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Penumbra Inc - Quarter Report: 2017 March (Form 10-Q)

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____ to _____         
Commission File Number: 001-37557
 
Penumbra, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
05-0605598
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
One Penumbra Place
Alameda, CA
 
94502
(Address of principal executive offices)
 
(Zip code)

(510) 748-3200
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes: x    No:  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes:  x    No:  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company,” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
x
 
Accelerated Filer
o
 
 
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting Company)
Smaller Reporting Company
o
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes:  o  No:  x
As of April 14, 2017, the registrant had 33,627,160 shares of common stock, par value $0.001 per share, outstanding.
 


Table of Contents

Penumbra, Inc.
FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


2

Table of Contents

Penumbra, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)
 
 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
109,383

 
$
13,236

Marketable investments
 
122,256

 
115,517

Accounts receivable, net of doubtful accounts of $829 and $684 at March 31, 2017 and December 31, 2016, respectively
 
45,278

 
43,335

Inventories
 
79,187

 
73,012

Prepaid expenses and other current assets
 
14,554

 
18,727

Restricted cash
 
1,704

 

Total current assets
 
372,362

 
263,827

Property and equipment, net
 
22,905

 
21,464

Deferred taxes
 
22,486

 
22,476

Other non-current assets
 
612

 
487

Total assets
 
$
418,365

 
$
308,254

Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
4,973

 
$
4,110

Accrued liabilities
 
33,591

 
31,690

Total current liabilities
 
38,564

 
35,800

Deferred rent
 
5,501

 
5,083

Other non-current liabilities
 
828

 
824

Total liabilities
 
44,893

 
41,707

Commitments and contingencies (Note 5)
 


 


Stockholders’ equity:
 
 
 
 
Common stock
 
33

 
31

Additional paid-in capital
 
383,132

 
273,865

Accumulated other comprehensive loss
 
(3,926
)
 
(4,688
)
Accumulated deficit
 
(5,767
)
 
(2,661
)
Total stockholders’ equity
 
373,472

 
266,547

Total liabilities and stockholders’ equity
 
$
418,365

 
$
308,254

See accompanying notes to the unaudited condensed consolidated financial statements

3

Table of Contents

Penumbra, Inc.
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(unaudited)
(in thousands, except share and per share amounts)
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Revenue
 
$
73,213

 
$
57,919

Cost of revenue
 
25,504

 
18,014

Gross profit
 
47,709

 
39,905

Operating expenses:
 
 
 
 
Research and development
 
7,034

 
5,001

Sales, general and administrative
 
42,721

 
33,069

Total operating expenses
 
49,755

 
38,070

(Loss) Income from operations
 
(2,046
)
 
1,835

Interest income, net
 
644

 
510

Other expense, net
 
(349
)
 
(224
)
(Loss) Income before provision for (benefit from) income taxes
 
(1,751
)
 
2,121

Provision for (benefit from) income taxes
 
1,355

 
(170
)
Net (loss) income
 
(3,106
)
 
2,291

Foreign currency translation adjustments, net of tax
 
692

 
1,048

Unrealized gains on available-for-sale securities, net of tax
 
70

 
281

Comprehensive (loss) income
 
$
(2,344
)
 
$
3,620

Net (loss) income
 
$
(3,106
)
 
$
2,291

Net (loss) income per share
—Basic
 
$
(0.10
)
 
$
0.08

—Diluted
 
$
(0.10
)
 
$
0.07

Weighted average shares used to compute net (loss) income per share
—Basic
 
31,611,841

 
29,990,006

—Diluted
 
31,611,841

 
33,023,495

See accompanying notes to the unaudited condensed consolidated financial statements

4

Table of Contents

Penumbra, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
 
Three Months Ended March 31,
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net (loss) income
 
$
(3,106
)
 
$
2,291

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 

 

Depreciation and amortization
 
654

 
538

Amortization of premium on marketable investments
 
299

 
189

Stock-based compensation
 
4,012

 
3,015

Provision for doubtful accounts
 
145

 
11

Inventory write downs
 
256

 
317

Loss on disposal of property and equipment
 

 
11

Realized (gain) loss on marketable investments
 
(31
)
 

Deferred taxes
 
(1
)
 
1,329

Changes in operating assets and liabilities:
 

 

Accounts receivable
 
(1,880
)
 
(1,343
)
Inventories
 
(6,057
)
 
(9,083
)
Prepaid expenses and other current and non-current assets
 
2,248

 
(4,759
)
 Accounts payable
 
889

 
1,350

Accrued expenses and other non-current liabilities
 
4,766

 
4,060

Net cash provided by (used in) operating activities
 
2,194

 
(2,074
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchase of marketable investments
 
(44,777
)
 
(9,531
)
Proceeds from sales of marketable investments
 
22,975

 
500

Proceeds from maturities of marketable investments
 
15,020

 
11,750

Purchases of property and equipment
 
(3,194
)
 
(1,115
)
Change in restricted cash
 
(1,686
)
 

Net cash (used in) provided by investing activities
 
(11,662
)
 
1,604

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from issuance of common stock, net of issuance cost
 
106,563

 

Proceeds from exercises of stock options
 
1,050

 
129

Payment of employee taxes related to vested restricted stock
 
(2,089
)
 
(1,642
)
Net cash provided by (used in) financing activities
 
105,524

 
(1,513
)
Effect of foreign exchange rate changes on cash and cash equivalents
 
91

 
42

Net Increase (Decrease) In Cash And Cash Equivalents
 
96,147

 
(1,941
)
CASH AND CASH EQUIVALENTS—Beginning of period
 
13,236

 
19,547

CASH AND CASH EQUIVALENTS—End of period
 
$
109,383

 
$
17,606

NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
 
Purchase of property and equipment funded through accounts payable and accrued liabilities
 
$
339

 
$
334

Issuance cost not yet paid
 
$
295

 
$

See accompanying notes to the unaudited condensed consolidated financial statements

5

Table of Contents

Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
Penumbra, Inc. (the “Company”) is a global healthcare company focused on interventional therapies. The Company designs, develops, manufactures and markets innovative devices and has a broad portfolio of products that addresses challenging medical conditions and significant clinical needs across two major markets, neuro and peripheral vascular. The conditions that the Company’s products address include, among others, ischemic stroke, hemorrhagic stroke and various peripheral vascular conditions that can be treated through thrombectomy and embolization procedures.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated balance sheet as of March 31, 2017, the condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2017 and 2016, and the condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016 are unaudited. The unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of December 31, 2016 was derived from the audited financial statements as of that date.
 The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly the Company’s financial position as of March 31, 2017, the results of its operations for the three months ended March 31, 2017 and 2016, and the cash flows for the three months ended March 31, 2017 and 2016. The results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or for any other future annual or interim period. Certain changes in presentation were made in the condensed consolidated financial statements for the three months ended March 31, 2016, to conform to the presentation for the three months ended March 31, 2017.
The Company elected to early adopt Accounting Standards Update (ASU) 2016-09 in the fourth quarter of 2016 which requires the Company to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The impact of adoption was the creation of deferred tax assets in the balance sheet and recognition of excess tax benefits in our provision for (benefit from) income taxes rather than paid-in capital for all periods in fiscal year 2016. The Company's adoption of ASU 2016-09 resulted in the recognition of excess tax benefits in the Company's benefit from income taxes rather than paid-in capital of $1.5 million for the three months ended March 31, 2016. In addition, the Company elected to apply the presentation requirements for cash flows related to excess tax benefits retrospectively to all periods presented.

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Table of Contents
Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Adoption of the new standard resulted in adjustments to our 2016 unaudited selected financial data previously reported in our Quarterly Report on Form 10-Q as follows:
 
March 31, 2016
(In thousands)
As Reported
As Adjusted
Condensed Consolidated Balance Sheet Data:
 
 
Additional Paid-in-Capital
$
255,499

$
253,988

Accumulated deficit
$
(16,695
)
$
(15,184
)
Total stockholder' equity
$
238,048

$
238,048

 
 
 
 
Three Months Ended March 31, 2016
(In thousands, except percentage and per share amounts)
As Reported
As Adjusted
Condensed Consolidated Statements of Operations Data:
 
 
Provision for (benefit from) income taxes
$
1,341

$
(170
)
Net income
$
780

$
2,291

Net income per share
—Basic
$
0.03

$
0.08

—Diluted
$
0.02

$
0.07

Weighted average shares used to compute net income (loss) per share attributable to common stockholders
—Basic
29,990,006

29,990,006

—Diluted
32,486,516

33,023,495

 
 
 
 
Three Months Ended March 31, 2016
(In thousands)
As Reported
As Adjusted
Condensed Consolidated Statement of Cash Flow Data:
 
 
Net cash (used in) operating activities
$
(3,584
)
$
(2,074
)
Net cash (used in) financing activities
$
(3
)
$
(1,513
)
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016 included in the Companys Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies during the three months ended March 31, 2017, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity accounts; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to marketable investments, provisions for doubtful accounts, sales return reserve, warranty reserves, valuation of inventories, useful lives of property and equipment, income taxes, and contingencies, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other data. Actual results could differ from those estimates.
Segments
The Company determined its operating segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity: the design, development, manufacturing and marketing of innovative medical devices, and operates as one operating segment. The Company’s chief operating decision-maker, its Chief Executive Officer, reviews its operating results for the purpose of allocating resources and evaluating financial performance. The Company determines revenue by geographic area, based on the destination to which it ships its products.

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Table of Contents
Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Recent Accounting Guidance
Recently Adopted Accounting Standards
In July 2015, the Financial Accounting Standards Board (FASB”) issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which requires an entity to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. In January 2017, the Company adopted the standard on a prospective basis and the adoption did not have a material impact on its financial position.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which outlines a comprehensive new revenue recognition model designed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with CustomersPrincipal versus Agent Considerations (Reporting Revenue Gross versus Net), which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with CustomersIdentifying Performance Obligations and Licensing, which further clarifies the implementation guidance relating to identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with CustomersNarrow-Scope improvements and Practical Expedients, which further clarifies the implementation on narrow scope improvements and practical expedients. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606Revenue from Contracts with Customers, which makes minor corrections or minor improvements to the Codification related to ASU No. 2014-09 that are not expected to have a significant effect on the Companys current accounting practice. These standards will be effective for the Company in the first quarter of 2018 pursuant to ASU No. 2015-14, Revenue from Contracts with Customers-Deferral of the Effective Date, issued by the FASB in August 2015. The Company is currently evaluating the financial statement impact of adopting these new standards as well as the transition method for implementation. The Company will be impacted by the new standard regarding the timing of its fulfillment of delivery criterion.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which amends the existing accounting standards for leases. Under the new guidance, a lessee will be required to recognize a lease liability and right-of-use asset for all leases with terms in excess of twelve months. The new guidance also modifies the classification criteria and accounting for sales-type and direct financing leases, and requires additional disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. Consistent with current guidance, a lessee’s recognition, measurement, and presentation of expenses and cash flows arising from a lease will continue to depend primarily on its classification. The accounting standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and must be applied using a modified retrospective approach. Early adoption is permitted. While the Company is continuing to assess all potential impacts of the standard, it expects that most of its lease commitments will be subject to the updated standard and recognized as lease liabilities and right-of-use assets upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses. The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The Company will recognize an allowance for credit losses on available-for-sale securities rather than deductions in amortized cost. The standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for all periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this standard.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, a consensus of the FASB Emerging Issues Task Force. The standard requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling the total beginning and end of period amounts shown on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The Company does not expect the adoption of ASU 2016-18 to have a material impact on its consolidated financial statements.

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Table of Contents
Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

3. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The Company classifies its cash equivalents and marketable investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs.
The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.
Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.
The Company did not own any Level 3 financial assets or liabilities as of March 31, 2017 or December 31, 2016.
During the three months ended March 31, 2017 and 2016, the Company did not record impairment charges related to its marketable investments, and the Company did not have any transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy.
The Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2017 or December 31, 2016.

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Table of Contents
Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy (in thousands):
 
 
As of March 31, 2017
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Commercial Paper
 
$

 
$
21,769

 
$

 
$
21,769

Money market funds
 
55,608

 

 

 
55,608

U.S. States and Municipalities
 

 
5,000

 

 
5,000

Corporate bonds
 

 
4,000

 

 
4,000

Marketable investments:
 
 
 
 
 
 
 
 
Commercial paper
 

 
13,610

 

 
13,610

U.S. Treasury
 
9,003

 


 

 
9,003

U.S. agency securities
 

 
6,837

 

 
6,837

U.S. states and municipalities
 

 
12,678

 

 
12,678

Corporate bonds
 

 
78,926

 

 
78,926

Non-U.S. government debt securities
 

 
1,202

 

 
1,202

Total
 
$
64,611

 
$
144,022


$


$
208,633

 
 
As of December 31, 2016
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
873

 
$

 
$

 
$
873

Marketable investments:
 
 
 
 
 
 
 
 
Commercial paper
 

 
4,238

 

 
4,238

U.S. Treasury
 
4,996

 

 

 
4,996

U.S. agency securities
 

 
8,794

 

 
8,794

U.S. states and municipalities
 

 
27,355

 

 
27,355

Corporate bonds
 

 
68,925

 

 
68,925

Non-U.S. government debt securities
 

 
1,209

 

 
1,209

Total
 
$
5,869

 
$
110,521

 
$

 
$
116,390

4. Balance Sheet Components
Cash and Cash Equivalents
The majority of the Company’s cash is held by one financial institution in the United States in an amount that exceeds federally insured limits. The Company maintained investments that were not federally insured in the form of money market funds during the periods presented. The Company also held cash in foreign banks of approximately $3.5 million and $2.1 million at March 31, 2017 and December 31, 2016, respectively, which was not federally insured. The Company has not experienced any losses on its deposits of cash and cash equivalents.
Restricted Cash
The Company had restricted cash of $1.7 million at March 31, 2017 and no restricted cash at December 31, 2016. The restricted cash is held in one of the Company’s foreign banks and has a temporary restriction pending final incorporation of an international subsidiary. The Company anticipates the restriction to be lifted before the end of the year.

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Table of Contents
Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Accounts Receivable, Net
The Company’s allowance for doubtful accounts comprised of the following (in thousands):
Allowance for Doubtful Accounts
 
March 31,
2017
 
December 31,
2016
Balance at the beginning of the period
 
$
684

 
$
589

Charged to costs and expenses
 
145

 
216

Deductions
 

 
(121
)
Balance at the end of the period
 
$
829

 
$
684

One customer (a distributor) accounted for 10% and 11% of the Company’s revenue during the three months ended March 31, 2017 and 2016, respectively. No customer accounted for greater than 10% of the Company’s accounts receivable balance as of March 31, 2017 or December 31, 2016.
Prepaid Expenses and Other Current Assets
The Company’s prepaid expenses and other current assets as of March 31, 2017 and December 31, 2016 were comprised of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Prepaid Tax
 
$
1,887

 
$
4,656

Prepaid expenses
 
4,871

 
4,573

Income tax receivable
 
4,587

 
4,536

Other current assets
 
3,209

 
4,962

Prepaid expenses and other current assets
 
$
14,554

 
$
18,727


 Marketable Investments
The Company’s marketable investments as of March 31, 2017 and December 31, 2016 were as follows (in thousands):
 
 
March 31, 2017
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Commercial paper
 
$
13,610

 
$
1

 
$
(1
)
 
$
13,610

U.S. Treasury
 
9,002

 
4

 
(3
)
 
9,003

U.S. agency securities
 
6,847

 

 
(10
)
 
6,837

U.S. states and municipalities
 
12,687

 
2

 
(11
)
 
12,678

Corporate bonds
 
79,004

 
30

 
(108
)
 
78,926

Non-U.S. government debt securities
 
1,202

 

 


 
1,202

Total
 
$
122,352

 
$
37

 
$
(133
)
 
$
122,256


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Table of Contents
Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

 
 
December 31, 2016
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Commercial paper
 
$
4,237

 
$
1

 
$

 
$
4,238

U.S. Treasury
 
4,996

 

 

 
4,996

U.S. agency securities
 
8,803

 
3

 
(12
)
 
8,794

U.S. states and municipalities
 
27,429

 
1

 
(75
)
 
27,355

Corporate bonds
 
69,009

 
36

 
(120
)
 
68,925

Non-U.S. government debt securities
 
1,209

 

 

 
1,209

Total
 
$
115,683

 
$
41

 
$
(207
)
 
$
115,517

The following tables present the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than twelve months as of March 31, 2017 and December 31, 2016 (in thousands):
 
 
March 31, 2017
 
 
Fair Value
 
Gross Unrealized Losses
Commercial paper
 
$
7,977

 
$
(1
)
US Treasury
 
4,994

 
(3
)
US Agency securities
 
4,892

 
(10
)
U.S. States and Municipalities
 
9,947

 
(11
)
Corporate bonds
 
43,741

 
(108
)
Total
 
$
71,551

 
$
(133
)
 
 
December 31, 2016
 
 
Fair Value
 
Gross Unrealized Losses
U.S. agency securities
 
$
3,291

 
$
(12
)
U.S. states and municipalities
 
22,286

 
(75
)
Corporate bonds
 
29,748

 
(120
)
Total
 
$
55,325

 
$
(207
)
As of March 31, 2017 and December 31, 2016, there were no securities that had been in a loss position for more than twelve months.
The contractual maturities of the Company’s marketable investments as of March 31, 2017 and December 31, 2016 were as follows (in thousands):
 
March 31,
2017
 
December 31, 2016
 
Fair Value
Due in one year
$
105,348

 
$
71,051

Due in one to five years
16,908

 
44,466

Total
$
122,256

 
$
115,517

 
Inventories
Inventories are stated at the lower of cost (determined under the first-in first-out method) or market. Inventory quantities are reviewed in consideration of actual loss experience, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

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Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

The components of inventories as of March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Raw materials
 
$
9,910

 
$
11,367

Work in process
 
4,420

 
3,663

Finished goods
 
64,857

 
57,982

Inventories
 
$
79,187

 
$
73,012

Property and Equipment, Net
Property and equipment, net as of March 31, 2017 and December 31, 2016 consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Machinery and equipment
 
$
10,457

 
$
9,734

Furniture and fixtures
 
4,598

 
4,246

Leasehold improvements
 
10,291

 
10,207

Software
 
1,641

 
1,221

Computers
 
1,118

 
884

Construction in progress
 
2,453

 
2,193

Total property and equipment
 
30,558

 
28,485

Less: Accumulated depreciation and amortization
 
(7,653
)
 
(7,021
)
Property and equipment, net
 
$
22,905

 
$
21,464

Depreciation and amortization expense was $0.7 million and $0.5 million for the three months ended March 31, 2017 and 2016, respectively.
Accrued Liabilities
The following table shows the components of accrued liabilities as of March 31, 2017 and December 31, 2016 (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Payroll and employee-related cost
 
$
19,223

 
$
16,956

Sales return reserve
 
2,940

 
2,753

Preclinical and clinical trial cost
 
1,877

 
2,054

Deferred revenue
 
357

 
344

Product warranty
 
1,087

 
1,254

Sales tax and VAT payable
 
548

 
733

Income tax payable
 
354

 
174

Other accrued liabilities
 
7,205

 
7,422

Total accrued liabilities
 
$
33,591

 
$
31,690

The estimated product warranty accrual as of March 31, 2017 and December 31, 2016 was as follows (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Balance at the beginning of the period
 
$
1,254

 
$
713

Accruals of warranties issued
 
39

 
1,176

Settlements of warranty claims
 
(206
)
 
(635
)
Balance at the end of the period
 
$
1,087

 
$
1,254


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Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

5. Commitments and Contingencies
Lease Commitments
The Company leases its offices under non-cancelable operating leases that expire at various dates from 2029 to 2031. Rent expense for non-cancelable operating leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Rent expense for the three months ended March 31, 2017 and 2016 was $1.4 million and $1.1 million, respectively. In addition, the Company's lease commitments also require it to make additional payments during the lease term for taxes, insurance and other operating expenses. The Company leases its other equipment under non-cancelable operating leases that expire at various dates through 2021.
Royalty Obligations
In March 2005, the Company entered into a license agreement that requires the Company to make minimum royalty payments to the licensor on a quarterly basis. As of both March 31, 2017 and December 31, 2016, the license agreement required minimum annual royalty payments of $0.1 million in equal quarterly installments. On each January 1, the quarterly calendar year minimum royalty will be adjusted to equal the prior year’s minimum royalty adjusted by a percentage equal to the percentage change in the “consumer price index for all urban consumers” for the prior calendar year as reported by the U.S. Department of Labor. Unless terminated earlier, the term of the license agreement will continue until the expiration of the last to expire patent that covers that licensed product or 2022, whichever is longer.
In April 2012, the Company entered into an agreement that requires the Company to pay, on a quarterly basis, a 5% royalty on sales of products covered under applicable patents. Unless the agreement is terminated earlier, the royalty term for each applicable product will continue until the expirations of the applicable patent covering such product or 2029, whichever is longer.
In November 2013, the Company entered into an agreement that requires the Company to pay, on a quarterly basis, a 3% royalty on the first $5 million in sales and a 1% royalty on sales thereafter of products covered under applicable patents. Unless the agreement is terminated earlier, the royalty for each covered product shall continue until 2030.
In April 2015, the Company entered into a royalty agreement that requires the Company to pay, on a quarterly basis, a 2% royalty on sales of certain products covered by the agreement. Unless the royalty agreement is terminated earlier, the royalty term for each covered product shall continue until 2035.
Royalty expense included in cost of sales for the three months ended March 31, 2017 and 2016 was $0.8 million and $0.7 million, respectively.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
Indemnification
The Company enters into standard indemnification arrangements in the ordinary course of business. In many such arrangements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The Company also agrees to indemnify many purchasers for product defect and similar claims. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual.
The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with any of these indemnification requirements has been recorded to date.

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Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Litigation
The Company was contacted in 2015 by the attorney for a potential product liability claimant who allegedly suffered injuries as a result of an aneurysm procedure in which the Penumbra Coil 400 was used. On February 19, 2016, a complaint for damages was filed on behalf of this claimant against Penumbra and the hospital involved in the procedure (Montgomery v. Penumbra, Inc., et al., Case No. 16-2-04050-1 SEA, Superior Court of the State of Washington, King County). The suit alleges liability primarily under the Washington Product Liability Act and seeks both compensatory and punitive damages without a specific damages claim. Counsel for the claimant previously indicated that he expects that a jury could award $35 million in damages were this matter to go to trial. This amount is substantially in excess of the Company’s insurance coverage. The hospital defendant had requested indemnification from the Company but was dismissed from the case in July 2016. The case is in the discovery phase, and the Company is unable to assess the merits of the plaintiff’s case. The Company intends to vigorously defend the litigation, as the Company believes there will be substantial questions regarding causation, liability and damages.
From time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
6. Stockholder's Equity
Common Stock
In March 2017, the Company issued and sold an aggregate of 1,495,000 shares of common stock at a public offering price of $76.00 per share, less the underwriters’ discounts and commissions, pursuant to an underwritten public offering. The Company received approximately $106.3 million in net cash proceeds after deducting underwriting discounts and commissions of $6.8 million and other offering expenses of $0.5 million.
Equity Incentive Plans
Stock Options
Activity of stock options under the Penumbra, Inc. 2005 Stock Plan, the Penumbra, Inc. 2011 Equity Incentive Plan and the Amended and Restated Penumbra, Inc. 2014 Equity Incentive Plan (collectively the “Plans”) during the three months ended March 31, 2017 is set forth below:
 
 
Number
of Shares
 
Weighted-
Average
Exercise
Price
Balance at December 31, 2016
 
2,876,955

 
$
14.63

Options exercised
 
(383,457
)
 
2.73

Options canceled
 
(969
)
 
10.56

Balance at March 31, 2017
 
2,492,529

 
16.47

 
Restricted Stock and Restricted Stock Units
The following table summarizes the activity of unvested restricted stock and restricted stock units under the Plans during the three months ended March 31, 2017 is set forth below: 
 
 
Number
of Shares
 
Weighted Average
Grant Date
Fair Value
Unvested at December 31, 2016
 
1,002,944

 
$
29.44

Granted
 
58,660

 
76.47

Vested
 
(115,685
)
 
15.63

Canceled/Forfeited
 
(18,125
)
 
41.31

Unvested and expected to vest at March 31, 2017
 
927,794

 
25.84


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Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

Stock-based Compensation
The following table sets forth the stock-based compensation expense included in the Company's condensed consolidated statements of operations and comprehensive (loss) income for the three months ended March 31, 2017 and 2016 (in thousands):
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Cost of sales
 
$
309

 
$
9

Research and development
 
253

 
258

Sales, general and administrative
 
3,450

 
2,748

Total
 
$
4,012

 
$
3,015

As of March 31, 2017, total unrecognized compensation cost was $34.6 million related to unvested share-based compensation arrangements which is expected to be recognized over a weighted average period of 2.7 years.
The total stock-based compensation cost capitalized in inventory was $0.4 million and $0.4 million as of March 31, 2017 and December 31, 2016, respectively.
7. Accumulated Other Comprehensive (Loss) Income
Other comprehensive income consists of two components: unrealized gains or losses on the Company’s available-for-sale marketable investments, and gains or losses from foreign currency translation adjustments. Until realized and reported as a component of net income, these comprehensive income items accumulate and are included within accumulated other comprehensive (loss) income. Unrealized gains and losses on the Company’s marketable investments are reclassified from accumulated other comprehensive (loss) income into earnings when realized upon sale, and are determined based on specific identification of securities sold. Gains and losses from the translation of assets and liabilities denominated in non-U.S. dollar functional currencies are included in accumulated other comprehensive (loss) income.
The following table summarizes the changes in the accumulated balances during the three months ended March 31, 2017 and 2016, and includes information regarding the manner in which the reclassifications out of accumulated other comprehensive (loss) income into earnings affect the Company’s condensed consolidated statements of operations and comprehensive (loss) income (in thousands):
 
 
Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2016
 
 
 Marketable
Investments
 
 Currency Translation
Adjustments
 
 Total
 
 Marketable
Investments
 
 Currency Translation
Adjustments
 
 Total
Balance at beginning of the period
 
$
(105
)
 
$
(4,583
)
 
$
(4,688
)
 
$
(163
)
 
$
(1,952
)
 
$
(2,115
)
Other comprehensive income before reclassifications:
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains —marketable investments
 
101

 

 
101

 
441

 

 
441

Foreign currency translation gains
 

 
692

 
692

 

 
1,043

 
1,043

Income tax effect—benefit (expense)
 

 

 

 
(160
)
 
5

 
(155
)
Net of tax
 
101

 
692

 
793

 
281

 
1,048

 
1,329

Amounts reclassified from accumulated other comprehensive income to earnings:
 
 
 
 
 
 
 
 
 
 
 
 
Realized losses (gains)—marketable investments
 
(31
)
 

 
(31
)
 

 

 

Income tax effect—(expense) benefit
 

 

 

 

 

 

Net of tax
 
(31
)
 

 
(31
)
 

 

 

Net current-year other comprehensive income
 
70

 
692

 
762

 
281

 
1,048

 
1,329

Balance at end of the period
 
$
(35
)
 
$
(3,891
)
 
$
(3,926
)
 
$
118

 
$
(904
)
 
$
(786
)
8. Income Taxes
The Company’s income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in both the United States and foreign jurisdictions. Significant judgment and estimates are required in determining the consolidated income tax expense.

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Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

During interim periods, the Company generally utilizes the estimated annual effective tax rate method which involves the use of forecasted information. Under this method, the provision is calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The Company’s effective tax rate decreased to (77.4%) for the three months ended March 31, 2017, compared to (8.0%) for the three months ended March 31, 2016, which includes the retroactive adoption of ASU 2016-09. The decrease in rate was primarily attributable to recording a partial valuation allowance against the deferred tax assets (“DTAs”) as of March 31, 2017 and the year-to-date tax impact from recognizing the deferred tax assets associated with intra-entity asset transfers.
As of March 31, 2017, the Company determined there were significant DTAs that needed to be assessed if the DTAs were more likely than not to be realized. Significant DTAs were created in the year ended December 31, 2016 and three month ended March 31, 2017, driven by stock option exercises and vesting of restricted stock and the excess tax benefits resulting from the application of ASU 2016-09. The Company assessed its ability to realize the net DTAs by evaluating all available positive and negative evidence, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax losses, (3) estimates of future taxable income, and (4) the length of NOLs carryforward periods. The Company would be in a 3-year cumulative taxable income position, had it not been for the impact of a $74.9 million excess tax deduction of stock based compensation under ASU 2016-09. Additionally, the Company considered the length of NOL carryforward periods and an objectively verifiable estimate of future income based on operating results from the Company’s recent history, as well as an estimate of future income that incorporates the Company's forecasted operating results for fiscal 2017. The Company believes that the recent period operating losses are attributable to operating expenses incurred to invest in the future growth of the business. Due to the significant amount of additional stock based compensation excess tax deduction generated, the Company determined that the negative evidence outweighed the positive evidence and that it is not more-likely-than-not that sufficient taxable income will be generated to realize all of the DTAs as of March 31, 2017. As such, a partial valuation allowance was recorded against the Company’s domestic DTAs as of March 31, 2017 in the amount of $9.8 million, which was approximately the same amount as the stock based compensation excess tax benefits created during the three months ended March 31, 2017. The Company will continue to closely monitor the need for an additional valuation allowance against its domestic DTAs that are generated in each subsequent reporting period which can be impacted by actual operating results compared to the Company's forecast.
Consistent with prior periods, the Company maintained a full valuation allowance against its California and Canada DTAs as of March 31, 2017.
9. Net (Loss) Income per Share
The Company’s basic net income per share is calculated by dividing the net income by the weighted average number of shares of common stock outstanding for the period. The diluted net (loss) income per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock and common stock warrants are considered common stock equivalents.
A reconciliation of the numerator and denominator used in the calculation of the basic and diluted net (loss) income per share for the three months ended March 31, 2017 and 2016 is as follows (in thousands, except share and per share amounts):
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Net (loss) income per share:
 
 
 
 
Numerator
 
 
 
 
Net (loss) income—basic and diluted
 
$
(3,106
)
 
$
2,291

Denominator
 
 
 
 
Weighted average shares used to compute net (loss) income
—Basic
 
31,611,841

 
29,990,006

Potential dilutive stock-based awards, as calculated using treasury stock method
 

 
3,033,489

Weighted average shares used to compute net income
—Diluted
 
31,611,841

 
33,023,495

Net (loss) income per share
—Basic
 
$
(0.10
)
 
$
0.08

—Diluted
 
$
(0.10
)
 
$
0.07


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Penumbra, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

For the three months ended March 31, 2017 and 2016, outstanding stock-based awards of 3.5 million and 12,500 shares, respectively, were excluded from the computation of diluted net income per share because their effect would have been anti-dilutive.
10. Geographic Areas and Product Sales
The Company’s revenue by geographic area, based on the destination to which the Company ships its products, for the three months ended March 31, 2017 and 2016 was as follows (in thousands):
 
 
Three Months Ended March 31,
 
 
2017
 
2016
United States
 
$
48,487

 
$
39,412

Japan
 
7,642

 
6,161

Other International
 
17,084

 
12,346

Total
 
$
73,213

 
$
57,919

The following table sets forth revenue by product category, for the three months ended March 31, 2017 and 2016 was as follows (in thousands):
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Neuro
 
$
50,249

 
$
41,284

Peripheral Vascular
 
22,964

 
16,635

Total
 
$
73,213

 
$
57,919

The Company does not have significant long-lived assets outside the United States.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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, 2016, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 28, 2017.
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. 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 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” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2016. 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
Penumbra (“we,” “our,” “us,” “Penumbra,” and the “Company”) is a global healthcare company focused on interventional therapies. We design, develop, manufacture and market innovative devices and have a broad portfolio of products that addresses challenging medical conditions and significant clinical needs across two major markets, neuro and peripheral vascular. The conditions that our products address include, among others, ischemic stroke, hemorrhagic stroke and various peripheral vascular conditions that can be treated through thrombectomy and embolization procedures.
Our team focuses on developing, manufacturing and marketing products for use by specialist physicians, including interventional neuroradiologists, neurosurgeons, interventional neurologists, interventional radiologists and vascular surgeons. We design our products to provide these specialist physicians with a means to drive improved clinical outcomes.
Since our founding in 2004, we have invested heavily in our product development capabilities in our two key markets: neuro and peripheral vascular. We launched our first neurovascular product in 2007, our first peripheral vascular product in 2013 and our first neurosurgical product in 2014. To date, we have launched 16 product brands, and we expect to continue to develop and build our portfolio of products based on our thrombectomy, embolization and access technologies. 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.
We manufacture substantially all of our products at our campus in Alameda, California, and stock inventory of raw materials, components and finished goods at that location. We rely on a single or limited number of suppliers for certain raw materials and components, and we generally have no long-term supply arrangements with our suppliers, as we order on a purchase order basis. We ship all of our products to our hospital customers and distributors worldwide pursuant to purchase orders. We typically recognize revenue when products are delivered to our hospital customers or distributors, other than our coils, which we ship to our hospital customers on a consignment basis, and for which we recognize revenue when the hospital customers utilize products in a procedure.
Hospitals purchase our products for use in procedures performed by their specialist physicians, generally seeking reimbursement from third party payors for procedures performed. We believe that the cost-effectiveness of our products is attractive to our hospital customers.
In the three months ended March 31, 2017 and 2016, 33.8% and 32.0% 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 and Japanese yen, with some sales being denominated in other currencies. As a result, we have foreign exchange exposure, but do not currently engage in hedging. In the three months ended March 31, 2017, no single hospital and only one distributor accounted for more than 10% of our sales.
We sell our products to hospitals primarily through our direct sales organization in the United States, most of Europe, Canada and Australia, as well as through distributors in select international markets. We generated revenue of $73.2 million and $57.9 million for the three months ended March 31, 2017 and 2016, respectively. This represents an increase of 26.4%. We

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generated an operating loss of $2.0 million and operating income of $1.8 million for the three months ended March 31, 2017 and 2016, 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 successfully transition from existing products to new products, ensuring adequate supply while avoiding excess inventory of older products and resulting inventory write-downs or write-offs. In addition, as we introduce new products, we generally hire and train additional personnel and build our inventory of components and finished goods in advance of sales, which may cause quarterly fluctuations in our 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 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.
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 write-offs and write-downs; costs, benefits and timing of new product introductions; the availability and cost of components and raw materials; and fluctuations in foreign currency exchange rates. We experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth. Additionally, we 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 products directly to hospitals and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets: neuro and peripheral vascular disease. We sell our products through purchase orders, and we do not have long term purchase commitments from our customers. We typically recognize revenue when products are delivered to our hospital customers or distributors. However, 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 facility at our campus in Alameda, 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.
We expect our R&D expenses could continue to increase as we innovate and develop new products, add personnel, engage in ongoing clinical research and expand our information technologies.
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

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marketing trials, medical education, training and commissions, generally based on a percentage of sales, to direct sales representatives.
We expect our SG&A expenses could continue to increase as we expand our marketing programs, information technologies, operations and salesforce.
Income Tax Expense. We are taxed at the rates applicable within each jurisdiction in which we operate. The composite income tax rate, tax provisions, deferred tax assets 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 liabilities and the potential valuation allowance recorded against our net deferred tax assets. 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 deferred tax assets 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:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands, except for percentages)
Revenue
$
73,213

 
100.0
 %
 
$
57,919

 
100.0
 %
Cost of revenue
25,504

 
34.8
 %
 
18,014

 
31.1
 %
Gross profit
47,709

 
65.2
 %
 
39,905

 
68.9
 %
Operating expenses:
 
 
 
 
 
 
 
Research and development
7,034

 
9.6
 %
 
5,001

 
8.6
 %
Sales, general and administrative
42,721

 
58.4
 %
 
33,069

 
57.1
 %
Total operating expenses
49,755

 
68.0
 %
 
38,070

 
65.7
 %
(Loss) Income from operations
(2,046
)
 
(2.8
)%
 
1,835

 
3.2
 %
Interest income, net
644

 
0.9
 %
 
510

 
0.9
 %
Other expense, net
(349
)
 
(0.5
)%
 
(224
)
 
(0.4
)%
(Loss) Income before provision for (benefit from) income taxes
(1,751
)
 
(2.4
)%
 
2,121

 
3.7
 %
Provision for (benefit from) income taxes
1,355

 
1.9
 %
 
(170
)
 
(0.3
)%
Net (loss) income
$
(3,106
)
 
(4.2
)%
 
$
2,291

 
4.0
 %
Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
Revenue
 
Three Months Ended March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(in thousands, except for percentages)
Neuro
$
50,249

 
$
41,284

 
$
8,965

 
21.7
%
Peripheral Vascular
22,964

 
16,635

 
6,329

 
38.0
%
Total
$
73,213

 
$
57,919

 
$
15,294

 
26.4
%
Revenue increased $15.3 million, or 26.4%, to $73.2 million in the three months ended March 31, 2017, from $57.9 million in the three months ended March 31, 2016. Our revenue growth resulted from further market penetration of our existing products and sales of new products or products with new indications. Increased sales within our neuro and peripheral vascular businesses accounted for approximately 60% and 40% of the revenue increase, respectively, in the three months ended March 31, 2017.
Revenue from sales in the United States increased $9.1 million, or 23.0%, to $48.5 million in the three months ended March 31, 2017, from $39.4 million in the three months ended March 31, 2016. Revenue from sales in international markets increased $6.2 million, or 33.6%, to $24.7 million in the three months ended March 31, 2017, from $18.5 million in the three

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months ended March 31, 2016. Revenue from international sales represented 33.8% and 32.0% of our total revenue for the three months ended March 31, 2017 and 2016, respectively.
Revenue from our neuro products increased $9.0 million, or 21.7%, to $50.2 million in the three months ended March 31, 2017, from $41.3 million in the three months ended March 31, 2016. Our neuro product sales experienced strong momentum due to further market penetration and growth in the market for endovascular treatment of stroke. The overall market growth has led to increases in the number of procedures performed by specialist physicians using our products. Increased sales of Penumbra System products accounted for approximately half of the neuro revenue increase in the three months ended March 31, 2017. Further, increased sales of our neuro embolization products accounted for approximately 20% of the neuro revenue increase period over period. This increase was due to greater demand for our neuro coil products, which can fluctuate from period to period due to the number of procedures performed in a given period using our products. Prices for our neuro products remained substantially unchanged during the period.
Revenue from our peripheral vascular products increased $6.3 million, or 38.0%, to $23.0 million in the three months ended March 31, 2017, from $16.6 million in the three months ended March 31, 2016. Our peripheral embolization and peripheral thrombectomy products experienced strong volume growth in the period due to increases in the number of procedures, primarily due to the further market penetration of our products. Increased sales of Indigo System products accounted for approximately 60% of the peripheral vascular revenue increase in the three months ended March 31, 2017. Prices for our peripheral vascular products remained substantially unchanged during the period.
Gross Profit and Gross Margin
 
Three Months Ended March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(in thousands, except for percentages)
Cost of revenue
$
25,504

 
$
18,014

 
$
7,490

 
41.6
%
Gross profit
$
47,709

 
$
39,905

 
$
7,804

 
19.6
%
Gross margin %
65.2
%
 
68.9
%
 
 
 
 
Gross profit increased $7.8 million, or 19.6%, to $47.7 million in the three months ended March 31, 2017, from $39.9 million in the three months ended March 31, 2016. The increase in gross profit was primarily due to an increase in revenue from sales of our neuro and peripheral vascular products.    
Gross margin decreased 3.7 percentage points to 65.2% in the three months ended March 31, 2017, from 68.9% in the three months ended March 31, 2016. The decrease in gross margin was due to new product launches, additional costs associated with hiring new personnel and product and geographic mix.
Research and Development (R&D)
 
Three Months Ended March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(in thousands, except for percentages)
R&D
$
7,034

 
$
5,001

 
$
2,033

 
40.7
%
R&D as a percentage of revenue
9.6
%
 
8.6
%
 
 
 
 
R&D expenses increased by $2.0 million, or 40.7%, to $7.0 million in the three months ended March 31, 2017, from $5.0 million in the three months ended March 31, 2016. The increase was primarily due to a $1.6 million increase in product development, testing and clinical trial costs.
Sales, General and Administrative (SG&A)
 
Three Months Ended March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(in thousands, except for percentages)
SG&A
$
42,721

 
$
33,069

 
$
9,652

 
29.2
%
SG&A as a percentage of revenue
58.4
%
 
57.1
%
 
 
 
 
SG&A expenses increased by $9.7 million, or 29.2%, to $42.7 million in the three months ended March 31, 2017, from $33.1 million in the three months ended March 31, 2016. The increase was primarily due to a $7.2 million increase in personnel-related expenses primarily due to a 55% increase in headcount as a result of additional personnel to support our growth.

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Provision for Income Taxes 
 
Three Months Ended March 31,
 
Change
 
2017
 
2016
 
$
 
%
 
(in thousands, except for percentages)
Provision for (benefit from) income taxes
$
1,355

 
$
(170
)
 
$
1,525

 
(897.1
)%
Effective tax rate
(77.4
)%
 
(8.0
)%
 
 
 
 
Our provision for our income taxes increased $1.5 million, to $1.4 million in the three months ended March 31, 2017, from $(0.2) million of tax benefit in the three months ended March 31, 2016. Our effective tax rate decreased to (77.4)% for the three months ended March 31, 2017, compared to (8.0)% for the three months ended March 31, 2016, which includes the retroactive adoption of ASU 2016-09. The decrease in rate was primarily attributable to exclusion of the US jurisdiction from the overall annual effective tax rate computation as a result of (1) the year-to-date tax impact from recognizing the deferred tax assets associated with intra-entity asset transfers and (2) a partial valuation allowance recorded against our domestic DTAs in the amount of $9.8 million, which was approximately the same amount as the stock based compensation excess tax benefits created during the three months ended March 31, 2017. Prospectively, the effective tax rate will likely be driven by (1) excluding the US jurisdiction from the annual effective tax rate computation due to an additional valuation allowance against domestic deferred tax assets that are generated in subsequent periods, (2) tax expenses associated with foreign operation and (3) recognition of deferred tax assets associated with intra-entity asset transfers.
Liquidity and Capital Resources
As of March 31, 2017, we had $333.8 million in working capital, which included $109.4 million in cash and cash equivalents and $122.3 million in marketable investments.
In March 2017, we issued and sold an aggregate of 1,495,000 shares of our common stock at public offering price of $76.00 per share, less the underwriters’ discounts and commissions, pursuant to an underwritten public offering. The Company received approximately $106.3 million in net cash proceeds after deducting underwriting discounts and commissions of $6.8 million and other offering expenses of $0.5 million. We intend to use the net proceeds from this offering for general corporate purposes, including working capital, continued development of our products, including research and development and clinical trials, potential acquisitions and other business opportunities. Pending the use of the net proceeds from this offering, we intend to invest the net proceeds in investment grade, interest bearing securities.
In addition to our existing cash and cash equivalents and marketable investment balances, our principal source of liquidity is our accounts receivable. We believe these sources will be sufficient to meet our liquidity requirements for at least the next 12 months. Our principal liquidity requirements are to fund our operations, including our research and development, and capital expenditures. To facilitate our growth, we may also lease or purchase additional facilities. We expect to continue to make investments as we launch new products, expand our manufacturing operations 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.
The following table summarizes cash and cash equivalents, marketable investments and selected working capital data as of March 31, 2017 and December 31, 2016:
 
March 31,
2017
 
December 31,
2016
 
(in thousands)
Cash and cash equivalents
$
109,383

 
$
13,236

Marketable investments
122,256

 
115,517

Accounts receivable, net
45,278

 
43,335

Accounts payable
4,973

 
4,110

Accrued liabilities
33,591

 
31,690

Working capital(1)
333,798

 
228,027

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

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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:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Cash and cash equivalents at beginning of period
$
13,236

 
$
19,547

Net cash provided by (used in) operating activities
2,194

 
(2,074
)
Net cash (used in) provided by investing activities
(11,662
)
 
1,604

Net cash provided by (used in) financing activities
105,524

 
(1,513
)
Cash and cash equivalents at end of period
109,383

 
17,606

Net Cash Provided by (Used in) Operating Activities
Net cash provided by (used in) operating activities consists primarily of net income adjusted for certain non-cash items (including depreciation and amortization, inventory write downs, stock-based compensation expense, amortization of premium on marketable investments and provision for doubtful accounts), and the effect of changes in working capital and other activities.
Net cash provided by operating activities was $2.2 million during the three months ended March 31, 2017 and consisted of net loss of $3.1 million, offset by non-cash items of $5.3 million and a minimal net changes in operating assets and liabilities. The change in operating assets and liabilities include the increase in inventories of $6.1 million to support our revenue growth and an increase in accounts receivable of $1.9 million, partially offset by an increase in accrued expenses and other non-current liabilities of $4.8 million, a decrease in prepaid expenses and other current and non-current assets of $2.2 million and an increase in accounts payable of $0.9 million, as a result of the growth in our business activities.
Net cash used in operating activities was $2.1 million during the three months ended March 31, 2016 and consisted of net income of $2.3 million and non-cash items of $5.4 million offset by net changes in operating assets and liabilities of $9.8 million. The change in operating assets and liabilities include the increase in inventories of $9.1 million to support our revenue growth, an increase in prepaid expenses and other current and non-current assets of $4.8 million and an increase in accounts receivable of $1.3 million, partially offset by an increase in accrued expenses and other non-current liabilities of $4.1 million and accounts payable of $1.4 million, as a result of the growth in our business activities.
Net Cash (Used in) Provided by Investing Activities
Net cash (used in) provided by investing activities relates primarily to proceeds from sales or maturities of marketable investments, offset by purchases of marketable investments and capital expenditures.
Net cash used in investing activities was $11.7 million during the three months ended March 31, 2017 and consisted of net purchases from sales and maturities of marketable investments of $6.8 million, capital expenditures of $3.2 million and changes in restricted cash of $1.7 million.
Net cash provided by investing activities was $1.6 million during the three months ended March 31, 2016 and consisted of net proceeds from sales and maturities of marketable investments of $2.7 million, offset by capital expenditures of $1.1 million.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities primarily relates to capital raising activities through equity or debt financing.
Financing activities in the three months ended March 31, 2017 provided net cash of $105.5 million due to proceeds from issuance of common stock net of issuance cost of $106.6 million and proceeds from exercises of stock options of $1.1 million, partially offset by payment of employee taxes related to vested restricted stock of $2.1 million.
Financing activities in the three months ended March 31, 2016 used net cash of $1.5 million due to payment of employee taxes related to vested restricted stock of $1.6 million, offset by proceeds from exercises of stock options of $0.1 million.
Contractual Obligations and Commitments
Our contractual obligations and commitments as of March 31, 2017 have not materially changed from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or any holdings in variable interest entities.

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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, 2016.
Recently Issued Accounting Standards
For information with respect to recently issued accounting standards and the impact of these standards on our consolidated financial statements, see 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.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 $109.4 million as of March 31, 2017, which consisted of funds held in general checking and savings accounts. In addition, we had marketable investments of $122.3 million, which consisted primarily of commercial paper, U.S. Treasury, U.S. agency securities, U.S. states and municipalities, corporate bonds and non-U.S. government debt securities. 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 the Euro and Japanese yen, with some sales being denominated in other currencies. We expect that the percentage of our sales denominated in foreign currencies may increase in the foreseeable future as we continue to expand into international markets. 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.
We do not believe that inflation and changes in prices had a significant impact on our results of operations for any periods presented on our condensed consolidated financial statements.

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ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
An evaluation as of March 31, 2017 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 Rule 13a-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 Securities and Exchange Commission’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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at March 31, 2017.
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 March 31, 2017 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 and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.


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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We were contacted in 2015 by the attorney for a potential product liability claimant who allegedly suffered injuries as a result of an aneurysm procedure in which the Penumbra Coil 400 was used. On February 19, 2016, a complaint for damages was filed on behalf of this claimant against the Company and the hospital involved in the procedure (Montgomery v. Penumbra, Inc., et al., Case No. 16-2-04050-1 SEA, Superior Court of the State of Washington, King County). The suit alleges liability primarily under the Washington Product Liability Act and seeks both compensatory and punitive damages without a specific damages claim. Counsel for the claimant previously indicated that he expects that a jury could award $35 million in damages were this matter to go to trial. This amount is substantially in excess of our insurance coverage. The hospital defendant had requested indemnification from the Company, but was dismissed from the case in July 2016. The case is in the discovery phase, and we are unable to assess the merits of the plaintiff’s case. We intend to vigorously defend the litigation, as we believe there will be substantial questions regarding causation, liability and damages.
From time to time, we are subject to claims and assessments in the ordinary course of business. We are not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
ITEM 1A. RISK FACTORS.
There have been no material changes to our risk factors reported or new factors identified since the filing of our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on February 28, 2017.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(a) Sales of Unregistered Securities
None.
(b) Use of Proceeds from Public Offering of Common Stock
None.
(c) Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURE.
None.
ITEM 5. OTHER INFORMATION.
None.

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ITEM 6. EXHIBITS.
Exhibit Number
 
Description
 
Form
 
File No.
 
Exhibit(s)
 
Filing Date
31.1*
 
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
 
 
 
 
 
 
 
31.2*
 
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
 
 
 
 
 
 
 
 
32.1**
 
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
 
 
 
 
 
 
 
 
101*
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 formatted in Extensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months ended March 31, 2017 and 2016, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016, and (iv) Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
* Filed herewith.    
** Furnished herewith.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
PENUMBRA, INC.
Date: May 9, 2017
 
 
 
By:
/s/ Sri Kosaraju
 
 
Sri Kosaraju
 
 
Chief Financial Officer and Head of Strategy
 
 
(Principal Financial and Accounting Officer)

31