Penumbra Inc: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2024.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations, but these words are not the exclusive means for identifying such statements. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results and timing expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

References herein to “we,” “us,” “our,” the “Company,” and “Penumbra,” refer to Penumbra, Inc. and its consolidated subsidiaries unless expressly indicated or the context requires otherwise.

Penumbra, the world’s leading thrombectomy company, is focused on developing the most innovative technologies for challenging medical conditions such as ischemic stroke, venous thromboembolism such as pulmonary embolism, and acute limb ischemia. Our broad portfolio, which includes computer assisted vacuum thrombectomy (CAVT), centers on removing blood clots from head-to-toe with speed, safety and simplicity. Our team focuses on developing, manufacturing and marketing novel products for use by specialist physicians and healthcare providers to drive improved clinical and health outcomes. We believe that the cost-effectiveness of our products is attractive to our customers.

Since our founding in 2004, we have invested heavily in our product development and commercial expansion that has established the foundation of our global organization. We have successfully developed, obtained regulatory clearance or approval for, and introduced products into the thrombectomy market since 2007, access market since 2008, embolization market since 2011, and neurosurgical market since 2014, and operated in the immersive healthcare market from 2020 until September 2024.

We expect to continue to develop and build our portfolio of products, including our thrombectomy, embolization and access technologies, while iterating on our currently available products. Generally, when we introduce a next generation product or a new product designed to replace a current product, sales of the earlier generation product or the product replaced decline. Our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products.

During the nine months ended September 30, 2024, we made the strategic decision to explore alternative avenues for our Immersive Healthcare business, and as a result we recorded an impairment charge of $110.3 million related to our Immersive Healthcare asset group. Refer to Note “4. Impairment and Restructuring Costs of Immersive Healthcare Asset Group” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details. During the three months ended September 30, 2024, we permanently ceased sales of our Immersive Healthcare products and related commercial operations.

To address the challenging and significant clinical needs of our key markets, we have developed products that fall into the following broad product families:

Our thrombectomy products fall into two broad product families:

• Peripheral thrombectomy - INDIGO System, including Lightning, Bolt and CAT RX, designed for continuous or modulated aspiration, computer assisted vacuum thrombectomy, including aspiration catheters, microprocessor-controlled software algorithms that orchestrate the interaction of our pump and catheters, separators, aspiration pump and accessories, including delivery catheters used in peripheral thrombectomy procedures
• Neuro thrombectomy - Penumbra System, including Penumbra RED, JET, ACE, BMX, and MAX catheters and the 3D Revascularization Device, Penumbra ENGINE and other components and accessories

Our embolization and access products fall into four broad product families:

• Peripheral embolization - RUBY Coil System, Ruby LP, LANTERN Delivery Microcatheter and the POD System (POD and POD Packing Coil)
• Neuro embolization - Penumbra SMART COIL, Penumbra Coil 400, POD400, PAC400 and SwiftPAC Coil
• Access - delivery catheters, consisting of Neuron, Neuron MAX Select, BENCHMARK, BMX, DDC, PX SLIM, SENDit and MidWay
• Neurosurgical - Artemis Neuro Evacuation Device

By pioneering these innovations, we support healthcare providers, hospitals and clinics in more than 100 countries, working to improve patient outcomes and quality of life. In the nine months ended September 30, 2024 and 2023, 25.6% and 28.5% of our revenue, respectively, was generated from customers located outside of the United States. Our sales outside of the United States are denominated principally in the euro, with some sales being denominated in other currencies. As a result, we have foreign exchange exposure but do not currently engage in hedging.

We generated revenue of $879.1 million and $773.8 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $105.3 million. We generated a loss from operations of $33.5 million and income from operations of $38.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Factors Affecting Our Performance

There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:

• The rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth.
• Our industry is intensely competitive and, in particular, we compete with a number of large, well-capitalized companies. We must continue to successfully compete in light of our competitors’ existing and future products and their resources to successfully market to the specialist physicians who use our products.
• We must continue to successfully introduce new products that gain acceptance with specialist physicians and other healthcare providers and successfully transition from existing products to new products, ensuring adequate supply. In addition, as we introduce new products and expand our production capacity, we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales, which may cause quarterly fluctuations in our operating results and financial condition.
• Publications of clinical results by us, our competitors and other third parties can have a significant influence on whether, and the degree to which, our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition.
• The specialist physicians who use our interventional products may not perform procedures during certain times of the year, such as those periods when they are at major medical conferences or are away from their practices for other reasons, the timing of which occurs irregularly during the year and from year to year.
• Most of our sales outside of the United States are denominated in the local currency of the country in which we sell our products. As a result, our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates.
• The availability and levels of reimbursement within the relevant healthcare payment system for healthcare providers for procedures in which our products are used.

In addition, we have experienced and expect to continue to experience meaningful variability in our quarterly revenue, gross profit and gross margin percentage as a result of a number of factors, including, but not limited to: the number of available selling days, which can be impacted by holidays; the mix of products sold; the geographic mix of where products are sold; the demand for our products and the products of our competitors; the timing of or failure to obtain regulatory approvals or clearances for products; increased competition; the timing of customer orders; inventory or other asset write-offs or write-downs; costs, benefits and timing of new product introductions; costs, benefits and timing of the acquisition and integration of businesses and product lines we may acquire; the availability and cost of components and raw materials; and fluctuations in foreign currency exchange rates. We may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth. Additionally, we may experience quarters in which operating expenses, in particular research and development expenses, fluctuate depending on the stage and timing of product development.

Components of Results of Operations

Revenue. We sell our interventional products directly to hospitals and other healthcare providers and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets: thrombectomy and embolization and access. We sell our products through purchase orders, and we do not have long term purchase commitments from our customers. Revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer, but is deferred for certain transactions when control has not yet transferred. With respect to products that we consign to hospitals, which primarily consist of coils, we recognize revenue at the time hospitals utilize products in a procedure. Revenue also includes shipping and handling costs that we charge to customers.

Cost of Revenue. Cost of revenue consists primarily of the cost of raw materials and components, personnel costs, including stock-based compensation, inbound freight charges, receiving costs, inspection and testing costs, warehousing costs, royalty expense, shipping and handling costs, and other labor and overhead costs incurred in the manufacturing of products. We manufacture substantially all of our products in our manufacturing facilities in Alameda and Roseville, California.

Operating Expenses

Research and Development (“R&D”). R&D expenses primarily consist of product development, clinical and regulatory expenses, materials, depreciation and other costs associated with the development of our products. R&D expenses also include salaries, benefits and other related costs, including stock-based compensation, for personnel and consultants. We expense R&D costs as they are incurred.

Sales, General and Administrative (“SG&A”). SG&A expenses primarily consist of salaries, benefits and other related costs, including stock-based compensation, for personnel and consultants engaged in sales, marketing, finance, legal, compliance, administrative, facilities and information technology and human resource activities. Our SG&A expenses also include marketing trials, medical education, training, commissions, generally based on sales, to direct sales representatives, amortization of acquired intangible assets and acquisition-related costs.

Income Taxes

We are taxed at the rates applicable within each jurisdiction in which we operate. The composite income tax rate, tax provisions, deferred tax assets (“DTAs”) and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and deferred tax liabilities and the potential valuation allowance recorded against our net DTAs. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not that the future realization of all or some of the DTAs will not be achieved.

Results of Operations

The following table sets forth the components of our condensed consolidated statements of operations in dollars and as a percentage of revenue for the periods presented:

(in thousands, except for percentages)

(in thousands, except for percentages)

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Certain changes in presentation were made to the Company’s revenues disaggregated by product categories for the period ended September 30, 2023 to conform to the presentation for the period ended September 30, 2024. During the year ended December 31, 2023, the Company made changes to its product categories to provide investors with more meaningful information to understand the performance of its business and strategic direction.

Revenue

(in thousands, except for percentages)

Revenue increased $30.1 million, or 11.1%, to $301.0 million in the three months ended September 30, 2024, from $270.9 million in the three months ended September 30, 2023. Overall revenue growth was primarily due to an increase in sales of our existing thrombectomy products.

Revenue from our global thrombectomy products increased $25.1 million, or 14.0%, to $204.1 million in the three months ended September 30, 2024, from $179.1 million in the three months ended September 30, 2023. The increase in our global thrombectomy products was primarily attributable to higher sales volume in the United States as a result of further market penetration of our existing products. Sales of our U.S. thrombectomy products increased by 21.2% in the three months ended September 30, 2024. Prices for our thrombectomy products remained substantially unchanged during the period.

Revenue from our global embolization and access products increased $5.0 million, or 5.5%, to $96.9 million in the three months ended September 30, 2024, from $91.9 million in the three months ended September 30, 2023. The increase in our global embolization and access products was primarily driven by sales of our U.S. embolization and access products, which increased by 5.3% in the three months ended September 30, 2024. Prices for our embolization and access products remained substantially unchanged during the period.

Revenue by Geographic Area

The following table presents revenue by geographic area, based on our customers’ shipping destinations, for the three months ended September 30, 2024 and 2023:

(in thousands, except for percentages)

Revenue from product sales in international markets decreased $1.4 million, or 1.9%, to $74.7 million in the three months ended September 30, 2024, from $76.1 million in the three months ended September 30, 2023. Revenue from international sales represented 24.8% and 28.1% of our total revenue for the three months ended September 30, 2024 and 2023, respectively.

Gross Margin

(in thousands, except for percentages)

Gross margin increased by 0.9 percentage points to 66.5% in the three months ended September 30, 2024, from 65.6% in the three months ended September 30, 2023. Gross margin is impacted by product mix, regional mix, and production initiatives to support demand and create future efficiencies. As such, with favorable product mix, improvement in productivity, and by leveraging our fixed costs on higher volume of new product sales during the year, our gross margin may be positively impacted in the future. Our manufacturing team will focus on ramping up our volume, while driving our productivity and efficiency for our new product launches expected in the fourth quarter.

Research and Development (“R&D”)

(in thousands, except for percentages)

R&D expenses increased by $4.2 million, or 20.3%, to $25.2 million in the three months ended September 30, 2024, from $21.0 million in the three months ended September 30, 2023. The increase was primarily due to $2.6 million of one-time expenses in connection with the wind down of the Immersive Healthcare business and a $0.8 million increase in personnel-related expenses.

As a result of the wind down of the Immersive Healthcare business, we expect to create R&D expense savings of approximately $17.0 million per year moving forward. We have continued to make investments, and plan to continue to make investments, in the development of our products. As part of our ongoing investment in the development of our products, we may incur additional expenses related to research and development milestones. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

Sales, General and Administrative (“SG&A”)

(in thousands, except for percentages)

SG&A expenses increased by $13.8 million, or 11.0%, to $139.7 million in the three months ended September 30, 2024, from $125.9 million in the three months ended September 30, 2023. The increase was primarily due to a $6.9 million increase in personnel-related expenses driven by an increase in headcount and related expenses to support our growth, $2.3 million of one-time expenses in connection with the wind down of the Immersive Healthcare business, a $2.1 million increase in other professional services, and a $1.9 million increase in costs related to marketing events. This was partially offset by a $2.4 million decrease in amortization expense of finite lived intangible assets acquired in connection with the Sixense acquisition due to the impairment of long-lived assets associated with the Immersive Healthcare business in the second quarter of 2024.

As a result of the wind down of the Immersive Healthcare business, we expect to create SG&A expense savings of approximately $23.0 million per year moving forward. As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees in critical roles that support our strategic initiatives. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments to support the business.

Acquired In-Process Research and Development

(in thousands, except for percentages)

There were no acquired IPR&D charges during the three months ended September 30, 2024. During the third quarter of the prior year, we recorded an $18.2 million acquired IPR&D charge in connection with an asset acquisition. Refer to Note “6. Asset Acquisition” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.

Provision for income taxes

(in thousands, except for percentages)

Our provision for income taxes was $10.3 million for the three months ended September 30, 2024, which was primarily due to tax expenses attributable to our worldwide profits. Our provision for income taxes was $4.1 million for the three months ended September 30, 2023, which was primarily due to tax expenses attributable to our worldwide profits and a discrete tax charge resulting from the non-deductible IPR&D charge associated with an asset acquisition, offset by excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction.

Our effective tax rate decreased to 25.8% for the three months ended September 30, 2024, from 30.7% for the three months ended September 30, 2023, primarily due to tax expense associated with the non-deductible acquired in-process research and development expenses in 2023.

Prospectively, our effective tax rate will likely be driven by (1) permanent differences in taxable income for tax and financial reporting purposes, (2) tax expense or benefit attributable to our worldwide financial result, and (3) discrete tax adjustments such as excess tax benefits or deficiencies related to stock-based compensation. Our income tax provision is subject to volatility as the amount of excess tax benefits or deficiencies can fluctuate from period to period based on the price of our stock, the volume of share-based grants settled or vested, and the fair value assigned to equity awards under U.S. GAAP. In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could result in fluctuations in our effective tax rate.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

Revenue

(in thousands, except for percentages)

Revenue increased $105.3 million, or 13.6%, to $879.1 million in the nine months ended September 30, 2024, from $773.8 million in the nine months ended September 30, 2023. Overall revenue growth was primarily due to an increase in sales of our new and existing thrombectomy products.

Revenue from our global thrombectomy products increased $108.8 million, or 22.4%, to $595.3 million in the nine months ended September 30, 2024, from $486.6 million in the nine months ended September 30, 2023. The increase in our global thrombectomy products was primarily attributable to higher sales volume in the United States as a result of further market penetration of our existing products. Sales of our U.S. thrombectomy products increased by 26.6% in the nine months ended September 30, 2024. Prices for our thrombectomy products remained substantially unchanged during the period.

Revenue from our global embolization and access products decreased $3.5 million, or 1.2%, to $283.8 million in the nine months ended September 30, 2024, from $287.3 million in the nine months ended September 30, 2023. The decrease in our global embolization and access products was primarily driven by our international embolization and access products, which decreased by 6.0% in the nine months ended September 30, 2024, partially offset by a 1.4% increase in sales of our U.S. embolization and access products. Prices for our embolization and access products remained substantially unchanged during the period.

Revenue by Geographic Area

The following table presents revenue by geographic area, based on our customer’s shipping destination, for the nine months ended September 30, 2024 and 2023:

(in thousands, except for percentages)

Revenue from sales in international markets increased $4.6 million, or 2.1%, to $224.9 million in the nine months ended September 30, 2024, from $220.4 million in the nine months ended September 30, 2023. Revenue from international sales represented 25.6% and 28.5% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively.

Gross Margin

(in thousands, except for percentages)

Gross margin was 61.9% in the nine months ended September 30, 2024, including a one-time $33.4 million inventory impairment charge to cost of revenue in connection with the impairment of our Immersive Healthcare asset group (refer to Note “4. Impairment and Restructuring Costs of Immersive Healthcare Asset Group” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details), which compares to 64.1% in the nine months ended September 30, 2023. The impact of the one-time $33.4 million charge decreased our gross margin by 3.8 percentage points in the nine months ended September 30, 2024. Gross margin is impacted by product mix, regional mix, and production initiatives to support demand and create future efficiencies. As such, with favorable product mix, improvement in productivity, and by leveraging our fixed costs on higher volume of new product sales during the year, our gross margin may be positively impacted in the future. Our manufacturing team will focus on ramping up our volume, while driving our productivity and efficiency for our new product launches expected in the fourth quarter.

Research and Development (“R&D”)

(in thousands, except for percentages)

R&D expenses increased by $12.3 million, or 19.7%, to $74.8 million in the nine months ended September 30, 2024, from $62.5 million in the nine months ended September 30, 2023. The increase was primarily due to a $4.0 million increase in personnel-related expenses, a $2.9 million increase in product development and testing costs, and $2.6 million in one-time expenses in connection with the wind down of the Immersive Healthcare business.

As a result of the wind down of the Immersive Healthcare business, we expect to create R&D expense savings of approximately $17.0 million per year moving forward. We have continued to make investments, and plan to continue to make investments, in the development of our products. As part of our ongoing investment in the development of our products, we may incur additional expenses related to research and development milestones. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

Sales, General and Administrative (SG&A)

(in thousands, except for percentages)

SG&A expenses increased by $49.6 million, or 13.2%, to $426.1 million in the nine months ended September 30, 2024, from $376.4 million in the nine months ended September 30, 2023. The increase was primarily due to a $20.6 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth, a $8.0 million increase in costs related to marketing events, and a $7.6 million increase in other professional services.

As a result of the wind down of the Immersive Healthcare business, we expect to create SG&A expense savings of approximately $23.0 million per year moving forward. As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees in critical roles that support our strategic initiatives. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments to support the business.

Acquired In-Process Research and Development

(in thousands, except for percentages)

There were no acquired IPR&D charges during the nine months ended September 30, 2024. During the third quarter of the prior year, we recorded an $18.2 million acquired IPR&D charge in connection with an asset acquisition. Refer to Note “6. Asset Acquisition” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.

Impairment Charge

(in thousands, except for percentages)

During the nine months ended September 30, 2024, we recorded a $76.9 million impairment charge which was comprised of $58.9 million in finite lived intangible assets and $18.0 million in property and equipment, respectively, in connection with the impairment of our Immersive Healthcare asset group. See Note “4. Impairment and Restructuring Costs of Immersive Healthcare Asset Group” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

(Benefit from) provision for income taxes

(in thousands, except for percentages)

Our benefit from income taxes was $3.8 million for the nine months ended September 30, 2024, which was primarily due to a discrete tax benefit attributable to the impairment charge related to our Immersive Healthcare asset group, partially offset by tax expenses attributable to our worldwide profits. Our provision for income taxes was $4.8 million for the nine months ended September 30, 2023, which was primarily due to tax expenses attributable to our worldwide profits and a discrete tax charge resulting from the non-deductible IPR&D charge associated with an asset acquisition, offset by excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction.

Our effective tax rate increased to 16.2% for the nine months ended September 30, 2024 from 11.5% for the nine months ended September 30, 2023, primarily due to decrease in excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction in 2024.

Prospectively, our effective tax rate will likely be driven by (1) permanent differences in taxable income for tax and financial reporting purposes, (2) tax expense or benefit attributable to our worldwide financial results, and (3) discrete tax adjustments such as excess tax benefits or deficiencies related to stock-based compensation. Our income tax provision can be volatile as the amount of excess tax benefits or deficiencies can fluctuate from period to period due to the price of our stock, the volume of share-based grants exercised or vested, and the fair value assigned to equity awards under U.S. GAAP. In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could result in fluctuations in our effective tax rate.

Liquidity and Capital Resources

As of September 30, 2024, we had $738.6 million in working capital, which included $280.5 million in cash and cash equivalents and $10.5 million in marketable investments. As of September 30, 2024, we held approximately 8.8% of our cash and cash equivalents in foreign entities.

We believe our current sources of liquidity will be sufficient to meet our liquidity requirements for at least the next 12 months. Our principal liquidity requirements are to fund our operations, expand manufacturing operations which includes, but is not limited to, maintaining sufficient levels of inventory to meet the anticipated demand of our customers, fund research and development activities and fund our capital expenditures. We may also lease or purchase additional facilities to facilitate our growth. We expect to continue to make investments as we launch new products, expand our manufacturing operations and information technology infrastructures and further expand into international markets. We may, however, require or elect to secure additional financing as we continue to execute our business strategy. If we require or elect to raise additional funds, we may do so through equity or debt financing, which may not be available on favorable terms, could result in dilution to our stockholders, and could require us to agree to covenants that limit our operating flexibility.

Share Repurchase Program

On August 5, 2024, the Company’s Board of Directors approved a share repurchase authorization in the amount of up to $200.0 million, allowing the Company to repurchase its common stock from time to time at such prices as it deems appropriate through open market purchases, block transactions, privately negotiated transactions, including accelerated share repurchase transactions, or otherwise. The repurchase authorization expires on July 31, 2025. Under this authorization, the Company entered into an accelerated share repurchase agreement (“ASR”) with JPMorgan Chase Bank, National Association to repurchase $100.0 million of the Company’s common stock during the three months ended September 30, 2024. During the three months ended September 30, 2024, the Company repurchased an aggregate of 517,763 shares under the ASR at an aggregate cost of $100.4 million, including legal and financial advisor fees of $0.4 million associated with the repurchase. As of September 30, 2024, the Company had remaining authority to purchase $100.0 million of its common stock under the share repurchase authorization. See Note “11. Share Repurchase Program” to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Issuer Purchases of Equity Securities” in Part II, Item 2 of this Quarterly Report on Form 10-Q for more information.

The following table summarizes our cash and cash equivalents, marketable investments and selected working capital data as of September 30, 2024 and December 31, 2023:

(in thousands)

(1) Working capital consists of total current assets less total current liabilities.

The following table sets forth, for the periods indicated, our beginning balance of cash and cash equivalents, net cash flows provided by (used in) operating, investing and financing activities and our ending balance of cash and cash equivalents:

(in thousands)

Net Cash Provided By Operating Activities

Net cash provided by operating activities consists primarily of net income adjusted for certain non-cash items (including depreciation and amortization, stock-based compensation expense, acquired in-process research and development, impairment charge, inventory write-offs and write-downs, changes in deferred tax balances, and the effect of changes in working capital and other activities).

Net cash provided by operating activities was $117.4 million during the nine months ended September 30, 2024 and consisted of consolidated net loss of $19.7 million and non-cash items of $151.7 million, offset by net changes in operating assets and liabilities of $14.7 million. The change in operating assets and liabilities primarily relates to an increase in inventories of $46.0 million to support our growth and an increase in accounts payable of $6.0 million, due to timing of payments. This was partially offset by a decrease in accounts receivable of $23.4 million due to timing of invoicing and collections, a decrease in prepaid expenses and other current and non-current assets of $1.7 million, and a decrease in accrued expenses and other non-current liabilities of $0.2 million due to timing of payments.

Net cash provided by operating activities was $61.1 million during the nine months ended September 30, 2023 and consisted of consolidated net income of $36.7 million and non-cash items of $86.0 million, offset by net changes in operating assets and liabilities of $61.7 million. The change in operating assets and liabilities primarily relates to an increase in inventories of $46.5 million to support our growth, an increase in accounts receivable of $6.6 million due to timing of invoicing and collections, and an increase in prepaid expenses and other current and non-current assets of $10.3 million. This was partially offset by an increase in accounts payable of $2.1 million due to timing of payments.

Net Cash Provided By (Used In) Investing Activities

Net cash provided by (used in) investing activities relates primarily to purchases of marketable and non-marketable investments, capital expenditures and payments in connection with asset acquisitions, partially offset by proceeds from maturities of marketable investments.

Net cash provided by investing activities was $88.6 million during the nine months ended September 30, 2024 and primarily consisted of $112.8 million in proceeds from maturities of marketable investments, net of purchases, partially offset by purchases of capital expenditures of $15.8 million and non-marketable investments of $10.0 million.

Net cash used in investing activities was $40.4 million during the nine months ended September 30, 2023 and primarily consisted of $27.3 million in purchases of marketable investments, net of proceeds from maturities, capital expenditures of $11.6 million and $1.0 million in payments in connection with an asset acquisition.

Net Cash (Used In) Provided By Financing Activities

Net cash (used in) provided by financing activities primarily relates to repurchases of our common stock and payments towards the reduction of our finance lease obligations, partially offset by proceeds from exercises of stock options and issuances of common stock under our employee stock purchase plan.

Net cash used in financing activities was $93.1 million during the nine months ended September 30, 2024 and primarily consisted of repurchases of common stock of $100.4 million, including legal and financial advisor fees, and $1.7 million in payments towards finance leases, partially offset by proceeds from the issuance of common stock under our employee stock purchase plan of $8.9 million.

Net cash provided by financing activities was $10.3 million during the nine months ended September 30, 2023 and primarily consisted of proceeds from the issuance of common stock under our employee stock purchase plan of $8.4 million and proceeds from exercises of stock options of $4.7 million, partially offset by $1.5 million in payments towards finance leases and $1.1 million of payments of employee taxes related to vested restricted stock units.

Contractual Obligations and Commitments

There have been no other material changes to our contractual obligations and commitments as of September 30, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

Critical Accounting Policies and Estimates

We have prepared our financial statements in accordance with U.S. GAAP. Our preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Standards

For information with respect to recently issued accounting standards and the impact of these standards on our consolidated financial statements, refer to Note “2. Summary of Significant Accounting Policies” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We are exposed to various market risks, which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk with respect to our cash and cash equivalents and/or our marketable investments.

Interest Rate Risk. We had cash and cash equivalents of $280.5 million as of September 30, 2024, which consisted of funds held in money market funds, U.S. treasury securities, and general checking and savings accounts. In addition, we had marketable investments of $10.5 million, which consisted primarily of U.S. treasury securities and commercial paper. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than the U.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. A hypothetical 100 basis point change in interest rates would not have a material impact on the value of our cash and cash equivalents or marketable investments.

Foreign Exchange Risk Management. We operate in countries other than the United States, and, therefore, we are exposed to foreign currency risks. We bill most sales outside of the United States in local currencies, primarily in euros, with some sales being denominated in other currencies. When sales or expenses are not denominated in U.S. dollars, a fluctuation in exchange rates could affect our net income. We do not believe our net income would be materially impacted by an immediate 10% adverse change in foreign exchange rates. We do not currently hedge our exposure to foreign currency exchange rate fluctuations; however, we may choose to hedge our exposure in the future.

While our gross margin for the nine months ended September 30, 2024 was primarily impacted by product mix, regional mix, and production initiatives to support demand and create future efficiencies, changes in prices did not have a significant impact on our results of operations for any periods presented on our consolidated financial statements.

Evaluation of Disclosure Controls and Procedures

An evaluation as of September 30, 2024 was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarterly period ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

There have been no material changes to our risk factors reported in, or new risk factors identified since the filing of, our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 22, 2024.