Penumbra Inc

NYSE:PEN

Earnings Call Analysis

Strong Revenue and Growth Prospects Amid Strategic Shifts

Penumbra reported strong Q2 2024 revenue of $299.4 million, up 14.5% year-over-year. Thrombectomy led growth, with U.S. revenue up 25% and international up 26%. Overall thrombectomy revenue hit $203.5 million, growing 25%. Despite a slight decline, embolization and access revenue improved sequentially. Non-GAAP gross margins expanded to 65.5%. Penumbra anticipates non-GAAP gross margin expansion by 100-150 basis points and operating margin by 100-200 basis points for the year. With a strategic focus on thrombectomy, the company expects continued product innovation and market share gains, forecasting full-year revenue of $1.18-$1.2 billion.

Introduction and Company Overview

Penumbra reported a strong second quarter for 2024, exhibiting a healthy revenue growth and a solid financial position. The company's total revenue reached $299.4 million, marking a 14.5% increase from the previous year. The growth was driven predominantly by the performance of their thrombectomy business, which saw a significant rise both in the U.S. and internationally.

Thrombectomy Business Performance

The global thrombectomy revenue surged to $203.5 million, reflecting a 25% increase compared to the same period last year. In the U.S., thrombectomy sales grew by 25% year-over-year, reaching $153.7 million, while international thrombectomy revenue rose by 26% to $49.8 million. This growth is mainly attributed to the adoption of their cutting-edge CAVT products in VTE (Venous Thromboembolism) and arterial applications.

Challenges and Strategic Adjustments

Despite the robust growth, Penumbra faced some hurdles, particularly in the global embolization and access business, which saw a slight decline in revenue to $95.9 million, down by 3.1%. This was primarily due to decreased performance in certain international regions. On the other hand, the U.S. embolization business showed positive momentum.

Financial Health and Margins

Penumbra's non-GAAP gross margin expanded to 65.5%, up 170 basis points from the previous year, driven by a favorable product mix and productivity enhancements. The company recorded a non-GAAP operating income of $31.7 million, which is 10.6% of revenue, reflecting a significant improvement over the past year. Adjusted EBITDA stood at $46.3 million, representing 15.5% of total revenue.

Outlook and Guidance

Looking ahead, Penumbra adjusted its revenue guidance for 2024 to a range of $1.180 billion to $1.200 billion, down by $60 million from the initial forecast. The revision was attributed to challenges in China’s medical device market, delays in the European launch of key products, and strategic shifts in their immersive healthcare business. The company maintains a positive outlook with expected non-GAAP gross margin expansion of 100 to 150 basis points and operating margin improvement of 100 to 200 basis points for the full year.

Future Products and Market Position

Penumbra is optimistic about the future, driven by new product launches and expected market share gains. The company anticipates significant growth in thrombectomy applications across VTE, arterial, and stroke segments. The launch of Flash 2.0 and Lightning Bolt 7 in Europe, along with ongoing improvements in manufacturing processes, is expected to bolster their position in the market and drive further growth in 2025.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everybody to Penumbra's Second Quarter 2024 Conference Call. [Operator Instructions].

With that, I would like to introduce Ms. Cecilia Furlong, Business Development and Investor Relations for Penumbra. Ms. Furlong, you may begin your conference.

[Cecilia Furlong, executive]

Thank you, operator, and thank you all for joining us on today's call to discuss Penumbra's earnings release for the second quarter of 2024. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation, can be viewed under the Investors tab on our company website at www.penumbrainc.com.

During the course of this conference call, the company will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our financial performance, commercialization, clinical trials, regulatory status, quality, compliance and business trends. Actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those referenced in our 10-K for the year ended December 31, 2023, filed with the SEC.

As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our periodic filings with the SEC, including the 10-K previously mentioned, for a more complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Penumbra disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise. On this call, financial results for revenue are presented on a GAAP basis, while gross margin, operating expenses, operating income and adjusted EBITDA are presented on a non-GAAP basis. The corresponding GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release.

Non-GAAP gross margin, operating expenses and operating income exclude amortization of acquired intangible assets in the second quarter of 2024 and 2023 and an impairment of our immersive health care business in the second quarter of 2024. Adjusted EBITDA excludes impairment expenses, stock compensation expense, depreciation and amortization, benefit from income taxes and interest income expenses.

Adam Elsesser, Penumbra's Chairman and CEO, will provide a business update. Maggie Yuen, our Chief Financial Officer, will then discuss our financial results for the second quarter of 2024. And Jason Mills, our Executive Vice President of Strategy, will discuss our updated 2024 guidance.

With that, I would like to turn the call over to Adam Elsesser.

[Adam Elsesser, executive]

Thank you, Cecilia. Good afternoon. Thank you for joining Penumbra's Second Quarter 2024 Conference Call. Our total revenue for the second quarter was $299.4 million, a year-over-year increase of 14.5% as reported and 14.7% on a constant currency basis. Our U.S. thrombectomy revenue grew 25% compared to the same quarter a year ago to $153.7 million and 29.8% year-over-year in the first half of 2024, driven by our CAVT products in VTE and Arterial.

Our international thrombectomy revenue was $49.8 million, growing 26% year-over-year. On a worldwide basis, total thrombectomy revenue was $203.5 million, growing 25% year-over-year. Our global embolization and access revenue declined slightly year-over-year to $95.9 million, but improved sequentially by 5% driven by our U.S. business, which grew 9% sequentially and 1% year-over-year to $64.5 million. This strong sequential growth in the U.S. was due to our sales team responding to the first quarter competitive launches.

Non-GAAP gross margins expanded to 65.5%, up 170 basis points year-over-year. Non-GAAP operating income in the second quarter was $31.7 million, representing 10.6% of revenue, increasing 280 basis points over the same period a year ago and 370 basis points improvement sequentially. We continue to see a path to gross margins over 70% over the next 21 to 27 months and we expect operating margin expansion to outpace gross margin expansion for the foreseeable future. Clinically significant clot burden in the arteries and veins of the body and the brain is still 1 of the most undertreated acute issues in health care today. For 20 years, Penumbra has innovated and innovated our thrombectomy products, to make them effective in removing clot in the safest, fastest and simplest way possible.

With the launch of CAVT last year, we can now say that our products are the safest and most effective in removing blood clots compared to other mechanical systems and other modalities. Therefore, Penumbra is in a period of transformation. From a company solely innovating and treating the patients that were deemed treatable to a company that has a genuine responsibility over the next 5-plus years to reach the majority of the 125 million annual thrombectomy patients in the United States. Meanwhile, we are multiple years into the process of building toward a similarly unique opportunity in our international markets with the work we are doing in reimbursement, clinical opens and commercial expansion.

Now let's focus on what specifically happened in the second quarter and how we see the next several quarters. Starting with our vascular business. We had our first available Flash 2.0 units in late April, which was later than we had hoped, but the initial cases showed that it was worth waiting for. For experienced users of Flash 1.0, the reaction to Flash 2.0 has been positive but more that it is a very good iterative product. For new first-time users of Flash, Flash 2.0 generated an extremely positive reaction. The feedback starts with excitement that the speed of the cases was much faster than their current cases with a much safer profile, less worry about cardiac decompensation because of the smaller catheter used, no need to deal with returning potentially compromised blood and clinically very acceptable blood loss that had the benefit of being contained in our pump canister and not uncontained in the room.

This feedback, particularly on the issue of returning compromised blood was highlighted at our recent San Diego VTE Summit, citing data from extensive testing the growing body of evidence and existing guidelines. Physicians are starting to become aware of this issue and not surprisingly, this issue is likely going to be discussed at upcoming medical conferences where experts will continue to educate on the known risks of returning potentially compromised blood. Given the feedback we are getting from Flash 2.0, we have seen particularly competitive tactics in the second half of the quarter in VTE. I want to stress that we are no strangers to competition, and we are motivated to compete particularly when the feedback on our products is that they are the best for patients. Our experience of competing over 17 years against some of the best companies in med tech has shown that physicians ultimately choose the best product. This work is important and exciting. However, it takes time and does not happen in a straight line quarter-to-quarter.

We saw the same dynamic in the stroke market years ago when that market was equally under-penetrated and growing at a similar pace. Penumbra emerged as the clear leader, and we continue to expand our position today. With Flash 2.0, we gained significant share in VTE in Q2, growing within our stated guidance range and we expect to continue to do so in the second half of the year and beyond. Our arterial business, led by Lightning Bolt in the U.S. also continues to perform extremely well. The technology we call modulated aspiration and Lightning Bolt continues to remove blood clot very easily compared to prior modalities.

In Q2, our U.S. arterial business grew year-over-year, significantly above our stated guidance range. The 12-month STRIDE study results were also recently published in the Journal of Vascular Surgery showing higher target limb salvage rates at 1 year of 88.5% versus historical literature rates for CDT and open surgery, which are as low as 57% and 65%, respectively. This continues to make the case for an endovascular-first approach to arterial thrombus removal and is reflected in the strength of our growing arterial business.

Moving to our Neurovascular business. We saw another good quarter with our U.S. stroke business growing 19% year-over-year. Our neuro access business also saw good momentum including the launch of our midway access catheters. Just last week, at the Society of Interventional Surgery NeuroInterventional Surgery meeting in Colorado Springs, Dr. David Fiorella, 1 of the principal investigators of the THUNDER study highlighted Thunderbolt in a late-breaking session showing a few case examples of how easily Thunderbolt removes clot. This success puts us in a strong position as we focus on completing the THUNDER study and prepare to bring Thunderbolt to the market. Finally, we are encouraged to hear a lot of conversations among physicians regarding making sure that the right-sized catheters are used for stroke cases. So it's not to stretch an artery with an oversized catheter.

Now I'd like to spend a few minutes discussing our comprehensive market access initiatives, which I think are very important to both the near term and long term as we develop these underpenetrated thrombectomy markets. Over the past 12 months, we have spent significant time and effort, both internally and with an excellent team of third-party analytical partners, engaged in generating evidence from large third-party hospital data sets to better understand how CAVT performs versus other therapies, including anticoagulation alone across a wide range of metrics. Our rigor has resulted in the completion of studies in PE and DVT that we believe set a high bar for data quality and independence as we hoped and expected, CAVT outperforms other advanced therapies across a wide range of parameters related to hospital efficiency and cost, but most importantly, procedural effectiveness and safety.

Because of our persistent and rapid innovation cycles, we expect this growing relative outperformance to be reflected in the evidence that we will generate continuously from this point forward. We also plan to generate similar high-quality data sets across every vascular bed and patient population we serve with CAVT. We have recently started the process of discussing the results of these high-quality studies with some of the largest hospital systems in the U.S. and supporting these partners in whatever ways are appropriate to offer CAVT to a growing number of patients that could benefit from access to this technology. We very much look forward to communicating these results to our partners and the physician community at large in the months and years ahead.

Now I'd like to give an update on our immersive health care business. We have developed an extraordinary set of products that have shown to greatly benefit patients. I could not be prouder of our amazing immersive health care team. Even with this confidence in the long-term benefit and likely success of our immersive health care platform and technology, our current focus needs to be on helping as many patients as possible in our interventional business, particularly in this critical moment where we believe our CAVT technology can help most patients who need thrombectomy. Therefore, we have begun to explore alternative avenues for the immersive health care business. Because of that decision, we are taking a onetime noncash accounting charge. As we explore these alternatives, we expect to reduce our ongoing operating expenses, thereby further increasing our operating margin and cash flow trajectory going forward. This strategic move allows us to focus 100% of our time, energy and resources to help as many patients as possible while increasing our company's profitability.

I know many of you have come to expect me to be very confident about the future of our business. But my confidence is grounded in what I and our team are seeing every day in the field. The 3 new CAVT products that we expect to launch over the next 9 months should augment our strong position as we enter and move through 2025. We are also confident about both market growth and our market share trends in VTE, arterial and stroke in the United States next year. Obviously, having the best products is a key factor.

But our confidence is further buoyed by our expansive market access work and our strong commercial footprint. We're also not -- we also will not have the same difficult year-over-year growth challenges in 2025 in key international markets, namely China and Europe that we are facing throughout 2024 and we expect the launch of Flash 2.0 and Lightning Bolt 7 in Europe late this year to have a more pronounced impact on our international growth next year.

That being said, we have traditionally set revenue guidance in line with our best assessment of what we can achieve. Going forward, our guidance will reflect a comfortable level of conservatism. Jason will discuss this updated guidance at the end of our prepared remarks. For now, I will say that we see very favorable prospects for our business for the remainder of this year. And in 2025, we have the benefit of new product launches, continued share gains and the abatement of the transient headwinds impacting 2024.

I'll now turn the call over to Maggie to go over our financial results for the second quarter of 2024.

[Maggie Yuen, executive]

Thank you, Adam. Good afternoon, everyone. Today, I will discuss the financial results for the second quarter of 2024. Financial results on this call for revenue are on a GAAP basis, while gross margin, operating expenses and operating income are on a non-GAAP basis. The portfolio GAAP measures and a reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. For the second quarter ended June 30, 2024, our total revenues were $299.4 million, an increase of 14.5% reported and 14.7% in constant currency compared to the second quarter of 2023. Our geographic mix of sales for the second quarter of 2024 was 72.9% U.S. and 27.1% International. Our U.S. region reported growth of 16.8%, driven by 24.9% growth in our thrombectomy franchise.

Our international regions increased 8.7% reported and 9.4% in constant currency, primarily driven by growth in overall thrombectomy revenue, partially offset by a decline in embolization and access franchise in several regions. The sequential growth in our total revenues of 7.4% was primarily driven by an increase in our global thermectomy revenue of $15.8 million or 8.4%.

Moving to revenue by products. Revenue from global thrombectomy business grew to $203.5 million in the second quarter of 2024, an increase of 25.2% reported and 25.4% in constant currency compared to the same period last year. Our U.S. growth of 24.9%, driven by volume growth in new accounts since last year and our international growth of 26.2% compared to the same period last year reflect continuous strong momentum in CAVT products. Revenue from embolization and access business was $95.9 million in the second quarter of 2024, a decline of 3.1% reported and 3% in constant currency, primarily driven by an overall decline in international regions as we indicated at the beginning of the year.

Non-GAAP gross margin, operating expenses and operating income exclude amortization of acquired intangible assets of $2.4 million in the second quarter of 2024 and 2023, respectively and a $110.3 million impairment of our immersive health care business in the second quarter of 2024. Adjusted EBITDA excludes the impairment expenses of $110.3 million and stock compensation, depreciation and amortization, benefit from income taxes and interest income expenses of $3.8 million.

Gross margin for the second quarter of 2024 is 65.5% compared to 63.8% for the second quarter of 2023. We delivered 170 basis point improvement driven by favorable thrombectomy product mix across all regions and productivity improvements. We expect steady improvements in the second half of the year and are on track to deliver 100 to 150 basis point gross margin expansion in 2024. Total operating expense for the quarter was $164.5 million or 54.9% of revenue compared to $146.6 million or 56.1% of revenue for the same quarter last year. Our research and development expenses for Q2 2024 were $24.9 million compared to $21.5 million for Q2 2023.

SG&A expenses for Q2 2024 were $139.6 million or 46.6% of revenue compared to $125.1 million or 47.8% of revenue for Q2 2023. We recorded operating income of $31.7 million or 10.6% of revenue in the second quarter of 2024, compared to an operating income of $20.3 million or 7.8% of revenue for the same period last year. As Adam discussed in our strategic move for immersive health care, we expect to reduce over $20 million in ongoing operating expense and saved over $20 million in cash over the next 12 months. This will contribute to our operating margin expansion in 2025. We posted adjusted EBITDA of $46.3 million or 15.5% of total revenue compared to 14.6% in the second quarter of last year.

Turning to cash flow and balance sheet. We ended the second quarter with cash, cash equivalents and marketable securities balance of $339.7 million and no debt, an increase of $26.2 million driven by operational profitability and improvements in working capital turns. We continue to expect positive operating cash flow trends for the rest of 2024.

And now I'd like to turn the call over to Jason to discuss our guidance.

[Jason Mills, executive]

Thank you, Maggie. Our updated guidance range for 2024, includes total revenue of $1.180 billion to $1.200 billion which is a reduction of $60 million at the midpoint from our previous guidance range. The $60 million change in guidance comes from 4 distinct components impacting our revenue in the second half of the year. $20 million reduction to our business in China due to much more challenging economic backdrop for medical devices in the near term. $50 million from our European business primarily as a result of a slight delay to our expected launch timing of Flash and Bolt 7 CAVT products in Europe, $5 million in revenue from our immersive health care business due to our strategic move and approximately $20 million change to our guidance for U.S. thrombectomy growth for full year 2024, which is now expected to be 23% to 25% year-over-year compared to 2023.

This change aligns with our new guidance philosophy. We continue to expect non-GAAP gross margin expansion in the range of 100 to 150 basis points in 2024 and compared to full year 2023. We also continue to expect non-GAAP operating margin expansion of 100 to 200 basis points in 2024, with the timing of the reduction of immersive health care expenses being a primary driver of where we will land relative to this range.

I will wrap up our prepared remarks there to allow ample time for Q&A. We look forward to your questions. Operator, we can now open the call to questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Michael Sarcone with Jefferies.

[Michael Sarcone, analyst]

Just to start you think maybe you could delve a little bit more into kind of the new guidance philosophy that you mentioned, Jason or Adam, you also mentioned kind of you're taking a more conservative tack. But with lot of you could flesh that out a little bit more for us. And really just curious about kind of the moving pieces that got you from U.S. thrombectomy, plus 27% to 30% now it's 23% to 25%.

[Adam Elsesser, executive]

Yes. Thank you, Michael, for the questions. It's Adam. Look, we've -- over the course of the almost 10 years, not quite that we've been a public company, we've obviously evolved a great deal from the kind of what we sold. We started out focusing just on stroke and expanded pretty dramatically, almost the size of the company over that time. And by definition, it's time, obviously, for our guidance philosophy to expand and grow with that, when we were a much smaller company guiding was a lot easier. There was very few moving parts. And we did a pretty credible job of of guiding based on what we knew we could achieve. I think we're at a point now where there are a lot of variables. We've obviously heard the market talk about that and how we guide, and we wanted to build a little bit more comfort into the way we guide.

That being said, I'm not saying guys are now like layups, but we have a lot of work to do every quarter to continue to grow the business at the rate we think we can grow. But I think it's an important acknowledgment a moment in our time to make sure that, that's not the topic that we're talking about all the time. I think we've lost something in the the story of the company when we're spending most of our time talking about our guide and not the extraordinary strength of the innovation that has brought us here with products that have totally transformed the way thrombectomy works. That's the story of the company. That's the success that we have. That's our future and it's time we don't spend a lot of time talking about the guiding philosophy of our company more the innovation and the extraordinary road ahead we have through this year into 2025 and beyond.

[Michael Sarcone, analyst]

Understood. And just my follow-up I figured out I try for, you talked about some of the tougher comps that you're facing this year. When we look to 2025, particularly on U.S. thrombectomy, do you think you could talk about either quantitatively what we might see versus '24 for U.S. thermbectomy growth? Or if not, qualitatively, what are kind of the key moving pieces for that trajectory?

[Adam Elsesser, executive]

Yes. Well, first of all, I absolutely appreciate the question. And I don't think you would expect me to potentially make maybe the mistake I made in 2024 by answering that with a quantitative answer. So I will respectfully decline. But I will tell you what we did what we have looking forward to. And I alluded to this a little bit in the prepared remarks. There are things about 2025 that are a little different. First of all, we don't have some of the same transient headwinds that we talked about on the last quarter's call, and we reiterated on this related to the embo and access business and exiting some of those markets that will be -- we'll anniversary that. That will be behind us. There are some issues with China that we've talked about in the past on the last call.

We highlighted again with a particular number this time, that will sort of be behind us. And then we will have the benefit of new product launches that we've talked about in terms of new products in the U.S., but also in Europe with Flash 2.0 and Lightning Bolt coming. So there's a lot to look forward to in the back half of this year, but there's also, I think, a lot to look forward to in 2025. And again, I'm not going to quantify that, but I can -- I hope you can hear that I think with 2024 and some of the things we're sort of working through this year to get past 2025 is going to be another really fun year for us.

[Operator]

Our next question comes from the line of Matthew O'Brien with Piper Sandler.

[Unknown Analyst]

This is Phil on for Matt. And I guess for starters on U.S. thrombectomy, how should we think about, call it, the 20% growth in the second half of the year in the context of the rest of the market, understanding you're lapping some difficult comps, but is this more on just your general shift to the conservative guidance philosophy? And I guess, more acutely any further commentary on some incremental competitive pressures.

[Adam Elsesser, executive]

Yes. I think what we were talking about in our guidance was pretty clear. If you look at what we just did this quarter, we're extraordinarily proud of that. Let's start and sort of go through it. Our stroke business, which is now pretty mature, still grew 19% year-over-year. So I hope people understand that, that is a position of strength that is not what other companies that we compete against is you remember there's something like 30-some-odd catheters in the market we compete against to do that is pretty significant.

And the feeling and the mood and the morale at the SNIS meeting just last week was I've been going at meeting, I think, 21 years. And I've never seen it around our technology and our success. It was a lot of fun to be at SNIS this year. So that's on the stroke side. On VTE, what I said is we grew in the high end of our prestated range. So that's in the very high 20% range. Obviously, that meant we took share and the market grew significantly. That's a great setup for the back half of the year when we have full quarters with Flash 2.0 and we really move into this next phase.

And again, the feedback I laid out not only on the speed of the cases, which is really the first thing people recognize and then some of the issues around safety and performance that I highlighted in the prepared remarks. And then we also have arterial which grew way above that range. And that's a year into the launch. So that's coming up against the launch quarter comparing to, and we still did really, really well. So I think we're really set up again for an extraordinary rest of this year but into a really great 2025. And we might have just gotten ahead of ourselves a little bit. It's pretty hard not to when you get the kind of feedback we get every day from customers. And that's on me personally, obviously, take that responsibility, but it really doesn't have an impact in the underlying success in innovation and performance of our company right now.

[Unknown Analyst]

That's helpful. And then just as a quick follow-up. On the solid U.S. thrombectomy growth in Q2, as we start to lap some of the ASP mix benefits, can you help parse out the underlying volumes, how have those trended in the quarter and your expectations for the rest of the year?

[Adam Elsesser, executive]

Yes. In those -- in our thrombectomy business, the underlying volumes are all up in correlation to the numbers that I was talking about. As you know, we've anniversaried a lot of the price aspect. So at this point, it's -- the vast majority is solely volume and unit based. And that will continue, obviously, going forward.

[Jason Mills, executive]

Yes. This is Jason. Just adding to that. We get asked a lot about that with respect to our VTE business. And indeed, the entirety of the growth this quarter year-over-year was increasing cases or unit volume.

[Operator]

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

[Lei Huang, analyst]

It's a calling in for Lei Huang. Your Q2 OUS thrombectomy numbers came in stronger than we expected 25% plus year-over-year. Can you just talk about what drove was there anything onetime? And related to that, if you can comment on outlook for OUS thrombectomy, I think you were looking for mid- to high single-digit growth for the year. What does that mean now given the delay in Lightning Bolt, Lightning Flash but Q2 was strong. And if you can just comment generally about U.S. and U.S. embo and access for the rest of the year, if you're growth outlook has changed for any of those segments?

[Adam Elsesser, executive]

All right. So great question. The way I interpret it is we're going to talk about our thrombectomy business worldwide and our embo and access business worldwide. So let me try to make the best of that. Our OUS thrombectomy business was sort of inside the general range, give or take a little. There's nothing unique to call out about what happened this quarter. And again, going forward, we called out both China and then Europe. Europe is very clear, just so you know, as we go forward, which is we -- a slight delay in regulatory clearance of both Lightning Flash 2.0. and Lightning Bolt 7. Nothing about that has given us any indication at all that there's any issue with the approvals that they're not in jeopardy and we fully expect them to launch later this year, just not with the same time frame to generate that full amount of expected revenue.

So that will, again, come to help -- that revenue is not lost. Obviously, it will just come to help more in 2025 and beyond. And in China, that business, as you know, we have 3 revenue streams there. We have licensing. We have royalties and distribution. And we're moving as we move from the licensing from our older generation products that are sort of labeled for local use. We're moving, we have gotten approval for sort of more of our current flagship products that come with a higher price. And given the economy and everything else, that is not going to be as viable a revenue stream in the short term. But everything we've talked to, we have an incredible -- a partner in China, they think that, that likely will come back sometime next year. And again, we'll continue to be a valuable part of our business. Just as a level setting, China is sort of 2% or so of our business. It's not a substantial amount to put us at risk.

As it relates to embo and access, it's really related to our getting out of certain countries with both those product categories and moving through that this year. And again, without that, as comparable we'll be in really good shape for growth in those markets. And again, just to finally call out the 1 thing last quarter, there was discussion and obviously, our embo and access business came slightly under the expected numbers. And this time, we responded to the competitive threats and launches and I got to tell you, I'm extremely proud of our team. It helps to have the best product in the market. It certainly helps to remind physicians to -- that they always want to use the best product. And I think that business is in really good shape moving forward.

[Jason Mills, executive]

Yes. And Lei, just to add a little bit to what Adam said, again, echoing his comments about the comps in 2025 being much better. He mentioned that in China, the economic conditions affect mostly our distribution and royalty streams of our business. And that is, that $20 million that I called out in my prepared remarks, and that's about $10 million per quarter. And if you couple that with the delay in the European CAVT launch, that will result in -- relative to the second quarter, our OUS thrombectomy coming down sequentially about $10 million from the second and then sort of flat into the fourth. Again, we'll benefit from all of this as we turn into 2025, but that should give you a little bit more context.

[Lei Huang, analyst]

That's super helpful. If I can just sneak in 1 more. Jason, you mentioned the 100 to 200 basis points of operating margin improving year-over-year and where you land depends on immersive health. I guess I'm a little surprised the margin guidance doesn't change with the immersive health decision. The 100 to 200 basis point improvement was something you talked about earlier in the year. I assume the move in immersive health was not in those numbers to begin with.

[Maggie Yuen, executive]

Yes, Lei, this is Maggie. Thanks for the question. There's actually quite a few factors that affect our range of operating margin, especially with our updated revenue guidance, that will have approximately $30 million of reduced gross profit that the impact will pull through to the bottom line in the operating profit. But at the same time, I mean, given our first half of the year, we are more than 200 basis point operating margin expansion so we are already in a good start. And then so it depends on the timing of the immersive health care savings in the second half of the year, this will give us a good range between 100 and 200 basis point expansion.

[Operator]

Our next question comes from the line of Pito Chickering with Deutsche Bank.

[Pito Chickering, analyst]

Back sort of the guidance question for U.S., thrombectomy. There's the 24% growth rate still implies a pretty steep sequential growth for U.S. thrombectomy versus what we saw in 2Q. I guess what gives you guys confidence you can get to that sequential growth sort of embedded within the guidance?

[Jason Mills, executive]

So Peter, the 23% to 25% for U.S. thrombectomy is an annual number. And so what that implies for the third and fourth quarter year-over-year growth, respectively, is about the same, about 20% growth on a year-over-year basis.

[Pito Chickering, analyst]

Right. So I guess let me ask about sequentially U.S., it grew $3 million sequentially in 2Q. This 19% growth at the midpoint implies $6 million growth in the third quarter. And then $9 million in the fourth quarter, so a pretty steep sequential ramp. So I guess what gives you guys the confidence that you can get to that growth rate.

[Adam Elsesser, executive]

Yes. This is Adam. I mean on our prepared remarks, we laid out how the first of our new products are doing, Flash 2.0 and what we're seeing with that. So now we are not just guessing. We have 0.5 plus of a quarter, 6 weeks plus to really understand how that's going. We did not put a lot of revenue on the other new products for obvious reasons because we don't totally control the regulatory process. But obviously, that, that's not impossible. One of them is under submission, and it's not possible it can add to it.

When you add that up and add the level of discussion around the speed of flash, the success with Lightning Bolt on the arterial side, some of the safety issues I brought up, I think the momentum is clearly on our side. I think you can see that obviously today in a broader review of the field and the market, we're in the driver seat on this now. And I think that's crystal clear. And I think that the new numbers obviously are -- we wouldn't have put them out and not thought they were very doable.

[Pito Chickering, analyst]

Okay. Great. And then a question sort of on '25, and I understand that we're not going to guidance, but your third, fourth quarter growth rates declined 10%. You talked about the transient issues, the China comping out new launches. Is it fair to still think about an acceleration from the 10% exit rate into 2025?

[Adam Elsesser, executive]

So again, I'm going to stick with my more qualitative language and not actually use the terms that you just said or quantify them for obvious reasons, and I please hope you will respect that and indulge me. But yes, you obviously understood the point of what 2025 looks like through my qualitative discussion.

[Operator]

Our next question comes from the line of Robbie Marcus with JPMorgan.

[Unknown Analyst]

This is Allen on for Robbie. I had 1 question and then a quick follow-up. I hate to belabor it, but kind of just looking at the back half guide, right? The kind of paraphrase your new guidance because it sounds like you're talking to a range that you feel like should be conservative and should be achievable. So when we think about how you get to maybe the guidance range that you had previously, right, if we're talking about potentially outperforming that, what really gets you there? And are there any market dynamics you'd call out that led to you to take a bit of a more conservative route on the guide this quarter?

[Adam Elsesser, executive]

Yes. It's a really good question. There aren't anything new or unexpected in the market. And I think if you look at our -- if you just focus, for example, on VTE, we did better than anyone else. We did really well this quarter. Obviously, arterial is a little bit different dynamic. We're not competing really with other companies and products, but sort of decades of tradition around treatment. And then stroke continued to do well with the crowded field. Those are the positive dynamics that have played out now. And really we think will continue to play out throughout the quarter.

What I said earlier is, given the success of where we are, given the strength of our innovation, given the continued innovation coming, it just seemed to not make sense that we would be spending all of our time talking about our guidance and our justification for our guidance, let's just spend our time performing and putting up the kind of numbers that we just described. So that's really the point more than anything. And I know more than anything that you guys appreciate that and respect it. So now we get to work. And that's where we're in our best spot when we're out in the field doing the work, talking about the success of the products, the safety element of the products, and it's more important than ever right now that we have those conversations.

[Unknown Analyst]

Got it. And then just a quick follow-up is, again, to kind of maybe get to some upside, how should we think about you -- and talked about how you had some competitive dynamics that surfaced in the quarter in response to the new launch. I guess relative to our expectations, it looks like U.S. thrombectomy still good year-over-year growth, but definitely it looks like it slowed down a little bit sequentially. So when we think about the potential for those competitive dynamics to continue into the back half. And even for your new product launches that you have benefiting in 2025, the potential for high-end competitive dynamics. How do you plan to work through those going forward?

[Adam Elsesser, executive]

Yes. Look, I want to make sure. When we talk about competitive dynamics, we've always competed. And obviously, you guys have covered us since we went public and we competed against some of the biggest, best companies in med tech in stroke, and we emerged, obviously, in a pretty good spot. So we're not -- this was not unexpected. I think the only thing that may be unexpected was the tactics given the circumstances. I would -- I think we were a little surprised at some of those tactics, I'm not sure that it made sense. But -- that's okay. We're used to that.

I think the other thing that changed that on the other side of the ledger is the level of interest, the level of conversations physicians are having, physicians are initiating, not us. We're not talking about this around the safety elements, particularly around cardiac decompensation, particularly around putting in compromised blood, those are conversations that are happening with physicians all over the place. And I think that's great because it's information that we knew about, but it wasn't really our place to talk about other people's products and now physicians are doing it, not us. And I think that is great for the field in the long run because, obviously, the field needs to grow, and it's only going to grow if you're using safe products. So I think it puts us in the field in a really good spot going forward.

[Operator]

Our next question is from the line of Richard Newitter with Truist Securities.

[Richard Newitter, analyst]

Great. Maybe to start off, with respect to the U.S. thrombectomy business, I'm just looking at the components that we have modeled. Obviously, venous is growing faster in the U.S. thrombectomy than neuro. But neuro is really posting some nice performance in the first half, 27% 1Q, 19% 2Q. That's above what we were thinking. I guess the question here is, should we be thinking about the components of the U.S. thrombectomy being a little more maybe driven relative to your thoughts heading into the year with a boost up for U.S. neuro thrombectomy and that maybe to get to the earlier question of sequential growth, that believes the sequential growth pattern a little bit into the back half, and that allows the venous maybe to come down a little bit, but you still are able to get to that healthy 23% to 25%?

[Adam Elsesser, executive]

Yes. To give you answers to that like detailed modeling question is not something I can do right now. I can tell you qualitatively, or, again, sort of going through it. The momentum we have with Flash 2.0 in VTE is great. I don't expect that momentum to abate. So that's just a qualitative answer. The success of our arterial franchise, with Lightning Bolt, obviously, you've seen the numbers now. It's done incredibly well. I don't have the exact number, but I think we've done over 20,000 cases with Lightning Bolt 7 technology, which, by the way, is very similar technology, almost identical to what we're using with Thunderbolt, so it bodes really well for when Thunderbolt comes, obviously.

But to speak to specifically the success of neuro, we have -- we're pretty proud of our products. We've done a really good job. I alluded to the feeling at SNIS there was, again, a year or 2 where we had a ton of competitors and everyone was coming 30-some-odd catheters, all these large catheters, this and that. And I think that moment has now passed. People are coming back to the best products. They've tried stuff, they know what works best. And I think that sets us up again for some real success going forward. And then the setup for Thunderbolt is exactly what I had hoped for, which is the more and more people are using our catheter the easier it is to launch Thunderbolt because Thunderbolt is just an add-on. We don't have to convince me to switch catheters. So again, I can't totally predict exactly the future, but I like our chances. The setup is really good for us.

[Jason Mills, executive]

And Rich, just just to add to that as well. So what's implicit in our updated guidance is a trend because we don't guide by category of U.S. thrombectomy, but just to qualitatively help is a similar pattern to what we've seen in the first half of the year, where VTE and arterial are expected to grow above that range, stroke close to it in coronary, likely in the double digits but low double digits. .

[Richard Newitter, analyst]

Okay. And then just going back to the competitive dynamic questions that you talked to in venous. I'm trying to just understand what the underlying market rate is and kind of where you are relative to that rate? And -- did you just gain a little less share? I understand it's always going to be linear. And do you feel good in the first few weeks of 3Q that you're back on a share gain trajectory that you were on? What's the message that we should be taking around competition, underlying market growth and kind of where you were and where you're going?

[Adam Elsesser, executive]

Well, listen, I mean, obviously, in Q1, the market grew well and was healthy, and we also took share. We are -- I'm at a touch of a disadvantage because our VTE competitor is having their call at the exact same time. So I can't tell you all the details of their number at this point, but from the headline that I seem to get right before we went on to this call, we -- again, the market grew, and we took share. And so as long as those 2 things are happening, the first is critical that the market is growing and the second is equally critical that we're taking share in 2 quarters in a row, now we're going to have a couple of full quarters of Lightning Flash 2.0. I think it really sets us up again for a really good continued improvement in share as well as market growth.

[Operator]

Our next question comes from the line of Bill Plovanic with Canaccord Genuity.

[Unknown Analyst]

It's [ Acrion ] for Bill. To dive a little more on the coronary performance. I know you just touched on it briefly there. But can you provide any incremental details on the growth? Do you think you'll need to conduct another trial to drive that?

[Adam Elsesser, executive]

Yes. That's good question. So -- and we haven't spent a lot of time talking about the coronary space. As you remember, we we don't have CAVT in the coronary. And I think if you remember, the trial that we did run showed a case time of around 1 minute for the product sort of being in the body. Hard to get faster than that. So the product already works. Coronary clots mostly different. There are some exceptions, and there's a small category cases where it's a little harder to get out and maybe having a CAVT product, but it's a small number comparatively.

So really, you're looking at a dynamic where you're seeing steady sort of movement toward our product because, obviously, it works incredibly well, but it's just a different animal. And the question that you're asking is would that work better, would we get more share if we ran like a randomized trial that could affect guidelines. We've looked at that. We had talked about that a few years ago. I think you remember that. The decision around the cost trade-off of that, that product, again, doesn't use CAVT. It doesn't have its own reimbursement. It's sort of tucked into procedural reimbursement. We made the decision that wasn't a logical thing to do, but we constantly look at that issue. And if it changes or there are elements of that decision that change, we would potentially make a different decision.

But right now, if you think about the benefit that we can have to patients, the benefit is in the vascular beds, VTE, PE, arterial and stroke where CAVT will be front and center. The reimbursement is unique and separate. And I think that's where we can have the biggest impact. So that's where our focus is going to be in the short term. That being said, cataract, which is the product for coronary is still an extraordinary product and those who use it, it remains tied as 1 of the stickiest products with our new CAVT products of anything we've ever done.

[Unknown Analyst]

Great. And just as a follow-up, is there any update that you can provide on the THUNDER study.

[Adam Elsesser, executive]

Well, I sort of did in my prepared remarks, Dr. Fiorella did a great job of summarizing the trial and the design and the technology showed some cases. So I think we're -- and we're very excited. I'm going to not give particularly commentary around timing, obviously, particularly with the THUNDER study, I've made that mistake in the past as well. So I'm going to be disciplined, which is kind of an awesome thing to not give you an update. But I think if you listen to my words, particularly, you would get a sense of my excitement about it.

[Operator]

We have a final question from the line of Margaret Kaser Andrew from William Blair.

[Macauley Kilbane, analyst]

This is Macauley on for Margaret. So 1 on margins. You obviously reiterated the gross and operating guide for this year. Wondering if you could kind of help bridge the gap towards the 70% longer-term gross margin, which kind of put it around that first half 2026 time frame. Should we think of that as as expedited now that the decision with the immersive health care exit. And what could we see within leverage specifically within that OpEx that you mentioned in the prepared remarks .

[Maggie Yuen, executive]

Thanks for the question. For gross margin, the decision on immersive health care will have minimal impact on our gross margin. But since the last few quarters since we launched of CAVT, we have seen quite a gradual expansion on our gross margin due to product mix. So we expect in the near term to continue to see that trend. But then I'm also very pleased to see that our operation team actually continue to execute and improve them on their manufacturing process.

So I think in the longer term, it will allow us to achieve a larger scale cost improvement to take us to the 70%-plus target. In terms of operating expense, as I discussed in the remarks in -- within the next 12 months, we will see more than $20 million of savings, operating savings from the immersive health care business.

[Macauley Kilbane, analyst]

Got it. And then if I could add 1 more real quick. I know you mentioned the competitive dynamics weren't necessarily different, and you've gone through similar dynamics and stroke. So what steps, I guess, have you taken more recently within that thrombectomy kind of competitive dynamics in BT overall? Is it more about being aggressive with the new sales force or more about the continuous generation of the clinical data that you expect to produce?

[Adam Elsesser, executive]

Yes. I think it's a fair question. Obviously, some of what we're doing, I'm not going to announced on the call so that we're alerting our competitors to what we're doing. And I know that you would appreciate and understand that. I think it really comes down to allowing and engaging with customers around what is happening, what are people doing? What is -- what are the products actually doing? And I think I think when you do that -- and again, we've not -- we've done that. But I think door is open. And for people who have been really pretty adamant that they're fine with what they use a year ago to see their openness now to using Flash 2.0.

And then their openness to talk about the benefit of 2.0 in comparison, that's the most heartening thing. And I think that's given us the ability to really go after business everywhere versus we have our accounts, somebody else has their accounts. I think it's permission. And I think if you were to do work in the field and talk to folks like that's happening, it's happening everywhere and you can talk to former reps, everything. The mood, the morale is clearly moving in our direction. And that's because at the end of the day, and look, competition isn't so much about tactics, you can have them. They don't always work. It's always about having the best products in the field.

At the end of the day, I will tell you, honestly, 20-some-odd-years of doing this. I have always known that physicians ultimately use the best product. And for that, that's how you compete. You have the best products and you're not shy about talking about them and educating people about them. And that's the winning strategy. and it's gotten us this far for 20 years, and that's what we're going to do going forward.

[Operator]

And with that, Ms. Furlong, I'll turn the call back over to you.

[Cecilia Furlong, executive]

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 third quarter call.