Penumbra, Inc. (PEN) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon. My name is Gabriel, and I will be your conference operator for today. At this time, I'd like to welcome, everyone, to the Penumbra's Third Quarter 2019 Conference Call. [Operator Instructions] I would like to introduce Ms. Jee Hamlyn-Harris, Investor Relations for Penumbra. Ms. Hamlyn-Harris, you may begin your conference.

Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's Earnings Release for the Third Quarter 2019. A copy of the press release and financial tables, which includes the GAAP to non-GAAP reconciliations 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-Q for the quarter ended September 30, 2019, which will be filed with the SEC on November 7, 2019, as well as those described in our 10-K for the year ended December 31, 2018, which was filed with the SEC on February 26, 2019. 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. On this call, certain financial measures are presented on a non-GAAP basis. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted press release. We anticipate the prepared comments on today's call will run approximately 17 minutes. Adam Elsesser, Penumbra's Chairman and CEO, will provide a business update; and then Sri Kosaraju, our President and CFO will discuss our financial results for the quarter and updates on our revenue guidance. With that, I would like to turn over the call to Adam Elsesser.

Thank you, Jee. Good afternoon, and thank you for joining Penumbra's Third Quarter 2019 Conference Call. Our total revenues for the third quarter were $139.5 million, a year-over-year increase of 24.8% as reported and 25.5% in constant currency. We had operating income in the quarter of $13 million compared to an operating loss of $20.8 million for the same period last year. Our business continues to see robust growth, and we remain highly encouraged by our patient markets and our ability to innovate within these markets. In the third quarter, we saw significant growth in the U.S., but stronger growth in our international business, which was due to the timing of some of our international orders from distributors. Reviewing the highlights from the quarter, our vascular business continues to outperform and drive significant growth contribution. Over the past year, we have introduced our view of this growing patient opportunity. We believe that it will be a highly attractive area where we can make a difference for years to come. To that end, today, I will share the positive and exciting results from a clinical trial studying our Indigo System in acute pulmonary embolism. Just yesterday, at a late-breaking session at the Vascular Interventional Advances or VIVA Meeting, data from EXTRACT trial were represented by Dr. Akhilesh Sista. As a reminder, EXTRACT is a single-arm trial, studying Penumbra's Indigo System in acute pulmonary embolism. The study enrolled 119 patients across 22 centers in the United States. According to the American Heart Association, pulmonary embolism or PE affects roughly 300,000 Americans per year. We believe that 150,000 of these patients may someday be treated interventionally. However, we estimate that less than 15% of those or only 20,000 are currently being treated today due to inadequate clinical evidence and technology. The EXTRACT trial achieved its primary endpoint in reducing the RV/LV ratio by 27.3% and had a major adverse event rate within 48 hours of 1.7%. These results were achieved without the use of thrombolytics in 98.3% of patients and the median procedure time of Indigo was 37 minutes. We are very encouraged by these results and more excited about the potential for Indigo to help patients who suffer from PE. With results of the EXTRACT trial, we're pursuing regulatory clearance from FDA that Indigo System to be used in PE. We will keep you updated on this effort and the expected timelines as we know more. We believe that PE can be another meaningful opportunity for Penumbra to help countless more patients and it will further expand Penumbra's opportunity in peripheral thrombectomy. Our excitement for the Indigo System continues to grow and our team continues to take on the hard work and challenging tasks that are necessary for us to succeed. Our investors have been curious about how we are penetrating this patient opportunity. We have talked about innovation and clinical evidence. But I want to take a brief moment to share an Indigo case from this past quarter. The story behind it helps illustrate what our team faces in the field and how we handle it. The particular vascular surgeon involved in this case had brought in the Indigo System into his practice a few years ago, but decided he would use it only if surgical embolectomy did not work. A few months ago, a 90-year old patient presented to him with large clot burden in both legs. Due to the age of the patient and the unique circumstances, the physician elected to use the Indigo System with our new high-flow tubing and new ENGINE pump. To his surprise, he removed the clot in the first leg in 60 seconds and did the same thing on the second leg. This was a fantastic result for this patient and it was an evident enough for the physician to convert the Indigo System as his frontline tool, conversions like this requires significant time and effort from our commercial team and positive patient outcomes like this provide the motivation for our team to do this difficult work. As we move into 2020 and beyond, the EXTRACT data, potential PE indication and new technology innovation will all help support our continued growth and momentum in vascular. Now I would like to provide two updates on our neuro business. First, in late July, we launched our latest stroke technology, Penumbra JET 7 XTRA FLEX. Since its launch, we observed a few developments. As we have shared during investor conferences in September, the launch of Penumbra JET 7 XTRA FLEX has been different than prior launches. Given the large number of competitive products entering the U.S. market this year, it's taken longer than prior launches to get meaningful physician experience with Penumbra JET 7 XTRA FLEX. Through the end of the third quarter, we believe that just about half of our current customers in the United States have the product. Notwithstanding the longer time frame, the initial feedback from physicians has been outstanding. And it has been more positive than any of our prior launches. Physicians have been extremely favorable about its navigation, ease-of-use and the increased speed of the overall stroke procedure. The positive feedback has not only been from current customers, but also from competitive catheter users as well. Another early and unique observation is that Penumbra's JET 7 XTRA FLEX is allowing some physicians to reduce the need for adjunctive devices such as stent retrievers and/or microcatheters, while this had some clear negative near-term financial impact on our results, particularly with our own 3D device. This speaks to the strength of the product and is very positive for our long-term strategy. Second, following six straight quarters of strong growth in the U.S. stroke market, we have recently seen three data sources suggest that the U.S. stroke market grew at a less robust rate in the third quarter. We remind you that we've always said that market growth is not linear as measured quarter-by-quarter. Looking at the past four years, periods of less robust growth have never lasted longer than two quarters. That historical pattern coupled with our view that the efforts to treat more and more patients are still as strong as ever, gives us great confidence in the longer-term outlook for market growth. Along with our confidence in the longer-term growth of the stroke market, aspiration will continue to gain share as the frontline mechanism in the stroke intervention. The clinical evidence has now been established in support of our early conviction. Just last week, an independent physician initiated meta-analysis, was published in the Journal of Stroke & Cerebrovascular Diseases that included over 9,000 patients from September 2012 to December 2017. This analysis showed statistically significant higher rates of revascularization as measured by TICI 2b or 3. And better numerical patient outcomes as measured by mRS score of 0, 1 or 2 at 90 days in favor of aspiration versus stent retrievers. This evidence adds to what we learned in the ASTER and COMPASS trials as well. And finally, just last week, the American Heart Association updated its guidelines to recommend aspiration is non-inferior to stent retrievers as a first-line technique to treat stroke. As we head into 2020, we're excited about our newly launched Penumbra JET 7 XTRA FLEX as well as the new innovation coming in our stroke technology, which will drive growth in our neuro business. While our initial focus has been in the United States for both our major patient markets, the underlying diseases that we treat are global. Over the past few months, I've spent considerable times with our team across several countries in Europe and Asia. We see large international opportunities with corresponding challenges across regulatory, reimbursement and commercial capabilities that we need to address to be successful. Over the last few years, we have seen two trends in our international business: first, we have gained greater confidence in the vast patient opportunities in stroke as well as vascular; and second, we have seen more variability in our international financial results as a result of distributor models and larger international markets. While many of our distributor relationships have enabled us to quickly enter our market, we see such structures as having limitations as we grow. We have begun working to evolve our structures to build the capabilities to better support long-term sustainable growth. Our goals for future structures are to have continued growth and leadership in the stroke market, to develop a regulatory and commercial platform, to bring our vascular portfolio and the remainder of our neuro portfolio to these markets and to have more visibility in these geographies. As we move to the end of 2019, we are very confident about the prospects for durable growth for many years in the future. We have done the hard work by continuously innovating and adding new products that help patients. We are now undertaking the hard work, but proper structures in place so that we can invest in our global growth. These efforts are a reflection of our size and success to date. Simply put, we are more excited than ever about our future. I'll now turn the call over to Sri to review the financials.

Thank you, Adam. For the third quarter ended September 30, 2019, our total revenues were $139.5 million, an increase of 24.8% reported and 25.5% in constant currency. Our geographic mix of sales in the quarter were 65% U.S. and 35% international. Neuro and vascular represented 60% and 40% of sales respectively, while the third quarter has historically demonstrated seasonality due to summer, both neuro and vascular saw sequential growth. Our overall growth was largely driven by our vascular business and the timing of certain international orders coming in Q3 amounting to roughly $2 million. Revenue from our neuro business grew to $83.2 million in the third quarter of 2019, an increase of 11.5% reported and 12.4% in constant currency compared to the same period a year ago. Our neuro growth was primarily driven by sales of our Penumbra System for ischemic stroke. As Adam mentioned in his prepared remarks, our results in the quarter were impacted by dynamics related to our Penumbra JET 7 XTRA FLEX launch and by less robust growth in the U.S. stroke market. Revenue from our vascular business grew to $56.3 million in the third quarter of 2019, an increase of 51.6% reported and 52% in constant currency, which represents our sixth straight quarter of greater than 45% growth. In the quarter, our vascular growth was driven by results from both our thrombectomy and embolization businesses, and specifically, from our growing patient opportunities within both current and new physician customers. As a note, next quarter, our year-over-year comparisons include the launch of our peripheral embolization products in Japan, which will have an impact in our year-over-year growth metrics. That being said, we expect strong sequential growth into the fourth quarter, and we see our vascular business having significant multi-year runway ahead. Our gross margin in the quarter was 68.8% of revenues compared to 67.1% of revenues for the same quarter last year. Total operating expense for the quarter was $83 million or 59.5% of revenue compared to $95.9 million or 85.7% of revenues for the same quarter a year ago. As previously discussed, we are actively investing in our growing opportunities, which will result in growth in our R&D and SG&A spend. Our research and development expenses were $13.7 million for Q3 2019 compared to $9.1 million for Q3 2018. Our R&D expenses increased largely due to an increase in product development and testing costs within both existing and new areas. SG&A expenses were $69.3 million for Q3 2019 compared to $55.9 million for Q3 2018. Our spend increased primarily due to personnel-related to – expenses largely attributable to headcount to support our growth. We had operating income in the quarter of $13 million compared to an operating loss of $20.8 million for the same period last year. We continue to expect to invest in the growth for our current business and also in development of potential new areas. With regards to our revenue guidance, while we are not formally revising our revenue guidance range, we are comfortable slightly above the top-end of our previously stated range of $535 million to $540 million. This guidance implies a slight sequential increase to the fourth quarter and reflects the possibility of another quarter of less robust market growth and the timing of international orders. And now I'd like to turn the call back to Adam for closing remarks.

Thank you, Sri. As we near the end of the year, I would like to reflect on our progress. We spent over a decade at Penumbra, building a strong foundation for our company, an incredible capacity for constant innovation, our world-class manufacturing operation, the best commercial team in Medtech and supporting functions that make it all work. At our upcoming Investor Day, we look forward to sharing more detail on our business and how we are positioning ourselves for future durable growth. This represents our first Investor Day since going public in 2015, and we're looking forward to seeing you all there. Thank you, and now we'll open the call to questions.

[Operator Instructions] Your first question will come from the line of Larry Biegelsen of Wells Fargo. Please go ahead. Your line is open.

Hey, good afternoon guys. Thanks for taking the question. Two for me. One on the REAL system and one on stroke, Adam. So first on the REAL system, what's the latest there? Where are you in your preparations for commercialization? And how meaningful can revenues be in 2020, even just directionally, would be helpful? And I have one follow-up.

Okay. Great question. So we're going to go into as we have said in the past a little more involved detail at the Investor Day coming up in December. We are prepared and getting ready for a launch in 2020 of that system. So that time frame is on track, as we have indicated in the past. And we'll use the opportunity at the Investor Day to sort of go through the details of the commercial launch or the pricing, the model itself as well as give you some early indication of what we think the expectations will be for that product in 2020.

Fair enough. And then Adam, this year you've been talking about changing the stroke treatment paradigm. So I guess my question is where are you on that path? Are you still on track to accomplish that over the next 12 to 18 months? And when are we going to learn more about this lightning system? Are we going to learn more at the Investor Day? Thanks for taking the questions.

Great question. Let me try to answer that question the right way. The answer to the first sort of larger question of how far along are we, are we still on track around my comments about continuing to sort of change the paradigm, which, as I've said publicly, really involves getting all of the clot out in – as fast the time frame as possible for almost all the patients. The answer is, we are still very much on track with that work, and there's no update on specific timing, but there are certainly not – there has not been a delay or change in my optimism around that. I still am very excited to continue to provide a lot of the innovation that this field has seen and enjoyed over the last sort of four or five years, and I remain excited about that. As it relates to the product name lightning, which I think you determined as part of a trademark filing, I think it's premature to attribute that product name to any particular franchise within our business. And we'll just have to wait till that product is cleared or approved and launched.

Alright, guys. Thanks for taking the question.

Thanks, Larry.

Your next question will come from the line of Jason Mills of Canaccord. Please go ahead. Your line is open. Jason Mills, please go ahead. Your line is open.

I'm sorry, I was on mute. Adam, can you hear me okay?

Yes, I can, Jason.

Congratulation on a great quarter, I wanted to start outside of the U.S., Adam. You mentioned some of the opportunities and challenges there. And you mentioned the distributor relationships and going through distributors can be different than the direct markets that you're going after here in United States. Can you talk about how over the next two to four years you see your international business commercial progress taking place? In other words, will you go direct in more markets over time? Or do you see the result being expansion of these distributor relationships as you grow?

Yes. I think it's a great question. And I'd love to sort of give some sort of detail and context to it. First of all, the larger point is the diseases that we're treating are global in nature. And that's – we spent a lot of time talking and have as a company about the U.S. stroke market or even now a lot more about the Indigo stroke market, our Indigo market in the U.S. But the opportunity to help a lot more patients is global. But we got to sort of know that we can be successful. So the U.S. market has proven very valuable to really hone our skills and innovate our products. As we go into some of these larger markets, you start in many of them with a distributor model for a company that was at our size just four years ago. But at some point, you outgrow that if you're successful because your interests are not always aligned as you get bigger and have the opportunity to invest in the growth of those markets. Those interest are not typically aligned with the financial model of a distributor relationships. That doesn't mean that our distributors aren't extraordinarily talented and do really great work in these markets. It's just that the financial model doesn't necessarily lineup. So we're not announcing on this call any specific new model or relationships. But really the opportunity to realign our interest with partners or alone to do that kind of work and as those relationships get sorted out, we will be certainly extremely proud and happy to sort of announce them. But they really fundamentally involve the opportunity to invest in the kind of work you need to both regulatorily, clinically and commercially to penetrate markets that are not always obvious like peripheral thrombectomy and others and that need that kind of alignment.

It's great color. And as a follow-up on the vascular side, obviously, great growth, it wasn't lost on me that you commented about two of the larger segments of the thrombectomy market. The clinical study data, which I wanted to ask you about in PE and the case study, which was in DVT. Could you talk about [indiscernible].

Jason? Jason, we're losing you. So I am...

[indiscernible]

Jason, I don't know, if you can hear us, but we lost a lot of that question. It sort of went into a cell phone dead hole. But I picked up a few little things. So I may not be addressing your specific question, but I think I'm getting some of the gist. So you initially talked about the two areas PE with our new clinical data. I think you may be misunderstood I didn't specifically call out, whether it was a DVT or an arterial case that I highlighted. That case happened to be arterial as opposed to a DVT. As some folks have known following us, we've had an extraordinary success on the arterial side with our product and that particular case happened to be arterial. But it really to, again, guess on your question because I couldn't hear all of it, the combination of using clinical data where necessary and appropriate, like in PE and using experience or constant work with physicians to get them to continue to have the experience of using our product in situations where it can be helpful, you really need both of those to continue to grow the market. And I think the story outlined that. Our commercial team sort of never gap up on these physician's desire to continue to treat his patients well and are now going to see some additional success and the physician will see some additional success because of his experience. On the clinical side, particularly in areas like PE, clinical evidence is going to – is necessary, even just to get the formal indication to be able to do it. And I think more importantly to access the larger patients beyond the 20,000 in order to prove that we really should be intervening or helping patients in a more direct way, there is a lot of parallels to the stroke market some years ago, the numbers of patients are actually similar in that regard as well. And these are patients that are not well. They're not everybody with a PE, but patients who have a sub-massive or massive PE, they can convert to a massive, their life can be in jeopardy. But at a very minimum if they go on anticoagulants, they don't feel well. They can't breathe. They have a very uncomfortable and risky time for a fairly long period of time, as it resolves. And we're offering and hope to continue to prove a safe and much more appropriate alternative. So that's a new opportunity that requires both technology and clinical data. On the other side, I did allude to the fact that there will be additional technology coming. We will talk a little bit more about that in our Investor Day both on the arterial DVT and PE side. And for that, I think we will allow us to continue to have better and better experiences that will grow the market. So I apologize for not hearing your whole question, but I hope I tried to answer as best as I could.

My apologize for the connection. I will get back in queue, thank you.

Your next question will come from Robbie Marcus of JP Morgan.

Thank you for taking the question and nice quarter. Sri or Adam, I'm wondering, could be for both of you. A lot of us have done doc calls on XTRA FLEX and they've come at good and better and best and talked to docs that have switched from competitor products, talked to docs that were trialing Medtronic and stopped after using XTRA FLEX and every variation in between. So I was hoping given all the positive feedback that me and a lot of investors have heard, how do you want us to think about the growth trajectory of this product into 2020? We do have some easier comps with some trialing for Medtronic against JET 7 offset by, what, may be a little downtick in market growth here. Just any commentary you could help to think about growth into 2020 will be appreciated.

Great, Robbie, it's Sri. I'll start with this. And I think your feedback is exactly consistent with what we have been gathering since we launched in late July. The product has gotten phenomenal feedback from physicians. And I think, Adam even commented in his prepared remarks, it's one of the best launches we have had of our stroke technologies. What is around that? We obviously feel very, very strongly about the technology and that obviously is something we can control within our innovation. But what's around that is the market and the environment. And we tried to shed some light on this. I think as we went through the quarter, I think we've recognized some of the dynamics around launching and we shared that with investors. I think we have now gathered that the market, maybe, as we said in our commentary, growing a little less robust. The obvious question is what is the market growing at? The beginning of the year, we said the U.S. market was growing about 6,500 patients, that's about 17%. It's hard to measure on a monthly or quarterly basis. But I think what we can say just to provide a little more visibility for investors, I'll provide it just as we head to the end of this year and for 2020, we'll wait to provide that guidance on our fourth quarter call. But as we head to the end of this year, I think there are two big components to think about for the overall company. Stroke and our vascular business, which happens to be about the same size as our stroke business if you look at the revenue numbers that most of you model. The stroke business we feel will grow into the end of the year for the full year at about 15%, 16% and that is a combination of all of these dynamics that we take into account when we say that. And on the vascular business, we feel like that will grow into the end of the year, year-over-year, at sort of the low 40% range. So I think those two data points should help people with a little bit more visibility as we head through the end of the year. And like I said, for 2020, we will wait like we typically do to provide that on our Q4 call.

That's really helpful. I appreciate that, Sri. And then just as a follow-up. We saw the EXTRACT data yesterday. We've seen you over the course of the years raise the procedure targets that you're moving into in peripheral up to 350 and that's excluding pulmonary embolism. By my math, you are still in the single-digit penetration into that market. Maybe you could just talk to pulmonary embolism, what does that add? And as you launch your new product family, do you view this as a slow steady grind over time with strong double-digit growth there? Is this something where we could see more of an inflection point? Thanks.

Thanks, Robert, for the question. So let me address the first part of the question around PE. There's no question that there's an immediate – once we get our indication, which we haven't gotten yet, this data is the step in getting that. But with that indication, we can go after sort of that first 20,000 patients that we identified in the U.S., again, globally, it's a different thing. But in the U.S. market, that are currently getting some form of intervention today whether that's a competitive device or just sort of a catheter-directed lysis. And given our data, I think one can assume that we will do pretty well in that marketplace with that set of patients. The next step, of course, is to go after the other patients that we think we can help that we outlined today on the call as being about 150,000, again, similar size, just slightly smaller than our estimate for the U.S. stroke market. Those are patients that, in order to go after them, we would wait till our next-generation products, likely, but also do some more serious clinical work around proving our clinical outcome. We don't have an announcement to make on this call about that study or that trial. But that has certainly been our ambition really since we started doing this some years ago with our peripheral business. That's an important group of patients, they can be quite sick, and we really owe it to them to do this kind of work and open up this treatment modality. As it relates to sort of the overall business, which is how I read the question, is, I think you called it a sort of slow and steady, I think you said grind, 50-some-odd percent growth or over 45% growth for six quarters. And maybe your definition of slow and steady is different than mine, but I think it's pretty appropriate growth rate. And I think what we have indicated on this call is that we have a lot of room to continue to grow into our vascular business for a number of years ahead of us. And if I can sort of step back for a second, this is exactly what we talked about four years ago when we went public. We talked about the opportunity to develop new areas like stroke and other new areas. And then as people caught up, as innovation continued, though, and people competed, we would also have new areas that we can open this up for. And I just kind of want to maybe highlight one way of thinking about the two markets, the two big markets we're in. If we think about our stroke business in the U.S., which no one will ever say we don't care about in our competitive, if you look at 1 percentage point of market share, that's what we control. In the stroke business, we don't really control market growth. We fund efforts around get ahead of stroke and in state legislatures and all. But we don't really control the local efforts that drive that market growth. But we do have some role and ability to execute in market share questions, so 1 percentage point of market share in the U.S. stroke business equals about $2 million a year in revenue. If you switch to our vascular business, and let me comment, we are obviously going to fight for every point of market share. And I think we've proven that we're pretty adept at that. And I think with JET 7 XTRA FLEX, we and your calls have shown that we have that ability going forward. At the same time, one point of market penetration or market share, really, they are the same thing in our vascular business, because those patients are already being treated by some other modality, but they are still being treated. We don't have to get them there to be treated, so 1% there in those markets for us today is about $15 million a year. So we're going to do that, too. We can do both things. There are separate commercial teams, and we can do both. But if we're successful with both, one will obviously have a larger impact on our business going forward than the other, just by the sheer different number sizes. And that's just sort of worth pointing out. As we think about the business going forward and do not misunderstand that, that comment is meant to say, we care about both businesses the same, and we are going to execute as well as we can in both businesses, but by definition, one will have an outsized impact on our performance.

Thanks a lot. May be consistent was the better word choice, not slow and steady.

I didn't mean to call you. Thank you.

Thank you.

Your next question will come from the line of Bob Hopkins with Bank of America. Please go ahead. Your line is open.

Okay. Thanks and good afternoon. Just wanted to see if I can clarify some of the comments you made earlier. I just want to make sure I heard you on the U.S. stroke market, you kind of earlier in the year thought the market would grow 17% and now you're seeing more like 15% to 16%. Is that what you're saying? It seems like a pretty subtle difference.

No. I think, just to clarify, we said a few things on this call. And I'm glad you asked the question so that we can clarify it. What we said, Bob, is at the beginning of the year, when we introduced guidance, we talked about the U.S. stroke market growing 6,500 patients, which translates to about 17% growth. The comments about Q3 specifically were that we saw less robust growth in the stroke market. We didn't quantify what that is. It's incredibly hard to do that, standing still on one quarter's worth of data, but what we did provide is for our global stroke business, our sense that the annual growth for 2019 would be in that 15% to 16% area. So just under what we had initially highlighted for U.S. stroke growth, which we always used as sort of a proxy for how to think about our stroke business growth. So hopefully, that helps clarify what that language was around.

Okay. So you're saying, you think, this year, the global stroke market will grow 15% to 16% in procedures?

We are saying that our global business will grow 15% to 16%. And in the answer to Robbie's question, we also gave a little more clarity around our vascular business growing in the low 40s – low 40% for 2019 as an annual growth rate as well. So that's regarding our business.

Okay. So according to you filings, I think in the second quarter, your global ischemic stroke business grew about 17%. So it sounds like from your comments that, that slowed this quarter. Is that fair?

That's correct. Less than Q2.

Okay. And that's primarily a U.S. phenomenon.

Yes. I think the three things that we mentioned and these are all related to our neuro business, Bob, and I'll sort of, again, just for the sake of being clear about them, there are three things in the quarter that are notable to highlight for neuro. We had an international order pulled forward to Q3, which we quantified of about $2 million. We had the dynamics around the JET 7 XTRA FLEX launch, which, I think, you recall some of the dynamics that we talked about in some of the September investor meetings and in conversations with you as well about how we saw that taking a little bit longer and different from our prior stroke launches. And the third item is the U.S. stroke market growth being less robust than what we have seen in the first half of the year. So as we think about the combination of those three things, that's relevant to Q3. And as we think about the comment about U.S. stroke growth, we have generally seen that not just being one quarter, but our careful and cautious expectations that would carry into Q4.

Okay. And since it – it's obviously an important part of the company's legacy and future, but – and I know it's only one quarter, but can you give us a sense of magnitude as to what you think the U.S. markets slowed? Because it's sort of – the reason I'm asking because I haven't heard it from other players or just in all of our checks. I'm just curious what you're thinking in terms of magnitude, just like what you're seeing?

Yes. And I want to emphasize that it's hard for us to – on the market basis, to do that. I think we pay attention to the market sources, and the reason why we mention it is we see thee distinct different sources that are showing a slowdown in Q3. So without sort of recharacterizing how we see the market growth rate, our business is dependent on two things: market growth and share change. So what we are providing in lieu of that sort of market growth, which is hard to kind of re-cast is we're providing our review of our growth rate for the year in stroke. So that's another way of us trying to provide a little more visibility about what this all means and what to anticipate. But as we get through Q4, we are obviously going to have the benefit of another quarter to understand and to assess, not only the whole year, but over the course of six months what this dynamic looks like. And we'll provide that like we always do in January about talking about next year's market growth rate.

And Bob, if I could add just – I'm sorry, go ahead.

Yes. No, no, no, I was just – I was going to ask one other quick thing.

Yes. Go ahead. Ask the question.

Well, it was on a different subject. So if you've got – go ahead.

Well – yes, let me just add a touch on the difference between determining market growth and market share. We understand for sure that there is no exact science in a competitive space, which is – we do understand that. We use – we've seen a number of third-party sources together with our own data that try to triangulate both of those important metrics. And that's really important, so that we're putting the energy and effort in the right place. Obviously, as it relates to market share, our own data and our sort of firsthand knowledge about our accounts is also a really important source. But you can't ever be certain around market growth. There is no one magic source. But we do, looking at all these other sources, have pretty high degree of confidence that the robust growth rate we've seen for the last six quarter slowed a bit in the back half of the third quarter. And if you just sort of look at historical patterns, this is not new, we have seen it several times before in the four years we've been public and common sense tells us that, that will likely continue a little into the first part of the fourth quarter. So that's where we sort of put that out there. But it doesn't really give us cause for any kind of long-term concern. Let me address market share or competition sort of directly, as it is different than the market growth issues. Within the market share competition, there are really two distinct dynamics at work. And I think it's important to not lose sight of this. It's different than in other areas with competition, where it's a direct either/or, you either use our product or use someone else's product. In this field because of the nature of the use of stentrievers and aspiration catheters or just one of them, it's a little different. And one dynamic, there's really two distinct competition or competitive dynamics. The first one is where customers don't use any of our stroke products at all. And they then decide because of aspirations gain as a mechanism to use a competitor's aspiration catheter, maybe either with a competitor's stent retriever or without a stentriever, just alone. In that dynamic, a competitor certainly gains business and share for their catheter. They may lose share in their stent retriever or they may just gain a catheter and keep the stentriever business. But that doesn't really have any negative impact on us. We don't lose any business in that share – in that dynamic. In the other thing dynamic where a customer was using our aspiration and switches to someone else's, that's a different dynamic. And we saw that dynamic play out a little bit at the beginning of the year and really the first two quarters. And we talked about it. But since the launch of Penumbra JET 7 XTRA FLEX, we haven't seen that dynamic as much. In fact, we have started to see signs that our team is beginning to take back share from those customers that we might have lost. So there's some nuance around both market growth, which I think we try to be very open about and the competitive issues, which sometimes get a little confusing because of the fact that you can have somebody gaining use of their product and it doesn't have an impact on us. But it frankly sets us up for future success at potentially taking that business back or away from them.

Okay. That's helpful. And then just lastly to finish up and sorry for taking so long, I have just two other quick things. You're mentioning the evolving structures in Europe. Are there financial implications of those evolving structures that are worth calling out? Could that be short-term disruptive, long-term productive? Just curious if there's any financial implications to those evolving structures? And then, Sri, back at – in various conferences, you offered some commentary on 2020 as like kind of that 17% to 19% is being a good starting point to think about 2020. Do those comments still apply? Or given some of these moving pieces, should we just wait till the Analyst Day?

Yes. So let me hit the first one first, Bob, the goal of the structure is – I think, is around the fact that we see that there's pretty robust opportunity outside the U.S. in both markets. And the goal of the structure is to be able to invest and to see the growth that we think we can have. And I think that's the point of making the comment. People haven't heard the number talk a lot about outside the U.S. markets, we're starting to have good success in a lot of markets outside the U.S. and I think it's pretty natural that he would think of the structures that can allow us to have the best long-term sustainable growth. So that's where that thought process and strategic thinking is coming from. And those things don't happen overnight. They take a while to develop. And so we want to put that on radar so that we can have that conversation with the market and our investors. And the second point on the growth rate, we're not going to comment on that today. I think – we generally try to talk about everything we're seeing in our business and now we're in two big markets, six product franchises, many, many countries. In every given quarter, there are going to be dynamics that go on. I think we try very hard to kind of point those out. But if you think about bubbling all that up to the whole company, this quarter we grew constant currency 25%, for the first nine months out of the year, we're growing 25%. We feel really confident in sort of the overall growth of the company and the set up of growth drivers into 2020. I think we'd like to take the opportunity to talk about some of that on December 3 at our Investor Day and use our fourth quarter call to introduce guidance. So maybe I'll just leave it there.

Okay, great. Thanks so much for taking the question.

Thank you. [Operator Instructions] Your next question will come from the line of Margaret Kaczor with William Blair. Please go ahead. Your line is open.

Hey, good afternoon guys, thanks for taking the question. So the first one I wanted to follow-up on is just vascular. I mean I get all the conversations about stroke and so on. But just quarter-after-quarter, you guys seem to be delivering on that side of the business. So I guess a couple of questions within that. Can you provide any additional metrics that really speak to the value of that business stickiness? And then specific to the quarter, can you give us a sense of the drivers of that business? Is it existing accounts, new accounts? And how does that look like as we go through 2020, indications-wise or otherwise.

Yes, Margaret, it's a great question. I'm glad you asked it. I think we've started to spend a lot more time sort of describing the opportunity. We started at sort of the broader market opportunity. We've benefited by having more places where Indigo can be used. I think as we've begun to outline and update the market opportunity, it's expended, because we find Indigo is being used in more cases. The other opportunity there is to penetrate that opportunity. As Adam mentioned, unlike stroke, the main difference or the chief difference here in this market is that the patients are already being treated. These are patients in a hospital being treated. So when he talked about sort of penetration, it's replacing another therapy that's happening versus in stroke, some of the patients aren't even getting to the hospital for us to have an opportunity to treat. So how do we go about addressing those patients and penetrating? Technology, it's clinical evidence, we just had great clinical data yesterday with EXTRACT that hopefully allows us to move into PE once we're able to hear back from the FDA. There are a number of new customers yet to still get to for us. I think we're just in the early innings of being able to get to all the customers we can get to. And then also then addressing all the cases where they can use Indigo. So it's also if you think about new customers and also their utilization of the device. So when we say there is a long runway ahead, we say that because we see it not only the market opportunity, but tangibly in the customers and new opportunities with customers that we see in the future.

Okay. That's helpful. And then I just wanted to follow-up on the Analyst Day. We're kind of talking a little bit throughout this call about what you will say or won't say, but maybe just more bluntly, can you provide us a sense of how much clarity or time you're going to spend on kind of the three different businesses? And then when you walk through some of the updates, will there be new product updates and a sense of market sizes and then as well, longer-term, top or bottom line guidance in addition to the kind of short-term outlook. Thanks.

Yes. I think we've spent a lot of time telling people not to set their expectations on us giving long-range guidance and some of the things that I think people would love to have. I think the intent is – since the IPO, we really haven't had a chance to go deep on the other businesses that are driving our growth. And if you look at what's driving our growth, as I mentioned, our vascular business is just about the size of our stroke business. I think we want to go deeper with investors to describe what are those markets, and what is our strategy against those to drive growth. We also want to go into the other parts of our neuro business, stroke, yes, but other parts, too, that we think that can drive growth and share with everyone that – more clarity around the drivers that we feel like will drive not just 2020 growth, but also longer term, multiyear growth beyond that. And so we like to think about that is the things that help us drive durable growth. So I think the idea is just to go deeper to educate our investors who may not have heard us or had the opportunity to understand those parts of our business and drivers.

And there are no further questions at this time. Ms. Hamlyn-Harris, I’ll turn the call back over to you.

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 fourth quarter call.

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