Q2 2022 Pulmonx Corp Earnings Call

August 2, 2022

Yeah.

Good afternoon, and welcome to harmonics second quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.

We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Lynn Morgen from the Gilmartin group for a few introductory comments.

Good afternoon, and thank you for participating in today's call. Joining me are Glen French President and Chief Executive Officer, Gary One Chief Financial Officer earlier today.

Financial results for the quarter ended June 30th 2022, a copy of the press release is available on the company's 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 provision.

The Securities Litigation Reform Act of 1995.

Any statements contained in this call that relate to expectations or predictions of future events.

Our performance are forward looking statements.

All forward looking statements, including without limitation those relating to our operating trends and future financial performance the impact of COVID-19 on our business and profit recovery expense management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expenses.

Expansion and product pipeline development are based upon our current estimates and various.

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 quarterly report on Form 10-Q filed with the SEC on May nine 2022.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August <unk> 2022, commodities 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 and with that.

I'll turn the call over to Glenn.

Thanks Helane.

Good afternoon, everyone and welcome to our second quarter 2022 earnings call here with me as Derrick sung our Chief Financial Officer.

In the second quarter, we generated worldwide sales of $14 million, representing our highest quarterly revenue to date.

We're pleased with our second quarter performance as we continued to see strong patient demand for our Zephyr valves, improving end market dynamics and the ability of our team to execute and manage our business in a fluid environment.

Our performance was driven by particularly strong results in the United States, where we achieved sales 18% higher than our previous record in the fourth quarter of last year has procedure volumes recovered from the winter Covid surge. Despite continued pressures from hospital staffing shortages.

Our momentum exiting the quarter leaves us confident in our ability to deliver on our full year 2022 revenue guidance of $55 million to $60 million, even in the face of ongoing macro uncertainties and incremental foreign exchange headwinds.

Throughout the second quarter, we continued to execute on our initiatives to expand our global commercial footprint.

In the United States, we added 18, new treating centers, bringing our total number to 248 and keeping us on track to meet our objective of establishing at least 280 trained does that for valve centers in the U S. By year end. We also added one additional sales territory in the U S and two additional international.

Sales territories, bringing our total U S and international sales territories to 55 and 36, respectively.

One of our primary goals is to educate both healthcare providers and patients about endobronchial valves being part of the standard of care for severe emphysema.

In the second quarter, we launched joint education campaigns with two leading lung advocacy organizations. The American lung Association and the COPD Foundation. These collaborations will extend through 2022 and include educational materials for patients physicians nurses and respiratory.

<unk> therapists, including accredited courses videos Webinars podcasts and articles we have also expanded our health care provider education outreach at the local level with a focus on our selection of community physicians, who manage large populations of COPD patients.

<unk>.

Together with our physician collaborators we continue to build on the clinical evidence for suffer valves in June the first prospective study to assess cardiac function. Following bronchoscopic lung volume reduction with Zephyr valves was published in the American journal of respiratory and critical.

Care medicine.

This study found that a reduction in lung hyperinflation using zephyr valves resulted in improvements in cardiac function, such as preload cardiac output and heart muscle contractility, thus, suggesting a role for zephyr valves in modifying the risk for heart failure and <unk>.

Severe emphysema patients.

Innovative clinical work such as this continues to advance the scientific evidence demonstrating the clinical value of Endobronchial valves.

Turning to our longer term growth initiatives to expand our addressable market. We are excited about two upcoming data readouts associated with our <unk> clinical development program.

As a reminder, we are developing <unk> to provide a solution for severe emphysema patients not currently eligible for zephyr valves due to the presence of a gap in the Fisher separating lobes of the lungs, which results in collateral ventilation or air flow between the lobes. This collateral ventilation prevents a target lobe.

From deflating with Zephyr valves are inserted.

<unk> is a polymeric phone that is delivered via of a bronchoscope to seal the airways, leading to the Fisher gaps between the loads of the lung potentially enabling treatment of patients who were previously ineligible for valves due to collateral ventilation, thus, we see <unk> as a.

Sure way to increase the number of patients who are candidates for zephyr valve therapy.

We are looking forward to seeing the publication of data from a single center proof of concept investigator led feasibility study from Australia that evaluated <unk> seal to eliminate collateral ventilation in the target lobe and if successful then followed up treatment of that Loeb with Zephyr.

Valves. This manuscript script was recently accepted and it is expected to publish in the coming months.

<unk> is also currently being studied in our convert trial, a multicenter multinational study, which we are conducting in Europe . We are also pleased that interim data from this trial has been accepted for podium presentation at the upcoming European respiratory Society inter.

National Congress in Barcelona, Spain, and on September the fourth.

At this presentation, we expect to share data on an initial subset of convert patients that will shed light on the preliminary conversion with arris seal of targeted patients with collateral ventilation. This information should provide additional insight and proof of concept around the use of <unk>.

To expand zephyr valves to severe emphysema patients with collateral ventilation in a larger multicenter study.

<unk> from the convert trial continues to inform the design of our U S. IDE study, which we are discussing with FDA and expect to initiate sometime next year.

Lastly, our initiative to expand geographically into the.

The Japanese market remains on track, we recently hired an experienced leader in Japan to drive our commercial efforts and we are engaged in a constructive dialog with the Japanese authorities. Following the submission of our regulatory application late last year, we continue to expect regular tape toria.

<unk> in Japan by the end of this year, followed by the establishment of reimbursement and subsequent commercial launch in the back half of 2023.

Again, we estimate Japan to be a $1 billion opportunity with approximately 100000 patients in need of ours that for valve treatment.

In summary, I believe the record sales that we achieved in the second quarter, along with the continued progress on our commercial and strategic initiatives positions us well for continued growth through the remainder of the year and well into the future with that I'll now turn the call over to Derek to provide a more deep.

Tailed review of our second quarter results.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended June 30th 2022 reached a new quarterly high of $14 million, a 14% increase from $12 2 million in the same period of the prior year and an increase of 19% on a constant currency basis.

U S revenue in the second quarter was $8 6 million a.

A 31% increase from $6 6 million during the prior year period, the record U S sales reflected a recovery in procedure volumes following the winter COVID-19 surge as well as benefit from increasing the increasing number of treating centers that we have been opening every quarter.

International revenue in the second quarter of 2022 was $5 3 million.

A 5% decrease from $5 6 million during the same period last year and an increase of 4% on a constant currency basis.

International revenue benefited from solid procedure growth in our major markets offset by slower restart in some of our smaller markets continued lockdowns in China Hospital staffing shortages and negative impact from foreign currency exchange rates.

Gross margin for the second quarter of 2022 was 75% compared to 74% in the prior year period.

The year over year expansion in gross margin was driven primarily by increasing production efficiencies.

We expect gross margin to trend near 74% for the remainder of the year as negative foreign exchange impact, partially offset continued gains in production efficiencies.

Total operating expenses for the second quarter of 2022, or $24 8 million, a 14% increase from $21 $7 million in the second quarter of 2021.

Noncash stock based compensation expense was $4 2 million in the second quarter of 2022 and accounted for 64% of the increase in operating expense from the prior year.

We continue to prudently manage our operating expenses to remain within our previously communicated guidance of $100 million to $105 million for the full year 2022 inclusive of approximately $16 million of stock based compensation expense.

We remain committed to investing in growth, while simultaneously managing towards cash flow breakeven within the confines of the capital that we currently have on hand.

R&D expenses for the second quarter of 2022 were $3 6 million.

Compared to $3 5 million in the same period of the prior year.

The slight increase was primarily due to an increase in stock based compensation expense.

Sales general and administrative expenses for the second quarter of 2022, or $21 2 million compared to $18 2 million in the second 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 as well as an increase in stock based compensation expense.

Net loss for the second quarter of 2022 was $14 6 million or a loss of <unk> 40 per share.

As compared to a net loss of $13 million or a loss of 36 per share for the same period of the prior year.

And average weighted share count of 37 million shares was used to determine loss per share for the second quarter of 2022.

We ended June 32022, with $166 8 million in cash cash equivalents in marketable securities.

Decrease of $9 7 million from March 31, 2022.

We expect to burn roughly $50 million in cash for the full year 2022, and expect to see our annual cash burn decrease in subsequent years as we continue to grow sales and see increasing leverage throughout our business.

As I mentioned, we expect to reach cash flow breakeven in our current operations with the capital that we have on hand and are managing our business to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive.

Finally, turning to our outlook for 2022.

We now estimate foreign exchange rates will result in an approximate 5% headwind to global sales growth for the full year 2022.

Despite this incremental headwind and continued macro uncertainties, we remain confident in our ability to achieve full year 2022 revenue within our previously communicated range of $55 to $60 million.

Keeping in mind that we do expect some level of summer seasonality and continued sequential growth throughout the year.

This represents 14% to 24% year over year growth on a reported basis and implies 19% to 29% growth on a constant currency basis up 2% from our previously implied constant currency growth expectations.

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

Operator.

As a reminder, if you'd like to ask a question. Please press star one one.

Our first question comes from Cecilia furlong with Morgan Stanley . Your line is open.

Hey, good afternoon, and thank you for taking my questions I wanted to start just on the quarter, but Glenn or Derek If you could just talk to what you saw from an active account.

Endpoint as the quarter progressed in the U S. And then any commentary you could talk to just in terms of looking at single centers. Some of your centers added.

Adopted earlier pre COVID-19 are around what you saw.

Awesome.

<unk> ramp through the quarter end and any color you can provide to you just on the exit rates as you think about especially entering the summer months.

Sure.

So.

A few different things.

Since you brought up there so with regard to active accounts.

The.

June June was stronger than May and April but the average across the period was <unk> 76, which was right where we had expected it was going to be so that was.

Smack on what our expectations were so that was good you had asked about.

Some of the accounts that were up and running around when Covid hit some of our stronger accounts is that where you were going you wanted to know how they were doing.

Correct.

Our experience has been in the field.

What we saw and it's actually kind of.

It could go far afield with this but basically accounts that are there.

More deeply experienced sort of more deeply engaged accounts as you would expect we're the first ones to come back.

So we did see that.

Many of those accounts were the ones that had an uninterrupted year prior.

Prior to Covid, hitting and obviously all the accounts that started since the beginning of 2020 have been interrupted with Covid along the way.

And so the strongest or the most experienced in the most up to speed accounts. So they came back early we also saw that actually remarkably in our international numbers. When you. When you looked at those we've got 60% of our business that's in the United States.

The other 40% obviously is outside the United States and.

Three quarters of that falls into four countries. So we sell them, we sell product into 25, plus different countries, but 90% of our business is in the U S, Germany, France, and UK and Austria.

And in the U S. We grew on a constant currency basis, 31% in the U S over prior year and 20% in those bigger markets. So combined 27, 3%.

And what we saw was that in that small 10% of our of our business was virtually where all of our shortfall was.

And I think it really reflects that idea.

These smaller countries smaller accounts.

Most cases without a direct sales organization are much slower to come back online and we saw that in the smaller accounts in the United States as well about half of our shortfall in that 10% of our business came from Asia, almost all from China, and the others came from smaller European markets.

Anyway, I went a little bit beyond what you were asking about but I think it is important to note that those smaller accounts tend to come back.

Less quickly than the bigger accounts and so we definitely saw that in the U S and across our top five markets, which all did quite well relative to our expectations.

The last area that you asked about was summer and what we think about where we are we see a lot of nice things lining up.

We don't really have perfect information on the summertime, it's been confounded by Covid a bit and it's also been compounded by our just inherent growth across prior years and so forth.

So we feel we feel good about.

The summer, particularly in the United States, we've always seen.

Some have somewhat of a summer slowdown in Europe .

We won't see it in Australia, which is our which is our fifth largest market.

Just because seasonality puts that more around Christmas time.

But in any case, we will see a little bit of a slowdown in Europe , but we always see a really strong September .

At the end in a late August rebound in Europe , and we expect to power our way through things in the United States.

Okay. Thank you for the color on that Glenn if I could follow up just in terms of what youre seeing in the field today.

From a capacity standpoint, stocking can change and how that factored into your back half guidance. If you think about both the U S and O U S sequential ramp and the ability to really be operating across the health care system that.

Closer to full capacity and again, just really how youre thinking about contributions from some of your older sites versus more recent additions, especially as you think about the <unk> sequential.

Dynamic and thank you for taking the question.

Sure.

Well capacity is an interesting thing because it used to be that it was a binary matter COVID-19 would presented would shut us down.

And now what we're seeing it's interesting that blanket the impact of Covid on our business isn't related to the number of cases, because there's tons of cases out there right now it was really impacted by how those if and how those patients would progress into the intensive care units and we're clearly seeing fewer in as much.

Mahler proportion of patients.

That are in the hospital because of Covid finding their way into the into the ICU, So that constraint, which was literally like a light switch for our business.

Is not presenting itself in the same sort of way, but what it's revealing as it sort of that big heavy blankets come off and now where for the first time experiencing what we've heard from a lot of other companies with regard to staffing and so forth. So there is a real I think capacity thing that hospitals or are working their way out of.

As I said I mean, we feel good about the way we've been able to power our way through a lot of that.

Given the diversity of our business across various different markets.

Both in the U S and outside the United States.

So.

I think that's where my thinking is on capacity I don't know Derek if you have any thoughts on the on the question.

Right.

Oh, I'm, sorry, I was on mute.

I apologize so.

I was just going to say.

We have incorporated the thinking around a hospital staffing shortages into our guidance and so that is incorporated into our forward looking thinking for the remainder of the year.

Great. Thank you for taking the question.

Yeah.

Our next question comes from Travis Steed with Bofa Securities. Your line is open.

Hey, Thanks for taking the question.

Derek.

Put a little more specifics on the <unk>.

The Q3 comment so typical seasonality, but still a quarter over quarter growth industry like $16 million just want to make sure thats the right place to be for Q3.

I'm curious how you think about the lower end versus the higher end of the guidance.

For 2022 some of the.

I can take on that.

Yes, that's a great. It's a great question.

Travis.

Continue to think about modeling to the midpoint of our guidance that's kind of how we think about it moving forward.

If you do think about the midpoint of our guidance.

Guidance implies $33 million in the back half of the year.

And I would as you mentioned I would weight that a bit more to Q4 than Q3 because of that summer seasonality impact that we talked about so we would expect to see some modest sequential increase.

In sales on a quarter over quarter basis between <unk> to <unk>, but I would wait.

More heavily the bulk of that.

$33 million, if you're modeling to the midpoint of our guidance towards the back half of <unk> towards the fourth quarter of the year.

<unk>.

Hopefully that answers your question there.

That's helpful. We can follow up on what modest means post call but.

I didn't look at.

But the 2023 Street numbers and then I realize you can't comment on it but 2021 you grew revenue by $16 million. This year. The high end of the guide of $60 million or $12 million of growth and obviously those are two macro challenged years, but when you look at 2023 of the street's at $30 million of revenue growth. So I don't know if thats a reasonable way to think about the step up in.

Growth as the hospital environment and some of these challenges that you use or if revenue dollars are more likely to be closer to historical levels.

Without giving specifics I'd love to kind of how youre thinking about.

Because if I'm, a little bit of a longer term basis.

Yes, it's a fair question and we don't want to get into 2023 guidance per se, but.

Couple of things that I would.

I'll tell you that we're thinking about that I would have you think about.

First off certainly foreign exchange.

Is the headwind for us given that 40% of our business comes from outside the U S.

And with the strengthening of the dollar and there is certainly uncertainty.

Around where currency is going to move.

We are seeing an increasing headwind from foreign exchange, so even where the dollars sits today versus where the dollar was at the beginning of the year. When we gave our guidance for example.

We're estimating.

A 2% greater impact negative impact to sales from a year over year perspective, so that's about $1 million.

And we're not going to be in the business of <unk>.

Trying to predict where exchange rates go but.

Certainly currently where the dollar city, that's going to impact our future sales.

Into next year, if things don't move so that's an additional headwind that has.

Come up and then.

What you talked about.

Is really the other sort of lingering.

Impact of Covid. So we're feeling we feel very good about the fact that in all of our major markets. The U S. In our major international markets, we're seeing a very nice recovery in procedure volumes.

And we're hoping that kind of a days of these complete procedure shutdowns due to ICU beds filling up are behind us.

I think the lingering effect from our perspective.

As these.

Hospital staffing shortages.

And ability of staff to come in and the impact that that has on our productivity per account is the way we look at it or a capacity of hospitals moving forward and so I think all of that is something that we would.

<unk> Ad tech.

Carefully looking to the future and we'll have more visibility on that certainly as things play out through the remainder of this year, but I think all of that to me is sort.

The two key areas of uncertainty that we're thinking about both this year and into the future.

No. That's all fair and then one quick follow up.

The cash flow breakeven is it enough capital on hand, three years forward, but curious what revenue level that we will.

Open out or kind of what you were expecting to hit breakeven.

Sure sure. So again I don't want to get too.

Specific on this but at a high level I would say, we would expect to get to cash flow breakeven sometime in the next.

Few years in the next three to five years.

And again rough numbers.

Somewhere at an annualized run rate I would say north of $150 million ish. So that's kind of at the high level, where we expect to reach cash flow breakeven within our current operations that we have alright perfect great. Thanks for taking the questions.

Yes.

Our next question comes from.

David.

With Canaccord Genuity your line is open.

Hi, This is David on for Bill Robotics. Thanks.

Thanks for taking my question and congrats on your quarter.

My first question is.

What do you think has been the impact from the payers that were added in 2022 in the first half of this year.

And if you don't see an impact how long does it take to flow through the system and see the benefits.

Yes so.

The.

We get all of our essentially all of our patients paid for so 75% of our patients are covered by the government.

Talking about the U S. So when you are talking about payers are you talking about private payers that you're talking about.

Reimbursement in Nash outside the U S.

Private.

Private payers, okay, so 25% of our business.

It goes through private payers.

And way over 90% of the time, we get it through.

Vin and payers, though even in payers that have a negative coverage decision now every major payer with the exception of Blue Cross Blue Shield.

Is <unk>.

Positive or neutral, which is to say they are.

Routinely pay for us.

Those that are part of the Blue Cross Blue Shield network more than two thirds of those have now flipped as individual plans.

Despite the association, having a negative negative coverage decision, where sort of the biggest tree and we're chopping it down limb by limb. So we've made a lot of good progress on that front, but even when somebody.

It comes back and says we're not going to cover this because we have a negative policy on this.

You can protest you can appeal that and what it requires is for you to present data and then there is an independent physician who is not apart.

Somebody who is not a part of Blue Bluecross Blueshield, who comes in and reviews that package.

And I don't know I think we've we're essentially close to 100% on that because our data are very clear. We've got four randomized controlled trials involving published its really the standard of care. So we win that all the time, so why do we care about the private payers and where they stand because theres significant inefficiency, it's like three months.

To go through the process I, just described as opposed to two or three weeks if.

If you've got a positive coverage decision. So we're trying to reduce that resistance and.

But at the end of the day the thing Thats been remarkable is how patient the patients are these.

These patients are not going through a particular acute event they will be there tomorrow.

And they are willing to fight to get the procedure I'm going to go through the process. We do not have meaningful follow up fallout during those extended processes, but it is it would be a lot more efficient if we can move them, but it's it is a small it's like I said, it's 25% of our business is private blue.

Blue Cross Blue Shield as the only company that's negative and two thirds of their individual plans two thirds of the covered lives under Blue Cross Blue Shield Association have already flipped to a positive position so they're full.

Full steam ahead in those accounts, so it's a really small part of our business.

That we end up having to wait and worked through.

Thank you for the clarification and then I have one more question if that's alright.

Sure.

Traction in utilization in your oldest accounts measure versus the newer ones.

What is the timeframe product counter beach maximum capacity.

Thanks for taking my question.

Yes.

Thanks for the question, it's a element that we've been commenting on for some period of time now and really the only peer group that we have was a relatively small group of accounts that were up and running for a year prior to Covid. So remember we we were on the market for 18 months from.

FDA approval to when Covid hit.

And the first things that our sales reps did when we got approval was to go introduce themselves to these hospitals, because we don't sell a single thing that these hospitals until we showed up with the valves.

Go through a process of negotiating terms and conditions and getting those hospitals up and running through the various committees and so forth. So we didn't have a ton of hospitals that had a year of experience at the time that COVID-19 hit it was a.

Double digit number like 40 to 60 accounts or something like that.

In that small group.

Established accounts that Didnt get the light switch turned off in the first year.

We had a certain rate.

Productivity, which was something on the order of six or seven.

Cases per quarter, and we have been through the Covid phase working in an environment, where folks were coming in and going out.

Based on the waves of Covid, hitting and have been as low as.

In the threes on a quarterly basis up into the fours and so forth and we're and we're sort of digging our way out of that but as I mentioned before it's the most established accounts that are sort of got the strongest history.

They're the first ones to come back and basically everyone was down just a few months ago in the first quarter and those that popped back up where the more established accounts many of which were in.

The ones that were uninterrupted in the pre Covid phase.

Thank you Glenn.

Thats all I have.

Our next question comes from Larry <unk> with Wells Fargo. Your line is open.

Hey, guys. Thanks for taking the question.

Glenn just a two part question on <unk> I'm going to ask both upfront so the convert and the results we're going to get <unk> in September how many patients are going to be presented what would you consider a good result, and you said youre excited about presenting the data what makes you optimistic what changes have you made since earlier studies like the aspire trial.

Phil.

<unk> has been around for a long time, so kind of what makes you think you have something here. Thanks for taking the question.

Yes.

So we will report convert at Rs.

The convert approach was first reported as a case study out of Australia. So there was a single patient where this has been published where the physician went in identified that we're using charters identified that the patient was CV positive put in <unk> converted that patient put in valve.

And the patient behaved like somebody who was born CV negative.

So that was encouraging he set off to show in his site that he could do that in a larger group of patients that double digit number of relatively small single center study in the script earlier, we mentioned that that experience in that low single double digit.

Group of patients.

Has been written up.

Is about to be published its been accepted for publication is literally just that normal delay between acceptance and win it it shows up in print.

We're not going to.

Essentially I think of that data is being embargoed until it gets published.

So we have some visibility to that.

We also in the convert trial have tens of patients that we will we are and we're not going to talk about the specifics of how many but it's tens of patients.

That we're going to look at and it's going to we're going to be talking primarily at Rs. About can you take somebody who CV positive and make them CV negative with <unk>.

And Thats because the second question doesn't matter, whether they're going to behave the same way if valved or not if you can't if you can't get by the first now you had asked what is a reasonable result, we queried. We asked that question of World thought leaders and they came back and said if you could take 30.

Worst case to 50%.

CV positive patients that are that are good candidates for this procedure.

And convert them then that would be great 50 would be wonderful and 30 would be acceptable. So that gives you sort of the framework. So anything north of 30 is acceptable and anything at or above 50 is wonderful and.

Those data will I don't know when this publication is going to come out if it pops up before <unk>.

Be able to see that.

But thats in a much smaller group than we will report on.

At <unk> and then the larger a larger group tens of people will be reported at Elas with that fundamental question being the centerpiece and then the other thing that they'll focus on us.

How well tolerated <unk> seal is you had made reference to aspire aspire was a trial that was executed by a company called <unk> Therapeutics.

<unk> developed <unk>, we purchased.

The technology from Arris. They had commenced this study called aspire they didn't finish it because they ran out of money.

And when we were able to get a pretty good deal on that acquisition and we have carried things forward one of the observations at that time and this was like a dozen years ago.

Was the question related to that how well the patients tolerated.

The <unk> in that trial roughly twice as much <unk> was instilled as in the current sort of approach and so.

One might contrast, and learn at Rs, how patients behave when given.

50% or less the volume of ore seal that they've got and aspire, so there'll be there'll be a safety or tolerability.

<unk> that will also probably be answered at the IRS.

Okay.

Thank you very much.

Area Vice President.

Our next question comes from Rick Wise with Stifel. Your line is open.

Hi, This is Sam Alec on for Rick Wise, I'm, just going to go ahead and ask questions upfront.

During the first few weeks of earnings.

A number of companies reporting to highlight.

Higher pressure.

From hospital staff augmentation and their ability to do procedures.

So to what extent has this impacted your productivity per account and then how should we think about this impacting third quarter second half of 2022 and going into 2023. Thank you.

Got it.

Yes.

Has it impacted our productivity, yes, it certainly has.

It's just a it's a reality we have folks that are coming in and they've got to go through pulmonary rehabilitation. They have to go through.

Pulmonary function testing.

You have to be run into through other tests around the hospital and then the procedure gets executed by a team of people if a significant number of people or in some cases, not even a terribly significant number of people call in sick than certain things get delayed or.

And they get pushed off in the future. So we are definitely feeling that we muscled our way through that we didn't anticipate at our goal. Our hope was that if everything went well we were going to deliver in the second quarter roughly what we did in the fourth quarter.

Everything seemed to go pretty well, where things didn't go as well as we had anticipated and we were able to muscle our way into that zone that we had targeted so we're definitely seeing that right now I mean, I think that it's something that hospitals make money off of these procedures, whether they'd be surgical procedures or interventional procedures and theyre going to do whatever.

They can to ensure that they have the capacity to do the procedures that are necessary, it's going to take a little time, we are seeing in certain situations the situation improving for sure.

And.

We expected that to strengthen as we move across the year and certainly in 2023.

And I'm sure that the hospital systems that report like we're doing right now are going to be commenting on staffing as well but.

We're very gratified that our.

That our patients are pushing hard and our physicians are trying to get this I'm trying to move things ahead, and we can see the activity of the engagement by patients.

And the activity by our accounts that gives us a great deal of optimism as to what's ahead.

Great. Thank you.

Thank you.

Our next question comes from Joseph <unk> with PSC. Your line is open.

Hey, guys. Congrats on the solid quarter. This is Joe on for Jason.

The first one I have is on pricing so while it hasnt been a traditional lever we've discussed in the past your business are.

Are you able to comment on whether you have or plan to take pricing.

I mean manufacturing operating inflationary pressures and then I've got one more.

Yeah.

We have taken a small amounts of pricing in the past, we will probably be taking larger.

Making somewhat larger price increases as we move forward.

As our.

We've had great fortune with our supply chain and our we've got a very talented group that manages that.

We got out ahead of things in terms of making sure that we had the right inventories we've got a good bit of product that's on the shelf.

We've been able to manage pretty well in this environment and.

So yes.

We would expect that we will have some price increases I think where we typically I think focus.

Rice increases in terms of greater magnitude is on new products. So when we have a line extension or a new version of something you typically would see.

New software package or something in a chart issues typically move.

A bigger step up in pricing as well. So yes, we would expect we will exercise a little bit of that as we move forward here.

Great. Thanks, Glenn and then one more on competition. So what are you seeing out there competitively with spy ration and are you seeing olympias, hoping developed about market in any meaningful way and then relatedly are there any other earlier stage technologies that you would consider evaluating.

This could help expand the addressable patient population you can treat thanks.

Yeah.

I'm always happy to have a competitor in the marketplace to sort of help you grow.

And obviously, it's great to grow the size of the pie when you control a disproportionate share of that pie.

Been out in the market now.

During a challenging time, but.

We've been out for a while and not only in the U S, but in Europe and.

It's we're a difficult competitor for somebody else Who's got a valve that's got a different design.

<unk>.

And.

We've got a lot of data all of our data. We've got four studies all the data are consistent we hit on all three endpoints across all four studies so.

12 shots on goal 12 goals.

And Olympics doesn't have that same data set.

And we're doing and we're continuing to do additional work I'm not aware of them doing significant additional work either so.

Anyway there.

They've got a good product.

It works in certain patients and but we continue to have.

What I believe is our share of the market, which.

Depending on what country, you're talking about is somewhere between 70 and 100% market share.

So.

How are we doing they are still in the game.

I don't expect that to change.

And.

There is a place for them in the marketplace I'm happy Theyre, making noise.

In terms of other technologies.

Theres nothing that is that I can see on the horizon that I think is going to be significantly competitive in the valve space.

Valves are reversible.

Great. You know these patients are all you know 90 plus percent of the time, they're former smokers, it's not uncommon that three years. After you place a valve that something.

Some some spot shows up on our future X Ray and you want to go in and get at it you can go in with our valve and you can pull it out three five years later and go back behind it and go do what you want to do so I think valves are always going to be first line therapy.

Now there are other technologies that are in development with the possible application.

In <unk> positive patients.

Some of them been studied before and have a very spotty record.

We like the the approach that we're taking with Ara sale, where youre not permanently taking down massive chunks of geography.

The way that some of the other technologies would be the case you would also referred to whether it would be anything that would be complementary that's out there.

Of course in the interventional space Theres, a number of different technologies that are being developed some are further along than others.

And we are we continue to keep a close eye on those technologies we.

What we have that is really hard to have as we have a global sales organization, 98% of our business is direct we sell into 25 different plus markets.

So we built this commercial front and it's very very hard to get to where we are right now where they are our global commercial team is paying for itself.

Certainly all of our sales reps around the world. So it's just incredibly difficult for any younger company or a smaller company a single product company to do what we've done and we see that as a lever leverage of all assets. So we keep a close eye on the other things that are bringing their coming forward that could be potentially complementary in the bag.

Thanks, Scott I appreciate the insight.

Sure.

Our next question comes from Joanne Wuensch with Citi. Your line is open.

Good afternoon, and thank you for taking the question actually the previous one just follow up straight into the.

When I look at the U S growth.

Up against a particularly tough comp, but I suspect that it masks certain pockets that are doing quite well and others that may not be so much could you maybe pull that apart a little bit and then my second question has to do with your global sales Force can you talk about the seniority or the tenure of the individuals.

The stability of that sales force. Thank you.

So looking at that yes. It is.

So outside the United States, United States is our biggest market, 60% of our business, 40% of our business is outside the United States.

Three quarters of that business is in four countries.

Germany.

France.

The U K and Australia, they're all 2 million plus annualized markets two to 10 kind of range.

And.

They really did all those all our top five U S, Germany, France, UK and Australia, all did well in the quarter.

As I mentioned I think earlier U S was up 31% on a constant.

For the second quarter of 2021 and on a constant currency basis, those Germany, France, UK and Australia were up 20%. So that's that's 90% of our business was up 27, 3% over the prior period, So where we have the biggest footprint, where we've got the greatest number of accounts, where we're up.

Running and we're leveraging we've got marketing people there we got salespeople there we're building our business.

And in that last 10%.

Of our business we were down.

On the order of 20%.

And.

About half of that.

Miss.

Was in Asia, almost all of which was in China.

Now.

The balance of the other half is in a bunch of countries smaller countries, where they don't they haven't taken the.

Complete shutdown approach the way they have in certain Asian countries. So those smaller countries.

That underperformed in the second quarter.

Just slow coming back because theres not a team on the ground thats like goosen them to come back Theyre going to come back. So that's the good news I don't and I expect that will probably I mean, I fully expect that is going to happen in the back half of the year again, it's only 5% of our business half of that last 10% I don't expect Asia to come back this year.

Oh, I don't expect China to come back this year I should say because that's the biggest part of that.

The chunk for obvious reasons, they're just we do a little business there, it's not like it's zero.

But theyre not doing what we know China was growing compound annual growth something on the order of 100% for a couple of years and then Covid hit and.

We get we got frozen pretty good there.

Does that answer your question Joanne.

Yes. Thank you.

There are no further questions I'd like to turn the call back over to Glenn French for any closing remarks.

Great well. Thank you all for your questions and your interest in <unk>, we feel really good about the quarter that we just finished up in the foundation that we have to move ahead. I also wanted to take just a moment to express my deep appreciation for the extraordinarily dedicated customers and employees work every day and in <unk>.

Efforts to significantly improve the lives of patients with severe <unk>.

<unk> Zima and COPD. So thank you all.

Graham you May now disconnect everyone. You may now disconnect everyone enjoy the rest of your day.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good afternoon, and welcome to <unk> second quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.

We'll be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Lynn Morgen from the Gilmartin group for a few introductory comments.

Good afternoon, and thank you for participating in today's call joining me from Walnuts, Glen French President and Chief Executive Officer, and Derek One Chief Financial Officer earlier today <unk> released financial results for the quarter ended June 32022, a copy of the press release is available on the company's 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 Law, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 995.

Any statements contained in this call that relate to expectations or predictions of future events.

Our performance are forward looking statements.

All forward looking statements, 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.

Expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expansion.

Expansion and product pipeline development are based upon our current estimates.

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.

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 quarterly report on Form 10-Q filed with SEC on May nine 2020.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August <unk> 2022.

<unk> Corporation disclaims any intention or obligation, except as required by law to update.

Any financial projection or forward looking statements, whether because of new information future events or otherwise and with that I will turn the call over to Glenn.

Thanks Lynn.

Good afternoon, everyone and welcome to our second quarter 2022 earnings call here with me as Derrick sung our Chief Financial Officer.

In the second quarter, we generated worldwide sales of $14 million, representing our highest quarterly revenue to date.

We're pleased with our second quarter performance as we continued to see strong patient demand for or is that for valves, improving end market dynamics and the ability of our team to execute and manage our business in a fluid environment.

Momentum exiting the quarter leaves us confident in our ability to deliver on our full year 2022 revenue guidance of $55 million to $60 million, even in the face of ongoing macro uncertainties and incremental foreign exchange headwinds.

Throughout the second quarter, we continued to execute on our initiatives to expand our global commercial footprint.

We also added one additional sales territory in the U S and two additional international sales territories, bringing our total U S and international sales territories to 55 and 36, respectively.

One of our primary goals is to educate both healthcare providers and patients about endobronchial valves being part of the standard of care for severe emphysema.

Therapists, including accredited courses videos Webinars podcasts and articles we have also expanded our healthcare provider education outreach at the local level with a focus on our selection of community physicians, who manage large populations of COPD patients.

Together with our physician collaborators we continue to build on the clinical evidence for several valves in June the first prospective study to assess cardiac function. Following bronchoscopic lung volume reduction with Zephyr valves was published in the American Journal of <unk>.

Batori in critical care medicine.

Severe emphysema patients.

Innovative clinical work such as this continues to advance the scientific evidence demonstrating the clinical value of Endobronchial valves.

Turning to our longer term growth initiatives to expand our addressable market. We're excited about two upcoming data readouts associated with our <unk> clinical development program. As a reminder, we are developing <unk> to provide a solution for severe emphysema patients not currently eligible for safra valves due to.

The presence of a gap in the Fisher separating lobes of the lungs, which results in collateral ventilation or air flow between the lobes. This collateral ventilation prevents a target loeb from deflating with Zephyr valves are inserted.

<unk> way to increase the number of patients who are candidates for is that for valve therapy.

Valves. This manuscript script was recently accepted is expected to publish in the coming months.

National Congress in Barcelona, Spain, and on September 4th.

To expand zephyr valves to severe emphysema patients with collateral ventilation in a larger multicenter study law.

<unk> from the convert trial continues to inform the design of our U S. IDE study, which we are discussing with FDA and expect to initiate sometime next year.

Lastly, our initiative to expand geographically into the Japanese market remains on track. We recently hired an experienced leader in Japan to drive our commercial efforts and we are engaged in constructive dialogue with the Japanese authorities following the submission of our regulatory.

Lori application late last year, we continue to expect regulatory approval in Japan by the end of this year, followed by the establishment of reimbursement and subsequent commercial launch in the back half of 2023.

Again, we estimate Japan to be $1 billion opportunity with approximately a 100000 patients in need of ours Zephyr valve treatment.

Review of our second quarter results.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended June 32022.

The new quarterly high of $14 million a 14.

10% increase from $12 $2 million in the same period of the prior year and an increase of 19% on a constant currency basis.

U S revenue in the second quarter was $8 6 million, a 31% increase from $6 6 million during the prior year period, the record U S sales reflected a recovery in procedure volumes following the winter COVID-19 surge as well as benefit from increasing the increasing number of treating centers that we have been opening every quarter.

International revenue in the second quarter of 2022 was $5 $3 million.

A 5% decrease from $5 6 million during the same period last year and an increase of 4% on a constant currency basis.

International revenue benefited from solid procedure growth in our major markets offset by a slower restart in some of our smaller markets continued lockdowns in China Hospital staffing shortages and negative impact from foreign currency exchange rates.

Gross margin for the second quarter of 2022 was 75% compared to 74% in the prior year period.

The year over year expansion in gross margin was driven primarily by increasing production efficiencies.

We expect gross margin to trend near 74% for the remainder of the year as negative foreign exchange impact, partially offset continued gains in production efficiencies.

Total operating expenses for the second quarter of 2022 or $24 8 million.

14% increase from $21 7 million in the second quarter of 2021.

Noncash stock based compensation expense was $4 2 million in the second quarter of 2022 and accounted for 64% of the increase in operating expense from the prior year.

We remain committed to investing in growth, while simultaneously managing towards cash flow breakeven within the confines of the capital that we currently have on hand.

R&D expenses for the second quarter of 2022 were $3 6 million compared to $3 5 million in the same period of the prior year.

The slight increase was primarily due to an increase in stock based compensation expense.

Sales general and administrative expenses for the second quarter of 2022 were $21 2 million compared to $18 2 million in the second quarter of 2021.

Net loss for the second quarter of 2022 was $14 6 million or a loss of <unk> 40 per share as.

As compared to a net loss of $13 million or a loss of 36 per share for the same period of the prior year.

And average weighted share count of 37 million shares was used to determine loss per share for the second quarter of 2022.

We ended June 32022, with $166 8 million in cash cash equivalents and marketable securities.

Decrease of $9 7 million from March 31, 2022.

Finally, turning to our outlook for 2022.

We now estimate foreign exchange rates will result in an approximate 5% headwind to global sales growth for the full year 2022.

Keeping in mind that we do expect some level of summer seasonality and continued sequential growth throughout the year.

Yeah.

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

Operator.

As a reminder, if you'd like to ask a question. Please press star one.

Our first question comes from Cecilia furlong with Morgan Stanley . Your line is open.

Great. Good afternoon, and thank you for taking my questions I wanted to start just on the quarter, but Glenn or Derek If you could just talk to what you saw from an active account.

Standpoint, as the quarter progressed in the U S. And then any commentary you could talk to just in terms of looking at single centers. Some of your centers that Ed.

The darker earlier pre COVID-19 around COVID-19, but what you saw from just a volume ramp through the quarter end and any color you can provide to you just on the exit rates as you think about especially entering the summer months.

Sure.

So.

A few different things.

That you brought up there so with regard to active accounts.

The.

June June was stronger than May and April but the average across the period was <unk> 76, which was right where we had expected it was going to be so that was.

Smack on what our expectations were so that was good you had asked about.

Some of the accounts that were up and running around when Covid hit some of our stronger accounts is that where you were going you wanted to know how they were doing.

Correct.

Our experience has been in the field.

What we saw and it's actually kind of.

It could go far afield with this but basically accounts that are there.

More deeply experienced sort of more deeply engaged accounts as you would expect we're the first ones to come back.

So we did see that.

Many of those accounts were the ones that had an uninterrupted year prior.

Prior to Covid, hitting and obviously all the accounts that started since the beginning of 2020 has been interrupted with Covid along the way.

The other 40% obviously is outside the United States and.

Three quarters of that falls into four countries. So we sell we sell product into 25, plus different countries, but 90% of our business is in the U S, Germany, France, and UK and Austria.

And in the U S. We grew on a constant currency basis, 31% in the U S over prior year and 20% in those bigger markets. So combined 27, 3%.

And what we saw was that in that small 10% of our of our business was virtually where all of our shortfall was.

And I think it really reflects that idea.

These smaller countries smaller accounts.

Anyway, I went a little bit beyond what you were asking about but I think it is important to note that those smaller accounts tend to come back.

Less quickly than the bigger accounts and so we definitely saw that in the U S and across our top five markets, which all did quite well relative to our expectations.

The last area that you asked about with summer and what we think about where we are we see a lot of nice things lining up.

We don't really have perfect information on the summertime, it's been confounded by Covid a bit and it's also been compounded by our just inherent growth across prior years and so forth.

So we feel we feel good about the summer, particularly in the United States, We've always seen.

Some have somewhat of a summer slowdown in Europe .

We won't see it in Australia, which is our which is our fifth largest market.

Just because seasonality puts that more around Christmas time.

But in any case, we will see a little bit of a slowdown in Europe , but we always see a really strong September .

At the end in a late August rebound in Europe , and we expect to power our way through things in the United States.

Okay. Thank you for the color on that Glenn if I could follow up just in terms of what youre seeing in the field today.

From a capacity standpoint staffing can change and how that factored into your back half guidance. If you think about both the U S and O U S sequential ramp and the ability to really be operating across the health care system that.

Closer to full capacity and again, just really how youre thinking about contributions from some of your older sites versus more recent additions, especially as you think about the <unk> sequential.

Dynamic and thank you for taking my question.

Sure.

Well capacity is an interesting thing because it used to be that it was a binary matter covered would presented would shut us down.

<unk> proportion of patients.

Or in the hospital because of Covid finding their way into the into the ICU, So that constraint, which was literally like a light switch for our business.

As I said I mean, we feel good about the way we've been able to power our way through a lot of that.

Given the diversity of our business across various different markets.

Both in the U S and outside the United States.

So.

I think that's where my thinking is on capacity I don't know Derek if you have any thoughts on the on the question.

Hi.

Okay.

Oh, I'm, sorry, I was on mute.

Apologize so.

I was just going to say.

We have incorporated the thinking around.

Hospital staffing shortages into our guidance and so that is incorporated into our forward looking thinking for the remainder of the year.

Great. Thank you for taking the question.

Yeah.

Okay.

Our next question comes from Travis Steed with Bofa Securities. Your line is open.

Hey, Thanks for taking the question.

Eric just to put a little more specifics on that.

For Q3 comment so typical seasonality, but still a quarter over quarter growth industry like $16 million just want to make sure thats the right place to be for Q3, and I'm curious how you think about the lower end versus the higher end of the guidance.

For 2022 or some of the.

The puts and takes on that.

Yes, that's great.

Great question.

Travis So I would continue to think about modeling to the midpoint of our guidance that's kind of how we think about it moving forward.

If you do think about the midpoint of our guidance.

Our guidance implies $33 million in the back half of the year and I would.

You mentioned I would weight that a bit more to Q4 than Q3 because of that summer seasonality impact that we talked about so we would expect to see some modest sequential increase.

And sales on a quarter over quarter basis between <unk> to <unk>, but I would wait.

More heavily the bulk of that.

$33 million, if youre modeling to the midpoint of our guidance towards the back half of <unk> towards the fourth quarter of the year.

<unk>.

Hopefully that answers your question there.

That's helpful. We can follow up on what modest means post call but.

I didn't look at.

But the 2023 Street numbers and then I realize you can't comment on it but 2021 you grew revenue by $16 million. This year at the high end of the guide of $60 million or $12 million of growth and obviously those are two macro challenge gears, but when you look at 2023 of the street's at $30 million of revenue growth. So I don't know if thats a reasonable way to think about the step up in <unk>.

Growth as the hospital environment and some of these challenges that you use or if revenue dollars are more likely to be closer to historical levels.

Without giving specifics I'd love to kind of how youre thinking about.

I'm, a little bit of a longer term basis.

Yes, it's a fair question and we don't want to get into 2023 guidance per se, but.

Couple of things that I would.

I'll tell you that we're thinking about that I would have you think about.

First off certainly foreign exchange.

Is the headwind for us given that 40% of our business comes from outside the U S.

And with the strengthening of the dollar and there is certainly uncertainty.

Around where currency is going to move.

We are seeing an increasing headwind from foreign exchange, so even where the dollar sits today versus where the dollar was at the beginning of the year. When we gave our guidance for example.

We're estimating.

A 2% greater impact negative impact to sales from a year over year perspective, so that's about $1 million.

And we're not going to be in the business of <unk>.

Trying to predict where exchange rates go but.

Certainly currently where the dollar city, that's going to impact our future sales.

Into next year, if things don't move so that's an additional headwind that has.

Come up and then.

I think that what.

You talked about.

Is really the other sort of lingering.

Impact of Covid. So we're feeling we feel very good about the fact that in all of our major markets. The U S. In our major international markets.

We're seeing a very nice recovery in procedure volumes.

And we're hoping that kind of the days of these complete procedure shutdowns due to ICU beds filling up are behind us.

I think the lingering effect from our perspective.

Is these.

Hospital staffing shortages and inability of staff to come in and the impact that that has on our productivity per account is the way we look at it or capacity.

Hospitals, moving forward and so I think all of that is something that we would.

Consider taking.

Carefully looking to the future and we will have.

More visibility on that certainly as things play out through the remainder of this year, but I think all of that to me is sort.

The two key areas of uncertainty that we're thinking about both this year and into the future.

No. That's all fair and then one quick follow up.

The cash flow breakeven enough capital on hand, three years forward, but curious what revenue level you battle.

Happen out or kind of when you're expecting to hit breakeven.

Sure sure. So again I don't want to get too.

Specific on this but at a high level I would say, we would expect to get to cash flow breakeven sometime in the next.

Few years next three to five years.

And again rough numbers.

Yes.

Our next question comes from.

David.

With Canaccord Genuity your line is open.

Hi, This is David on for Bill Probiotic. Thanks.

Thanks for taking my question and congrats on your quarter.

My first question is.

What do you think has been the impact from the payers that were added in 2022 in the first half of this year.

And if you don't see an impact how long does it take to flow through the system and see the benefits.

Yeah. So.

The.

We get all of our essentially all of our patients paid for so 75% of our patients are covered by the government.

Talking about the U S. So when you are talking about payers, you're talking about private payers are you talking about.

Reimbursement in Nash outside the U S.

Private.

Private payers, okay, so 25% of our business.

Goes through private payers.

And way over 90% of the time, we get it through.

Vin and payers, though even in payers that have a negative coverage decision now every major payer with the exception of Blue Cross Blue Shield.

Is <unk>.

Positive or neutral, which is to say they routinely pay for us.

Those that are part of the Blue Cross Blue Shield network more than two thirds of those have now flipped as individual plans.

Despite the association, having a net.

Negative coverage decision where sort of.

The biggest tree and we're chopping it down limb by limb. So we've made a lot of good progress on that front, but even when somebody.

It comes back and says we're not going to cover this because we have a negative policy on this.

You can protest you can appeal that.

What it requires is for you to present data and then there is an independent physician who is not apart.

But somebody who is not a part of Blue Bluecross Blueshield, who comes in and reviews that package.

And I don't know I think we've we're essentially close to 100% on that because our data are very clear. We've got four randomized controlled trials have all been published it's really the standard of care. So we win that all the time, so why do we care about the private payers and where they stand because theres significant inefficiency, it's like three months to go.

Through the process I, just described as opposed to two or three weeks if.

If you've got a positive coverage decision. So we're trying to reduce that resistance and.

But at the end of the day the thing Thats been remarkable is how patient the patients are these.

These patients are not going through a particular acute event they will be there tomorrow.

Blue Cross Blue Shield as the only company that's negative and two thirds of their individual plans two thirds of the covered lives under Bluecross Blueshield Association have already flipped to a positive position so they're full.

Full steam ahead in those accounts, so it's a really small part of our business.

That we end up having to wait and work through.

Thank you for the clarification and I've got one more question if that's all right.

Sure.

The traction in utilization in your oldest accounts measure versus the newer ones.

What is the timeframe product out to reach maximum capacity.

Thanks for taking my question.

Yeah.

Thanks for the question, it's a element that we've been commenting on for some period of time now and really the only pure group that we have was a relatively small group of accounts that were up and running for a year prior to Covid. So remember we we were on the market for 18 months from.

FDA approval to when Covid hit.

Go through a process of negotiating terms and conditions and getting those hospitals up and running through the various committees and so forth. So we didn't have a ton of hospitals that have a year of experience at the time that COVID-19 hit it was a.

Double digit number like 40 to 60 accounts or something like that.

In that small group.

Established accounts that Didnt get the light switch turned off in the first year.

We had a certain rate.

Productivity, which was something on the order of six or seven.

Cases per quarter, and we have been through the Covid phase working in an environment, where folks were coming in and going out.

Based on the waves of Covid, hitting and have been as low as.

They're the first ones to come back and basically everyone was down just a few months ago in the first quarter and those that popped back up where the more established accounts many of which were in.

The ones that were uninterrupted in the pre Covid phase.

Thank you Glenn.

Thats all I have.

Our next question comes from Larry <unk> with Wells Fargo. Your line is open.

Hey, guys. Thanks for taking the question.

Glenn just a two part question on <unk> I'm going to ask both upfront. So the convert in our results we're going to get <unk> in September how many patients are going to be presented what would you consider a good result, and you said youre excited about presenting the data what makes you optimistic what changes have you made since earlier studies like the aspire trial.

Phil.

<unk> has been around for a long time, so kind of what makes you think you have something here. Thanks for taking the question.

Yes.

So we will report convert at Rs.

The convert approach was first reported as a case study out of Australia. So there was a single patient where this has been published where the physician went in identified that we're using chartis identified that the patient was CV positive put in Samara seal converted that patient put in valve.

And the patient behaved like somebody who was born CV negatives.

So that was encouraging he set off to show in his site that he could do that in a larger group of patients that double digit number relatively small single center study in the script earlier, we mentioned that that experience in that low single double digit.

Group of patients.

Has been written up.

Is about to be published its been accepted for publication is literally just that normal delay between acceptance and win it it shows up in print.

We're not going to.

It's essentially think of that data is being embargoed until it gets published.

So we have some visibility to that.

We also in the convert trial have tens of patients that we will and we're not going to talk about the specifics of how many but it's tens of patients.

That we're going to look at and it's going to we're going to be talking primarily at <unk> about can you take somebody who CV positive and make them CV negative with <unk>.

And Thats because the second question doesn't matter, whether they're going to behave the same way if valves or not if you can't if you can't get by the first.

Now you had asked what is a reasonable result, we queried. We asked that question of World thought leaders and they came back and said if you could take 30.

Worst case to 50%.

CV positive patients that are that are good candidates for this procedure.

Those data will I don't know when this publication is going to come out if it pops up before <unk>.

I'll be able to see that.

But that's been a much it's been a smaller group than we will report on.

At <unk> and then the larger a larger group tens of people will be reported at <unk> with that fundamental question being the centerpiece and then the other thing that they'll focus on us.

How well tolerated <unk> seal is you had made reference to aspire aspire was a trial that was executed by a company called Eris Therapeutics.

<unk> developed <unk>, we purchased.

The technology from Arris. They had commenced this study called aspire they didn't finish it because they ran out of money.

And when we were able to get a pretty good deal on that acquisition and we have carried things forward one of the observations at that time and this was like a dozen years ago.

Was the question Rick.

<unk> two the Tau how well the patients tolerated.

<unk> in that trial roughly twice as much <unk> was instilled as in the current sort of approach and so.

One might contrast, and learn at Rs, how patients behave when given.

50% or less the volume of ore seal that they got and aspire. So there'll be there'll be a safety or tolerability question that will also probably be answered at the IRS.

Okay.

Thank you very much.

Area Vice President.

Our next question comes from Rick Wise with Stifel. Your line is open.

Hi, This is Sam Alec on for Rick Wise, I'm, just going to go ahead and ask them questions upfront.

During the first few weeks of earnings have been a number of companies reporting to highlight.

Higher pressure.

From hospital staff limitations and their ability to do procedures.

So to what extent has this impacted your productivity per account and then how should we think about this impacting the third quarter or second half of 2022 and going into 2023. Thank you.

Got it.

Yes.

Has it impacted our productivity, yes, it certainly has.

It's just a it's a reality we have folks that are coming in and they've got to go through pulmonary rehabilitation. They have to go through.

Pulmonary function testing.

Do whatever they can to ensure that they have the capacity to do the procedures that are necessary, it's going to take a little time, we are seeing in certain situations the situation improving for sure.

And.

We expected that to strengthen as we move across the year and certainly in 2023.

And I'm sure that the hospital systems that report like we're doing right now are going to be commenting on staffing as well but.

We're very gratified that our.

That our patients are pushing hard and our physicians are trying to get this I'm trying to move things ahead, and we can see the activity of the engagement by patients.

And the activity by our accounts that gives us a great deal of optimism as to what's ahead.

Great. Thank you.

Thank you.

Our next question comes from Joseph <unk> with PSC. Your line is open.

Hey, guys. Congrats on the solid quarter. This is Joe on for Jason today.

Personally I have is on pricing so while it hasnt been a traditional lever we've discussed in the past your business are you able to comment on whether you have or plan to take pricing.

Offset any manufacturing operating inflationary pressures and I got one more.

Yeah.

We have taken.

All amounts of pricing in the past, we will probably be taking larger.

Making somewhat larger price increases as we move forward.

As our.

We've had great fortune with our supply chain and our we've got a very talented group that manages that.

We got out ahead of things in terms of making sure that we had the right inventories we've got a good bit of product that's on the shelf.

So we've been able to manage pretty well in this environment and.

So yes.

We would expect that we will have some price increases I think where we typically I think focus price increases in terms of greater magnitude is on new products. So when we have a line extension or a new version of something you typically would see.

New software package or something in a chart issues typically.

A bigger step up in pricing as well. So yes, we would expect we will exercise a little bit of that as we move forward here.

Great. Thanks, Glenn and then one more on competition. So what are you seeing out there competitively with spy ration.

I'll, let this helping develop the valve market in any meaningful way and then relatedly are there any other earlier stage technologies that you would consider evaluating that could help expand the addressable patient population you can treat thanks.

Yeah.

I'm always happy to have a competitor in the marketplace to sort of help you grow.

And obviously, it's great to grow the size of the pie when you control a disproportionate share of that pie.

Been out in the market now.

During a challenging time, but.

We've been out for a while and not only in the U S, but in Europe and.

It's we're a difficult competitor for somebody else Who's got a valve that's got a different design.

<unk>.

And.

We've got a lot of data all of our data. We've got four studies all the data are consistent we hit on all three endpoints across all four studies so.

12 shots on goal 12 goals.

And Olympics doesn't have that same data set.

And we're doing and we're continuing to do additional work I'm not aware of them doing significant additional work either so.

Anyway there.

They've got a good product.

It works in certain patients and but we continue to have.

What I believe is our share of the market, which.

Depending on what country, you're talking about is somewhere between 70 and 100% market share.

So.

How are we doing they are still in the game.

I don't expect that to change.

And.

There is a place for them in the marketplace I'm happy Theyre, making noise.

In terms of other technologies.

Theres nothing that is that I can see on the horizon that I think is going to be significantly competitive in the valve space.

Valves are reversible, which is great. You know these patients are all you know 90 plus percent of the time, they're former smokers its not uncommon at three years. After you place a valve that something.

Application.

In <unk> positive patients.

Some of them been studied before and have a very spotty record.

We like the the approach that we're taking with ore sale, where youre not permanently taking down massive chunks of geography.

The way that some of the other technologies would be the case you would also referred to whether it would be anything that would be complementary that's out there.

Of course in the interventional space Theres, a number of different technologies that are being developed some are further along than others and we are we continue to keep a close eye on those technologies we.

What we have that is really hard to have as we have a global sales organization, 98% of our business is direct we sell into 25 different plus markets.

<unk>.

So we built this commercial front and it's very very hard to get to where we are right now where the <unk> are our global commercial team is paying for itself.

Thanks, Scott I appreciate the insight.

Sure.

Our next question comes from Joanne Wuensch with Citi. Your line is open.

Good afternoon, and thank you for taking the question actually the previous one just follow up straight into the.

When I look at the U S growth.

Up against a particularly tough comp, but I suspect that it masks certain pockets that are doing quite well and others that may not be so much could you maybe pull that apart a little bit.

And then my second question has to do with your global sales Force can you talk about the seniority or the tenure of the individuals and the stability of that sales force. Thank you.

So looking at that yes, I mean, it's so outside the United States United States is our biggest market, 60% of our business, 40% of our business is outside the United States.

Three quarters of that business is in four countries.

Germany.

France.

The U K and Australia, they're all 2 million plus annualized markets two to 10 kind of range.

And.

They really did all those all our top five U S, Germany, France, UK and Australia, all did well in the quarter.

As I mentioned I think earlier U S was up 31% on a constant over the second quarter of 2021 and on a constant currency basis, those Germany, France, UK and Australia were up 20%. So that's that's 90% of our business was up 27, 3% over the prior period. So we're.

We have the biggest footprint, where we've got the greatest number of accounts, where we're up and running and we're leveraging we've got marketing people. There we got salespeople there we're building our business.

And in that last 10%.

Of our business, we were down on.

On the order of 20%.

And.

About half of that.

Miss.

Was in Asia, almost all of which was in China.

Now.

The balance of the other half is in a bunch of countries smaller countries, where they don't they haven't taken the.

Complete shutdown approach the way they have in certain Asian countries. So those smaller countries.

That underperformed in the second quarter.

Slow coming back because theres not a team on the ground thats like goosen them to come back Theyre going to come back. So that's the good news I don't and I expect that will probably that will fully expect that's going to happen in the back half of the year again, it's only 5% of our business half of that last 10% I don't expect Asia to come back this year.

Oh, I don't expect China to come back this year I should say because thats the biggest part of that.

The chunk for obvious reasons, they're just we do a little business there, it's not like it's zero.

But theyre not doing what we know China was growing compound annual growth something on the order of 100% for a couple of years and then Covid hit and.

We get we got frozen pretty good there.

Does that answer your question Joanne.

Yes. Thank you.

There are no further questions I would like to turn the call back over to Glenn French for any closing remarks.

Great well thank you all.

<unk> for your questions and your interest in <unk>, we feel really good about the quarter that we just finished up in the foundation that we have to move ahead. I also wanted to take just a moment to express my deep appreciation for the extraordinarily dedicated customers and employees work every day in an effort to significantly improve the lives.

Ah patients with severe.

Emphysema and COPD. So thank you all.

Graham you May now disconnect everyone. You may now disconnect everyone enjoy the rest of your day.

Q2 2022 Pulmonx Corp Earnings Call

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