Tuesday, July 14. These two products come together to form the Lightning 12 system, which is a significant advancement in how clot is removed from the body. It is worth noting how we launched Lightning 12. We introduced this revolutionary system through a unique virtual launch that had massive reach and drove positive engagement among physicians. In fact, this may become our preferred method of launching new important products in the future. Let me spend a minute outlining the new Lightning 12 paradigm, as we think it is important to convey the uniqueness of this technology. The Lightning 12 system includes a new larger aspiration catheter that incorporates novel laser-cut hypo tube catheter engineering to provide advanced deliverability and torqueability within the body. This unique larger catheter is combined with Lightning intelligent aspiration tubing, which is perhaps the most innovative and technologically advanced product we have ever designed in our vascular franchise. Lightning automates, through proprietary sophisticated software algorithms, detection of blood clot and differentiates clot from flowing blood, allowing physicians to focus on optimizing thrombus removal while reducing concerns over blood loss. The combination of these two products makes Lightning 12 Penumbra's most advanced clot removal technology. The feedback from physicians has been very positive and very inspirational for our entire team. For example, in Lexington, Kentucky, Dr. Nick Betty called our local territory manager regarding a patient, a young woman who was 36 weeks pregnant, who had a blood clot in the entirety of her left leg from behind her knee all the way to the common iliac vein. In other words, a huge amount of blood clot on the venous side of this patient. Dr. Betty had recently heard about Lightning 12, in particular, the unique feature within the system that produces audible signals to tell the physician when the catheter is in blood clot and when it is not. He felt this feature would allow for a much faster procedure, dramatically limiting both the amount of radiation needed as well as blood loss, both important for any patient, but critical for a pregnant patient. He used Lightning 12 on this patient and was successful in removing the blood clot. In fact, Dr. Betty told me during a recent phone call that this was the most amount of clot I've ever taken out of someone. This was a great result in a very difficult case. In another instance, a patient was admitted to a hospital in Florida with acute and chronic thrombus in his right brachiocephalic vein. Given that Florida is currently a COVID hotspot, all the ICU beds in this particular hospital were full at the time this patient was admitted. Thus, tPA over a few days while the patient was in the ICU was not an option. Dr. Venkat Tummala of the Lakeland Vascular Institute needed to treat this patient and send him home on the same day. Dr. Tummala asked our local territory manager to bring in Lightning 12 to treat this patient. The procedure took only 45 minutes and had very little blood loss. Even better, this patient, who could not make a fist before the procedure, was able to flex his fingers just after Dr. Tummala finished removing the clot. Furthermore, because of the skill of Dr. Tummala and Lightning 12, this patient was able to go home the same day. Dr. Tummala told me on a recent phone call that he believed that Lightning 12 was, quote, a game-changer for treating large volumes of blood clot on the venous side without the need for lytics. These cases are just two of the early cases that illustrate the paradigm change Lightning 12 is bringing to the field. I am so proud of our entire engineering team for their incredible work on this product. Finally, I'd like to discuss the impact on Penumbra from the national discussion on racial injustice. An overwhelming number of our employees expressed a strong desire to engage in a constructive conversation to channel their collective anger, frustration, and distress. That energy led to the development of a company-wide plan that includes opportunities for individual education and effort-specific internal company initiatives, as well as external initiatives and community outreach. Our team is already extremely strong, creative, and capable, in large part because of our diverse employee base. But I believe that this work will make Penumbra even stronger and more capable as we continue on our mission of identifying, developing, and delivering therapies that truly matter to patients. Finally, notwithstanding the disruptions and uncertainty caused by the pandemic, Penumbra is in the strongest position it has ever been for long-term growth. We are in the very early stages of two incredibly important product launches. We have the most robust product portfolio and pipeline in our history. We have the strongest team we have ever had. And finally, the team's skills are being honed through tireless dedication, teamwork, and effort during this crisis. I'll now turn the call over to Maggie.

Thank you, Adam. Good afternoon, everyone. For the second quarter ended June 30, 2020, our total revenues were $105.1 million, a decrease of 21.7% reported and 21.3% in constant currency compared to the second quarter of 2019. Our geographic mix of sales in the quarter was 74% US and 26% International; neuro and vascular represented 13% and 44% of sales respectively. Furthermore, given distributor channels reside solely in our international business, we believe it is constructive to provide additional color this quarter on regional performance for both our vascular and neuro businesses. Revenues from our vascular business were $46.3 million in the second quarter of 2020, a decrease of 12.1% reported and 11.9% in constant currency. In the quarter, our vascular decline was driven by results from both our thrombectomy and embolization businesses, both of which were more negatively impacted by COVID-19 in the first half of the quarter. The US vascular business declined 5.7% reported, and our international vascular franchise declined 36.7% reported compared to the second quarter of 2019. Revenues from our neuro business were $58.8 million in the second quarter of 2020, a decrease of 27.8% reported and 27.3% in constant currency compared to the same period a year ago. Our US neuro business declined 13.3% reported compared to the second quarter of 2019, and our international neuro franchise declined 45.4% reported compared to the second quarter of 2019. Our neuro decline on a global basis was primarily driven by sales of our Penumbra system for ischemic stroke, while our international neuro business was impacted by distributor order timing. Our gross margin in the quarter was 61.8% of revenue compared to 70% of revenue in the same quarter last year. Our second quarter of 2020 margin performance reflects volume deleveraging, with minimal impact from ASP and product mix. During the quarter, we maintained overall manufacturing spending at first quarter 2020 levels as we made a conscious decision to continue paying all of our direct labor at 100%, while reducing labor capacity per shift to achieve social distancing and employee safety measures. As a result, certain labor costs were reflected as additional period expense in the quarter. We expect our near-term gross margin will be similar to second quarter levels as we continue to balance volume absorption and investment in capacity expansion and scalability in our new Roseville facility. Total operating expenses for the quarter were $82.6 million, or 78.6% of revenue, compared to $81.1 million or 60.5% of revenue for the same quarter a year ago, representing a sequential cost reduction of just under 10% compared to the first quarter 2020. Our spend control measures include executives' voluntary salary reduction, certain volume-related expenses, and fewer activities such as travel, entertainment, and conferences, all of which drove a 20% spending reduction in SG&A compared to the first quarter 2020, notwithstanding some accelerated investment in production capacity, commercial digital capabilities, product launches, and new product development. Our research and development expenses were $22.7 million for Q2 2020, compared to $13.5 million for Q2 2019, as we accelerated investment in a few important long-term growth opportunities for Penumbra, which Adam referenced earlier. SG&A expenses were $59.9 million for Q2 2020, compared to $67.7 million for Q2 2019. We had an operating loss in the quarter of $17.6 million compared to an operating income of $12.8 million for the same period last year. Turning to our cash flow and balance sheet, we ended the second quarter 2020 with $278 million in cash and cash equivalents and marketable securities and no debt. Net cash increased $110 million, reflecting approximately $135 million in net cash proceeds from the secondary offering in May, offset by cash usage in operating activities during the second quarter. Notwithstanding our strong balance sheet, we will continue to control spending, where it's prudent to do so during uncertain times, while still focusing on innovation and strategic investment. Finally, due to the uncertainty caused by the COVID-19 crisis, in early April, we withdrew guidance for 2020. We are maintaining this policy today as we cannot reliably predict that recent trends in our business are indicative of a recovery, especially given the recent acceleration of cases in the United States and in some markets around the world. And now, I'd like to turn the call back to Adam for closing remarks.

Thank you, Maggie. As both Maggie and I have outlined, notwithstanding the challenges and uncertainty caused by the pandemic, Penumbra is well positioned for strong long-term growth. I would like to use my closing remarks to clearly acknowledge that this strength is only possible because of the remarkable people who work at Penumbra and the extraordinary work they do every day. In addition, I want to extend my gratitude to every Penumbra employee for the sacrifices you are making during this very challenging time. Thank you. And now we'd like to open the call to questions. Operator, please go ahead.

[Operator Instructions] Your first question comes from the line of Bob Hopkins.

Hey, great, good afternoon. Can you hear me okay?

Yeah, hi, Bob.

Hey, Adam, how are you? Thank you for taking the question. First question is just a clarification on your comments on the impact of distributor actions outside the United States in the quarter. I was just wondering, sorry if I missed this, but could you quantify the impact on the company in the second quarter? And maybe give us a sense of how long you think this lasts? Just looking for a little clarification on the distributor commentary you made? Thank you.

Sure. So we didn't quantify that portion of our business. We highlighted the majority – the vast majority of our business, which is direct. As you know, distributors make up somewhere between 10% and 20% of our business. So the vast majority is not that, and I was pretty clear to say that we didn't think that this was any form of a fundamental situation other than just those companies, many of them family-owned distributorships, managing their own businesses through this time. So I don't think it has any kind of long-term effect other than quarter-by-quarter managing their business. And the things to look at really are the businesses we control, which is again the majority of the business revenue.

Okay, I'm just wondering if there's quantification of the impact in Q2 to total revenue, but from that I realized it's a short-term issue, but I was just curious. The other thing I want to ask Adam is just to clarify your message on your commentary on Q1 and beyond. And to make it easier for investors, I wonder if you could just let us know what Penumbra's total company year-over-year revenue growth rate was in the month of June because we have that data from most of the companies in MedTech? And then also I want to make sure I heard your message correctly on trends post June because I think you basically referenced that because of the spread of COVID things have slowed a little bit post June, but I just wanted to make sure I heard you correctly.

Yeah. Look, what we said in our prepared remarks, where we qualified the second half of the quarter versus the first half, so the first six weeks versus the second six weeks. And we mentioned that June was a tick up from that. So we didn't purposely use numbers. And Bob, I totally understand the desire to know sort of the very micro trends and then sort of into July, as you've alluded to how things are going. I totally get that. I've even heard some folks are asking companies sort of for a week-by-week analysis of their numbers, but from our perspective, you don't really get reliable information looking at those kinds of trends. That being said, and to be totally transparent, our July numbers are on an even positive upward trend from those before. But what I wanted to say and the point that we want to make is really important, and that is the acceleration of cases always sort of leads – is a leading indicator of the hospitalization numbers and we saw a huge acceleration in cases in the month of July. And so it's just sort of prudent if you look at mainstream media and statements from public health officials, even in the last days over the weekend, that sort of looking forward, it's hard to predict where this goes. We have no information. There's nothing about our business that is fundamentally different than our MedTech peers, a point that we wanted to make. But it's not prudent for us to project out that end of this quarter even the successful start to the quarter two any kind of trends for the whole quarter given the way this is playing out. So we just wanted to be crystal clear again, we have done well, we've seen a nice uptick, but we think just as our peers are saying, we cannot predict how it goes for the rest of the year.

Okay, so I guess the message is, and I apologize for the short-term nature of the – but it's just a unique environment. So I guess the message is July is better than June, but be careful about extrapolating because of all the uncertainty.

Yes.

Great, thank you very much for entertaining the questions. Appreciate it.

Of course.

Your next question comes from the line of Cecilia Furlong.

Great, thanks for taking our questions. I guess, Adam, I just wanted to start first, just from a high-level perspective, your view on the peripheral market and DBT with Lightning now, just the role that technological innovation versus clinical data can have in driving the market and just really any market differences you'd call out versus your experience with the stroke market?

Yeah, thanks for that question. I think it's a great question. To sort of compare the stroke market, it needed the clinical trials that came out a number of years ago to prove that we should be treating these patients in the first place. And that was really the most important thing to lead and open up that market. And then we had the second task that we're still in, which is to make sure those patients who have strokes get to a hospital where they can be treated. That's dramatically different from the way the peripheral market is presenting itself. And what we did at our Investor Day in December was we outlined over 400,000 patients in the US that are currently being treated for their clot, either interventionally already, most of the time using an interventional administration of tPA or a combination of tPA and devices, or surgically through vascular surgeons. So these are patients that are already being treated with no clinical data around that treatment. If you were to do clinical work to prove, for example, in PE or DVT, that the use of some of these new modern techniques, particularly Lightning 12, were better than what the sort of original standard of care is, which is medical management, you could even take that 420,000 or 430,000 number to a much larger number and probably get up to six or seven plus hundred thousand. So again, these are all patients that are already being treated in the same labs with our customers that are using Lightning 12. So there is definitely clinical work ahead of us in our plans. But that is really more to grow the market from the 430,000 patients rather than to tap into that initial large market.

Great, thank you. And I guess if I could just ask about your commentary regarding just the benefits you saw in the quarter, launching this virtually, but really just how you're thinking about launching products going forward, what were the biggest benefits and just being able to really streamline that process?

Well, I – yeah, thanks for asking that question. I'm going to keep some of our exact strategy, even though it's sort of played out a little close to the vest because I don't want everyone else to use it against us. But I will tell you it's kind of extraordinary to adapt and deal with the world as it unfolds, and our team found a way to really engage and using the tools and being very creative in the way we've done that to get the information about this product out there in a much shorter timeframe. Normally, when you launch a product, your sales team starts to make appointments and call doctors and then meets with them, and that process is pretty tried and true and it works. But it takes a certain amount of time, and we were able to collapse some of that time pretty dramatically because of the launch techniques we used and the nature of time, and whether or not it's successful in a world in which we're not dealing with a pandemic. That's hard to tell. It may or may not have legs beyond this, but it certainly was quite effective for us with this launch. And not to be cute about it, it helps that the product is as good as it is because it's really kind of an extraordinary product.

Great, thank you, Adam.

My pleasure.

Your next question comes from the line of Larry Biegelsen.

Good afternoon. Hey, guys. Thanks for taking the question. Adam, you can hear me okay.

Yeah. Hi, Larry.

Good. Hi. So Adam, I assume the product that you were talking about when you said it's the most successful product launch ever was the new Indigo 12 franchise with Lightning. Is that fair?

Yeah. Yes.

So, okay, you launched on July 14, it's pretty early to make that claim. So I guess a couple of questions on that. One is what's that comment based on? And we're assuming we've heard in the market about a 35% price premium? Is that in the ballpark? And do you expect basically the entire Indigo franchise including the eight franchise to kind of transition to Indigo plus Lightning? In other words, to use Lightning, and is the price premium associated with the Lightning tubing? And I had a follow up.

All right, well, let me – there's two or three questions in there, so I try to write them down and then I'll try to answer them. If I missed one, let me know in your follow up. First, I – as you know, and you've gotten to know Penumbra and me personally from covering us for a bit. I typically don't get ahead of ourselves and comment on products until it's sort of after the fact. And so your observation that it's only been two weeks and I'm making these comments is quite astute. And the only answer to that is my personality has not changed. So what changed? And that is the success of this product. We had very high expectations for this product, Larry. You know, we've been working on this for four years. The technology is quite sophisticated and we were quite optimistic about what we thought we would see. But to see it in the first couple of weeks in the real world and to see the success and the huge volumes of clot we have been able to get out of patients on the venous side, it's really been kind of extraordinary, and I think it's surpassed even our high expectations. So that's why I have the confidence to say that. We've talked to lots and lots of doctors who have used it, tried it out, and heard their reactions. And that's led us to make those statements. As it relates to price, which was the next part of your question, there is obviously a – before our tubing was just tubing and it was sold for a relatively small dollar amount. This now is a much more sophisticated component that does have a higher price, but the price trade-off comes with the fact that we are likely going to use, notably less separators, which were used in a lot of these venus cases. Thus, we won't get to quite the same price premium that you just outlined because we'll see an overall reduction in number separators. So we price this – we've talked about pricing strategy, the goal for us on pricing is to always make this a profitable procedure for hospitals, for them to have success in treating their patients and be viable. And this continues that exactly how we've always done that. So we feel very good about our prices. You know we've always been thoughtful around that strategy, so we never have to go backwards. And this plays right into that strategy, exactly how we've always done. And then you said you have a follow-up or two?

Yeah. So thanks for that, Adam. Just – so first JET 7, XTRA FLEX, MAX, you have that approved and I think you said you had a neural access product. But I didn't hear you talk about the rollout of those. And then just lastly, on the R&D spending, is this the new run rate, it looks like kind of on an underlying basis, about $20 million a quarter? And why now such a large increase in R&D and it's kind of a new run rate? Thanks for taking the questions.

Sure. So the first question on JET 7, MAX, I did mention we have been doing some of the work we do with every new product that is clear to evaluate and make sure it's all good. The product is exactly what we hoped it would be. What I want to make sure everyone understands, and I have said this before, is that some of the products that are coming, this being one of them, matter independently, but really matter as part of a larger component of our long-term strategy. I reiterated that in my prepared remarks that the goal here is to fundamentally reshape how stroke patients are treated. MAX is an important step in that, but independently, may not be as obvious as the long-term picture, which I think will come clearer as we get closer to 2021. And as for R&D spend, we're not making any comments today on this being the new normal, other than what we had said that the raise we did in this quarter gave us the comfort in a time in which there's some uncertainty. We were hoping to do this anyway, but the raise gave us that comfort to spend this money particularly focusing on three internally pre-existing projects, and one of them being the REAL system. As we've said before, the pandemic has opened up an opportunity for the REAL system to be used. The existing the original REAL system REAL 1 for lack of better term is used when a patient and a therapist are physically together. That became hard at the end of March and into April for a lot of patients. And CMS put out a new temporary order around reimbursing sort of tele-rehab therapy sessions and then subsequently put out notifications on that, they are considering it may be permanent. That opens up the door to having all kinds of ability to do work with patients and therapists when they're not physically together, as well as having therapists assign homework and do work independently to accelerate people's recovery. It also opens the door to types of medical conditions that don't require a physical or occupational therapist, but have a huge impact on patient health care or health and wellness. So that is what the REAL investment is about is to take advantage of that need that is desperate in the market right now. And as I said, the other two are projects we've been working on that gave us the comfort to continue to invest in and actually accelerate them. So that I think is a good time.

Thank you, those were helpful answers. Thank you very much.

Your next question comes from the line of Robbie Marcus.

Great, thanks for taking the questions. I was hoping you could give us a little more color on the US versus international trends. I very much appreciate you breaking out peripheral and neuro US and international. I love when companies provide more versus less detail and disclosure. But Adam, even if you take the 10% to 20% of revenues out of distributors and just assume they didn't happen at all in the quarter, you're still at a pretty large differential in trends internationally compared to the US. How much of that, if you can say, was the first half of the quarter versus the second? Does international look more like the US as we're exiting the quarter here, and any other trends you can give us to help think about the future US versus international?

Yeah. I can't give you any sort of quantitative information beyond what we've said. The US, there was a difference, obviously, geographically, in the first half of the quarter than the second half of the quarter. But the US did relatively well on a whole quarter basis. There isn't anything, I guess – I guess what I'm trying to respond to is there's nothing – there's no information here that is to be gotten. There's nothing about our international business other than what I call that around distributors versus our US business. Our US business was obviously strong. That is the story sort of beyond just managing through the timing of the pandemic. And I guess that's the best way to answer the question. There's no underlying issue to uncover here. The business has returned strongly both in the US and internationally. Our distributor markets in the long term I think will be fine. So I guess I'm not trying – I'm not sure what I – Maggie maybe could provide a different color.

Yeah, just US and Europe direct business then the performance in the first half versus improvement in the second half is pretty consistent and uniform across. But then if we look at the international distributor revenue, I mean, even historically, the orders come in on a pretty inconsistent lumpy pattern. So there is no – we cannot derive just based on first half or second half performance to the second half of the year.

Okay, thanks and maybe it's a follow-up. Adam, you talked about three products that you're using the equity raise for advancement in the pipeline. One was REAL VR. I know I'm not going to get you to disclose the other two. But can you give us a sense on are these near, medium, long-term projects? Do they fit within your existing verticals? Are they new verticals like REAL VR was to neuro peripheral? And any other comments you'd like to share?

Yes, to some of those, no, to some of those. No, they are significant opportunities that can help an extremely large number of patients. And as you know, that's sort of the way we think about products that we work on, and both of these fit that exactly, significant opportunities that would help an extremely large number of patients.

Your next question comes from the line of Margaret Kaczor.

Hi, this is Brandon on from Margaret. If I could just – looking at the US, it was kind of interesting that the vascular business seemingly had a little less headwind than the neuro side. I guess it was interesting just because you think the exposure to elective procedures on the vascular side maybe would have given a little more headwind relative to neuro? So I was curious if you could talk about what do you – what would you attribute that to? Is it just a mix thing of electives or urgent? And then maybe your expectations for what that means for the rest of 2020 and how these businesses should trend going forward?

Yeah, let me start by commenting on the trend. We really talked about this also last quarter to what we had started that in April when we shared our April numbers. And I really think it comes down to the simple fact that particularly in the beginning of the quarter the number of patients who had strokes had – that were showing up, and this was well documented, and not only in scientific literature but mainstream media, did not show up to the hospital. And they don't come back. Once that happens, you can't catch up on those or treat them later. But on the peripheral side, a lot of those patients can come back and be treated. So there's a fundamental difference in what those trend lines are going to look like. And I think that's sort of expected. And then moving to the place where people feel comfortable going to the hospital, we obviously have that positive trend line in the back half of the quarter. But my caution is just what is happening in the larger communities, both in the US and other markets, with the pandemic and the acceleration of cases in the US and the resurgence of cases in some other markets, where they had done a better job of suppressing it. So that provides some uncertainty going forward, beyond just what we all know by reading or listening to the news. We don't have any additional insight to offer sort of guidance or perspective going forward. Obviously, if we can continue to have people be educated and public awareness that going to the hospital is safe, we expect the stroke numbers to continue to be strong. But if that were to change and people started to feel differently, then those numbers can be and would be impacted. The peripheral numbers have that added benefit of seeing some of that business come back in June and then into, as we said, continuing to July.

Got it, that's helpful. And then within the vascular side, still have your reps been able to get back into the accounts? I'm trying to think about how training efforts are going and thinking about growth going forward. One, are you able to train new doctors? Can you have growth in the back half of the year from new doctors? And are you really able to just keep developing that market, given it's a little bit of a market development effort? Thanks.

Yeah, it's a great question. And the answer is during the window of really June into July, a lot of reps were able to get back into hospitals. There are definitely parts of the country that that became a little more difficult and strained as the acceleration of the virus happened. But so far that hasn't been a big limiting factor, particularly around the launch of Lightning 12. But again, we're cautious about projecting out what we have seen so far to the back half of the year, just given the nature of what's happening and what you hear about the reports. But that being said, that hasn't been a limiting factor yet. And for most people, the use of this product is – if you're already using this product and all you're doing is adding Lightning, it does not really require additional in-person training. Nice to have; we're happy to do it, but you could do it without it. And that's part of sort of our virtual launch, if you will, for new doctors who've never used it. They certainly could do that, but we would try to get them some in-person sort of education or training if possible.

Got it, thank you.

Yeah, my pleasure.

Your next question comes from the line of Joanne Wuensch.

Good afternoon. How is everybody?

Good. How are you, Joanne?

I'm doing well, thank you. I have two questions. I'll ask them together. One of the drivers of the US stroke market was regional or state-by-state adoption of new guidelines. I have no doubt that every state is really distracted elsewhere. But have you heard additional conversations on this type of topic? And then my second question is more of a financial one. I think if I heard you correctly, third quarter margins will be similar to the second quarter. Can you confirm that? And then how do we think about re-accelerating that metric? Thank you.

Sure. Let me address the first part of the question and then I'll let Maggie address the gross margin question. Your instincts I think are generally right that state legislatures are pretty busy with lots of other things than worrying about stroke triage. They are obviously facing questions around the pandemic, unemployment, schools opening, and so on. We did recently receive an update from the group that is running this campaign, and there are still some positive developments moving, albeit probably a little slower than normal in states like Massachusetts, Ohio, and Pennsylvania. But I would expect that there would be a slowing of that state-by-state campaign for a little bit while we move through the pandemic. But it doesn't mean it's beyond that timeframe. And then Maggie you can answer the gross margin question.

Yeah. When we think about gross margin, so first of all, gross margin is still a function of volume absorption. So if revenue increases, if volume increases, we will be able to better leverage fixed costs. But there are a couple of other factors to consider. We did invest and build some inventory in this quarter in preparation for new product launches in Q3. So some of the under absorbed overhead is in inventory and will be reflected in the quarter. Another factor is while we're syncing with demand, we're still continuing to appropriately invest in efficiency and productivity in our new Roseville facility. So some of these investments may have short-term margin impact, but all these investments will set us up for better margin expansion in the future. So it's more of a short-term view.

Thank you.

Thanks, Joanne.

There are no further questions at this time. Ms. Hamlyn-Harris, I 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 today's conference call. You may now disconnect.