Good afternoon. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra, Inc. Q4 and Full-Year 2020 Earnings 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. I would like to introduce Ms. Jee Hamlyn-Harris, Investor Relations for Penumbra. Ms. Hamlyn-Harris, you may begin your conference.

Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the fourth quarter and year-end 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 year ended December 31, 2020, which is scheduled to be filed with the SEC on February 23, 2021. 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 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 20 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 fourth quarter and full year; and Jason Mills, our Executive Vice President of Strategy, will discuss our 2021 guidance. 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 fourth quarter and year-end 2020 conference call. Our total revenues for the fourth quarter were $166.9 million, a year-over-year increase of 14.9% as reported and 13.7% in constant currency, which marks the second consecutive record quarter for Penumbra. This also included a reduction of $5.8 million in revenue due to the recall of Jet 7 Xtra Flex in mid-December. Excluding this one-time impact, total Q4 non-GAAP revenue grew 18.9% to $172.7 million. For the full year 2020, our total annual revenues were $560.4 million, which represented growth of 2.4% over full-year 2019. Excluding the one-time recall impact, total annual non-GAAP revenue grew 3.4% over 2019 to $566.2 million. Maggie will further review the financials as well as details on our balance sheet in her commentary. During my prepared remarks this quarter, I will focus on three topics. First, I will briefly discuss our culture of innovation that is responsible for the development of our broad portfolio of products. I will then update you on our specific developments in vascular, neuro, and virtual reality. Second, I'll talk about the progress we've made in international markets since our last call including China. And third, I will address the challenges we all faced in 2020 and early 2021 from the pandemic and our thoughts on its impact. We have built a purposeful structure and culture at Penumbra that allows us to develop and continue to innovate products that really matter even as the company gets larger. This ability to continuously innovate has been led for almost 17 years by a large team of highly skilled and motivated people, including our Pengineers who share a commitment to solving hard problems in healthcare, and it has been instrumental in the development of our broad portfolio of products. Our results this quarter show that our products are positively impacting more patients than ever before. Yet we continue to be driven every day by the number of patients we can still help. We estimate, in the United States alone, that nearly 80% of neurovascular thrombectomy patients, over 90% of vascular thrombectomy patients, and essentially 100% of patients to whom our real VR technology is applicable can be added in the future to the patients we can help with our current portfolio of products. Let's start with our vascular franchise, which became our largest business for the first time in the fourth quarter. Our Lightning products once again drove strong growth in vascular. In fact, our proprietary Lightning technology is now embedded in products used to treat patients in both the venous and arterial segments with Lightning 12 and now Lightning 7, which I will discuss shortly. Lightning 12 continues to be incredibly successful at removing blood clots in single sessions from the veins and pulmonary arteries. During the fourth quarter, Lightning 12 received an indication from the FDA for the treatment of pulmonary embolism or PE. Additionally, we announced our partnership with Rapid AI to bring their cutting-edge artificial intelligence platform from stroke to PE. There is a lot of interest and need to streamline the communication flow and decision-making in PE cases to help more patients and help them faster. Lightning 12 is just scratching the surface in venous and pulmonary thrombectomy, even though adoption and physician feedback since its third-quarter launch has been extraordinary. During the last month, we started the initial evaluation cases for Lightning 7, which have gone very well, and we expect a full launch in late March. We believe that Lightning 7 can offer significant improvements to physicians treating patients with clots in their arteries and provide benefits that are similar to those of Lightning 12 is providing on the venous side. In addition, CAT RX, our coronary product, continues to help more and more patients who have coronary clots. The US population that we estimate is approximately the same size as the number of US ischemic stroke patients eligible for mechanical thrombectomy each year. Taking stock of our entire vascular business, including peripheral embolization, which also had a record quarter, we are poised for durable growth for many years to come. Now, let me turn to our neuro business. In the fourth quarter, we launched BMX96, one of our most innovative Access products. BMX96 has a slightly smaller outer diameter compared to our Neuron MAX guide catheter. However, our novel technology has allowed us to make the inner diameter even bigger, going from 0.88 to 0.96 inches, which allows for greater room inside the guide catheter to maneuver other catheters being used in the case. It has been very well received by physicians not just in stroke cases, but in all types of neurovascular cases. Following the recall of Jet 7 Xtra Flex, some of our stroke physicians switched directly to our ACE68 or Jet 7 standard tip, whereas others took this opportunity to try other reperfusion catheters. Following that trialing, some of those physicians are coming back to using either ACE68 or Jet 7 standard tip as their primary reperfusion catheter. In fact, based on both the demand for exchanges as part of the recall and current demand, we are working through a backorder situation for the Jet 7 standard tip which we expect to resolve in the next month. These products, together with the rest of our portfolio, will continue to play an important role in many stroke cases until later this year when we update our catheters. In addition, we remain very optimistic about our future innovations that we hope will bring even better solutions to our physician customers. 2020 was clearly a challenging year for the growth of US stroke procedures in general, due primarily to COVID. However, this motivates us to work even harder to successfully treat more stroke patients. We constantly remind ourselves of the enormous cost of the resultant disability of stroke that is devastating to patients and puts such a huge financial burden on our healthcare system, billions and billions of dollars. It will take some time, but we believe that for these reasons, the market will get back to growth over time. Let's now move to our newest product area, virtual reality or VR. VR is the area in which we think we can help the most patients over the long term. Our REAL immersive VR system is proprietary technology designed specifically as a platform for healthcare applications, built from the ground up to deliver creative applications that are purpose-built for medical conditions impacting millions of patients. Our vision for REAL has actually expanded over the past year. First, there is a large opportunity for us to serve many patients who need some form of rehabilitation, with applications that are tailor-made for patients interacting with their physical or occupational therapist, not only in the clinic but also virtually while the patient is in their own home. This rehabilitation opportunity for REAL includes patients recovering from stroke, cardiac rehab, orthopedic rehab, movement disorders, traumatic brain injury, and other conditions. We also believe that it is important to offer a broad portfolio of applications dedicated to helping patients suffering from chronic pain, mental health, stress, and anxiety, and memory loss, among others. The clinical evidence around the benefits provided by virtual reality for both rehabilitation and mental health applications is significant already. We plan to build on these data, working with some of the world's foremost VR experts in healthcare, to develop applications and clinical evidence for the REAL platform. We fully recognize that many uncertainties remain, and we have a lot to prove regarding the REAL platform, but we strongly believe that what we are doing with the REAL platform truly matters and can help a great number of people. Now, let me update you on our international business, which performed well in the quarter. First, I'd like to share company updates related to China. During the fourth quarter, we signed a new multifaceted agreement with Genesis MedTech Group, which merged with Hua Medtech, our former partner, making it, we believe, the largest domestic company in China's neurovascular space. Our initial collaboration is a multi-year fixed-term strategic partnership for five products, ACE68, ACE60, 3MAX, Neuron MAX, 088, and Jet D. Each product produces three distinct revenue streams: licensing royalties and product distribution, for which we have good visibility. We are excited to be working in partnership with Genesis as they share our commitment to patients, and we believe they have the capacity and expertise to bring these important technologies to patients in China. We're also excited about future opportunities for Penumbra in Japan. While 2020 was a challenging year for us in Japan, owing to COVID, reimbursement changes, and ultimately, the Jet 7 Xtra Flex recall, we see many opportunities for growth in the region, not only in our current stroke and vascular embolization business but in vascular thrombectomy and virtual reality over the long term as well. Looking forward, we expect solid growth in Japan in 2021 and beyond. We also made solid progress in Europe, Latin America, and Asia-Pacific in 2020 and expect to see continued growth in 2021. Finally, I'd like to discuss the pandemic and its effect on our business. The surge in cases around the holidays and our team's continued focus to maintain a safe working environment for employees had a small impact on our production. However, assuming the virus variants do not change the current status, we believe we will be able to navigate our production capacity during this time and keep up with demand. As for the impact on our revenue, like most of our peers, we did see some impact in the first part of the quarter around elective cases in the United States and in some international locations, which will have a minor impact on this quarter. That said, assuming the current trajectory continues, we do not think it will have a major impact on our annual growth for 2021. I'll turn the call over to Maggie to deliver our financial results for the quarter and the full year.

Thank you, Adam. Good afternoon. I will begin with a discussion of the financial impact of the recent Jet 7 Xtra Flex voluntary recall, then I will go into the results for the fourth quarter and full year 2020. With the announcement of the voluntary recall of Jet 7 Xtra Flex on December 15, 2020, the financial impact in the fourth quarter was a reduction of $5.8 million in revenue due to refunds for product returns, as well as $12.6 million in charges to costs of sales, primarily related to inventory write-offs and costs for product exchanges. This voluntary recall had an impact of approximately 900 basis points to our gross margin. These figures represent the total expected financial statement impact from the voluntary recall as we have accounted for or estimated any future returns or exchanges as required by the accounting rules. We do not expect to see any material changes to our financial statement in either a further reduction in revenue or increasing cost of sales expense in 2021 due to any lingering impact of the recall. The following fourth quarter financial metrics will represent non-GAAP financial results, which exclude the impact of the voluntary recall as previously described. As a reminder, fourth quarter GAAP figures and a reconciliation from GAAP to non-GAAP measures are provided in our posted press release. For the fourth quarter ended December 31, 2020, our total non-GAAP revenues were $172.7 million, an increase of 18.9% reported and 17.7% in constant currency compared to the fourth quarter of 2019. Our geographic mix of sales in the quarter was 70% US and 30% International. US and international reported sequential growth of 10.5% and 24.4% respectively compared to Q3 2020. Revenue from our vascular business grew to $87.1 million in the fourth quarter of 2020, an increase of 45.5% reported or 44.7% in constant currency compared to the same period last year. Our year-over-year performance is driven by growth across vascular thrombectomy and embolization products. We also saw strong sequential growth from Lightning 12. Revenue from our neuro business was $85.6 million in the fourth quarter of 2020, an increase of 0.2% reported and a decrease of 1.2% in constant currency compared to the same period a year ago. Revenue for Jet 7 Xtra Flex through December 15 was $9 million or 5.2% of total non-GAAP revenue excluding the impact of the recall. Our US neuro business declined by 0.3% reported on a sequential basis. Our international neuro business increased by 30.3% sequentially and 5% reported compared to the same quarter a year ago. These results were driven by strong performance across Europe, China, and Asia-Pacific regions. Our non-GAAP gross margin in the quarter was 65.2% compared to 67.6% a year ago, and sequentially improved from 16.2% in Q3 2020. Our gradual improvement in gross margin is driven by fixed cost leverage with increased demand and favorable product mix. We continue to invest in direct labor and overhead spending on COVID-19 related safety measures and have made trade-offs in efficiency to ensure employee safety and to support product demand. Looking forward, we expect gross margin performance to continue at the current level, but it could slightly fluctuate with price and product mix. Total operating expense for the quarter was $96.1 million or 55.6% of non-GAAP revenue compared to $87.5 million or 60.3% of revenue for the same quarter a year ago. Our research and development expenses for Q4 2020 were $19.5 million compared to $12.9 million for Q4 2019 as we continue to invest in product development programs. SG&A expenses for Q4 2020 were $76.6 million compared to $74.7 million for Q4 2019. Our spend increased primarily due to an increase in headcount and related compensation expenses while we continue to have slower spending in activities such as travel and conferences. We had non-GAAP operating income in the quarter of $16.6 million compared to operating income of $10.6 million for the same period last year. I will now summarize our full-year GAAP performance. For full-year 2020, our total revenue for the year was $560.4 million, which represents an increase of 2.4% reported and 2.1% in constant currency compared to full-year 2019. Revenue from our vascular business for the full year 2020 was $267.8 million, an increase of 24.1% reported and 23.9% in constant currency. Revenue from our neuro business for the full year 2020 was $292.6 million, a decline of 11.8% reported and 12% in constant currency. Our gross profit for the year was 60.3% of revenues compared to 68% of revenue for full-year 2019. We had an operating loss for the year of $38.9 million compared to a comparable operating income of $47.5 million for 2019. Turning to cash flow and balance sheet. In 2020, we increased our inventory balance by $67 million, which primarily consisted of a $24 million investment in stocking of the REAL system and $43 million in consignment, raw material, and finished goods to support new product launches and growth in demand. In the fourth quarter, $18 million of REAL stocking was reclassified on the balance sheets from property and equipment to inventory due to changes in our go-to-market model. We ended the year with $265 million in cash and cash equivalents and marketable securities and no debt.

Thank you, Maggie, and good afternoon, everybody. We entered 2021 with strong momentum in our business. The markets we target are large, the products we bring to physicians are unique, and our dedication to patients remains paramount to our culture. We are introducing revenue guidance for full-year 2021 in the range of $675 million to $685 million, which represents 20% to 22% growth over full-year 2020 revenue of $560.4 million. Regarding revenue trends, we anticipate revenue in the first quarter to be lower than our record Q4 results, then increasing sequentially throughout the subsequent quarters of the year. We highlight two factors to consider with this guidance. First, we saw an impact to elective procedures in January from the resurgence in COVID cases in the US and other geographies. We expect this to be a minor factor in our first quarter results. Second, our guidance takes into account the near-term dynamics in our neuro thrombectomy business after the mid-December recall of Jet 7 Xtra Flex. That said, we are optimistic about our current portfolio of stroke products as well as our pipeline of new products, including the potential to usher in a new paradigm in stroke intervention. Overall, consistent with our approach to setting guidance in the past, our 2021 revenue guidance represents our current views on our markets, timing of new product launches, and other relevant inputs. I will now turn the call back to Adam for closing remarks.

Thank you, Jason. I'd like to end our prepared remarks by first acknowledging the incredible work of the Penumbra team during this challenging time to continue to ensure our products were available to help so many patients in need. Your dedication is extraordinary. And I am proud to work with all of you. Finally, I know everyone at Penumbra would like to thank our physician customers and their entire teams for the work they have done over the past year, sometimes in extremely challenging circumstances, to treat their patients. Your heroic work motivates us to continue innovating to make better and better products and has meant so much to us this year. Thank you. And now, we'd like to open the call to questions.

[Operator Instructions]. Our first question is from Bill Plovanic with Canaccord.

The first question is just on the – you gave us some color on cadence and guidance. Considering the quarter and if you back out the one-time charges, your annual 2021 guidance is below just fourth quarter 2020 annualized. I'm trying to understand the puts and takes. I understand what the neuro and some of the comments and maybe that's not a growth business. But just trying to understand, do you expect to go back significantly? I'm just trying to put all this together and it just seems a little lower than what we would expect.

This is Jason. I'll start and then Adam can add on. As we said in the prepared remarks, we did see in January a bit of an impact as our peer group has seen in COVID. We are taking into account the dynamics associated with the neuro thrombectomy business and the recall. We're very optimistic and confident about our business. As we mentioned, we expect to see sequential increases as the year progresses.

As you know, Bill, when you send guidance at the beginning of a year, looking out, we try to be as accurate and careful as possible. That said, I think the guidance represents a pretty strong growth for the company as we look at 2021 and, of course, beyond. But I think Jason's point about the first quarter is fair and obvious. Going forward, I think the numbers represent pretty strong growth.

Just a follow-up on that. In terms of the neurovascular, you've talked, I think last year a bit and now this, some of the commentary in the prepared remarks, just that kind of new platform to replace the Jet 7 in this neuro area. I was just wondering if we could get a little more color on what the features benefits may be and, if not on that granularity, at least maybe some timing associated we should think about.

I'm going to not, on this call with this question, break new news. So, I'll prepare you for that. There are two separate things. The update to reperfusion catheters and what we're calling this new technology with a paradigm change. The update on the catheters is just to continue to make them better and more trackable, which is not new news. The paradigm shift we're trying to create is about getting all the clot out, not part of the clot out, as fast as possible in all cases. We'll wait and see, but I'm not yet able to go beyond describing that technology. We're pretty excited about it and intend to bring it as soon as we can.

Our next question is from Robbie Marcus with J.P. Morgan.

This is actually Allen on for Robbie. I want to start off with a quick question on Lightning. Obviously, the peripheral side of the thrombectomy business continues to do very well even with COVID-19 headwinds. So, when we look at Lightning 7 and the kind of growth that Lightning 12 has given you, considering it is moving into an area that you already have a very strong presence in arterial, should we think of that as a more modest benefit to the business, or can we think of that as being as big of an impact as Lightning 12 was for the broader franchise?

The way we look at it is in just total numbers. If you look at the arterial side, there are a lot more patients that are being treated for arterial clots than there are patients being treated for venous or PE. The opportunity is simply bigger, and the impact on those patients is significant, often determining life or limb. In the long run, we believe this will have a substantial positive impact on the business as well as on those patients. The conversion to Lightning 7 will take time, but many physicians are eager to try this new technology, which will help our growth.

Our next question is from Bob Hopkins with Bank of America.

You guys had previously said that you might be getting into the weeds a little bit more on the REAL this year with either maybe an analyst day or some sort of event to kind of put a little bit more meat on the bone. Is that still going to happen at some point this year? And I think you had also previously said that a new stroke system would definitely launch sometime in 2021. I just wanted to confirm that was still the case.

On the stroke side, we are fairly confident. Again, we don't control every regulatory decision, but we will wait to provide a more definitive update on the timing of new products. On the REAL side, we definitely will share the new technology and the models. If possible, it would be so much more impactful if that was done in person, allowing people to experience and see virtual reality. We'll find a way to share what we can virtually and then have an in-person follow-up later.

Along those lines, Adam, how significant is this product going to be in 2021? What kind of contribution do you anticipate from REAL?

2021 is not the year that we're counting on a huge revenue contribution from REAL. Rather, it's a year in which we want to lay the base and groundwork for future revenue growth. Most of our revenue guidance revolves around our interventional products.

Just one real last quick one on the guidance. On the neuro piece of the guidance, do you have neuro growing over 10% implicit in that guidance? I'm just trying to get a sense for a rough breakdown of how much you think neuro will grow and how much that contributes to that 20% to 22% overall growth you're forecasting.

Thanks for the question. It's a really fair question. As you know, we don't break out our guidance to that level of detail, and so we're not going to do that here. But that having been said, looking at the businesses in total, we're optimistic about the products in the current portfolios for both neuro and vascular as well as the new products contributing to both.

[Operator Instructions]. Our next question is from Larry Biegelsen with Wells Fargo.

Thanks for taking my question. Can you talk a little bit more about the XTRA FLEX recall and, specifically, the capture rate? You've made a comment about physicians moving to other Penumbra devices versus competing devices and coming back to Penumbra. Is there anything you can quantify or give a little more color to that?

It remains a bit of a fluid process, so quantifying it is challenging because it's changing. Our ACE68 and Jet 7 standard tip were strong catheters prior to the recall. When Jet 7 Xtra Flex was withdrawn, it wasn't surprising to see many physicians returning to those strong products. We have a small backorder on Jet 7 standard tip which we expect to resolve shortly. We are confident in our product performance and anticipate continued innovation.

If I can have another question, just on what you talked about reaching $1 billion-plus revenue in 2023. Given the pandemic and the recall, what gives you the confidence at this point to kind of get to that?

The confidence comes from the success we've had in the last couple of quarters, the growth of our businesses, particularly the Lightning series, which is still in early stages. We have strong products that solve many physician challenges. Listening to our customers and iterating quickly gives us confidence that we can hit that target.

The market backdrop in each segment we are focused on is really positive. The percentage of patients that we can help indicates we have a large opportunity ahead.

Our next question is from Ryan Zimmerman with BTIG.

Adam, I just want to ask one. First on Jet 7 and Jet 7 Xtra Flex. What are you trying to improve upon beyond the design challenges you ran into? What issues remain in ischemic stroke?

The two issues are unrelated. The current paradigm is to make catheters as big as possible to remove clot. However, we are exploring a paradigm shift to focus on how to remove all the clot as quickly as possible, not just making catheters larger. We're excited about the new technology but will provide details when we can.

Just a follow-up to Bob's earlier question, and I don't know if we'll get color on this or not, but Maggie, I think, alluded to a change in business strategy related to REAL. Can you clarify that?

We will share more about our go-to-market strategy for REAL as we gain experience and feedback. Our ambitions are evolving strongly, and we believe it can serve as a platform for the healthcare field, which is powerful.

Our next question is from Margaret Kaczor with William Blair.

First, can I just ask a question on the vascular side? Is there any way you can quantify how impactful COVID might have been in vascular in 2020? Given that it was a very strong year for vascular despite higher elective procedure mix, do you expect vascular to potentially accelerate as we move through 2021?

We have seen fluctuations due to COVID but the medical management of those patients has improved considerably. While we haven’t quantified the impact, we believe that the push for single-session treatments due to COVID will help us grow. We anticipate that trend will continue.

In terms of gross margins, if I heard Maggie correctly, I think she mentioned that you're broadly expecting gross margins to remain somewhat in line or flat as we move through 2021. Can we start to see gross margins potentially expand in the back half of 2021, approaching pre-COVID levels?

Yes, I did mention that for 2021, gross margin is likely to continue at the current level. We anticipate improvements will take time to stabilize post-COVID. We expect slight accretive impacts as we see more revenue from Lightning.

[Operator Instructions]. Our next question is from Joanne Wuensch with Citi.

Can you talk more about stroke protocols? With new states and legislation adding new protocols, will this help accelerate that process?

Unfortunately, I don't think those two are tied. While there is some movement, it hasn’t been incredibly fast. I believe the work that drives growth won’t be the first priority in this current dynamic. However, we have strong evidence for treating patients, and I believe that as healthcare normalizes, we will grow.

Just looking at the R&D line, we noticed a drop-off in both absolute spending and the percentage of revenue between the third quarter and the fourth quarter. What's the strategy behind the fourth quarter spending?

In our last quarter’s earnings call, we mentioned $20 million of R&D expenditures related to Lightning 12 that we reported as a non-GAAP expenditure. As a result, fourth quarter spending as a percent of revenue is likely the trend going forward.

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 first-quarter call.