Good afternoon. My name is Kathy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra Fourth Quarter and Year-End 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. I would now like to introduce Ms. Jee Hamlyn-Harris, Investor Relations for Penumbra.

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 full year 2022. A copy of the press release and financial tables, which include the GAAP to non-GAAP reconciliation, can be viewed under the Investors tab on our company website. 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, 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. As a result, we caution you against placing undue reliance on these forward-looking statements and 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. Penumbra disclaims any duty to update or revise any forward-looking statements. On this call, certain financial measures are presented on a non-GAAP basis. The corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. 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 2022; and Jason Mills, our Executive Vice President of Strategy will discuss our 2023 guidance. Sandra Lesenfants, our President of Interventional will join the team for questions. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Jee. Good afternoon. Thank you for joining Penumbra's fourth quarter and year-end 2022 conference call. Our total revenues for the fourth quarter were $221.2 million, a year-over-year increase of 8.4% as reported and 10.5% on a constant currency basis. Our fourth quarter revenue increased 3.5% sequentially, our fastest sequential growth of the year, and a trend we expect to continue into 2023. Our gross margin increased 110 basis points compared to the fourth quarter of 2021 and was consistent with our near-term expectations. We saw continued improvement in productivity, which was offset in the near-term by inflationary pressures. We increased our non-GAAP operating income to $7.2 million, representing 3.3% of revenue in the fourth quarter, increasing nearly threefold year-over-year. We generated positive operating cash flow in the fourth quarter and continue to expect increasing profitability and operating cash flow in 2023 as I will discuss in a few minutes. For the full year 2022, our total annual revenues were $847.1 million, representing growth of 13.3% over full year 2021 on a reported basis. On a constant currency basis, total revenue grew 15.5% over 2021, which met our original guidance given this time a year ago. We are now embarking on a new era in thrombectomy, and our team is focused on doing the purposeful work necessary to help the significant number of patients who can benefit from our proprietary, computer-orchestrated thrombectomy products. Our journey to develop the most optimal solution for safe, effective, fast and powerful removal of blood clots wherever they reside in the body is nearly two decades in the making. The early results from the use of Lightning Flash in venous and PE patients and Thunderbolt in our stroke trial is giving us even more confidence that the computer-orchestrated aspiration is changing the treatment paradigm in profoundly positive ways for patients and physicians. Looking into 2023, we reiterate our expectations for our business. We expect to achieve at least $1 billion in total revenue, expand our gross margins making progress toward our objective of 70% plus margins within a couple of years, and increase our profitability and operating cash flow. We will realize these goals by helping more patients with our proprietary products. And if we look beyond 2023, we believe we are still closer to the beginning of our journey to help all patients who have blood clots in their body rather than the end of the journey. There are over 1.25 million patients with clinically significant clots in their bodies, in the United States alone across the five vascular beds we target. The number of patients around the world with similar needs is two to three times larger. The rate of treatment with mechanical thrombectomy in the United States ranges from under 10% to about 25%. So we have in front of us in 2023 and beyond a significant opportunity to help the vast majority of these patients with our computer-orchestrated thrombectomy. During the fourth quarter of 2022, our Vascular business achieved record revenue of $129.7 million, accelerating sequentially to over 5% growth compared to the third quarter. Our Vascular business was driven by growth in our thrombectomy franchise, which grew over 20% year-over-year. We continued to gain share in the fourth quarter in venous, arterial, and coronary with our Lightning 12, Lightning 7, and CAT RX products. Looking into the first quarter, our Vascular team is launching full speed into the Lightning Flash era in the United States. Lightning Flash is performing just as we had expected and is being used successfully in both pulmonary embolism and DVT procedures. We are also proud to announce that we are embarking on a new era in arterial thrombectomy. Last week, Lightning Bolt was cleared by the FDA. We have talked in the past about both the promise and the propriety of our modulating aspiration algorithms, which are built into both Lightning Bolt and our Thunderbolt stroke product. We are excited about the potential of this technology for arterial patients. Initial evaluation cases using Lightning Bolt are planned for the next few weeks, and we are on track to initiate a full launch of this product just before the end of March. Moving to Thunderbolt. We are seeing solid progress in enrolling patients in our Thunder trial, and importantly, the product continues to perform just as we had anticipated. Notwithstanding the slowing in the growth of the stroke market that has been discussed during the past year, the RED catheters, which will be part of the Thunderbolt system and our other neuro products, continue to gain share in the United States and globally, which led to another quarter of sequential growth. The recent launch of RED 43, coupled with the launch of an access product should help us grow our neurovascular business in 2023, leading up to the introduction of Thunderbolt. We continue to believe Thunderbolt has the potential to fundamentally change the interventional treatment of ischemic stroke, and we believe this product in conjunction with the work of our extraordinary commercial team and partnership with physicians could create an environment in the stroke care system in the US in which many more patients who suffer an ischemic stroke will get treated successfully and quickly. In sum, we still have a long way to go to reach all of these patients, and we believe Thunderbolt will help the field get there just as we expect our proprietary computer-orchestrated products to do across all five vascular beds. While we think these products will initially have the biggest impact on our thrombectomy business in the United States, we plan to bring these products to physicians and patients in Europe, China, Japan, Asia Pacific, and Latin America where our businesses are already strong and growing but still just as nascent in the US relative to the number of patients we can ultimately help. Let me briefly discuss our Immersive Healthcare business before handing the call to Maggie. As we have stated in the past, we have restructured our work in this field to better fit with the current market. This has allowed us to focus on the two most important aspects of immersive healthcare. First, ensuring that patients who are using the real immersive system are responding positively to the technology. And second, that we are working with large healthcare providers, both public and private, to figure out how to properly introduce our real immersive system into the therapeutic workflow for patients who need rehabilitation, as well as patients struggling with aging and many other conditions, including mental health issues. We remain very optimistic about these efforts. I'll now turn the call over to Maggie to go over our financial results for the fourth quarter and the full year 2022.

Thank you, Adam. Good afternoon, everyone. Today I will discuss the financial results for the fourth quarter and full year of 2022. Financial results on this call for revenue and gross margin are on a GAAP basis, while operating expenses and operating income are on a non-GAAP basis. The corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. For the fourth quarter ended December 31, 2022, our total revenues were $221.2 million, an increase of 8.4% reported and 10.5% in constant currency, compared to the fourth quarter of 2021. Our geographic mix of sales in the quarter was 71% US and 29% international. US reported growth of 8.8% and our international regions increased 7.7% reported and 14.9% in constant currency. We see strong sequential growth in US and Europe direct channels, offset by timing in international distributor orders. Moving to revenue by franchise. Revenue from our vascular business grew to $129.7 million in the fourth quarter of 2022, an increase of 14.2% reported and 15.4% in constant currency, compared to the same period last year, driven by growth in the US. Revenue from our Neuro business was $91.5 million in the fourth quarter of 2022, an increase of 1.2% reported and 4.4% in constant currency, compared to the same period a year ago, driven by the RED catheter launch in Europe. Moving to gross margins. Gross margin in the fourth quarter was slightly improved at 62.6%, compared to 61.5% in the same quarter last year. While we have made great progress in labor efficiency at our Roseville manufacturing site, short-term disruptions from supply chain inconsistencies have had an impact on steady margin improvement. Looking forward to 2023, we target to achieve 100 to 200 basis point improvement, driven by product mix and productivity offsetting inflation headwinds. Now, on to our non-GAAP operating expenses, which exclude the amortization of acquired intangible assets of $2.4 million for this quarter and last quarter respectively, as well as nonrecurring research and development milestone one-time expenses associated with the Sixense acquisition and amortization of acquired intangible assets of $42.6 million for the same quarter last year. Total operating expense for the quarter was $131.2 million, or 59.3% of revenue, compared to $123 million or 60% of revenue for the same quarter last year. In the fourth quarter of 2022, we had $1.5 million due to one-time costs for reorganization efforts, a continuation of future savings we previously discussed last quarter. Our research and development expenses for Q4, 2022, were $18 million compared to $19.4 million for Q4, 2021. SG&A expenses for Q4, 2022, were $113.3 million or 51.2% of revenue, compared to $103.5 million or 50.7% of revenue for Q4, 2021 and $106.2 million or 49.7% of revenue last quarter. We are investing in resources to support our growth targets while maintaining discipline in discretionary spending. In 2023, we expect higher investment in clinical trials while leveraging our infrastructure investment made in 2022 to deliver operating margin expansion. We recorded operating income of $7.2 million or 3.3% of revenue in the fourth quarter of 2022 excluding the amortization of acquired intangible assets compared to an operating income of $2.5 million for the same period last year. I will now summarize our full year performance. For the full year 2022, our total revenue was $847.1 million, which represents an increase of 13.3% reported and 15.5% in constant currency compared to full year 2021. Our geographic mix of sales in the year were 69.8% US and 30.2% international. US reported growth of 12.1% and our international regions increased 16.2% reported and 23.5% in constant currency compared to a year ago. Revenue from our vascular business for the full year of 2022 was $499.4 million, an increase of 22.1% reported and 23.6% in constant currency. Revenue from our neuro business for the full year of 2022 was $347.7 million, an increase of 2.7% reported and 5.6% in constant currency. Our gross margin for the year was 63.2% of revenue compared to 63.6% of revenue for full year 2021. Excluding the amortization of acquired intangible assets of $8.3 million for 2022 and non-recurring research and development milestones, one-time expenses associated with Sixense acquisition, and amortization of acquired intangible assets of $42.6 million in 2021. In 2022, we had non-GAAP operating income for the full year of $14.4 million compared to our non-GAAP operating income of $35 million for 2021. Turning to cash flow and balance sheet. We ended the fourth quarter with a cash, cash equivalents, and marketable security balance of $188 million. We expect positive operating cash flow trends to continue in 2023. And now I'd like to turn the call over to Jason to discuss our guidance.

Thank you, Maggie, and good afternoon, everyone. We reiterate our guidance for total revenue in 2023 to be $1 billion or more representing year-over-year growth of at least 18%, which is an acceleration from 2022 total revenue of $847 million. Moreover, we expect our quarterly revenue growth rates to accelerate as the year progresses. Further, we expect to expand gross margins in 2023 towards our 70% plus objective within a few years with margins increasing from current levels in the first half of the year towards the mid-60% range in the second half. Lastly, we expect our operating margins to expand sequentially during 2023 approaching double-digit margins as we exit the year. I will now turn the call back to Adam for closing remarks.

Thank you, Jason, Maggie, and Jee. I'll be brief in my closing remarks. This is the dawning of the age of computer-orchestrated aspiration. With this technology, we can see to the point where removing blood clots from any part of the body becomes routine. It is very important to give special recognition to the entire team at Penumbra who over the course of almost 20 years stayed focused on this arc of innovation. I admire you all so much. You never gave up. You kept working and working sometimes against all odds to deliver this extraordinary technology to the field. Also it is important to give special acknowledgment to Dr. Corey Teigen and Scott Teigen for their critical role in making this technology a reality. Thank you to them and the entire Penumbra team. Thank you. Operator, we can now open the call to questions.

And our first question will come from Pito Chickering of Deutsche Bank.

Hey, good morning, guys. Thanks for taking my questions.

Hey, Pito.

You talked about sequential sort of revenue growth 3Q and 4Q and into 1Q. Is there any color that you can give us as we thinking about that growth or with Lightning Flash in the first quarter? And are you comfortable with $115 million of revenues from Lightning Flash in 2023?

Yeah. So as you know we don't guide quarterly, but we do expect the quarterly growth rate in the first quarter to be slightly higher than the sequential growth you saw fourth quarter over third quarter. As you move, beyond the first quarter, the second quarter is likely to accelerate quite a bit, with the launch of Lightning Flash still fresh and Lightning Bolt at the end of this quarter. In the back half of the year, we expect strong sequential growth rates as well, probably better than the first quarter sequentially and sort of in line with where we would expect to see second quarter.

Okay. And then the only – go ahead.

The only color I'd like to add to that is that's sort of the – when you have a launch not just one, but two like we have with Flash and Lightning Bolt that's just sort of the normal sequence of what happens with getting into all these labs and making sure that you go through the value analysis maybe and everyone has it. It just has that sequence to it. And as you know we're knee-deep and sort of responding to doctors asking for it as opposed to us asking them to buy it which is a really, really nice phase to be in. And that's why you're going to see that kind of growth going.

Okay. And then sticking on Lightning Flash, can you give any details on what the reorder rate is from the physicians that are using it? And any early color on either market penetration gains from shifting from medical to mechanical thrombectomy or market share shifts? Thanks so much.

Yeah. We're a month into the launch. So let's take that into account to give you guys some sense. Needless to say, I think, I’m fairly confident in saying this Lightning Flash is without a doubt the best launch we've ever had. And I only have said that one other time and it turned out to be true. There's – the use of this product, the excitement around it, the speed, efficacy, the safety profile have made this really just an extraordinary product. Obviously, we're in the middle of the quarter and we'll give a lot more color at the end of the quarter on the next call but this is a great launch.

Great. Thanks so much.

And our next question will come from Robbie Marcus of JPMorgan.

Hi, everyone. This is Rohin on for Robbie. Congrats on a nice quarter. I guess I just wanted to touch on pricing and how we should think about better mix and how that reflects in gross margin and profitability this year and beyond. Can you comment a little bit about how much of gross margin expansion this year is due to kind of the general productivity improvements that you brought up versus the mix benefit that we should see from new products?

Yeah. Maggie, why don't you take a shot at that?

Yes. Thanks for the question. I'll just comment on the gross margin impact first. As we mentioned before, we are on track to – we're making great progress and on track to our 70% gross margin target. It is going to come from productivity improvement in transferring over to Roseville product mix and price impact, as well as longer-term lean initiatives. All three factors are going to – has an impact to our 2023 gross margin target and it's going to continue to improve beyond 2023. In 2023 we expect to see a little bit bigger contribution from product mix.

Great. No, that's super helpful. Thank you. I guess, another one is just more focused on near-term trends. And you kind of touched on this, but I just wanted to get now that we're like almost done with February basically and just wanted to see how – or if you had any more detail on how the launch for Lightning Flash is shaping up in the contributions you can expect from both Flash as well as Lightning Bolt in the near term, but as well as over the balance of the year? And I guess, maybe kind of the specifics and split between those if you can provide any color there that would be really helpful.

It's a great question, and midway through the quarter we were discussing last quarter's numbers. It can be tricky to go into that level of detail. However, as I mentioned earlier, the launch of Flash is going extremely well. We're over a month into it, and the level of interest and success we've observed is clearly encouraging people to place orders and continue trying the product. We're deeply engaged in navigating this process and working our way through all the various value analysis committees, responding as quickly as we can to that interest. We haven't even launched Lightning Bolt yet, so let us gather some cases, and we'll be able to share more next quarter. It's an exciting time, and it's a thrill to see the level of interest and positive feedback we're experiencing. It's one of those rare opportunities in a MedTech career, and we're really enthusiastic about it.

Yes, this is Jason. I want to add that we have strong visibility into the lower limit of our guidance range at the $1 billion level. However, as Adam mentioned, it's still early in the launch of two important products, so we don’t yet have the same visibility for the upper limit of our guidance this year. Just give us a quarter.

No. That’s really helpful. Thank you so much.

And now we take a question from Michael Sarcone from Jefferies.

Hey, Michael.

Hello, and thanks for taking my question. So just wanted to follow-up on Maggie's comments around short-term disruptions in the supply chain in Q4, and just wanted to get a little more color there. Can you talk about if any of those are continuing into 2023 and how they may impact gross margin through the year?

Yes. Thanks for the question. I did mention that the supply chain inconsistency and disruption is just short-term. It affects only in terms of slowing down our gross margin improvement, but it likely will not affect our ability to meet demand and longer-term margin improvement opportunities.

Okay. Thanks. And then, do you think you could comment a little more just on how you're thinking about operating expense cadence through the year?

Yes. I think this year, we're going to continue to invest, but we're going to start seeing more leverage on the G&A infrastructure investment that we had last year. We're going to gradually see sequential operating margin improvement. And I think in Jason's guidance comment, we will continue to see improvement throughout the end of the year.

Yes. I would add that we expect to be profitable every single quarter. In the first quarter, as is typical, we have two important national sales meetings and payroll taxes that are specific to that quarter. As we progress through the year, we anticipate that by the end of the year we will be approaching double-digit operating margins.

Okay. Thank you.

Thank you.

And next we have David Rescott of Truist.

Hi, David.

Hey, guys. Hey, Jason. Hey, team. Thanks for taking the question. First so, in the past you've talked about market share gains, market growth and then pricing as being contributors to growth for Flash, not necessarily in that order, but just wondering when you think about Bolt and then ultimately, Thunderbolt. If you'd be able to kind of characterize where you see the biggest amount of growth within each of those segments coming from, whether it's market share growth price that would be helpful.

You're talking about as it relates to Lightning Bolt or both or any of those products? Lightning Bolt?

Lightning Bolt and then Thunderbolt.

Lightning Bolt is quite similar to what we've mentioned regarding Flash, with price being the least significant of the three aspects. In terms of market growth and share gain, the product can be viewed as both, depending on your definition. As you know, we already hold a significant share in the arterial mechanical product space. However, the most considerable opportunity lies with physicians using tPA drip catheter-directed lysis or performing open surgery. If these are seen as market growth opportunities, they represent the largest potential gain. Conversely, if viewed as using different tools, it would indicate share gain from those two areas. This is currently the largest opportunity, as all those patients already belong to our customers or potential customers. Our initial focus will be on that segment. For those who watched the Lightning Bolt video in January, you would have seen that the product is quite impressive, and we have a strong level of confidence in its clinical application, given our experience with similar technologies. We anticipate significant interest from physicians currently using either of those two methods to transition to our offering. Thus, it can be viewed in those two contexts.

Okay. That's helpful. And then maybe stepping back kind of from a higher level on the neuro side. So I think at the International Stroke Conference, there was some positive data just around use of thrombectomy the benefit of thrombectomy into some type of patients that are currently excluded in the guideline recommendations meaning those with essentially larger infarct volumes. Right? So when we think longer-term about the potential market expansion opportunity from that indication, just wondering initially one what your view is on that? And then when you think about the new launch maybe market expansion just regaining share some of the grassroots efforts that have been going on in the local kind of state and local levels to reaccelerate potentially underlying neuro thrombectomy growth rate, how would you just kind of think about the three or four of those in your view as it relates to reaccelerating your kind of US neuro thrombectomy growth rates? Thank you.

In the stroke market, we've achieved success over the past couple of years primarily due to gaining market share. The RED series has returned with a significant share, and this trend is expected to continue. We mentioned in our prepared remarks the introduction of RED 43 and an access tool, which I believe will further enhance our share gain. Regarding market growth, we remain not only hopeful but also realistically optimistic. Recent data, such as the findings from ISC, has resonated with many physicians in this field and it is encouraging to see robust data supporting our views. Additionally, our products are becoming increasingly user-friendly, not only with the RED series and the new additions but also with Thunderbolt. We are positioned to overcome potential barriers to successful treatment, which should facilitate growth. Predicting exact growth rates has historically been challenging for us over the years we've discussed stroke growth, but the current landscape appears promising for sustained reengagement and growth in the field. While it's difficult to assign a specific number, it seems that positive trends are emerging.

Okay. Thank you.

Now we'll take a question from Ryan Zimmerman of BTIG.

Hi, Ryan.

Good evening, and thanks for taking the questions. Very exciting to see all the products are coming out. I wanted to just ask first on the guidance and the $1 billion plus kind of leaves a lot of room to go higher. And I'm wondering if you can elaborate on kind of how you think about what's implied in the guidance from a market share gain perspective? Because if I understand correctly, you're not assuming market share gains from Lightning Flash or Lightning Bolt at present?

No, we are. Let me explain a bit, Ryan. To begin with, the guidance starts with a lower limit of $1 billion, which represents an acceleration in growth to 18%. It's important to note that this is significant when compared to nearly $850 million in 2022. Given the critical nature of these two technologies, Lightning Flash and Lightning Bolt, and the large patient population they can assist, we currently lack the visibility we would like on that lower limit. However, we believe that as we move forward and with another quarter passing, we will have better visibility. Regarding growth, as Adam pointed out, there are three components to our growth profile. The least impactful is price, while the two most impactful drivers will be gaining market share and overall market growth.

Okay. Understood. Adam, I was reviewing the transcript and I might have missed this, but I didn't hear about the timing for the completion and submission of Thunderbolt enrollment and the subsequent approval. I was wondering if you could clarify, as I don't think I heard it.

No, I didn't provide a specific prediction. As you know, predicting the enrollment for an emerging disease like stroke is quite challenging, and anyone claiming they can do so should be approached with skepticism. Therefore, we won’t attempt to make that prediction. What we have communicated is that everything is progressing well and is on track, which we feel positive about. However, we also mentioned that our projections for 2023 do not include any significant surprises in revenue. We are not suggesting that things are not going well; they are, but we are being cautious by stating that we will perform adequately and accomplish our goals without relying on any unexpected contributions from Thunderbolt in this year's figures.

Okay. Appreciate it. Thanks for taking my question.

Yes. Thank you.

And next we have Mike Matson of Needham.

Hi, Mike.

Good afternoon, everyone. Thanks for taking my question. I’ll start with the RED catheter. It seems like growth may have improved slightly on the neuro side. Can you provide some insights on how those are performing in Europe? I believe they were launched late in the third quarter, so this is their first full quarter in the market. Also, I have a follow-up regarding RED 43. Could you explain how it fits into the product lineup and how it differs from the other catheters?

Sure. Let me start with RED 43 and then I'll address the broader question about the RED series in Europe, which can also be applied to the US. RED 43 is still in its early stages regarding market introduction and approval through the various value analysis committees. However, those who have used it have responded very positively. It's an innovative coaxial catheter that combines a manageable size with the ability to reach distal areas, which has generated a strong response. We take pride in the design of this catheter, as it clearly meets a market need. As for the overall performance of the RED franchise in Europe and the US, the launch has been successful. It began gaining traction in the fourth quarter of 2021, and while that initial surge impacted our current comparisons, the momentum has remained strong and it's gaining market share. Even in a stagnant market, this franchise is thriving because more and more users are adopting it, which is what we aim for. We want a product that generates word-of-mouth and retains users, and that’s what we’re seeing with the RED series. This is crucial for the success of Thunderbolt since these catheters are designed to work with it. The positive reception of these catheters simplifies the integration of Thunderbolt into the market.

Okay. Thanks. And then just on the Thunder trial, I may have asked this on a prior call I can't remember to be honest but will we see that data before you submit to the FDA or after you submit it or at some point before the product is actually launched?

It's hard to tell. It will depend on when that data is ready. If it happens to be ready and there's a big meeting that it can be presented on before it's made otherwise public sure then you would see it. If the timing of that doesn't work, we're obviously not going to wait to submit it to the FDA in order to present it at the meeting. So it really just depends on the timing and at this point, that's hard to predict.

Okay. Got it. Thank you.

Thanks, Mike.

And next we have Shagun Singh of RBC.

Thank you so much for taking the questions and looking forward to 2023. So just with respect to the questions, I was just wondering if you could elaborate on any apparent clinical advantages of Flash in early cases with respect to maybe clot removal time. You did mention speed, efficacy, and safety, any way to quantify that? And are you seeing greater uptake in PE or DVT cases? And then with respect to my second question, I was just wondering if you can give us a little bit of an update on clinical trial activity. And then on Thunder, I specifically just wanted to get a sense of enrollment. I think as I understand it patients have to be treated in a certain time frame. Is that limiting enrollment in any way or is it on track? Thank you for taking the questions.

All right. I'm going to try to remember all these. I try to write it down. I might need a prompt. The first you asked the question about safety and speed and all that and then the answer is yes. All those things are good and Flash has all those things. Again, it's one of those rare things in at least our experience in 20-some-odd years in this field that a product is that good and has the kind of word of mouth that's following it around. So it's noticeable once you use it and we're particularly happy about that because again, it goes to how well patients can be treated. The next question was still Flash and I tried to write fast and then we went into Thunderbolt. So remind me of the next question.

Well, actually just a follow-up if you can quantify like in terms of speed or anything if you can quantify it. And then the question was really about if you're seeing greater uptake in PE or DVT cases.

Yes, that's right. So how do you quantify it? Every case is different. Obviously, DVT and PE are different. And you can have easy – basic PE cases and more challenging ones and vice versa in DVT. So hard to quantify that in terms of numbers that that's what you're looking for. The answer is the impression. The reality is people who are using it are reacting to that very positively like wow, that was amazing. That was so easy so fast and powerful and it just got the job done. So it's hard to quantify that. We're not running a trial on it now. So there's no number that I can share with you that have any validity. It's not like sort of collection of self-reported stuff. So I think it just – it is notably performing better than what they're used to. So that's that. Between DVT and PE I think we're seeing a real mix. I think for people who are using it – I mean many are using in both. The doctors are reacting equally good or equally favorably in both of those. There's not at all clear difference between oh, well, I like it, but only for this versus that. If you are responding to it and again the vast, vast majority are who are using it, it's for both DVT and PE. On the Thunderbolt question, really hard, as I've said a couple of times, to quantify enrollment for you stroke enrollment, and I've done lots and lots of stroke trials that have been involved with them over the years. It goes in fits and starts. You might go four days without a case. And then, you'll have five cases in two days that kind of thing. That's the nature of a stroke trial. That's not different in the stroke trial, but as I've said, we're in good shape on track. And again, cautiously, we have made sure we are counting on this product in which we don't control the timing of the trial for any revenue in 2023. So from that standpoint, I think everyone can rest assured that we're in pretty good shape and aren't out on a limb on that topic.

Thank you so much.

Yeah. Great. Thank you. Good questions. Thanks, Shagun.

And now we'll take a question from Matt O'Brien with Piper Sandler.

Hey Matt.

Hi. This is Sam on for Matt.

Hi.

Thanks for taking my question. I guess, for first, I was wondering if you could provide any more information or any color on surgeon training for Lightning Flash and any feedback you've gotten from physicians there.

Surgeon training or interventional training varies based on whether the physician has previously used one of our Lightnings. If they have, the setup is quite similar. If they haven't, we need to conduct an in-service to prepare their lab. We've been doing this for some time, so it's fairly straightforward. The main difference for those who've used Lightning 7 or 12 compared to Lightning Flash is that the algorithm and feedback are different, and Lightning Flash is significantly more powerful. Therefore, there is basic training involved on how to interpret the visual cues and sounds. This process is not any different from what we've done previously and does not create any barriers to adoption, making it easy for our field team to facilitate.

Great. Thank you. As a final point, could you let us know how many people have previously used Lightning and how many have not?

It's difficult to pinpoint that number, as we don't actively track it. What I can share is that several of our current customers are looking to make a switch. This isn't surprising. However, it's encouraging to see those who have needed a larger catheter for years are now responding positively to Flash. They were looking for a more powerful system than what Lightning 12 offered, and now they have it. For those who have yet to use our product, the positive reactions and feedback have been really uplifting. We've delivered what people have been asking for, and that's what we're here to do. We're quite excited about that.

Thanks so much.

Thank you.

And now we will go to Lei Huang of Wells Fargo.

Hi Lei.

Hi. It's Lei calling in for Larry Biegelsen. Can you hear me?

Yes. Hi Lei.

Hi. Thanks for taking my question. I want to go back to gross margin. You talked about gross margin expansion of 100 to 200 basis points this year. And it sounds like most of that is coming in second half of the year. Can you just give a little more color, in terms of what gets better between first half and second half to drive that margin expansion? And as part of that, can you talk about how you're thinking about China DVT and how that's reflected in that outlook? And then I have a follow-up.

Okay, yeah. No thanks for the question. So two factors here, as we continue to increase proportionally thrombectomy volume versus embolization, you're going to see continued product mix impact to our gross margin. So that is one factor why second half will be stronger than the first half. And also in the first half where our operation team is mainly focusing on leading demand for these new product launches, so their priority focus right now is not on achieving optimal level of yield performance and labor efficiency and we can continue to see those improvements continue on in the second half of the year.

Yeah. Lei, I'll take the question on China. We've been really happy with the bounce back, really from a broader health care perspective in China. As you know in the latter part of 2022, namely November and December, many hospitals were shutdown or doing relatively lower levels of procedures relative to what they typically do just because of the pandemic. The doctors in China seem to be really bouncing back working overtime trying to help their patients and that is a very positive thing. As you know, we have a very strong partnership with Genesis really in the early stages of that from a long-term perspective. So we feel good about China writ large, including what we have in our forecast with respect to the volume-based pricing that you mentioned.

Got it. And then my second question just bigger picture. Penumbra is known for technology improvement and iterations over the years. As you think about your new AI-orchestrated technology, how does that change the way you approach device iteration going forward and your competitive moat? And thanks for taking the question.

There are two parts to that question. First, regarding how it affects our innovation or capabilities, the answer is that it doesn’t. We will continue to work on this. What we currently have with Flash is impressive. Can we enhance it? I’m not sure. We haven’t done enough testing in the past month and a half to determine where any improvements might be that aren't already apparent, which is a good sign for us. However, I am confident that there will be areas we can refine further. Our R&D team has consistently demonstrated their expertise in this area. What I mentioned earlier on the call, and I truly believe this, is that for the first time, we can envision a moment when getting clot out becomes routine. We're not quite there yet, but the vision is clear. The innovation will move us from our current status to that point, which is a significantly shorter journey than the years it took us to reach where we are now. It’s encouraging considering the long efforts we've put in. As for our competitive position, I dislike discussing our products in that context, as we prioritize innovation and the needs of patients over what other companies are doing. However, we do have intellectual property that protects our mechanisms and operations. We trust that others will respect this IP, and if they don’t, we will engage in discussions about it. This introduces a new dynamic that we haven’t encountered before, where others may replicate our work. Nevertheless, I don’t believe this will impede our objective of perfecting these products. Overall, as I mentioned, we are on the brink of an exciting new era, and it's an exciting time.

Thanks, Lei.

Thank you.

And now we'll take a question from Bill Plovanic of Canaccord.

Thank you for taking my questions. My first question is about the Lightning Flash rollout. Could you clarify when you transitioned from LMR to a full market launch? When you reach the full market launch, do you start primarily with your existing customers, or is it more widely available from the beginning? How should we consider the scaling process over time? Additionally, regarding the VAC process, what is the current timeline for getting through the VAC at hospitals, especially considering the trials and when products are available for daily use?

Yes. Let me address all those questions. First, we completed our evaluation phase quite quickly due to the product's performance. At the large conference in early January, we shared that we were already past that stage. We have been in launch mode for about a month and a couple of weeks now. Each launch can vary, and different companies have different approaches. In this case, we are focused on managing the order process. Hospitals interested in the product are beginning to start their purchasing process. Some orders can be fulfilled quickly, typically within a week or two, depending on the hospital's or physician's ability to expedite the process. However, others can take much longer, sometimes several months. There is significant variability in this regard. Right now, we are simply working through this process, and while some requests are being fulfilled quickly, others will require more time. We cannot precisely quantify this, but the team is actively engaged in assisting with the initial cases and ensuring everyone is familiar with the product’s algorithms. Overall, we are in a strong position. This has been one of the most exciting times I've experienced, and I believe this will be our most successful launch, especially with LIGHTNING BOLT coming soon after. I hope to reiterate this sentiment shortly, as it's a lot of fun. Thank you for the question, Bill.

And then when you launch, do you launch to your existing customers first or...

Yes. No, we don't discriminate. We're happy to have all customers. And what I've said, which is kind of a really unique aspect of this is, we're getting approached by people who typically aren't using Lightning at a pretty large scale to try to use it and buy it. And again, they have to go through the process and go through value analysis committees and so on. But that is the level of sort of discussion and interest around this that made that a lot more fun, obviously. So, it's just a matter of going through the process and doing it all right so that we're following all hospitals rules and getting them in the right way.

Regarding LIGHTNING BOLT, I understand you are currently in the LMR or evaluation phase. It seems that you plan to move into a full market launch by the end of March. Given that you've already tested Flash, which uses similar technology, can this expedite the VAC process and order process, or will it require the same steps as you transition to full market? Thank you for addressing my question.

Yes, that’s a great question. I don’t believe there’s any additional advantage to saying we want to repeat this process. Acknowledging the work done doesn’t give us a benefit. However, once the launch occurs, there will likely be an opportunity to combine them, but we won’t see that until around April and later. For the next month, we will continue with Flash as I mentioned, ensuring that LIGHTNING BOLT moves through the initial cases. Once we enter the second quarter, I think combining the processes through the value analysis committee could make it more efficient.

Thank you.

Great. Thank you.

And with that, that does conclude today's question-and-answer session. Ms. Hamlyn-Harris, I'd like to turn the call back to you for additional or closing comments.

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.

And this does conclude today's conference call. You may now disconnect.