Penumbra, Inc. (PEN) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon. My name is Sarah and I'll be your conference operator today. At this time, I would like to welcome everyone to the Penumbra's Fourth Quarter and Year End 2017 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] I would like to introduce Mr. Dan Wilson, Director and Head of Business Development for Penumbra. Mr. Wilson, you may begin your conference.

Thank you, Sarah and thank you all for joining us on today's call to discuss Penumbra's earnings release for the fourth quarter and year end 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 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 31st, 2017, which will be filed with the SEC on February 27th, 2018. 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. 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 the call over the call to Adam Elsesser, Penumbra's Chairman and CEO.

Thank you, Dan. Good afternoon and thank you for joining Penumbra's fourth quarter and year end 2017 conference call. I'm joined today by members of our senior management team. As we look back at 2017, we accomplished a great deal and I'm proud of the significant progress that our team has made to build our business. More importantly, I'm very excited about how Penumbra is positioned for the future. I will begin today's call with a brief recap of 2017 followed by a few recent business updates and then I will end with a few summary comments as we move forward into 2018. Sri will then provide a review of our financial results for the quarter and an overview of our revenue guidance for 2018. Our total revenues for the fourth quarter of 2017 were $96.1 million, an increase of 31.4% as reported from the fourth quarter of 2016. We had operating income in the quarter of $3.9 million compared to an operating loss of $1.2 million for the same period last year. For the full year 2017, our total revenues were $333.8 million, an increase of 26.8% as reported from the full year 2016. We had operating income for the full year of 2017 of $1.2 million compared to an operating loss of $1.4 million for the full year 2016. Our business continues to grow with scale. We grew close to 27% on over $300 million in revenues and we continue to invest to support our future growth. We achieved an operating profit in the year as we invested in our business. What pleases me most, however, is the impact that our company has had on patients and their families. Over the past year, we have positively influenced the lives of tens of thousands of additional people around the world. Our employees, our customers, and our investors can all be proud of the work that Penumbra is doing to save lives and help improve our health care system. In the past year, several major development have benefited our business. Our market opportunities expanded. We strengthened our product portfolio across the business and we continue to invest to support our scale and future growth. Specifically in the fourth quarter of 2017, we saw extremely strong momentum across our business, particularly within our neuro franchise. Our performance within neuro in the quarter was primarily driven by ischemic stroke. We continue to see strong procedural volumes and we continue to add important clinical evidence that supports our expectations of future growth. At the recent International Stroke Conference in January, there were several notable updates. The promising Compass trials were both presented and each provided additional clinical validation of Penumbra's stroke technology. The Compass results demonstrated that aspiration at the initial strategy for mechanical thrombectomy was not inferior to initial stent retriever used for good functional outcomes at 90 days. Time to substantial reperfusion and the quality of reperfusion were statistically comparable between the two groups although aspiration alone were generally numerically higher. Compass is now the third randomized controlled trial following Aster and 3D, which was recently published in JAMA, which all showed that comparable results can be achieved with aspiration as a frontline approach. While the use of direct aspiration has become more prominent in the field over the past few years, this body of compelling clinical evidence will be important to support the future of stroke patient treatment. Just one day prior to the presentation of the Compass results, the American Heart Association updated their 2015 recommendation to allow for other mechanical thrombectomy devices such as aspiration to be reasonable first-line devices. Another important AHA update was a new recommendation for acute ischemic stroke patients with large vessel occlusions to be treated six to 16 hours from last known normal. AHA also recommended patients be treated six to 24 hours from last known normal with a level 2A evidence. This update followed the favorable results of the DEFUSE-3 trial, which follows the positive results of the DAWN trial in showing the benefit of mechanical thrombectomy greater than six hours from system onset -- symptom onset. We believe these updates will only further help more stroke patients to be treated in the future. Our sense is that approximately 27,000 patients in the U.S. were treated with mechanical thrombectomy in 2017. DAWN, DEFUSE-3 and the updated guidelines will all help to expand the number of patients that can be treated. However, we are still in need of improving our systems of care in order for patients to get to the right stroke hospital to be treated. As this happens, we expect that the number of patients treated will grow by a similar number of absolute patients per year. As we have consistently said over the years, we strongly believe that the stroke market and thus, patients, will benefit from continued competition. Competitive aspiration products are not new to the field and now we see both large and small competitors trying to develop new products with appropriate regulatory clearances. This competition only motivates and empowers our team at the number. As with our past success, we intend to continue to lead the field with our product innovation and commercial execution. Within peripheral vascular, our business continues to progress well. We have not experienced any headwinds from the negative headlines of last year's ATTRACT Trial. As a reminder, the ATTRACT Trial was recently published in the New England Journal of Medicine in early December. In the fourth quarter, our peripheral thrombectomy and peripheral embolization portfolios continued to drive strong growth through our dedicated commercial efforts. We continue to balance adding new customers with educating our existing customers on all the possible applications for our peripheral products. We see meaningful opportunities across both new and existing customers, and we will be thoughtful about how we grow our business. As we look ahead to 2018 and beyond, we believe we are well-positioned to drive long-term sustainable growth. Penumbra has developed products in multiple clinical areas that we believe will continue to grow and we remain confident in our abilities to continue to develop and commercialize new and innovative therapies. At the J.P. Morgan Healthcare Conference last month, we shed some light on a few areas that we are exploring; deep brain hemorrhage, coronary and MVI Health. We will pursue these new areas with the same approach that we have followed with each of our development projects since we founded the company. These new areas can have the potential for Penumbra to impact tens of thousands to potentially over millions of additional people. We will plan to provide further updates on these projects and others as appropriate. I'll now turn the call over to Sri to cover the financials.

Thank you, Adam. For the fourth quarter ended December 31st, 2017, our total revenues were $96.1 million, an increase of 31.4% reported compared to the fourth quarter of 2016. Our geographic mix of sales in the quarter were 64% U.S. and 36% international. Neuro and peripheral vascular represented 70% and 30% of sales respectively. We ended the year with very strong momentum across our business. Similar to last year, we saw record sales in the month of December. In addition to our strong domestic growth, we saw strong additional growth contribution from our international business, which we will discuss further. Revenue from our neuro business grew to $67.3 million in the fourth quarter of 2017, an increase of 31.1% reported compared to the same period a year ago. Our neuro growth was primarily driven by sales of our Penumbra System for ischemic stroke, which benefited from continued strong procedural volumes and the strength of our differentiated portfolio. We saw greater international growth contribution that resulted from several factors, including strong execution to close out the year, new international product introductions, moving to a direct selling model in one of our European countries, and favorable currency. Revenue from our peripheral vascular business grew to $28.7 million in the fourth quarter 2017, an increase of 32.1% reported compared to the same period last year. Our peripheral growth was driven by strong results from our thrombectomy and embolization businesses. As Adam mentioned, we continue to see strong commercial success across both new and existing customers. Our gross profit in the quarter was $63.7 million or 66.3% of revenues compared to $46.6 million or 63.7% of revenues for the same quarter last year. Total operating expense for the quarter was $59.9 million or 62.3% of revenues compared to $47.7 million or 65.3% of revenues for the same quarter a year ago. Our research and development expenses were $8.4 million for Q4 2017 compared to $6.1 million for Q4 2016. SG&A expenses were $51.5 million for Q4 2017 compared to $41.6 million for Q4 2016. Our spend increased primarily due to increases in headcount and related compensation expense. We had operating income in the quarter of $3.9 million compared to an operating loss of $1.2 million for the same period last year. We ended the quarter with a strong balance sheet with approximately $250 million in cash and cash equivalents and marketable securities. I will end with a quick recap of our full year 2017 results. Our total revenues for the year were $333.8 million, which represents an increase of 26.8% reported compared to the full year of 2016. Revenue from our neuro business was $232.5 million for the full year 2017, an increase of 25.3% reported. Revenue from our peripheral vascular business was $101.3 million for the full year 2017, an increase of 30.3% reported. Our gross profit for the year was 65.1% of revenues compared to 64.9% of revenues for the full year 2016. We had operating income for the full year of $1.2 million compared to an operating loss of $1.4 million for 2016. Today, we are introducing revenue guidance for the full year of 2018 in the range of $400 million to $405 million, which at the midpoint represents revenue growth of slightly above 20% over full year 2017. This guidance represents our current views on our business and our markets. Based on our comments regarding the larger month of December and the factors within international, we expect that Q1 will see a sequential decline over our fourth quarter, but strong year-over-year growth. Additionally, as we look out to the rest of the year, we expect tougher comparables to impact reported growth rates in the second half of the year. And now, I'd like to turn the call back to Adam for closing remarks.

Thank you, Sri. In my closing remarks, I would like to share the amazing story of [Christine Sellers]. I had the honor of speaking with Ms. Sellers two weeks ago about her incredible story. Ms. Sellers is 44 years old and lives in the suburb of Chicago. She described her morning of January of this year where she woke up and had difficulty using her right hand. She tried calling her daughter and then texted her. The text was reported incomprehensible. Somehow, Ms. Sellers was able to dial 911, which generated an ambulance to her residence. The emergency personnel took her to the local hospital where they discovered a large vessel occlusion. TPA was started, but a complication occurred and so it was stopped. Ms. Sellers was transferred to Rush Hospital in Chicago. Once there, the physicians were faced with a complicated set of decisions, but elected to perform a mechanical thrombectomy with Penumbra's ACE68 and 3D stent retriever. Ms. Sellers described the entire experience to me, including how she felt better immediately after the procedure. She returned to normal and was discharged from the hospital to her home several days later. This story shows the best in stroke care. Incredible emergency services, great cooperation in local hospital in transferring her, great decision making and effort by the entire Rush stroke team, in this case led by stroke neurologist [Dr. Vargas] and neurointerventionalist Dr. [Indiscernible]. This story shows us what is possible in 2018. Let us now make this a reality for everyone. Thank you for joining us on the call today and we will now answer questions.

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

Thank you guys. And first-off, congratulations on a fantastic fourth quarter. So, my principal question is what happened this quarter? You obviously saw very strong acceleration, particularly in the neuro side of the business and you talked about the stroke. Can you give us a little more than that? Can you give us some color on why you think you saw the acceleration you did? And you talked geographically about those, the U.S., and international, but do you have any additional color versus starting point would be appreciated. Then we'll go from there. Thanks.

Mike, it's Sri. I'll start, and Adam will chime in with some additional context. But I think there are two major things, as you may have gathered from looking at the numbers or our commentary, that on the neuro side, obviously, some strength when you look at sort of a year-over-year and a sequential basis on our growth in the fourth quarter and a lot of the same themes that we had touched on related to ischemic stroke and procedural volumes. I think the other item that we saw strong growth in the U.S. and domestically. Our international growth obviously was something I take note of in the quarter and we had a couple of things that we had highlighted in the commentary about what led to that. But I think those are -- if you're trying to find a few things that are to point to talk about why we had such a strong quarter, I think those two may help.

And Mike--

And -- go ahead, Adam. Go ahead.

No, go ahead. Go ahead.

No, I -- Adam and Sri, when I look at all the data points, it's not one item or two items, right? It's kind of across the company. You saw strength in not just international, but U.S. and across neuro and peripheral. So, Adam, just how much of that, if you think about neuro -- the neuro piece, is just market development acceleration, which we were talking about six, nine months ago? And is there anything incremental that you think is happening in either shift to aspiration or share gains that you're getting with your product offering?

Yes, to give some color, both on our peripheral and neuro business, I think we're seeing sort of the beginning of some of the fruits of everyone's labor. If you look at the neuro side on stroke, as we've always talked about, so much of this market development work relies on people in their communities sort of passionately driving the outreach and the education and the work with the EMS guys. And I think we're seeing some of the fruits of that passion start to show up. As we've always said, it's, on a quarter-by-quarter basis, still got to be uneven by definition. But as an example, just this morning, I had a chance to talk with a physician in the middle of the country who was sharing stories of what was happening in his sector, where they have a new stroke coordinator. That person, in the last quarter and a little more than that, has gone out and done extraordinary outreach to the emergency services and brought them sort of into the fold, work that haven't yet been done at this particular center. And they've seen a huge increase in the number of patients that they've been able to impact. So, we're going to, by definition, still see that and it's still going to be uneven. And it happened to be a particularly good quarter. On the peripheral side, I think what you're seeing is the continued, just steady success of the conversation we're having with physicians. The logic of the argument that why wouldn't you just remove clot from the body rather than try to macerate it or dissolve it or do all these other things that bring with them added layers of complication. Just take it out. And I think that conversation is having more and more success, and hopefully, will continue in the future.

Adam, last item. The -- could you just comment on the stent retriever? And are you really generating sales with that at this point? And if so, how meaningful? Or is it more about the packaging of that product with your aspiration offering?

Yes. So, we've always, been proud of the work that we've done with our stent retriever. We think that it is very purposely designed in a clear way to be effective when necessary. We've always said that we hope that physicians continue to move towards starting with aspiration alone. We think it's faster and more efficient. Now, we have three trials that show that to be true. And certainly, the most cost-effective, which, to us, matters a lot. If we're asking the health care system to invest in treating stroke patients, we have to do our part to be a cost-effective partner in that process. But to those patients who need extra help or extra boost with the stent retriever, we certainly have always been very proud of ours. I think that process and getting folks to see the success of it is certainly well underway. If you recall in the story I told about Ms. Sellers, in her particular case, they used the combination approach and it worked quite well. And she described they did the procedure awake and she literally immediately felt different. So, I think we're certainly seeing success, but it doesn't change our fundamental strategy of still encouraging folks to start with aspiration alone.

Understood. I'll let some others jump in. Thank you guys.

Thanks Mike.

Thank you.

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

Thanks and good afternoon. Just to sort of maybe follow up on Mike's last question there, is it roughly safe to assume that 3D maybe added three or four points of growth in the quarter? Just wondering if we could sort of maybe quantify -- help us quantify the contribution. Is three or four points of growth in the right ballpark or was it less than that?

Hey Bob, it's Sri. I'll try to answer that in the best way that we can without breaking down the components of every product within the divisions. As Adam mentioned, it's -- and we've been sort of talking about how it's helped not only in the direct sales of 3D, but just in the overall marketing of our comprehensive portfolio and what we're doing overall in neuro. So, it's helped, it's not something in particular that we're going to specifically call out as a major item. And to Mike's point that he mentioned on his last question, there's pretty broad-based strength across multiple areas here. It's not just one thing.

Yes, okay. No, it's clear. It's obviously a really strong quarter. Perhaps something else you won't be able to comment on, but I'll ask anyway. It's just a quick -- or a question on the pipeline. I'm just curious, is 2018 a year where there's the potential for a new aspiration system, a complete system to come from you guys? And I asked the question obviously in light of this is also a year, perhaps at some point over the course of the year, where you will see that competition that you referred to.

The answer to your question is yes.

So, yes, we should expect a new aspiration system out of Penumbra in 2018?

Yes.

Okay. I assume from the one word that we're not going to get a lot more details on it, but I'll--

You got an answer.

I know, I know. I'm absolutely thrilled, actually. I was not expecting that. So, okay, that's helpful. And then on a more serious note, I was wondering if you could try to help me in terms of quantifying the development of stroke infrastructure in the U.S. in 2017. And then maybe -- I don't know if you have this data, but I'm just curious, like how many centers do you think there are in the U.S. that you would consider to be sort of truly developed? However you want to define that, at the end of 2017 versus sort of the beginning of 2017. And then I just want to get a sense for how much stroke infrastructure developed over the course of the year in the U.S., in your view.

Well, I think it's a -- actually a great question and one that, is very hard to try to quantify at the level that is -- got real detail. But I think what we would be able to say from what our best understanding of what we've done -- seen is that there are around 600 or so centers that sort of actively are doing stroke, interventional stroke or mechanical thrombectomy. Of those, how do we sort of look at who's fully developed and what does that mean? It's hard to know what that means. I think there's only a small percentage of those 600 that are doing over 100 strokes a year. So, if you're trying to slice and dice it differently, that would be one sort of fact I think we could add to the discussion. But what we see is, as I sort of tried to share with that story in answer to Mike's question, the nature of this growth is still real and it's happening sort of on a moment-by-moment basis as centers get new people and new staff and they have different motivations and passions. We're seeing that stuff happen, and then that growth might taper off for a couple of quarters as they digest it. And sometimes their capacity is limited, they only have one room or two physicians doing this and they need to hire more people. So, there's a, by definition, sort of built-in regulator, if you will, to that growth, which is unfortunate, but it's, by definition, necessary. And it still really is -- until we have state laws or some form of sort of reimbursement structure that changes this, we're going to see this play out for the next number of years, where it's efforts by people in the local community who do -- who drive this. And sometimes, it's physician-driven, sometimes it's stroke coordinator-driven, sometimes it's EMS-driven or local health folks. So, it really does vary. But what I can tell you from being out in the field and talking to a lot of people is the passions are high. There's a lot of interest and momentum. There is, in my mind, no risk that this is going to continue. It is well sort of taking hold. It's just a question of how fast does it happen?

Thank you. That's helpful. And then maybe just to close, can you just go over those numbers you gave us in terms of how many cases you thought happened in the U.S.? I'm sorry, I think I missed it. You gave some guidance on what you thought growth would be and where we are today. And then I'll stop.

Yes, we're giving you our best, Bob. There's not a lot of great data. We're close to it, so we're giving you what our best sort of estimates are. And for 2017 in the U.S., our thought is there are roughly around 27,000 patients who were treated with mechanical thrombectomy. And as you might recall from our prior comments in the past, that's up about 5,000 patients from 2016. So, when we talk about the same number of absolute patients, i.e., 5,000, we have seen that growth over the last three or so years be pretty consistent and that's our sort of expectation going forward.

Perfect, very helpful. Thank you guys.

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Your line is open.

Hey guys, thanks for taking the question. First from me, any color on how to think about neuro versus peripheral growth in 2018?

Yes, Larry, it's Sri. So, obviously, with our guidance that we gave, the midpoint is slightly above 20%. I think we've broken down neuro and peripheral and while we don't give specific guidance on those divisions, just some helpful building blocks for you. Neuro is obviously driven by how the ischemic stroke market grows and in those numbers I just recited for Bob, 5,000 patients growth in 2018. For 2017, led to above 20% growth. For 2018, that leads to a slightly below 20% growth. So, we kind of look at that. Obviously, there are other factors beyond market growth that's a more sensitive one for us, but it's the treatment technique. There's the share within that technique. Obviously, those are additional variables. On the peripheral side, the challenges there, Adam touched on -- more on the sort of steady success that we have with our customers. If you look at the 2017 numbers there in peripheral, it's -- within thrombectomy and overall peripheral, you're sort of in the high 20%, approaching 30% growth. That overall business now has surpassed $100 million in revenues, so we're talking about a more scaled base of revenues as we go forward. So, we will naturally see the growth rates maybe not sort of keep up with that kind of pace, but sort of respond to the level of scale of that business.

Very helpful. And then just lastly for me. Sri, do you expect to be profitable in 2018? Any just general color on the P&L and FX benefit to sales in 2018? Thanks for taking the questions and congrats on the strong finish to the year.

Sure, thanks Larry. So, we'll do our best to answer this for you. So, the breakdown -- sorry, the question on profitability -- I'm sorry, I was trying to write down your questions. So, we ended the quarter and ended the year in an operating profit position and that's along with investments that we made throughout the year that I think we discussed. We're going to continue to invest in the business. Our priority as we look forward, particularly in 2018, still continues to be on driving revenue growth. There's a number of different places I think that we've talked about within the existing business and now in new areas. So, we're going to continue to invest in the business and not necessarily put out an artificial profitability marker. However, based on the history of the company and the model, we've had lots of history operating in a profitable position. So, -- and as a sort of a further note to that, we ended the year in an operating cash flow positive position as well, so we certainly feel comfortable with our ability to fund what we're doing on investments.

Any FX rate benefit to the topline in 2018? And then I'll drop. Thanks.

Yes, sure. So, we -- again, it's not something we break out, but it's a small sort of tailwind for us into next year. I wouldn't say it's a meaningful enough item to break out, but yes, we've -- and that's been factored in the comments that we'd made around guidance.

Thank you very much.

Thanks Larry.

Thanks Larry.

Your next question comes from the line of Jason Mills from Canaccord. Your line is open.

Hi folks. Congratulations on a great quarter. Can you hear me okay, Adam?

Yes, thanks. We can. Appreciate it, Jason.

Terrific. So, I wanted to start with ischemic stroke market. Adam, your story, beyond the fact that it was a miraculous, obviously, outcome for the young lady, what struck me was it sounded like a wake-up stroke, which, given the process -- and I don't know all the details, but it sounds like it could have been a stroke beyond that initial six-hour window. And obviously, the guidelines wouldn't have changed by then, given that it was a couple -- three, four weeks ago. So I guess, my question in light of that story, in light of the DEFUSE-3 study that we saw, was really the driver of that and DAWN the driver of the guidelines changes to expand the window, what do you think that does ultimately to procedural volume growth and the development of the market in general in the United States over the next couple of years?

Well, thanks, Jason, for the question. I think as I've commented in the past, the DAWN and the DEFUSE-3 study are incredibly important studies. There's no doubt -- and I think everyone in the field agrees that we will see a larger potential group of patients. The patients that can be helped by mechanical thrombectomy now, by definition, has to be bigger than we thought a year ago and that's amazing. We have said, and I think we would reiterate, that in some of the more sophisticated and active and busy centers, some of those patients, they have already been treated using whatever their imaging modality to decide to treat some of those patients. So, some of those have already been captured. I don't think we have yet seen sort of a wholesale shift in the sheer volume of patients because of that. But I do think it adds huge amount of additional energy, clinical evidence at a time when we're over two, almost three years away from the MR CLEAN study to sort of have another sort of jolt of energy around these topics, I think, plays incredibly well in the local efforts because this is now constant. We are now showing that, no matter what, we basically should treat patients. Now that might be a touch of an overstatement, but the point being there's nothing that stops us. There's no reason to not have your center who -- if you're doing mechanical thrombectomy, get on board and invest in the work and work with outreach to the emergency personnel and so on to get these patients triaged and into the centers to be treated. So, I think it's incredibly timely, it's incredibly valuable and I think it bodes well for the next three or four years.

That's helpful. Two comments you've made on this call, and I put them together and tell me if I'm extrapolating too much. You just said no matter what as it refers to treating large vessel stroke. Earlier, you talked about the fact that a small percentage of those 600 active centers are doing maybe a critical mass of 100-plus a year. Aren't -- if I put those two statements together, what I extrapolate from that is when you now change the guidelines to effectively no matter what, for large vessel stroke, does that not empower a majority of centers that perhaps have not scaled to feel emboldened by guidelines and by data to do more than perhaps even MR CLEAN and the applicable studies around MR CLEAN, SWIFT PRIME, et cetera, did when this industry sort of caught fire in 2015? Is it potentially -- could it potentially do more than that in light of--

Yes, I think you -- well, I think you picked up very accurately on what I'm hearing in the field from physicians and other healthcare providers who are focused on this topic. And that is there are a lot less limits and sort of anxiety around potentially treating patients that might be outside of the more narrow scope of the original MR CLEAN sort of data set. And I think this has allowed for a different mindset. And that mindset that we hear and it's reflected in people's behavior, has generated, I think, a renewed energy to make sure that these patients, wherever they are, are triaged properly in the field and hopefully brought to an appropriate center. Again, that work is obviously far from done. We're still only treating a fraction of the potential patients that could be treated. But I do think that it has allowed for a shift in mindset and a renewed energy around the work that has to be done, at least now on a local effort. Hopefully, we'll see more states in 2018 adopt state legislation around triaging patients. The Get Ahead of Stroke campaign is continuing and it's one of the things that, I think, could have the most impact. And hopefully, these -- this energy will be reflected in the states that see this legislation move forward in 2018.

[Indiscernible] Adam, three real quick ones and maybe short answers as well and then I'll get back on queue. First, similar to Bob's question on the aspiration side, do you plan new product launches in peripheral thrombectomy, augmenting what you already have there, over the course of the next 12 months? Secondly, Sri, phenomenal gross margin relative to our expectations this quarter. Curious if you'd be willing to give us thoughts on what the midpoint of your revenue range may promulgate for gross margins in 2018. And then, lastly, I presume your guidance for 2018 does not include any material revenue from the new joint venture you announced, but I wanted to double check. Thank you again.

Jason, always good questions. I'll answer the first one. Sri can answer the second one, then I'll answer the third one. So, I'll do those first two. We're not prepared to sort of go into any more detail or comments around product development or timing on the peripheral thrombectomy side at this point. But obviously, I have said in the past that we think there are areas that can be continuously improved. That hasn't changed, but we're certainly not prepared to give more detail than that. On the question of MVI Health, which is our joint venture focused on virtual reality, using that as a means or tool to help a host of clinical conditions, we think it's certainly too soon to be looking at the commercial footprint of that and it's not part of what we've discussed for this year.

And Jason on the gross margin question, as we mentioned in the prepared remarks that we ended the year at a little over 65% or around 65.1% for the year on gross margins and the quarter was higher even though we had a stronger international benefit of our product mix. The stage that we're in right now in thinking about gross margins is -- I'd characterize it as similar to 2017 and that's affected by a number of things. We have -- most of our capacity expansion plans have been executed. One more building we have that will come online early this year. And with new launches, we generally had more -- sorry, in range gross margins and so we've launched some products at the end of last year. And as we've alluded to on this call, we're going to continue to focus on launching new products. So, it's not something we're going to directionally guide towards and talk about as sort of something we're going to give you a specific number on for 2018. But I think you get the sense of some of the drivers around what leads to our gross margin performance.

Yes, that's helpful Sri. Thanks guys.

Thank you.

Thank you, Jason.

[Operator Instructions] Your next question comes from the line of Joanne Wuensch from BMO Capital Markets. Your line is open.

Good evening. Can you hear me okay?

Yes we can. Hi Joanne.

Hi, wonderful quarter. A couple of questions. The international growth rate, can we peel away some of the different things which impacted that? And sort of get an idea of what you think about that on a go-forward rate?

Sure. So, we mentioned a few things on international, Joanne. The -- just the overall flat out strong execution of our international team and that was a big part of it. Number two, we had a few product introductions -- new product introductions in existing international and new international geographies, not one in particular to necessarily call out for you, but a few of them that have, in collection, helped. And we talked about a few quarters ago the going direct in one of our large European countries and now being a quarter in on that exercise and working well together and bringing that into the fold. And then third -- sorry, fourth, currency obviously helping in the quarter. But if you were to look at our international growth on a year-over-year and sequential basis, you'd naturally see Q4 was a bit of a standout, even despite all the other successes that we're talking about. It naturally stands out. So, as we look at next year, I think we -- or this year in 2018, I think we'd sort of look and expect to kind of get back to sort of more normalized performance if you're specifically looking at the international line.

That's very helpful. And then as my follow-up question. You mentioned in the answer to someone else's question about hopeful that you'll see more states in 2018 adopting guidelines and legislation for stroke patients. How many states do you have already? And at what stage, and I know I've asked this before, it's remarkable to me, does it reach a tipping point that it's embarrassing for one state not to have stroke guidelines when the majority do?

Well, that's a great question. Unfortunately, as far as I know and I may not have this up-to-date, we have one state that has full-on legislation around this and one that has administrative rules around this. Right now, the Get Ahead of Stroke campaign is focused on several states that they're working through the fairly complicated state legislative processes. So, we're really at the beginning of this process. And unfortunately, I can't say that, in 2018, we're going to see a tipping point. I would imagine -- and again, not being sort of a political operative or the like, that it's certainly more than half of the states sort of are required. So, unfortunately, we're a number of years away from that. But I think, with the kind of effort and energy that we're seeing, it's certainly not impossible to see that we would get to that. And we're going to remain focused on it. We're going to remain committed to continue to support and help fund this effort. Because as I've said in the past, there is -- it is a nice complement to the amazing local work that's being done and could really solidify this triage and treatment for patients for a long time. So, it's not, unfortunately, going to happen anytime in the short-term, but I do believe it will happen.

Thank you. And again nice quarter.

Thank you.

Thanks Joanne.

Your next question comes from the line of Kaila Krum from William Blair. Your line is open.

Hey guys. Congrats on the quarter and thanks for taking my question. So, I guess, first, on the pipeline. I mean, near-term, it sounds like you're not incorporating contribution from any of those three new markets you've talked about a couple of months ago. But I guess, long-term, I mean, how do you think about these three new markets over time and how they might change or augment the long-term growth profile? And even surgeon relationships within your existing business today.

Kaila, it's Sri. I'll start and Adam will add some further color to the rest of your question. But on the new areas that we introduced at J.P. Morgan, some of those, we've provided some color and context on. But two of them, the hemorrhage area and the coronary area, we've got regulatory clearance for products in those areas. So, our sort of time lines and commercial impact isn't necessarily driven on a regulatory event. So, in both of those -- synonymously, both of them are being driven by market development efforts. And there are a variety of things that go into those efforts that will have to take place before we see some commercial success and some of them might be clinically-led than others. But we did comment on -- you're right, we don't expect to see meaningful contribution in those areas, at least for 2018. Does that help? Did I answer that?

Yes. No, that's helpful. And then I guess, specific to the hemorrhagic stroke segment, I think it's been a while since you guys have talked about the U.S. INVEST trial with Apollo. But now that you have Artemis, can you just give an update or any color around your clinical strategy within that market?

Yes, sure. Thank you for asking questions. So, there are several efforts underway clinically. The INVEST study is currently enrolling. It's a slightly -- it's a focused, right now, single-arm study to -- that does now also include Artemis as our next generation to really get some real live data that will be helpful to see the impact and the course of those patients. The MIND study, which is a different study, which is underway to get going and recruit centers, is a randomized trial to look at Artemis versus medical management. And we think the combination of those two are really important to help educate and drive the treatment of this disease. So, that's our sort of longer-term clinical strategy. It involves both those type of -- both of the two studies

Great. Thanks guys.

Thank you.

Thanks Kaila.

There are no further questions at this time. Mr. Wilson, I turn the call over to you.

Thank you, Sarah. On behalf of our management, thank you all again for joining us today on -- today and for your interest in Penumbra. We look forward to updating you on our first quarter call. Thank you.

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