Finding the Silver Lining in Penumbra’s Storm Clouds

Penumbra executives might have gotten a bit ahead of themselves when providing 2024 guidance earlier in the year, CEO Adam Elsesser admitted during a recent earnings call.

"And that's on me personally. Obviously, I take that responsibility," Elsesser told analysts and investors during the call. "But it really doesn't have an impact in the underlying success in innovation and performance of our company right now."

Penumbra updated its guidance range for the year to reflect a $60 million reduction at the midpoint from its previous guidance range. The Alameda, CA-based company now expects total 2024 revenue to fall between $1,180 million and $1,200 million.

Jason Mills, executive vice president of strategy at Penumbra, said the $60 million change in guidance comes accounts for impacts to the company's revenue in the back half of the year, including: $20 million reduction to its business in China due to a "much more challenging economic backdrop for medical devices in the near term"; a $15 million reduction from the company's European business primarily due to a slight delay to the launch of its Lightning Flash 2.0 and Lightning Bolt 7 computer-assisted vacuum thrombectomy (CAVT) products in Europe; $5 million revenue impairment due to a strategic move in its immersive healthcare business; and a $20 million change to guidance for U.S. thrombectomy growth for the full year.

This last change, Mills said, aligns with Penumbra's new guidance philosophy, which Elsesser expounded on during the Q&A portion of the earnings call.

In short, the CEO said Penumbra has evolved a great deal from where it was nearly 10 years ago, when it went public as a company that focused exclusively on stroke treatment. As the company has grown dramatically since then, Elsesser said it's time the guidance philosophy evolved with that.

"When we were a much smaller company, guiding was a lot easier, there were very few moving parts," he said. "And we did a pretty credible job of guiding based on what we knew we could achieve. I think we're at a point now where there are a lot of variables. We've obviously heard the market talk about that and how we guide, and we wanted to build a little bit more comfort into the way we guide."

That's not to say guides are now like layups, Elsesser said, but the company has a lot of work to do each quarter to grow the business at the rate management thinks it can grow.

"I think we've lost something in the story of the company when we're spending most of our time talking about our guide and not the extraordinary strength of the innovation that has brought us here with products that have totally transformed the way thrombectomy works. That's the story of the company. That's the success that we have. That's our future," he said. "And it's time we don't spend a lot of time talking about the guiding philosophy of our company, more the innovation and the extraordinary road ahead we have through this year, into 2025, and beyond."

Despite near-term headwinds, the silver linings in Penumbra's outlook shine bright

Elsesser forecasted a brighter 2025 as Penumbra moves past some transient headwinds that are impacting the company this year.

First, the company has decided to leave certain international markets with its embo and access business in where they weren't financially viable for Penumbra as reimbursements changed and moved down over time, Elsesser said during the company's previous earnings call in early May. So, as the impacts of that decision anniversaries and the company turns more of its focus to its growing thrombectomy business, that should improve the overall outlook.

China is a headwind for many of the medical device companies MD+DI covers, and Penumbra is no exception. However, that should also be behind the company in 2025.

"And then, we will have the benefit of new product launches that we've talked about in terms of new products in the U.S., but also in Europe with Flash 2.0 and Lightning Bolt coming," Elsesser said. "So, there's a lot to look forward to in the back-half of this year, but there's also, I think, a lot to look forward to in 2025. ... I think, with with 2024 and some of the things we're working through this year to get past, 2025 is going to be another really fun year for us.

"Despite the shortfall in U.S. thrombectomy growth this quarter and change in guidance for the year, we continue to like the company's position, its strategic outlook, and technological solution," Margaret Kaczor Andrew, a medtech analyst at William Blair, wrote in a recent report. "The reset in guidance sets a range that is both achievable and likely conservative. While it will take time to prove out, we believe the company is going about market development in the right way, account by account presenting data and metrics demonstrating the improved clinical and economic benefit of its CAVT platform. Management is confident in the data it has already produced (though has not publicly published yet) and noted it is now a matter of blocking and tackling in each of the hospitals. To the extent Penumbra is successful in these market initiatives, we believe it should start to come through in growth."