Q1 2022 Pulmonx Corp Earnings Call

May 3, 2022

Okay.

Thank you for standing by and welcome to the <unk> Q1, 2022 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on your Touchstone telephone.

As a reminder, today's call is being recorded.

I'd now like to turn the call over to your host Mr. Brian Johnston at the Gilmartin group, Sir you may begin.

Thanks, operator, good afternoon, and thank you all for participating in today's call. Joining me from harmonics are Glen French President and Chief Executive Officer, and Derrick sung Chief Financial Officer earlier today <unk> released financial results for the quarter ended March 31, 2022, a copy of the press release is available on the Companys website.

Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act with 995.

Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements. All forward looking statements include including without limitation those relating to our operating trends and future financial performance the impact of COVID-19 on our business and prospects for recovery expense management expectations for hiring growth in our organization market.

<unk> guidance for revenue gross margin and operating expenses commercial expansion and product pipeline development are based upon our current estimates and various assumptions.

Statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our public filings with the Securities and Exchange Commission, including the <unk>.

We'll report on Form 10-K filed with the SEC on March one 2022. This conference call contains time sensitive information that is accurate only as of the live broadcast today May three 2022 modest corporation disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information.

Future events or otherwise with that I will turn the call over to Glenn.

Thanks, Brian Good afternoon, everyone and welcome to our first quarter 2022 earnings call.

Here with me as Derrick sung our Chief Financial Officer.

Overall, we were encouraged by the progress of our business in the first quarter, we saw widespread impact from the omicron wave followed by a recovery to gain momentum as treatment centers began to reschedule and conduct procedures the strength and timing of this recovery enables us enabled us to achieve $10 $8 million in worldwide sales.

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The high end of our expectations we.

Served recovery trends, which extended not only the hospital procedure upticks, but also to leading indicators such as strat ex uploads and calls into our patient reimbursement support team based on these trends we have increased confidence in our ability to achieve our previously communicated full year revenue guidance of 55 to 60 million.

Despite the impact of Covid. We also continued to make steady progress on initiatives to expand our global commercial footprint and to drive clinician and patient awareness of ours that for valve.

Centers and physicians remained eager to begin offering our treatment, resulting in the addition of 16, new treating centers in the U S. During the first quarter, bringing our total U S treating centers to $230. We remain on track to meet our year end objective of offering zephyr valves to at least 280 treating centers in the United.

States.

As we accelerate sales we are investing in infrastructure to support increased patient and physician demand to help respond to the significant levels of patient interest in our technology. We have launched a call center to field product related patient inquiries. Further we recently opened our second U S physician training center to provide clinical.

<unk> for the growing number of clinicians interested in performing or is that for valve procedures on the reimbursement front, we secured yet another positive policy when adding over 3 million covered lives within the independence Blue Cross the third largest payer in Pennsylvania, and a key player in the mid Atlantic region, India.

<unk> Blue crosses the 12th Blue Cross Blue Shield plan to post positive coverage for Zephyr valves, and we have now streamlined access to treatment with zephyr valves to over 75% of all Blue Cross Blue Shield covered lives and over 90% of all U S commercially covered lives.

Reflecting additional progress on the clinical front the society of cardio thoracic surgery in Great Britain, and Ireland released its standards for lung volume reduction, which endorsed the use of endobronchial valves to improve outcomes in patients with severe emphysema. We were also pleased that the journal respiratory medicine published a store.

<unk> in April finding that Bronchoscopic lung volume reduction may extend the life expectancy of patients with COPD and severe lung hyperinflation. In this observational study of nearly 1500 severe COPD patients those treated with valves to reduce their lung volume survive significantly long.

And then those patients who did not receive an implant and treatment with valves was found to be an independent predictor of survival.

This study adds to the ever growing body of evidence demonstrating the clinical benefits of Zephyr valves.

We also look forward to attending the American Thoracic Society International Conference from May 13th through the 18th in San Francisco, our treatment remains a central topic of discussion across the pulmonary medicine space as reflected by the numerous scientific posters and presentations that will be that will feature a bronchoscope.

Lung volume reduction at Ats this year.

This will be the first major pulmonary medical Congress since the start of the pandemic, where we will have an in person booth presence and we look forward to driving commercial and clinical awareness of our zephyr valve therapy.

We also continue to make good progress with our clinical development initiatives. We're excited about <unk>, our <unk> clinical development program, which stands to expand our addressable market to patients not currently eligible for zephyr valves due to an incomplete fisher between lobes, which allows collateral ventilation.

We estimate some level of collateral ventilation to be present in just under half of severe emphysema patients presenting a tremendous opportunity for <unk> to complement our zephyr valve therapy.

Our development program is now focused on using <unk> to seal Fisher gaps. This will provide a path to treatment with zephyr valves for many patients who are not candidates today.

This application of <unk> is being studied in our convert trial, a multicenter multinational feasibility study, which we are running in Europe , we hope to present, a first look at the preliminary data from a subset of these convert patients later this fall.

Information that we learned from convert will be used to inform the design of our U S. IDE study.

Lastly from a geographic expansion perspective, we continue to expect regulatory approval of ours that for valve treatment in Japan by the end of the year.

Following the establishment of reimbursement, we expect to launch commercial efforts in the back half of next year entering what we estimate to be a $1 billion opportunity with approximately 100000 patients in need of Zephyr valve treatment.

In summary, I'm optimistic about the trajectory of our business as we accelerate out of the pandemic in particular I'm looking forward to the back half of this year when we expect to demonstrate our ability to grow our business in the absence absence of significant COVID-19 headwinds and when we hope to achieve some of the previously mentioned long term growth mile.

Stones to expand our addressable market with that I'll turn I'll now turn the call over to Derek to provide a more detailed review of our first quarter results.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended March 31, 2022 was $10 8 million, a 17% increase from $9 2 million in the same period of the prior year and an increase of 20% on a constant currency basis.

U S revenue in the first quarter was $6 million.

A 40% increase from $4 3 million during the prior year period.

International revenue in the first quarter of 2022 was $4 8 million a.

A 4% decrease from $5 million during the same period last year, and an increase of 3% on a constant currency basis.

Global revenue was affected by the Covid omicron variant that swept across nearly all regions of our business at the start of the year.

<unk> the ability of hospitals to schedule procedures hospitals restarted procedures in the back half of the quarter as the Covid wave passed through.

Gross margin for the first quarter of 2022 was 75% compared to 72% in the prior year period.

The year over year expansion in gross margin was driven by increasing production efficiencies and we continue to expect gross margin to remain in the 74% to 75% range for the remainder of the year.

Total operating expenses for the first quarter of 2022 or $23 8 million.

A 24% increase from $19 1 million in the first quarter of 2021.

Stock based compensation expense was $3 4 million in the first quarter of 2022.

We continue to expect operating expenses for the full year of 2022 to fall between $100 million to $105 million inclusive of approximately $16 million of noncash stock based compensation expense as we continue to build out our commercial operations investing in our research and development programs and further scale our business.

R&D expenses for the first quarter of 2022 were $3 5 million.

Compared to $3 million in the same period of the prior year.

The increase was primarily due to an increase in personnel clinical study regulatory and development related expenses needed to support our product development and clinical research activities.

Sales general and administrative expenses for the first quarter of 2022 were $20 2 million compared to $16 1 million in the first quarter of 2021.

The increase was attributable to an increase in sales and marketing expenses as we expanded our commercial team and increased commercial activities and an increase in public company expenses related to the scaling of our general and administrative infrastructure.

Net loss for the first quarter of 2022 was $15 8 million or a loss of 43 per share as compared to a net loss of $12 5 million or a loss of 35 per share for the same period of the prior year.

And average weighted share count of $36 8 million shares was used to determine loss per share for the first quarter of 2022.

We ended March 31, 2022, with $176 5 million in cash cash equivalents in marketable securities a decrease of $14 5 million from December 31 2021.

Finally, turning to our outlook for 2022.

With the recovery that we're seeing in our business, we remain confident in our ability to achieve full year 2022 revenue in the range of $55 million to $60 million.

We expect to see sales in the second quarter recovered back to levels seen near the end of last year, followed by sequential growth through the remainder of 2022 as procedure volumes normalize.

And with that I'd like to thank you for your attention and we will now open the call up for questions.

Operator.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please star then one on your Touchtone telephone again to ask a question. Please press Star then one.

Our first question comes from Travis Steed Bank of America. Your line is open.

Alright, congrats on the quarter and thanks for the questions.

Love to get a little more color on margin April versus early Q1, and Eric It looks like the guidance for Q2 is is basically unchanged versus three months ago is still in line with Q4, but you've noticed.

Mentioned the recovery in leading indicators, so I'd love to see why Youre not updating the Q2 guidance at this point.

Sure.

Yes.

Thanks for that question I'll take the latter part of the guidance and Glenn can provide some of the commentary that.

What we saw through the quarter and into Q2.

So we're feeling very.

Very good about our business based on the recovery that we saw in the back half of Q1 right. All the early indicators suggest.

And enduring recovery is underway the momentum that we're seeing.

Going into Q2 does give us a lot of confidence in our ability to achieve the $55 million to $60 million guidance that we previously laid out.

That said I would say that at this early point in the year, having just laid out our initial guidance two five months ago. It just feels premature for us to be.

Our guidance based only on a couple of months of relative strength coming off a pretty deep bottom that we hit at the beginning of the year. So we certainly expect and hope that the worst of the pandemic is behind us, but if we've learned one thing from last year, it's not to underestimate the continuing impact that COVID-19 might have so theres still remains solid.

Around the impact of hospital staffing and possible future variance and we just don't want to get in front of our skis at this point before we get some more visibility into how some of these uncertainties might play out. So again, we feel very good about what we're seeing in the recovery to this point and the momentum going into the quarter, but we.

We just don't want it.

Get out in front of our skis.

Glenn do you want to comment on.

The monthly cadence and what we're seeing into the quarter.

Sorry about that I was on mute.

As we as we reported.

Last time in the first half of the quarter was.

I mean January was significantly impacted by Covid in the back half of the quarter, we accelerated out we had.

As is always the case. The first cases that are done are those that are rescheduled and so those January cases that were scheduled in halfway through through February as well.

We're the first ones to pull back out so march contained a good bit of.

I guess with some people called backlog.

And.

And that explains kind of how we came out of the quarter and we think that most of that backlog got consumed if you will.

Across the latter part of February and into March.

No.

Thanks for the color.

That all makes sense in the Q2 guidance.

When you think about the staffing constraints just curious what youre seeing on the ground.

Is that still a pretty big constraint now and how you're expecting that to improve over the course of the year.

Yes, so we have definitely seen it hits in a lot of different ways and I'm sure you hear it a lot I mean, we're not in that many centers right. So worried about.

And the low two hundreds right now and in the centers that were in the way that it impacts us.

Multiple ways actually.

Physicians and some of the treating docs are getting impacted but.

The turnaround in terms of how long folks are out before they come back is relatively short the broader staffing issue, which I believe is probably the theme that you are you're talking about has impacted things the way that we see that we are able to continue to do procedures and virtually all of the hospitals I would.

Say staffing probably delayed the rebound of some of the hospitals coming out of the sort of the omicron wave.

And what's happening is that I think theyre trying to sort of spread things around so it's not uncommon in certain hospitals that might've been clipping along sort of prior to the stresses on.

Staffing at say four patients per month to be asked to do fewer than that as we come back out as it relates to.

Working our way through this.

There are some broader issues that I think are going to take some time to get through I mean, if you talk to I think when I listen to folks who are running hospitals theyre talking about staffing issues carrying through to through.

Through the end of the year I think as it relates to the kinds of patients that we're treating in the staffing associated with the execution of procedures I think a quarter or two and those are largely wash away just because of the revenue generation of having those.

Those procedures properly staffed.

Thanks for the color and again good start to the year.

Thanks.

Thank you. Our next question comes from it could be a prolonged of Morgan Stanley . Your line is open.

Hey, good afternoon, and thank you for taking my questions I wanted to follow up a bit on the staffing issue, but really what.

What you've seen from that.

Productivity standpoint, coming out of this lease versus what you've seen entirely and again just factoring in what youre seeing on the ground from a staffing standpoint, potentially eliminating greater acceleration.

Yes.

We report on productivity early on a monthly or on a quarterly basis and.

Productivity was significantly impacted in the first quarter as you might imagine so it was quite a bit down from.

Sort of what where we had been running through.

Through the prior waves, which is really just explained I think entirely by the fact that no other wave hit everywhere at the same time and so it was.

Whether you are talking about our global business or whether you are talking about.

Regions within the United States. There were always engines that were running at full speed, while we were getting crushed in other regions, which wasn't the case with omicron and as a consequence.

You can imagine effectively shutting down to a large extent procedures during nearly half of the quarter.

That's not literally the case, but I mean, it would really impacted us our productivity got impacted as well so it's probably not even a.

Particularly interesting measure for the quarter.

The and account activity, which is another metric that we've looked at has also also got impacted as you might imagine in similar ways to the way that it has I think in the past down into the <unk> and so forth most particularly in the in the January and February timeframe.

How much of that is due to.

Account.

Staffing I think it was.

I think that the how we're pulling out of this and is really more impacted by the actual shutdown of accounts.

I think the our business was impacted in the first half of the quarter because there was still a significant proportion of the population that had yet to be vaccinated.

There continued to be about a 13 fold increase in the number of unvaccinated people, who probability they were occupying an ICU bed versus the vaccinated person.

I think the difference in the environment that we're in right now is that.

Nearly everyone in the United States is no longer naive to to Covid. We've got two thirds of the population that's been vaccinated.

Nice at.

At least they are considered fully vaccinated, 77% to 85% of the U S population, depending on which source you want to look at is been vaccinated once and last week I think there was multiple reports of new data coming out of the CDC, which indicated that.

60% of people in the United States have had COVID-19 already so if you I mean, there's just very few people less than 10% of the U S population less than 10% of the European population is naive where two years ago. The human race was naive to COVID-19. So we anticipate that.

As we look ahead, we think COVID-19 is going to continue to be an issue for us. We think staffing is probably going to be a little bit of an issue for us as we pull out of this.

And move ahead, but we see that waning in the relatively near term certainly before the end of the year.

Okay.

If I could follow up as well so quickly on referring physician awareness and how you would really quantify that at this point and as you look forward because it is pulling back just the initiatives you have in place.

Turning to Jive, referring physician awareness higher.

Thank you for that question facility, it's a very.

Important an insightful question, obviously over the long haul.

This business is growing too.

It's going to really grow based on account productivity and 80% of patients are coming through.

Today, 80% of our patients that get treated are coming through referring physicians and we don't have sufficient awareness at least we haven't to this point, we've been really focused on getting treating sites up and running and I think as you've heard from us and probably this is where the question is coming from we believe that increasing.

<unk>.

Awareness and the support of the referring physicians is really central to both our marketing and sales activity as we move ahead. So we have we have fundamentally reoriented our sales process to focus more on the referring physicians than was the case in the past, where we're really talking about what are the best practice.

For opening up new centers, we are going to continue to do that but we really shifted the focus not only a sales training, but also sales execution on opening up these new sites. Now this has become a primary area of focus effectively starting at the beginning of this year. So it faced a good bit of headwind in cross.

<unk> from the omicron.

Insult that we experienced and as a consequence, we're still gathering data as we move forward as to the direct results I mean, it will clearly be seen we expect in our revenue numbers as we move ahead.

That's probably the best metric of how we're going to have impact through the referring physicians.

The other thing that I think we've talked about before and I mentioned in the script is that we have we're really focusing on engaging with the patients as well often the patients can provide introduction to the referring doctors we have.

We have a talk to my Doctor program, where they can actually come to us in a very compliant way and ask us to follow up with their doctors to give them.

Some information and there is no no hotter lead then youre going to get and then it is for a patient to their doctor, where we can specifically go in and say that Jane Doe has indicated we're seeing those going up.

Those requests for us to engage we're also seeing from the direct contact from patients their willingness to opt in to provide us with authorization to go back and forth with them and help nurture their their information needs and in a sense their journey toward the treating physician so and that.

Often will involve providing them with information to deliver to the referring physician as well. So we're taking the referring physician not only through sort of marketing activity sales activity, but also equipping the patients to be their own advocates with.

With physicians or being a surrogate and that with that talk to my Doctor program.

Great. Thank you for taking the questions.

Thank you again, if you'd like to ask a question. Please press Star then one our next question comes from Jason <unk> of Piper Sandler Your line is open.

Hey, good afternoon, guys. Thanks for taking the questions. This is Joe on for Jason.

I have a question on the Japanese regulatory submissions.

Has there been any interaction or feedback with the Japanese authorities, thus far and then.

In terms of any structural dynamics or anything for your post op that we should be thinking about for women's up the launches in that market that would make the penetration sectary any different from what we've seen in the previous market entries.

The.

The Japanese regulatory process has been remarkably and consistently interactive.

So we have had.

I don't I would say I haven't been directly involved but I would say we are interacting weekly so one way or another so that's been great.

And we've gotten questions. We've addressed those questions, we've scheduled meetings and those meetings have gone.

Actually shorter than better than we had anticipated.

Seems to be moving along well and the interactions to this point have been.

Frequent and substantive.

I frankly would have expected that if there were going to be any major issues they would've popped already.

So we feel comfortable and confident that we'll get that regulatory approval before the end of this year as we've stated multiple times in the past with regard to structural requirements.

We are in the process of trying to identify a great general manager for that marketplace. I think we talked about either in the last quarter or so.

So that we had added our first employee in Japan. So we've got feet. There, we're working to a bunch of <unk>.

<unk>.

That our end market as well and we're going to be building out sort of.

Relatively small framework of an organization there to ensure that we're ready.

To move when we've got reimbursement in place and again reimbursement is tagged on to the end of that process. So.

So we see ourselves in that market late next year, so with regard to how we expect that market to behave as it relates to for example, launching in the U S or any other of the markets that we've entered relatively recently that.

When we enter the market is important because the U S was the first market that we entered in the world, where we had all of the data published we are in the global guidelines reimbursement was in place and so Japan.

The U S in like markets that we've entered since we entered the U S.

We would expect to benefit from that having said that it's a very hierarchical market, which means that there is a handful or two handfuls of physicians that we will be going to first.

They will be setting the tone and.

Whoa as to anybody who doesn't go to them.

First so we know who they are we have relationships with most of them already and we will make sure that they were the first ones to do the cases and they will lead the way. So we see year, one and year two maybe really in contrast to say, France. The market that we entered around the time, we entered the United.

States or the United States is maybe not being quite as steep a slope, but we see it sloping up and looking very much like these other markets maybe on a per capita basis.

Great. That's Super helpful. And then just one more from me.

Touching on new roles as you guys from Japan, but moving over to new territories in the U S and Europe as you have mentioned in previous calls could you just give an update on whether there had been any other notable ads.

In the past few months and then whats the plan today in terms of actually filling those roles.

I missed part of that question Derrick.

You get it all I did so so I think you were asking Joe about new territory adds outside the U S and the U S and within the U S.

In Q1, we did not add any new territories outside of the U S or within the U S. So we still have.

34 active territories outside the U S and 54 in the U S. We continue as we mentioned on the last call to plan to add selectively in both geographies.

We expect to be near 60 ish by the end of this year in the U S and we'll add a handful three to five or so.

Internationally as well throughout the year. So we plan to continue adding but none specifically in Q1.

Great. Thanks, a lot.

Thank you. Our next question comes from Bill <unk> of Canaccord. Your line is open.

Hello. This is David on for Bill <unk>.

All of the questions that we want to ask are answered. So thank you very much and congrats on a great quarter.

Thank you David.

Thank you thank.

Thank you. Our next question comes from Jo Anne.

Your line is open.

Good afternoon. This is actually Anthony on for Joanne. Thanks for taking our question could you just talk about what early demand has been like at the new training facility and then just maybe any general commentary on what the physician training pipeline is like.

Demand so.

Things have been it's been great I think.

We opened it up I think we were doing a training class today I think at that that new facility in the Midwest I think that is our second that we have done so far since we've opened it up.

The first returns from the first training program was that the Guy who is running it is doing a spectacular job and.

That all elements ranging from the hotel to the program to the the presenters has all been very very positive.

So.

And.

We it gives us effectively.

Effectively doubles, our capacity I think what will happen, we'll we won't likely run twice as many people through now that we have a second training center I think what we'll do is we'll make the classes are little bit smaller.

Which will just probably going to be happening something on the order of every other week.

Something on that order, so what will be will be clipping along and.

It's great to have this new capacity and this guy is like I said this new center is doing a spectacular job.

Great.

Sure.

Thank you.

I'm showing no further questions at this time I'd like to turn the call back over to Glenn <unk> for any closing remarks.

Wonderful. Thank you very much as we've talked about the first half of the first quarter was just very difficult for us with omicron hitting.

Sort of in every market effectively at the same time in light of this I was very very pleased with our performance in the first quarter as we look ahead.

We anticipate a very steep revenue slope.

But given.

Some of the challenges that we faced in the past and those that go along with scaling new medical technology, we want to be sure that we don't get ahead of ourselves, having said that I'd like to talk about just very quickly or summarize some of the things that give us a great deal of optimism as we look ahead. There are a number of treating centers is increasing we have an increase increasing number of <unk>.

Trained physicians awareness of our treatment option with referring doctors is a central focus of our marketing and sales activity. We've got a process in place where we're sharing best practices across our trading centers and then finally this concept of inbound patient inter.

Interest, we COVID-19 shut us down for roughly half of the first quarter, but it didn't shut down patient interest when you looked at fourth quarter 2021, and you compared it to first quarter of 2022 in.

In the first quarter social media connections were up.

Calls into our training centers were up relative to the fourth quarter. We have now more than 100000 patients that have opted in which gives us that opportunity to go back and forth and we've kicked off this patient centric call in center, which will allow a single point of consistent contact for two.

<unk> exchange of information with our treating physicians. So we believe we have the right plans in place and a great team in place with a great deal of experience Thats working toward making those plans are a reality. So I just want to thank you all for your interest in pulmonic and for your time today and good afternoon.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.

Yes.

[music].

Thank you for standing by and welcome to the Paula next Q1, 2022 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on you touched on.

On the telephone.

As a reminder, today's call is being recorded.

I would now like to turn the call over to your host Mr. Brian Johnston at the Gilmartin group.

Yeah.

Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

<unk> guidance for revenue gross margin and operating expenses commercial expansion and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our public filings with the Securities and Exchange Commission, including the annual report on Form 10-K filed with the SEC on March One 2022. This conference call contains time sensitive information that is accurate only as of the live broadcast today may three 2022.

<unk> Corporation disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise with that I'll turn the call over to Glenn.

Thanks, Brian Good afternoon, everyone and welcome to our first quarter 2022 earnings call.

Here with me as Derrick sung our Chief Financial Officer overall.

Overall, we were encouraged by the progress of our business in the first quarter. We saw widespread impacts from the omicron wave followed by a recovery that gained momentum as treatment centers began to reschedule and conduct procedures the strength and timing of this recovery enables us enabled us to achieve $10 $8 million in worldwide sale.

<unk>.

The high end of our expectations, we observed recovery trends, which extended not only the hospital procedure upticks, but also to leading indicators such as statics uploads and calls into our patient reimbursement support team.

Just on these trends we have increased confidence in our ability to achieve our previously communicated full year revenue guidance of $55 million to $60 million. Despite the impact of Covid. We also continued to make steady progress on initiatives to expand our global commercial footprint and to drive clinician and patient awareness of our is that for <unk>.

<unk>.

Centers and physicians remained eager to begin offering our treatment, resulting in the addition of 16, new treating centers in the U S. During the first quarter, bringing our total U S. Treating centers to 230, we remain on track to meet our year end objective of offerings effort valves to at least 280 trading centers in the United.

States.

<unk> for the growing number of clinicians interested in performing or is that for valve procedures.

On the reimbursement front, we secured yet another positive policy when adding over 3 million covered lives within the independence Blue Cross the third largest payer in Pennsylvania and a key player in the mid Atlantic region Independence Blue Cross is the 12th Blue Cross Blue Shield plan to post positive coverage for Zephyr valves.

And we have now streamlined access to treatment with Zephyr valves to over 75% of all Blue Cross Blue Shield covered lives and over 90% of all U S commercially covered lives.

Eddie in April finding that Bronchoscopic lung volume reduction may extend the life expectancy of patients with COPD and severe lung hyperinflation. In this observational study of nearly 1500 severe COPD patients those treated with valves to reduce their lung volume survive significantly long.

And then those patients who did not receive an implant and treatment with valves was found to be an independent predictor of survival.

This study adds to the ever growing body of evidence demonstrating the clinical benefits of Zephyr valves.

Like lung volume reduction at Ats this year.

We estimate some level of collateral ventilation to be present in just under half of severe emphysema patients presenting a tremendous opportunity for <unk> to complement our zephyr valve therapy.

Our development program is now focused on using <unk> to seal Fisher gaps. This will provide a path to treatment with zephyr valves for many patients who are not candidates today.

This application of <unk> is being studied in our convert trial, a multicenter multinational feasibility study, which we are running in Europe , we hope to present, the first look at the preliminary data from a subset of these convert patients later this fall.

Information that we learned from convert will be used to inform the design of our U S. IDE study.

Lastly from a geographic expansion perspective, we continue to expect regulatory approval of ours that for valve treatment in Japan by the end of the year.

Stones to expand our addressable market with that I'll turn I'll now turn the call over to Derek to provide a more detailed review of our first quarter results.

Thank you Glenn and good afternoon, everyone.

U S revenue in the first quarter was $6 million.

A 40% increase from $4 3 million during the prior year period.

International revenue in the first quarter of 2022 was $4 8 million a.

A 4% decrease from $5 million during the same period last year, and an increase of 3% on a constant currency basis.

Global revenue was affected by the Covid omicron variant that swept across nearly all regions of our business.

Started the year.

<unk> the ability of hospitals to scheduled procedures.

<unk> restarted procedures in the back half of the quarter as the Covid wave passed through.

Gross margin for the first quarter of 2022 was 75% compared to 72% in the prior year period.

The year over year expansion in gross margin was driven by increasing production efficiencies and we continue to expect gross margin to remain in the 74% to 75% range for the remainder of the year.

Total operating expenses for the first quarter of 2022 or $23 8 million a.

A 24% increase from $19 1 million in the first quarter of 2021.

Stock based compensation expense was $3 4 million in the first quarter of 2022.

R&D expenses for the first quarter of 2022 were $3 5 million.

Compared to $3 million in the same period of the prior year.

The increase was primarily due to an increase in personnel clinical study regulatory and development related expenses needed to support our product development and clinical research activities.

Sales general and administrative expenses for the first quarter of 2022 were $20 2 million compared to $16 1 million in the first quarter of 2021.

Yeah.

Net loss for the first quarter of 2022 was $15 8 million or a loss of 43 per share as compared to a net loss of $12 5 million or a loss of 35 per share for the same period of the prior year.

And average weighted share count of $36 8 million shares was used to determine loss per share for the first quarter of 2022.

We ended March 31, 2022, with $176 5 million in cash cash equivalents in marketable securities a decrease of $14 5 million from December 31 2021.

Finally, turning to our outlook for 2022.

With the recovery that we're seeing in our business, we remain confident in our ability to achieve full year 2022 revenue in the range of $55 million to $60 million.

We expect to see sales in the second quarter recover back to levels seen near the end of last year, followed by sequential growth through the remainder of 2022 as procedure volumes normalize.

And with that I'd like to thank you for your attention and we will now open the call up for questions operator.

Operator.

Thank you again, ladies and gentlemen, if you'd like to ask the question quick Westar then one on your Touchtone telephone again to ask a question. Please press Star then one.

Our first question comes from Travis Steed of Bank of America. Your line is open.

Alright, congrats on the quarter and thanks for the questions.

And the recovery in leading indicators, so I'd love to see why Youre not updating the Q2 guidance at this point.

Sure.

Yes.

For that question I'll take the latter part of the guidance and Glenn can provide some of the commentary that.

That we saw through the quarter and into Q2.

So.

We're feeling very good about our business based on the recovery that we saw in the back half of Q1 right. All the early indicators suggest.

And then during recovery is underway and the momentum that we're seeing.

Going into Q2 does give us a lot of confidence in our ability to achieve the $55 million to $60 million guidance that we previously laid out.

That said I would say that at this early point in the year, having just laid out our initial guidance two five months ago. It just feels premature for us to be.

Changing our guidance based only on a couple of months of relative strength coming off a pretty deep bottom that we hit at the beginning of the year. So we certainly expect and hope that the worst of the pandemic is behind us, but if we've learned one thing from last year, it's not to underestimate the continuing impact that COVID-19 might have so theres still remains solid.

Certainly around the impact of hospital staffing and possible future variance and we just don't want to get in front of our skis at this point before we get some more visibility into how some of these uncertainties might play out. So again, we feel very good about what we're seeing in the recovery to this point and the momentum going into the quarter, but we.

We just don't want it.

Get out in front of our skis.

Glenn do you want to comment on.

The monthly cadence and what we're seeing into the quarter.

Okay.

Sorry about that I was wrong.

As we reported.

Last time in the first half of the quarter was.

I mean January was significantly impacted by Covid in the back half of the quarter, we accelerated out we had.

As is always the case. The first cases that are done are those that are rescheduled and so those January cases that were scheduled in halfway through through February as well.

We're the first ones to pull back out so march contained a good bit of.

I guess, what some people call backlog.

And.

And that explains kind of how we came out of the quarter and we think that most of that backlog got consumed if you will.

Across the latter part of February and into March.

Yes.

Thanks for the color.

That all makes sense in the Q2 guidance.

When you think about the staffing constraints just curious what youre seeing on the ground.

Is that still a pretty big constraint now and how you're expecting that to improve over the course of the year.

Yes, so we have definitely seen it hits in a lot of different ways and I am sure you hear it a lot I mean, we're not in that many centers right. So worried about.

And the low two hundreds right now and in the centers that were in the way that it impacts us is.

Multiple ways actually.

Physicians and some of the treating docs are getting impacted but the turnaround in terms of how long folks are out before they come back is relatively short the broader staffing issue, which I believe is probably the theme that you are you're talking about has impacted things the way that we see that we are able to continue to do.

Procedures in virtually all the hospitals I would say staffing probably delayed the rebound of some of the hospitals coming out of the sort of the omicron wave.

And what's happening is that I think theyre trying to sort of spread things around so it is not uncommon in certain hospitals that might've been clipping along sort of prior to the stresses on on staffing at say four patients per month to be asked to do fewer than that.

As we come back out as it relates to <unk>.

Working our way through this.

There are some broader issues that I think are going to take some time to get through I mean, if you talk to I think when I listen to folks who are running hospitals are talking about staffing issues carrying through to through the end of the year I think as it relates to the kinds of patients that we're trading in and the staffing associated with the excuse.

<unk> procedures, I think a quarter or two and those are largely wash away just because of the revenue generation of having those.

Those procedures properly staffed.

Thanks for the color and again good start to the year.

Thanks.

Thank you. Our next question comes from let's say a prolonged of Morgan Stanley . Your line is open.

Good afternoon, and thank you for taking my questions I wanted to follow up a bit on the staffing issue, but really.

What you've seen from our.

Productivity standpoint, coming out of this wave versus what you've seen in prior lease and again just factoring in what youre seeing on the ground from a staffing standpoint, potentially eliminating greater acceleration.

Yeah.

Well, we report on productivity early on a monthly or on a quarterly basis and.

Productivity was significantly impacted in the first quarter as you might imagine so it was quite a bit down from.

Sort of what where we had been running through.

Through the prior waves, which is really just explained I think entirely by the fact that no other wave hit everywhere at the same time and so it was.

We were we were whether you are talking about our global business or whether youre talking about.

Regions within the United States. There were always engines that were running at full speed, while we were getting crushed in other regions, which wasn't the case with omicron and as a consequence.

You can imagine effectively shutting down to a large extent procedures during nearly half of the quarter.

That's not literally the case, but I mean, it would really impacted us our productivity got impacted as well so it's probably not even a.

Particularly interesting measure for the quarter.

How much of that is due to.

Account.

Staffing I think it was.

I think that the how we're pulling out of this and is really more impacted by the actual shutdown of accounts.

I think the our business was impacted in the first half of the quarter because there was still a significant proportion of the population that had yet to be vaccinated.

There continued to be about a 13 fold increase in the number of unvaccinated people, who probability they were occupying an ICU bed versus the vaccinated person.

I think the difference in the environment that we're in right now is that.

Nearly everyone in the United States is no longer naive to to Covid. We've got two thirds of the population that's been vaccinated.

Nice at.

As we look ahead, we think COVID-19 is going to continue to be an issue for us. We think staffing is probably going to be a little bit of an issue for us as we pull out of this.

And move ahead, but we see that waning in the relatively near term certainly before the end of the year.

Okay, great and if I could follow up as well.

Quickly on referring physician awareness and how you would really quantify that at this point and as you look forward because it is pulling back just the initiatives you have in place.

We need to drive our referring physician awareness is higher.

Thank you for that question facility, it's a very.

Important an insightful question, obviously are over the long haul.

This business is growing too.

It's going to really grow based on account productivity and 80% of patients are coming through.

<unk>.

<unk> from the omicron.

That's probably the best metric of how we're going to have impact through the referring physicians.

We have a talk to my Doctor program, where they can actually come to us in a very compliant way and ask us to follow up with their doctors to give them.

Some information and Theres no no hotter lead then youre going to get and then it is for a patient to their doctor, where we can specifically go in and say that Jane Doe has indicated we're seeing those going up.

Often will involve providing them with information to deliver to the referring physician as well. So we're talking referring physician not only through sort of marketing activity sales activity, but also equipping the patients to be their own advocates with.

With physicians or being a surrogate and that with that talk to my Doctor program.

Great. Thank you for taking the questions.

Thank you again, if you'd like to ask a question. Please press Star then one our next question comes from Jason Manav Piper Sandler Your line is open.

Hey, good afternoon, guys. Thanks for taking the questions. This is Joe on for Jason.

I have a question on the Japanese regulatory submission.

Has there been any interaction or feedback with the Japanese authorities, thus far and then.

In terms of any structural dynamics or anything for your post op that we should be thinking about for women's up the launches in that market that would make the penetration sector any different from what we've seen in previous market entries.

Yeah.

The.

The Japanese regulatory process has been remarkably and consistently interactive.

So we have had.

I don't I would say I haven't been directly involved but I would say we are interacting weekly so one way or another so that's been great.

And we've gotten questions. We've addressed those questions, we've scheduled meetings and those meetings have gone.

Actually shorter than better than we had anticipated so it seems to be moving along well and the interactions to this point have been.

Frequent and subsidence.

And I frankly would have expected that if there were going to be any major issues. They would've popped already.

So we feel comfortable and confident that we'll get that regulatory approval before the end of this year as we've stated multiple times in the past with regard to structural requirements.

We are in the process of trying to identify a great general manager for that marketplace I think we talked about.

Either in the last quarter or so that we had added our first employee in Japan. So we've got feet. There, we're working to a bunch of <unk>.

<unk>.

That our end market as well and we're going to be building out sort of.

The relatively small framework of an organization there to ensure that we're ready.

To move when we've got reimbursement in place and again reimbursement is tagged on to the end of that process. So.

<unk> was the first market that we entered in the World, where we had all of the data published we are in the global guidelines reimbursement was in place.

So Japan.

The U S in like markets that we've entered since we entered the U S.

We would expect to benefit from that having said that it's a very hierarchical market, which means that there is a handful or two handfuls of physicians that we will be going to first.

They will be setting the tone and.

Whoa as to anybody who doesn't go to them.

First so we know who they are we have relationships with most of them already and we will make sure that they are the first ones to do the cases and they will lead the way. So we see year, one and year two maybe really in contrast to say, France. The market that we entered around the time, we entered the United.

States or.

Or the United States is maybe not being quite as steep a slope, but we see it sloping up and looking very much like these other markets maybe on a per capita basis.

Yeah.

Great. That's Super helpful. And then just one more for me just touching on new roles as you guys from Japan, but moving over to new territories in the U S and Europe as you have mentioned in previous calls could you just give an update on whether there had been any other notable adds I guess outside of Japan in the past few months and then whats the plan today in terms of actually filling those roles.

I missed part of that question Derrick.

Get it all I did so so I think you were asking Joe about new territory adds outside the U S and the U S and within the U S.

In Q1, we did not add any new territories or the outside of the U S or within the U S. So we still have.

34 active territories outside the U S and 54 in the U S. We continue as we mentioned on the last call to plan to add selectively in <unk>.

<unk> geographies.

We expect to be near 60 ish by the end of this year in the U S.

I'll add a handful three to five or so <unk>.

Internationally as well throughout the year. So we plan to continue adding but none specifically in Q1.

Great. Thanks, a lot.

Thank you. Our next question comes from Bill <unk> of Canaccord. Your line is open.

Hello. This is David on for Bill <unk> on it.

All of the questions that we want to ask or answered.

Thank you very much and congrats on a great quarter.

Thank you David.

Thank you. Our next question comes from Joanne Wuensch.

Of Citi. Your line is open.

Demand so.

Things have been it's been great I think.

We opened it up I think we do we're doing a training class today I think at that that new facility in the Midwest I think that is our second that we have done so far since we've opened it up.

The first returns from the first training program was that the Guy who is running it is doing a spectacular job and.

That all elements ranging from the hotel to the program to the the presenters has all been very very positive.

So.

And.

We it gives us.

Effectively doubles our capacity.

What will happen was we won't likely run twice as many people through now that we have a second training center I think what we'll do is we'll make the classes are little bit smaller.

Which will just probably going to be happening something on the order of every other week.

Something on that order, so what will be will be clipping along and.

It's great to have this new capacity and this guy is like I said this new center is doing a spectacular job.

Great.

Sure.

Thank you.

I'm showing no further questions at this time I'd like to turn the call back over to Glenn <unk> for any closing remarks.

Wonderful. Thank you very much as we've talked about the first half of the first quarter was just very difficult for us with omicron hitting.

Sort of in every market effectively at the same time in light of this I was very very pleased with our performance in the first quarter as we look ahead.

We anticipate a very steep revenue slope.

But given some of the challenges that we faced in the past and those that go along with scaling new medical technology, we want to be sure that we don't get ahead of ourselves, having said that I'd like to talk about just very quickly or summarize some of the things that give us a great deal of optimism as we look ahead.

<unk> of trading centers is increasing we have an increase increasing number of trained physicians awareness of our treatment option with referring doctors is a central focus of our marketing and sales activity. We've got a process in place where we're sharing best practices across our trading centers and then finally this concept of inbound patient.

Interest.

Covid shut us down for roughly half of the first quarter, but it didn't shut down patient interest when you looked at fourth quarter 2021, and you compare that to first quarter of 2022.

In the first quarter social media connections were up.

Calls into our trading centers were up relative to the fourth quarter. We have now more than 100000 patients that have opted in which gives us that opportunity to go back and forth and we've kicked off this patient centric call in center, which will allow a single point of consistent contact for <unk>.

Two way exchange of information with our treating physicians. So we believe we have the right plans in place and a great team in place with a great deal of experience Thats working toward making those plans are a reality. So I just want to thank you all for your interest in pulmonic and for your time today and good afternoon.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.

Q1 2022 Pulmonx Corp Earnings Call

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