Penumbra Inc

NYSE:PEN

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra’s First Quarter 2018 Conference Call. [Operator Instructions] After the speakers’ remarks there’ll be a question-and-answer session. [Operator Instructions] Thank you.

I would like to introduce Mr. Dan Wilson, Director and Head of Business Development for Penumbra. Mr. Wilson, you may begin your conference.

[Dan Wilson, Director and Head of Business Development]

Thank you, Rob, and thank you all for joining us on today’s call to discuss Penumbra’s earnings release for the first quarter 2018. 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-Q for the quarter ended March 31, 2018, which will be filed with SEC on May 8, 2018, as well as those described in our 10-K for the year ended December 31, 2017, filed with SEC on February 27, 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-Q and 10-K previously mentioned, for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Penumbra disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. We anticipate the prepared comments on today’s call will run about 13 minutes. Thank you very much.

And with that, I would like to turn over the call to Adam Elsesser, Penumbra’s Chairman and CEO.

[Adam Elsesser, Chairman and CEO]

Thank you, Dan. Good afternoon, and thank you for joining Penumbra’s First Quarter 2018 Conference Call. I’m joined today by members of our senior management team. I will begin today’s call with a business update, and then Sri will provide a review of our financial results for the quarter. Our total revenues for the first quarter of 2018 were $102.7 million, an increase of 40.3% as reported and 36.2% in constant currency from the first quarter of 2017. We had operating income in the quarter of $4 million compared to an operating loss of $2 million for the same period last year. We had exceptionally strong financial results for the first quarter. But more importantly, our longer-term opportunity continues to get stronger through our growing patient markets and our broadening portfolio.

Our Neuro franchise continues to be driven by ischemic stroke. On our last earnings call, we discussed a number of positive developments from International Stroke Conference held in January. By extending the stroke-treatment window from 6 to 24 hours, there are now a greater number of patients that can be treated. We believe that this has led to near-term enthusiasm and increased procedural volumes. We continue to see the main driver of stroke growth to be in local area efforts to triage and get patients to the right hospital. We have come across hundreds of examples of such local area efforts. I will share one in particular from the Hialeah-Miami Lakes area of South Florida. Palmetto General Hospital has 12 firehouses within its immediate area. Dr. Ritesh Kaushal, an interventional neurologist at Palmetto General, together with the incredible support and dedication of the Fire Chief, takes time to make a personal visit to one of these firehouses every month. During each of those visits, he brings a stroke patient who he has successfully treated. But more importantly, he shares that each of those patients came to him by an ambulance dispatched from that firehouse. Dr. Kaushal’s personal efforts have helped lead to a tripling in the number of patients treated at Palmetto General over the last three years. These types of local efforts all across the country have made a huge direct impact on so many patients and their families.

In addition to these local efforts, there is a growing focus on the systems of care to guarantee that patients get to the right hospital. In March, the Tennessee State Legislature passed a bill to help direct emergency medical services to assess, treat and transport patients to the best stroke center as quickly as possible. This bill is expected to be signed into law soon. We, at Penumbra, commend the extraordinary efforts of the Society of NeuroInterventional Surgery and many other individuals and organizations that helped make this bill a reality. The effort now moves to other states, including Massachusetts and New York.

As we have said in the past, the efforts to improve our systems of care can have a meaningful impact in advancing stroke treatment and future growth. As an example, this past January, the preliminary results from a study in Rhode Island showed that stroke patients taken directly to a Level 1 stroke center had more favorable outcomes than those taken to the nearest hospital. Rhode Island began the process of updating EMS protocols in 2015 and implemented changes in early 2017. We want to recognize the great work that occurred within that state and to acknowledge, in particular, the work from Doctors Ryan McTaggart and Mahesh Jayaraman of Warren Alpert Medical School of Brown University and Rhode Island Hospital.

As we continue to see growth in stroke treatment and in the future use of direct aspiration, we expect the competitive landscape to evolve. We have good visibility across these efforts. Our two larger stroke peers, Medtronic and Stryker, have recently gained on-label aspiration system clearances with existing guide catheter technology that has been available to the field. We expect they could launch and promote their systems as early this quarter. We also expect smaller companies to pursue development of their own alternative aspiration solutions.

It is important to state that Penumbra has developed both short- and long-term product and commercial strategies for this and future competition. As typically happens in the neurovascular field, physicians tend to try new technology, and we expect some limited trialing of these systems and whatever future improvements are made by them. We have taken this trial into account in our strategy. Our experience in competing with large, well-respected companies for over a decade has given us tremendous confidence and provided us with the motivation to continue to be a leader in this field.

Moving to our Peripheral Vascular franchise. We saw strong growth in the number of patients treated with our embolization products and our Indigo System for clot in other parts of the body. Our commercial team continues to execute incredibly well on our mission to educate and change current clinical practice in peripheral thrombectomy. We continue to see success within our 2-pronged strategy, adding new physicians and broadening the types of cases in which existing customers are using Indigo. With this effort, we are finding more and more physicians are understanding the idea of removing blood clot immediately rather than macerating it or dissolving it over time. As physicians become more and more aware that the use of tPA is not benign and brings with it real risk, we see our Indigo System gain more traction.

Now I would like to close my initial remarks by sharing a story about a dedicated and talented special education teacher, named Patricia. I had the honor of speaking with Patricia recently. She was in her class with her students earlier this year when she felt a great deal of pressure in her forehead, and she told me she thought at the time she was having a stroke. She thought she should lay down. The next thing she remembers was waking up in the hospital, turns out she had a very severe stroke. Dr. Greenberg, using our ACE68 aspiration device, was able to remove the clot very quickly and completely. Patricia has told me that she went home from the hospital four days later feeling totally normal. Patricia’s story is profound for me and the entire team at Penumbra. It shows us that even though there is a great deal of work ahead, we have come a long way already in the mission to help stroke patients.

I’ll now turn the call over to Sri to cover the financials.

[Sri Kosaraju, CFO]

Thank you, Adam. For the first quarter ended March 31, 2018, our total revenues were $102.7 million, an increase of 40.3% reported and 36.2% in constant currency compared to the first quarter of 2017. 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. In the quarter, we saw strong growth across both our divisions, particularly in Neuro. Our international revenue growth comparisons continue to benefit in the first half of this year from our acquisition of Crossmed and favorable currency.

Revenue from our Neuro business grew to $71.4 million in the first quarter 2018, an increase of 42.2% reported and 37.3% 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. Unlike the first quarter of last year, we saw continued strong procedural volumes for our products following a strong fourth quarter. We believe that local efforts as well as recent data and guideline changes around extending the stroke-treatment window drove market growth. However, we do not currently have the visibility to assume that this market growth will continue at this pace each quarter.

Revenue from our Peripheral Vascular business grew to $31.3 million in the first quarter 2018, an increase of 36.2% reported and 33.7% in constant currency compared to the same period last year. Our peripheral growth was driven by strong results from our thrombectomy business.

We saw strong enthusiasm for Indigo at the Society of Interventional Radiology Meeting at the end of the first quarter. As Adam mentioned in his remarks, our growth continues to be driven by adding new physician customers as well as broadening the use of Indigo. Our gross margin in the quarter was 64.8% of revenues compared to 65.2% of revenues for the same quarter last year.

Total operating expense for the quarter was $62.5 million or 60.9% of revenue compared to $49.8 million or 68% of revenue for the same quarter a year ago. Our research and development expenses were $8 million for Q1 2018 compared to $7 million for Q1 2017. SG&A expenses were $54.5 million for Q1 2018 compared to $42.7 million for Q1 of 2017. Our spend increased primarily due to increases in headcount and related compensation expense. We had operating income in the quarter of $4 million compared to an operating loss of $2 million in the same period last year.

Following the first phase go live of our ERP upgrade project last year, we recently went live with our new HR system, which represents another major infrastructure project that we are progressing at Penumbra to help support our scale in future growth. I want to thank our team for all their hard work to make these projects a success. As it relates to our revenue guidance, we are revising our 2018 revenue range to $410 million to $415 million from our previously stated range of $400 million to $405 million.

As we look at the rest of this year, there are two important items to highlight. One, we have observed an uptick in the stroke market from local efforts and recent data, which we do not have visibility to assume continues; and two, we expect tougher comparables to impact our reported growth rates in the second half of this year due to the acquisition of Crossmed and favorable currency.

And now I’d like to turn the call back to Adam for closing remarks.

[Adam Elsesser, Chairman and CEO]

Thank you, Sri. As Penumbra starts its 14th year and completes its 11th quarter as a public company, we believe we are in a position to help physicians positively impact more patients than ever before. I would like to focus my closing remarks by acknowledging and thanking the extraordinary people that make up the Penumbra team.

As I wrote in my letter this year to our stockholders accompanying our proxy statement, Penumbra’s amazingly talented, dedicated people work tirelessly to build and inspect our product, to design new products, to make products available to our world-class commercial team and the one infrastructure of Penumbra that allows all those things to succeed. I want you to know that as we tackle the upcoming challenges in 2018 and beyond, we, at Penumbra, are more motivated and focused than ever before. I could not be prouder of the work, energy and attitude of the more than 1,800 people who work with me at Penumbra. We believe that our best work is still ahead of us.

Thank you for joining us on the call today, and we’ll now answer questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Robbie Marcus from JP Morgan. Your line is open.

[Robbie Marcus, JP Morgan]

Maybe I could start with stroke. And it looks like we’ve -- even though I’ve realized you don’t want to forecast into the future, we have seen a really impressive acceleration in the stroke business and it appears in the stroke market in general. So I was hoping you could give us a little more clarity into where that growth is coming from. Is it more patients in general being treated? Is it aspiration getting a bigger share of the frontline? Is it new centers coming onboard, penetration in existing accounts? Maybe just a little flavor for what’s driving the growth in the market and for Penumbra.

[Adam Elsesser, Chairman and CEO]

I think you’ve sort of hit on all of them. At this point, until we see sort of a wave of state legislations and things, I think the only way for us to really follow this is from the local market. That comes in a lot of different forms and obviously, on the call, I highlighted a few -- a specific group of actions taken to show what can drive that. Some of it can also be the addition of a new center in a county or community that can help carry the load and that’s why I said for a while now that when you relying on those kind of efforts, it is still going to be up and down because there is nothing that can project out and make that linear. You’re going to see a bunch of work happen, you’re going to see some growth, then you’re going to see a level knock and then some more work in other counties. Unfortunately, what I understand is, over 3,000 counties in the United States, and it’s going to take some time. But I do agree with you that we’ve had a couple of quarters in a row where we’ve seen the benefit of that and obviously, we hope that continues. But knowing what it takes to do that work and to dedicate yourself in your community to do that outreach, I think it’s going to be a little unpredictable.

[Robbie Marcus, JP Morgan]

And then maybe as a follow-up, can you help us understand the success you’re seeing with 3D in the market? Maybe, what’s been the reception? And how’s the selling strategy been as the only offering with the Solumbra option with the stent retriever and an aspiration catheter? And is that helping you gain share in the market?

[Adam Elsesser, Chairman and CEO]

Well, yes. So again, I’m very proud. I always talk about 3D. As you know, we’re -- we’ve designed a device in that category that pulls the clot off of the vessel wall and into the middle of the artery where you want it to be. And we’ve had very, very positive reaction to that device for those who have used it. As you know, and what I’ve said in the past, our focus is always going to stay on aspiration as the primary mode or mechanism of action. And this is really used as a backup or in conjunction with that. So it is not -- even though the product has done incredibly well and the market has accepted it, our focus and our commercial team’s focus has remained on our core aspiration technology.

[Robbie Marcus, JP Morgan]

Is there any sense you could give us as to the impact that it’s having on your accelerating growth here? Is it still relatively small?

[Sri Kosaraju, CFO]

Yes. Robbie, it’s Sri. So I think we would characterize what really drove growth to be the stroke market. And as Adam said, 3D is important whether it’s directly or indirectly to our stroke and Neuro franchise. But I think the real story here is the stroke market.

[Operator]

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

[Bob Hopkins, Bank of America]

I just wanted to start out with asking, I mean, some of the strength you’re seeing in the U.S. seems fairly self-explanatory. So I wanted to ask -- and my first question just about growth outside the United States, which has continued to be consistently good. Adam, could you maybe talk a little bit about the potential for OUS growth from here? How we should be thinking about it? Is there an opportunity for it to inflect higher going forward? What’s driving the growth? Just maybe talk a little bit about international because we haven’t talked a lot about it over the last couple of quarters.

[Adam Elsesser, Chairman and CEO]

Yes. No, I’m delighted to. You’re right. We tend to focus on the stroke, the efforts in the U.S. on these calls. But we’re seeing, obviously, a lot of efforts in other international markets. As you know, we’re direct in most of Europe with our sales organization, and we’ve continued to see success in that market. And there are some markets where we’re really early on in penetrating and going into those. So I think we have the opportunity ahead of us for some additional growth. There are some significant opportunities still ahead of us that we highlighted, I think, earlier this year that are sort of coming in the next several years. But right now, the growth we’re seeing is coming, for the most part, in our markets that we’re in and just the work that’s being done in those countries and communities like the U.S.

[Sri Kosaraju, CFO]

Yes. And maybe, Bob, if I could just add a little bit onto that. I think you said it well. Last quarter, on the Q4 call, we had -- it was notable, the international growth, and we had talked about that. And now we saw a, maybe to a lesser extent, year-over-year growth in the fourth quarter, but still strong and the U.S. definitely saw strength this quarter. But I think the way Adam characterized international, the growth there is really driven by our progress in the existing markets going after new markets and bringing new portfolio to our existing and new markets. And -- so just by very nature of what I just said, that will be lumpy. And so I think having two quarters of nice growth to us doesn’t necessarily imply a new trend or a trajectory.

[Bob Hopkins, Bank of America]

So for the second question, I wanted to ask a little bit about your comments on competition. You said a couple of things that I found interesting. I think you said somewhere in there, Adam, that you’re pretty familiar with the competitive systems. I think you also said that you’ve got both short- and long-term commercial strategies to deal with the competition. And I know on the last call, you mentioned that some point this year you’re going to have a new aspiration system. So I was wondering if you could talk a little bit about -- maybe develop your comments on the comment on being very familiar with competitive systems, what you meant by that. If you’re willing to, go into a little bit on the short- and long-term commercial strategies to deal with the competition. And then since last quarter, I asked, is there a new system coming, and you said, yes. I guess, this quarter, I’ll ask, is it coming in the first half?

[Adam Elsesser, Chairman and CEO]

Well, let me start by answering the last question by saying I -- what I said the last time where I’m not going to be more specific to my answer, but I certainly appreciate the question. Let me -- look, this is -- as you know, neurovascular is a relatively still small field. We have been in it. I’ve personally been in it for a long, long time, and our team is one of the most tenured teams in this field. So you tend to know what’s going on in the field, and that’s what I meant by sort of our sense of what’s happening and what we can expect.

Let me sort of comment, I think, really on the larger understanding here. So we’re -- there is a lot that goes into making aspiration work. It’s not just a catheter. And I think we’ve shown that now. And I think people have sort of understood the level of sort of nuance and sophistication that goes into this. We’re actually extremely proud that there’s a lot of folks now coming into the aspiration side of treating stroke. We feel that it has validated what we’ve been doing all these years. So the fact that we’ve seen competition from both the big companies and some smaller companies, to me, is good news. What we think is the next phase of development here moves away from the idea that it’s simply a bigger catheter that you really have to think about what matters the most and in effect almost separate out the concepts of how do you get what you -- retract a catheter there, and how do you maximize the aspiration efficiency. And I think that’s where we feel very, very comfortable that our ideas, which, obviously, I can’t share in any kind of specific way. But our ideas over the next period of time are really going to address the totality of the mechanism and be able to sort of move it to another whole level.

[Operator]

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

[Larry Biegelsen, Wells Fargo]

Sri, on the stroke market in the U.S., what are you guys -- what’s embedded in the guidance for 2018? And just in terms of procedure growth for mechanical thrombectomy, we assume it was low 30s in 2017. I don’t know if your numbers are similar. But I’m just curious, what are you assuming for 2018 in the guidance?

[Sri Kosaraju, CFO]

Sure. Larry, so we very recently had updated on our thoughts, I think, even as late as last call, the Q4 call in February, about our thoughts and expectations about how the U.S. stroke market at large grows for mechanical thrombectomy. And remind you, we said, if we look at the last few years, we saw sort of a similar number of absolute patients treated each year. So 5,000 additional patients each year being treated. And the driver of that is important, and we keep coming back to these local efforts. And that continues to be our view on how growth looks going forward. We did see some positive news recently with Arizona and the rule change and now with Tennessee, which is hopefully a soon to be signed in law. Those larger state efforts were starting to make some progress. But I think we’re a ways away from seeing the positive impact that they could have on the stroke market. So we’re sitting here with a very strong Q1.

Our outlook really has not changed at this point. I think I mentioned in the comments, the visibility for us to see the market growth continuing at this level is not yet there. And to remind you, just as you look at the year-over-year growth, last year Q1, we basically had a sequentially down Neuro results, and also in the U.S. In this quarter, we actually had a positive 6% to 7% sequential increase. So it exacerbates the growth, the reported growth. So again, our outlook hasn’t changed in how we see the stroke market. And hopefully, we can update you more on the next call.

[Larry Biegelsen, Wells Fargo]

That’s helpful. And then just for my follow-up on the [indiscernible] Peripheral and Indigo. It was nice to see the acceleration there in the peripheral growth. Adam, maybe if you can talk a little bit more about what’s driving that. Clearly, the ATTRACT Trial is not having a negative impact. Is reimbursement there helping? And you recently got a new pump approved, and it looks like tubing approvals, new tubing. I guess, I’m curious to know if those are significant drivers.

[Adam Elsesser, Chairman and CEO]

Yes. Thanks, Larry. So the comments on the approvals have not yet had any impact, but we’ll certainly update as we go. What I think is driving our Indigo usage really goes to what I think of, what I’ve said before around ATTRACT. And I think ATTRACT really highlighted to a lot of folks that the use of tPA is actually not benign. And I said that in my prepared remarks that it does bring with even though it’s a small risk, it’s a significant risk. And I think that’s opened up the conversation with a lot of folks who are willing to hear and think about treating clot in the body very differently, and rather than the traditional way of dissolving it with tPA or macerating with a product and using tPA in conjunction with that, the idea that we can just sort of take it out and move on is gaining some traction. So we’re obviously very pleased. We heard some kind of extraordinary stories. We’re right now on the road with meeting customers this week on the East Coast right now. And I literally left the center yesterday to come to where we’re doing the call here, and I heard that from our local manager there that in 2 rooms next to each other in the AngioSuite, they were doing, just this morning, a stroke with one of our pumps and the other pump, they were using it to treat a pulmonary embolism, both lifesaving procedures, both happening simultaneously. And there was a lot of sort of excitement in the lab that they could actually save these 2 folks’ lives. So I think it just goes to that exact thing that people are realizing that this is something to do particularly in the peripheral side.

[Operator]

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

[Jason Mills, Canaccord Genuity]

I wanted to stick, Adam, with the stroke market, U.S. stroke market, in particular, for a second. It’s -- in our research, the neuro interventionalists will do as many procedures as they possibly can and, in fact, probably give up sleep to save patients. It’s been the EMS, the neurologists, the emergency room physicians that are the gatekeepers. But yet what we’ve seen obviously in the clinical data, almost -- in the guidelines, seem to be pacing ahead of the local and jurisdictional legislation that you talked about. So could you talk about the dynamic there? And is it true that the capacity to do procedures across the country is much larger than, I suppose, the proficiency with which triaging patients is being done? And is it truly legislation that changes this, or maybe what is it? What sort of dynamics are you seeing in that realm?

[Adam Elsesser, Chairman and CEO]

Well, so I think it’s got layers of complication. I called out the amazing work that the folks did up in Rhode Island. There, they started this effort in 2015 and really took until 2017 where they could start to see the protocols put in place and really a change in triaging from what I understand. And that’s true, I think, there are lot of places. Protocols take a while. We have new data, obviously, around timing that I called out going further out. That takes time to put those protocols even into a single hospital system, so that those people, the ER staff is educated, the stroke neurologists are educated, and those patients are flagged and brought in to be treated. So there is just a time element that this takes. I do think, obviously, with state legislation, which is why there is a lot of effort that it puts a higher point on it and sort of a requirement around that effort. But I’ll tell you, and we called out one example in Florida, but there is some extraordinary heroic work that individual people are doing and outreach within the community to drive that growth. They just take time. It’s very hard to change triage protocols and ambulance level all across the country overnight. And we all wish it could happen. And for those of us who are in this space and hear these stories, we obviously want to make sure everyone gets treated. But it just takes time, and it’s a process.

[Jason Mills, Canaccord Genuity]

And -- understood. Just following up on that and just one other follow-up on [indiscernible] cardio business. But following up on that, is -- when you talk about having -- not having the visibility to guide to whether this trend continues, it sounds like the trends has been one of acceleration and the underlying growth in stroke intervention. And is that what you implied? Can I take that implication from what you said? And then when you say lack of visibility, is it really just lack of visibility into the pace with which these legislation local efforts will occur over time? And I was just doing my last question, which is, just wondering to get an update if you’re willing to give one, Adam, on MVI and the efforts there and that new joint venture. And whether or not there is any progress or update in intracerebral hemorrhage in the mind study, obviously, with the unfortunate incident with the Chicago White Sox pitcher, it comes to mind for not just me, but a lot of others around the country and this town, deleterious that condition is, and I know you’re working diligently there. So I’m sorry for all the questions, but there is a lot going on in your business, so I had to...

[Adam Elsesser, Chairman and CEO]

Yes, well, why don’t we -- we’ll take the last one at the end. Sri, do you want to start?

[Sri Kosaraju, CFO]

Sure, sure. First, the visibility question, Jason, that, to clarify, is quite simply the visibility on accelerated growth. I think we’ve got great visibility, and that’s informed by our history of being in stroke for as long as we’ve been in it. And as we look back at how this growth has taken place and taken shape, it is uneven. And I think that’s the best word we can use to characterize it, and we try to share some examples to provide some more texture around what is that -- what is a local effort. So the question that we knew would be asked on today’s call within Q1 is, this is now looks very different than what we’ve seen before. But from our best sense of what’s driving it and the history that we’ve had within the stroke, right now, we’re being, I think, appropriately mindful before we call it a new trend.

[Adam Elsesser, Chairman and CEO]

And to sort of answer your question on both our hemorrhagic work with Artemis and MVI, I’ll start with Artemis. Just like stroke has taken us a long time to get here. I think Artemis is going to have a similar journey. The product is second generation. It’s working extraordinarily well as a tool to remove the clot in the brain. And now we just have to do the day-to-day hard work of encouraging physicians that this is an alternative for their patients. I can’t give you more visibility on the time line. I think it’s going to take some time. On MVI, I’m not really in a position to give any specific updates on this call in terms of where we are in timing other than to tell you, as you know, and I’ve expressed publicly before, this is a project that has profound potential and the ability to impact an extraordinary number of people and nothing has happened since our last call to diminish that interest and excitement on our side.

[Operator]

So our next question comes from the line of Joanne Wuensch from BMO Capital Markets.

[Joanne Wuensch, BMO Capital Markets]

When I start plugging some numbers into the model to get to the midpoint of your guidance range, it implies a drop-off from about the 36% constant currency growth rate you reported into the high-teens. I understand a level of conservatism. But wow, that’s a big step of conservatism. Is there anything else in there that would make you wonder what -- to drive that? And is all of the conservatism just in the Neuro platform or possibly maybe something in Peripheral also because that one also -- wow, 34% growth, that was very nice in the quarter?

[Sri Kosaraju, CFO]

Thanks, Joanne. To answer your question, there are no new components or different themes that go into the guidance calculation. I think as you recall, we ended the fourth quarter by introducing guidance of $400 million to $405 million, and today, we increased that on both ends of the range by $10 million. It’s a result of the first quarter that we had. It’s a result of looking out where we stand today and to the rest of the year. The stroke market and the dynamics of that market and the unevenness competition, which is not a new theme that we’ve been talking about, we’ve been talking about that since our IPO. And then just to help with some of the reported growth rates, we did also sort of call out just so people are aware, some of the things in the back half of the year that are no longer a tailwind for us, which you can see in our press release, include favorable currency and also the acquisition of Crossmed, which closed on July 1. So I think as you put all of that together and then you look at not only the reported growth rates, but even just sequentially how that progresses through the year, I think that will help that share that not a lot has changed in our thinking and outlook.

[Joanne Wuensch, BMO Capital Markets]

Okay. As my second question on Crossmed, looks like it’s really been a great acquisition. Are there other distributors in the international market that you have your eye on? And how do you think about bringing those into the fold?

[Adam Elsesser, Chairman and CEO]

Yes, Joanne, that’s a very good question. Crossmed was a special acquisition and relationship for us, a very long-term relationship and an organization that was pretty much already part of the team. So bringing them in was a logical, obvious thing, which obviously helped us go direct in Italy. There are not a lot of those out there. I think you are very well aware. We have a distributor relationship in our Japanese market, but outside of that there -- this isn’t a strategy for us. I think this was a pretty unique opportunity that we were fortunate to have.

[Operator]

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

[Kaila Krum, William Blair]

As a follow-up to Bob’s earlier question on the commercial strategy, you guys have put in the place. Recognizing the Stryker and Medtronic have not fully launched yet, but their systems seem to be generally out there, at least, in terms of surging awareness. So I mean, can you just give us a bit more anecdotal commentary as to what specifically you’re doing in the field and early success of the commercial strategy just given the positioning hospital conversation that you are having at this stage?

[Adam Elsesser, Chairman and CEO]

I’d like to say no, but let me try to give you a little color. Obviously, it’s not something I’m going to share in any kind of detail. I very particularly called out both the fact that there is a product and a commercial strategy, the most important thing, and this is critical is that we have the best products on the market. And today, right now, we feel extraordinarily proud of our current offerings, and as we continue to add offerings, we think we will continue to have the products that do the best work and that’s really important. Without that, nothing else matters.

When you get past that, how do we engage with physicians, how do we educate them and remind them of what is important in aspiration, that just comes from many, many years of doing this and making sure that we have a lot of credibility with our physician customers that what we say and what we are offering them and selling are really are the best, and we’re not going to be saying things that aren’t helpful for patients in this field. Obviously, there are tactical issues and various things around that, that come into play. But at the end of the day, the single most important thing is having the best product.

[Kaila Krum, William Blair]

Great. That’s helpful. And then it sounds like a lot will hinge on the local area efforts that, you mentioned, specifically, near-term enthusiasm because of the extended treatment window. Just given your conversations with docs, I mean, is it fair to say that enthusiasm around extended treatment window is building? Or does it seem like most docs have already incorporated this in their practice? Just trying to understand sort of what inning do you think we’re in as it relates to that dynamic?

[Adam Elsesser, Chairman and CEO]

Yes, I think that’s a really good question and one that it’s hard to pinpoint in any kind of national trend, if you will. I think some physicians have, long before this data came out, already been treating patients in an extended window. Others were maybe not doing that and are now starting to do that. Sometimes as I, I think, alluded to earlier in one of the questions, that process even if an interventionalist wants to treat these patients, the process within a hospital system to get everyone else onboard, ER docs and neurologists and all of the folks that stroke coordinators to change the protocols to address that sometimes takes a great deal of time. So seeing the full impact of this is, I think, it would be a mistake to say we sort have seen the full impact of this. I think it depends on the center and the pace at which some of these protocols can be changed.

[Operator]

[Operator Instructions] Your next question comes from the line of Isaac Ro from Goldman Sachs.

[Isaac Ro, Goldman Sachs]

Wanted to ask a couple on guidance for the year if I could. One was just, if we were to kind of deconstruct the growth that you are seeing in the business right now, can you maybe try and frame for us how much of the growth is coming from, what you would consider, new docs or new centers as opposed to your existing installed bases of users? Just trying to isolate how much is coming from just new customer growth, if you will.

[Sri Kosaraju, CFO]

Sure. So while there are some new centers coming online, I think, where we think the market is seeing most of its growth there are really within the existing folks and those who are the higher volume centers who are seeing really extraordinary growth. So the number of centers that are out there in the U.S., I think, we’ve generally said is around 600 centers, and that’s stayed fairly consistent. So our view is that the procedural volume growth that we’re going to see is generally going to come into those centers doing more volume. There might be some new centers that come along, but we really think the main drivers and procedures in those existing centers.

[Isaac Ro, Goldman Sachs]

And then just a follow-up question on the gross margin side. If I put in context your earlier comments regarding new competition and new product development, you guys still expect gross margin this year to be roughly flat with 2017? Or could there be some swings as the year progresses, given all those moving parts?

[Sri Kosaraju, CFO]

I think as you can appreciate as we’re talking here, we’re in some pretty rapidly evolving markets where we see a tremendous amount of opportunity where the margin fluctuates, and we’ve -- if you look back over the last year, 1.5 year, you’ll see it having fluctuated in this sort of mid-60s range. The reason for those fluctuations generally are around product and geography mix, less so around pricing and more so around what we’re doing on the production side, where it be introducing new products, and we generally see some pressure on margins when we’re launching new products and we’re -- we got a few of them that we talked about last year that are still fairly new; and two, where we’re being aggressive about our capacity expansion, and we got to keep up with this growth and not only keep up with it, but be in front of it. So there are some things we’ve done to take on overhead which, obviously, also weigh on our margins a little bit as well. So from our perspective, right now, the story for us is on the growth and capitalizing on it and investing where we need to and some of that investment is going to be in the cost of sales.

[Operator]

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

[Dan Wilson, Director and Head of Business Development]

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

[Operator]

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