Penumbra, Inc. (NYSE:PEN) Q4 2024 Earnings Conference Call February 18, 2025 4:30 PM ET

Company Participants

Cecilia Furlong - Director of Business Development and Investor Relations
Adam Elsesser - Chairman & Chief Executive Officer
Maggie Yuen - Chief Financial Officer
Jason Mills - Executive Vice President of Strategy

Conference Call Participants

Larry Biegelsen - Wells Fargo Securities
Robert Marcus - JPMorgan
Pito Chickering - Deutsche Bank
Bill Plovanic - Canaccord
Richard Newitter - Truist Securities
Samantha Kurtz - Piper Sandler
Michael Sarcone - Jefferies
Ryan Zimmerman - BTIG
Shagun Singh - RBC Capital Markets
Michael Kratky - Leerink Partners

Operator

Good afternoon. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to Penumbra's Fourth Quarter 2024 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. [Operator Instructions] Thank you.

I would like to introduce Ms. . Cecilia Furlong, Business Development and Investor Relations for Penumbra. Ms.

. Furlong, you may begin your conference.

Cecilia Furlong

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 2024. A copy of the press release and financial tables which includes a GAAP to non-GAAP reconciliation, can be viewed under the Investors tab on our company website at www.penumbrainc.com. During the course of this conference call, the company will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those referenced in our 10-K for the year ended December 31, 2024 which is scheduled to be filed with the SEC on February 18, 2025. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our periodic filings with the SEC, including the 10-K previously mentioned, for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

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, Q4 2024 and full year 2024 financial results are on a non-GAAP basis. Non-GAAP revenue, gross profit, gross margin, operating income and operating margin exclude a $5.8% million reserve pertaining to Italian payback legislation. In addition, the full year 2024 non-GAAP operating expenses, operating income and operating margin exclude expenses associated with Immersive Healthcare impairment charges of $76.9% million, wind down of Immersive Healthcare business expenses of $5 million, nonrecurring litigation expenses of $4.8% million and amortization of acquired intangible assets of $4.8% million.

The corresponding GAAP measures and reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. Adjusted EBITDA for Q4, 2024 and full year 2024, respectively, excludes the Italian payback reserve, onetime Immersive Healthcare impairment charges, Immersive Healthcare wind down expenses, nonrecurring litigation-related expenses, stock compensation expense, depreciation and amortization, provision for income taxes and interest income expenses. 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 2024; and Jason Mills, our Executive Vice President of Strategy, will discuss our 2025 guidance. With that, I would like to turn over the call to Adam Elsesser.

Adam Elsesser

Thank you, Cecilia. Good afternoon. Thank you for joining Penumbra fourth quarter and full year 2024 conference call.

In the fourth quarter, we generated revenue of $321.3% million when excluding the Italian payback adjustment, representing underlying year-over-year growth of 12.9% on an adjusted basis and 13% on a constant currency basis. Our U.S. thrombectomy business continued to lead our growth, with our comprehensive and proprietary CAVT portfolio delivering another dominant performance, gaining momentum throughout the quarter and exiting the year in a strong position. Fourth quarter U.S. thrombectomy sales increased 27.3% year-over-year to $180.6% million.

With our U.S. VTE franchise, delivering robust year-over-year revenue growth of 41%. The balance of our U.S. thrombectomy franchise continued to perform very well in line with our expectations. Our fourth quarter capped and overall solid 2024 performance with full year revenue increasing 13.4% year-over-year to over $1.2% billion and our U.S. thrombectomy business delivering revenue of $646.7% million, 26.8% increase versus 2023.

During the year, we evolved and expanded our commercial team, concentrated and enhanced our focus on our interventional business via our exit from Immersive Healthcare and invested in generating high-quality clinical and health economic data to further support and highlight CAVT's value, all while continuing to prioritize innovation. We introduced 9 new products to the U.S. commercial market, including the new CAVT products, Flash 2.0%, Lightning Bolt 6X with track and Lightning Bolt 12. Internationally, we expanded CAVT's footprint into Europe and additional OUS geographies and took steps to optimize our geographic presence to support long-term growth and profitability.

At the same time, 2024 also demonstrated the strong profitability profile of our business. In the fourth quarter, gross margin of 67.4% expanded 170 basis points over the prior year period, while operating income of $48.6% million or 15.1% of revenue increased 200 basis points over the prior year period. In the quarter, we generated $49.1% million in operating cash.

Looking forward, we are on track to achieve a gross margin profile over 70% by the end of 2026 which is consistent with the timeline we previously communicated and we expect operating margin expansion to outpace gross margin expansion for the foreseeable future. In addition, we recently signed a contract to build a manufacturing facility in Costa Rica for efficiently expanding our manufacturing capacity. Therefore, we are well positioned leveraging favorable product mix shift, operating efficiencies and disciplined spend to continue to increase our profitability and operating cash flow going forward.

Turning to our U.S. peripheral business. Lightning Flash 2.0% continued to lead overall growth in the fourth quarter with its competitive benefits versus analog technologies, namely the speed and safety with which Flash 2.0% removes blood clots in VTE patients, driving expanded physician interest and adoption as well as broader and deeper account penetration. In the quarter, we also commenced the commercial rollout of Lightning Bolt 12, introducing our proprietary modulated aspiration technology to the venous anatomy and larger arteries, offering the latest generation CAVT solution for these vessel sizes.

Initial feedback has been very positive and we look forward to continuing to roll out the technology on a broader scale in 2025. Overall, our U.S. VTE franchise continued to gain momentum and market share throughout the fourth quarter, with December representing our highest month of VTE procedure volumes ever. In our U.S. arterial business, Lightning Bolt 7 delivered another strong performance, supporting sequential growth acceleration in our arterial franchise.

Lightning Bolt 6X provided initial contributions in the fourth quarter with Bolt 6X's commercial introduction expanding our arterial-focused CAVT portfolio's reach to smaller vessels, including arteries that are below the knee while early feedback on Bolt 6X and our increasingly comprehensive arterial CAVT portfolio is positive. And looking to 2025, we view a meaningful opportunity for the combination of both and Bolt 7 and Bolt 6X to accelerate physician conversion from open surgery or the use of lytics to CAVT. Similar to our Venous business, in December, we treated more patients in the U.S. suffering from arterial clot than in any prior month.

The proprietary mechanism of our CAVT technology consistently remove blood clots faster and safer than analog technology. That said, we are in the early stages of reaching and treating the over 800,000 patients annually in the U.S. who suffer from VTE and arterial clot. As well as the even greater number of patients internationally with venous and arterial clot burden.

To further expand CAVT's reach and ability to treat a greater number of patients, we commenced what we refer to as our market access initiatives. These initiatives are focused on increasing awareness, not only of CAVT's clinical benefits but also the economic benefit to hospital systems. This past November, during the late-breaking session at the VIVA Conference in Las Vegas, Dr.

. Parag Patel presented the first public view of some of the results of our market access initiatives. The retrospective outcomes analysis presented by Dr. . Patel looked at intermediate risk PE patients treated with either CAVT or anticoagulation, catheter directed lytics or other forms of mechanical thrombectomy.

The data demonstrated that compared to other treatment modalities, treatment with CAVT resulted in a reduction in composite complications as well as the significant improvement in the economics for hospitals. We intend to continue to update our analysis to reflect the benefits of our latest generation CAVT technologies and look forward to highlighting Flash 2.0%'s outcomes in the future. Looking ahead, we are scheduled to present additional data sets focused on CAVT's utilization in DVT and arterial patients at a major medical conference in the next few months.

Shifting to our neurovascular business. Our U.S. stroke thrombectomy business once again posted strong results with revenue accelerating versus the third quarter. For the full year, our market-leading FDA-cleared Aspiration portfolio, led by RED 72 with our proprietary SENDit technology and Red 43 alongside Red 62, RED 68 and RED 72 grew nearly 20% versus 2023 well ahead of underlying U.S. stroke growth -- market growth.

We enter 2025 as the dominant market leader. And looking forward, we are preparing to bring Thunderbolt, our proprietary CAVT technology to the neurovascular field. Follow-up in our THUNDER trial completed as expected in late December and we will provide additional future updates as appropriate.

We have seen the benefits our proprietary Bolt technology delivers to patients with peripheral vascular clot, specifically the speed with which the technology can extract a range of clot morphologies in a safe and simple procedure. We are excited to bring this technology to the neurovascular field, ushering in a new chapter in the treatment of stroke and further enhancing our market-leading position in the field of stroke thrombectomy. We entered 2025 with significant momentum behind our CAVT technology portfolio.

With CAVT, we are driving a shift from analog to digital. We are positioning our organization to be able to intensely focus on the meaningful thrombectomy opportunity ahead for CAVT while also augmenting our leadership position in both embolization and access through additional innovation and commercial focus. As we demonstrated in 2024, we will continue to drive gross margin expansion and operating efficiencies and deliver increasing profitability while investing aggressively in innovation, clinical and health economic data and our commercial team to expand and strengthen our position as the world's leading thrombectomy company.

I'll now turn the call over to Maggie to go over our financial results for the fourth quarter and full year 2024.

Maggie Yuen

Thank you, Adam. Good afternoon, everyone. Today, I will discuss the financial results for the fourth quarter and full year of 2024.

Financial results on this call are on a non-GAAP basis which excludes the adjustment highlighted by Cecilia, including the $5.8% million reserve pertaining to the Italian government's legislation requiring medical device companies to contribute to any deficit created by Italian budget over spending on medical devices from 2015 to 2023 which was recently upheld as constitutional by the Italian courts. Given that this amount related to prior years, we have normalized for this amount when calculating our anticipated revenue growth rates for 2025. 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, 2024, our total revenues were $321.3% million, an increase of 12.9% adjusted and 13% in constant currency compared to the fourth quarter of 2023. Our geographic mix of sales for the fourth quarter 2024 was 77.2% U.S. and 22.8% international. Our U.S. region reported growth of 21.7% driven by 27.3% growth in our thrombectomy franchise.

Our international regions decreased 9.4% adjusted and 9.1% in constant currency, primarily due to a decline in China revenue of $15.4% million, partially offset by an increase of $7.8% million in all other international regions. The sequential growth in our total revenue of 6.7% was primarily driven by an increase in U.S. thrombectomy revenue of $18.6% million and relatively flat revenue internationally. Moving to revenue by product.

Revenue from our global thrombectomy business grew to $222.7% million in the fourth quarter of 2024. An increase of 16.8% adjusted and 16.9% in constant currency compared to the same period last year. Our U.S. growth of 27.3% is primarily due to strong growth in both vascular and neuro thrombectomy.

Our international business declined 13.9%, primarily driven by a decrease in China revenue of $15.8% million partially offset by an increase in all other international regions as compared to the same period last year. Revenue from embolization and access business was $98.6% million in the fourth quarter of 2024, an increase of 5% adjusted and 5.1% in constant currency which is in line with our expectations and primarily driven by an increase in the U.S. Gross margin for the fourth quarter of 2024 is 67.4%, compared to 65.7% for the fourth quarter of 2023 which represents a 170 basis point improvement driven by favorable thrombectomy product mix across all regions and strong productivity improvements. Sequentially, we had an 80 basis point improvement in our gross margin which reflects higher thrombectomy product mix due to new product launches and favorable regional mix.

Total operating expense for the quarter was $167.9% million or 52.3% of revenue compared to $149.6% million or 52.5% of revenue for the same quarter last year. Our research and development expenses for Q4, 2024 were $20 million or 6.2% of revenue compared to $21.9% million or 7.7% of revenue for Q4, 2023. SG&A expenses for Q4, 2024 were $147.9% million or 46.1% of revenue compared to $127.7% million or 44.8% of revenue for Q4, 2023. We recorded operating income of $48.6% million or 15.1% of revenue compared to an operating income of $37.4% million or 13.1% of revenue for the same period last year. We posted adjusted EBITDA of $63.7% million or 19.8% of total revenue compared to $53.4% million or 18.8% in the fourth quarter last year.

Full year, for the full year 2024, our total revenue was $1.2% billion which represents an increase of 13.4% adjusted and in constant currency compared to full year 2023. Our geographic mix of sales in the year were 75.1% U.S. and 24.9% international. For the full year 2024, U.S. reported growth of 19.1% was primarily driven by growth from our vascular thrombectomy business, while our international regions decreased 1% adjusted and 1.1% in constant currency, primarily due to a reduction in China revenue of $39.5% million, partially offset by an increase in all other international regions. Revenue from our global thrombectomy business for the full year of 2024 was $818.1% million, an increase of 20.8% adjusted and in constant currency. Revenue from our global embolization and access business for the full year of 2024 was $382.3% million, an increase of 0.3% adjusted and 0.2% in constant currency.

Our gross margin for the year was 63.4% which includes a onetime $33.4% million Immersive Healthcare inventory write-off compared to 64.5% of revenue for the full year of 2023. In 2025, after removing this onetime item which had a 280 basis point impact to our gross margin in 2024, we target at least 100 basis point expansion in gross margin to over 67% for full year 2025. This reflects continued favorable thrombectomy product mix, productivity improvements and investment to support new product launches.

We had operating income for the full year of $106.6% million which includes onetime $33.4% million Immersive Healthcare inventory write-off compared to operating income of $101.3% million for 2023. And to provide an update on impact of winding down the Immersive Healthcare business, we had GAAP operating expense savings for 2024 of approximately $16 million and we are still on track to create GAAP operating expense annualized savings of approximately $40 million. Our adjusted EBITDA in 2024 was $171 million or 14.2% of total revenue compared to 16.1% last year.

Looking forward to 2025, as Jason will discuss soon, we forecast operating margin to expand to a range of 13% to 14% of total revenue. Turning to cash flow and balance sheet. We ended the fourth quarter with cash, cash equivalents and marketable securities balance of $340.1% million and no debt which is an increase of $49.1% million sequentially, driven by strong operating profitability and improvement in working capital management.

We expect positive operating cash flow trends to continue in 2025 and beyond. And now I'd like to turn the call over to Jason to discuss our 2025 guidance.

Jason Mills

Thank you, Maggie and good afternoon, everyone. Consistent with our guidance philosophy communicated on our second quarter 2024 earnings call, our total revenue guidance for 2025 is a range of $1.340% billion to $1.360% billion which represents year-over-year growth of 12% to 14% compared to 2024 GAAP total revenue. For our U.S. thrombectomy business, we expect growth in the range of 19% to 20% year-over-year.

Moving down the income statement. We expect both gross margin and operating margin to expand in 2025. For gross margin, after excluding the onetime expense Maggie described earlier, we forecast at least 100 basis points of expansion in 2025 to more than 67% for the full year. On the operating margin line, we expect expansion to 13% to 14% of total revenue for full year 2025 compared to operating margin in 2024 which excludes the onetime expense previously described.

Looking forward, as Adam said in his remarks, we are on track to achieve a gross margin profile over 70% by the end of 2026. Which is consistent with the timeline we previously communicated and we expect operating margin expansion to outpace gross margin expansion for the foreseeable future. This concludes our prepared remarks.

Operator, we can now open the call to questions.

Operator

[Operator Instructions] And your first question comes from the line of Larry Biegelsen from Wells Fargo.

Larry Biegelsen

Congrats on a strong finish to the year here. Adam, I had one on the guidance and one on Thunder. So I think you did 13.5% or 13.4% adjusted revenue growth in 2024.

You're guiding to 12% to 14% in 2025. Why shouldn't we see an acceleration in '25 given the onetime headwinds in '24 such as the delay in the European launches, some of the sales impact in China and Thunderbolt. So how are you thinking about the guidance this year from a philosophical standpoint and getting back some of those headwinds we saw in '24.

And I had one follow-up.

Adam Elsesser

Yes, Larry, thanks for the question. And I think it's appropriate one. I think we tried to be pretty clear in giving that guidance that this was sort of in line with the philosophy that we talked about in the second quarter of not getting ahead of ourselves.

So obviously, there are a number of things that we don't yet totally control, Thunderbolt being your follow-up question, one of them. So we're not going to put that into the guidance until we have more information around that. So you're correct to acknowledge that we had a lot of headwinds last year that we got through and that we don't have most of them this year and we're going to, in our minds, guide appropriately so we don't get in the same trouble we got in last year.

Larry Biegelsen

That's helpful. And Adam, just my follow-up is on Thunder. How should we -- it sounds like the follow-up is done, how should we think about the timeline for data readout, filing and clearance.

And as a follow-up, we did see 3 negative medium and digital vessel trials at ISC a couple of weeks ago. What are the implications for Penumbra.

Adam Elsesser

Yes. So on Thunderbolt, we will definitely update you as appropriate when there's more information to update you on as to both when it gets cleared and presentation of data and so on. It's just premature to do that and start to put guesses out there.

Obviously, I think you appreciate that. As it relates to the distal trials, it was a little bit sort of déjà vu. As you know, those trials primarily used stentrievers and the use of stentrievers in particularly distal vessels as a primary mechanism as opposed to an adjunct.

For the most part, not something that should be done primarily and I don't think we were surprised with that result. We've always talked about the opportunity really including just large vessel occlusions which is M1, not the more distal, I know people have had great success using Aspiration, particularly our smaller catheters, RED 43 and 62 in some of those distal vessels. And I think like everything, particularly as we're watched over 20 years in stroke, the story is not written yet. And I think we'll see the constant move toward aspiration as the primary mechanism in part because it's just logical, in part from studies like that.

Operator

Your next question comes from the line of Robbie Marcus from JPMorgan.

Robert Marcus

I'll echo congratulations on a good quarter. I wanted to ask on the rest of the business, embolization and access, what you're seeing there. If I'm doing my math right, it implies flat to minus 5% sales growth in 2025.

So just wanted to get a sense of what you're seeing there, U.S. versus OUS and how to think about what's driving the guide for 2025.

Adam Elsesser

Yes. So when you look at our embolization and access business, we're -- we have an incredibly strong business in both those segments. We're really the market leader in the vascular side on coils and access on the neuro side.

And that is an incredibly important part of our business. We're very proud of it. I think you heard in my prepared remarks, that were not done innovating in those areas.

And I think that will be something that we'll watch and focus on as the year progresses. And also, as we've gotten bigger and our interest in CAVT has expanded so dramatically, we need to make sure we have the ability to focus and I use that term very particularly. So I think there are a lot of opportunities, particularly in the U.S. in the short term to continue to see that grow.

By definition, last year, we did a little bit of retrenching, we specifically said in markets where we weren't successful and we're going to sort of go into the areas and double down on areas where we can be more successful internationally as well. There's a lot of demand. And with the ability to particularly for non-U.S. markets but U.S. markets, if appropriate, as we expand our manufacturing facility into Costa Rica, there's an opportunity to have a cost basis that is also more appropriate for some of these markets as well.

Operator

Your next question comes from the line of Margaret Kaczor [ph] from William Blair.

Unidentified Analyst

This is Macauley [ph] on for Margaret tonight. So wanted to follow up around the question on guidance and I appreciate the comment on U.S. thromb specifically. But just given the 41% VTE growth in the U.S. we saw this quarter, just wondering if you can help parse out what that includes either for vascular versus neuro.

I know that does not include Thunderbolt launch or just any commentary focusing on vascular in particular between PE, DVT and arterial in the U.S..

Adam Elsesser

Yes. Look, the guide is a holistic guide for all of the businesses. We don't break it out by each segment in the form of a guide.

But obviously, given how we exited 2024, we're feeling particularly confident about the markets where CAVT is driving that growth. And that's the focus obviously on -- that you saw the outsized number, the 41% in the VTE business. We also have a fairly tenacious competitor in that market and we still were able to have that kind of growth because the product gets the clot out faster and safer.

We've said that for a bit. All products are not the same. You can't just have one and be part of the market, you have to have something that does it as well as the current best in class.

And I think that's pretty clear right now that CAVT is making that mark. So by definition, as we look out, we're going to be careful not to get ahead of ourselves. We're not going to -- how much more share is there, how much market growth is there.

And we're going to watch all of those things on a quarterly basis and we'll update them as appropriate. But obviously, we want to be appropriate as we start the year with our current guide.

Unidentified Analyst

Understand. And then maybe just as a follow-up, I wanted to -- or saw there was an update to the RED 72 510(k) status the other day and Adam, can't help but notice you emphasized the FDA-cleared aspect in your script. So was there any modification made to the catheter there.

I guess, bigger picture, what should we expect from that pipeline of catheters moving forward.

Adam Elsesser

Yes. I think it's a fair question. I'm glad that you picked that up.

So I think you all know we are constantly improving our products. That has been the hallmark of our success for the better part of 20 years. We've never sort of said we're done.

And RED 72 was launched now what 3, 4 years ago, I've lost track of time. And so it's natural that we would update that catheter with technology that we've developed as we've developed additional catheters. So this is just making the RED 72 that much more trackable.

We just got cleared at the end of last week. We've already done, I think, roughly half of our evaluation cases in the short period of time. And we'll give more information as we go.

But obviously, having a suite of catheters that can track to the clot faster and better than anything else on the market. And then you add Thunderbolt on top of that, when it gets cleared, it puts us in a position for being able to help the maximum number of patients that we can help. And you combine that with the best-in-class sales team and I think we're going to have a pretty good opportunity to have additional impact this year with our stroke business.

Operator

Your next question comes from the line of Pito Chickering from Deutsche Bank.

Pito Chickering

Looking at the U.S. the guide here of 19% to 20% end of the year, obviously, 27%. How should we think about the seasonality of that growth, the comps you had in 2024. Your fourth quarter exit rate was such a high number that we straight line the growth is almost flat sequentially which we haven't really seen that since you launched and you talked about how strong December was.

Adam Elsesser

Yes. Let me start and Jason can speak to sort of the rhythm a little more. There's always a combination of seasonality based on -- I mean we've always sort of seen the fourth quarter maybe it's the stress of holidays and so on.

For example, the stroke business goes up and things like that. That being said, we've also overlaid various launches. And obviously, we haven't talked about launches in timing for 2025 but that changes, again, the ability to just straight line things out and run it out.

And then you also add the thing I alluded to in the answer to the last question that as you are taking share, whether it's in stroke or in VTE, that share doesn't come in an even way. It sort of comes in chunks and then sort of pause and then you take more. And we've seen that for many, many, many years.

With that sort of as a baseline, Jason, can add some color to that.

Jason Mills

Yes, Pito, thanks for the question. As you can see, the fourth quarter was the biggest quarter in terms of sequential growth in the U.S. thrombectomy business. And on a year-over-year growth perspective, as you can also see, it was one of the fastest.

It was an outstanding quarter from a U.S. thrombectomy which sets up the fourth quarter of 2025, just in those terms to be the most challenging comp which would therefore suggest that as you're modeling within that 19% to 20% range, you can probably start in the beginning of the year at the midpoint or better. And then the fourth quarter can reflect the fact that we don't have Thunderbolt in our guidance and can be sort of at the midpoint or lower. So more of a front-end loaded year from the standpoint of the growth guidance we gave.

Pito Chickering

Okay. And then sticking with the 27% growth this quarter. Is there any color on what the pricing versus volume was in the quarter.

And should we think about 2025 in terms of U.S. thrombectomy in terms of pricing versus volume within the guidance.

Adam Elsesser

Yes. At this stage, we're several years into this. It's almost all -- it's volume. It's volume.

There's not a pricing element now. This was just -- and that's why I went out of my way to say this, we ended the year with the strongest case volume we've ever seen, both in VTE and in arterial.

Operator

Your next question comes from the line of Bill Plovanic from Canaccord.

Bill Plovanic

Just first up on Thunder. I just wanted to clarify. One, have you submitted to the FDA.

Two, have you had discussions with them yet. And are they; three, are they asking for any additional information, including any additional clinical studies. Just trying to figure out where we're in the process.

And then I have a follow-up.

Adam Elsesser

Those are a good series of questions. I'll make it easy. We have not yet submitted.

So therefore, we have not had any of those conversations. Okay. Again, just less than a month plus ago, we finished the trial and got all the data.

And obviously, it takes a little bit of time to get that organized and adjudicated and there's a process there. So the fact that it could be ready earlier would mean you were obviously skipping a step along the way which we obviously don't do.

Bill Plovanic

And then just on R&D, $20 million is really a low point that we haven't seen in almost 2 years. Is this a new normal in terms of the kind of the R&D spend nominally. And should we use this as a base point going forward and expect most of the leverage off of this in terms of operating margin expansion.

Adam Elsesser

Yes. I mean, I think it was pretty clear that we're -- I think I used the term we're going to aggressively invest in innovation. So R&D spend changes quarter-by-quarter depending on what's on the docket, whether we have certain types of testing or certain this and that. And so you're going to see that move around based on the work that's in front of us, not by some kind of sort of organized or sort of artificial spend budget.

So I wouldn't read anything into the quarter per se. Our general spend has been a pretty accurate way to read it. And I think everyone would agree, we -- launching 9 products last year.

We have a pretty efficient R&D department and a team that can continue to innovate incredibly effectively and at a decent amount of spend. But we are not going to back away from that. There is a lot of innovation ahead. I think we have years of continued innovation ahead of us.

We won't get into the specifics but we're going to not stop innovating for quite a while.

Jason Mills

And Bill, the only thing I would add to that, as Maggie in her remarks mentioned the savings to date so far with the Immersive Healthcare exit and a very solid percentage of that -- those expenses are in R&D. So we don't break out the investments on the interventional side vis-à-vis the investments we were once making in R&D and Immersive Healthcare. But suffice it to say, as Adam said in his prepared remarks, we continue to aggressively invest in innovation, obviously, on the interventional side.

Operator

Our next question comes from the line of Richard Newitter from Truist Securities.

Richard Newitter

Congrats on the performance and the solid finish to the year. Maybe I think, Adam, you had mentioned several new product launches and the ebbs and flows of when those hit can dictate quarterly performance. Can you just remind us you said 9 launches in '24.

How many are you thinking about in '25 and any direction on where those could be value add and fill the bag where there's an unmet need that you don't have today.

Adam Elsesser

Yes. I mean I'm not going to specify just like we didn't last year. No one -- we didn't start the year saying we're going to have 9 launches and we don't even announce them.

I think the 3 that were CAVT-related, everyone knows but the other 6, I don't think most people have focused on. They have had a very positive impact on our overall business as well. So we're not going to go through that.

The only one that obviously is possible on that list. We've talked about a couple of times already, that's Thunderbolt, of course. But the rest, we're going to wait until we get those things products cleared and then we'll be happy to talk about them.

Richard Newitter

Okay. And just to be clear though, Thunderbolt is not needed to hit your guidance range. In other words, it's not.

Adam Elsesser

Yes. Revenue for Thunderbolt is not currently in our guide for the simple reason, not because we don't think it's a great product, not because we're not incredibly confident about the where we stand on it but because we don't totally control that process. And because of that, we're going to be careful.

So we don't have to change our guide based on something we don't control.

Richard Newitter

Okay. And just one last one on Thunderbolt. Do we expect you to have this presented at a conference or is this something that we can get press released midyear.

Just how are you thinking about that.

Adam Elsesser

Yes. It depends on the timing. There are really 2 major U.S. -- since it's a U.S. approval -- U.S. conferences, one in July and one in November.

And so to the extent that the clearance happened in a time when no one -- it's not right around that time, we would obviously not wait to present the data to launch the product which means obviously, there's a possibility of hearing about it before the formal presentation of the data.

Operator

Your next question comes from the line of Matthew O'Brien from Piper Sandler.

Samantha Kurtz

This is Samantha on for Matt. There's a handful of clinical trials going on for aspiration-based thrombectomy devices kind of both on the peripheral and the neuro side. How are you thinking about enrollment in these trials potentially impacting sales growth in the near term or potentially helping grow the market in the longer term.

Adam Elsesser

Yes. They're not -- there's a handful of them. I think you described it the right way.

It's not really an impact on our sales, obviously. I think that was pretty obvious this quarter. I think when you actually speak to the physicians using a lot of those products, it sort of gives you the real story.

And I think we'll focus -- we don't think that will -- that changes our strategy, changes our momentum or anything like that.

Operator

Your next question comes from the line of Michael Sarcone from Jefferies.

Michael Sarcone

Just to start, China was a pretty big headwind in 2024, maybe 350 basis points. Could you just talk about what kind of assumptions you've got for China baked into 2025 guide. Is it kind of stabilize from here.

How are you thinking about that.

Adam Elsesser

Yes. There's no question, China, as everyone is talking about the market and what it means for U.S.-based medical device companies. Our deal that we outlined had a number of different elements to it but the element that mattered at this phase would have been sort of for the U.S.-based or manufactured product.

And that market really isn't available for a while. There's a little bit of headwind at the beginning of the year but more than that, I think we sort of have that behind us. And again, I think if you think about what we've said and the opportunity we have, there are international markets that will matter a lot and we've talked about those markets.

What matters in terms of scale and growth that changes from year to year. And I think we've -- to just remind everyone, we've been selling internationally for 18-plus years and we have a pretty good knowledge of the international markets and what -- what's viable and not. It's also why you're going to see a continued outsized growth in the U.S. with the scale of patients. Again, 800,000 patients in the U.S. alone, more than 90% of the market available to us.

If we do the work that we outlined which is continue taking share and continue the market access work so we can grow the market through the hospitals, doing the work necessary to make sure they're treating everyone that they can treat. When you add that together, I think we're in a really, really strong position for a number of years. And then the international markets ebb and flow based on sort of their own economies and all that as we go forward.

Jason Mills

Yes. And Michael, just to add to that, you're right. The headwinds just from China alone in 2024 were actually slightly greater than what you posed in your answer.

And as Adam mentioned, we're going to see sort of the last headwinds of that in 2025, such that next year the headwinds will be de minimis to nothing. It won't be quite as much of a headwind in 2025 as 2024 but some headwinds, especially in the first half of the year. So as you're looking at our guidance and you're parsing out the U.S. growth versus international growth, if you exclude China, there's actually an acceleration in growth across businesses.

And the headwind from China, again, will land in the first half of the year. So as it relates to the 12% to 14% guidance, you'll see that hit in the first half of the year in terms of the year-over-year growth because of China.

Michael Sarcone

Got it. That's helpful. Thanks Adam and Jason, maybe just for the follow-up.

We've seen some M&A activity in the space earlier this year. Just wanted to get your sense on whether or not you're bracing for any change in competitive dynamics or if there's any potential disruption coming down the pipe that you may be able to capitalize on.

Adam Elsesser

I'm not going to sort of get into particular tactics and things like that competitively on -- at this stage. I can tell you that generally overall, we certainly welcome new ownership into the field but it really doesn't have any change on our strategy or we believe our momentum in the field right now.

Operator

Your next question comes from the line of Ryan Zimmerman from BTIG.

Ryan Zimmerman

I want to ask about gross margins for a bit. Just because doing the math, it does imply a pretty significant step-up in '26 in gross margins to hit that 70% exiting '26. Help me understand, I mean, is that just -- go ahead or Maggie.

Maggie Yuen

Yes. No, thanks for the question. Well, basically, there's no fundamental changes in the underlying drivers that you have seen this year.

I mean, majority of our margin expansion drivers came from product mix thrombectomy product mix and also regional mix. If you look back at '24, I mean, you have seen pretty good momentum in our sequential quarterly growth. We expect similar trend continue in 2025.

And if you continue that momentum, I think you can see us reaching exactly at our target of 70% sometime in 2026.

Ryan Zimmerman

Okay. But just to be clear, Maggie, that is just a function of product mix, that is not a function of any pricing strategies or anything else that you're contemplating to kind of get you that extra effort in margin in '26.

Maggie Yuen

No, nothing. It is primarily product mix. And of course, I mean, our operation team has been very focused on leveraging overhead spend and scaling our capacity.

So all those drivers altogether.

Adam Elsesser

It is between product mix and manufacturing efficiency that is driving it. It is definitely not price.

Ryan Zimmerman

Okay, very clear. And then the second question, Adam, I guess, directed to you is the scale up in sales force and the amount of additional heads you've hired to grow your thrombectomy business. And so what I want to understand is just where you're at in that process.

How you think about that kind of coming into its own and its contributions in either now or early '25. And similarly, that same question on market access which is arguably underappreciated in how you're attacking kind of the market with the market access initiatives but when do you expect the impact of both of those dynamics to be felt from your efforts.

Adam Elsesser

Well, if you competed with us in VTE, you certainly felt that in the fourth quarter, I think that's pretty obvious. I think we've started that process. I've always said it's not linear and nothing in this field is. So I want to be very clear that it is not linear.

That being said, we have done a great job hiring an incredible team. Right now, I really, really mean this. We have the best commercial team ever assembled in med tech.

And I know a lot of people say that about their teams and I appreciate it and I'm glad they do. But it really is true. Our team is extraordinary.

And when you add the data that we now have and that we're talking to hospitals about directly and opening their eyes to what they could be doing to help more and more patients, you're in a really good spot. Again, it's not a linear process. It never has been but I think we have started that process.

A lot of that is because we now have technology with CAVT that is worth doing that for. It is clearly better. You can get the clot out faster and safer.

We've shown that over and over again. We have now data, large quantity of data that says the same thing. And I think that's just crystal clear. So I think that will continue.

And again, it will be a multi-multiyear effort because we're only 10% penetrated with this market and we're going to keep going until we get them all and help all these patients. I will -- if you will indulge me with a short story, we had our national sales meeting several weeks ago. And a patient came to discuss and share with the entire vascular team what happened.

She had a big, a massive PE. If I'm not mistaken from her story, she hit coded, she was revived and turned out to have a great recovery. And at the end of her telling her story, she asked the entire commercial team that was assembled to do one thing.

And she said, "I have one request of everyone in this room. And that is don't stop until everyone that can benefit from this technology gets this technology." We didn't ask her to say that. We didn't set her up for it. She said it from the bottom of heart as somebody who received the best technology available.

And that's going to motivate us. It certainly did in the room and that's what we're going to do for many, many years.

Operator

Your next question comes from the line of Shagun Singh from RBC Capital Markets.

Shagun Singh

Just a quick one for me for your U.S. venous thrombectomy business, 41% year-over-year growth. How should we think about the durability of that. And given that we've seen that growth rate accelerate sequentially in the past few quarters, I'm just wondering if there is anything else going on.

Is it just your commercial team expansion, are you seeing greater acceptance given the benefits you talked about, greater ability to get into the door. Just anything incremental to what you've shared that you may be able to share with us.

Adam Elsesser

Yes. Again, I want to stress, no growth rates in a situation where there's market growth and share shift is linear. So you just -- it can't be seen that way and it's not.

That being said, obviously, both are happening. And that is not so much a direct impact on we have more people, therefore, we can sell more, it's the product. The product is that good.

It takes out the blood clot faster than any other product on the market. And therefore, as people hear about it, as people want to try it and move from analog technology to digital technology, they have to be trained. They have to be -- go through the process.

But that will continue, I think, for quite a while. You overlay the opportunity to treat more and more people. And as more and more hospitals become aware of that information and what they can do to do that, I think you're going to see continued strong growth not in a linear fashion quarter-by-quarter but over the course of the next number of years, you're going to see particularly strong growth continue.

Operator

And your final question comes from the line of Mike Kratky from Leerink Partners.

Michael Kratky

So obviously, great acceleration in U.S. thrombectomy growth, 41% U.S. VTE growth. Sorry to bother you with another one on guidance. But without providing specifics, can you help frame where you're expecting your different verticals between VTE, arterial, stroke and coronary to land relative to that 19% to 20% overall U.S. growth.

Adam Elsesser

Yes. I think it's premature to be that -- to give you that kind of detail at this stage. Obviously, all of those have drivers.

We have Flash 2.0% that's continuing to attract a lot more customers together with the market access work. We have the arterial which has new products as well. And then, of course, whatever happens ultimately with Thunderbolt which isn't technically in our guide, so we can't include it but obviously, it's going to have an impact.

That's not even talking about the new Red 72 catheter which if it continues to do what the first 3 days of cases show is going to be a significant benefit as well. So I think we have a lot of drivers. So the exact numbers within that, let's wait and see and we'll give you more updates when we have more information.

Michael Kratky

Understood. And maybe just as one follow-up. Can you comment on some of the early adoption trends for Lightning Flash and Bolt 7 in Europe following the recent launches.

Adam Elsesser

Yes. There -- again, the limitation is there's some countries that aren't yet at a place where they're fully reimbursable. And so it's not in every single country in a big way but where it is, we're seeing the same benefit that we're seeing in the U.S. Again, the clot is taken out faster and safer.

And obviously, I've yet to meet a physician who says that's not a positive goal.

Operator

And this concludes the Q&A portion of today's conference call. Ms. . Furlong, I turn the call back over to you.

Cecilia Furlong

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.

Operator

This concludes today's conference call. You may now disconnect.