Good afternoon. My name is Kathy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Penumbra fourth quarter and year-end 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during that time, simply press the star followed by one on your telephone keypad. If you'd like to withdraw your question from the queue, simply press star one again on your keypad. I would now like to introduce Ms. Jee Hamlyn-Harris, investor relations for Penumbra. Ms. Hamlyn-Harris, you may begin your conference.
Thank you, operator. Thank you all for joining us on today's call to discuss Penumbra's earnings release for the fourth quarter and full-year 2022. A copy of the press release and financial tables, which includes the 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, 2022, which is scheduled to be filed with the SEC on February 23, 2023.
As a result, we caution you against placing undue reliance on these forward-looking statements. 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, certain financial measures 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. 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 fourth quarter and full-year 2022.
Jason Mills, our Executive Vice President of Strategy, will discuss our 2023 guidance. Sandra Lesenfants, our President of Interventional, will join the team for questions. With that, I would like to turn over the call to Adam Elsesser.
Thank you, Jee. Good afternoon. Thank you for joining Penumbra's fourth quarter and year-end 2022 conference call. Our total revenues for the fourth quarter were $221.2 million, a year-over-year increase of 8.4% as reported and 10.5% on a constant currency basis. Our fourth quarter revenue increased 3.5% sequentially, our fastest sequential growth of the year, and a trend we expect to continue into 2023. Our gross margin increased 110 basis points compared to the fourth quarter of 2021 and was consistent with our near-term expectations. We saw continued improvement in productivity, which was offset in the near term by inflationary pressures.
We increased our non-GAAP operating income to $7.2 million, representing 3.3% of revenue in the fourth quarter, increasing nearly threefold year-over-year. We generated positive operating cash flow in the fourth quarter and continue to expect increasing profitability and operating cash flow in 2023, as I will discuss in a few minutes. For the full-year 2022, our total annual revenues were $847.1 million, representing growth of 13.3% over full-year 2021 on a reported basis. On a constant currency basis, total revenue grew 15.5% over 2021, which met our original guidance given this time a year ago.
We are now embarking on a new era in thrombectomy, and our team is focused on doing the purposeful work necessary to help the significant number of patients who can benefit from our proprietary computer-orchestrated thrombectomy products. Our journey to develop the most optimal solution for safe, effective, fast, and powerful removal of blood clot wherever it resides in the body is nearly two decades in the making. The early results from the use of Lightning Flash in venous and PE patients and Thunderbolt in our stroke trial is giving us even more confidence that the computer-orchestrated aspiration is changing the treatment paradigm in profoundly positive ways for patients and physicians. Looking into 2023, we reiterate our expectations for our business.
We expect to achieve at least $1 billion in total revenue, expand our gross margins, making progress toward our objective of 70%+ margins within a couple of years, and increase our profitability and operating cash flow. We will realize these goals by helping more patients with our proprietary products. If we look beyond 2023, we believe we are still closer to the beginning of our journey to help all patients who have blood clot in their body rather than the end of the journey. There are over 1.25 million patients with clinically significant clot in their bodies in the United States alone across the five vascular beds we target.
The number of patients around the world with similar needs is 2-3 times larger. The rate of treatment with mechanical thrombectomy in the United States ranges from under 10% to about 25%. We have in front of us in 2023 and beyond, a significant opportunity to help the vast majority of these patients with our computer-orchestrated thrombectomy. During the fourth quarter of 2022, our vascular business achieved record revenue of $129.7 million, accelerating sequentially to over 5% growth compared to the third quarter. Our vascular business was driven by growth in our thrombectomy franchise, which grew over 20% year-over-year and also accelerated sequentially, growing 5%. We continued to gain share in the fourth quarter in venous, arterial, and coronary with our Lightning 12, Lightning 7, and CAT RX products.
Looking into the first quarter, our vascular team is launching full speed into the Lightning Flash era in the United States. Lightning Flash is performing just as we had expected and is being used successfully in both pulmonary embolism and DVT procedures. We are also proud to announce that we are embarking on a new era in arterial thrombectomy. Last week, Lightning Bolt was cleared by the FDA. We have talked in the past about both the promise and the propriety of our modulating aspiration algorithms, which are built into both Lightning Bolt and our Thunderbolt stroke product. We are excited about the potential of this technology for arterial patients. Initial evaluation cases using Lightning Bolt are planned for the next few weeks, and we are on track to initiate a full launch of this product just before the end of March.
Moving to Thunderbolt, we are seeing solid progress enrolling patients in our THUNDER trial, and importantly, the product continues to perform just as we had anticipated. Notwithstanding the slowing in the growth of the stroke market that has been discussed during the past year, the RED catheters, which will be part of the Thunderbolt system and our other neuro products, continue to gain share in the United States and globally, which led to another quarter of sequential growth. The recent launch of RED 43, coupled with the launch of an access product, should help us grow our neurovascular business in 2023, leading up to the introduction of Thunderbolt.
We continue to believe Thunderbolt has the potential to fundamentally change interventional treatment of ischemic stroke. We believe this product, in conjunction with the work of our extraordinary commercial team in partnership with physicians, could create an environment in the stroke care system in the U.S. in which many more patients who suffer an ischemic stroke will get treated successfully and quickly. In sum, we still have a long way to go to reach all of these patients. We believe Thunderbolt will help the field get there, just as we expect our proprietary computer-orchestrated products to do across all five vascular beds.
While we think these products will initially have the biggest impact on our thrombectomy business in the United States, we plan to bring these products to physicians and patients in Europe, China, Japan, Asia, Pacific, and Latin America, where our businesses are already strong and growing but still just as nascent in the U.S. relative to the number of patients we can ultimately help. Let me briefly discuss our immersive healthcare business before handing the call to Maggie. As we have stated in the past, we have restructured our work in this field to better fit with the current market. This has allowed us to focus on the two most important aspects of immersive healthcare. First, ensuring that patients who are using the REAL Immersive System are responding positively to the technology.
Second, that we are working with large healthcare providers, both public and private, to figure out how to properly introduce our REAL Immersive System into the therapeutic workflow for patients who need rehabilitation, as well as patients struggling with aging and many other conditions, including mental health issues. We remain very optimistic about these efforts. I'll now turn the call over to Maggie to go over our financial results for the fourth quarter and the full-year 2022.
Thank you, Adam. Good afternoon, everyone. Today, I will discuss the financial results for the fourth quarter and full-year of 2022. Financial results on this call for revenue and growth margins are on a GAAP basis, while operating expenses and operating income are on a non-GAAP basis. The corresponding GAAP measures and our reconciliation of GAAP to non-GAAP financial measures are provided in our posted press release. For the fourth quarter ended December 31st, 2022, our total revenues were $221.2 million, an increase of 8.4% reported and 10.5% in constant currency compared to the fourth quarter of 2021. Our geographic mix of sales in the quarter was 71% U.S. and 29% international.
U.S. reported growth of 8.8% and our international regions increased 7.7% reported and 14.9% in constant currency. We see strong sequential growth in U.S. and Europe direct channels offset by timing in international distributor orders. Moving to revenue by franchise. Revenue from our vascular business grew to $129.7 million in the fourth quarter of 2022, an increase of 14.2% reported and 15.4% in constant currency compared to the same period last year, driven by growth in the U.S. Revenue from our neuro business was $91.5 million in the fourth quarter of 2022, an increase of 1.2% reported and 4.4% in constant currency compared to the same period a year ago, driven by the RED catheter launch in Europe.
Moving to gross margin. Gross margin in the fourth quarter was slightly improved at 62.6% compared to 61.5% in the same quarter last year. While we have made great progress in labor efficiency at our Roseville manufacturing site, short-term disruptions from supply chain inconsistencies have had an impact on steady margin improvement. Looking forward to 2023, we target to achieve 100 to 200 basis point improvement driven by product mix and productivity offsetting inflation headwinds. Now on to our non-GAAP operating expenses, which exclude the amortization of acquired intangible assets of $2.4 million for this quarter and last quarter, respectively, and as well as non-recurring research and development milestone, one-time expenses associated with the Sixense acquisition, and amortization of acquired intangible assets of $42.6 million for the same quarter last year.
Total operating expense for the quarter was $131.2 million or 59.3% of revenue, compared to $123 million or 60% of revenue for the same quarter last year. In the fourth quarter of 2022, we had $1.5 million due to one-time cost for reorganization effort, a continuation of future savings we previously discussed last quarter. Our research and development expenses for Q4 2022 were $18 million compared to $19.4 million for Q4 2021.
SG&A expenses for Q4 2022 were $113.3 million or 51.2% of revenue, compared to $103.5 million or 50.7% of revenue for Q4 2021, and $106.2 million or 49.7% of revenue last quarter. We are investing in resources to support our growth target while maintaining discipline in discretionary spend. In 2023, we expect higher investment in clinical trials while leveraging our infrastructure investment made in 2022 to deliver operating margin expansion. We recorded operating income of $7.2 million or 3.3% of revenue in fourth quarter 2022, excluding the amortization of acquired intangible assets , compared to an operating income of $2.5 million for the same period last year. I will now summarize our full-year performance.
For the full-year 2022, our total revenue was $847.1 million, which represent an increase of 13.3% reported and 15.5% in constant currency compared to full-year 2021. Our geographic mix of sales in the year were 69.8% U.S. and 30.2% international. U.S. reported growth of 12.1% and our international regions increased 16.2% reported and 23.5% in constant currency compared to a year ago. Revenue from our vascular business for the full-year of 2022 was $499.4 million, an increase of 22.1% reported and 23.6% in constant currency.
Revenue from our neuro business for the full-year of 2022 was $347.7 million, an increase of 2.7% reported and 5.6% in constant currency. Our gross margin for the year was 63.2% of revenue compared to 63.6% of revenue for full-year 2021. Excluding the amortization of acquired intangible assets of $8.3 million for 2022 and non-recurring research and development milestones, one-time expenses associated with Sixense acquisition and amortization of acquired intangible assets of $42.6 million in 2021. In 2022, we had non-GAAP operating income for the full-year of $14.4 million compared to a non-GAAP operating income of $35 million for 2021. Turning to cash flow and balance sheet.
We ended the fourth quarter with a cash equivalents, and marketable security balance of $188 million. We expect positive operating cash flow trends to continue in 2023. Now I'd like to turn the call over to Jason to discuss our guidance.
Thank you, Maggie, and good afternoon, everyone. We reiterate our guidance for total revenue in 2023 to be $1 billion or more, representing year-over-year growth of at least 18%, which is an acceleration from 2022 total revenue of $847 million. Moreover, we expect our quarterly revenue growth rates to accelerate as the year progresses. Further, we expect to expand gross margins in 2023 toward our 70%+ objective within a few years, with margins increasing from current levels in the first half of the year toward the mid-60% range in the second half. Lastly, we expect our operating margins to expand sequentially during 2023, approaching double digits as we exit the year. I will now turn the call back to Adam for closing remarks.
Thank you, Jason, Maggie, and Jee. I'll be brief in my closing remarks. This is the dawning of the age computer-orchestrated aspiration. With this technology, we can see to the point where removing blood clots from any part of the body becomes routine. It is very important to give special recognition to the entire team at Penumbra, who over the course of almost 20 years stayed focused on this arc of innovation. I admire you all so much. You never gave up. You kept working and working, sometimes against all odds, to deliver this extraordinary technology to the field. Also, it is important to give a special acknowledgement to Dr. Corey Teigen and Scott Teigen for their critical role in making this technology a reality. Thank you to them and the entire Penumbra team. Thank you, operator. We can now open the call to questions.
At this time, I would like to remind everyone in order to ask a question, please press the star, then the one on your telephone keypad, and we'll pause for a moment to allow everyone the opportunity to signal. Our first question will come from Pito Chickering of Deutsche Bank.
Hey, good morning, guys, and thanks for taking my questions. You talked about sequential sort of revenue growth or from, you know, 3Q into 4Q and into 1Q. Is there any color that you can give us as we should, you know, thinking about that growth or with Lightning Flash in the first quarter, and are you comfortable with $150 million of revenues from Lightning Flash in 2023?
Yeah. As you know, we don't guide quarterly, but we do expect the quarterly growth rate in the first quarter to be slightly higher than the sequential growth you saw fourth quarter over third quarter. As you move beyond the first quarter, the second quarter likely accelerates quite a bit with the launch of Lightning Flash still fresh and Lightning Bolt at the end of this quarter. In the back half of the year, we expect strong sequential growth rates as well, probably better than the first quarter sequentially, and sort of in line with where we would expect to see second quarter.
Okay. Go ahead.
The only color I'd like to add to that is that's sort of the... when you have a launch, not just one, but two, like we have with Flash and Thunderbolt, that's just sort of the normal sequence of what happens with getting into all these labs and making sure that you go through the value analysis committee and everyone has it. It just has that sequence to it. And as you know, we're, you know, knee-deep in, you know, sort of responding to doctors asking for it as opposed to us asking them to buy it, which is a really nice phase to be in. That's why you're going to see that kind of growth going.
Okay. Sticking on Lightning Flash, can you give any details on what the reorder rate is from the physicians that are using it, and any early color on either market penetration gains from shifting from medical to mechanical thrombectomy or market share shifts? Thanks so much.
Yeah. It's, you know, we're a month into the launch, let's, you know, take that into account to give you guys some sense. Needless to say, I think I'm fairly confident in saying this Lightning Flash is without a doubt the best launch we've ever had. I only have said that one other time, and it turned out to be true. The use of this product, the excitement around it, the speed and efficacy, the safety profile, have made this really just an extraordinary product. Obviously, as we, you know, we're in the middle of the quarter, and we'll give a lot more color at the end of the quarter on the next call. This is a great launch.
Great. Thanks so much.
Our next question will come from Robbie Marcus of JP Morgan.
Hi, everyone. This is Rohan on for Robbie. Congrats on a nice quarter. I guess I just wanted to touch on pricing and how we should think about better mix and how that reflects in gross margin profitability this year and beyond. Can you comment a little bit about how much of gross margin expansion this year is due to kind of the general productivity improvements that you brought up , versus the mix benefit that we should see from new products?
Yeah. Well, Maggie, why don't you take a shot at that?
Thanks for the question. I'll just comment on the gross margin impact first. As we mentioned before, we're making great progress and on track to our 70% gross margin target. It is going to come from productivity improvement in transferring over to Roseville, product mix, and price impact, as well as longer-term lean initiatives. All three factors are going to have an impact to our 2023 gross margin target, and it's going to continue to improve beyond 2023. In 2023, we expect to see a little bit bigger contribution from product mix.
Great. No, that's super helpful. Thank you. I guess another one is just more focused on near-term trends, and you kind of touched on this, but I just wanted to get now that we're like almost done with February basically, and just wanted to see how or if you had any more detail on how the launch, the Lightning Flash is shaping up and the contributions you can expect from both Flash as well as Lightning Bolt, in the near term, but as well as over the balance of the year and I guess maybe kind of the specifics and split between those if you can provide any color there, that would be really helpful.
You know, it's a great question. Obviously, in the middle of a quarter, we were talking about last quarter's numbers, it's a little tricky to start talking about that in the kind of detail maybe you want. That being said, as I've already said today, the launch of Flash is going extremely well. You know, we're a month plus into it, and the level of interest, the level of success we've seen is obviously driving people to wanna order the product and continue to try it. We're just knee-deep in getting through that process and getting the product through all the various value analysis committees and responding as fast as we can to that interest.
We obviously haven't even launched Lightning Bolt yet, so let us do some cases and we'll be able to report that next quarter. But needless to say, it's a great time. It's exciting. It's fun to see the level of interest and reaction to and the success we're seeing with this. It's just one of those things that you get to do very rarely in a career in med tech, and we're pretty excited about it.
Yeah. Rohan, it's Jason. Just to add on to that, we believe, and maybe this sort of goes to the heart of your question with respect to our guidance. We believe we have very strong visibility into the lower limit of our guidance range, at that $1 billion level. As Adam mentioned, this is really early in the launch of two very important products. With respect to the upper end of guidance, this year, we don't have, yet have the same visibility to put an upper limit on it, so just give us a quarter.
No, that's really helpful. Thank you so much.
Now we'll take a question from Michael Sarcone from Jefferies.
Hey, Michael.
Hello. Hello, and thanks for taking my questions. Just wanted to follow up on Maggie's comments around short-term disruptions in the supply chain in 4Q. Just wanted to get a little more color there and just, can you talk about if any of those are continuing into 2023 and how they may impact gross margin through the year?
Thanks for the question. I did mention that the supply chain inconsistency disruption is just short term. It affects only in terms of slowing down our growth margin improvement, but it likely will not affect us the ability to meet demand and longer-term margin improvement opportunities.
Okay, thanks. Do you think you can comment a little more just on how you're thinking about operating expense cadence through the year?
Yeah. I think this year, we're gonna continue to invest, but we're gonna start seeing more leverage on the SG&A infrastructure investment that we had last year. We're gonna gradually see sequential operating margin improvement. I think in Jason's guidance comment, we will continue to see improvement throughout the end of the year.
Yeah. The only thing I would add to that, Michael, is, We expect to be profitable every single quarter. In the first quarter, as with every first quarter, we have two important national sales meetings as well as payroll taxes, that are obviously germane to that quarter. As we move through the year, we expect to by the end of the year, be approaching double-digit operating margins.
Okay, thank you.
Thank you.
Next we have David Rescott of Truist.
Hi, David.
Hey, guys. Oh, hey, Jason. Hey, team. Thanks for taking the questions. First, in the past, you've talked about market share gains, market growth, and then pricing as being contributors to growth for Flash, not necessarily in that order. Just wondering when you think about Bolt and then ultimately Thunderbolt, you know, if you'd be able to kind of characterize where you see the biggest amount of growth, you know, within each of those segments coming from whether it's, you know, market share, growth, price, that would be helpful.
You're talking about as it relates to Lightning Bolt or both, all three of those products? Lightning Bolt.
Lightning Bolt and then Thunderbolt.
Okay. Okay. Lightning Bolt is sort of similar to what we've said about Flash, where price will be the smallest of those three. As it relates to market growth versus share gain with that product, it's sort of they're almost the same thing, depending on how you define it. As you know, we're, you know, from a mechanical product, we have the vast majority of share in arterial already. The biggest sort of opportunity comes from both people, physicians who are using tPA drip, a catheter-directed lysis, or open surgery. If those are classified as market growth type things, you know, that will by far be the biggest gain.
If you were to classify those as, you know, using another, you know, tool, if you will, then that would be share gain from those two. That's the biggest pool right now. All of those patients are still with our customers. If they're already getting catheter-directed lysis or they're getting surgery, they're with our customers or potential customers already. So that will be the first ring, you know, goal is to go there. For those of you who in January saw the video of Lightning Bolt, it's pretty extraordinary. We have a fairly high level of confidence around that product in the clinic because obviously we've been doing stroke cases with similar technology. So it's not starting from a, you know, blank slate.
I think we'll see a lot of excitement from physicians who are using one of those two modalities, which the soonest. It's, depending on your terminology, it's either one of those, but it's from those two sources.
Okay. That's helpful. Maybe stepping back kind of from a higher level on the neuro side. I think at the International Stroke Conference, you know, there was some positive data just around use of thrombectomy or the benefit of thrombectomy into some type of patients that, you know, are currently excluded in the guideline recommendations, meaning those with essentially larger infarct volumes, right?
Yeah.
When we think longer-term about the potential market expansion opportunity from that indication, just wondering initially, one, what your view is on that. When you think about the new launch, maybe market expansion, just regaining share, some of the grassroots efforts that have been going on in the local kind of state and local levels to reaccelerate potentially underlying neurothrombectomy growth rates, how would you just kinda think about the three or four of those, you know, in your view as it relates to reaccelerating your kind of U.S. neurothrombectomy growth rates? Thank you.
Yeah. I think in the stroke market specifically, you know, we've been successful in the last couple of years because of share gain. You know, the RED series obviously took back a decent amount of share and that's continuing. We mentioned in the prepared remarks that we have RED 43 and an access tool. I think that will continue to drive share gain.
As it relates to the market growth, you know, we're going to always remain not just hopeful and optimistic, but I think it's grounded in a good sense of reality that, as you see data that comes out, like you alluded to at ISC, which is I think a lot of the physicians in this field believe that, it really is nice to see that kind of rigorous data that supports it. As well as products just getting easier and easier, you know, not just with the RED series and the additions that I talked about, ultimately with Thunderbolt. You're really set up for all of the things that could potentially limit people getting successfully treated to sort of make those excuses go away, if you will, and drive growth again.
You know, it's hard to predict, and we've never been that good at predicting over the, you know, seven or eight years now that we've been talking about stroke growth, that growth in an exact way. I think you're seeing everything line up in a positive way for a number of years now of sort of re-engagement and growth. It's hard to put an exact number on that, but it feels like that's happening in the field now.
All right. Thank you.
Yeah.
Now we'll take a question from Ryan Zimmerman of BTIG.
Hey, Ryan.
Hey. Good evening, thanks for taking the questions. Very exciting to see all the products that are coming out. I wanted to just ask, first on the guidance, the $1 billion plus kinda leaves a lot of room, you know, to go higher. I'm wondering if you can elaborate on kind of how you think about what's implied in the guidance from a market share gain perspective. Because if I understand correctly, you're not assuming market share gains from Lightning Flash or Lightning Bolt at present.
No, we are. Let me walk you through it just a little bit, Ryan. First thing, let's start with the guidance itself. The lower limit of $1 billion is, as I mentioned in the prepared remarks, an acceleration in growth to 18%. I think you can appreciate at a company the, at this scale, comparing against nearly $850 million in 2022, that's a significant projection in and of itself. As I mentioned, given the profoundly important aspects of these two technologies and the large number of patients that both of these new technologies, Lightning Flash and Lightning Bolt, can help, we don't have the kind of visibility right now that we do on the lower limit, we believe.
Give us another quarter, we think we'll have more visibility. As it relates to share, as Adam mentioned, there are three components to our growth profile. The least catalytic is the price. The two most catalytic will be share gain and market growth.
Okay. Understood. You know, Adam, I was reviewing the transcript and I may have missed this, but I didn't hear timing on Thunderbolt enrollment completion and submission and subsequent approval. I was wondering if you could maybe clarify. Maybe I missed it, but I don't think I heard it.
Yeah, no, I didn't give a specific and prediction. As you know, predicting the enrollment of a emergent disease like stroke is not something that If anyone says they can do that, I would discount that prediction. We're not gonna do that. What we have said is we're doing fine, it's on track, and we're feeling good about that. That being said, we also said, you know, that there is no Thunderbolt in our projections for 2023 from a revenue standpoint. We're not saying, and don't read that as it's not going well, it is, but we're also being cautious in our prediction that Thunderbolt is, you know, we will do fine and do all the things we said we're gonna do without Thunderbolt in the numbers for this year.
Okay. Appreciate it. Thanks for taking my questions.
Yeah. Yeah. Thanks, Ryan.
Thank you.
Next we have Mike Matson of Needham.
Hi, Mike.
Good afternoon, guys. Thanks for taking my questions. I guess I'll start with the, just the RED catheter. You know, it did look like the growth maybe improved a little on the neuro side. Can you just comment on, you know, how those are doing in Europe? I think you launched them kind of late in the 3rd quarter. This is the first full quarter they were out there. I had a follow-up on RED 43. Can you maybe just talk about sort of where that fits in the lineup and how it's different from the other catheters?
Sure. Let me start backwards. We'll start with RED 43, and then we'll answer the larger question about the RED series in Europe, and I can broaden that question to the U.S. as well. RED 43, you know, early days, as you know, in terms of getting it out there and getting it through the various value analysis committees. The cases that have happened that people have done have really liked it. It's a great, you know, sort of coaxial catheter plus the ability to have a catheter that size that can go distal is has been. You know, people have just really responded to it.
We're particularly proud of the design work that has gone into that catheter. I think it fits a clear need in the market. As it relates to the general franchise that RED has brought, both in Europe and in the U.S., it's, you know, it's been a great launch. You know, we really saw it start in the 4th quarter of 2021. You know, we saw a bolus of that, you know, which actually, you know, kinda, you know, hurts us a little you know, on the top right now 'cause it was a great launch. That being said, it has continued really strongly and taken share. Even in a market, you know, that isn't now growing, that franchise has continued to do well because more and more people are using it.
That's, you know, that's what you want. You want a product that's good, that is that good that word of mouth travels and people try it and they stick with it, and that's what's happening with the RED series. Obviously , that's critically important to the success of Thunderbolt because those catheters are paired with Thunderbolt. If those catheters are getting the reaction that they're getting, they're that trackable, they're, you know, catheters people wanna use, obviously, you know, moving on and adding Thunderbolt to that, becomes that much easier.
Okay, thanks. Just on the THUNDER trial, I may have asked this on a prior call I can't remember, to be honest, but will we see that data before you submit it to the FDA or after you submit it at some point before the product's actually launched?
You know, it's hard to tell. It will depend on when that data is ready. You know, if it happens to be ready and there's a big meeting that it can be presented on, before it's made otherwise public, sure, then you would see it. If the timing of that doesn't work, we're obviously not gonna wait to submit it to the FDA in order to present it at a meeting. It's really just depends on the timing, and at this point, that's hard to predict.
Okay. Got it. Thank you.
Thanks, Mike.
Next, we have Shagun Singh of RBC.
Hi, Shagun.
Great. Thank you so much for taking the questions and looking forward to 2023. Just with respect to the questions, I was just wondering if you could elaborate on any apparent, you know, clinical advantages of Flash in early cases, you know, with respect to maybe clot removal, you know, time, you did mention speed, efficacy and safety. You know, any way to quantify that? Are you seeing greater uptake in PE or DVT cases? With respect to my second question, I was just wondering if you can give us a little bit of an update on clinical trial activity. Then on THUNDER, I specifically just wanted to get a sense of enrollment. I think as I understand it, you know, patients have to be treated in a certain time frame.
Is that limiting, you know, enrollment in any, in any way, or is it on track? Thank you for taking the questions.
All right. I'm gonna try to remember all these. I tried to write it down. I'll, I might need a prompt. The first, you asked the question about, you know, safety and speed and all that. The answer is yes, all those things are good. Flash has all those things. Again, it's one of those rare things in at least our experience in 20 some odd years in this field, that a product is that good and has the kind of word of mouth that's following it around. It's noticeable once you use it. We're particularly, you know, happy about that because again, it goes to how well patients can be treated. The next question was still Flash, and I tried to write fast, and then we went into Thunderbolt. Remind me of the next question.
I think it Well, actually, just to follow up, if you can quantify, like, you know, in terms of speed or anything, if you can quantify it? The question was really about if you're seeing greater uptake in PE or DVT cases.
Yeah. That's right. How do you quantify it? You know, every case is different. Obviously, DVT and PE are different. And you can have easy or basic PE cases and more challenging ones and vice versa in DVT. Hard to quantify that in terms of numbers, if that's what you're looking for. The answer is the impression, you know, the reality is people who are using it are reacting to that very positively. Like, "Wow, that was amazing. That was so easy, so fast, you know, and powerful, and it just got the job done." It's hard to quantify that.
You know, we're not running a trial on it now, there's no, you know, numbers that I can share with you that have, you know, any kind of validity. It's not like, you know, sort of a collection of little self-reported stuff. I think it is notably performing better than what they're used to. That's that. Between DVT and PE, I think we're seeing a real mix. I think for people who are using it, I mean, many are using it in both. The doctors are reacting equally good or equally favorably in both of those.
There's not a at all clear difference between, "Oh, well, I like it, but only for this versus that." If you are responding to it, and again, the vast majority are, who are using it's for both DVT and PE. On the Thunderbolt question, really hard, as I've said a couple times, to quantify enrollment for you. Stroke enrollment, I've done lots of stroke trials. I've been involved with them over the years. It goes in fits and starts. You know, you might go four days without a case, and then you'll have five cases in two days. That kind of thing, that's the nature of a stroke trial. That's not different in a stroke trial. As I've said, it's, we're in good shape, on track.
Again, cautiously, we've, you know, made sure we aren't counting on this product, in which we don't control the timing of the trial, for any revenue in 2023. From that standpoint, I think, you know, everyone can rest assured that, we're in pretty good shape and aren't out on a limb on that topic.
Thank you so much.
Yeah, of course. Thank you. Good questions.
Thanks, Shagun.
Now we'll take a question from Matt O'Brien of Piper Sandler.
Hey, Matt.
Hi, this is Sam on for Matt.
Hi.
our question. I guess for first, I was wondering if you could provide any more information or any color on surgeon training for Lightning Flash and any feedback you've gotten from physicians, there.
Sure. surgeon training, or, you know, interventional training, you know, whichever the specialty is. physician training, it's slightly different depending on if the physician has used one of our Lightnings in the past. You know, if they have, the setup is very similar. If they haven't, you know, we just have to do an in-service and get their lab, you know, squared away. But again, we've been doing that for a while, it's relatively straightforward. The only real difference for people who've used Lightning, either seven or 12 or versus Lightning Flash is there is the algorithm's different, and the feedback is different. There is, and it's a lot more powerful.
There's some just basic, you know, training around how to think about that and how to read what the visual cues are on the lights and the sounds. Again, not different than anything we've done in the past and certainly not providing any form of sort of barrier for adoption. And it can be done pretty simply, you know, by our field team.
Great. Thank you. I guess just a little finer point on that. Would you be able to tell us how many have previously used Lightning and how many have not previously?
Really hard to know that number. You know, there, we don't certainly look at that and track that. You know, I can tell you we certainly have had, you know, a number of our current customers want to switch over. Obviously, that shouldn't surprise anyone. What has been really nice to see is, you know, folks that for years and years have said, "I need a bigger catheter," are now very, very much, you know, responding to Flash. As we all know, what they wanted is a much more powerful system than maybe Lightning 12 provided, and now they have it. It's...
For people who haven't been using us, the reaction and the response has been really, really heartening to see that, you know, what we did is, you know, we made and gave the product that everyone wanted. You know? What everyone's been asking for, we've really given them. you know, that's sort of what we're supposed to be doing. we're pretty excited about that.
Thanks so much.
Thank you. Thank you.
Now we will go to Lei Huang of Wells Fargo.
Hey, Lei.
Hi.
Hey.
It's Lei calling in for Larry Biegelsen. Can you hear me?
Yep. Yeah. Hey, Lei.
Hi. Thanks for taking my questions. I wanna go back to gross margin. You talked about gross margin expansion of 100-200 basis points this year, and it sounds like most of that is coming in second half of the year. Can you just give a little more color in terms of what gets better between first half and second half, to drive that margin expansion? As part of that, can you talk about, how you're thinking about China VBP and how that's reflected in that outlook? Then I have a follow-up.
Okay. Yeah, no, thanks for the questions. Two factors here. As we continue to increase, proportionally, thrombectomy volume versus embolization, you're gonna see continued product mix impact to our growth margin. That is one factor why second half will be stronger than the first half. Also in the first half where our operation team is mainly focusing on meeting demand for these new product launches, so their priority focus right now is not on achieving optimal level of yield performance and labor efficiency. We can continue to see those improvement continue on in the second half of the year.
Yeah. Lei, I'll take the question on China. We've been really happy with the bounce back really from the broader healthcare perspective in China. As you know, in the latter part of 2022, namely November and December, many hospitals were shut down or doing relatively lower levels of procedures relative to what they typically do just because of the pandemic. The doctors in China seem to be really bouncing back, working overtime, trying to help their patients. And that is a very positive thing. As you know, we have a very strong partnership with Genesis, really in the early stages of that from a long-term perspective. We feel good about China writ large, including what we have in our forecast with respect to the volume-based pricing that you mentioned.
Got it. Now my second question, just bigger picture. Penumbra is known for, you know, the technology improvement and iterations over years. As you think about your new AI orchestrated technology, how does that change the way you approach device iteration going forward and your competitive mode? Thanks again for the question.
Well, there's two parts to that question. One is how does it change our innovation or, you know, ability to, you know, do things? The answer is it doesn't. It doesn't. We're gonna keep working on this. You know, what we have now with Flash is amazing. You know, can we make it better? You know, I don't know. We haven't done enough cases, you know, in a month and a half to really say where the improvement is. That hasn't been obvious, you know, which is a positive for us. I'm sure there will be things that we can continue to tweak. We will always do that. Our R&D team over the years has proven that they're so good at doing that.
What I said on the call, and I really mean this, we now for the first time really can see into the moment where getting clot out is so routine. We're not there yet, but we can see it. The innovation will take us from where we are to that point, which is a much shorter journey than the journey that took us all these years to get to this point. That's, you know, very heartening, having spent a long time doing this. The competitive mode part, you know, I hate to sort of talk about our products that way, you know, because what we do is focus obviously on innovation and the patients. It's not about other companies and what they do.
Obviously, you know, we have IP around this whole mechanism and the way it works. Obviously, you know, we expect people will honor that IP, and if they don't, we'll, you know, have a conversation about it. We're not. That's a different type of dynamic than we've ever had before, where people can, you know, copy and do things and have. I don't think it will slow down our drive to get these products, you know, tuned perfectly. That being said, it's, you know, as I said, it's the dawning of a great new era. It's fun. Thanks, Lei. Thank you.
Now we'll take a question from Bill Plovanic of Canaccord.
Great. Thanks. Good evening. Thanks for taking my questions. First question is on Lightning Flash rollout. I was wondering if you could just help us understand, you know, when did you transition from LMR to full market launch? When you do that, going to full market launch, do you initially start with your own customers, or do you make it more broad-based? How do we think about that scale up over time? Then with the VAC process, what does the time look like to get through the VAC at the hospitals these days to where you're really, you're getting them trial it, but it, how long does it take to get through and kinda get on the shelves into daily use?
Yeah. Let me try to attack all those questions. The first is, you know, we went through our evaluation phase relatively quickly given the performance of this product. I think at, you know, the large conference in early January, we announced that we were already through that. We have been in sort of the launch mode for about a month and a couple of weeks now. That being said, what does that look like? You know, every launch can be different. Different companies do different things. On this launch, you know, we are basically just trying to get through all the order process. You know, anyone who wants it is starting the process in their hospitals to buy it.
Some of those can be very quick, and we can satisfy some of those orders, for whatever reason, that the hospital wants it or the physician is able to push it through within a matter of, you know, a week or two or three. Others take much longer, you know, and some can take several months to go through that process. So there's a wide range. What is happening now is we're just going through that process, you know. Anyone, again, who wants it is starting that process with us. Some are being satisfied, you know, pretty quickly, and others will take, you know, more time.
We can't really quantify that obviously, but needless to say, that is what the team is doing, you know, in addition to, you know, obviously being there for their first cases and getting the folks reoriented to algorithms of this particular product. Again, we're in really good shape. As I said, it's been one of the most exciting times that I've ever had, and this will be our most successful launch. I say that with Lightning Bolt coming right behind it. I hope I get to say it again soon. It's a lot of fun, so thanks for the question, Bill.
When you launched, you launched your existing customers first or is it a little broader?
Oh, yeah. Yeah, no, we don't, we don't discriminate. We're happy to have all customers. And what I've said, it, you know, which is kind of a really unique aspect of this is we're getting, you know, approached by people who typically aren't using Lightning at a pretty large scale to try to use it and buy it. Again, they have to go through the process and go through value analysis committees and so on. That is the level of sort of discussion and interest around this has made that a lot more fun, obviously. It's just a matter of going through the process and doing it all right so that, you know, we're following all the hospital's rules and getting it in the right way.
On Lightning Bolt, if I could, you know, you're in LMR or the eval right now. I think the comments were that you'll go into kind of full market launch exiting March. Given that you've already kind of put Flash through, which is that similar technology, does that allow you to kinda accelerate the VAC process and the order process, or is it the same kind of steps you gotta roll through when that hits, you know, goes full market? Thank you.
Yeah.
That's my question.
Yeah. It's a really, actually great question. I don't think you get any bonus, if you will, for saying, "Hey, now we wanna do it again. You know, thanks for doing all this work, and now we wanna do it again." I don't think that helps us. I do think there will be, you know, obviously, once that launch happens, the ability to potentially combine them, but we won't see that until, you know, into April, you know, timeframe and beyond. For the next month, it's really gonna be still Flash, as I've said, and we'll sort of make sure Lightning Bolt goes through the early cases and, you know, all that stuff. Yeah, once we get into the second quarter, I think you can combine these as one process through the value analysis committee. Might make it more efficient.
Thank you.
Yeah. Thank you.
With that does conclude today's question-and-answer session. Ms. Hamlyn-Harris, I'd like to turn the call back to you for additional closing comments.
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 first quarter call.
This does conclude today's conference call. You may now disconnect.