Q4 2022 Pulmonx Corp Earnings Call

February 22, 2023

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Good day, and thank you for standing by welcome to the permanent.

Q4, 2022 earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

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I'd now like to hand, the conference over to your Speaker Today Lane Morgan at Gilmartin Group.

Thank you 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 Derek Sun, Chief Financial Officer earlier today, <unk> issued a press release announcing its financial results for the fourth quarter and year ended December 31 2022.

A copy of the press release is available on <unk> 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 of 1995.

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

Or predictions of future events results or performance are forward looking statements all forward looking statements, including without limitation those relating to our operating trends commercial strategies and future financial performance the timing and results of clinical trials the impact of COVID-19 on our business and prospects for recovery expense management expectations for hiring.

Growth in our organization market opportunity guidance for revenue gross margin 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 that 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 the business. Please refer to the risk factors section of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on November eight 2022 also during this call we will discuss.

Certain non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.

This conference contains time sensitive information and is accurate only as of the live broadcast today February 22023, commodities 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.

I'll turn the call over to Glenn.

Thanks Helane.

Good afternoon, everyone and welcome to our fourth quarter and full year 2022 earnings call here with me as Derrick sung our Chief Financial Officer I'll.

I'll begin with a few highlights to contextualize, our fourth quarter and full year 2022 results before turning to our outlook and strategic priorities for 2023.

2022 was a foundational year for <unk> in which we finally emerged after more than two years of intermittent disruptions into a more normalized environment that allows us to resume building the basis for long term sustainable growth with a focus on developing our accounts to establish ourselves Zephyr valve procedure as is.

Standard of care for the treatment of patients with severe COPD.

For the full year 2022, we achieved $53 $7 million in worldwide sales growing our business, 11% as reported and 16% on a constant currency basis over 2021.

Further we delivered full year 2022 revenue in the U S of $32 $5 million representing growth of 30% over 2021.

On top of this we also made substantial progress on our commercial and clinical initiatives, specifically, we increased our U S commercial footprint in 2022, adding 64, new treating centers and thereby taking our total to 278 centers and this provides a solid base as we focus increasing.

Lee.

On account development and penetration.

We saw two encouraging clinical data readouts on our <unk> technology are ongoing convert multicenter multinational trial in Europe , and a single center feasibility study in Australia. Both revealed early signs that <unk> can successfully close air channels between lobes of the lungs, thereby <unk>.

<unk> patients with collateral ventilation to be treated successfully with zephyr valves and lastly, we received regulatory approval for our Zephyr valve procedure in Japan and are presently working to establish reimbursement. There later this year.

To cap off the year, we ended the fourth quarter with global sales of $15 4 million, our highest quarterly revenue to date driven.

Driven by another record U S performance of $9 $5 million in sales, representing 30% growth over the same period last year.

Looking ahead, we are focused on continuing to ensure a procedure is done efficiently and routinely in our target hospitals, while we expect some of the macro headwind when seen in 2022 to continue into this year. We are confident in our ability to push through these headwinds we have made good initial progress increasing.

Efficiency in our high potential accounts and intend to continue to ramp these efforts maintaining our expectation that these will translate directly and substantially to revenue growth in the back half of this year, taking this into account we anticipate full year 2023 revenue to be in the range of $63 million to $65 million.

As a reminder, our strategy is three pronged first selecting training and launching accounts that we believe based on our comprehensive assessment criteria have the potential to be strong zephyr valve centers second.

Second increasing the efficiency and procedural capacity of our accounts by encouraging best practices with our physician and administrative champions and finally, increasing center volumes by building local awareness of the substantial benefits of Zephyr valves with both emphysema patients and the physicians who manage.

Thereby developing a strong referral network.

Relative to assessing and launching new accounts, we were pleased to add 17, new U S. Treating centers in the fourth quarter, bringing our total number to 278, while our focus will.

We will remain throughout 2023 on developing this cohort into high volume accounts, we expect to selectively identify and establish an additional 40 to 50 new accounts through the year. These will be accounts that are committed to developing a comprehensive zephyr valve program to deliver clinical <unk>.

<unk> and excellence looks.

Looking forward, we believe that a count activity and account productivity will be the best metrics to measure our progress in increasing efficiency and sales across our existing base of U S treating centers.

We define account activity as the percentage of trained treating centers that place a revenue generating order in a given quarter.

In the fourth quarter of 2022 U S account activity was 73%, which represents a resumption of activity to a more normalized level.

A post pandemic environment.

We expect that account activity will remain in the 75% range as we continue to grow our denominator of treating centers, we define account productivity as the average number of cases conducted in a given quarter by our active and established zephyr valve treating centers, which are those that have been performed.

Zephyr valve procedures for at least three quarters and have placed a revenue generating order and the subject quarter. After emerging from the most recent wave of Covid.

Covid pandemic, the average productivity and our active established accounts across the last three quarters of 2022.

A range between four and five cases per quarter.

More specifically active established account productivity was approximately $4 eight cases in the fourth quarter of 2022, we see this as the most critical metric by which to measure the success of our account develop maintenance strategy and expect to see the average account productivity in our active.

<unk> accounts increase in the second half of the year as we realize the initial benefits from our refocused strategy.

Importantly, we feel strongly that we can accomplish our commercial goals this year with our existing footprint of sales territories, which at year end consisted of 55 in the U S and 36 internationally, while we expect to continue to operate in Tunis Stickley add sales resources in select geographies. We are confident that this team.

Can effectively cover and grow our target markets.

Of our initiative to expand productivity focus our focus is on building awareness of the benefits of Zephyr valve procedure. Among COPD physicians to this end. We are we're pleased to have partnered with Netscape and the American College of chest physicians to launch physician education programs on Zephyr valves and our.

We're already seeing strong physician engagement in these programs. We expect these partnerships to continue to facilitate our efforts to increase awareness with COPD physicians on how is that for valves may substantially improve the lives of their patients with COPD and emphysema and we intend to look for incremental.

<unk> to advance these collaborations.

And these initiatives within existing markets, we are continuing to pursue ways to further tap into the into and expand what we believe to be a $12 billion global market opportunity towards this end, we received regulatory approval in Japan for our zipper valve treatment late last year. Our team is now.

Working diligently toward the establishment of reimbursement and the subsequent commercial market introduction in Japan, which we expect late this year.

Also as a reminder, we estimate Japan to be $1 billion market opportunity with approximately 100000 patients who stand to benefit from our treatment.

Further and with regard to expanding our addressable market. We continue to view <unk> as a possible way to leverage the large number of severe COPD patients with collateral ventilation, who are not candidates today for treatment with Zephyr valves last year interim findings from and on our ongoing multi center.

Multinational convert trial showed <unk> successfully converted 78% of the first 40 patients in the study to having little to no collateral ventilation. These.

These patients were then successfully treated with Zephyr valves, we expect to complete trial enrollment. This year with final data presented next year also learnings from the convert trial contribute to our dialogue with FDA regarding <unk> and related clinical protocol that we expect to initiate before the end of this.

This year with that ill turn now I'll now turn the call over to Derek to provide a more detailed review of our fourth quarter results.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended December 31, 2022 was a record $15 4 million.

A 13% increase from $13 7 million in the same period of the prior year and an increase of 18% on a constant currency basis.

U S revenue in the fourth quarter reached a new high of $9 5 million.

A 30% increase from $7 3 million during the prior year period the.

The growth in U S sales reflected continued commercial momentum and adoption of Zephyr valve therapy, as we move into a more stabilized environment.

International revenue in the fourth quarter of 2022 was $6 million, a 7% decrease from $6 4 million. During the same period last year and an increase of 5% on a constant currency basis as international sales growth was negatively impacted by foreign currency exchange rates.

Notably our fourth quarter International performance reflected a rebound from the more pronounced summer seasonality that we experienced during the third quarter in certain markets.

Gross margin for the fourth quarter of 2022 was 73% compared to 75% in the prior year period, reflecting slightly lower capacity utilization.

In 2023, we expect gross margin to fall within the range of 73% to 74%.

Remaining near 73% in the first half of the year, and then trending towards 74% in the back half of the year.

Okay.

Total operating expenses for the fourth quarter of 2022 or $25 8 million.

A 14% increase from 2020, a 14% increase from $22 6 million in the fourth quarter of 2021.

Noncash stock based compensation expense was $4 $1 million in the fourth quarter of 2022.

Excluding stock based compensation expense total operating expenses in the fourth quarter of 2022 increased 10% from the same period of the prior year.

Looking ahead, we expect operating expenses for the full year 2023 to fall between $112 million to $114 million inclusive of approximately $22 million of noncash stock based compensation expense as we take a disciplined and prudent approach to managing expenses, while continuing to invest.

To drive growth.

Excluding non cash stock based compensation expense, our operating expense guidance implies an increase in operating expense of 9% to 11% in 2023 over the prior year demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate than we expect to grow revenue.

R&D expenses for the fourth quarter of 2022 were $3 9 million compared to $3 $7 million for the <unk>.

Period of the prior year.

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

Sales general and administrative expenses for the fourth quarter of 2022 were $21 9 million compared.

Compared to $18 9 million in the fourth quarter of 2021.

The increase was primarily 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 fourth quarter of 2022 was $14 3 million or.

Core loss of 38 cents per share as compared to a net loss of $13 million or a loss of 35 per share for the same period of the prior year.

And average weighted share count of 37 4 million shares with you to determining loss per share for the fourth quarter 2022.

Beginning this quarter, we will be reporting on adjusted EBITDA, which we believe is representative of the ongoing operating performance of our business.

Adjusted EBITDA reflects our net loss before interest taxes, depreciation and amortization expense and also excludes noncash stock based compensation expense.

Adjusted EBITDA loss for the fourth quarter of 2022 was $9 8 million as compared to $9 4 million in the fourth quarter of 2021.

We ended December 31, 2022, with $147 1 million in cash cash equivalents and marketable securities a decrease of $9 8 million from September 32022.

Earlier, this week, which further strengthened our balance sheet by drawing down the remaining $20 million provided by our existing term loan, bringing the total amount drawn on this credit facility to $37 million.

Including this recent drawdown our cash position at the end of 2022 would have been approximately $167 million.

We felt it prudent to take advantage of the favorable terms of the loan to provide ourselves with the greatest degree of financial flexibility to invest in our business as.

As a reminder, we recently refinanced the credit facility in October of last year had an attractive rate of prime plus 1% and extended the maturity date out another five years with at least two additional years of interest only payments.

We remain confident that we can reach cash flow breakeven in our existing current operations with the capital that we have on hand, we continue to expect our annual cash burn to decrease as we grow our top line and drive operating leverage.

Okay.

Now turning to our revenue outlook for 2023.

We expect to deliver full year 2023 revenue in the range of 63% to $65 million.

Our guidance assumes foreign currency exchange rates will be relatively neutral to growth on an annual basis.

With foreign exchange remaining a headwind to growth in the first half of the year and then transitioning to a tailwind in the back half of 2023.

We expect sales in the first quarter of 2023 to be sequentially lower than the fourth quarter of last year as we've typically seen in the past.

Lastly, I'd like to mention that in December 2022, we received a civil investigative demand from the U S Department of Justice in connection with a request for information under the false claims act and the anti kickback statute.

The CIB request information in connection with the sales and marketing of Zephyr valves and related products and services.

We maintained policies and procedures to promote compliance with the anti kickback statute false claims act and other applicable laws and regulations and are fully cooperating with this investigation.

While we cannot at this time reasonably predict the duration or outcome of this matter I would emphasize that at this time, we do not view this as a barrier to growth for us.

A hindrance to the implementation of our commercial strategy.

And with that I will now turn the call back to Glenn for closing comments.

Thanks Derek.

In summary.

We look forward to delivering strong growth in 2023, particularly in the back half of the year as we build on our momentum with a refocus team and strategy. We remain confident in our commercial efforts to scale accounts, while also selectively adding new ones. In addition to our efforts to start selling product in Japan.

Before the end of the year. We also look forward to progressing the development of Arris, which offers an opportunity to significantly expand our target market by possibly offering the benefits of zephyr valves to patients who are not currently candidates for the procedure taken together, we expect to execute on both commercial and clinical.

Nickel development objectives, and thereby deliver strong growth in 2023 and beyond.

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

At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press.

One on your telephone and wait for your name to be announced.

Withdraw your question Press Star one again, please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Rick Wise of Stifel. Your line is now open.

Good afternoon everybody.

It can be.

Solid fourth quarter performance.

Yeah.

Glenn just to start off.

Big Picture front, you talked about the macro environment.

Improving.

Yes.

The strong fourth quarter.

Supports that idea that notion.

Help us understand what's changed.

Youre able to do now.

That you Werent.

Are able to to do obviously, we're challenged by over the last year or so.

<unk>.

Why you're confident or why youre feeling good.

That macro environment improvement is going to set you up well.

You have another good year.

23.

Thanks, Rick.

I appreciate the question so.

The thing Thats changed.

Thinking about 2022, we started the year with.

With significant headwinds with Covid basically hitting all of our markets.

Essentially all at the same time, plus or minus a week or two.

And and that had a significant negative impact.

Outside the United States, our ability to rebound that was slow rebound from that was slower than what we had experienced in the United States and that.

I think has has really fully cleared for us as we progressed across the year, albeit at different rates in different parts of the world. So so that's.

Thats cleared a bit the other thing is that we had some real staffing challenges we talked about those in the last.

Call. Some of those were related to just sort of normalization and getting people back into their seats and some of those as we talked about in the third quarter were related to extraordinary.

Opportunities for folks to take time after the better part of three years, not being able to take a vacation. So we felt that in the third quarter, we don't anticipate it.

Extraordinary types of impact as we look ahead in that regard and then finally one of the things that was revealed to us that we talked about in the last quarter call. When we had.

Particularly in the United States about six months without Covid, which was the first time ever that we werent getting knocked around in one place or another.

We were able to identify.

Where we really stood with our accounts as opposed to people and in some cases I think we were maybe assuming or hearing that COVID-19 was the problem and in fact, the account hadn't made the procedure.

Right.

Routine as part of their offering as is appropriate in our high performing accounts and as we talked about.

Last call, we were able to set up a process whereby we classified all of our accounts and then set specific goals for moving them.

Tore into the direction of being better established and as a consequence being able to execute our procedure more routinely and more efficiently. So those are all things that I think put us coming into this year into a better place.

Whether that be with the plan or just without the headwinds that we had faced particularly in the first part of last year.

Gotcha.

On your account productivity.

Obviously.

We're doing well.

If I wrote it down correctly.

Because I think I am hearing you correctly four to five cases a.

Quarter on average and did I hear you correctly.

The average for all accounts was four eight in the fourth quarter or was that your top performing anyway.

Just maybe I'll clarify that but as we think about 'twenty three can we get into the five to six range.

Maybe talk about your training.

Your.

Your efforts.

To support drive better account productivity that could get you there if thats the right way to think about it.

Yes.

So across the year across 2022.

The first quarter, we were our account productivity number was.

Three nine so we started below four in the first quarter. We were in the we are in the mid range and sort of the $4 $5 range and the second two quarters and we exited the year at $4. Eight. So yes, we are in the four to five range across the year and it is our expectation that we will be exiting this year in the five to six.

Range as you talked about.

And we will do this through.

Through executing on the plans that we had talked about before.

And training is central to that so.

Shoring, whether that'd be onsite training in terms of sharing best practices to ensure that the centers themselves are able to efficiently move patients from the sort of the front door to the procedure and then doing so decrease the time that it takes.

Which is which is a very sensitive variable in sort of our productivity equation. If you will and also the training.

So I think we may have talked maybe not on one of these calls, but we have modified.

The way that we bring folks into training, so I would say that relative to where we were a couple of years ago.

The physicians that are coming into training are much more committed and much more engaged we ask them to bring forward.

The data and information and scans on three patients that are talked about prior to training that they then immediately come out of face to face training you may recall that in Covid times, we were doing virtual training, which is not nearly as good as having somebody face to face for a day going with a world expert at the front of the room.

Going through all the various aspects of the procedure and standing in our procedure room for one two or three procedures.

And then we ask those physicians to immediately go back and and.

And to execute three procedures, which are then reviewed by experts along with them to assess.

What are the scans look like what are the.

And how is that patient doing in terms of volume reduction and other metrics and those conversations are very very valuable and bringing those physicians up to speed getting them doing the procedure quickly and in the.

And sort of the Covid days they'd come out of training and they start looking for patients and then a wave of Covid would knock them off balance and it could be nine months before they treated their first patient. So we're getting folks engaged much more quickly.

And that's essentially.

The backdrop for how we intend to drive this forward.

And Rick This is Derek let me just clarify the definition that work that we're using for account productivity.

It takes a few quarters for an account to get up to speed.

When they do their first case, so when we look at and measure our account productivity. We're looking at accounts that have been up and running for at least three quarters. They are in their fourth quarter.

Of implanting, our Zephyr valve.

And we're also looking at.

Only those accounts that have actually done a case in that given quarter. So so our number is diluted by inactive accounts. So the numbers that Glenn gave sort of in that four to five range.

Established active account productivity.

To those accounts that have been up and running for at least three quarters are active in a given quarter and we do indeed expect those.

That number can move up through the back half of the year and into that five to six range as we exit the year.

Gotcha.

Derek glass for me if I could could you expand on your gross margin comment.

<unk>.

Gross margins were a little lighter than I looked for in your guidance is a little lighter and yet you had record volume.

Just maybe I missed a little more color on why.

Gross margins are lower than they were earlier in the year end and ditto for the look ahead to 'twenty three.

Sure sure Rick so that slight reduction in gross margin that we're seeing.

In the fourth quarter of last year and as we look into the first half of that this coming year in 2023 reflects a slightly lower capacity utilization of our production output as we feel like we're now kind of where we want to be in terms of inventory levels and safety stock given our current outlook for <unk>.

Demand in the near term so we're expecting to stay around that 73% range of that first half of the year and then.

In the back half of the year and into next year as we start once again ramping up our production output.

Into next year and beyond we expect to continue to about 74% range and we continue to believe that.

And expect that our gross margins will continue to move up as we ramp our production output to.

Demand in.

We'll land over the long term and that high 70 ranges as we reach scale.

Thank you so much sir.

Absolutely.

Okay. Thank you please standby.

Our next caller.

And our next question comes from the line of Bill <unk> of Canaccord. Your line is now open.

Hey, Ron and Eric It's John on for Bill Tonight, Thanks for taking our questions can.

Can you just talk a bit a little bit more on the number of account there sufficient today with the patient flow process in the past you've highlighted 40% to 50 account that deal as well where does that number stand today and can you just give us a little more details on how you're going to help with those struggling accounts are going to hire more reps. This year or just how you can work through the workflow processes.

Derek I don't know if you heard all of that there was a little choppy for me.

Did you get that whole question.

Okay.

Yeah. So.

John was asking so John you're asking what percentage what percentage of our accounts are kind of where we want them to be.

And how are we going to I think focus on driving those accounts that are not as high volume as we'd like.

To get to where they.

They want to be.

Right.

Back to paraphrase your question.

I'd start by saying I think.

Today, I would say approximately.

Exiting the year.

Roughly speaking maybe a quarter of our accounts are really doing well.

<unk> been doing where we want them to be there or kind of what.

What we would consider to be high volume accounts.

And there is certainly.

An additional group of accounts that we feel can get into that range that we're really focused on and.

What we're focused on is exactly kind of what Glenn had mentioned, which was during his prepared remark which is.

Driving driving site efficiency, making this product or this procedure routine.

New.

Procedure that we're setting up a new service line that we're setting up in these hospitals and so coordinating across multi disciplinary functions.

Driving the training and really the focus and mind share to get our.

Positioned in those hospitals to adopt our procedure is a routine procedure is really kind of what we are are focused on and that's really kind of that the site efficiency efforts that we're going to be driving through the first half of this year, we expect to be able to do that with our existing sales force. So this isn't going to require and we're not anticipating.

The significant increase in our sales force through 2023, which I believe was the second part of your question, it's really just a focus.

Driving kind of that efficiency in mind sharing and making the procedure routine amongst those hospitals that we have already opened.

Okay.

Thanks, Barry if you can hear the question queue.

Just on Japan, and the launch preparation, what's the team size there today and what infrastructure do you still need to add.

Be ready for launch end of this year. Thanks for taking my question.

Sure absolutely we're in pretty good shape, I think as far as Japan goes we have a general manager in place who.

Kent joined US senior executive that Medtronic has joined us and leading the way been onboard for about six months.

We have.

Marketing person sort of a clinical marketing type person.

Extended a couple of offers to couple of sales representatives to begin to get those accounts, where they need to be we've been leveraging significantly deeply experienced consultants.

From a regulatory and clinical perspective, it's going to have to do a post approval clinical trial, we've got our own personnel that had been traveling through their identified partners that will be working with so.

Frankly in very good shape.

As it relates to <unk>.

Both the number and and sort of functional expertise of the folks that we have or just about bringing on at this point.

Thanks.

Thank you please standby for our next caller our next question.

Our next question comes from the line of Travis Steed of DNA Security Bofa Securities. Your line is now open.

Hi, This is Ian on for Travis.

Just hoping to get a bit more detail on the guide here if possible. What is the 63 to 65 now imply for U S versus O U S.

You had previously said, 25% growth U S, 15% O U S. It looks like U S was a little faster in Q4, our U S a little slower.

And then any additional detail around expectations for Q1 here given that we're almost through.

In February and then last year had the Covid impact I think the street's at around $13 5 million is that set in the right ballpark for Q1 here.

Yes.

Hi, Ann This is Derrick I'll go ahead and take those questions. So in.

In terms of the implications were of growth rates.

Relative to our sales guidance.

Our sales guidance of $63 million to $65 million does imply kind of roughly at the midpoint, 20% ish.

Growth on a year over year basis over 2022, which is.

Sort of the same that we communicated at the end of last year, as we kind of giving a high level directional guidance.

If we think about the breakdown between the U S and O U S. I think we will continue to remain in that.

60, 40 mix with about 60% of our business coming from the U S 40% coming from international we do expect the U S to grow meaningfully.

After then international so the U S.

<unk> will grow in that 25% to 30% range, whereas outside the U S.

We're looking at something in that 15% to 20% range.

So that is I think that answers. The first part of your question can you repeat the second part of your question.

Yes, just any any additional detail around Q1.

The streets around $13 5 million.

Right. So we do expect to see sort of typical sequential seasonality in Q1, so historically, we've seen that.

Alright.

The Q1 sales.

Are anywhere from.

10% to 15% lower on a sequential basis in Q4 that are typically driven by outside the U S. We see.

Hospitals oftentimes using up their budgets near the end of the year, and then globally, including the U S.

Generally a gradual ramp up as folks come off the holidays and the beginning of the year now that seasonality was more pronounced during COVID-19, but if we look back into the kind of pre COVID-19 time period.

We do typically see that sort of sequential decline so I would expect to see something.

In that range that historical range again in Q1, and I would expect to see.

International reflect more of that seasonality than in the U S. But I think both will see a level of sequential decline as we've typically seen in the past.

Okay, Perfect and then maybe one on international just Japan any early expectations around revenue numbers later this year.

Could that potentially ramp next year.

And then in terms of China, just how large of a business is that for you and your expectations around a rebound there this year.

Yes.

So with regard to Japan.

We anticipate that we're going to get approval or reimbursement. Later later part of the year. So I think we will do it takes some time to get things up and running I don't expect that the day. After we got approval, we're going to be treating our first patient. So we will get a handful of patients in this year I think we're doing well so I don't expect.

Any material contribution this year to revenues by Japan.

The other thing is we anticipate that the first.

100, 150 patients in Japan are likely to have to all run through a clinical trial. So we will probably be opening up Japan through.

Five or 10 specific centers and so I expect that though revenues in the next year will.

We'll be.

Way stronger than they are this year.

I don't anticipate that those are going up.

Mark the doors off of is that going to bend the curve dramatically in terms of our O U S revenues I see revenues really taken off and in 2025, when we've had an opportunity to enroll those first patients into the study and expand our footprint and.

And move off of that so I think that's the way I would think about getting into that opportunity we.

Over time, we see that as being probably are.

Certainly a top five market for us.

I think the second part of your question was around China in China.

They might have a $1 million.

Thanks, guys for us right now.

Okay. Thanks for taking the questions.

Okay.

Please standby for our next question.

Our next question comes from the line of Jason Bednar with Piper Sandler Your line is now open.

Okay.

Good afternoon, thanks for taking the questions here.

Glenn are there.

The number of new accounts you can onboard this year is maybe go a little bit below what we've seen in past years I think that's probably partly a function of maybe where youre at in Onboarding a lot of your target accounts.

As your reps refocus their efforts towards driving account productivity I think it makes it kind of sense.

What does the give and take look like here is the emphasis shifts or are you expecting return on time for your reps to be higher.

And focusing on turning on existing accounts versus being more productive with your existing accounts.

Or maybe could you help us with what the lower new account additions means in terms of the shift in how your reps spend their time during the day.

Yeah, we've never.

Adding new accounts.

Ever really been central to what we're asking the reps to do its been fairly organic in terms of the opening of new accounts and I think the thing that is new is that.

And what we've shared with the sales organization is that we need to get these accounts to a point that we're there they're doing this procedure much more routinely and what you see from the revenue numbers of those accounts that.

We have gotten to that place where they're exercising much more routinely and efficiently is at the revenues follow and it's fairly dramatic so.

Everybody's on the same page here. This is we're.

We're not telling folks not to open new accounts and they're going to continue to do that opportunistically, but the real opportunity here for us as we are now sort of moved past halfway penetrated into the hospitals that we're targeting in the United States is really around same store sales and that's that's what we're focused on that's ever.

The ones on the same page.

We're not forcing anybody to do anything we're trying to get make this technology available to the greatest number of people possible and and that's the path that that makes the most sense to everyone. So.

That's where folks are focused at this time.

Okay, Great that's helpful.

Maybe could you talk about the trends youre seeing in Europe .

Germany, and France, which account for a disproportionate part of your international franchise.

It sounds like there's still maybe some capacity constraints in those markets.

Do you see those markets may be accelerating throughout 2023, almost mimicking the U S. But on a lagged basis or are there other effects in Germany, and France in particular that we should have in mind.

It didn't make that more of a 2020 for recovery dynamics. Thank you.

Yeah, well the three big our big three International's.

Countries are Germany, France, and the UK.

Together they represent two thirds of our international business.

And the U K and.

In some ways is.

Leading the way on a global basis with regard to the execution of the strategy that we're talking about employing in the United States.

<unk> been doing this for a while they grew 31% last year year over year, we anticipate that they're going to do great.

And theyre going to continue to grow.

At a high rate as we look into the year, France had a after.

Sort of an initial adoption curve that was very much consistent with the the slope of the upwards slope of the U S adoption.

Had a remarkably soft year last year, we expect them to get back on that that sort of a steeper curve and so I'm expecting really good things out of France. This year and I wouldn't be surprised if France is nipping at Germany's heels to be the number one.

Market outside the United States for Us, perhaps by the end of this year, so as far as Germany goes we're executing on the fundamentals like we are everywhere else.

We've got good marketing activity good.

Commercial our sales activity.

We're executing the same sort of game plan that we are in other markets and we expect them to grow as well if I had to predict.

The amount of growth on a percentage basis I'd probably.

But the U K in France ahead of Germany, but I expect all three of them to make significant contributions across the year.

Yeah.

Thank you.

Hey, Thank you I would now like to turn it back to Glenn French for closing remarks.

Thank you everybody for your questions much appreciated we remain very confident in the opportunity as well as our ability to access it.

Attunity is clearly large the patients are there they are seeking the information on the procedure of theirs thinkgeek seeking access to the procedure, we feel like we've got a great plan that we're executing on its very very clear our data are strong they're consistent they're compelling were included in the global guidelines reimbursement sorted out in all of our major market.

Our treating doctors view are reversible procedure as the standard of care in collateral ventilation negative patients. These are the folks that are doing the procedures.

And we are working to expand our total addressable market through both geographic expansion into Japan, as well as expanding our indication that we're working on with <unk>, enabling us to treat with Zephyr valves, a large population of severe emphysema patients who are today not candidates for the procedure. So in short.

We remain very optimistic about the future we appreciate everyone's interest and.

I think given unless people have any additional questions.

Where we've gotten to the end of the call.

Okay well. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

[music].

Good day and thank you for standing by welcome to the Pulmonic Q4, 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

You will then hear an automated message advising your hand is raised to withdraw your question Press Star. One again. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Today Lane Morgan at Gilmartin Group.

A copy of the press release is available on harmonics 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 of 1995.

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

I'll turn the call over to Glenn.

Thanks Helane.

Good afternoon, everyone and welcome to our fourth quarter and full year 2022 earnings call here with me as Derrick sung our Chief Financial Officer I'll.

I'll begin with a few highlights to contextualize, our fourth quarter and full year 2022 results before turning to our outlook and strategic priorities for 2023.

<unk> 2022 was a foundational year for <unk> in which we finally emerged after more than two years of intermittent disruptions into a more normalized environment that allows us to resume building the basis for long term sustainable growth with a focus on developing our accounts to establish ourselves Zephyr valve procedure as is.

Standard of care for the treatment of patients with severe COPD.

For the full year 2022, we achieved $53 $7 million in worldwide sales growing our business, 11% as reported and 16% on a constant currency basis over 2021.

Further we delivered full year 2022 revenue in the U S of $32 $5 million representing growth of 30% over 2021.

Lee.

On account development and penetration.

To cap off the year, we ended the fourth quarter with global sales of $15 $4 million, our highest quarterly revenue to date driven.

Driven by another record U S performance of $9 $5 million in sales, representing 30% growth over the same period last year.

Them, thereby developing a strong referral network.

Relative to assessing and launching new accounts, we were pleased to add 17, new U S. Treating centers in the fourth quarter, bringing our total number to 278, while our focus are.

<unk> and excellence.

Looking forward, we believe that count activity and account productivity will be the best metrics to measure our progress in increasing efficiency and sales across our existing base of U S treating centers.

We define account activity as the percentage of trained treating centers that place a revenue generating order in a given quarter.

In the fourth quarter of 2022 U S account activity was 73%, which represents a resumption of activity to a more normalized level in a post pandemic environment.

<unk> Zephyr valve procedures for at least three quarters and have placed a revenue generating order and the subject quarter. After emerging from the most recent wave of Covid.

Covid pandemic, the average productivity and our active established accounts across the last three quarters of 2022.

A range between four and five cases per quarter.

More specifically active established account productivity was approximately $4 eight cases in the fourth quarter of 2022, we see this as the most critical metric by which to measure the success of our account developed maintenance strategy and expect to see the average account productivity in our active.

<unk> accounts increase in the second half of the year as we realize the initial benefits from our refocused strategy.

Can effectively cover and grow our target markets.

Part of our initiative to expand productivity focus our focus is on building awareness of the benefits of Zephyr valve procedure. Among COPD physicians to this end. We are we're pleased to have partnered with med scape and the American College of chest physicians to launch physician education programs on Zephyr valves and our.

Already seeing strong physician engagement in these programs. We expect these partnerships to continue to facilitate our efforts to increase awareness with COPD physicians on how is that for valves may substantially improve the lives of their patients with COPD and emphysema and we intend to look for incremental.

<unk> to advance these collaborations.

And these initiatives within existing markets, we are continuing to pursue ways to further tap into the into and expand what we believe to be a 12 billion dollar global market opportunity for this and we received regulatory approval in Japan for our zipper valve treatment late last year. Our team is now.

Working diligently toward the establishment of reimbursement and the subsequent commercial market introduction in Japan, which we expect late this year.

Also as a reminder, we estimate Japan to be a $1 billion market opportunity with approximately 100000 patients who stand to benefit from our treatment.

Multinational convert trial showed era <unk> successfully converted 78% of the first 40 patients in the study to having little to no collateral ventilation. These.

These patients were then successfully treated with Zephyr valves, we expect to complete trial enrollment. This year with final data presented next year also learnings from the converge trial contribute to our dialogue with FDA regarding <unk> and related clinical protocol that we expect to initiate before the end of this.

This year with that I'll turn now I'll now turn the call over to Derek to provide a more detailed review of our fourth quarter results.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended December 31, 2022, with a record $15 4 million.

A 13% increase from $13 7 million in the same period of the prior year and an increase of 18% on a constant currency basis.

U S revenue in the fourth quarter reached a new high of $9 5 million.

A 30% increase from $7 3 million during the prior year period the.

The growth in U S sales reflected continued commercial momentum and adoption of our Zephyr valve therapy, as we move into a more stabilized environment.

International revenue in the fourth quarter of 2022 was $6 million a.

A 7% decrease from $6 4 million during the same period last year and an increase of 5% on a constant currency basis as international sales growth was negatively impacted by foreign currency exchange rates.

Notably our fourth quarter International performance reflected a rebound from the more pronounced summer seasonality that we experienced during the third quarter in certain markets.

Gross margin for the fourth quarter of 2022 was 73% compared to 75% in the prior year period, reflecting slightly lower capacity utilization.

In 2023, we expect gross margin to fall within the range of 73% to 74% remaining near 73% in the first half of the year and then trending towards 74% in the back half of the year.

Total operating expenses for the fourth quarter of 2022 or $25 8 million.

A 14% increase from 2020, a 14% increase from $22 6 million.

In the fourth quarter of 2021.

Noncash stock based compensation expense was $4 $1 million in the fourth quarter of 2022 <unk>.

Excluding stock based compensation expense total operating expenses in the fourth quarter of 2022 increased 10% from the same period of the prior year.

Looking ahead, we expect operating expenses for the full year 2023 to fall between $112 million to $114 million inclusive of approximately $22 million of noncash stock based compensation expense.

As we take a disciplined and prudent approach to managing expenses, while continuing to invest to drive growth.

Excluding non cash stock based compensation expense, our operating expense guidance implies an increase in operating expense of 9% to 11% from 2023 over the prior year demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate than we expect to grow revenue.

R&D expenses for the fourth quarter of 2022 were $3 9 million compared to $3 7 million in the same period of the prior year.

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

Sales general and administrative expenses for the fourth quarter of 2022, or $21 9 million compared to $18 9 million in the fourth quarter of 2021.

Net loss for the fourth quarter of 2022 was $14 3 million or loss of 38 per share as compared to a net loss of $13 million or a loss of 35 per share for the same period of the prior year.

And average weighted share count of 37 4 million shares with you to determine loss per share for the fourth quarter of 2022.

Okay.

Beginning this quarter, we will be reporting on adjusted EBITDA, which we believe is representative of the ongoing operating performance of our business.

Adjusted EBITDA reflects our net loss before interest taxes, depreciation and amortization expense and also excludes noncash stock based compensation expense.

Adjusted EBITDA loss for the fourth quarter of 2022 was $9 8 million as compared to $9 4 million in the fourth quarter of 2021.

We ended December 31, 2022 with.

$147 1 million in cash cash equivalents and marketable securities a decrease of $9 8 million from September 32022.

Earlier this week, we further strengthened our balance sheet by drawing down the remaining $20 million provided by our existing term loan, bringing the total amount drawn on its credit facility to $37 million.

Including this recent drawdown our cash position at the end of 2022 would have been approximately $167 million.

We felt it prudent to take advantage of the favorable terms of the loan to provide ourselves with the greatest degree of financial flexibility to invest in our business.

As a reminder, we recently refinanced its credit facility in October of last year at an attractive rate of prime plus 1% and extended the maturity date out another five years with at least two additional years of interest only payments.

We remain confident that we can reach cash flow breakeven in our existing current operations with the capital that we have on hand and continue to expect our annual cash burn to decrease as we grow our top line and drive operating leverage.

Now turning to our revenue outlook for 2023.

We expect to deliver full year 2023 revenue in the range of $63 million to $65 million.

Our guidance assumes foreign currency exchange rates will be relatively neutral to growth on an annual basis with.

With foreign exchange remaining a headwind to growth in the first half of the year and then transitioning to a tailwind in the back half of 2023.

We expect sales in the first quarter of 2023 to be sequentially lower than the fourth quarter of last year as we've typically seen in the past.

The CIB request information in connection with the sales and marketing of Zephyr valves and related products and services.

We maintain policies and procedures to promote compliance with the anti kickback statute false claims act and other applicable laws and regulations and are fully cooperating with this investigation, while we cannot at this time reasonably predict the duration or outcome of this matter I would emphasize that at this time, we do not view this as a barrier to growth or a hindrance to the.

Patient of our commercial strategy.

And with that I will now turn the call back to Glenn for closing comments.

Thanks Derek.

In summary.

<unk> before the end of the year. We also look forward to progressing the development of <unk>, which offers an opportunity to significantly expand our target market by possibly offering the benefits of zephyr valves to patients who are not currently candidates for the procedure taken together, we expect to execute on both commercial and <unk>.

Clinical development objectives, and thereby deliver strong growth in 2023 and beyond.

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

At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press.

One on your telephone and wait for your name to be announced.

Withdraw your question Press Star one again, please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Rick Wise of Stifel. Your line is now open.

Good afternoon everybody.

The C b.

Solid fourth quarter performance.

Glenn just.

All right.

A big picture front, you talked about the macro environment.

Improving.

Yes.

The strong fourth quarter.

Support that idea that notion.

Understand what's changed what Youre able to do now.

That you Werent.

<unk> able to to do obviously are more challenged by over the last year or so.

Yeah.

Why you're confident or why you are feeling good.

That macro environment improvement is going to set you up well.

Have another good year.

'twenty three.

Thanks, Rick.

I appreciate the question so.

The thing that's changed.

Thinking about 2022, we started the year with.

With significant headwinds with Covid basically hitting all of our markets.

Essentially all at the same time, plus or minus a week or two.

And and that had a significant negative impact.

Outside the United States, our ability to rebound that was slow rebound from that was slower than what we had experienced in the United States and that.

I think has has really fully cleared for us as we progressed across the year, albeit at different rates in different parts of the world. So so that's.

Thats cleared a bit the other thing is that we had some real staffing challenges we talked about those in the last.

Call. Some of those were related to just sort of normalization and getting people back into their seats and some of those as we talked about in the third quarter were related to extraordinary.

Opportunities for folks to take time after the better part of three years, not being able to take a vacation. So we felt that in the third quarter, we don't anticipate it.

Extraordinary types of impact as we look ahead in that regard and then finally one of the things that was revealed to us that we talked about in the last quarter call. When we had.

Particularly in the United States about six months without Covid, which was the first time ever that we werent getting knocked around in one place or another.

We were able to identify.

Where we really stood with our accounts as opposed to people and in some cases I think we were may be assuming or hearing that COVID-19 was the problem and in fact, the account hadn't made the procedure.

Right.

Routine as part of their offering as is appropriate in our high performing accounts and as we talked about.

Last call, we were able to set up a process whereby we classified all of our accounts and then set specific goals for moving them.

Tore in into the direction of being better established and as a consequence being able to execute our procedure more routinely and more efficiently. So those are all things that I think put us coming into this year into a better place.

Whether that be with the plan or just without the headwinds that we had faced particularly in the first part of last year.

Gotcha.

On your account productivity.

Obviously.

We're doing well.

If I wrote it down correctly.

Johnny I'm hearing your correctly four to five cases a.

Quarter on average and did I hear you correctly.

The average for all accounts was four eight in the fourth quarter or was that your top performing anyway.

Just maybe I'll clarify that but as we think about 2003 can we get into the five to six range.

Maybe talk about your training.

Your efforts.

To support drive better account productivity that could get you there if thats the right way to think about it.

Yes, well we had.

So across the year across 2022.

The first quarter, we were account productivity number was.

$3 nine so we started below four in the first quarter. We're in we are in the mid range and sort of the $4 $5 range and the second two quarters and we exited the year at $4. Eight. So yes, we are in the four to five range across the year and it is our expectation that we will be exiting this year in the five to six.

Range as you've talked about and.

And we will do this through.

Through executing on the plans that we had talked about before.

And training is central to that so.

Which is which is a very sensitive variable in sort of our productivity equation. If you will and also the training.

So I think we may have talked maybe not on one of these calls, but we have modified.

The way that we bring folks into training, so I would say that relative to where we were a couple of years ago.

The physicians that are coming into training are much more committed and much more engaged we ask them to bring forward.

Going through all the various aspects of the procedure and standing in our procedure room for one two or three procedures.

And then we ask those physicians to immediately go back and and.

And to execute three procedures, which are then reviewed by experts along with them to assess.

What are the scans look like what are the.

And how is that patient doing in terms of volume reduction and and other metrics and those conversations are very very valuable and bringing those physicians up to speed getting them doing the procedure quickly and in the in sort of a COVID-19 days they'd come out of training and they start looking for patients and then a wave of Covid.

Would knock them off balance and it could be nine months before they treated their first patient. So we're getting folks engaged much more quickly.

And that's essentially.

The backdrop for how we intend to drive this forward.

And Rick this is Derrick.

Just clarify the definition that work that we're using for account productivity.

It takes a few quarters for an account to get up to speed.

From when they do their first case, so when we look at and measure our account productivity, we're looking at accounts.

That has been up and running for at least three quarters. They are in their fourth quarter.

Implanting, our zephyr valve.

And we're also looking at.

Only those accounts that have actually done a case in that given quarter. So so odd number isn't diluted by inactive accounts. So the numbers that Glenn gave sort of in the four to five range.

Stablish active account productivity.

To those accounts that have been up and running for at least three quarters are active in a given quarter and we do indeed expect those.

That number can move up through the back half of the year and into that five to six range as we exit the year.

Got you and just last from me if I could could you expand on your gross margin comment.

<unk>.

Gross margins were a little lighter than I look for in your guidance is a little lighter and yet you had record volume.

Just maybe I missed it a little more color on why.

Gross margins are lower than they were earlier in the year end and ditto for the look ahead to 'twenty three.

Sure sure rich so that slight reduction in gross margin that we're seeing.

Demand in the near term so we're expecting to stay around that 73% range of that first half of the year and then.

In the back half of the year and into next year as we start once again ramping up our production output.

Into next year and beyond we expect this could you grew about 274% range and we continue to believe that.

And expect that our gross margins will continue to move up as we ramp our production output to meet demand in.

We'll land over the long term and that high 70 ranges as we reach scale.

Thank you so much sir.

Absolutely.

Okay. Thank you please standby.

Our next caller.

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

Hey, Ron and Eric It's John on for Bill Tonight, Thanks for taking our questions can.

Can you just talk a bit a little bit more on the number of account there sufficient today with the patient flow process in the past you've highlighted 40% to 50 account that data as well where does that number stand today and can you just give us a little more details on how you're going to help with those struggling accounts are going to hire more reps. This year or just how you can work through the workflow processes.

Derek I don't know if you heard all of that it was a little choppy for me.

Did you get that whole question.

Yeah. So.

John was asking so John you're asking what percentage of <unk>.

Percentage of our accounts are kind of where we want them to be and.

And how are we going to I think focus on driving those accounts that are not as high volume as we'd like.

To get to where they.

They want to be okay right.

So that's.

Thats a paraphrase your question.

If I think.

Thank you.

Today, I would say approximately.

Exiting the year.

Roughly speaking maybe a quarter of our accounts are really doing.

Well and doing where we want them to be there.

What we would consider to be high volume accounts and.

And there is certainly.

An additional group of accounts that we feel can get into that range that we're really focused on and.

What we're focused on is exactly kind of what Glenn had mentioned which was during the <unk>.

Prepared remark, which is.

Driving driving site efficiency, making this product or this procedure routine.

New.

Procedure that we're setting up in a new service line that we're setting out to these hospitals and so coordinating across multi disciplinary functions.

Driving the training and really the focus and mind share to get our.

The significant increase in <unk>.

Our sales force through 2023, which I believe was the second part of your question, it's really just a focus.

Driving kind of that efficiency in mind share and making the procedure routine amongst those.

Those hospitals that we've already opened.

Thanks, Barry and if you can hear this question too.

Just on Japan, and the launch preparation, what's the team size there today and what infrastructure do you still need to add to be ready for launch end of this year. Thanks for taking our question.

Sure absolutely we're in pretty good shape, I think as far as Japan goes we have a general manager in place who.

<unk> joined US senior executive that Medtronic has joined us and leading the way been onboard for about six months.

We have.

Marketing person sort of a clinical marketing type person I think we've extended a couple offers to a couple of sales representatives to begin to get those accounts, where they need to be we've been leveraging significantly deeply experienced consultants.

From a regulatory and clinical perspective, it's going to have to do a post approval clinical trial, we've got our own personnel that have been traveling through their identified partners that we will be working with so.

Frankly in very good shape.

As it relates to.

Both the number and sort of functional expertise of the folks that we were.

We have or just about bringing on at this point.

Thanks.

Thank you please standby.

Next caller our next question.

Our next question comes from the line of Travis Steed of DNA Security Bofa Securities. Your line is now open.

Hi, This is Ian on for <unk>.

Just hoping to get a bit more detail on the guide you if possible what is the 63 to 65 now imply for U S versus O U S. I think you had previously said, 25% growth U S. 15% O U S. It looks like U S was a little faster in Q4 O U S a little slower.

And then any additional detail around expectations for Q1 here given that they're almost through February and then last year had the COVID-19 impact.

<unk> around $13 5 million is that set in the right ballpark for Q1 here.

Okay.

Yes.

Hi, Ian This is Derrick I'll go ahead and take those questions. So.

In terms of the implications were of growth rates.

Relative to our sales guidance.

Our sales guidance of $63 million to $65 million does imply kind of roughly at the midpoint.

20% ish.

Growth on a year over year basis over 2022, which is.

Sort of the theme that we communicated at the end of last year, as we kind of giving a high level directional guidance.

If we think about the breakdown between the U S and O U S. I think we will continue to remain in that.

60, 40 mix with about 60% of our business coming from the U S 40% coming from international.

International we do expect the U S to grow meaningfully faster than international so the U S.

It will grow in that 25% to 30% range, whereas outside the U S.

We're looking at something in that 15% to 20% range.

So that is I think that answers. The first part of your question can you repeat the second part of your question.

Yes, just any any additional detail around Q1.

The streets around $13 5 million.

Right. So we do expect to see sort of typical sequential seasonality in Q1, so historically, we've seen that.

Hi.

The Q1 sales are.

Are anywhere from.

10% to 15% lower on a sequential basis in Q4 that are typically driven by outside the U S. We see.

Hospitals oftentimes using up their budgets near the end of the year, and then globally, including the U S. There is generally a gradual ramp up as folks come off the holidays and the beginning of the year that seasonality was more pronounced during COVID-19, but if we look back into the kind of pre COVID-19 time period.

We do typically see that sequential.

<unk> decline, so I would expect to see something.

In that range that historical range again in Q1, and I would expect to see.

International reflect more of that seasonality than than the U S. But I think both will see a level of.

Sequential decline as we've typically seen in the past.

Okay, Perfect and then maybe one on international.

Japan any early expectations around revenue numbers later this year, how fast could that potentially ramp next year.

And then in terms of China, just how large of a business is that for you and your expectations around a rebound there this year.

Yeah.

So with regard to Japan.

We anticipate that we're going to get approval or reimbursement. Later later part of the year. So I think we will do it takes some time to get things up and running I don't expect that the day. After we got approval, we're going to be treating our first patient. So we'll get a handful of patients in this year I think we're doing well so I don't expect.

Any material contribution this year to revenues by Japan.

Other thing is we anticipate that the first.

100, 150 patients in Japan are likely to have to all run through a clinical trial. So we will probably be opening up Japan through <unk>.

Five or 10 specific centers and so I expect that though revenues.

In the next year will.

We'll be way stronger than they are this year.

I don't anticipate that those are going to going to.

Knock the doors off of and I'm not going to bend the curve dramatically in terms of our O U S revenues I've seen revenue has really taken off and in 2025, when we've had an opportunity to enroll those first patients into the study and expand our footprint and.

And move off of that so I think that's the way I would think about getting into that opportunity we.

Over time, we see that as being probably are.

Certainly a top five market for us.

Thank you.

The second part of your question was around China in China.

$200 million.

Thanks, guys for us right now.

Okay. Thanks for taking the question.

Please standby for our next question.

Our next question comes from the line of Jason Bednar with Piper Sandler Your line is now open.

Okay.

Good afternoon, thanks for taking the questions here.

You go into there.

The number of new accounts Youre working on board. This year is maybe go a little bit below what we've seen in past years I think that's probably partly a function of maybe where youre at in Onboarding a lot of your target accounts.

As your reps refocus their efforts towards driving account productivity I think that makes it kind of sense.

What are the give and take look like here is the emphasis shifts or are you expecting return on time for your reps to be higher.

And focusing on turning on existing accounts versus being more productive with your existing accounts.

Or maybe can you help us with what the lower new account additions means in terms of the shift in how the rep to spend their time during the day.

Yeah, we've never.

Adding new accounts.

Ever really been central to what we're asking the reps to do its been fairly organic in terms of the opening of new accounts and I think the thing that is new is that.

And then what we've shared with the sales organization is that we need to get these accounts to a point that where there. They are doing this procedure much more routinely and what you see from the revenue numbers of those accounts that.

We have gotten to that place where they're exercising much more routinely and efficiently is at the revenues follow and it's fairly dramatic so.

Everybody's on the same page here. This is we're.

The ones on the same page.

That's where folks are focused at this time.

Okay, Great that's helpful.

And then maybe could you talk about the trends youre seeing in Europe .

Germany, and France, which account for a disproportionate part of your international franchise.

It sounds like there's still maybe some capacity constraints in those markets.

Do you see those markets may be accelerating throughout 2023, almost mimicking the U S. But on a lagged basis or are there other effects in Germany, and France. In particular, we should have in mind that maybe it didn't make that more of a 2020 for recovery dynamic. Thank you.

Yeah, well the three big our big three International's.

Countries are Germany, France, and the UK.

Together they represent two thirds of our international business.

And the U K.

In some ways is.

Leading the way on a global basis with regard to the execution of the strategy that we're talking about employing in the United States.

They've been doing this for a while they grew 31% last year year over year, we anticipate that they're going to do great.

And theyre going to continue to grow.

At a high rate as we look into the year, France had a after.

Sort of an initial adoption curve that was very much consistent with the the slope of the upwards slope of the U S adoption.

Market outside the United States for Us, perhaps by the end of this year, so as far as Germany goes we're executing on the fundamentals like we are everywhere else.

We've got good marketing activity good.

Commercial our sales activity.

We're executing the same sort of game plan that we are in other markets and we expect them to grow as well if I had to predict.

The amount of growth on a percentage basis I would probably.

But the U K in France ahead of Germany, but I expect all three of them to make significant contributions across the year.

[music].

Okay. Thank you.

Hey, Thank you I would now like to turn it back to Glenn French for closing remarks.

Thank you everybody for your questions much appreciated we remain very confident in our in the opportunity as well as our ability to access it.

Attunity is clearly large the patients are there they are seeking.

Information on the procedure of theirs thinking thinking access to the procedure, we feel like we've got a great plan that we're executing on its very very clear our data are strong they're consistent they're compelling are included in the global guidelines reimbursement sorted out in all of our major markets are treating doctors view are reversible procedure as the standard.

Of care and collateral ventilation negative patients. These are the folks that are doing the procedures.

We remain very optimistic about the future we appreciate everyone's interest and.

I think given unless people have any additional questions.

Where we've gotten to the end of the call.

Okay well. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Q4 2022 Pulmonx Corp Earnings Call

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