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What changed in Penumbra Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Penumbra Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+373 added−455 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-23)

Top changes in Penumbra Inc's 2023 10-K

373 paragraphs added · 455 removed · 320 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

98 edited+16 added−24 removed124 unchanged
Biggest changeImmersive healthcare technology includes applications for patients recovering from or undergoing rehabilitation related to diseases, injuries, or illnesses, as well as applications designed to address mental well-being and cognition. We generated revenue of $347.7 million, $338.7 million and $292.6 million from our neuro product category for the years ended December 31, 2022, 2021 and 2020, respectively.
Biggest changeTo better align with our strategic priorities, beginning with the three months ended December 31, 2023 we began to classify our end markets based on the type of procedure being performed, and therefore divide our markets into thrombectomy, which includes products that treat conditions such as pulmonary embolism, deep vein thrombosis, acute limb ischemia, ischemic stroke and coronary disease, embolization and access, which include products to treat aneurysms and to occlude vessels as well as products to access the vasculature, and immersive healthcare, which includes applications for patients undergoing rehabilitation related to diseases, injuries, or illnesses, as well as applications designed to address mental well-being and cognition. 5 Table of Contents We generated revenue of $677.3 million, $511.1 million and $437.8 million from our thrombectomy product category for the years ended December 31, 2023, 2022 and 2021, respectively.
Access Products Most endovascular procedures require access to the diseased area using guidewires and catheters. Accessing the brain through the tortuous neurovasculature has been a substantial challenge for physicians treating vascular disorders in the brain. Companies that developed catheters and other products for neurovascular applications historically leveraged technologies developed for use in coronary or peripheral vascular interventions.
Most endovascular procedures require access to the diseased area using guidewires and catheters. Accessing the brain through the tortuous neurovasculature has been a substantial challenge for physicians treating vascular disorders in the brain. Companies that developed catheters and other products for neurovascular applications historically leveraged technologies developed for use in coronary or peripheral vascular interventions.
Our continued success depends on our ability to: • develop innovative, proprietary products that can cost-effectively address significant clinical needs; • continue to innovate and develop scientifically advanced technology; • obtain and maintain regulatory clearances or approvals; • demonstrate safety and efficacy in Penumbra-sponsored and third-party clinical trials and studies; 13 Table of Contents • apply technology across product lines and markets; • attract and retain skilled research and development and sales personnel; and • cost-effectively manufacture and successfully market and sell products.
Our continued success depends on our ability to: • develop innovative, proprietary products that can cost-effectively address significant clinical needs; • continue to innovate and develop scientifically advanced technology; • obtain and maintain regulatory clearances or approvals; • demonstrate safety and efficacy in Penumbra-sponsored and third-party clinical trials and studies; • apply technology across product lines and markets; • attract and retain skilled research and development and sales personnel; and 13 Table of Contents • cost-effectively manufacture and successfully market and sell products.
If FDA determines the device, or its intended use, is not substantially equivalent to a previously cleared device or use, FDA will place the device into Class III, subject to the applicant’s option to submit a De Novo request for FDA to make a risk-based classification of the device into Class I or II.
If FDA determines the device, or its intended use, is not substantially equivalent to a previously cleared device or intended use, FDA will place the device into Class III, subject to the applicant’s option to submit a De Novo request for FDA to make a risk-based classification of the device into Class I or II.
We compete with a number of manufacturers and distributors of neuro and vascular medical devices. Our most notable competitors are Boston Scientific, Inari, Medtronic, Stryker, Terumo, AngioDynamics and several private companies. Most of these competitors are large, well-capitalized companies with longer operating histories and greater resources than we have.
We compete with a number of manufacturers and distributors of neuro and vascular medical devices. Our most notable competitors are Boston Scientific, Inari, Medtronic, Stryker, Terumo and several private companies. Most of these competitors are large, well-capitalized companies with longer operating histories and greater resources than we have.
By regulation, a premarket notification must be submitted to FDA and receive 510(k) clearance from FDA before the device can be marketed in the United States. The Medical Device User Fee Amendments (“MDUFA”) performance goal for a traditional 510(k) clearance is 90 calendar days.
By regulation, a premarket notification must be submitted and receive 510(k) clearance from FDA before the device can be marketed in the United States. The Medical Device User Fee Amendments (“MDUFA”) performance goal for a traditional 510(k) clearance is 90 calendar days.
Immersive Healthcare Platform The REAL Immersive System is a proprietary, immersive 3D computer-based technology platform that has the potential to benefit patients over a broad range of healthcare applications, including rehabilitation, mental well-being and cognition.
Immersive Healthcare Products The REAL Immersive System is a proprietary, immersive 3D computer-based technology platform that has the potential to benefit patients over a broad range of healthcare applications, including rehabilitation, mental well-being and cognition.
Upon completion of the PMA application review, FDA may: (i) approve the PMA which authorizes commercial marketing with specific prescribing information for one or more indications, which can be more limited than those originally sought; (ii) issue an approvable letter which indicates FDA’s belief that the PMA application is approvable and states what additional information FDA requires, or the post-approval commitments that must be agreed to prior to approval; (iii) issue a not approvable letter which outlines steps required for approval, but which are typically more onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming and can delay approval for months 15 Table of Contents or even years; or (iv) deny the PMA application.
Upon completion of the PMA application review, FDA may: (i) approve the PMA which authorizes commercial marketing with specific prescribing information for one or more indications, which can be more limited than those originally sought; (ii) issue an approvable letter which indicates FDA’s belief that the PMA application is approvable and states what additional information FDA requires, or the post-approval commitments that must be agreed to prior to approval; (iii) issue a not approvable letter which outlines steps required for approval, but which are typically more onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming and can delay approval for months or even years; or (iv) deny the PMA application.
The Ruby Coil System is used in a variety of clinical applications, including, but not limited to: • active extravasations, or the escape of blood into surrounding tissue; • selective embolization in patients with visceral aneurysms; • exclusion of branches prior to chemoembolization and radioembolization; • embolization in patients with gastrointestinal bleeding; • embolization of branches prior to stent graft procedures; • procedures after stent grafting in patients with persistent type II endoleaks and sac enlargement; • treatment of patients with varicocele and pelvic congestion syndrome; • high-flow arterial venous malformations; • post trans intrahepatic shunt placement; • balloon retrograde transvenous obliteration; and • exclusion of hepatic branches prior to liver resection.
The Ruby Coil System is used in a variety of clinical applications, including, but not limited to: • active extravasations, or the escape of blood into surrounding tissue; • selective embolization in patients with visceral aneurysms; • exclusion of branches prior to chemoembolization and radioembolization; • embolization in patients with gastrointestinal bleeding; 9 Table of Contents • embolization of branches prior to stent graft procedures; • procedures after stent grafting in patients with persistent type II endoleaks and sac enlargement; • treatment of patients with varicocele and pelvic congestion syndrome; • high-flow arterial venous malformations; • post trans intrahepatic shunt placement; • balloon retrograde transvenous obliteration; and • exclusion of hepatic branches prior to liver resection.
We participate in the Medical Device Single Audit Program (“MDSAP”) which allows for certification and review of compliance to standards and regulations required in the United States, Canada, Brazil, Australia, and Japan by a single auditing organization. We received our first MDSAP certification in 2018 and successfully completed our most recent surveillance audit in 2022.
We participate in the Medical Device Single Audit Program (“MDSAP”) which allows for certification and review of compliance to standards and regulations required in the United States, Canada, Brazil, Australia, and Japan by a single auditing organization. We received our first MDSAP certification in 2018 and successfully completed our most recent surveillance audit in 2023.
Thirty-six of our issued patents, which relate to components of the Penumbra Coil 400, Ruby Coil System and Smart Coil System, are currently expected to expire between 2029 and 2037. Eighteen patents pertaining to the 3D Revascularization Device are projected to expire between 2032 and 2034.
Thirty-seven of our issued patents, which relate to components of the Penumbra Coil 400, Ruby Coil System and Smart Coil System, are currently expected to expire between 2029 and 2037. Eighteen patents pertaining to the 3D Revascularization Device are projected to expire between 2032 and 2034.
Designed specifically for use with aspiration technology, the 3D Revascularization Device is a component of the Penumbra System that offers a technologically-advanced structure designed to treat large vessel occlusion in combination with Penumbra RED, JET 7, ACE, and MAX Reperfusion Catheters. 8 Table of Contents Either Penumbra ENGINE or Penumbra Pump MAX is connected to our reperfusion catheters and provides the aspiration suction force.
Designed specifically for use with aspiration technology, the 3D Revascularization Device is a component of the Penumbra System that offers a technologically-advanced structure designed to treat large vessel occlusion in combination with Penumbra RED, JET 7, ACE, and MAX Reperfusion Catheters. Either Penumbra ENGINE or Penumbra Pump MAX is connected to our reperfusion catheters and provides the aspiration suction force.
Our manufacturing facilities are International Organization for Standardization (“ISO”) 13485 compliant. We received ISO 13485:2016 certification of our Alameda facility in 2018 and successfully completed our most recent surveillance audit in 2022. We received ISO 13485:2016 certification of our Roseville facility in 2020 and successfully completed our most recent surveillance audit in 2022.
Our manufacturing facilities are International Organization for Standardization (“ISO”) 13485 compliant. We received ISO 13485:2016 certification of our Alameda facility in 2018 and successfully completed our most recent surveillance audit in 2023. We received ISO 13485:2016 certification of our Roseville facility in 2020 and successfully completed our most recent surveillance audit in 2023.
Most Class I devices are classified as exempt from premarket notification under Section 510(k) of the FD&C Act, and therefore may be commercially distributed without obtaining 510(k) clearance from FDA. Class II devices are subject to both general controls and special controls to provide reasonable assurance of safety and effectiveness.
Most Class I devices are classified as exempt from premarket notification under Section 510(k) of the FD&C Act, and therefore may be commercially distributed without obtaining 510(k) clearance from FDA. Class II devices are subject to 14 Table of Contents both general controls and special controls to provide reasonable assurance of safety and effectiveness.
In the United States, for significant risk devices, these trials require submission of an application for an Investigational Device Exemption (“IDE”) to FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is scientifically sound.
In the United States, for significant risk devices, these trials require submission of an application for an IDE to FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is scientifically sound.
POD (Penumbra Occlusion Device) System 10 Table of Contents POD addresses a specific need in the peripheral embolization market to rapidly and precisely occlude a target vessel, including in high-flow situations. Our POD device utilizes technology that delivers both variable sizing and variable softness to provide a single device solution for rapid and precise embolization of the target vessel.
POD (Penumbra Occlusion Device) System POD addresses a specific need in the peripheral embolization market to rapidly and precisely occlude a target vessel, including in high-flow situations. Our POD device utilizes technology that delivers both variable sizing and variable softness to provide a single device solution for rapid and precise embolization of the target vessel.
Also, in these circumstances, there may be significant regulatory fines and penalties. Changes to an approved PMA device, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new PMA application or PMA supplement, as appropriate, before the change can be implemented.
Also, in these circumstances, there may be significant regulatory fines and penalties. 16 Table of Contents Changes to an approved PMA device, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new PMA application or PMA supplement, as appropriate, before the change can be implemented.
The Indigo System with the Separator enables a practitioner to remove a wide range of clot morphology from both peripheral and coronary vasculature. • Penumbra ENGINE or Penumbra Pump MAX is connected to our CAT catheters and computer-orchestrated aspiration technology, where applicable, and provides the needed aspiration suction force.
The Indigo System with the Separator enables a practitioner to remove a wide range of clot morphology from both peripheral and coronary vasculature. • Penumbra ENGINE or Penumbra Pump MAX is connected to our CAT catheters and CAVT technology, where applicable, and provides the needed aspiration suction force.
In managing our business, we focus on a number of measures and objectives with respect to the attraction, development and retention of our employees that we believe are important to our business, including diversity, communication, compensation, professional development, and health, well-being and safety: • We are proud to be an equal opportunity employer and to have a diverse employee population and leadership team: for example, as of December 31, 2022, approximately 50% of our employees are female, more than half of our senior management team are female, and approximately 75% of our employee population in the United States are from a 19 Table of Contents minority background.
In managing our business, we focus on a number of measures and objectives with respect to the attraction, development and retention of our employees that we believe are important to our business, including diversity, communication, compensation, professional development, and health, well-being and safety: • We are proud to be an equal opportunity employer and to have a diverse employee population and leadership team: for example, as of December 31, 2023, approximately 50% of our employees are female, more than half of our senior management team are female, and approximately 75% of our employee population in the United States are from a minority background.
Class I devices are deemed to be 14 Table of Contents low risk and are subject to the general controls of the FD&C Act, such as provisions that relate to adulteration; misbranding; registration and listing; notification, including repair, replacement, or refund; records and reports; and good manufacturing practices.
Class I devices are deemed to be low risk and are subject to the general controls of the FD&C Act, such as provisions that relate to adulteration; misbranding; registration and listing; notification, including repair, replacement, or refund; records and reports; and good manufacturing practices.
We strive to foster an atmosphere where employees openly share ideas and where people are treated with dignity and respect. Our goal is to provide a productive working environment based on mutual respect and the highest level of ethical and lawful conduct.
We strive to foster an atmosphere where employees openly share ideas and where people are treated 19 Table of Contents with dignity and respect. Our goal is to provide a productive working environment based on mutual respect and the highest level of ethical and lawful conduct.
The PMA application process is much more demanding than the 510(k) premarket notification process. A PMA is based on a determination by FDA that the PMA application contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s).
The PMA application process is much longer and more involved than the 510(k) premarket notification process. A PMA is based on a determination by FDA that the PMA application contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s).
Various states have adopted laws similar to the federal civil False Claims Act, and many of these state laws are broader in scope and apply to all payors, and therefore, are not limited to only those claims submitted to the federal government. Federal Civil Monetary Penalties Statute .
Various states have 18 Table of Contents adopted laws similar to the federal civil False Claims Act, and many of these state laws are broader in scope and apply to all payors, and therefore, are not limited to only those claims submitted to the federal government. Federal Civil Monetary Penalties Statute .
Our pending patent applications may not result in issued patents and we can give no assurance that any patents that have issued or might issue in the future will protect our current or future products or provide us with any competitive advantage. See the section titled “Risk Factors-Risks Related to Our Intellectual Property” for additional information.
Our pending patent applications may not result in issued patents and we can give no assurance that any patents that have issued or might issue in the future will protect our current or future products or provide us with any competitive advantage. See the section titled “Risk Factors-Risks Related to Our Intellectual Property” in this Form 10-K for additional information.
In addition, we lease approximately 70,000 square feet of warehouse space in Livermore, California, and approximately 100,000 square feet of warehouse space in Salt Lake City, Utah. The leases for the Livermore 20 Table of Contents warehouse spaces expire at various times in 2025 to 2028.
In addition, we lease approximately 70,000 square feet of warehouse space in Livermore, California, and approximately 100,000 square feet of warehouse space in Salt Lake City, Utah. The leases for the Livermore warehouse spaces expire at various times in 2025 to 2028.
Information contained in or accessible through our website is not part of this report. The SEC maintains a website that contains the materials we file with the SEC at www.sec.gov. 21 Table of Contents
Our website address is www.penumbrainc.com. Information contained in or accessible through our website is not part of this report. The SEC maintains a website that contains the materials we file with the SEC at www.sec.gov. 21 Table of Contents
In 2007, our Quality Management System (“QMS”) was first audited to the European Union’s Medical Device Directive in support of product CE marking, and we successfully completed our most recent surveillance audit in 2022.
In 2007, our Quality Management System was first audited to the European Union’s Medical Device Directive in support of product CE marking, and we successfully completed our most recent surveillance audit in 2023.
If FDA disagrees with the determination to not seek a new 510(k) clearance, FDA may retroactively require a 510(k) clearance or possibly a PMA. FDA could also require the manufacturer to cease marketing and 16 Table of Contents distribution and/or recall the modified device until 510(k) clearance or a PMA approval is obtained.
If FDA disagrees with the determination to not seek a new 510(k) clearance, FDA may retroactively require a 510(k) clearance or possibly a PMA. FDA could also require the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or a PMA approval is obtained.
CAT Catheters are available in a wide range of sizes and lengths to address a wide range of vessel sizes and clot locations. • Computer-Orchestrated Aspiration Technology combines our CAT Catheters with microprocessor-controlled software algorithms that orchestrate the interaction of our pump and catheters, enabling physicians to focus on optimizing thrombus removal while helping to mitigate blood loss for arterial and venous applications including the treatment of pulmonary embolism. • Indigo Separators are advanced and retracted through the aspiration catheter at the proximal margin of the primary occlusion to facilitate clearing of the thrombus from the catheter tip.
CAT Catheters are available in a wide range of sizes and lengths to address a wide range of vessel sizes and clot locations. • Computer-Assisted Vacuum Thrombectomy (CAVT) Technology combines our CAT Catheters with microprocessor-controlled software algorithms that orchestrate the interaction of our pump and catheters, enabling physicians to focus on optimizing thrombus removal while helping to mitigate blood loss for arterial and venous applications including the treatment of pulmonary embolism. 8 Table of Contents • Indigo Separators are advanced and retracted through the aspiration catheter at the proximal margin of the primary occlusion to facilitate clearing of the thrombus from the catheter tip.
Failure to address FDA’s concerns may result in the issuance of a warning letter or other enforcement or administrative actions. European Union Our medical devices are regulated in the European Union as medical devices per the European Medical Devices Regulation 2017/745 (“EU MDR”).
Failure to address FDA’s concerns may result in the issuance of a warning letter or other enforcement or administrative actions. European Union Our medical devices are regulated in the European Union as medical devices per the European Medical Devices Regulation 2017/745, as amended by Regulation 2023/607 (“EU MDR”).
We also warehouse and distribute finished products to our international customers utilizing a third-party logistics provider in the Netherlands. Legal Proceedings From time to time, we are subject to claims and assessments in the ordinary course of business.
We also warehouse and distribute finished products to our international customers utilizing third-party logistics providers in the Netherlands and Australia. Legal Proceedings From time to time, we are subject to claims and assessments in the ordinary course of business.
We developed our proprietary aspiration source as a fully-integrated system specifically for mechanical thrombectomy by vacuum aspiration. Embolization Ruby Coil System The Ruby Coil System consists of detachable coils that are specifically designed for peripheral applications.
We developed our proprietary aspiration source as a fully-integrated system specifically for mechanical thrombectomy by aspiration. Embolization and Access Products Peripheral Embolization Products Ruby Coil System The Ruby Coil System consists of detachable coils that are specifically designed for peripheral applications.
We sell our products to healthcare providers 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 $847.1 million, $747.6 million and $560.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
We sell our products to healthcare providers 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 $1,058.5 million, $847.1 million and $747.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Human Capital Resources As of December 31, 2022, we had approximately 3,900 employees worldwide. None of our U.S. employees are represented by a collective bargaining agreement. Some of our employees outside of the United States are subject to mandatory, industry-specific collective bargaining agreements or the protections of statutory works councils as required by local law.
Human Capital Resources As of December 31, 2023, we had approximately 4,200 employees worldwide. None of our U.S. employees are represented by a collective bargaining agreement. Some of our employees outside of the United States are subject to mandatory, industry-specific collective bargaining agreements or the protections of statutory works councils as required by local law.
Additionally, we own or have rights to trademarks or trade names that are used in our business and in conjunction with the sale of our products, including 40 U.S. trademark registrations and 171 foreign trademark registrations as of December 31, 2022. Included in the registered trademarks is a mark with our company name and logo.
Additionally, we own or have rights to trademarks or trade names that are used in our business and in conjunction with the sale of our products, including 43 U.S. trademark registrations and 214 foreign trademark registrations as of December 31, 2023. Included in the registered trademarks is a mark with our company name and logo.
The lease for the Salt Lake City warehouse expires in 2027, subject to our option to renew the lease for an additional five years. We also lease office and warehouse space in Germany, Italy, Australia, Brazil, and Singapore as of December 31, 2022.
The lease for the Salt Lake City warehouse expires in 2027, subject to our option to renew the lease for an additional five years. We also lease office and/or warehouse space in Germany, Italy, Brazil, Australia, Singapore, Japan and Taiwan as of December 31, 2023.
We believe this arrangement will allow us to monetize our technology while helping us to mitigate market risk. Our direct sales have been, and we anticipate will continue to represent, a majority of our revenues.
We believe these arrangements will allow us to monetize our technology while helping us to mitigate market risk. Our direct sales have been, and we anticipate will continue to represent, a majority of our revenues.
The principal specialist physicians and other healthcare providers in our target end markets include: • Neuro : Interventional neuroradiologists, neurosurgeons, and interventional neurologists. • Vascular : Interventional radiologists, vascular surgeons, and interventional cardiologists. • Immersive Healthcare: Occupational therapists, physical therapists, nurses, mental health professionals and other healthcare providers.
The principal specialist physicians and other healthcare providers in our target end markets include: • Thrombectomy : Interventional radiologists, interventional neuroradiologists, vascular surgeons, neurosurgeons, interventional cardiologists and interventional neurologists. • Embolization and Access : Neurosurgeons, interventional neuroradiologists, interventional neurologists, interventional radiologists, vascular surgeons and pediatric interventional cardiologists. • Immersive Healthcare: Occupational therapists, physical therapists, nurses, mental health professionals and other healthcare providers.
The offices in Germany and Australia support our direct sales operations in Europe and Australasia, respectively, with the Germany office also supporting distributor relationships in Europe and the Middle East; the offices in Brazil and Singapore support our sales and marketing efforts, including through our distribution partners, in Latin America and Southeast Asia, respectively; and the offices in Italy support the operations of Crossmed S.p.A., our wholly-owned subsidiary in Italy, including supporting our direct sales operations in Italy, San Marino, Vatican City, and Switzerland.
The offices in Germany support our direct sales operations in Europe as well as distributor relationships in Europe and the Middle East; the offices in Brazil, Australia, Singapore, Japan and Taiwan support our sales and marketing efforts, including through our distribution partners, in Latin America, Australia and Southeast Asia, respectively; and the offices in Italy support the operations of Crossmed S.p.A., our wholly-owned subsidiary in Italy, including supporting our direct sales operations in Italy, San Marino, Vatican City, and Switzerland.
Seventeen patents related to our REAL Immersive System are expected to expire between 2032 and 2041. Some of our pending patent applications pertain to components and methods of use associated with currently commercialized products.
Twenty-one patents related to our REAL Immersive System are expected to expire between 2032 and 2042. Some of our pending patent applications pertain to components and methods of use associated with currently commercialized products.
If FDA issues an approvable or not approvable letter, the applicant has 180 days to respond, after which FDA’s review clock is reset. Clinical Trials Clinical trials are almost always required to support a PMA and are sometimes required for 510(k) clearance.
If FDA issues an approvable or not approvable letter, the applicant has 180 days to respond, after which FDA’s review clock is reset. 15 Table of Contents Clinical Trials Clinical trials are almost always required to support a PMA and are less often required for 510(k) clearance.
An additional approximately 50,000 square feet of space in one of the buildings, located at 620 Roseville Parkway, will be added to the lease upon completion of certain improvements to the premises, which is not expected to occur in 2023.
An additional approximately 50,000 square feet of space in one of the buildings, located at 620 Roseville Parkway, will be added to the lease upon the earlier of completion of certain improvements to the premises, which is not expected to occur in 2024, and June 1, 2025.
PAO includes Acute Limb Ischemia (“ALI”), which occurs when the leg has an immediate change because of an occlusion in the artery, which is almost always caused either because a blood clot forms in the artery or because emboli from the heart or other place within the body travels to the extremity and causes an occlusion.
PAO includes Acute Limb Ischemia (“ALI”), which occurs when the leg experiences an occlusion in an artery, which is almost always caused either because a blood clot forms in the artery or because emboli from the heart or other place within the body travel to the leg and causes an occlusion.
We have continued licensing the technology to certain of our products to our partner in China pursuant to a distribution and licensing arrangement entered into in December 2020, as further expanded in February 2022, which permits our partner to manufacture and commercialize such products in China in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products.
We have continued licensing the technology to certain of our products to our existing distribution partner in China pursuant to a series of licensing arrangements entered into in December 2020, February 2022 and September 2023, which permit our partner to manufacture and commercialize such products in China in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products.
We do not have any material licenses to any technology or intellectual property rights. As of December 31, 2022, we owned and/or had rights to 103 issued patents globally, of which 46 were U.S. patents.
We do not have any material licenses to any technology or intellectual property rights. As of December 31, 2023, we owned and/or had rights to 117 issued patents globally, of which 57 were U.S. patents.
As a practical matter, however, clearance often takes longer, because the review clock is paused by FDA to allow time to resolve questions they may have on the 510(k) file.
As a practical matter, however, clearance often takes longer, because the review clock can be paused by FDA to allow time to resolve questions on the 510(k) file.
Employee safety is also supported by an access control system at all facilities and a dedicated 24/7 Security team on the Alameda and Roseville campuses. We require all work-related injuries or illnesses to be reported.
Employee safety is also supported by an access control system at all facilities and a dedicated 24/7 Security team on the Alameda and Roseville campuses. We require all work-related injuries or illnesses to be reported. This information is reviewed monthly by our Safety Committee for analysis and trending.
In 2022, direct sales accounted for approximately 81% of our revenue, with the balance generated by independent distributors that sell our products outside of the United States and by the arrangement with our partner in China, which includes licensing royalty and distribution revenue.
In 2023, direct sales accounted for approximately 83% of our revenue, with the balance generated by independent distributors that sell our products outside of the United States and by the arrangements with our partner in China, which include licensing royalty and distribution revenue.
We provide employees at our Alameda campus with on-site restaurants that offer fresh food at discounted pricing for employees, as well as an on-site fitness center. Employees in the United States are also eligible for a gym discount at a local commercial fitness chain.
We provide employees at our Alameda campus with on-site restaurants that offer fresh food at discounted pricing for employees, and we maintain on-site fitness centers for employees at our Alameda and Roseville campuses. Employees in the United States are also eligible for a gym discount at a local commercial fitness chain.
As of December 31, 2022, we owned and/or had rights to 75 pending patent applications, of which 37 were patent applications pending in the United States.
As of December 31, 2023, we owned and/or had rights to 68 pending patent applications, of which 32 were patent applications pending in the United States.
The Immersive Healthcare Market Immersive healthcare is the use of immersive 3D computer-based technologies to support patient care across a broad spectrum of conditions, including patients recovering from or undergoing physical rehabilitation, and patients with mental well-being and cognition related challenges.
This approach created challenges given the vastly different anatomy, structure and sizing of the neurovascular vessels. Immersive Healthcare Market Immersive healthcare is the use of immersive 3D computer-based technologies to support patient care across a broad spectrum of conditions, including patients recovering from or undergoing physical rehabilitation, and patients with mental well-being and cognition related challenges.
However, there are risks and uncertainties with respect to the supply of raw materials, including as a result of the COVID-19 pandemic and measures taken in response thereto, particularly where provided by a single supplier, which could impact availability in sufficient quantities to meet our needs.
However, there are risks and uncertainties with respect to the supply of raw materials, particularly where provided by a single supplier, which could impact availability in sufficient quantities to meet our needs.
We have successfully developed, obtained regulatory clearance or approval for, and introduced products into the neurovascular market since 2007, vascular market since 2013, neurosurgical market since 2014, and immersive healthcare market since 2020.
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, neurosurgical market since 2014, and immersive healthcare market since 2020.
BMX 96 provides a larger internal diameter without increasing the outer diameter of the delivery catheter, enabling more working room for all neurovascular procedures while maintaining the same size access site as our Neuron MAX. BMX 81 utilizes the same technology as BMX 96 but has a smaller diameter and is designed for both radial and femoral access.
BMX 96 provides a larger internal diameter without increasing the outer diameter of the delivery catheter, enabling more working room for all neurovascular procedures while maintaining the same size access site as our Neuron MAX.
This represents an annual increase of 13.3% and 33.4%, respectively. We generated income from operations of $6.1 million for the year ended December 31, 2022, and losses from operations of $7.5 million and $38.9 million for the years ended December 31, 2021 and 2020, respectively.
This represents an annual increase of 25.0% and 13.3%, respectively. We generated income from operations of $73.6 million and $6.1 million for the years ended December 31, 2023 and 2022, and loss from operations of $7.5 million for the year ended December 31, 2021.
In an effort to manage risk associated with raw materials supply, we work closely with suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability.
In an effort to manage risk associated with raw materials supply, we work closely with suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability. We also utilize long-term supply contracts with some suppliers to help maintain continuity of supply and manage the risk of price increases.
Various states have adopted laws similar to the federal Anti-Kickback Statute, and some of these state laws may be broader in scope in that some of these state laws extend to all payors and may not contain safe harbors.
Various states have adopted laws similar to the federal Anti-Kickback Statute, and some of these state laws may be broader in scope in that some of these state laws extend to all payors and may not contain safe harbors. In addition, many foreign jurisdictions in which we operate have similar laws and regulations. Federal Civil False Claims Act .
The Company has a right of first offer to lease any space that becomes available after such date. We also lease approximately 210,000 square feet of office and manufacturing facilities in two buildings in Roseville, California. The leases for these two buildings expire in 2035, subject to our option to renew the leases for an additional five to ten years.
We also lease approximately 210,000 square feet of office and manufacturing facilities in two buildings in Roseville, California. The leases for these two buildings expire in 2035, subject to our option to renew the leases for an additional five to ten years.
We cannot assure you that government or private third-party payors will cover 12 Table of Contents and reimburse the procedures performed using our products in whole or in part in the future, that payment rates will be adequate, or that reimbursement rates will not change in the future.
We cannot assure you that government or private third-party payors will cover and reimburse the procedures performed using our products in whole or in part in the future, that payment rates will be adequate, or that reimbursement rates will not change in the future. 12 Table of Contents Outside the United States, market acceptance of medical devices depends partly upon the availability of reimbursement within the prevailing healthcare payment system.
The Neuron delivery catheter is a variable stiffness guide catheter with increased support in the aortic arch, easier access, and trackability into the intracranial vasculature. The design of Neuron enables physicians to position the catheter much higher in the anatomy than conventional guide catheters. The BENCHMARK catheter features additional improvements in aortic arch support, ease-of-use, and trackability.
The design of Neuron enables physicians to position the catheter much higher in the anatomy than conventional guide catheters. The BENCHMARK catheter features additional improvements in aortic arch support, ease-of-use, and trackability.
The regulatory requirements, and the review time, vary significantly from country to country. Fraud and Abuse and Other Healthcare Regulation Anti-Kickback Statute We are subject to various federal and state healthcare laws, including, but not limited to, anti-kickback laws.
Modifications to the cleared or approved products may require a new regulatory submission in all major markets. The regulatory requirements, and the review time, vary significantly from country to country. Fraud and Abuse and Other Healthcare Regulation Anti-Kickback Statute We are subject to various federal and state healthcare laws, including, but not limited to, anti-kickback laws.
Of these cases, we estimate that approximately 200,000 are treatable with mechanical thrombectomy, which involves removal of the clot causing the blockage by mechanical means and restoring blood flow to the blocked vessels.
Ischemic strokes, caused by the blockage of an artery in the brain, represent approximately 87% of strokes, or approximately 700,000 patients annually, in the United States. Of these cases, we estimate that approximately 200,000 are treatable with mechanical thrombectomy, which involves removal of the clot causing the blockage by mechanical means and restoring blood flow to the blocked vessels.
Product Families Key Product Brands NEURO Thrombectomy Penumbra System Penumbra RED, JET, ACE catheters 3D Revascularization Device Penumbra ENGINE and other components and accessories Embolization Penumbra Coil 400 POD400 PAC400 Penumbra SMART COIL Access Neuron Neuron MAX Select BENCHMARK BMX96 BMX81 DDC PX SLIM SENDit Neurosurgical Tools Artemis Neuro Evacuation Device VASCULAR Thrombectomy Indigo System Lightning CAT RX Embolization Ruby Coil Ruby LP LANTERN POD (Penumbra Occlusion Device) Packing Coil Packing Coil LP IMMERSIVE HEALTHCARE Immersive 3D Computer-based Technology Platform Real Immersive System Neuro Products Our neuro products fall into the following broad product families: Thrombectomy Products Our Penumbra System brand of products offers a form of mechanical thrombectomy used by specialist physicians to revascularize blood vessels that are blocked by clots in the intracranial vasculature.
Product Families Key Product Brands THROMBECTOMY Peripheral Indigo System Lightning Bolt CAT RX Neuro Penumbra System Penumbra RED, JET, ACE, MAX catheters 3D Revascularization Device Penumbra ENGINE and other components and accessories EMBOLIZATION & ACCESS Peripheral Embolization Ruby Coil Ruby LP LANTERN POD (Penumbra Occlusion Device) Packing Coil Packing Coil LP Neuro Embolization Penumbra Coil 400 POD400 PAC400 Penumbra SMART COIL Access Neuron Neuron MAX Select BENCHMARK BMX96 BMX81 DDC PX SLIM SENDit Neurosurgical Tools Artemis Neuro Evacuation Device IMMERSIVE HEALTHCARE Immersive 3D Computer-based Technology Platform Real Immersive System Thrombectomy Products Our thrombectomy products fall into the following broad product families: Peripheral Thrombectomy Products Indigo System The Indigo System was designed for continuous, power aspiration of thrombus in the body, leveraging the success of the Penumbra System in ischemic stroke.
We generated revenue of $499.4 million, $408.9 million, and $267.8 million from our vascular product category for the years ended December 31, 2022, 2021 and 2020, respectively. The Company designs, develops, manufactures and markets novel products, and operates as one operating segment.
We generated revenue of $381.2 million, $336.0 million, and $309.8 million from our embolization and access product categories for the years ended December 31, 2023, 2022 and 2021, respectively. The Company designs, develops, manufactures and markets novel products, and operates as one operating segment.
One such condition is a heart attack (myocardial infarction) — when cell death results in damaged or destroyed heart tissue. These heart attacks can often be associated with high thrombus burden in the coronary arteries.
One such condition is a heart attack (acute myocardial infarction or “AMI”), when cell death results in damaged or destroyed heart tissue. Heart attacks can often be associated with high thrombus burden in the coronary arteries. Approximately 8.5 million AMIs occur annually and there are approximately 23.5 million AMI survivors worldwide.
We believe these design features contribute to improved clinical outcomes and reduced procedure times. Penumbra System Reperfusion Catheters include the Penumbra RED family, JET family, ACE family and MAX families of catheters, designed to address a broad range of occlusions.
Penumbra System Reperfusion Catheters include the Penumbra RED family, JET family, ACE family and MAX families of catheters, designed to address a broad range of occlusions.
We implemented several proprietary design innovations to enable the coil to maintain shape while achieving biomechanically stable occlusion. Given the size and handling of Penumbra Coil 400, it is able to achieve higher packing density with fewer coils compared to competitive coiling systems.
Given the size and handling of Penumbra Coil 400, it is able to achieve higher packing density with fewer coils compared to competitive coiling systems.
While reliable third-party data is not available for many markets outside the United States, we believe there are substantial additional market opportunities for our neuro, vascular and immersive healthcare products throughout the world. The Neuro Market The neuro market is comprised of vascular diseases and disorders in the brain, including ischemic stroke, brain aneurysms, hemorrhagic stroke and other conditions.
While reliable third-party data is not available for many markets outside the United States, we believe there are substantial additional market opportunities for our thrombectomy, embolization and access, and immersive healthcare products throughout the world.
Outside of the United States, we estimate, based on published sources, that there are approximately 9.7 million ischemic strokes annually and that 1.9 million of these patients are treatable with mechanical thrombectomy.
Outside of the United States, we estimate, based on published sources, that there are approximately 9.7 million ischemic strokes annually and that 1.9 million of these patients are treatable with mechanical thrombectomy. 6 Table of Contents • Acute Coronary Syndrome (“ACS”): ACS includes various conditions associated with sudden, reduced blood flow to the heart.
A small number of countries may require us to gather additional clinical data before or after recognizing coverage and reimbursement for our products. It is our intent to complete the requisite clinical studies and obtain coverage and reimbursement approval in countries where it makes economic sense to do so.
It is our intent to complete the requisite clinical studies and obtain coverage and reimbursement approval in countries where it makes economic sense to do so.
We developed our proprietary aspiration source as a fully-integrated system specifically for mechanical thrombectomy by aspiration. Embolization Products Penumbra Coil 400 is a family of detachable coils developed to offer an improved alternative for the treatment of small to large aneurysms and other larger, more complex lesions.
Neuro Embolization Products Penumbra Coil 400 is a family of detachable coils developed to offer an improved alternative for the treatment of small to large aneurysms and other larger, more complex lesions. We implemented several proprietary design innovations to enable the coil to maintain shape while achieving biomechanically stable occlusion.
Such matters are subject to many uncertainties and there can be no assurance that legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
Such matters are subject to many uncertainties and there can be no assurance that legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, financial condition, results of operations or cash flows. 20 Table of Contents Available Information We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports available free of charge at our website as soon as reasonably practicable after they have been filed with the SEC.
It is an easy to use thrombectomy system that is powerful, highly trackable, and suited to a wide range of clot morphology in the peripheral arterial, peripheral venous, pulmonary arteries and coronary vasculature. The Indigo System is comprised of four principal components: • Continuous Aspiration Mechanical Thrombectomy Catheters are robust, durable, trackable and suited for the peripheral and coronary anatomy.
The Indigo System is comprised of four principal components: • Continuous Aspiration Mechanical Thrombectomy Catheters are robust, durable, trackable and suited for the peripheral and coronary anatomy. We have introduced multiple sizes of catheters for use in both the peripheral and coronary vasculature.
Sales and Marketing We sell our products directly in the United States, most of Europe, Canada and Australia, subject to required regulatory clearances and approvals. We have complemented our direct sales organization with distributors in most international markets. We currently sell our products in the United States through our dedicated salesforce in our major markets, neuro, vascular, and immersive healthcare.
We have complemented our direct sales organization with distributors in most international markets. We currently sell our products in the United States through our dedicated salesforce.
Penumbra System Reperfusion Catheters are the cornerstone of the Penumbra System and are manufactured using a variety of proprietary processes and materials science innovations for use in revascularization of patients with acute ischemic stroke. The Penumbra System Reperfusion Catheters, powered by Penumbra ENGINE or Penumbra Pump MAX, are designed for trackability and to maximize thrombus removal force.
The Penumbra System is a fully integrated mechanical thrombectomy system consisting of reperfusion catheters and separators, the 3D Revascularization Device, aspiration tubing, and aspiration pump. Penumbra System Reperfusion Catheters are the cornerstone of the Penumbra System and are manufactured using a variety of proprietary processes and materials science innovations for use in revascularization of patients with acute ischemic stroke.
Information related to the device, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is made public as part of the registration.
Information related to the device, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is made public as part of the registration. Ongoing Regulation by FDA Along with the requirement for device clearance or approval by FDA, there are additional obligations and regulations that must be followed.
Neurosurgical Tools Artemis Neuro Evacuation Device leverages our expertise in thrombectomy and access to offer a minimally invasive approach to surgical removal of fluid and tissue from the ventricles and cerebrum. The Artemis Neuro Evacuation Device works with a neuroendoscope through a sheath to access hematomas.
BMX 81 utilizes the same technology as BMX 96 but has a smaller diameter and is designed for both radial and femoral access. 10 Table of Contents Neurosurgical Tools Artemis Neuro Evacuation Device leverages our expertise in thrombectomy and access to offer a minimally invasive approach to surgical removal of fluid and tissue from the ventricles and cerebrum.
The leases for these nine buildings expire at various times in 2036, subject to our option to renew certain leases for an additional five to fifteen years.
Facilities We maintain approximately 610,000 square feet of office, research and development, manufacturing and administrative facilities in nine buildings at our campus in Alameda, California as of December 31, 2023. The leases for these nine buildings expire at various times in 2036, subject to our option to renew certain leases for an additional five to fifteen years.
An authorized third party, also called a Notified Body, must approve products for CE marking, other 17 Table of Contents than those which are categorized as class I self-certified. The CE mark is contingent upon continued compliance to the applicable regulations, harmonized standards and the quality system requirements of the EU MDR and the ISO 13485 standard.
An authorized third party, also called a Notified Body, must approve products for CE marking, other than those which are categorized as class I self-certified.
We will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, and financial condition. 5 Table of Contents Our Markets We concentrate on improving treatment outcomes for patients with certain forms of vascular disease and strive to improve the long-term quality of life for patients who could benefit from immersive healthcare applications.
Our Markets We concentrate on improving treatment outcomes for patients with certain forms of vascular disease and strive to improve the long-term quality of life for patients who could benefit from immersive healthcare applications. Vascular disease refers to any condition that affects the circulatory system and typically manifests as a blockage or rupture of an artery or a vein.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur ability to successfully commercialize healthcare applications using virtual reality technology may be influenced by many factors, including: • our ability to develop new products and content; • unanticipated problems and additional costs relating to the development and testing of new products; • our ability to install, set up and service new customers; • our ability to achieve and maintain market acceptance; • our possible reliance on a limited number of suppliers for key components of the products we develop; • maintaining an appropriate program for compliance with regulations related to the privacy and security of individually-identifiable patient information, including but not limited to HIPAA; • our ability to introduce, manufacture at scale, build new inventory and commercialize new products; • our ability to produce sufficient quantities of products to meet demand; • the impact of competition, including with respect to the hardware and software underlying our immersive healthcare platform; • the timing and impact of market, reimbursement and regulatory developments, including our ability to obtain any required regulatory approvals or clearances outside the United States; • our ability to expand into new markets; and • our ability to obtain and maintain adequate intellectual property protection for our products and technologies.
Biggest changeWe have not yet determined the most appropriate business model to bring this technology to the healthcare field, and accordingly, our ability to successfully commercialize healthcare applications using virtual reality and full body tracking technology may be influenced by many factors, including: • unanticipated problems and additional costs relating to the development and testing of new products; • our ability to install, set up and service new customers; • our ability to achieve and maintain market acceptance and expand into new markets; • our possible reliance on a limited number of suppliers for key components of the products we develop; • maintaining an appropriate program for compliance with regulations related to the privacy and security of individually-identifiable patient information, including but not limited to HIPAA; • the impact of competition, including with respect to the hardware and software underlying our immersive healthcare platform; • the timing and impact of market, reimbursement and regulatory developments, including our ability to obtain any required regulatory approvals or clearances both inside and outside the United States; and • our ability to obtain and maintain adequate intellectual property protection for our products and technologies.
Any adverse regulatory finding or action against those suppliers could impact their ability to supply us with raw materials and components for our products. We may also face delays, yield issues and quality control problems if we are required to locate and secure new sources of supply.
Any adverse regulatory finding or action against those suppliers could impact their ability to supply us with raw materials and components for our products. We may also face delays, yield issues and quality control problems if we are required to locate and secure new sources of materials or components.
Shortages of raw materials, quality control problems, production capacity constraints or delays by our suppliers could negatively affect our ability to meet our production requirements and result in increased prices for affected materials or components. Any material shortage, constraint or delay may result in delays in shipments of our products, which could materially adversely affect our results of operations.
Shortages of raw materials, quality control problems, or production capacity constraints or delays by our suppliers could negatively affect our ability to meet our production requirements and result in increased prices for affected materials or components. Any material shortage, constraint or delay may result in delays in shipments of our products, which could materially adversely affect our results of operations.
Any such claim could also force use to do one or more of the following: • incur substantial monetary liability for infringement or other violations of intellectual property rights, which we may have to pay if a court decides that the product or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the third party’s attorneys’ fees; • pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-infringing technology; • stop manufacturing, selling, using, exporting or licensing the product or technology incorporating the allegedly infringing technology or stop incorporating the allegedly infringing technology into such product or technology; • obtain from the owner of the infringed intellectual property right a license, which may require us to pay substantial upfront fees or royalties to sell or use the relevant technology and which may not be available on commercially reasonable terms, or at all; • redesign our products and technology so they do not infringe or violate the third party’s intellectual property rights, which may not be possible or may require substantial monetary expenditures and time; • enter into cross-licenses with our competitors, which could weaken our overall intellectual property position; • lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others; • find alternative suppliers for non-infringing products and technologies, which could be costly and create significant delay; or • relinquish rights associated with one or more of our patent claims, if our claims are held invalid or otherwise unenforceable.
Any such claim could also force use to do one or more of the following: • incur substantial monetary liability for infringement or other violations of intellectual property rights, which we may have to pay if a court decides that the product or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the third party’s attorneys’ fees; • pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-infringing technology; • stop manufacturing, selling, using, exporting or licensing the product or technology incorporating the allegedly infringing technology or stop incorporating the allegedly infringing technology into such product or technology; • obtain from the owner of the infringed intellectual property right a license, which may require us to pay substantial upfront fees or royalties to sell or use the relevant technology and which may not be available on commercially reasonable terms, or at all; • redesign our products and technology so they do not infringe or violate the third party’s intellectual property rights, which may not be possible or may require substantial monetary expenditures and time; 39 Table of Contents • enter into cross-licenses with our competitors, which could weaken our overall intellectual property position; • lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others; • find alternative suppliers for non-infringing products and technologies, which could be costly and create significant delay; or • relinquish rights associated with one or more of our patent claims, if our claims are held invalid or otherwise unenforceable.
A person or entity does not need to have actual knowledge of these statutes or specific intent to violate them; • HIPAA, as amended by HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements; 38 Table of Contents • the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), teaching hospitals, physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives, and ownership and investment interests held by physicians and their immediate family members; and • state and foreign law equivalents of each of the above federal laws, such as foreign and state anti-kickback, anti-benefit and false claims laws, as well as state and foreign laws and regulations governing interactions with healthcare professionals and requiring disclosure of payments and interactions with healthcare professionals and state and foreign laws governing the privacy and security of health information in certain circumstances.
A person or entity does not need to have actual knowledge of these statutes or specific intent to violate them; • HIPAA, as amended by HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements; • the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), teaching hospitals, physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives, and ownership and investment interests held by physicians and their immediate family members; and • state and foreign law equivalents of each of the above federal laws, such as foreign and state anti-kickback, anti-benefit and false claims laws, as well as state and foreign laws and regulations governing interactions with healthcare professionals and requiring disclosure of payments and interactions with healthcare professionals and state and foreign laws governing the privacy and security of health information in certain circumstances.
Expanding our customer base in existing and new target end markets may require, among other things, additional clinical evidence supporting patient benefits, training in a manner to which we are not accustomed, or other resources that we do not readily have available or are not cost effective for us to provide.
In addition, expanding our customer base in existing and new target end markets may require, among other things, additional clinical evidence supporting patient benefits, training in a manner to which we are not accustomed, or other resources that we do not readily have available or are not cost effective for us to provide.
In addition, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.
In addition, if a court were to find the choice of forum provision contained in our second amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.
We also compete with a number of smaller medical device companies that have a single product or a limited range of products. Our competitors may be able to spend more on product development, marketing, sales and other product initiatives, or be more focused in their spending and activities, than we can.
We also compete with a number of smaller medical device companies that have a single product or a limited range of products. Our competitors may be able to spend more on product acquisition, development, marketing, sales and other product initiatives, or be more focused in their spending and activities, than we can.
Provisions of Delaware law (where we are incorporated), our restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.
Provisions of Delaware law (where we are incorporated), our restated certificate of incorporation and our second amended and restated bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.
We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. We can give no assurances that these measures and efforts will prevent interruptions or breakdowns.
We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats. However, we can give no assurances that these measures and efforts will prevent interruptions or breakdowns.
The types of situations in which we may become a party to such litigation or proceedings include: • we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents; • we or our collaborators may participate at substantial cost in International Trade Commission proceedings to abate importation of products that would compete unfairly with our products; • if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; 41 Table of Contents • if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; • if third parties initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us, we will need to defend against such proceedings; • we may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our products; and • if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.
The types of situations in which we may become a party to such litigation or proceedings include: • we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents; • we or our collaborators may participate at substantial cost in International Trade Commission proceedings to abate importation of products that would compete unfairly with our products; • if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; • if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; • if third parties initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us, we will need to defend against such proceedings; • we may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our products; and • if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.
We compete with a number of manufacturers and distributors of neuro and vascular devices. Our most notable competitors are Boston Scientific, Inari, Medtronic, Stryker, Terumo, AngioDynamics and several private companies. Most of these competitors are large, well-capitalized companies with longer operating histories and greater resources than us.
We compete with a number of manufacturers and distributors of neuro and vascular devices. Our most notable competitors are Boston Scientific, Inari, Medtronic, Stryker, Terumo and several private companies. Most of these competitors are large, well-capitalized companies with longer operating histories and greater resources than us.
Therefore, when the U.S. dollar strengthens relative to the euro, yen or other local currency, our U.S. dollar reported revenue from non-U.S. dollar denominated sales will decrease, or we will need to increase our non-U.S. dollar denominated prices, which may not be commercially practical.
Therefore, when the U.S. dollar strengthens relative to the euro or other local currency, our U.S. dollar reported revenue from non-U.S. dollar denominated sales will decrease, or we will need to increase our non-U.S. dollar denominated prices, which may not be commercially practical.
Our restated certificate of incorporation, our amended and restated bylaws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation, our second amended and restated bylaws and Delaware law contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.
Natural disasters or other catastrophic events, such as earthquakes, flooding, wildfires, power shortages, pandemics such as COVID-19, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, drought, sea level rise and other events beyond our control may cause damage or disruption to our operations, the operations of our suppliers and service providers, international commerce and the global economy, and could seriously harm our revenue and financial condition and increase our costs and expenses.
Natural disasters or other catastrophic events, such as earthquakes, flooding, wildfires, power shortages, pandemics, terrorism, political unrest, telecommunications failure, vandalism, cyber-attacks, geopolitical instability, war, drought, sea level rise and other events beyond our control may cause damage or disruption to our operations, the operations of our suppliers and service providers, international commerce and the global economy, and could seriously harm our revenue and financial condition and increase our costs and expenses.
This revenue and related operations will continue to be subject to the risks and challenges associated with international operations, including: • reliance on distributors; • varying coverage and reimbursement policies, processes and procedures; • difficulties in staffing and managing international operations from which sales are conducted; • difficulties in penetrating markets in which our competitors’ products or alternative procedures that do not use our products are more established; • reduced protection for intellectual property rights in some countries; • export licensing requirements or restrictions, trade regulations and foreign tax laws; • fluctuating foreign currency exchange rates; • foreign certification, regulatory requirements and legal requirements; • lengthy payment cycles and difficulty in collecting accounts receivable; • customs clearance and shipping delays; 31 Table of Contents • reliance on third-party logistics providers who warehouse and distribute finished products to our international customers; • pricing pressure in international markets; • political and economic instability; • preference for locally produced products; • higher incidence of corruption or unethical business practices; and • events resulting in negative impacts to, or uncertainty regarding, global trade, such as the COVID-19 pandemic, the reversal or renegotiation of international trade agreements and partnerships or the imposition of tariffs.
This revenue and related operations will continue to be subject to the risks and challenges associated with international operations, including: • reliance on distributors; • varying coverage and reimbursement policies, processes and procedures; 29 Table of Contents • difficulties in staffing and managing international operations from which sales are conducted; • difficulties in penetrating markets in which our competitors’ products or alternative procedures that do not use our products are more established; • reduced protection for intellectual property rights in some countries; • export licensing requirements or restrictions, trade regulations and foreign tax laws; • fluctuating foreign currency exchange rates; • foreign certification, regulatory requirements and legal requirements; • lengthy payment cycles and difficulty in collecting accounts receivable; • customs clearance and shipping delays; • reliance on third-party logistics providers who warehouse and distribute finished products to our international customers; • pricing pressure in international markets; • political and economic instability; • preference for locally produced products; • higher incidence of corruption or unethical business practices; and • events resulting in negative impacts to, or uncertainty regarding, global trade, such as the reversal or renegotiation of international trade agreements and partnerships or the imposition of tariffs.
For reasons of quality assurance, cost effectiveness or availability, we procure certain raw materials and components from a single or limited number of suppliers.
For reasons of quality assurance, cost effectiveness or availability, we typically procure certain raw materials and components from a single or limited number of suppliers.
These provisions include: • authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; • requiring supermajority stockholder voting to effect certain amendments to our restated certificate of incorporation and amended and restated bylaws; • eliminating the ability of stockholders to call and bring business before special meetings of stockholders; • prohibiting stockholder action by written consent; • establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; • dividing our board of directors into three classes so that only one third of our directors will be up for election in any given year; and • providing that our directors may be removed by our stockholders only for cause.
These provisions include: • authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; 44 Table of Contents • requiring supermajority stockholder voting to effect certain amendments to our restated certificate of incorporation and second amended and restated bylaws; • eliminating the ability of stockholders to call and bring business before special meetings of stockholders; • prohibiting stockholder action by written consent; • establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; • dividing our board of directors into three classes so that only one third of our directors will be up for election in any given year; and • providing that our directors may be removed by our stockholders only for cause.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. 51 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. 49 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
In addition, an injury or death that is caused by the activities of our suppliers, such as those that provide us with components and raw materials, or by an aspect of a treatment used in combination with our products, such as a complementary drug or anesthesia, may be the basis for a claim against us by patients, hospitals, health-care providers or others purchasing or using our products, even if our products were not the actual cause of such injury or death.
In addition, an injury or death that is caused by the activities of our suppliers, such as those that provide us with components and raw materials, or by an aspect of a treatment used in combination with our products, such as a complementary drug or anesthesia, may be the basis for a claim against us by patients, hospitals, healthcare providers or others purchasing or using our products, even if our products were not the actual cause of such injury or death.
If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products. 42 Table of Contents Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
On March 1, 2016, the ISO issued a new Quality Management System (“QMS”) standard for medical device manufacturers, ISO 13485:2016. We received certification to ISO 13485:2016 in 2018 and successfully completed our most recent surveillance audit in 2022. Compliance with this standard is subject to continual review and is monitored through periodic inspections by our notified body.
On March 1, 2016, the ISO issued a new Quality Management System standard for medical device manufacturers, ISO 13485:2016. We received certification to ISO 13485:2016 in 2018 and successfully completed our most recent surveillance audit in 2023. Compliance with this standard is subject to continual review and is monitored through periodic inspections by our notified body.
If needed funds are not available in adequate amounts or on acceptable terms from additional financing sources, our business will be materially adversely affected. 44 Table of Contents By engaging in acquisitions and other business development arrangements, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.
If needed funds are not available in adequate amounts or on acceptable terms from additional financing sources, our business will be materially adversely affected. By engaging in acquisitions and other business development arrangements, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.
In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery. We may also employ individuals who were previously or concurrently employed at research institutions and/or other medical device companies, including our competitors or potential competitors.
In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery. 41 Table of Contents We may also employ individuals who were previously or concurrently employed at research institutions and/or other medical device companies, including our competitors or potential competitors.
Apart from funds we have invested to date, we continue to invest substantial additional funds for research and development, to establish manufacturing operations, to hire dedicated sales and marketing personnel and to commercialize immersive healthcare products. We can give no assurance that we will be successful in developing and commercializing products using virtual reality technology.
Apart from funds we have invested to date, we continue to invest substantial additional funds for research and development, to establish manufacturing operations, to hire dedicated sales and marketing personnel and to commercialize immersive healthcare products. We can give no assurance that we will be successful in developing and commercializing products using virtual reality and full body tracking technology.
A number of factors over which we have limited or no control may contribute to fluctuations in our financial results, such as: • the COVID-19 outbreak and measures taken in response thereto; 48 Table of Contents • variations in revenue due to the unavailability of specialist physicians who use our products during certain times of the year, such as those periods when there are major conferences on conditions they treat or those periods when high volume users of our products take time off of work; • positive or negative media coverage of our products or the procedures or products of our competitors or our industry; • publication of clinical trial results or studies by us or our competitors; • changes in our sales process due to industry changes, such as changes in the stroke care pathway; • delays in receipt of anticipated purchase orders; • delays in customers receiving products; • performance of our independent distributors; • our ability to obtain further regulatory clearances or approvals; • the timing of product development and clinical trial activities, including the pace of enrollment; • delays in, or failure of, product and component deliveries by our suppliers; • changes in reimbursement policies or levels; • the number of procedures performed in any given period using our products, which can sometimes vary significantly between periods; • customer response to the introduction of new products or alternative treatments, and the degree to we which we are effective in transitioning customers to our products; and • fluctuations in foreign currency.
A number of factors over which we have limited or no control may contribute to fluctuations in our financial results, such as: • variations in revenue due to the unavailability of specialist physicians who use our products during certain times of the year, such as those periods when there are major conferences on conditions they treat or those periods when high volume users of our products take time off of work; • positive or negative media coverage of our products or the procedures or products of our competitors or our industry; • publication of clinical trial results or studies by us or our competitors; • changes in our sales process due to industry changes, such as changes in the stroke care pathway; • delays in receipt of anticipated purchase orders; • delays in customers receiving products; • performance of our independent distributors; • our ability to obtain further regulatory clearances or approvals; • the timing of product development and clinical trial activities, including the pace of enrollment; • delays in, or failure of, product and component deliveries by our suppliers; • changes in reimbursement policies or levels; • the number of procedures performed in any given period using our products, which can sometimes vary significantly between periods; • customer response to the introduction of new products or alternative treatments, and the degree to we which we are effective in transitioning customers to our products; and • fluctuations in foreign currency.
Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent 36 Table of Contents decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Even when a provider is the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN generally are free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause by the GPO or IDN upon 60 to 90 days’ notice.
Even when a provider is the sole contracted supplier of a GPO or IDN for a certain product category, members of the GPO or IDN generally are free to purchase a certain percentage of such products from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause by the GPO or IDN upon 60 to 90 days’ notice.
We received our first MDSAP certification in 2018 and successfully completed our most recent surveillance audit in 2022. Some of our suppliers are subject to the same or similar scrutiny.
We received our first MDSAP certification in 2018 and successfully completed our most recent surveillance audit in 2023. Some of our suppliers are subject to the same or similar scrutiny.
Such events could result in the disruption of business processes, network degradation and system downtime, 49 Table of Contents along with the potential that a third party will exploit our critical assets such as intellectual property, proprietary business information and data related to our customers, suppliers and business partners.
Such events could result in the disruption of business processes, network degradation and system downtime, along with the potential that a third party will exploit our critical assets such as intellectual property, proprietary business information and data related to our customers, suppliers and business partners.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered public accounting firm audits of our internal control over financial reporting that we include in our periodic reports that are filed with the SEC.
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered 48 Table of Contents public accounting firm audits of our internal control over financial reporting that we include in our periodic reports that are filed with the SEC.
Our failure to maintain our relationships with our existing distributors, or our failure to recruit and retain additional skilled distributors in existing or new international markets, could have an adverse effect on our operations.
Our failure to maintain our relationships with our existing distributors or our partner in China, or our failure to recruit and retain additional skilled distributors in existing or new international markets, could have an adverse effect on our operations.
While we rely primarily upon a combination of patents, trademarks and trade secret protection, as well as nondisclosure, 39 Table of Contents confidentiality and other contractual agreements to protect the intellectual property related to our brands, products and other proprietary technologies, protection derived from patents is relatively limited.
While we rely primarily upon a combination of patents, trademarks and trade secret protection, as well as nondisclosure, confidentiality and other contractual agreements to protect the intellectual property related to our brands, products and other proprietary technologies, protection derived from patents is relatively limited.
For example, in December 2020, we entered into an agreement to license the technology for certain of our products to our partner in China to permit our partner to manufacture and commercialize such products in China, in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products, which we expanded to include additional products in February 2022.
For example, in December 2020, we entered into an agreement to license the technology for certain of our products to our existing distribution partner in China to permit our partner to manufacture and commercialize such products in China, in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products, which we expanded to include additional products in February 2022 and September 2023.
As of December 31, 2022, approximately 8,200,000 shares of common stock that are either subject to outstanding options or other equity awards or reserved for future issuance under our equity incentive plans have been registered on Form S-8 registration statements and may be freely sold in the public market upon issuance, except for shares held by affiliates who have certain restrictions on their ability to sell.
As of December 31, 2023, approximately 7,700,000 shares of common stock that are either subject to outstanding options or other equity awards or reserved for future issuance under our equity incentive plans have been registered on Form S-8 registration statements and may be freely sold in the public market upon issuance, except for shares held by affiliates who have certain restrictions on their ability to sell.
In December 2020, we agreed to license the technology for certain of our products to our partner in China to permit our partner to manufacture and commercialize such products in China, in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products, which we expanded to include additional products in February 2022.
In December 2020, we agreed to license the technology for certain of our products to our existing distribution partner in China to permit our partner to manufacture and commercialize such products in China, in exchange for fixed payments upon the transfer of the licensed technology and upon the provision of related regulatory support, as well as royalty payments on downstream sales of the licensed products, which we expanded to include additional products in February 2022 and September 2023.
For direct sales in our international markets, we are paid by our customers in their local currency, which is primarily euros. For sales to distributors in our international markets, we are paid in either U.S. dollars, euros or Japanese yen, with some sales being denominated in other currencies.
For direct sales in our international markets, we are paid by our customers in their local currency, which is primarily euros. For sales to distributors in our international markets, we are paid principally in either U.S. dollars or euros, with some sales being denominated in other currencies.
In addition, periodic maintenance fees on our owned and in-licensed patents are due to be paid to governmental patent agencies over the lifetime of the patents. Future maintenance fees will also need to be paid on other patents that may be issued to us.
In addition, periodic maintenance fees on our owned and in-licensed patents are due to be paid to governmental patent agencies over the lifetime of the patents. Future maintenance fees will also need to be paid on other patents 40 Table of Contents that may be issued to us.
In addition, the federal MDR regulations require us to provide information to FDA whenever there is evidence that reasonably suggests that a device may have caused or 37 Table of Contents contributed to a death or serious injury, or has malfunctioned, and if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury.
In addition, the federal MDR regulations require us to provide information to FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury, or has malfunctioned, and if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury.
In the event that specialist physicians or other healthcare providers perceive that our products are complex relative to alternative products or established treatments that do not use our products, we may have difficulty gaining or increasing adoption of our products.
In the event that specialist physicians or other healthcare providers perceive that our products are complex relative to alternative products or established treatments that do not use our 33 Table of Contents products, we may have difficulty gaining or increasing adoption of our products.
Product approvals or clearances by FDA can be withdrawn, and new product approvals or clearances by FDA and foreign regulatory bodies can be delayed, due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following initial 36 Table of Contents approval or clearance of a product.
Product approvals or clearances by FDA can be withdrawn, and new product approvals or clearances by FDA and foreign regulatory bodies can be delayed, due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following initial approval or clearance of a product.
We may not be able to obtain additional 510(k) clearances or PMAs for new products or for modifications to, or additional indications for, our existing products in a timely manner, or at all. There can be no assurance that FDA will agree with our decisions not to seek clearances for particular device modifications.
We may not be able to obtain additional 510(k) clearances or PMAs for new products or for modifications to, or additional indications for, our existing products in a timely manner, or at all. There can be no 34 Table of Contents assurance that FDA will agree with our decisions not to seek clearances for particular device modifications.
For interim reporting purposes, we are required to exclude the excess tax benefits and deficiencies from the annual estimated tax rate and not to forecast the potential impact to our rate. As a result, we could experience an effective tax rate significantly different from previous periods or from our expectations.
For interim reporting purposes, we are required to exclude the excess tax benefits and deficiencies from the annual estimated tax rate and not to forecast the potential impact to 42 Table of Contents our rate. As a result, we could experience an effective tax rate significantly different from previous periods or from our expectations.
Although we are attempting to increase the number of patients treated with our products through our established relationships and focused sales efforts, we cannot provide assurance that our efforts will increase the use of our products.
Although we are attempting to increase the number of patients treated with our products through our established relationships and focused sales efforts, we cannot provide assurance that our efforts will increase the use of our products by our existing customers.
Approximately 30.2%, 29.4%, and 28.6% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively, were derived from sales in non-U.S. markets, and we expect sales from non-U.S. markets to continue to represent a significant portion of our revenue.
Approximately 28.5%, 30.2%, and 29.4% of our revenue for the years ended December 31, 2023, 2022 and 2021, respectively, were derived from sales in non-U.S. markets, and we expect sales in non-U.S. markets to continue to represent a significant portion of our revenue.
Convincing specialist physicians and other healthcare providers to use new products and to dedicate the time and energy necessary for adequate education in the use of our products is challenging, especially in new markets where treatments or therapies using our products are not established.
Convincing such specialist physicians and other healthcare providers to use new products and to dedicate the 24 Table of Contents time and energy necessary for adequate education in the use of our products is challenging, especially in new markets where treatments or therapies using our products are not established.
Although we historically have not had any material difficulty attracting qualified experienced personnel to our company, we could in the future have such difficulties and may be required to expend significant financial resources in our employee recruitment and 34 Table of Contents retention efforts.
Although we historically have not had any material difficulty attracting qualified experienced personnel to our company, we could in the future have such difficulties and may be required to expend significant financial resources in our employee recruitment and retention efforts.
As a public company, we incur significant legal, accounting and other expenses as we devote resources to comply with the Exchange Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), and the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and the NYSE, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.
As a public company, we incur significant legal, accounting and other expenses as we devote resources to comply with the Exchange Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) , as well as rules and regulations subsequently implemented by the SEC and the NYSE, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.
Moreover, in the event we are required to obtain additional production capacity due to one or more of our Alameda buildings being damaged or destroyed, because of the time required to approve and license a manufacturing facility under FDA and non-U.S. regulatory requirements, we may not be able to resume production on 30 Table of Contents a timely basis even if we are able to obtain replacement production capacity.
Moreover, in the event we are required to obtain additional production capacity due to one or more of our facilities being damaged or destroyed, because of the time required to approve and license a manufacturing facility under FDA and non-U.S. regulatory requirements, we may not be able to resume production on a timely basis even if we are able to obtain replacement production capacity.
If current or future distributors do not perform adequately, or if we lose a significant distributor, we may not be able to maintain existing levels of international revenue or realize expected long term international revenue growth.
If current or future distributors or our partner in China do not perform adequately, or if we lose a significant distributor or our partner in China, we may not be able to maintain existing levels of international revenue or realize expected long term international revenue growth.
We own 40 trademarks, related to our company name, logo, products and technology, that are registered with the USPTO as well as 171 trademarks registered outside of the United States as of December 31, 2022. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks or names.
We own 43 trademarks, related to our company name, logo, products and technology, that are registered with the USPTO as well as 214 trademarks registered outside of the United States as of December 31, 2023. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks or names.
Numerous third-party patents exist in the fields relating to our products, and it is difficult for industry participants, including us, to identify all third-party patent rights relevant to our products and technologies.
Numerous third-party patents exist in the fields relating to our products, and it is difficult for 38 Table of Contents industry participants, including us, to identify all third-party patent rights relevant to our products and technologies.
As of December 31, 2022, our directors, executive officers and holders of 5% or more of our outstanding stock 46 Table of Contents beneficially owned approximately 46.1% of our outstanding stock in the aggregate. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline.
As of December 31, 2023, our directors, executive officers and holders of 5% or more of our outstanding stock beneficially owned approximately 54.1% of our outstanding stock in the aggregate. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline.
As of December 31, 2022, our executive officers, directors and holders of 5% or more of our outstanding stock and their affiliates beneficially owned approximately 46.1% of our voting stock in the aggregate.
As of December 31, 2023, our executive officers, directors and holders of 5% or more of our outstanding stock and their affiliates beneficially owned approximately 54.1% of our voting stock in the aggregate.
Factors that could cause fluctuations in the market price of our common stock include the following: • the COVID-19 pandemic and measures taken in response thereto; • price and volume fluctuations in the overall stock market from time to time; 45 Table of Contents • volatility in the market prices and trading volumes of medical device company stocks; • changes in operating performance and stock market valuations of other medical device companies generally, or those in our industry in particular; • sales of shares of our common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations or principles; • any significant change in our management; and • general economic conditions and slow or negative growth of our markets.
Factors that could cause fluctuations in the market price of our common stock include the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the market prices and trading volumes of medical device company stocks; • changes in operating performance and stock market valuations of other medical device companies generally, or those in our industry in particular; • sales of shares of our common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; • announcements by us or our competitors of new products or services; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations or principles; • any significant change in our management; and • general economic conditions and slow or negative growth of our markets. 43 Table of Contents In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies.
At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the benefits of the domestic DTAs we maintain as of December 31, 2022, exclusive of our federal research and development tax credit and California DTAs.
At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the benefits of the domestic DTAs we maintain as of December 31, 2023, exclusive of our California tax credit DTAs.
Should one or more of our buildings be significantly damaged or destroyed by natural or man-made disasters, such as earthquakes, fires or other events, it could take months to relocate or rebuild, during which time our employees may seek other positions, our research, development and manufacturing would cease or be delayed and our products may be unavailable.
Should one or more of our facilities be significantly damaged or destroyed by natural or man-made disasters, such as earthquakes, fires or other events, our existing inventory of raw materials, components and finished goods may be damaged or destroyed and it could take months to relocate or rebuild, during which time our employees may seek other positions, our research, development and manufacturing would cease or be delayed and our products may be unavailable.
If we are not successful in obtaining and maintaining the recommendations or endorsements of specialist physicians and other healthcare providers for our products, if specialist physicians and other healthcare providers prefer our competitors’ products or other alternative treatments that do not use our products, or if our products otherwise do not gain or maintain market acceptance, our business could be adversely affected.
If we are not successful in obtaining and maintaining the recommendations or endorsements of specialist physicians and other healthcare providers for our products, if specialist physicians and other healthcare providers prefer our competitors’ products or other alternative treatments that do not use our products, if our products do not receive approval from relevant hospitals’ value analysis committees, or if our products otherwise do not gain or maintain market acceptance, our business could be adversely affected.
We may not be able to achieve or maintain satisfactory pricing and margins for our products. 27 Table of Contents Manufacturers of medical devices have a history of price competition, and we can give no assurance that we will be able to achieve satisfactory prices for our products or maintain prices at the levels we have historically achieved.
Manufacturers of medical devices have a history of price competition, and we can give no assurance that we will be able to achieve satisfactory prices for our products or maintain prices at the levels we have historically achieved.
Specifically, the European Union has promulgated rules that require that medical device products receive the right to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives.
Foreign regulatory bodies have established varying regulations. Specifically, the European Union has promulgated rules that require that medical device products receive the right to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives.
The geographic location of our Alameda, California headquarters and production facilities, as well as the facilities of certain of our key suppliers and service providers, subject them to earthquake and wildfire risks.
In addition, the geographic location of our Alameda, California headquarters and Alameda and Roseville, California production facilities, as well as the facilities of certain of our key suppliers and service providers, subject them to earthquake and wildfire 46 Table of Contents risks.
We rely on our distributors to market and sell our products in certain international markets. We have established a direct sales capability in the United States, most of Europe, Canada and Australia, which we have complemented with distributors in certain other international markets. Sales to distributors represented 18.7%, 16.6% and 14.2% of our revenue in 2022, 2021 and 2020, respectively.
We have established a direct sales capability in the United States, most of Europe, Canada and Australia, which we have complemented with distributors in certain other international markets. Sales to distributors represented 16.7%, 18.7% and 16.6% of our revenue in 2023, 2022 and 2021, respectively.
Price declines in our common stock could result from general market and economic conditions, some of which are beyond our control, and a variety of other factors, including any of the risk factors described in this Form 10-K or those that we have not anticipated.
In addition, limited trading volume of our stock may contribute to its future volatility. Price declines in our common stock could result from general market and economic conditions, some of which are beyond our control, and a variety of other factors, including any of the risk factors described in this Form 10-K or those that we have not anticipated.
Our amended and restated bylaws designate the state courts located within the state of Delaware (or if no state court located within Delaware has jurisdiction, the federal district court for the District of Delaware) as the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to access a favorable judicial forum for disputes with us or our directors, officers or employees Our amended and restated bylaws designate the state courts located within the state of Delaware (or if no state court located within Delaware has jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, as the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
Our second amended and restated bylaws designate the state courts located within the state of Delaware (or if no state court located within Delaware has jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, as the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a claim of a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our second amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
For example, certain unique macroeconomic and geopolitical factors, including those as a result of the Russian invasion of Ukraine, may cause instability and volatility in the global financial markets and disruptions within the healthcare industry that may negatively impact our business.
For example, certain unique macroeconomic and geopolitical factors, including those as a result of the COVID-19 pandemic, the Russian invasion of Ukraine or conditions in the Middle East as a result of the Israel-Hamas conflict, may cause instability and volatility in the global financial markets and disruptions within the healthcare industry that may negatively impact our business.
This ERP implementation project, the first phase of which began in April 2022, has required and will continue to require investment of capital and human resources, the re-engineering of business processes, and the attention of many employees who would otherwise be focused on other areas of our business.
This ERP implementation project will continue to require investment of capital and human resources, the re-engineering of business processes, and the attention of many employees who would otherwise be focused on other areas of our business.
However, it is possible that some of our foreign or domestic DTAs could ultimately expire unused, or future DTAs could be created, due to vesting or settlement of stock awards or other book to tax differences, in which we will not have sufficient taxable income in the future to fully utilize these and which will result in us recording a valuation allowance.
However, it is possible that some of our foreign or domestic DTAs could ultimately expire 45 Table of Contents unused, or future DTAs could be created, due to vesting or settlement of stock awards or other book to tax differences, for which we will not have sufficient taxable income in the future to fully utilize.
Moreover, tax authorities in jurisdictions in which we do business could disagree with tax positions that we take, including, for example, our inter-company pricing policies, or could assert that we owe more taxes than we currently pay due to the level and nature of our activities in such jurisdictions.
Moreover, tax authorities in jurisdictions in which we do business could disagree with tax positions that we take, including, for example, our inter-company pricing policies, or could assert that we owe more taxes than we currently pay due to the level and nature of our activities in such jurisdictions. 30 Table of Contents We rely on our distributors to market and sell our products in certain international markets.
In the event our actual revenue and results of operations do not meet our or others’ forecasts for a particular period, the market price of our common stock may decline substantially.
In the event our actual revenue and results of operations do not meet our or others’ forecasts for a particular period, the market price of our common stock may decline substantially. Natural disasters and other events beyond our control could harm our business.
The inability to perform our research, development and certain of our manufacturing activities, combined with our limited inventory of raw materials and components and manufactured products, may cause specialist physicians or other healthcare providers to discontinue using our products or harm our reputation, and we may be unable to reestablish relationships with those specialist physicians or other healthcare providers in the future.
The inability to perform our research, development and certain of our manufacturing activities, combined with our limited inventory of raw materials and components and manufactured products, may cause specialist physicians or other healthcare providers to discontinue using our products or harm our reputation, and we may be unable to reestablish relationships with those specialist physicians or other healthcare providers in the future. .Furthermore, other parties in our supply chain are similarly vulnerable to natural disasters or other sudden, unforeseen, and severe adverse events.
We have been in the past, and may be in the future, subject to such attacks by short sellers. Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovative approach, creativity, and teamwork fostered by our culture, and our business may be harmed.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovative approach, creativity, and teamwork fostered by our culture, and our business may be harmed.
As we continue to grow and scale our business, our future growth rates may be more gradual. We depend on key personnel to operate our business and develop our products, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We depend on key personnel to operate our business and develop our products, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
Therefore, unless we are able to generate sufficient taxable income, a substantial valuation allowance to reduce our DTAs may be required, which would materially increase our tax expense in the period the valuation allowance is recorded and could have a material adverse impact on our financial condition and results of operations.
In such case, a valuation allowance to reduce our DTAs may be required, which would materially increase our tax expense in the period the valuation allowance is recorded and could have a material adverse impact on our financial condition and results of operations.
If we are unable to convert specialist physicians or other healthcare providers in existing or new target end markets to the use of our products, our sales growth will be limited, which could materially adversely affect our business, results of operations, financial condition or cash flows.
If we are unable to increase the frequency of use of our products by our existing customers and expand our customer base to include additional specialist physicians and other healthcare providers in both our existing and future target end markets, our sales growth will be limited, which could materially adversely affect our business, results of operations, financial condition or cash flows.
Our revenue growth will depend in part on our ability to convince specialist physicians and other healthcare providers in our existing and future target end markets of our products’ efficacy, to educate them in the proper use of our products and to sell our products to their affiliated hospitals or other organizations.
Our future growth will also depend on our ability to expand our customer base, which will require us to convince specialist physicians and other healthcare providers in our existing and future target end markets that are not current customers of our products’ efficacy, to educate them in the proper use of our products and to sell our products to their affiliated hospitals or other organizations.
Because patent applications in the United States, Europe and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or applications.
The legal systems of certain countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. 37 Table of Contents Because patent applications in the United States, Europe and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or applications.
We may not obtain the necessary recommendations or endorsements for new products from specialist physicians and other healthcare providers, nor may we be able to maintain the current or future level of acceptance and usage of our products. 26 Table of Contents Acceptance of our products depends on educating the medical community as to the distinctive characteristics, perceived benefits, safety, clinical efficacy and cost-effectiveness of our products compared to products of our competitors or treatments that do not use our products, and on training specialist physicians and other healthcare providers in the proper application and use of our products.
Acceptance of our products depends 25 Table of Contents on educating the medical community as to the distinctive characteristics, perceived benefits, safety, clinical efficacy and cost-effectiveness of our products compared to products of our competitors or treatments that do not use our products, and on training specialist physicians and other healthcare providers in the proper application and use of our products.
Our company is experienced in and has a strong history of bringing technology to healthcare markets. While we are familiar with the healthcare markets that we plan to target initially, we do not have extensive experience with virtual reality technology and are relying on new hires, including former Sixense employees, and consultants with expertise in the field.
While we are familiar with the healthcare markets that we plan to target initially, we do not have extensive experience with virtual reality technology and are relying on new hires and consultants with expertise in the field.
Any regulations that limit the use of ethylene oxide at, or any temporary or permanent closures of, sterilization facilities, including the facilities we currently use, could, due to the limited number of sterilization facilities and the time required to approve and license, and gain regulatory approval for us to use, a sterilization facility, impact our ability to obtain sterilization services on a timely basis, which could materially adversely affect our results of operations.
While we continue to work to improve our capacity and flexibility in connection with the sterilization of our products, any regulations that limit the use of ethylene oxide at, or any temporary or permanent closures of, sterilization facilities, including the facilities we currently use, could, due to the limited number of sterilization facilities and the time required to approve and license, and gain regulatory approval for us to use, a sterilization facility, impact our ability to obtain sterilization services on a timely basis, which could materially adversely affect our results of operations. 26 Table of Contents We cannot be certain that we will be able to manufacture our products in high volumes at commercially reasonable costs.
Manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall of, or issuance of a safety alert relating to, our products and result in significant costs, negative publicity and adverse competitive pressure.
Defects or failures or alleged defects or failures associated with our products could lead to recalls, safety alerts, or product-related or securities litigation, as well as significant costs and negative publicity. Manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe offices in Germany and Australia support our direct sales operations in Europe and Australasia, respectively, with the Germany office also supporting distributor relationships in Europe and the Middle East; the offices in Brazil and Singapore support our sales and marketing efforts, including through our distribution partners, in Latin America and Southeast Asia, respectively; and the offices in Italy support the operations of Crossmed S.p.A., our wholly-owned subsidiary in Italy, including supporting our direct sales operations in Italy, San Marino, Vatican City, and Switzerland.
Biggest changeThe offices in Germany support our direct sales operations in Europe as well as distributor relationships in Europe and the Middle East; the offices in Brazil, Australia, Singapore, Japan and Taiwan support our sales and marketing efforts, including through our distribution partners, in Latin America, Australia and Southeast Asia, respectively; and the offices in Italy support the operations of Crossmed S.p.A., our wholly-owned subsidiary in Italy, including supporting our direct sales operations in Italy, San Marino, Vatican City, and Switzerland.
ITEM 2. PROPERTIES. We maintain approximately 600,000 square feet of office, research and development, manufacturing and administrative facilities in nine buildings at our campus in Alameda, California as of December 31, 2022. The leases for these nine buildings expire at various times in 2036, subject to our option to renew certain leases for an additional five to fifteen years.
ITEM 2. PROPERTIES. We maintain approximately 610,000 square feet of office, research and development, manufacturing and administrative facilities in nine buildings at our campus in Alameda, California as of December 31, 2023. The leases for these nine buildings expire at various times in 2036, subject to our option to renew certain leases for an additional five to fifteen years.
In addition, we lease approximately 70,000 square feet of warehouse space in Livermore, California, and approximately 100,000 square feet of warehouse space in Salt Lake City, Utah. The leases for the Livermore warehouse spaces expire at various times in 2025 to 2028.
In addition, we lease approximately 70,000 square feet of warehouse space in Livermore, California, and approximately 100,000 square feet of warehouse space in Salt Lake City, Utah. The leases for the Livermore warehouse spaces expire at 50 Table of Contents various times in 2025 to 2028.
The lease for the Salt Lake City warehouse expires in 2027, subject to our option to renew the lease for an additional five years. We also lease office and warehouse space in Germany, Italy, Australia, Brazil, and Singapore as of December 31, 2022.
The lease for the Salt Lake City warehouse expires in 2027, subject to our option to renew the lease for an additional five years. We also lease office and/or warehouse space in Germany, Italy, Brazil, Australia, Singapore, Japan and Taiwan as of December 31, 2023.
An additional approximately 50,000 square feet of space in one of the buildings, located at 620 Roseville Parkway, will be added to the lease upon completion of certain improvements to the premises, which is not expected to occur in 2023.
An additional approximately 50,000 square feet of space in one of the buildings, located at 620 Roseville Parkway, will be added to the lease upon the earlier of completion of certain improvements to the premises, which is not expected to occur in 2024, and June 1, 2025.
We also warehouse and distribute finished products to our international customers utilizing a third-party logistics provider in the Netherlands.
We also warehouse and distribute finished products to our international customers utilizing third-party logistics providers in the Netherlands and Australia.
The Company has a right of first offer to lease any space that becomes available after such date. We also lease approximately 210,000 square feet of office and manufacturing facilities in two buildings in Roseville, California. The leases for these two buildings expire in 2035, subject to our option to renew the leases for an additional five to ten years.
We also lease approximately 210,000 square feet of office and manufacturing facilities in two buildings in Roseville, California. The leases for these two buildings expire in 2035, subject to our option to renew the leases for an additional five to ten years.
Removed
From time to time through February 1, 2035, if any space in any of the buildings located in the same business park as our campus becomes vacant, that space will be added to the lease. The maximum additional space that could be added under this provision of the lease as of December 31, 2022 is approximately 30,000 square feet.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS. For information with respect to Legal Proceedings, see Note “10. Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 52 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS. For information with respect to Legal Proceedings, see Note “11. Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K. 51 Table of Contents ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 52 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures. 52 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 53 Item 6. [Reserved] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 71 Item 8.
Biggest changeItem 4. Mine Safety Disclosures. 52 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 53 Item 6. [Reserved] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 69 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. $100 investment in stock or index Ticker 12/29/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/30/2022 Penumbra PEN $ 100.00 $ 129.86 $ 174.57 $ 185.97 $ 305.33 $ 236.41 NYSE Composite NYA 100.00 88.80 108.62 113.40 134.00 118.55 S&P 500 Healthcare Equipment Index XHE 100.00 108.90 133.19 177.03 182.41 139.84 Dividend Policy We have never declared or paid cash dividends on our capital stock.
Biggest changeThis graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. $100 investment in stock or index Ticker 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/30/2022 12/29/2023 Penumbra PEN $ 100.00 $ 134.43 $ 143.21 $ 235.12 $ 182.05 $ 205.84 NYSE Composite NYA 100.00 122.32 127.70 150.90 133.50 148.17 S&P 500 Healthcare Equipment Index XHE 100.00 122.31 162.56 167.50 128.41 120.41 Dividend Policy We have never declared or paid cash dividends on our capital stock.
The figures represented below assume an investment of $100 in our common stock on December 29, 2017 and in the S&P Healthcare Equipment and NYSE Composite and the reinvestment of dividends into shares of common stock for the years ended December 31, 2018, 2019, 2020, 2021 and 2022.
The figures represented below assume an investment of $100 in our common stock on December 31, 2018 and in the S&P Healthcare Equipment and NYSE Composite and the reinvestment of dividends into shares of common stock for the years ended December 31, 2019, 2020, 2021, 2022 and 2023.
As of February 9, 2023, there were 34 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
As of February 8, 2024, there were 32 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Performance Graph The following graph illustrates a comparison of the total cumulative stockholder return on our common stock with the total return for (i) the S&P Healthcare Equipment and (ii) the NYSE Composite for the period from December 29, 2017 through December 30, 2022.
Performance Graph The following graph illustrates a comparison of the total cumulative stockholder return on our common stock with the total return for (i) the S&P Healthcare Equipment and (ii) the NYSE Composite for the period from December 31, 2018 through December 29, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth the components of our consolidated statements of operations in U.S. dollars and as a percentage of revenue for the periods presented: Year Ended December 31, 2022 2021 2020 (in thousands, except for percentages) Revenue $ 847,133 100.0 % $ 747,590 100.0 % $ 560,412 100.0 % Cost of revenue 311,926 36.8 % 272,208 36.4 % 222,237 39.7 % Gross profit 535,207 63.2 % 475,382 63.6 % 338,175 60.3 % Operating expenses: Research and development 79,407 9.4 % 104,552 14.0 % 90,049 16.1 % Sales, general and administrative 449,718 53.1 % 378,331 50.6 % 287,068 51.2 % Total operating expenses 529,125 62.5 % 482,883 64.6 % 377,117 67.3 % Income (loss) from operations 6,082 0.7 % (7,501) (1.0) % (38,942) (6.9) % Interest income, net 137 — % 938 0.1 % 1,267 0.2 % Other expense, net (2,327) (0.3) % (3,939) (0.5) % (343) (0.1) % Income (loss) before income taxes 3,892 0.5 % (10,502) (1.4) % (38,018) (6.8) % Provision for (benefit from) income taxes 5,894 0.7 % (13,125) (1.8) % (18,761) (3.3) % Consolidated net (loss) income $ (2,002) (0.2) % $ 2,623 0.4 % $ (19,257) (3.4) % Net loss attributable to non-controlling interest — — % (2,661) (0.4) % (3,555) (0.6) % Net (loss) income attributable to Penumbra, Inc. $ (2,002) (0.2) % $ 5,284 0.7 % $ (15,702) (2.8) % 62 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenue Year Ended December 31, Change 2022 2021 $ % (in thousands, except for percentages) Vascular $ 499,389 $ 408,878 $ 90,511 22.1 % Neuro 347,744 338,712 9,032 2.7 % Total $ 847,133 $ 747,590 $ 99,543 13.3 % Revenue increased $99.5 million, or 13.3%, to $847.1 million in 2022, from $747.6 million in 2021.
Biggest changeA 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. 61 Table of Contents Results of Operations The following table sets forth the components of our consolidated statements of operations in U.S. dollars and as a percentage of revenue for the periods presented: Year Ended December 31, 2023 2022 2021 (in thousands, except for percentages) Revenue $ 1,058,522 100.0 % $ 847,133 100.0 % $ 747,590 100.0 % Cost of revenue 375,879 35.5 % 311,926 36.8 % 272,208 36.4 % Gross profit 682,643 64.5 % 535,207 63.2 % 475,382 63.6 % Operating expenses: Research and development 84,423 8.0 % 79,407 9.4 % 104,552 14.0 % Sales, general and administrative 506,454 47.8 % 449,718 53.1 % 378,331 50.6 % Acquired in-process research and development 18,215 1.7 % — — % — — % Total operating expenses 609,092 57.5 % 529,125 62.5 % 482,883 64.6 % Income (loss) from operations 73,551 6.9 % 6,082 0.7 % (7,501) (1.0) % Interest and other income (expense), net 6,099 1.6 % (2,190) (0.3) % (3,001) (0.4) % Income (loss) before income taxes 79,650 7.5 % 3,892 0.5 % (10,502) (1.4) % (Benefit from) provision for income taxes (11,304) (1.1) % 5,894 0.7 % (13,125) (1.8) % Consolidated net income (loss) $ 90,954 8.6 % $ (2,002) (0.2) % $ 2,623 0.4 % Net loss attributable to non-controlling interest — — % — — % (2,661) (0.4) % Net income (loss) attributable to Penumbra, Inc. $ 90,954 8.6 % $ (2,002) (0.2) % $ 5,284 0.7 % 62 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Certain changes in presentation were made in the Company’s revenues disaggregated by product categories for the year ended December 31, 2022 to conform to the presentation for the year ended December 31, 2023.
We design, develop, manufacture and market novel products and have a broad portfolio that addresses challenging medical conditions in markets with significant unmet need. Our team focuses on developing, manufacturing and marketing novel products for use by specialist physicians and healthcare providers to drive improved clinical outcomes and health.
We design, develop, manufacture and market novel products and have a broad portfolio that addresses challenging medical conditions in markets with significant unmet need. 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.
The determination of the our incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as we currently does not carry any debt. The lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives.
The determination of our incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as we currently does not carry any debt. The lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives.
Our effective tax rate is driven by (1) income or loss before taxes, (2) permanent differences in taxable income for tax and financial reporting purposes, (3) tax expense attributable to our foreign jurisdictions, (4) changes to the valuation allowance maintained against our deferred tax assets, and (5) discrete tax adjustments such as excess tax benefits related to stock-based compensation.
Our effective tax rate is driven by (1) income or loss before taxes, (2) permanent differences in taxable income for tax and financial reporting purposes, (3) tax expense attributable to our foreign jurisdictions, (4) changes to the valuation allowance maintained against our deferred tax assets, and (5) discrete tax adjustments such as excess tax expenses or benefits related to stock-based compensation.
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.
In 56 Table of Contents 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.
Other factors affecting our revenue and gross profit growth include acceptance of new products by specialist physicians and successfully transitioning these physicians to new products from existing products, buildup of inventory of new products and write downs or write offs of inventory of older products, introduction of new products by competitors, publication of clinical results that may influence specialist physicians and the fact that the specialist physicians who use our products may not perform procedures during certain times of the year due to their attendance at major medical conferences or for other reasons, the time of which occurs irregularly during the year and from year to year.
Other factors affecting our revenue and gross profit growth include acceptance of new products by specialist physicians and successfully transitioning these physicians to new products from existing products, buildup of inventory of new products and write downs or write offs of inventory of older products, introduction of new products by competitors, publication of clinical results that may influence specialist physicians and the fact that the specialist physicians who use our products may not perform procedures during certain times of the year due to their attendance at major medical conferences or for other reasons, the timing of which occurs irregularly during the year and from year to year.
Valuation of Assets Acquired and Liabilities Assumed in a Business Combination For material acquisitions, of which there were none in 2022, we may engage independent appraisers to assist with the determination of the fair value of certain assets acquired and liabilities assumed using recognized business valuation methodologies and information and assumptions provided by our management.
Valuation of Assets Acquired and Liabilities Assumed in a Business Combination For material acquisitions, of which there were none in 2023, we may engage independent appraisers to assist with the determination of the fair value of certain assets acquired and liabilities assumed using recognized business valuation methodologies and information and assumptions provided by our management.
Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. During the year ended December 31, 2022, we made no material changes in estimates for variable consideration.
Variable consideration is included in revenue only to the extent that it is probable that a significant reversal of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. During the year ended December 31, 2023, we made no material changes in estimates for variable consideration.
Indebtedness” to our consolidated financial statements in Part II, Item 8 in this Form 10-K for more information. We believe these sources of liquidity will be sufficient to meet our liquidity requirements for at least the next 12 months.
Indebtedness” to our consolidated financial statements in Part II, Item 8 in this Form 10-K for more information. We believe our current sources of liquidity will be sufficient to meet our liquidity requirements for at least the next 12 months.
Our SG&A expenses also include 61 Table of Contents marketing trials, medical education, training, commissions, generally based on sales, to direct sales representatives, amortization of acquired intangible assets and acquisition-related costs. Income Tax Expense. We are taxed at the rates applicable within each jurisdiction in which we operate.
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 Tax Expense. We are taxed at the rates applicable within each jurisdiction in which we operate.
DTAs are reduced to their estimated realizable value by a valuation allowance when it is more likely than not that the future realization of all or some of the DTAs will not be achieved. Valuation allowances related to DTAs can be affected by changes to tax laws, statutory tax rates, and projections of future taxable income.
DTAs are reduced to their estimated realizable value by a valuation 58 Table of Contents allowance when it is more likely than not that the future realization of all or some of the DTAs will not be achieved. Valuation allowances related to DTAs can be affected by changes to tax laws, statutory tax rates, and projections of future taxable income.
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 impact of COVID-19, 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 due to obsolescence; 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 57 Table of Contents fluctuations in foreign currency exchange rates.
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 due to obsolescence; 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.
If an entity determines that as a result of the qualitative assessment that it is more likely than not (i.e. greater than 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required.
If an entity determines that as a result of the qualitative assessment that it is more likely 59 Table of Contents than not (i.e. greater than 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required.
In determining the fair value of certain identifiable assets acquired or liabilities assumed, management may utilize valuation techniques consistent with the income approach, market approach, or cost approach and provide its best estimates of 60 Table of Contents inputs and assumptions that a market participant would use.
In determining the fair value of certain identifiable assets acquired or liabilities assumed, management may utilize valuation techniques consistent with the income approach, market approach, or cost approach and provide its best estimates of inputs and assumptions that a market participant would use.
We assess the ability to realize the benefits of our DTAs in each reporting period by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) 59 Table of Contents estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitation on NOL utilization against taxable income.
We assessed the ability to realize the benefits of our DTAs in each reporting period by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitation on NOL utilization against taxable income.
Finance leases are included in finance lease right-of-use assets, current finance lease liabilities, and non-current finance lease liabilities in our consolidated balance sheet. ROU assets represent the our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Finance leases are included in finance lease right-of-use 57 Table of Contents assets, current finance lease liabilities, and non-current finance lease liabilities in our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K. 70 Table of Contents
Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K. 68 Table of Contents
As of December 31, 2022, our lease population consisted of operating and finance real estate, equipment and vehicle leases. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and non-current operating lease liabilities in our consolidated balance sheet.
As of December 31, 2023, our lease population consisted of operating and finance real estate, equipment and vehicle leases. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and non-current operating lease liabilities in our consolidated balance sheet.
The state NOL carryforwards have various carryover periods and will begin to expire as early as 2023. As of December 31, 2022, we had federal research and development tax credits of $27.1 million which are generally carried forward for 20 years.
The state NOL carryforwards have various carryover periods and will begin to expire as early as 2035. As of December 31, 2023, we had federal research and development tax credits of $27.1 million which are generally carried forward for 20 years and will begin to expire in 2037.
In the fourth quarter of 2022 and 2021, we performed qualitative assessments for goodwill impairment and determined there were no indicators of impairment. Refer to Note “7. Goodwill” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.
In the fourth quarter of 2023 and 2022, we performed qualitative assessments for goodwill impairment and determined there were no indicators of impairment. Refer to Note “8. Goodwill” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.
Our terms and conditions permit product returns and exchanges. We base our estimates for sales returns on actual historical returns over the prior three years and they are recorded as reductions in revenue at the time of sale. Upon recognition, we reduce revenue and cost of revenue for the estimated return.
Our terms and conditions permit product returns and exchanges. We base our estimates for sales returns on actual historical returns and they are recorded as reductions in revenue at the time of sale. Upon recognition, we reduce revenue and cost of revenue for the estimated return.
Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K. 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.
For more information on these royalty obligations, refer to Note “11. Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K. 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.
The Credit Agreement is secured and provides for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity to up to $150 million, and originally matured on April 23, 2021.
The Credit Agreement was secured and provided for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity to up to $150 million, and originally matured on April 23, 2021.
We expect to continue to develop and build our portfolio of products, including our thrombectomy, embolization and access and immersive 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.
We expect to continue to develop and build our portfolio of products, including our thrombectomy, embolization, access and immersive healthcare 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.
During the three months ended March 31, 2021, 2022 and 2023, the Credit Agreement was amended to extend the maturity date and make other changes to the terms of the Credit Agreement. The Credit Agreement currently matures on February 16, 2024.
During the three months ended March 31, 2021, 2022 and 2023, the Credit Agreement was amended to extend the maturity date and make other changes to the terms of the Credit Agreement. The Credit Agreement matured on February 16, 2024 and was not renewed.
As of December 31, 2022, we do not maintain valuation allowance against any of our foreign DTAs as we believe, at the required more-likely-than-not level of certainty, that our foreign subsidiaries will generate sufficient future taxable income to realize the benefit of their DTAs in full. A full valuation allowance also remains against our California DTA balances.
As of December 31, 2023, we do not maintain valuation allowance against any of our foreign DTAs as we believe, at the required more-likely-than-not level of certainty, that our foreign subsidiaries will generate sufficient future taxable income to realize the benefit of their DTAs in full.
This was partially offset by $15.8 million of payments of employee taxes related to vested restricted stock units and payments related to finance lease obligations of $1.5 million.
This was partially offset by $2.1 million of payments of employee taxes related to vested restricted stock units and payments related to finance lease obligations of $2.0 million.
Our change in effective tax rate was primarily attributable to larger tax expenses over small worldwide profits for the year ended December 31, 2022, compared to larger tax benefits over small worldwide losses for the year ended December 31, 2021.
Our change in effective tax rate was primarily attributable to small tax benefits over relatively large worldwide profits for the year ended December 31, 2023, compared to large tax expenses over relatively small worldwide profits for the year ended December 31, 2022.
Impairment of Intangible Assets Indefinite-lived intangible assets consist of in-process research and development as of December 31, 2021. Indefinite-lived intangible assets are tested for impairment at least annually in the fourth quarter of each year, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired.
Intangible Assets Indefinite-lived intangible assets are tested for impairment at least annually in the fourth quarter of each year, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired.
The change in operating assets and liabilities includes an increase in inventories of $57.0 million to support our revenue growth, an increase in prepaid expenses and other current and non-current assets of $8.9 million, an increase in accounts receivable of $8.3 million, and a decrease in accounts payable of $0.3 million.
The change in operating assets and liabilities includes an increase in inventories of $67.7 million to support our revenue growth, an increase in prepaid expenses and other current and non-current assets of $18.9 million, and an increase in accounts receivable of $0.3 million.
As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. Overview Penumbra is a global healthcare company focused on innovative therapies.
As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements.
As of December 31, 2022, the Company was in compliance with the requirements in the Credit Agreement to maintain a minimum fixed charge coverage ratio and to not exceed a maximum leverage ratio. As of December 31, 2022, there were no borrowings outstanding under the Credit Agreement. Refer to Part II Item 9B “Other Information” and Note “8.
As of December 31, 2023, the Company was in compliance with the requirements in the Credit Agreement to maintain a minimum fixed charge coverage ratio and to not exceed a maximum leverage ratio. As of December 31, 2023, there were no borrowings outstanding under the Credit Agreement. Refer to Note “9.
The Company is also subject to certain royalty obligations under a license agreement with amounts due thereunder fluctuating depending on sales levels. Royalty expense included in cost of sales for the years ended December 31, 2022, 2021 and 2020 was $2.5 million, $2.3 million and $2.5 million, respectively. For more information on these royalty obligations, refer to Note “10.
Commitments and Contingencies”, and Note “15. Income Taxes”, respectively. The Company is also subject to certain royalty obligations under a license agreement with amounts due thereunder fluctuating depending on sales levels. Royalty expense included in cost of sales for the years ended December 31, 2023, 2022 and 2021 was $2.6 million, $2.5 million and $2.3 million, respectively.
We had approximately $148.9 million and $93.6 million of federal and state net operating loss (“NOL”) carryforwards, respectively, available to offset future taxable income. The federal NOL has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized.
We had approximately $21.8 million and $63.2 million of federal and state net operating loss (“NOL”) carryforwards, respectively, available to offset future taxable income as of December 31, 2023. The federal NOL has an indefinite carryforward period but is limited to offset 80% of taxable income in the year utilized.
Net cash provided by financing activities was $134.9 million in 2020 and primarily consisted of proceeds from the issuance of common stock, net of issuance costs, of $134.8 million, proceeds from the issuance of stock under our employee stock purchase plan of $11.3 million and proceeds from exercises of stock options of $5.2 million.
Net cash provided by financing activities was $16.2 million in 2023 and primarily consisted of proceeds from the issuance of stock under our employee stock purchase plan of $14.9 million and proceeds from exercises of stock options of $5.5 million.
Net Cash Provided By Financing Activities Net cash provided by financing activities primarily relates to proceeds from issuance of common stock upon underwritten public offering, payments of employee taxes related to vested restricted stock units, payments towards the reduction of our finance lease obligations and certain acquisition-related payments, and proceeds from exercises of stock options and issuances of common stock.
Net Cash Provided By Financing Activities Net cash provided by financing activities primarily relates to proceeds from exercises of stock options and issuances of common stock under our employee stock purchase plan, partially offset by payments of employee taxes related to vested restricted stock units and payments towards the reduction of our finance lease obligations.
These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates. 67 Table of Contents However, we may have quarters for which we experience significant revenue and gross profit growth followed by quarters with limited revenue and gross profit growth due to a number of factors, including mix of products sold, limited growth in demand and the effects of hiring and integrating new sales people and their transition into existing or new sales territories.
However, we may have quarters for which we experience significant revenue and gross profit growth followed by quarters with limited revenue and gross profit growth due to a number of factors, including mix of products sold, limited growth in demand and the effects of hiring and integrating new sales people and their transition into existing or new sales territories.
Seasonal fluctuations, underlying business trends have affected, and are likely to continue to affect, our business. Commercial queries typically increase significantly in the fourth quarter of each year.
Seasonal fluctuations, underlying business trends have affected, and are likely to continue to affect, our business. Commercial queries typically increase significantly in the fourth quarter of each year. These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.
We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Revenue Recognition Revenue is primarily comprised of product revenue net of returns, discounts, administration fees and sales rebates. We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Revenue from international sales represented 30.2% and 29.4% of our total revenue in 2022 and 2021, respectively.
Revenue from international sales represented 28.5% and 30.2% of our total revenue in 2023 and 2022, respectively.
Information regarding our obligations relating to lease arrangements and purchase commitments, as well as amounts recorded for uncertain tax positions, are provided in Part II, Item 8, “Financial Statements and Supplementary Data”of this Form 10-K in Note “9. Leases”, Note “10. Commitments and Contingencies”, and Note “14. Income Taxes”, respectively.
Our contractual obligations consist primarily of: non-cancelable operating and finance leases and purchase commitments. Information regarding our obligations relating to lease arrangements and purchase commitments, as well as amounts recorded for uncertain tax positions, are provided in Part II, Item 8, “Financial Statements and Supplementary Data”of this Form 10-K in Note “10. Leases”, Note “11.
The use of alternative estimates could result in a different amount of revenue deferral. We defer revenue for amounts that we have already invoiced our customers for and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met.
We defer revenue for amounts that we have already invoiced our customers for and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met.
Refer to Note “16. Revenues” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information and disclosures on our revenue. 58 Table of Contents Certain arrangements with customers contain multiple performance obligations. For these contracts, revenue is allocated to each performance obligation based on its relative standalone selling price.
Refer to Note “18. Revenues” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information and disclosures on our revenue. Certain arrangements with customers contain multiple performance obligations. For these contracts, each promise is evaluated to determine if it is a performance obligation.
We will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, and financial condition 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.
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.
Sales, General and Administrative (“SG&A”) Year Ended December 31, Change 2022 2021 $ % (in thousands, except for percentages) SG&A $ 449,718 $ 378,331 $ 71,387 18.9 % SG&A as a percentage of revenue 53.1 % 50.6 % SG&A expenses increased by $71.4 million, or 18.9%, to $449.7 million in 2022, from $378.3 million in 2021.
Sales, General and Administrative (“SG&A”) Year Ended December 31, Change 2023 2022 $ % (in thousands, except for percentages) SG&A $ 506,454 $ 449,718 $ 56,736 12.6 % SG&A as a percentage of revenue 47.8 % 53.1 % SG&A expenses increased by $56.7 million, or 12.6%, to $506.5 million in 2023, from $449.7 million in 2022.
Standalone selling prices are based on observable prices at which we separately sell the products or services. If a standalone selling price is not directly observable, then we estimate the standalone selling prices considering market conditions and entity-specific factors including, but not limited to, the expected cost and margin of the products and services, geographies, and other market conditions.
If a standalone selling price is not directly observable, then we estimate the standalone selling prices considering market conditions and entity-specific factors including, but not limited to, the expected cost and margin of the products and services, geographies, and other market conditions. The use of alternative estimates could result in a different amount of revenue deferral.
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: Year Ended December 31, 2022 2021 2020 (in thousands) Cash and cash equivalents at beginning of year $ 59,379 $ 69,670 $ 72,779 Net cash (used in) provided by operating activities (55,661) 9,502 (33,242) Net cash provided by (used in) investing activities 54,790 (21,735) (104,149) Net cash provided by financing activities 11,622 836 134,917 Cash and cash equivalents at end of year 69,858 59,379 69,670 Net Cash (Used In) Provided By Operating Activities Net cash (used in) provided by operating activities consists primarily of net income adjusted for certain non-cash items (including depreciation and amortization, stock-based compensation expense, inventory write-offs and write-downs, changes in deferred tax balances, and the effect of changes in working capital and other activities).
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: Year Ended December 31, 2023 2022 2021 (in thousands) Cash and cash equivalents at beginning of year $ 69,858 $ 59,379 $ 69,670 Net cash provided by (used in) operating activities 97,333 (55,661) 9,502 Net cash (used in) provided by investing activities (16,076) 54,790 (21,735) Net cash provided by financing activities 16,203 11,622 836 Cash and cash equivalents at end of year 167,486 69,858 59,379 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, stock-based compensation expense, inventory write-offs and write-downs, changes in deferred tax balances, acquired in-process research and development expensed in connection with an asset acquisition, and the effect of changes in working capital and other activities). 66 Table of Contents Net cash provided by operating activities was $97.3 million in 2023 and consisted of net income of $91.0 million and net changes in operating assets and liabilities of $79.1 million offset by non-cash items of $85.5 million.
After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, we concluded that sufficient future taxable income will be generated to realize the benefits of our domestic DTAs prior to expiration, other than our federal research and development tax credit DTAs.
As of December 31, 2023, we assessed all available qualitative and quantitative evidence, and concluded that sufficient future taxable income will be generated to realize the benefits of our federal DTAs prior to expiration, including our federal research and development tax credit DTAs.
We include interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations. As of December 31, 2022, our net DTA balance on a consolidated basis wa s $63.3 million, after re duction of a valuation allowa nce of $46.7 million.
We include interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations. As of December 31, 2023, our net DTA balance on a consolidated basis was $84.1 million, after reduction of a valuation allowance of $24.0 million.
Goodwill Goodwill represents the excess of the purchase price of an acquired business or assets over the fair value of the identifiable assets acquired and liabilities assumed.
We are currently evaluating the potential global tax implications of this new tax regime. Goodwill Goodwill represents the excess of the purchase price of an acquired business or assets over the fair value of the identifiable assets acquired and liabilities assumed.
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 make future payments related to research and development milestones.
As part of our ongoing investment in the development of our products, we may incur additional expenses related to research and development milestones.
Provision for (Benefit from) Income Taxes Year Ended December 31, Change 2022 2021 $ % (in thousands, except for percentages) Provision for (benefit from) income taxes $ 5,894 $ (13,125) $ 19,019 (144.9) % Effective tax rate 151.4 % 125.0 % Our provision for income taxes was $5.9 million in 2022, which was primarily due to income taxes imposed on our worldwide profits, combined with tax deficiencies (shortfalls) from stock-based compensation attributable to our U.S. jurisdiction as a result of stock price fluctuation.
Our provision for income taxes was $5.9 million in 2022, which was primarily due to income taxes imposed on our worldwide profits, combined with excess tax deficiencies (shortfall) from 64 Table of Contents stock-based compensation attributable to our U.S. jurisdiction as a result of stock price fluctuation. Our effective tax rate was (14.2)% in 2023, compared to 151.4% in 2022.
In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could cause us to experience an effective tax rate significantly different from previous periods. Quarterly Results of Operations For our unaudited quarterly results of operations for the eight quarters ended December 31, 2022, please see Note “17.
In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could cause us to experience an effective tax rate significantly different from previous periods.
For example, as a result of the pandemic and the response thereto, global supply chains have been impacted, and we may experience significant and unpredictable fluctuations in the availability and cost of components and raw materials used in our products. • 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.
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 sell our products to hospitals and other healthcare providers 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. In 2022, 30.2% of our revenue was generated from customers located outside of the United States.
We sell our products to healthcare providers 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 $1,058.5 million, $847.1 million and $747.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Revenue by Geographic Area The following table presents revenue by geographic area, based on our customers’ shipping destinations: Year Ended December 31, Change 2022 2021 $ % (in thousands, except for percentages) United States $ 591,715 69.8 % $ 527,789 70.6 % $ 63,926 12.1 % International 255,418 30.2 % 219,801 29.4 % 35,617 16.2 % Total $ 847,133 100.0 % $ 747,590 100.0 % $ 99,543 13.3 % Revenue from sales in international markets increased $35.6 million, or 16.2%, to $255.4 million in 2022, from $219.8 million in 2021.
Revenue by Geographic Area The following table presents revenue by geographic area, based on our customers’ shipping destinations: Year Ended December 31, Change 2023 2022 $ % (in thousands, except for percentages) United States $ 757,151 71.5 % $ 591,715 69.8 % $ 165,436 28.0 % International 301,371 28.5 % 255,418 30.2 % 45,953 18.0 % Total $ 1,058,522 100.0 % $ 847,133 100.0 % $ 211,389 25.0 % Revenue from sales in international markets increased $46.0 million, or 18.0%, to $301.4 million in 2023, from $255.4 million in 2022.
Significant domestic DTAs were generated in recent years, primarily due to excess tax benefits from stock option exercises and vesting of restricted stock, as well as operating expenditures including research and development. The recent Sixense acquisition also generated significant domestic DTAs in the year ended December 31, 2021.
We had California state research and development tax credits of $29.4 million that may be carried forward indefinitely. Significant domestic DTAs were generated in recent years, primarily due to excess tax benefits from stock option exercises and vesting of restricted stock, as well as operating expenditures including research and development.
We generated revenue of $847.1 million, $747.6 million and $560.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. This represents an annual increase of 13.3% and of 33.4%, respectively.
This represents an annual increase of 25.0% and of 13.3%, respectively. We generated income from operations of $73.6 million and $6.1 million for the years ended December 31, 2023 and 2022, respectively, and a loss from operations of $7.5 million for the year ended December 31, 2021.
Net cash used in investing activities was $104.1 million in 2020 and primarily consisted of purchases of marketable investments, net of proceeds from maturities and sales, of $76.3 million and capital expenditures of $24.8 million.
Net Cash (Used In) Provided By Investing Activities Net cash (used in) provided by investing activities relates primarily to purchases of marketable investments and capital expenditures, partially offset by proceeds from maturities and sales of marketable investments.
The increase was primarily due to $17.6 million of one-time, non-recurring expense associated with the accelerated vesting of options related to the Sixense acquisition and a $11.0 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth. This was partially offset by a $15.4 million decrease in product development and testing costs.
The increase was primarily due to a $6.4 million increase in personnel-related expenses driven by an increase in headcount and related expenses to support our growth, partially offset by a $2.7 million decrease in product development and testing costs. We have continued to make investments, and plan to continue to make investments, in the development of our products.
For example, during the year ended December 31, 2021, we incurred $15.0 million of non-recurring personnel-related expenses associated with the development of our Thunderbolt product. Critical Accounting Policies and Use of Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
For example, during the quarter ended September 30, 2023, we incurred a $18.2 million charge related to acquired in process research and development (“IPR&D”) as a result of an asset acquisition. Critical Accounting Policies and Use of Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
The increase in overall revenue was primarily due to an increase in sales of new and existing products within our vascular and neuro businesses. Revenue from our vascular products increased $90.5 million, or 22.1%, to $499.4 million in 2022, from $408.9 million in 2021.
The increase in overall revenue was primarily due to an increase in sales of our new and existing thrombectomy and embolization and access products. Revenue from our global thrombectomy products increased $166.2 million, or 32.5%, to $677.3 million in 2023, from $511.1 million in 2022.
We have successfully developed, obtained regulatory clearance or approval for, and introduced products into the neurovascular market since 2007, vascular market since 2013, neurosurgical market since 2014, and immersive healthcare market since 2020, respectively. We continue to expand our portfolio of product offerings, while developing and iterating on our currently available products.
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, neurosurgical market since 2014, and immersive healthcare market since 2020.
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.
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.
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.
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.
We may see continued productivity improvements to offset inflation and supply chain pressures resulting in expansion of our gross margin in the future. 63 Table of Contents Research and Development (“R&D”) Year Ended December 31, Change 2022 2021 $ % (in thousands, except for percentages) R&D $ 79,407 $ 104,552 $ (25,145) (24.1) % R&D as a percentage of revenue 9.4 % 14.0 % R&D expenses decreased by $25.1 million or 24.1%, to $79.4 million in 2022, from $104.6 million in 2021.
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. 63 Table of Contents Research and Development (“R&D”) Year Ended December 31, Change 2023 2022 $ % (in thousands, except for percentages) R&D $ 84,423 $ 79,407 $ 5,016 6.3 % R&D as a percentage of revenue 8.0 % 9.4 % R&D expenses increased by $5.0 million or 6.3%, to $84.4 million in 2023, from $79.4 million in 2022.
Revenue from our neuro products increased $9.0 million, or 2.7%, to $347.7 million in the year ended December 31, 2022, from $338.7 million in the year ended December 31, 2021. This increase in revenue from our neuro products was primarily attributable to increased revenue in the United States, sales of new products, and further market penetration of our existing products.
This increase was driven by sales of our U.S. vascular thrombectomy products, which increased by 45.2% in the year ended December 31, 2023. This increase in our global thrombectomy products was primarily attributable to higher sales volume in the United States as a result of sales of new products and further market penetration of our existing products.
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 capabilities in our major markets: neuro, vascular, and immersive healthcare.
We believe that the cost-effectiveness of our products is attractive to our customers. Since our founding in 2004, we have had a strong track record of organic product development and commercial expansion that has established the foundation of our global organization.
Liquidity and Capital Resources As of December 31, 2022, we had $610.8 million in working capital, which included $69.9 million in cash and cash equivalents and $118.2 million in marketable investments. As of December 31, 2022, we held approximately 21.2% of our cash and cash equivalents in foreign entities.
Liquidity and Capital Resources As of December 31, 2023, we had $764.3 million in working capital, which included $167.5 million in cash and cash equivalents and $121.7 million in marketable investments.
Lease agreements with a noncancelable term of less than 12 months are not recorded on our consolidated balance sheet. For more information about our leases, refer to Note “9. Leases.” Revenue Recognition Revenue is primarily comprised of product revenue net of returns, discounts, administration fees and sales rebates.
Lease agreements with a noncancelable term of less than 12 months are not recorded on our consolidated balance sheet. For more information about our leases, refer to Note “10. Leases” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.
We also measured our current DTA balances against estimates of future income based on objectively verifiable operating results from our recent history.
We measured our current DTA balances against estimates of future income based on objectively verifiable operating results from our recent history, and concluded that sufficient future taxable income will be generated to realize the benefits of our federal DTAs prior to expiration, including our federal research and development tax credit DTAs.
Gross Margin Year Ended December 31, Change 2022 2021 $ % (in thousands, except for percentages) Cost of revenue $ 311,926 $ 272,208 $ 39,718 14.6 % Gross profit $ 535,207 $ 475,382 $ 59,825 12.6 % Gross margin % 63.2 % 63.6 % Gross margin remained relatively flat, decreasing by 0.4% percentage points to 63.2% in 2022, from 63.6% in 2021.
Gross Margin Year Ended December 31, Change 2023 2022 $ % (in thousands, except for percentages) Cost of revenue $ 375,879 $ 311,926 $ 63,953 20.5 % Gross profit $ 682,643 $ 535,207 $ 147,436 27.5 % Gross margin % 64.5 % 63.2 % Gross margin increased by 1.3% percentage points to 64.5% in 2023, from 63.2% in 2022.
If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. Refer to Note “6. Intangible Assets” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information. Components of Results of Operations Revenue.
If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. Refer to Notes “5. Business Combinations,” “6. Asset Acquisition” and “7.
Revenue also includes shipping and handling costs that we charge to customers. Cost of Revenue.
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.
Contractual Obligations and Commitments In the normal course of business, the Company enters into contracts and commitments that obligate us to make payments in the future. Our contractual obligations consist primarily of: non-cancelable operating and finance leases and purchase commitments.
This was partially offset by $15.8 million of payments of employee taxes related to vested restricted stock units and payments related to finance lease obligations of $1.5 million. 67 Table of Contents Contractual Obligations and Commitments In the normal course of business, the Company enters into contracts and commitments that obligate us to make payments in the future.
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. 68 Table of Contents The following table summarizes our cash and cash equivalents, marketable investments and selected working capital data as of December 31, 2022 and December 31, 2021: Year Ended December 31, 2022 2021 (in thousands) Cash and cash equivalents $ 69,858 $ 59,379 Marketable investments 118,172 195,496 Accounts receivable, net 203,384 133,940 Accounts payable 26,679 13,421 Accrued liabilities 106,300 99,796 Working capital (1) 610,767 558,277 (1) Working capital consists of total current assets less total current liabilities.
The following table summarizes our cash and cash equivalents, marketable investments and selected working capital data as of December 31, 2023 and December 31, 2022: Year Ended December 31, 2023 2022 (in thousands) Cash and cash equivalents $ 167,486 $ 69,858 Marketable investments 121,701 118,172 Accounts receivable, net 201,768 203,384 Accounts payable 27,155 26,679 Accrued liabilities 110,555 106,300 Working capital (1) 764,258 610,767 (1) Working capital consists of total current assets less total current liabilities.
This was partially offset by an increase in accrued expenses and other non-current liabilities of $23.3 million primarily as a result of the growth in our business activities as well as liabilities incurred related to our voluntary recall in December 2020. 69 Table of Contents Net Cash Provided By (Used In) Investing Activities Net cash provided by (used in) investing activities relates primarily to purchases of marketable investments, capital expenditures, payments for leases that have not yet commenced, partially offset by proceeds from maturities and sales of marketable investments.
This was partially offset by an increase in accrued expenses and other non-current liabilities of $6.2 million primarily as a result of the growth in our business activities, an increase in accounts payable of $1.1 million, and proceeds of $0.5 million received related to lease incentives from operating leases.
Pending the use of the net proceeds from this offering, we invested 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.
As of December 31, 2023, we held approximately 14.5% of our cash and cash equivalents in foreign entities. 65 Table of Contents In addition to our existing cash and cash equivalents and marketable investment balances, our principal source of liquidity is our accounts receivable.
The increase was primarily due to a $48.4 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth, a $9.5 million increase in cost related to marketing events as well as a $9.4 million increase in travel-related expense as most domestic travel and other in-person activities returned to pre-COVID-19 levels in 2021, $8.2 million of one-time, non-recurring expense associated with the accelerated vesting of options related to the Sixense acquisition, and a $4.9 million increase in infrastructure costs.
The increase was primarily due to a $38.4 million increase in personnel-related expenses driven by an increase in headcount and related expenses to support our growth and a $8.1 million increase in costs related to marketing events.
As a result, we maintained a full valuation allowance against our federal research and development tax credit DTAs net of ASC 740-10 reserve as of December 31, 2022. We intend to continue maintaining this full valuation allowance until there is sufficient evidence to support the reversal of all or some portion of these allowances.
As a result, we released the valuation allowance against federal research and development tax credit DTAs net of ASC 740-10 reserve and recorded a partial release of our California DTAs, resulting in a $25.5 million income tax benefit recorded as of December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWhile our gross margin for the year ended December 31, 2022 was primarily impacted by higher labor and logistics costs as a result of manufacturing transfer activities and higher labor absenteeism due to the Omicron variant during the three months ended March 31, 2022, changes in prices did not have a significant impact on our results of operations for any periods presented on our consolidated financial statements. 71 Table of Contents
Biggest changeWhile our gross margin for the year ended December 31, 2023 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. 69 Table of Contents
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 euro and Japanese yen, with some sales being denominated in other currencies.
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.
We had cash and cash equivalents of $69.9 million as of December 31, 2022, which consisted of funds held in general checking, savings, and money market accounts. In addition, we had marketable investments of $118.2 million, which consisted primarily of corporate bonds, U.S. agency and government sponsored securities, and U.S. states and municipalities.
We had cash and cash equivalents of $167.5 million as of December 31, 2023, which consisted of funds held in money market funds, general checking and savings accounts. In addition, we had marketable investments of $121.7 million, which consisted primarily of commercial paper, corporate bonds, certificates of deposit, U.S. treasury securities, and U.S. states and municipalities.
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 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.
As of December 31, 2022, there were no borrowings outstanding under the Credit Agreement. 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 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.
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We utilize external investment managers who adhere to the guidelines of our investment policy.
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The revolving loans under our Credit Agreement bear interest at: (1) the adjusted EURIBOR rate, plus an applicable rate, for euro currency revolving borrowing; or (2) an alternate base rate, daily simple SOFR, or adjusted term SOFR rate, as applicable, plus an applicable rate, for revolving borrowing in U.S. dollars.
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For example, changes in exchange rates negatively affected our revenue as expressed in U.S. dollars for the year ended December 31, 2022.
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Additionally, changes in exchange rates reduced our expenses as expressed in U.S. dollars for the year ended December 31, 2022, which largely offset the impact to net income for the year resulting from changes in exchange rates that reduced revenue as expressed in U.S. dollars.

Other PEN 10-K year-over-year comparisons