ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Form 10-K. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. 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. 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 medical devices for use by specialist physicians and healthcare providers to drive improved clinical outcomes and health. 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 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 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. Our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products.

We 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 2021, 29.4% of our revenue was generated from customers located outside of the United States. Our sales outside of the United States are denominated principally in the euro and Japanese yen, with some sales being denominated in other currencies. As a result, we have foreign exchange exposure, but do not currently engage in hedging.

We generated revenue of $747.6 million, $560.4 million and $547.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. This represents an annual increase of 33.4% and of 2.4%, respectively. We generated operating losses of $7.5 million and $38.9 million for the years ended December 31, 2021 and 2020, respectively, and operating income of $47.5 million for the year ended December 31, 2019.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which has spread throughout the U.S. and the world. In response, governments have issued orders restricting certain activities, and while our business falls within the category of healthcare operations, which are essential businesses currently permitted to continue operating during the COVID-19 pandemic, we have experienced, and expect to continue to experience, disruptions to our operations as a result of the pandemic. For example, hospital resources have been diverted to fight the pandemic, and many government agencies in conjunction with healthcare systems have recommended the deferral of elective and semi-elective medical procedures during the pandemic. Some of Penumbra’s medical devices are used in certain procedures that the CMS has indicated are “high-acuity” procedures that should not be postponed during the pandemic in its March 18, 2020 recommendations, while other Penumbra devices are used in elective procedures that physicians may consider postponing. Many of the procedures in which our vascular products are used are elective in nature, whereas procedures in which our neuro products are used, such as stroke, tend to be more emergent in nature.

The impact of COVID-19 on our business remains fluid, and we continue to actively monitor the dynamic situation. We will continue to undertake the following specific actions and strategic priorities to navigate the pandemic:

•We have made changes to how we manufacture, inspect and ship our products to prioritize the health and safety of our employees and to operate under the protocols mandated by our local and state governments. While we are committed to

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continue meeting demand for our essential devices, we have implemented social distancing and other measures to protect the health and safety of our employees, which have reduced, and may continue to reduce, our manufacturing capacity.

•In order to strengthen our liquidity position, we issued and sold an aggregate of 865,963 shares of our common stock at a public offering price of $166.00 per share, less the underwriters’ discounts and commissions, pursuant to an underwritten public offering in June 2020. We received approximately $134.8 million in net cash proceeds from the offering after deducting underwriting discounts and commissions of $8.6 million and other offering expenses of $0.4 million.

•We further strengthened our liquidity position by entering into a Credit Agreement (the “Credit Agreement”) on April 24, 2020, with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. 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 us to increase the aggregate borrowing capacity to up to $150 million, and originally matured on April 23, 2021. This revolving line of credit provides access to capital beyond the $254.9 million in cash, cash equivalents and marketable investments on our balance sheet as of December 31, 2021, and we believe this will allow us to both navigate the current environment and emerge in a strong liquidity position after the pandemic. During the three months ended March 31, 2021, we entered into an amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from April 23, 2021 to February 21, 2022 and had substantially the same terms and conditions as the prior credit agreement with certain changes including the exclusion of certain one-time charges and expenses incurred during the fiscal quarters ended September 30, 2020 and December 31, 2020 from the calculation of the financial covenants, reductions in interest rate floors applicable to revolving loans and other changes to borrowing mechanics under the Credit Agreement. As of December 31, 2021, 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, 2021, there were no borrowings outstanding under the Credit Agreement. In the first quarter of 2022, the Company subsequently entered into a further amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from February 21, 2022 to February 17, 2023 and has substantially the same terms and conditions as the prior credit agreement with certain changes to the reference benchmark interest rates, applicable margins and borrowing mechanics under the Credit Agreement, having the overall effect of lowering the interest rates payable by the Company on amounts borrowed under the Credit Agreement, and a reduction of the commitment fee payable on the average daily unused amount under the Credit Agreement to 0.25% per annum. Refer to Part II, Item 9B, “Other Information” and Note “8. Indebtedness” to our consolidated financial statements in Part II, Item 8 in this Form 10-K for more information.

•We will continue to prioritize investments in our production capacity and flexibility, commercial channels, preparation for new product launches, and new product developments to help patients.

While we have seen positive trends in certain areas of our business beginning in May 2020, we remain mindful of the negative impacts on business trends we experienced in April 2020 due to the COVID-19 pandemic. The general impact of COVID-19 on our business has been negative and we are unable to reliably predict the full impact that COVID-19 will have on our business due to numerous uncertainties, including the severity and duration of the pandemic, the global resurgences of cases, particularly as new variants of the virus spread, additional actions that may be taken by governmental authorities in response to the pandemic, the impact of the pandemic on the business of our customers, distributors and suppliers, other businesses and worldwide economies in general, our ability to have access to our customers to provide training and case support, and other factors identified in Part I, Item 1A “Risk Factors” in this Form 10-K. 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. These factors include:

•The COVID-19 pandemic and measures taken in response thereto, which have negatively affected, and we expect will continue to negatively affect, our revenues and results of operations. Due to these impacts and measures, we may experience significant and unpredictable fluctuations in demand for certain of our products as hospital customers re-prioritize the treatment of patients and distributors adjust their operations to support the current demand level.

•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.

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•Our industry is intensely competitive and, in particular, we compete with a number of large, well-capitalized companies. We must continue to successfully compete in light of our competitors’ existing and future products and their resources to successfully market to the specialist physicians who use our products.

•We must continue to successfully introduce new products that gain acceptance with specialist physicians and other healthcare providers and successfully transition from existing products to new products, ensuring adequate supply. In addition, as we introduce new products and expand our production capacity, we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales, which may cause quarterly fluctuations in our operating results and financial condition.

•Publications of clinical results by us, our competitors and other third parties can have a significant influence on whether, and the degree to which, our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition.

•The specialist physicians who use our interventional products may not perform procedures during certain times of the year, such as those periods when they are at major medical conferences or are away from their practices for other reasons, the timing of which occurs irregularly during the year and from year to year.

•Most of our sales outside of the United States are denominated in the local currency of the country in which we sell our products. As a result, our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates.

•The availability and levels of reimbursement within the relevant healthcare payment system for healthcare providers for procedures in which our products are used.

In addition, we have experienced and expect to continue to experience meaningful variability in our quarterly revenue, gross profit and gross margin percentage as a result of a number of factors, including, but not limited to: the 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 fluctuations in foreign currency exchange rates. We may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth. Additionally, we may experience quarters in which operating expenses, in particular research and development expenses, fluctuate depending on the stage and timing of product development. 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. The preparation of our consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our consolidated statements of operations, liquidity and financial condition.

We believe the following critical accounting policies involve significant areas where management applies judgments and estimates in the preparation of our consolidated financial statements.

Leases

The Company adopted the guidance under ASC 842 on January 1, 2019 using the modified retrospective transition approach. There was no cumulative-effect adjustment recorded to retained earnings upon adoption.

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whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease contains a bargain purchase option, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of December 31, 2021, the Company's lease population consisted of operating and finance real estate, equipment and vehicle leases. As of the date of adoption of ASC 842 the Company did not have material finance 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. 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 Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate which requires management’s judgement as the rate implicit in the lease is generally not readily determinable. The determination of the Company’s incremental borrowing rate requires management judgment including the development of a synthetic credit rating and cost of debt as the Company currently does not carry any debt. The lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Finance lease cost is recognized as depreciation expense on a straight-line basis over the expected lease term and interest expense using the accelerated interest method of recognition. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a noncancelable term of less than 12 months are not recorded on the Company’s consolidated balance sheet. For more information about the impact of adoption and disclosures on the Company’s leases, refer to Note “9. Leases.”

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 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. 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.

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. 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. 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.

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price. 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, 2021, we made no material changes in estimates for variable consideration.

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. Return rates can fluctuate over time, but are sufficiently predictable to allow us to estimate expected future product returns.

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Income Taxes

We account for income taxes using the asset and liability method, whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance to reduce the net deferred tax assets (“DTAs”) to their estimated realizable value.

The calculation of our DTAs involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. 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.

The calculation of our current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. We have established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although we believe our estimates, assumptions and judgments to be reasonable, any changes in tax law or interpretation of tax law and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

We follow FASB ASC 740-10 “Accounting for Uncertainty in Income Taxes” that prescribes a financial statement recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on our income tax returns, and also provides guidance on derecognition, classification, interest and penalty accrual, accounting in interim periods, and disclosure requirements. We include interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act (the “CAA”) were enacted during the year ended December 31, 2020 and provide certain tax relief to business taxpayers. Neither Act had a material impact to our financial statements for the year ended December 31, 2020 and 2021, respectively.

Significant domestic DTAs were generated in recent years, primarily due to excess tax benefits from stock option exercises and vesting of restricted stock. The recent Sixense acquisition also generated significant domestic DTAs in the year ended December 31, 2021. As of December 31, 2021, we had approximately $226.3 million and $127.2 million of federal and state net operating loss carryforwards, respectively, available to offset future taxable income. The federal net operating loss carryforwards will begin to expire in 2036. The state net operating loss carryforwards have various carryover periods and will begin to expire as early as 2023. As of December 31, 2021, we had research credits available to offset federal and state tax liabilities in the amount of $20.1 million and $19.7 million, respectively. The federal tax credits will begin to expire in 2024. California state tax credits have no expiration.

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) estimates of future taxable income, (4) respective carryback and/or carryforward periods of tax attributes available to date, and (5) limitation on net operating loss (“NOL”) utilization against taxable income. We also measure our current DTA balances against estimates of future income based on objectively verifiable operating results from the Company’s recent history.

As of December 31, 2021, our net DTA balance on a consolidated basis was $64.2 million, after reduction of a valuation allowance of $37.1 million. We do not maintain valuation allowances 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. In the year ended December 31, 2021, we measured our domestic net operating loss (“NOL”) DTA balances against projections of future taxable income with consideration of relevant provisions of the Tax Reform Act, including but not limited to, the indefinite carryforward period for NOLs generated in years beginning on or after January 1, 2018. Despite the operational loss in the year ended December 31, 2021, we determined that we would be in a three-year cumulative adjusted taxable income position, had it not been for the impact of excess tax deductions from stock-based compensation.

The Tax Reform Act extended the carryforward period of net operating losses generated in tax years beginning on or after January 1, 2018 such that the losses may be carried forward indefinitely, subject to an annual limitation of 80% of taxable income. The tax attribute ordering rules provide that to offset taxable income, net operating losses must be used prior to the utilization of tax credits. Accordingly, we cannot assert, at the required more-likely-than-not level of certainty, that we will be

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able to realize the benefit of our federal research and development tax credit DTAs, with a limited 20-year carryforward period, prior to expiration.

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 which are expected to expire before their utilization. As a result, in the period ended December 31, 2021, we continued to record a valuation allowance against our federal research and development tax credit. In addition, we continue to maintain a full valuation allowance against our California DTAs.

Our DTA balance also includes $3.1 million of tax attributes gained upon acquisition of a majority interest ownership in MVI Health Inc. (“MVI”). Due to recent liquidation of MVI in the quarter ended December 31, 2021, the acquired tax attributes are no longer subject to Separate Return Limitation Year (“SRLY”) rules which limits pre-acquisition tax attributes utilization to only offset against MVI taxable income. As a result, we released the valuation allowance against the MVI federal NOL DTAs and recorded a tax benefit of $1.9 million in the year ended December 31, 2021. The MVI pre-acquisition federal R&D credit DTAs and California DTAs are continued to be fully valued because we cannot conclude, at the required more-likely-than-not level of certainty, that we will generate sufficient taxable income to realize the benefit of those tax attributes prior to expiration.

We will continue to closely monitor the need for a valuation allowance against current and additional DTAs generated in each subsequent reporting period. The need for a valuation allowance can be impacted by actual operating results, forecasted financial performance, and variances between the two, and the rate at which future DTAs are generated. If our management was to determine that we would not be able to realize all or a portion of our net DTAs in the future, a valuation allowance related charge to earnings would be reflected in that period, which could have a material adverse impact on our financial condition and results of operations. If our management was to determine that we would be able to realize all net DTAs in the future, a reduction of the valuation allowance would be reflected as a benefit to earnings in that period, which could have a material positive impact on our financial condition and results of operations.

Valuation of Assets Acquired and Liabilities Assumed in a Business Combination

For material acquisitions, 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.

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. Certain estimates used in the cost approach include the total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence, a developer’s expected profit margin, and any opportunity costs lost over the period to reconstruct the substitute asset. Certain estimates used in the income approach may include the amount and timing of projected future cash flows, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic, and competitive risks.

Impairment of 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. In conducting the annual impairment test for its indefinite-lived intangible assets, we may first perform a qualitative assessment to determine whether it is more likely than not (greater than 50% likelihood) that an indefinite-lived intangible asset is impaired. In accordance with the authoritative guidance, we may elect to bypass the qualitative assessment and proceed directly to the quantitative test to compare the fair value of the indefinite-lived intangible asset to the carrying amount. Refer to Note “6. Intangible Assets” to our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information.

Finite-lived intangible assets are amortized over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets. We review finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset will be written down to the determined fair value based on discounted cash flows. We also periodically review the useful lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to

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realize cash flows from the underlying intangible asset. 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.

Components of Results of Operations

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

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

Operating Expenses

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

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

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

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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,

(in thousands, except for percentages)

Operating expenses:

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue

Year Ended December 31, Change

(in thousands, except for percentages)

Revenue increased $187.2 million, or 33.4%, to $747.6 million in 2021, from $560.4 million in 2020. The increase in overall revenue was primarily due to an increase in sales of new and existing medical devices within our vascular and neuro businesses as well as a higher number of elective procedures performed as COVID-19 vaccination rates increased. Given the current state of vaccinations and the spread of new variants of the virus, it is possible that the increase in elective cases will begin to normalize in future quarters.

Revenue from our vascular medical devices increased $141.1 million, or 52.7%, to $408.9 million in 2021, from $267.8 million in 2020. This increase was driven by sales of our vascular thrombectomy medical devices and peripheral embolization medical devices, which globally increased by 65.6% and 36.9%, respectively, in the year ended December 31, 2021. These increases were primarily due to high sales volume as a result of sales of new medical devices, further market penetration of our existing medical devices, and an increase in the number of elective procedures. Prices for our vascular medical devices remained substantially unchanged during the period.

Revenue from our neuro medical devices increased $46.1 million, or 15.7%, to $338.7 million in the year ended December 31, 2021, from $292.6 million in the year ended December 31, 2020. This increase was primarily attributable to increased revenue in China due to the license agreement entered into in December 2020, sales of new medical devices, and further market penetration of our existing medical devices. This increase was driven by an increase in sales of our neuro access medical devices, neuro embolization medical devices and neuro thrombectomy medical devices which globally increased by 45.4%, 10.0% and 5.2%, respectively, in the twelve months ended December 31, 2021. Prices for our neuro medical devices remained substantially unchanged during the period.

Revenue by Geographic Area

The following table presents revenue by geographic area, based on our customers’ shipping destinations:

Year Ended December 31, Change

(in thousands, except for percentages)

Revenue from sales in international markets increased $59.7 million, or 37.3%, to $219.8 million in 2021, from $160.1 million in 2020. Revenue from international sales represented 29.4% and 28.6% of our total revenue in 2021 and 2020, respectively.

Gross Margin

Year Ended December 31, Change

(in thousands, except for percentages)

Gross margin increased by 3.3% percentage points to 63.6% in 2021, from 60.3% in 2020, which included a one-time, non-recurring $18.4 million reduction in gross profit as a result of the December 2020 voluntary recall of our JET 7 Reperfusion

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Catheter with Xtra Flex technology (“JET 7 Xtra Flex”). While gross margin is impacted by higher labor and logistics costs due to the impact of inflation, our ability to scale production capacity to support our expanding portfolio of medical devices as well as our continued investments in COVID-19 related safety measures allowed the Company to navigate the labor and supply chain disruptions. As such, with our accelerated investments in our production capacity, our gross margin may be positively impacted in the future.

Research and Development (“R&D”)

Year Ended December 31, Change

(in thousands, except for percentages)

R&D as a percentage of revenue 14.0 % 16.1 %

R&D expenses increased by $14.5 million or 16.1%, to $104.6 million in 2021, from $90.0 million in 2020. 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.

We have made investments, and plan to continue to make investments, in the development of our products, which may include hiring additional research and development employees. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

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

Year Ended December 31, Change

(in thousands, except for percentages)

SG&A as a percentage of revenue 50.6 % 51.2 %

SG&A expenses increased by $91.3 million, or 31.8%, to $378.3 million in 2021, from $287.1 million in 2020. 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.

As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments in infrastructure to support the business.

(Benefit from) Income Taxes

Year Ended December 31, Change

(in thousands, except for percentages)

Our benefit from income taxes was $13.1 million in 2021, compared to $18.8 million in 2020. Our effective tax rate was 125.0% in 2021, compared to 49.3% in 2020. Our effective tax rate in 2021 and 2020 included tax benefits attributable to our worldwide losses, combined with excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction. Our change in effective tax rate was primarily due to smaller worldwide losses recorded for the year ended December 31, 2021, compared to the year ended December 31, 2020 with consistent tax benefit between the two years. The effective tax rate in 2021 was amplified by the relatively smaller worldwide loss.

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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 income tax provision is subject to volatility as the amount of excess tax benefits can fluctuate from period to period based on the price of our stock, the volume of share-based grants settled or vested, and the fair value assigned to equity awards under U.S. GAAP. In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could cause us to experience an effective tax rate significantly different from previous periods.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenue

Year Ended December 31, Change

(in thousands, except for percentages)

Revenue increased $13.0 million, or 2.4%, to $560.4 million in 2020, from $547.4 million in 2019. The increase in overall revenue was primarily due to an increase in sales of new and existing products within our vascular business, partially offset by a decrease in sales within our neuro business.

Revenue from our vascular products increased $52.1 million, or 24.1%, to $267.8 million in 2020, from $215.7 million in 2019. This increase was driven by sales of our vascular thrombectomy products and peripheral embolization products, which globally increased by 38.6% and 9.3%, respectively, in the year ended December 31, 2020. This increase was primarily due to high sales volume as a result of sales of new products and further market penetration of our existing products. Prices for our vascular products remained substantially unchanged during the period.

Revenue from our neuro products decreased $39.1 million, or 11.8%, to $292.6 million in the year ended December 31, 2020, from $331.7 million in the year ended December 31, 2019. This was primarily attributable to decreased sales of our neuro thrombectomy products and neuro embolization products, which globally declined by 19.3% and 2.6%, respectively, and partially offset by an increase in sales of new and existing products within our neuro access products in the twelve months ended December 31, 2020. This decrease was primarily attributable to: (i) decreased sales in Japan as a result of reimbursement changes and on-going discussions with our distributor partner, and (ii) lower sales volume as a result of hospitals performing fewer procedures and a decline in other international distribution sales, all primarily resulting from the response to the COVID-19 pandemic by hospitals and our distributors. Prices for our neuro products remained substantially unchanged during the period.

Revenue by Geographic Area

The following table presents revenue by geographic area and from countries that exceeded 10% of our total revenue, based on our customers’ shipping destinations:

Year Ended December 31, Change

(in thousands, except for percentages)

Revenue from sales in international markets decreased $32.0 million, or 16.7%, to $160.1 million in 2020, from $192.2 million in 2019. Revenue from international sales represented 28.6% and 35.1% of our total revenue in 2020 and 2019, respectively.

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Gross Margin

Year Ended December 31, Change

(in thousands, except for percentages)

Gross margin decreased by 7.7% percentage points to 60.3% in 2020, from 68.0% in 2019. This decrease in gross margin was primarily driven by four components: (i) incremental investments in COVID-19 related safety measures, which include trade-offs made in productivity and capacity; (ii) accelerated investments in direct labor hires and production support to enable production scale-up in our Alameda and Roseville manufacturing facilities, respectively, undertaken to support new product launches and meet increasing demand in a less efficient manufacturing environment; (iii) unabsorbed manufacturing variances due to lower production volume in the first and second quarters of 2020 and (iv) a one-time, non-recurring $18.4 million reduction in gross profit during the year ended December 31, 2020 as a result of the December 2020 voluntary recall of JET 7 Xtra Flex.

Research and Development (“R&D”)

Year Ended December 31, Change

(in thousands, except for percentages)

R&D as a percentage of revenue 16.1 % 9.4 %

R&D expenses increased by $38.3 million or 74.1%, to $90.0 million in 2020, from $51.7 million in 2019. The increase was primarily due to a $20.3 million increase in personnel-related expenses, which primarily includes one-time, non-recurring personnel-related expenses associated with the launch of our Lightning product, and a $14.9 million increase in product development and testing costs.

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

Year Ended December 31, Change

(in thousands, except for percentages)

SG&A as a percentage of revenue 51.2 % 49.8 %

SG&A expenses increased by $14.3 million, or 5.3%, to $287.1 million in 2020, from $272.7 million in 2019. The increase was primarily due to a $29.3 million increase in personnel-related expense and a $4.5 million increase in infrastructure costs, partially offset by a $11.1 million decrease in cost related to marketing events, and a $10.9 million decrease in travel-related expenses.

As we continue to invest in our growth, we have expanded and expect to continue to expand our sales, marketing, general and administrative teams through the hiring of additional employees. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments in infrastructure to support the business.

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(Benefit from) Provision for Income Taxes

Year Ended December 31, Change

(in thousands, except for percentages)

Effective tax rate 49.3 % 6.2 %

Our benefit from income taxes was $18.8 million in 2020, which was primarily due to tax benefits attributable to our worldwide losses, combined with excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction. Our provision for income taxes was $3.1 million in 2019, which was primarily due to income taxes attributable to our worldwide profits, offset by excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction. Our effective tax rate changed to 49.3% in 2020, compared to 6.2% in 2019. The change in effective tax rate was primarily attributable to large tax benefits over worldwide losses for the year ended December 31, 2020, when compared to small tax expense over worldwide profits for the year ended December 31, 2019.

Quarterly Results of Operations

For our unaudited quarterly results of operations for the eight quarters ended December 31, 2021, please see Note “17. Selected Quarterly Financial Data (Unaudited)” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

Our quarterly results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year. Our unaudited quarterly results tables include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our consolidated financial position and operating results for the quarters presented. 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.

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. 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.

Liquidity and Capital Resources

As of December 31, 2021, we had $558.3 million in working capital, which included $59.4 million in cash and cash equivalents and $195.5 million in marketable investments. As of December 31, 2021, we held approximately 34.0% of our cash and cash equivalents in foreign entities.

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In June 2020, we issued and sold an aggregate of 865,963 shares of our common stock at a public offering price of $166.00 per share, less the underwriters’ discounts and commissions, pursuant to an underwritten public offering. We received approximately $134.8 million in net cash proceeds after deducting underwriting discounts and commissions of $8.6 million and other offering expenses of $0.4 million. We intend to use the net proceeds from this offering for general corporate purposes, including working capital, continued development of our products, including research and development and clinical trials, potential acquisitions and other business opportunities. Pending the use of the net proceeds from this offering, we 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. In order to further strengthen our liquidity position and financial flexibility during the COVID-19 pandemic, on April 24, 2020 we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. 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. During the three months ended March 31, 2021, the Company entered into an amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from April 23, 2021 to February 21, 2022 and had substantially the same terms and conditions as the prior credit agreement with certain changes including the exclusion of certain one-time charges and expenses incurred during the fiscal quarters ended September 30, 2020 and December 31, 2021 from the calculation of the financial covenants, reductions in interest rate floors applicable to revolving loans and other changes to borrowing mechanics under the Credit Agreement. As of December 31, 2021, 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, 2021, there were no borrowings outstanding under the Credit Agreement. In the first quarter of 2022, the Company entered into a further amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from February 21, 2022 to February 17, 2023 and has substantially the same terms and conditions as the prior credit agreement with certain changes to the reference benchmark interest rates, applicable margins and borrowing mechanics under the Credit Agreement, having the overall effect of lowering the interest rates payable by the Company on amounts borrowed under the Credit Agreement, and a reduction of the commitment fee payable on the average daily unused amount under the Credit Agreement to 0.25% per annum Refer to Part II Item 9B “Other Information” and Note “8. 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. Our principal liquidity requirements are to fund our operations, expand manufacturing operations which includes, but is not limited to, maintaining sufficient levels of inventory to meet the anticipated demand of our customers, fund research and development activities and fund our capital expenditures. We may also lease or purchase additional facilities to facilitate our growth. We expect to continue to make investments as we launch new products, expand our manufacturing operations and information technology infrastructures and further expand into international markets. We may, however, require or elect to secure additional financing as we continue to execute our business strategy. If we require or elect to raise additional funds, we may do so through equity or debt financing, which may not be available on favorable terms, could result in dilution to our stockholders and could require us to agree to covenants that limit our operating flexibility.

While we have strengthened our liquidity position, as a result of the COVID-19 pandemic, we cannot reliably estimate the extent to which the COVID-19 pandemic may impact our cash flow from operations.

The following table summarizes our cash and cash equivalents, marketable investments and selected working capital data as of December 31, 2021 and December 31, 2020:

Year Ended December 31,

(in thousands)

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

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

Year Ended December 31,

(in thousands)

Net cash provided by (used in) operating activities 9,502 (33,242) 26,652

Net Cash Provided By (Used In) Operating Activities

Net cash provided by (used in) 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).

Net cash provided by operating activities was $9.5 million in 2021 and consisted of net income of $2.6 million and non-cash items of $73.6 million offset by net changes in operating assets and liabilities of $66.7 million. The change in operating assets and liabilities includes an increase in inventories of $51.6 million to support our revenue growth, an increase in accounts receivable of $21.3 million, an increase in prepaid expenses and other current and non-current assets of $13.0 million, and a decrease in accounts payable of $1.6 million. This was partially offset by an increase in accrued expenses and other non-current liabilities of $17.1 million primarily as a result of the growth in our business activities and proceeds of $3.7 million received related to lease incentives from operating leases.

Net cash (used in) operating activities was $33.2 million in 2020 and consisted of net loss of $19.3 million and non-cash items of $37.2 million offset by net changes in operating assets and liabilities of $51.2 million. 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. 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.

Net cash provided by operating activities was $26.7 million in 2019 and consisted of net income of $47.0 million and non-cash items of $36.5 million offset by net changes in operating assets and liabilities of $56.8 million. The change in operating assets and liabilities includes an increase in inventories of $41.4 million to support our revenue growth, an increase in accounts receivable of $25.0 million, an increase in prepaid expenses and other current and non-current assets of $4.0 million, partially offset by an increase in accrued expenses and other non-current liabilities of $7.6 million, and an increase in accounts payable of $6.0 million as a result of the growth in our business activities.

Net Cash Used In Investing Activities

Net cash 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.

Net cash used in investing activities was $21.7 million in 2021 and primarily consisted of capital expenditures of $21.2 million and purchases of marketable investments, net of proceeds from maturities and sales, of $3.1 million. This was partially offset by $2.9 million cash acquired in connection with the Sixense acquisition.

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 investing activities was $12.7 million in 2019 and consisted of capital expenditures of $22.1 million, and payments for leases that have not yet commenced of $6.6 million, partially offset by proceeds from maturities and sales of marketable investments, net of purchases, of $18.0 million.

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Net Cash Provided By Financing Activities

Net cash provided by (used in) 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 was $0.8 million in 2021 and primarily consisted of proceeds from the issuance of stock under our employee stock purchase plan of $13.7 million and proceeds from exercises of stock options of $4.7 million. 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.

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. This was partially offset by $10.1 million of payments of employee taxes related to vested restricted stock units, payments related to finance lease obligations of $3.4 million and payments related to contingent consideration in connection with our acquisition in 2017 of $0.7 million.

Net cash used in financing activities was $9.0 million in 2019 and primarily consisted of payments of employee taxes related to vested common and restricted stock of $18.5 million, payments related to finance lease obligations of $2.6 million and payments related to contingent consideration payments in connection with our acquisition in 2017 of $1.8 million, partially offset by proceeds from the issuance of stock under our employee stock purchase plan of $9.0 million and proceeds from exercises of stock options of $4.1 million.

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. 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.

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, 2021, 2020 and 2019 was $2.3 million, $2.5 million and $3.8 million, respectively. For more information on these royalty obligations, refer to Note “10. 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. Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 of this Form 10-K.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

Interest Rate Risk. We had cash and cash equivalents of $59.4 million as of December 31, 2021, which consisted of funds held in general checking, savings, and money market accounts. In addition, we had marketable investments of $195.5 million, which consisted primarily of commercial paper, corporate bonds, U.S. agency and government sponsored securities, and U.S. states and municipalities. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than the U.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. The revolving loans under our Credit Agreement bear interest at: (1) the adjusted LIBO rate or adjusted EURIBO rate, as applicable, plus an applicable rate, for euro currency revolving borrowing; or (2) an alternate base rate plus an applicable rate, for revolving borrowing in U.S. dollars. As of December 31, 2021, 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 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 expect that the percentage of our sales denominated in foreign currencies may increase in the foreseeable future as we continue to expand into international markets. When sales or expenses are not denominated in U.S. dollars, a fluctuation in exchange rates could affect our net income. We do not believe our net income would be materially impacted by an immediate 10% adverse change in foreign exchange rates. We do not currently hedge our exposure to foreign currency exchange rate fluctuations; however, we may choose to hedge our exposure in the future.

While our gross margin for the year ended December 31, 2021 was impacted by higher labor and logistics costs due to the impact of inflation, changes in prices did not have a significant impact on our results of operations for any periods presented on our consolidated financial statements.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PENUMBRA, INC.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 75

Consolidated Balance Sheets 78

Consolidated Statements of Operations 79

Consolidated Statements of Comprehensive Income (Loss) 80

Consolidated Statements of Stockholders’ Equity 81

Consolidated Statements of Cash Flows 82

Notes to Consolidated Financial Statements 83

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Penumbra, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Penumbra, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Income Taxes – Realizability of Deferred Tax Assets — Refer to Notes 2 and 14 to the financial statements

Critical Audit Matter Description

The Company recognizes deferred income taxes based on differences between the financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates and laws in effect for the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets (“DTAs”) to the amounts expected to be realized based on estimates of future taxable income. The Company’s net DTA as of December 31, 2021 was $64.2 million after a reduction of a valuation allowance of $37.1 million.

We identified management’s determination that a valuation allowance is necessary to reduce deferred tax assets to their estimated realizable value as a critical audit matter because management utilized significant judgments and estimates in their evaluation, including estimates of future taxable income, cumulative results of operations in recent years, and the respective carryforward periods of tax attributes available to date. This in turn led to a high degree of auditor judgment and subjectivity in applying procedures relating to assessing such positive and negative evidence, including assessing how management’s assumptions may be affected by the future operations of the Company, market, and/or economic conditions.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to estimated future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized included the following, among others:

– We tested the effectiveness of controls over deferred tax assets, including management’s controls over the estimates of taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized.

– We evaluated the reasonableness of the methods and assumptions used by management to determine whether a valuation allowance is necessary.

– With the assistance of our income tax specialists, we considered the following sources of information used in management’s evaluation of whether deferred taxes are more likely than not to be realized:

– Estimates of future taxable income.

– The length of net operating loss carryforward periods.

– The ability to carryback losses to prior years.

– Tax credit carryforwards and consideration of when those will expire.

– We evaluated whether the taxable income in historical periods was of the appropriate character and available under the tax law.

– We evaluated management’s assessment of the positive and negative evidence utilized to conclude if a valuation allowance was necessary.

Acquisition of Sixense Enterprise, Inc. — Refer to Note 5 to the financial statements

Critical Audit Matter Description

On October 1, 2021, the Company closed the acquisition of Sixense Enterprises Inc. (“Sixense”) for $251.0 million. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based on their respective fair values, including intangible assets of $88.2 million. Management estimated the fair value of the intangible assets using the replacement cost method. The fair value determination of the intangible assets required management to make significant estimates and assumptions related to total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence, a developer’s expected profit margin, and the opportunity cost lost over the period to reconstruct the substitute asset.

We identified the intangible assets for Sixense as a critical audit matter because of the significant estimates and assumptions management makes to fair value the intangible assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of the total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence, a developer’s expected profit margin, and the opportunity cost lost over the period to reconstruct the substitute asset.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the fair value of the intangible assets for Sixense included the following, among others:

– We tested the effectiveness of controls over the valuation of the intangible assets, including management’s controls over the replacement cost inputs.

– With the assistance of our fair value specialists, we evaluated the reasonableness of (1) the valuation methodology, (2) a developer’s expected profit margin, and (3) the opportunity cost lost over the period to reconstruct the substitute asset by:

– Testing the source information underlying the determination of a developer’s expected profit margin and the opportunity cost lost over the period to reconstruct the substitute asset and testing the mathematical accuracy of the calculations.

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– Developing a range of independent estimates and comparing those to the developer’s expected profit margin and the opportunity cost lost over the period to reconstruct the substitute asset selected by management.

– We tested the source information underlying the total cost and time to reconstruct a substitute asset of comparable utility adjusted for any obsolescence.

/s/ Deloitte & Touche LLP

San Francisco, California

February 22, 2022

We have served as the Company's auditor since 2008.

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Penumbra, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 29,155 18,735

Liabilities and Stockholders’ Equity

Current liabilities:

Current operating lease liabilities 8,267 4,697

Current finance lease liabilities 1,713 1,331

Non-current finance lease liabilities 26,523 27,066

Other non-current liabilities 3,558 8,014

Commitments and contingencies (Note 10)

Stockholders’ equity:

Accumulated other comprehensive (loss) income (2,630) 2,541

Non-controlling interest — (3,710)

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses:

Net loss attributable to non-controlling interest (2,661) (3,555) (1,454)

Net income (loss) attributable to Penumbra, Inc. $ 5,284 $ (15,702) $ 48,458

Net income (loss) attributable to Penumbra, Inc. per share:

Weighted average shares outstanding:

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Year Ended December 31,

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments, net of tax (3,929) 4,456 (1,120)

Total other comprehensive (loss) income, net of tax $ (5,171) $ 4,865 $ (382)

Net loss attributable to non-controlling interest $ (2,661) $ (3,555) $ (1,454)

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Shares Amount

Capital contributions of non-controlling interest — — — — — — 1,000 1,000

Other comprehensive loss — — — (382) — (382) — (382)

(1) Cumulative effect adjustments relate to the adoption of Accounting Standard Update (“ASU”) No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Refer to Note “2. Summary of Significant Accounting Policies” for more information.

(2) Refer to Note "5. Business Combinations” and “11. Stockholders’ Equity” for more information on the impact of the acquisition of Sixense Enterprises Inc. during the year ended December 31, 2021.

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Impairment of intangible asset — 2,500 —

Changes in operating assets and liabilities:

Proceeds from lease incentives 3,708 — —

Net cash provided by (used in) operating activities 9,502 (33,242) 26,652

CASH FLOWS FROM INVESTING ACTIVITIES:

Lease payments made prior to commencement — — (6,636)

Cash acquired in a business combination 2,919 — —

Proceeds from sales of marketable investments 2,000 7,897 4,746

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments of finance lease obligations (1,451) (3,418) (2,570)

Payment of acquisition-related obligations — (683) (1,758)

Proceeds from capital contribution from non-controlling interest — — 800

Net cash provided by (used in) financing activities 836 134,917 (8,959)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,291) (3,109) 4,929

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

NONCASH INVESTING AND FINANCING ACTIVITIES:

The accompanying notes are an integral part of these consolidated financial statements.

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Penumbra, Inc.

Notes to Consolidated Financial Statements

1. Organization and Description of Business

Penumbra, Inc. (the “Company”) is a global healthcare company focused on innovative therapies. The Company designs, develops, manufactures and markets novel products and has a broad portfolio that addresses challenging medical conditions in markets with significant unmet need.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity accounts; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to marketable investments, allowances for credit losses, standalone selling prices used to allocate revenue to performance obligations which are not directly observable, the amount of variable consideration included in the transaction price, warranty reserve, valuation of inventories, useful lives of property and equipment, operating and finance lease right-of-use (“ROU”) assets and liabilities, income taxes, contingent consideration and other contingencies, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other data. Actual results could differ from those estimates.

Segments

The Company determined its operating segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity: the design, development, manufacturing and marketing of innovative medical products, and operates as one operating segment. The Company’s chief operating decision-maker (“CODM”), its Chief Executive Officer, reviews its consolidated operating results for the purpose of allocating resources and evaluating financial performance. The Company’s entity-wide disclosures are included in Note “16. Revenues.”

Foreign Currency Translation

The Company’s consolidated financial statements are prepared in United States Dollars (“USD”). Its foreign subsidiaries use their local currency as their functional currency and maintain their records in the local currency. Accordingly, the assets and liabilities of these subsidiaries are translated into USD using the current exchange rates in effect at the balance sheet date and equity accounts are translated into USD using historical rates. Revenues are translated using the exchange rate as of the date of transaction and expenses are translated using the average exchange rates in effect for the year involved. The resulting foreign currency translation adjustments are recorded in accumulated other comprehensive income (loss) in the consolidated balance sheets. Transactions denominated in currencies other than the respective functional currencies are translated at exchange rates as of the date of transaction with foreign currency gains and losses recorded in other expense, net in the consolidated statements of operations. The Company realized net foreign currency transaction losses of $0.5 million, a nominal amount and $0.8 million during the years ended December 31, 2021, 2020, and 2019, respectively.

As the Company’s international operations grow, its risks associated with fluctuation in currency rates will become greater, and the Company will continue to reassess its approach to managing this risk. In addition, currency fluctuations or a weakening USD can increase the costs of the Company’s international expansion. To date, the Company has not entered into any foreign currency hedging contracts.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable investments (as described in greater detail in this footnote under the header “Cash, Cash Equivalents and Marketable Investments” below) and accounts receivable. The majority of the Company’s cash is held by one financial institution in the U.S. in excess of federally insured limits. The Company maintained investments in money market funds that were not federally insured during the year ended December 31, 2021 and held cash in foreign entities of approximately $20.2 million and $17.4 million at December 31, 2021 and 2020, respectively, which was not federally insured.

The Company’s revenue has been derived from sales of its products in the United States and international markets. The Company uses both its own salesforce and independent distributors to sell its products. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of entities comprising the Company’s customer base. The Company performs ongoing credit evaluations of its customers, including its distributors, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary.

During the years ended December 31, 2021, 2020, and 2019, no customer accounted for greater than 10% of the Company’s revenue. No customer accounted for greater than 10% of the Company’s accounts receivable balance as of December 31, 2021 while one customer accounted for greater than 10% of the Company’s accounts receivable balance as of December 31, 2020.

Significant Risks and Uncertainties

The Company is subject to risks common to medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, uncertainty of market acceptance of products and the potential need to obtain additional financing. The Company is dependent on third-party suppliers, in some cases single-source suppliers.

There can be no assurance that the Company’s products will continue to be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all.

The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. There can be no assurance that the Company’s products will receive all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the Company sells its products. If the Company is denied such approvals or clearances or such approvals or clearances are delayed, it may have a material adverse impact on the Company’s results of operations, financial position and liquidity.

Fair Value of Financial Instruments

Carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.

Cash, Cash Equivalents and Marketable Investments

The Company invests its cash primarily in highly liquid corporate debt securities, debt instruments of U.S. federal, state and municipal governments, and their agencies, in money market funds and in commercial paper. All highly liquid investments with stated maturities of three months or less from the date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks.

The Company determines the appropriate classification of its investments in marketable investments at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable investments have been classified and accounted for as available-for-sale. Investments with remaining maturities of more than one year are viewed by the Company as available to support current operations and are classified as current assets under the caption marketable investments in the accompanying consolidated balance sheets. Investments in marketable investments are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive loss. Any realized gains or losses on the sale of marketable investments are determined on a specific identification method, and such gains and losses are reflected as a component of other income (expense), net.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Impairment of Marketable Investments

As a result of the of the adoption of the ASU 2016-13 during the year ended December 31, 2020, the Company is exposed to credit losses through its investments in available-for-sale securities. An investment is impaired if the fair value of the investment is less than its amortized cost basis. The Company reviews each impaired available-for-sale security held in its portfolio to determine whether the decline in fair value below its amortized cost basis is the result of credit losses or other factors. An allowance for credit losses is to be recorded as a charge to net income in an amount equal to the difference between the impaired security’s amortized cost basis and the amount expected to be collected over the lifetime of security, limited by the amount that the fair value is less than its amortized cost basis. Any remaining difference between its amortized cost basis and fair value is deemed not to be due to expected credit losses and is recorded as a component of accumulated other comprehensive loss. The Company’s impairment review considers several factors to determine if an expected credit loss is present including the discounted present value of expected cash flows of the security, the capacity to hold a security or sell a security before recovery of the decline in amortized cost, the credit rating of the security and forecasted and historical factors that affect the value of the security.

In fiscal years prior to the adoption of ASU 2016-13, unrealized gains or losses on these securities were recorded to accumulated other comprehensive loss until either the security was sold or the Company determined that the decline in value was other-than-temporary. The primary differentiating factors the Company considered when classifying impairments as either temporary or other-than-temporary impairments was the intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market value of the investment had been less than cost, the financial condition, and near-term prospects of the issuer.

During the years ended December 31, 2021 and 2020, the Company reviewed its impaired available-for-sale securities and concluded that the decline in fair value was not related to credit losses and is recoverable. Accordingly, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive loss. There were no other-than-temporary impairments for the year ended December 31, 2019.

Accounts Receivable

As a result of the adoption of ASU 2016-13 on January 1, 2020, accounts receivable are measured at amortized cost less the allowance for credit losses. The Company measures expected credit losses for its accounts receivables utilizing a loss-rate approach. The allowance for expected credit losses assessment requires a degree of estimation and judgement. The expected loss-rate is calculated by utilizing historical credit losses incurred as a percentage of the Company’s historical accounts receivable balances, pooled by customers with similar geographic credit risk characteristics. The loss-rate is adjusted for management’s expectations regarding current conditions and forecasts about future conditions which impact expected credit losses. The Company considers factors such as customers credit risk, geographic related risks and economic conditions that may affect a customer’s credit quality classification.

Prior to the adoption of ASU 2016-13, the Company recognized losses when a loss was incurred or deemed probable by recording a specific allowance against amounts due, and thereby reducing the net recognized receivable to the amount reasonably believed to be collectible. In fiscal years prior to the adoption of ASU 2016-13, accounts receivable were stated at invoice value less estimated allowances for doubtful accounts. The Company recognized losses when a loss was incurred or deemed probable by recording a specific allowance against amounts due, and thereby reducing the net recognized receivable to the amount reasonably believed to be collectible. The Company monitored customer payments and maintained a reserve for estimated losses resulting from its customers’ inability to make required payments considering factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay.

Inventories

Inventories are stated at the lower of cost (determined under the first-in first-out method) or net realizable value. Write-downs are provided for raw materials, components or finished goods that are determined to be excessive or obsolete. The Company regularly reviews inventory quantities in consideration of actual loss experience, projected future demand and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. As a result of these evaluations, the Company recognized total write-offs and write-downs of $2.8 million, $10.6 million, and $4.4 million for the years ended December 31, 2021, 2020 and 2019.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life. Machinery and equipment and furniture and fixtures are depreciated over a five to ten year period and computers and software are depreciated over two to five years. Upon retirement or sale, the cost and the related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to consolidated statements of operations as incurred.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. There was no impairment of long-lived assets during the years ended December 31, 2021, 2020 or 2019.

Contingent Consideration

Certain agreements the Company enters into involve the potential payment of future consideration that is contingent upon certain performance and revenue milestones being achieved. Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent reporting period until the related contingencies are resolved. The resulting changes in fair values are recognized generally within sales, general and administrative expense, depending on the nature of the contingent consideration liability, in the consolidated statements of operations. Asset acquisitions are accounted for using a cost accumulation and allocation model and the cost of the acquisition is allocated to the assets acquired and liabilities assumed. Contingent consideration obligations incurred in connection with an asset acquisition are recorded when it is probable that they will occur and they can be reasonably estimated.

Intangible Assets

Intangible assets primarily consist of developed technology, in-process research and development, purchased rights to licensed technology, customer relationships, and trade secrets and processes.

Indefinite-lived intangible assets consist of in-process research and development and an exclusive right to licensed technology during the years ended December 31, 2021 and 2020. Indefinite-lived intangible assets are tested for impairment at least annually, in the fourth quarter, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. If the fair value of the asset is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference between the carrying amount and the fair value.

Due to a triggering event in the second quarter of 2020, the acquired exclusive right to licensed technology indefinite-lived intangible asset determined be impaired and the Company wrote-off the full carrying amount of the asset. The in-process research and development indefinite-lived intangible asset was acquired in fourth quarter of 2021 and will be tested for impairment at least annually, beginning in the fourth quarter of 2022, or more frequently if events or circumstances indicate that it is more likely than not that the asset is impaired. Refer to Note “6. Intangible Assets” for more information on the Company’s intangible assets.

Finite-lived intangible assets are amortized over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets. The Company reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. Refer to Note “6. Intangible Assets” for more information on the Company’s intangible assets.

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. Goodwill is not amortized, but is tested for impairment annually in the fourth quarter, or more frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

loss may have occurred. The Company operates as one segment, which is considered to be the sole reporting unit, and therefore goodwill is tested for impairment at the consolidated level. Refer to Note “5. Business Combinations” and Note “7. Goodwill” for more information.

Revenue Recognition

Revenue is primarily comprised of product revenue net of returns, discounts, administration fees and sales rebates. The Company adopted the guidance under ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. Under ASC 606, the Company recognizes 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 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 the Company consigns to hospitals, which primarily consist of coils, the Company recognizes revenue at the time hospitals utilize products in a procedure.

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. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling prices considering 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.

Deferred revenue represents amounts that the Company has already invoiced and are ultimately expected to be recognized as revenue, but for which not all revenue recognition criteria have been met. As of December 31, 2021 and December 31, 2020, respectively, the Company's deferred revenue balance was not material.

Revenue is recorded at the net sales price, which includes estimates of variable consideration such as product returns utilizing historical return rates, rebates, discounts, and other adjustments to net revenue. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price. 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.

The Company’s terms and conditions permit product returns and exchanges. The Company bases its 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, the Company reduces revenue and cost of revenue for the estimated return. Return rates can fluctuate over time, but are sufficiently predictable to allow the Company to estimate expected future product returns.

For more information and disclosures on the Company’s revenue, refer to Note “16. Revenues.”

Shipping Costs

Shipping and handling costs charged to customers are recorded as revenue. Shipping and handling costs are included in cost of revenue.

Research and Development (“R&D”) Costs

R&D costs primarily consist of product development, clinical and regulatory expenses, materials, depreciation and other costs associated with the development of the Company’s products. R&D costs also include related personnel and consultants’ salaries, benefits and related costs, including stock-based compensation. The Company expenses R&D costs as they are incurred.

The Company’s clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites. The Company estimates preclinical and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Internal Use Software

The Company capitalizes certain costs incurred for the development of computer software for internal use. These costs generally relate to third-party software as well as the internal development of software associated with our REAL Immersive System offerings. The Company capitalizes these costs when it is determined that it is probable that the project will be completed and the software will be used to perform the function intended, and the preliminary project stage is completed. Capitalized internal use software development costs are included in Property and equipment, net within the consolidated balance sheets.

Capitalized internal use software is amortized on a straight-line basis over its estimated useful life. For software that supports our REAL Immersive System, the amortization expense is recorded in cost of revenue within the consolidated statements of operations. Costs related to the preliminary project stage, post-implementation, training and maintenance are expensed as incurred.

Cloud Computing Arrangements

The Company capitalizes certain implementation costs incurred in agreements that qualify as cloud computing arrangements. The cost expenditures for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor are capitalized and are recorded in prepaid expenses and other current assets and other non-current assets in our consolidated balance sheets. Such costs are amortized over the life of the related cloud computing arrangement.

As of December 31, 2021, approximately $2.4 million associated with these arrangements are included in prepaids and other current assets in our consolidated balance sheets while approximately $5.8 million are included in other non-current assets in our consolidated balance sheets.

Advertising Costs

Advertising costs are included in sales, general and administrative expenses and are expensed as incurred. Advertising costs were $1.1 million, $0.6 million and $0.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Stock-Based Compensation

The Company recognizes the cost of stock-based compensation in the financial statements based upon fair value. The fair value of restricted stock and restricted stock unit (“RSU”) awards is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. The fair value of each purchase under the employee stock purchase plan (“ESPP”) is estimated at the beginning of the offering period using the Black-Scholes option pricing model. The fair value of stock options is determined as of the grant date using the Black-Scholes option pricing model. The Company’s determination of the fair value of equity-settled awards is impacted by the price of the Company’s common stock as well as changes in assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected term that awards will remain outstanding, expected common stock price volatility over the term of the awards, risk-free interest rates and expected dividends.

The fair value of an award is recognized over the requisite service period (usually the vesting period) on a straight-line basis. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. To the extent actual forfeiture results differ from the estimates, the difference is recorded as a cumulative adjustment in the period forfeiture estimates are revised. No compensation cost is recorded for awards that do not vest.

The Company accounts for stock-based compensation issued to non-employees by recognizing the fair value of non-employee awards over the requisite service period (usually the vesting period) on a straight-line basis. Therefore, equity instruments issued to non-employees are recorded at their fair value on the grant date in the same manner as employee awards. The fair value of these equity instruments is expensed over the service period.

Estimates of the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, are affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value of the award and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. For all stock options granted prior to the Company’s IPO, the Company estimated the volatility data based on a study of publicly traded industry peer companies. For

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. For all stock options granted prior to the IPO, the Company used the Staff Accounting Bulletin, No. 110 (“SAB 110”) simplified method to calculate the expected term, which is the average of the contractual term and vesting period. For stock options granted post-IPO, the Company used its historical data to calculate the expected term and volatility used in the valuation of options.

Income Taxes

The Company accounts for income taxes using the asset and liability method, whereby deferred tax asset (“DTA”) and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance to reduce the net DTAs to their estimated realizable value.

The calculation of the Company’s current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. The Company has established reserves to address potential exposures related to tax positions that could be challenged by tax authorities. Although the Company believes its estimates, assumptions and judgments to be reasonable, any changes in tax law or its interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in the Company’s consolidated financial statements.

The calculation of the Company’s DTA balance involves the use of estimates, assumptions and judgments while taking into account estimates of the amounts and type of future taxable income. Actual future operating results and the underlying amount and type of income could differ materially from the Company’s estimates, assumptions and judgments thereby impacting the Company’s financial position and results of operations.

The Company follows the guidance relating to accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

The Company includes interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations.

Comprehensive Income

Comprehensive income consists of net income, unrealized gains or losses on available-for-sale investments and the effects of foreign currency translation adjustments. The Company presents comprehensive income and its components in the consolidated statements of comprehensive income (loss).

Net (Loss) Income Per Share of Common Stock

The Company’s basic net (loss) income attributable to Penumbra, Inc. per share is calculated by dividing the net (loss) income attributable to Penumbra, Inc. per share by the weighted average number of shares of common stock outstanding for the period. The diluted net (loss) income per share attributable to Penumbra, Inc. is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock and restricted stock units are considered common stock equivalents.

Leases

The Company adopted the guidance under ASC Topic 842, “Leases” ("ASC 842") on January 1, 2019 using the modified retrospective transition approach. There was no cumulative-effect adjustment recorded to retained earnings upon adoption.

Under ASC 842, the Company determines if an arrangement is a lease at inception. In addition, the Company determines whether leases meet the classification criteria of a finance or operating lease at the lease commencement date considering: (1) whether the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, (2) whether the lease contains a bargain purchase option, (3) whether the lease term is for a major part of the remaining economic life of the underlying asset, (4) whether the present value of the sum of the lease payments and residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset, and (5) whether the underlying asset is of

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. As of December 31, 2021, the Company's 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. 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 Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate which requires management’s judgement as the rate implicit in the lease is generally not readily determinable. The determination of the Company’s incremental borrowing rate requires management judgment including, the development of a synthetic credit rating and cost of debt as the Company currently does not carry any debt. The operating lease ROU assets also include adjustments for prepayments, accrued lease payments and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating lease cost is recognized on a straight-line basis over the expected lease term. Finance lease cost is recognized as depreciation expense on a straight-line basis over the expected lease term and interest expense using the accelerated interest method of recognition. Lease agreements entered into after the adoption of ASC 842 that include lease and non-lease components are accounted for as a single lease component. Lease agreements with a non-cancelable term of less than 12 months are not recorded on the Company’s consolidated balance sheet. For more information about the impact of adoption and disclosures on the Company’s leases, refer to Note “9. Leases.”

Recent Accounting Guidance

Recently Adopted Accounting Standards

On January 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes— Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This new standard removes certain exceptions for recognizing deferred taxes of foreign investments, the incremental approach to performing intraperiod allocation, and calculating income taxes for year-to-date interim period losses when such losses exceed anticipated full year losses. The standard also adds guidance to reduce complexity in certain areas, including accounting for franchise taxes that are partially based on income, transactions with a government that result in a step up in goodwill tax basis, enacted tax law changes impact during interim periods, and allocation of taxes to members of a consolidated group which are not subject to tax. The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.

3. Investments and Fair Value of Financial Instruments

Marketable Investments

The Company’s marketable investments have been classified and accounted for as available-for-sale. The Company’s marketable investments as of December 31, 2021 and 2020 were as follows (in thousands):

U.S. agency and government sponsored securities 11,553 1 (19) — 11,535

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Notes to Consolidated Financial Statements (Continued)

U.S. agency securities and government sponsored securities 7,846 11 — — 7,857

As of December 31, 2021, the total amortized cost basis of the Company’s impaired available-for-sale securities exceeded its fair value by $0.7 million. The Company reviewed its impaired available-for-sale securities and concluded that the decline in fair value was not related to credit losses and is recoverable. During the year ended December 31, 2021, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive loss. Prior to the adoption of ASU 2016-13, the Company recognized losses, if any, in consolidated net income when the security was sold.

The following tables present the gross unrealized losses and the fair value for those marketable investments that were in an unrealized loss position for less than and more than twelve months as of December 31, 2021 and 2020 (in thousands):

Less than 12 months More than 12 months Total

U.S. states and municipalities $ 1,408 $ (1) $ — $ — $ 1,408 $ (1)

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The contractual maturities of the Company’s marketable investments as of December 31, 2021 were as follows (in thousands):

Marketable Investments Amortized Cost Fair Value

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company classifies its cash equivalents and marketable investments within Level 1 and Level 2, as it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs.

The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.

Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

The Company did not hold any Level 3 marketable investments as of December 31, 2021 or December 31, 2020. Additionally, the Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2021 and 2020.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

The following tables set forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy (in thousands):

Level 1 Level 2 Level 3 Fair Value

Financial Assets

Cash equivalents:

Marketable investments:

U.S. agency and government sponsored securities — 11,535 — 11,535

Level 1 Level 2 Level 3 Fair Value

Financial Assets

Cash equivalents:

Commercial paper $ — $ — $ — $ —

Marketable investments:

U.S. treasury — — — —

U.S. agency and government sponsored securities — 7,857 — 7,857

Contingent Consideration Obligations

As of December 31, 2021 and December 31, 2020, there were no contingent consideration liabilities classified as Level 3. As of December 31, 2019, the Company’s contingent consideration liability balance of $1.2 million related to milestone payments due in connection with the 2017 acquisition of Crossmed S.p.a. (“Crossmed”) which was based on actual revenue performance for the year ended December 31, 2019 and not based on unobservable inputs. The Company made this payment during the year ended December 31, 2020. For more information related to the payment of the contingent consideration liabilities refer to Note “5. Business Combinations.”

The following table summarizes the changes in fair value of the contingent consideration obligation for the years ended December 31, 2020 and December 31, 2019 (in thousands):

Fair Value of Contingent Consideration

Payments of contingent consideration liabilities (1,186)

Changes in fair value —

Foreign currency remeasurement (20)

Balance at December 31, 2020 $ —

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Fair Value of Contingent Consideration

Payments of contingent consideration liabilities (1,296)

Changes in fair value (35)

Foreign currency remeasurement (34)

4. Balance Sheet Components

Accounts Receivable, Net

The Company’s allowance for doubtful accounts comprised of the following (in thousands):

For the year ended:

(1) Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, net of recoveries.

The Company’s allowance for credit losses related to accounts receivable balances was comprised of the following (in thousands):

For the year ended:

(1) On January 1, 2020, the Company recorded a $1.3 million adjustment to opening retained earnings upon the adoption of ASU 2016-13.

Inventories

The components of inventories consisted of the following (in thousands):

December 31,

In the fourth quarter of 2020, the Company reclassified $17.7 million of REAL System products and components from Property and equipment, net to Inventories as a result of changes in its go to market strategy. The Company classified cash flows associated with its REAL System prior to its change in its go to market strategy during the fourth quarter of 2020 as investing activities, which is consistent with the Company's intent when the cash flows occurred. As of December 31, 2021, the Company’s Inventories balance includes $43.4 million of inventory related to the REAL System.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

December 31,

Less: Accumulated depreciation and amortization (38,414) (29,943)

Depreciation and amortization expense, excluding intangible assets and software, was $9.3 million, $8.0 million and $5.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. Software amortization expense was $1.0 million, $1.0 million and $0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company had accumulated software amortization of $4.9 million and $3.7 million for the years ended December 31, 2021 and 2020, respectively.

Accrued Liabilities

The following table shows the components of accrued liabilities as of December 31, 2021 and 2020 (in thousands):

Payroll and employee-related expenses $ 60,015 $ 50,083

Other acquisition-related costs(1) — 3,000

(1) Amount consists primarily of a contingent liability related to an anti-dilution provision from the asset acquisition of MVI Health Inc. (“MVI”) in 2018. Refer to “Note 5. Business Combinations” for more information about the effective settlement of this liability.

The following table shows the changes in the Company’s estimated product warranty accrual, included in accrued liabilities, as of December 31, 2021, 2020 and 2019 (in thousands):

December 31,

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

5. Business Combinations

Acquisition of Sixense Enterprises Inc.

Transaction Overview

On October 1, 2021 (the “Closing Date”), the Company closed the acquisition of Sixense Enterprises Inc. (“Sixense”) pursuant to the Agreement and Plan of Merger, dated September 17, 2021 (the “Merger Agreement”), among the Company, Sixense, Seychelles Merger Corporation, a wholly owned subsidiary of the Company, and a stockholders’ agent (the “Merger”). Sixense, a privately held company, specializes in enterprise use of virtual reality hardware and software and has been an integral partner on the development of the Company’s REAL Immersive System portfolio. The Merger allows the Company to streamline its efforts and collaborate more closely on its Immersive healthcare offerings.

The Company and Sixense formed a joint venture, MVI Health Inc. (“MVI”), in 2017 for the purpose of exploring healthcare applications of virtual reality technology. At the time of MVI’s formation, the Company contributed cash and in-kind services to MVI and Sixense contributed an exclusive license to use its technology for healthcare applications, each for a 50% equity interest in MVI. In 2018, the Company acquired 40% of the outstanding shares of MVI from Sixense and consolidated the financial results of MVI into the accompanying consolidated financial statements, with the amounts attributable to the non-controlling interest classified separately. As of the Closing Date, the Company and Sixense owned a 90% and 10% equity interest in MVI, respectively.

As a result of the Merger, Sixense became a wholly owned subsidiary of the Company and the Company acquired, among other things, the remaining 10% equity interest in MVI held by Sixense.

The Company accounted for the acquired assets and liabilities assumed from Sixense in accordance with ASC 805 and for its changes in ownership interest in MVI as an equity transaction in accordance with ASC 810. The carrying amount of the noncontrolling interest was adjusted to zero, and the difference between the acquisition date fair value of the equity interest acquired of $4.2 million and its carrying amount of $(6.2) million was recognized within additional paid in capital.

Fair Value of Consideration Transferred

The following table summarizes the Closing Date fair value of the consideration transferred (in thousands):

Fair value of common stock issued (1) $ 174,133

Fair value of replacement stock options(2) 80,693

(1) The fair value of the 661,877 shares of common stock issued as part of consideration transferred was determined based on the acquisition date closing market price of the Company’s common stock of $263.09.

(2) Per ASC 805, the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with ASC 718. As a result of the Company’s obligation to issue replacement awards, a portion of the fair-value-based measure of replacement awards is included in measuring the purchase consideration transferred in the business combination. To determine the portion of the replacement awards that is part of the purchase consideration, the Company measured the fair value of both the replacement awards and the historical awards as of the Closing Date, in accordance with ASC 718. The fair value of the replacement awards, whether vested or unvested, was included in the purchase consideration to the extent that pre-acquisition services had been rendered. The fair value of replacement stock options assumed for which pre-acquisition services were rendered of $80.7 million was allocated to the purchase consideration and $25.8 million was recognized immediately in the post-combination financial statements as pre-acquisition services were not rendered but the vesting of all stock options was accelerated in connection with the Merger. Refer to Note “11. Stockholders’ Equity” for more information.

(3) In the connection with the Merger, the Company effectively settled pre-existing liabilities due to or on behalf of Sixense.

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Penumbra, Inc.

Notes to Consolidated Financial Statements (Continued)

Fair Value of Consideration Transferred

The preliminary allocation of the purchase price was based upon a third party valuation and the Company’s estimates and assumptions are subject to change within the measurement period (generally one year from the Closing Date).

The following table presents the preliminary allocation of the purchase price for Sixense (in thousands):

Tangible assets acquired and (liabilities) assumed:

Cash and cash equivalents $ 2,919

Prepaid expenses and other current and non-current assets 2,063

Deferred tax assets 20,678

PEN US Equity

PEN · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PEN US Equity☆

PEN · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

PEN US Equity