Penumbra(PEN) - 2021 Q4 - Annual Report

PART I Business Penumbra, Inc. is a global healthcare company that designs, develops, manufactures, and markets innovative medical devices Our Markets - The Neuro market addresses conditions like ischemic stroke, brain aneurysms, and hemorrhagic stroke. The company estimates approximately 200,000 U.S. patients and 1.9 million international patients annually are treatable with mechanical thrombectomy for ischemic stroke[31][33] - The Vascular market covers diseases outside the brain, including peripheral arterial occlusion (PAO), deep vein thrombosis (DVT), and pulmonary embolism (PE), with an estimated 1.4 million annual incidences of clot in the U.S. peripheral vasculature[34][36] - The Immersive Healthcare market utilizes 3D computer-based technologies for patient care in areas like physical rehabilitation, mental well-being, and cognition, targeting an estimated 50 million patients in the U.S. annually[35] Our Product Portfolio Key Product Families | Market | Product Family | Key Brands | Description | | :--- | :--- | :--- | :--- | | NEURO | Thrombectomy | Penumbra System (RED, JET, ACE) | Aspiration-based systems for mechanical thrombectomy in the brain. | | | Embolization | Penumbra SMART COIL, Penumbra Coil 400 | Coiling systems for treating brain aneurysms. | | | Access | Neuron, BENCHMARK | Catheter systems to provide intracranial access. | | VASCULAR | Thrombectomy | Indigo System | Aspiration-based thrombectomy system for peripheral and coronary vasculature. | | | Embolization | Ruby Coil, POD | Coil and occlusion devices for peripheral embolization. | | IMMERSIVE HEALTHCARE | Immersive 3D Platform | REAL Immersive System | VR-based technology for rehabilitation, mental well-being, and cognition. | - In 2021, the company launched the RED family of catheters for ischemic stroke, designed for improved tracking and aspiration in complex vessel anatomy[42] - The REAL Immersive System was expanded in Q3 2021 with the REAL i-Series, featuring a VR headset with gaze navigation to address mental well-being and cognition[59] Manufacturing, Sales, and Competition - The company manufactures substantially all of its products in-house at its ISO 13485 certified facilities in Alameda and Roseville, California[62] - Key competitors include large, well-capitalized companies such as Abbott Laboratories, Boston Scientific, Inari, Johnson & Johnson, Medtronic, Stryker, and Terumo[77] - In December 2020, Penumbra entered into a distribution and licensing agreement with its partner in China, allowing the partner to manufacture and commercialize certain products in exchange for fixed payments and royalties[68] Government Regulation - The company's medical devices are subject to extensive regulation by the FDA in the U.S. and comparable authorities abroad. Most devices require either 510(k) premarket notification clearance or a more stringent Premarket Approval (PMA)[85][86] - In the European Union, the company is transitioning from the Medical Device Directive (MDD) to the new, more stringent European Medical Devices Regulation (EU MDR), which came into effect on May 26, 2021[106] - The company is subject to various healthcare laws, including the federal Anti-Kickback Statute, the False Claims Act, the Sunshine Act, and the Foreign Corrupt Practices Act (FCPA), which regulate interactions with healthcare professionals and government officials[108][110][113][114] Human Capital and Properties - As of December 31, 2021, Penumbra had approximately 3,800 employees worldwide. The company highlights a diverse workforce, with about 50% female employees and nearly 75% of its U.S. employee population from a minority background[117][118] - The company's main facilities include approximately 500,000 sq. ft. in Alameda, CA, and 160,000 sq. ft. in Roseville, CA, for office, R&D, and manufacturing purposes[120] Annual Financial Performance (2019-2021) | Fiscal Year | Revenue (in millions) | YoY Growth | Operating Income/(Loss) (in millions) | | :--- | :--- | :--- | :--- | | 2021 | $747.6 | 33.4% | $(7.5) | | 2020 | $560.4 | 2.4% | $(38.9) | | 2019 | $547.4 | - | $47.5 | Revenue by Product Category (2019-2021) | Product Category | 2021 Revenue (in millions) | 2020 Revenue (in millions) | 2019 Revenue (in millions) | | :--- | :--- | :--- | :--- | | Vascular | $408.9 | $267.8 | $215.7 | | Neuro | $338.7 | $292.6 | $331.7 | - The company operates in three primary markets: Neuro (ischemic stroke, aneurysms), Vascular (peripheral and coronary diseases), and Immersive Healthcare (virtual reality-based rehabilitation and therapy)[28][31][34][35] - Sales are conducted primarily through a direct sales organization in the U.S., most of Europe, Canada, and Australia, which accounted for approximately 83% of revenue in 2021. The remaining sales are through international distributors and a licensing partner in China[26][66][69] Risk Factors The company identifies numerous risks to its business, operations, and financial condition - Business Risks: The company faces significant competition, risks of product obsolescence, and potential delays in new product introductions. The ongoing COVID-19 pandemic could continue to adversely affect procedure volumes and business operations[133][136][140] - Immersive Healthcare Risks: The company has limited experience with virtual reality technology and faces risks in the development and commercialization of its REAL Immersive System, including market acceptance and competition[146][147][148] - Operational & Financial Risks: A significant portion of revenue comes from a limited number of product families. The company is required to maintain high inventory levels, depends on key suppliers, and faces challenges in managing rapid growth and international operations[154][161][177][197] - Regulatory & Legal Risks: The business is subject to stringent and evolving medical device regulations in the U.S. (FDA) and internationally (EU MDR), as well as healthcare fraud and abuse laws. Product defects could lead to recalls and litigation[164][213][222] - Intellectual Property Risks: The company's success depends on its ability to protect its patents, trademarks, and trade secrets. It may become involved in expensive litigation to defend its IP or against claims of infringement[227][234][236] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None Properties The company leases approximately 500,000 square feet for its main campus in Alameda, California, and 160,000 square feet for a manufacturing facility in Roseville, California - Key facilities include approximately 500,000 sq. ft. in Alameda, CA and 160,000 sq. ft. in Roseville, CA[294] - International offices and warehouses are located in Germany, Italy, Australia, Brazil, and Singapore to support sales and distribution[296] Legal Proceedings The company refers to Note 10 of its consolidated financial statements for information regarding legal proceedings - For information on legal proceedings, refer to Note 10 of the consolidated financial statements[298] Mine Safety Disclosures This item is not applicable to the company - Not applicable PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on the New York Stock Exchange (NYSE) under the symbol "PEN" - The company's common stock trades on the NYSE under the ticker symbol "PEN"[303] - The company has never declared or paid cash dividends and intends to retain all available funds for business operations and expansion[306] - In October 2021, the company issued 661,877 shares of its common stock as partial consideration for the acquisition of Sixense Enterprises Inc[308] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 33.4% revenue increase to $747.6 million in 2021, driven by strong growth in the vascular product line Results of Operations Revenue Comparison: 2021 vs. 2020 | Category | 2021 Revenue (in millions) | 2020 Revenue (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Vascular | $408.9 | $267.8 | +52.7% | | Neuro | $338.7 | $292.6 | +15.7% | | Total | $747.6 | $560.4 | +33.4% | - Gross margin increased to 63.6% in 2021 from 60.3% in 2020. The 2020 margin was negatively impacted by a one-time, $18.4 million cost related to the voluntary recall of the JET 7 Xtra Flex catheter[367] - R&D expenses increased 16.1% to $104.6 million in 2021, primarily due to a $17.6 million one-time expense from the Sixense acquisition and an $11.0 million increase in personnel costs[369] - SG&A expenses increased 31.8% to $378.3 million in 2021, driven by a $48.4 million increase in personnel-related expenses to support growth and increased travel and marketing event costs as activities resumed[371] Liquidity and Capital Resources Cash Flow Summary (2019-2021) | Cash Flow (in millions) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $9.5 | $(33.2) | $26.7 | | Net cash used in investing activities | $(21.7) | $(104.1) | $(12.7) | | Net cash from financing activities | $0.8 | $134.9 | $(9.0) | - As of December 31, 2021, the company had $59.4 million in cash and cash equivalents and $195.5 million in marketable investments, with total working capital of $558.3 million[389][393] - The company has a secured revolving credit facility of up to $100 million, which was extended to February 2023. No amounts were outstanding as of December 31, 2021[391] Financial Highlights (2019-2021) | Metric (in millions) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $747.6 | $560.4 | $547.4 | | Gross Profit | $475.4 | $338.2 | $372.0 | | Gross Margin | 63.6% | 60.3% | 68.0% | | (Loss)/Income from Operations | $(7.5) | $(38.9) | $47.5 | | Net Income/(Loss) | $2.6 | $(19.3) | $47.0 | - The COVID-19 pandemic has had a negative impact on business, particularly affecting elective procedures. The company has taken steps to strengthen liquidity, including a June 2020 stock offering that raised $134.8 million and securing a $100 million revolving credit facility[318][321][322] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates and foreign currency exchange rates - Interest Rate Risk: The company's cash, cash equivalents ($59.4M), and marketable investments ($195.5M) are subject to interest rate risk, but a hypothetical 100 basis point change is not expected to have a material impact[412] - Foreign Exchange Risk: The company has exposure to foreign currency fluctuations as most sales outside the U.S. are in local currencies, mainly the euro and Japanese yen. The company does not currently hedge this exposure[413] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for the years ended December 31, 2021, 2020, and 2019, along with the report from the independent registered public accounting firm, Deloitte & Touche LLP Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP issued an unqualified opinion, stating that the financial statements present fairly, in all material respects, the financial position and results of operations of Penumbra, Inc. in conformity with U.S. GAAP[420] - The audit identified two critical audit matters: 1) The realizability of deferred tax assets, due to significant judgments in estimating future taxable income. 2) The valuation of intangible assets from the acquisition of Sixense Enterprises, Inc., which required significant estimates and assumptions[424][425][427] Consolidated Financial Statements Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Assets | $1,244,250 | $822,983 | | Cash, cash equivalents & marketable investments | $254,875 | $264,832 | | Inventories | $263,504 | $219,527 | | Goodwill & Intangible assets, net | $257,006 | $19,011 | | Total Liabilities | $290,323 | $185,195 | | Total Stockholders' Equity | $953,927 | $637,788 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Account (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $747,590 | $560,412 | $547,405 | | Gross Profit | $475,382 | $338,175 | $371,964 | | (Loss) Income from Operations | $(7,501) | $(38,942) | $47,508 | | Net Income (Loss) attributable to Penumbra, Inc. | $5,284 | $(15,702) | $48,458 | | Diluted EPS | $0.14 | $(0.44) | $1.34 | Notes to Consolidated Financial Statements - Business Combination (Note 5): On October 1, 2021, the company acquired Sixense Enterprises Inc. for a total purchase price of $251.0 million, consisting of common stock and replacement stock options. The acquisition resulted in $158.6 million of goodwill and $88.2 million of intangible assets[541][545][547] - Revenue (Note 16): In December 2020, the company entered into a distribution and technology licensing agreement with its partner in China. This agreement generated $46.9 million in revenue in 2021 and $12.7 million in 2020[648] - Income Taxes (Note 14): As of Dec 31, 2021, the company had net deferred tax assets of $64.2 million after a valuation allowance of $37.1 million. A full valuation allowance is maintained against federal R&D tax credit DTAs and California DTAs[630][635] - Stock-Based Compensation (Note 11): Total stock-based compensation expense was $65.8 million in 2021, $25.5 million in 2020, and $21.5 million in 2019. The 2021 expense includes a $25.8 million charge related to the accelerated vesting of replacement options from the Sixense acquisition[618] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021[662] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[664] - The assessment of internal controls over financial reporting excluded the recently acquired Sixense Enterprises Inc., which will be integrated and assessed in fiscal 2022[665] Other Information On February 18, 2022, the company amended its Credit Agreement, extending the maturity date to February 17, 2023 - On February 18, 2022, the company amended its Credit Agreement to extend the maturity to February 17, 2023, lower interest rates, and reduce the commitment fee to 0.25% per annum[679] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable PART III Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - Information is incorporated by reference from the 2022 Proxy Statement[683] Executive Compensation Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - Information is incorporated by reference from the 2022 Proxy Statement[685] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - Information is incorporated by reference from the 2022 Proxy Statement[686] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - Information is incorporated by reference from the 2022 Proxy Statement[687] Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - Information is incorporated by reference from the 2022 Proxy Statement[689] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Form 10-K - This section contains the index of financial statements and exhibits filed with the Form 10-K[694][696] Form 10-K Summary The company indicates that there is no Form 10-K summary - None