Good afternoon. My name is Kirsten, and I will be conference operator today. At this time, I would like to welcome everyone to Penumbra's Third Quarter 2017 Conference Call. [Operator Instructions] Thank you. I would now like to introduce Mr. Dan Wilson, Director and Head of Business Development for Penumbra. Mr. Wilson, you may begin your conference.

Thank you, Kirsten, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the third quarter of 2017. 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 Web site at www.penumbrainc.com. During the course of this conference call, the company will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those referenced in our 10-Q for the quarter ended September 30, 2017, which will be filed with the SEC on November 7, 2017, as well as those described in our 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our periodic filings with the SEC, including the 10-Q and 10-K previously mentioned for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Penumbra disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We anticipate the prepared comments on today's call will run about 15 minutes. Thank you very much. And with that, I would like to turn over the call to Adam Elsesser, Penumbra's Chairman and CEO.

Thank you, Dan. I would like to welcome you to Penumbra's Third Quarter 2017 Conference Call. I'm joined today by members of our senior management team. I will begin today's call with a few business updates from the third quarter. Our total revenues for the third quarter of 2017 were $83.9 million compared to $67.2 million for the third quarter of 2016, an increase of 24.9% as reported, and 24.1% in constant currency. We had an operating profit in the quarter of $683,000 compared to an operating loss of $1.4 million for the same period last year. After my comments, Sri will provide further context on the drivers behind our results and a few items that serve to benefit our revenue and operating performance in the quarter. As we have typically done, we will call out details that will help give you a more accurate perspective for our results. Sri will also discuss our updated revenue guidance. We continue to see strong momentum in our overall business. We remain encouraged about our long-term prospects and our strategic positioning within both of our major markets, neuro and peripheral vascular. Starting with our neuro franchise, as we have discussed in the past, we continue to believe that the most important long-term effort in the United States is to make sure patients get to a hospital to be treated. The Get Ahead of Stroke campaign, which is being led by the Society of NeuroInterventional Surgery, is the cornerstone of this effort by targeting state legislatures to require patient triaging for stroke. We are pleased to see greater recognition of this effort. Just recently the National Stroke Association honored Get Ahead of Stroke for being the most impactful campaign of the year. In the third quarter, we saw continued strength in neuro driven by…

Thank you, Adam. For the third quarter ended September 30, 2017, our total revenues were $83.9 million, an increase of 24.9% reported compared to the third quarter of 2016, or 24.1% in constant currency. Our geographic mix of sales in the quarter were 66% U.S., and 34% international. Neuro and peripheral vascular represented 70% and 30% of sales, respectively. Despite seeing typical summer seasonality across much of our business in the quarter, we saw strong momentum within our neuro franchise and we also benefited from a combination of positive impacts, which I will detail. Our operating expenses in the quarter also benefited from a $1.2 million net benefit from an IRS refund for previous medical device excise tax payments. Revenue from our neuro business grew to $58.7 million in the third quarter 2017, from $47.5 million in the same period a year ago, an increase of 23.4% reported, or 22.5% in constant currency. Our neuro growth was driven by sales of our Penumbra system for ischemic stroke. We have seen consecutive quarters of strong procedural volumes in ischemic stroke. We also saw an incremental benefit in the third quarter from currency and from moving to a direct sales model in one of our European markets. It is important to emphasize our comments about the stroke market and to highlight our expectations on future market dynamics remain unchanged and consistent with what we have discussed in the past. Revenue from our peripheral vascular business grew to $25.2 million in the third quarter of 2017 from $19.7 million in the same period a year ago, an increase of 28.4% reported, or 27.8% in constant currency. Our growth in peripheral continues to be driven by a penetration of new and existing customers for both our Indigo System in peripheral thrombectomy, as well as…

Thank you, Sri. I'd like to close out my remarks this quarter by specifically acknowledging the extraordinary work that thousands and thousands of people, both in the United States and the rest of the world have undertaken to help stroke patients. We observed World Stroke Day on October 29, and we recognized the efforts of physicians, stroke coordinators, nurses, ambulance drivers and medivac pilots, county health officials, hospital administrators and the countless others who are working to ensure that patients get to an appropriate center and then get treated as fast as possible. This work is hard and as I mentioned earlier, there are significant barriers to make this happen. I want all of you who have dedicated your energies to this noble task to know that your work is noticed. It makes a huge difference for individuals and that together this work will fundamentally change the trajectory for countless people. Thank you for doing this. You are the real heroes in this effort. And, finally in closing, I'd like to acknowledge all the people which includes our employees, customers and partners who faced the tragic natural disasters over the past few months. The hurricanes that affected Texas, Florida, Puerto Rico and the U.S. Virgin Islands, and the fires in our own backyard of Northern California. Our hearts go out to the many people and families for the loss suffered. I'm particularly proud of how the Penumbra family banded together to take care of folks who were displaced and to raise funds that went to aid victims of these tragic events. Thank you. Thank you for your attention on this call. We will now open it up for questions.

[Operator Instructions] And our first question comes from the line of Mike Weinstein from JPMorgan. Your line is open.

Let me start, Adam, with the ischemic stroke market. It does feel to us like the market has accelerated the last six months, but it's hard for us to be able to tell. So would love to get your thoughts on that. Is that, one, is that the market in your view? Two, is it Penumbra? And then, third could you just talk a little bit about the stent retriever launch and where that is at this point and the degree to which that's contributing to the revenue performance?

Sure. I'd be happy to address. Let me start with the market. We certainly believe we've seen, as we mentioned in the prepared remarks, some good procedural volume increase. And I think that's the market, as I went through and detailed. We see it really in county by county, a lot of these efforts are starting to bear some fruit. But I want to caution because we typically look at that and then see only positive things, that we have also heard a number of examples. And I don't want to dismiss it, but real examples of folks who have different interests, and those are real and that has to be worked out. So it is not a fair conclusion to take what we've seen in the past six months and assume that it will continue unabated, and we've tried really hard. We know this field. We are out there doing this work with folks to be careful around what is actually happening. But I do think that the field is continuing to see that kind of growth and we just can't predict how even it's going to be. To address your second question around the component of our system, that's a stent retriever, we have definitely had some amazing success with that product. As I have reiterated sort of many times, it is not a cornerstone of our efforts. We remain a big believer in aspiration first. And in fact, one of the biggest proponents of stent retriever technology in a global meeting just several weeks ago, acknowledged that the use of aspiration first may be faster and actually may be more tolerated for patients. So that remains our focus. But when you need a stent retriever, I think we've shown to the marketplace that ours is as good and potentially better. We don't have claims or data on that, but really strong. And if you see all the other new versions of stent retrievers that are coming on the market, they tend to look more like ours. They are not sort of hollow tubes, but more sophisticated devices designed to hold on to the clot. So we are feeling positive about that, but that doesn't change our focus around aspiration.

Completely understood. Sri, when Adam says that you guys have had amazing success with that product, is he talking clinically, as Adam is wont to do, or is he talking commercially?

Can I answer that?

Well, I wanted to see a [opposite] [ph] viewpoint, but I'll let you go in. Go ahead, Adam.

No, I'm happy to let Sri answer the question, but what I was definitely talking about was clinically. And what I was trying to say is, it is not a cornerstone of our commercial efforts out in the field.

Sri, you want to add anything to that?

Yes, Mike, I think we would point out a couple of things that we mentioned in our remarks, and Adam touched on the stroke market, and really the system is how we sort of think about our position in terms of product in that market. But it's certainly, the stroke market. We also benefited in the quarter from a couple of the other things that I mentioned. We're not going to break out any of those, not any one of those had a more significant impact than the other, but collectively they all certainly helped.

Okay. And can I ask then, this last item is pipeline, and let's call it two buckets. So the pipeline, which is iteration on existing products such as ACE68, where it feels like you're probably getting close to another iteration. It's generally felt like it's every 18 months you come out with a new aspiration catheter and you're probably getting close to that in the next few months. So should we be expecting an update there and do you want to comment? And then, second, bigger innovation, new technologies. Is there anything that you're willing to talk about at this point that you'll be introducing in 2018 that investors can be focused on?

It's a good question. I hate to disappoint you on both fronts. But I'm not prepared on this call to announce either. Either iterations of existing products in any of our fields or some of the larger things. But, obviously, as we get to a point where that's appropriate, we will definitely do that.

Our next question comes from the line of Bob Hopkins from Bank of America. Your line is open.

So I was wondering if I could just start, well, first congratulations on another really strong performance. But, secondly, could you just go into a little more detail, Adam, on the peripheral side of the business in the quarter? The growth ticked up this quarter. Just maybe a little more granularity on what went on in the quarter? What specifically drove that growth? Would love just a little more detail there?

Sure. So I called out in my prepared remarks both of our embolization and our thrombectomy business, which we typically talk a lot more about our thrombectomy business, but both were very strong this quarter. On the thrombectomy business because that is the sort of bigger, larger opportunity and challenge ahead of us, we are starting to see additional traction. Again, as I have said sort of over the last several years, it sort of goes in a rotation. You got to get into the position, get them to sort of try it, sometimes they try it in one of the three areas that I detailed and then we've got to get them to use it more often. Sometimes they start as a backup to traditional catheter directed lysis when that doesn't work, and then they use it in that situation for a while, then you got to move them eventually to a primary use. And that process is just ongoing and we see different sort of ebbs and flows of that rate because of the way we do that. We don't just put in product into labs and leave. We stay and make sure that they have success with it, and that's ongoing. We had some good success with it and we'll continue to see this continue on like this for a while.

The second question I wanted to ask is on your comments about competition in the prepared remarks. You've always anticipated competition, you've always talked about competition. So there's really nothing new here. But you kind of brought it up in the prepared remarks and in a more pointed way. So I'm just curious, what specifically are you expecting on the competitive front for 2018 and what are you doing to position the company for that competition?

Well, I think it's a great question and I want to explain why I brought it up. We had an awful lot of questions. I think you know that one of our competitors is pretty public about what they were doing, which brought a lot of questions to us. So I wanted to address that topic head on. What we have always done on competition is focused on what's the best thing for the patient, and we really have always meant that in the most intense way. There is a lot of energy put on stroke right now. We all know that. It's one of the fastest-growing areas in med tech. So we are obviously focused on both on the innovative product side and in the sales and marketing side, and that's where we have to remain. So obviously I'm not going to detail our specific strategy right now. That seems, I think fair that I wouldn't do that. But what I wanted to make sure investors understood is that this is not a new place for us. We are used to this. We've been doing it for a decade. We are comfortable with it. We like doing it. We really honestly in our heart of hearts believe that it makes the field better and stronger. And we are not going to not focus on making sure these products are better and better and make sure patients get the best they can ever get.

Do you have a specific expectation though for competition in 2018? Or is it more just you're responding to --?

Yes, I don't know -- we obviously don't know what they, our competitors, are doing. We certainly hear things as do you and we know that there was some, as I said, public discussion of it. But I cannot predict and I do not know with any specificity, timing and exact competitive response. So it wouldn't be appropriate for me to address that.

Our next question comes from the line of Lawrence Biegelsen from Wells Fargo Securities. Your line is open.

Two from me. I'll take the 2018 question. The midpoint, I guess, of the guidance implies about 19% growth in Q4. I think the Street's at about 20% for 2018 right now. Sri, how do you want to think about last year at this time? I remember you talked about Q4 being kind of a jumping off point for 2018? But I see some catalyst here, DAWN publication, Compass data, which I'll ask about in a minute. The distributor you bought in Italy. So how do you want us to think about the puts and takes for 2018?

Thanks, Larry. It's a great question to allow us to go into a little more detail on it. I think you're absolutely right with the math on the guidance, and I think you are right on the various puts and takes. There is a number of things as you think about Q4 and the comp. We spent a lot of time earlier this year talking about the tougher comps in 2017 for the business, and so I think you got that right. I think you got some of the other tailwinds that we discussed on this call albeit the stroke market, it's been strong recently. But in our own history, we've watched that growth, trajectory of that growth change. So this isn't unusual for us and it's certainly not a new path for how the market is growing at least in our minds and obviously some of our competitors have commented on that as well. We do see some of the potential headwinds to be much the same. We talked about competition and for one of the earlier questions, it's certainly not new. But it's something that we expect. We may not have seen it until now and we are preparing for it as we go into 2018. And, frankly, the way we think about the market growth, which is really the underpinning and largest fundamental of how we do as a business, particularly in neuro. We kind of think of it as an absolute patient growth. It's been consistent and almost the same over the last couple of years, and that's how we think about it going forward. So, obviously, that translates to slightly different growth rates as you get to larger numbers. So I appreciate the question and hopefully that helps translate what we see in the back half of this year and how it moves into 2018.

Very helpful. And then for my follow up. As I alluded to in my earlier question, it looks like the Compass trial, which is a pretty big trial comparing aspiration to stent retrievers has completed enrollment according to clinicaltrials.gov. So, I guess, Adam a couple of questions. One is, do you expect to see that data in January at ISC? And how do we think about that compared to the ASTER trial? What are the key differences and how might the data be similar or different just based on what you publicly know? Thanks for taking the questions.

Well, unfortunately, my answer is going to be short because I don't know the data as you know, that's not a trial that Penumbra is a running. It's an independent study that we help sponsor but we don't have access to or control that. So I really can't comment on that. There are some nuance differences in that trial. But at the most fundamental level, it's not dramatically different than some of the other studies. There are definitely some things that we will and others will highlight about the differences. But I think at the most fundamental level, we would expect to see it confirm what we know, which is aspiration as a frontline tool is as good as a stent retriever. And then I want to reiterate what I said earlier, which is we already know and in fact some very, very vocal and big supporters of sort of traditional balloon guide stent retriever use have publicly commented that the procedure with aspiration is potentially faster, more cost effective and more tolerated by patients. And I just think that's worth noting as we move into seeing what that data is next year, hopefully.

[Operator Instructions] Our next question comes from the line of Jason Mills from Canaccord. Your line is open.

Adam, I was interested in your comments about some of the macro drivers, seemingly specifically in the United States. And one that stood out to me as we've been tracking this market seems important over the longer-term but seems to be impacting positively, incrementally near-term, is the shared cooperation between hospitals. Could you elaborate on that a little bit further? I guess, how ubiquitous that is or isn't in the United States at this point and how much it's contributing? And what you foresee within that realm, I guess, both in the near and the medium term? It seems like that to me be an important driver of market growth over a period of time.

It's a great question, Jason, and I wish I could give you a wildly optimistic answer but I'm going to give you a more guarded answer. Because I called it out as one of the things that we've seen because when you see it, it stands out. It's kind of amazing, right, that hospitals that have competing financial interests work together for the benefit of patients. That isn't something unfortunately we see every day. So I want to call that out. And when I have seen it and there are counties and areas and regions where it really has worked very well and it's kind of, I think, a beacon or a light for all of us to acknowledge. Unfortunately, it doesn't always work that way and we see the exact opposite, which I also called out, where people are working against cooperation and for their own interest in making sure they keep patients and so on. And that's more of a challenge. And we just have to work through that place by place over the next period of time. What I did also call out, Jason, I do want to point it out, is that sometimes what we've seen is since hospital systems don't always want to co-operate, they sometimes decide to invest in building their own capacity. And we have seen some regions, not a lot, but some where they are building the capacity so that these patients can be treated within their system. And however that happens, that is also another positive benefit for the patients in those areas and those regions. So sometimes it works out, but in a slightly different format.

That make sense, Adam. And as a follow-up to that, can you quantify or qualitatively help us understand within those the regions you are, in fact, seeing cooperation between otherwise competing hospitals. Are you seeing different growth rates on a relative basis to those areas that have yet to get there, sort of...?

There is no question. Yes. I'm sorry, I didn't mean to interrupt you.

That was the gist of the question. I was just going to ramble from there.

So the answer is, absolutely. I can't really quantify those sort of county by county. But there is no question. We hear anecdotally from the physicians and stroke coordinators in those centers, where they have worked out some form of either cooperation or a new center comes online that overall number of patients in that area goes up that are treated and it makes obvious sense. They are focused on. And that comes in all different forms, right? Called out the sort of outreach with EMS, just the sort of awareness and constant sort of working with EMS also sees that happen to some degree. So that is what we believe is driving sort of the market growth right now in those regions. So when you see it not happening and you see the possibility of that happening, but the barriers are there, it becomes frustrating. And it becomes frustrating for all of the people involved that are dedicating so much time to make sure the patients get treated. So I'm ultimately, as you know, very, very optimistic about this. But this isn't going to be an easy and linear process. It's just going to be a bit messy and complex for a while.

That's helpful. And just as a follow-up on peripheral vascular. I think you're due credit for the steady hand you showed at the SRR meeting earlier this year when the NIH study data came out. That was particularly, at least outwardly positive with respect to the devises that were used in that trial and catheter directed lysis. And yet, what we have seen at least from your business, is a couple of quarters subsequent to those data, pretty strong results. So perhaps you could talk a little bit about that market in general in the wake of that study and what you sort of expect from a market development effort and a competitive landscape perspective in peripheral vascular over the next call it, 12 months or so?

Yes, I think that's a good question that includes a lot of different pieces. So in my prepared remarks, we called out specifically the three areas that we focus on. In part because they come with very different challenges, both clinically the improvements and iterations to the devices and so on. We have to start really talking about them separately. So if we do that, we remind each other that the ATTRACT Trial that you're talking about was in DVT. So one of the three areas, but not in the other two areas. So it would only have a negative impact, if it had any negative impact at all in that one area. We have not yet seen that impact in our own business. But again, we were sort of the newcomer to this process. We were still adding accounts and adding converts to our technology. So it's not surprising we haven't seen an impact in that subset of what we do. We also, I want to remind you that the trial has not yet been published. It was presented many, many months ago and at the time I think we all believed and were told to some degree that it would be published forthright. It's now November and it has not yet been published. So we still don't know if there will be another wave of sort of headlines and so on, and I've said that for a bit here. I will add just out of maybe interest, there are some folks who practice in this space in some of the other subspecialties than the ones who were sort of primarily responsible for running that study who haven't even heard of ATTRACT. Who treat DVT on a regular basis, they haven't even heard of it. It's not their subspecialty, and they have seen and talked about their businesses as totally steady and unchanged. So we just don't know if there will be any additional impact. To sort of close it out though, we weren't in that trial, as you know and said in your question, and we have definitely been able to bring home the point over and over again that the idea that you would dissolve or macerate the clot and push it downstream somewhere else, versus just taking it out of the body primarily is a big difference, and that paradigm shift is really important. And I think that trial really allowed us to drive that point home to physicians that are willing to listen to it and I think that has been part of the reason we are also successful.

And our next question comes from the line of Joanne Wuensch from BMO Capital Markets. Your line is open.

Two quick questions. The first one is, can you discuss what the thought process was and the components that went into the 2017 revenue raise for guidance? And then my follow up question really is can you spend a minute or two talking about the international market, which countries you are benefiting from the most there and plans to further penetrate it? Thank you.

So Joanne on your first question on the guidance. So obviously we revised our guidance upwards based on our sort of best assessment of the business and where we are. We are coming off a particularly strong third quarter and what the updated guidance suggests is a pretty healthy sequential increase for Q4. So as we talked about and I mentioned in a prior question, we do face some tougher comps, particularly in Q4. So we do feel that that guidance is appropriate. And I think we've touched on that in a prior question as well. So to answer your question on the guidance. On international, today we're direct in most of Europe. I think you know we have a distributor partner in Japan. And really the geographic differences in our markets particularly in neuro, where we do have more of an international presence, they're all very different. We tend to focus on the U.S. and Europe and a lot of our discussions here given that those are the larger markets people are focused on. But the geographies are all very different if you think about the Far East, South America in addition to the U.S. and Europe. So we continue to have a strong international business. It's about a third of our overall business. It's growing quite well and we're pretty excited about the opportunities that we have ahead with our portfolio in those places.

Are there any plans to expand further, China, etcetera? Or are these your two main markets at this stage?

Yes. Right now, that's where we are. China obviously is a large market and there are some folks that are there enjoying some nice growth. We are not there. It's a particularly challenging place to figure out and right now, we don't have an approved product at least in stroke. So it's not currently in our commercial business.

And we have no further questions at this time. I would like to turn the call back over to Mr. Wilson.

Thank you, Kirsten. 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 fourth quarter call.

This concludes today's conference call. Thank you for your participation. You may now disconnect.