Q2 2023 Pulmonx Corporation Earnings Call
Okay.
Thank you for standing by welcome to the Poland Next second quarter 2023 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.
As a reminder, today's conference is being recorded.
I would now like to turn the conference over to your host Lynn Morgan at the Gilmartin Group Li. Please go ahead.
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 Dirksen, Chief Financial Officer earlier today, Puma issued a press release announcing its financial results for the quarter ended June 30th 2023, a copy of the press release.
Billable on come on our website.
Before we begin I'd like to remind you that management.
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.
Statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements. All forward looking statements, including without limitation those relating to our operating trends commercial strategies and future financial performance, the timing and results of clinical trials expense management expectations for hiring.
Growth in our organization market opportunity guidance for revenue gross margin and operating expenses commercial expansion and product pipeline for development are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those and put debated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for listen description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on May eight 2023.
Also during the call, we will discuss certain non-GAAP financial measures.
Conciliation 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.
GAAP measures are not intended to be a substitute for our GAAP results. This conference call contains time sensitive information and is accurate only as of the live broadcast today August 2nd 2023, pulmonic disclaims any intention or obligation except as required by law or revise any financial projections or forward looking statements, whether because of new inferred.
Nation future events or otherwise.
That I will turn the call over to Glenn.
Yeah.
Thanks Lynn.
Good afternoon, everyone and welcome to our second quarter 2023 earnings call here with me is Derek Sun, Our Chief Financial Officer.
In the second quarter, we executed on our commercial strategy, while continuing to advance our market and geographic expansion initiatives in Q2, we delivered a new high of $17 $2 million in worldwide sales, representing 23% growth over the same period of the prior year driven by another.
Our record U S performance of $11 million in sales given the positive momentum we saw in the second quarter. We are updating our full year 2023 revenue guidance to be in the range of $64 million to $66 million up from our prior guidance of $63 million to $65 million.
Throughout the second quarter, we continued to make progress on our focused U S. Commercial strategy to one train hospitals that have the potential to be high performing zephyr valve centers.
To facilitate sharing the best sharing of best practices to existing centers to optimize their zephyr valve programs and three build local awareness of the benefits of our treatment among COPD physicians and patients.
Increasingly we are seeing hospitals view there is that for valve programs as areas of strategic investment in the first half of this year. Many of our accounts chose to invest in program coordinators and other resources to allow for additional procedure capacity.
In addition does that for valve hospitals are increasingly implementing routine standard of care protocols to identify and treat patients with severe emphysema similar to their approached for screening and working up suspected lung cancer patients for example, a hospital in the Midwest recently changed its pro.
Recall to ensure every lung function test is evaluated for hyper inflation and hyper inflated patients with a suspicion of severe emphysema are referred to workup for Endobronchial valves. This has led to substantial growth in patients being identified at this account that might otherwise have been.
Mist in the routine evaluations by other physicians that that system.
I'm pleased to report that we are starting to see early evidence in that these efforts that these efforts are translating into increased sales and productivity.
As a reminder, we measure account productivity based on the average number of cases conducted in a given quarter by our active established zephyr valve treating hospitals, which are those that had been performing zephyr valve procedures over the past four quarters and have placed a revenue generating quarter in the current quarter.
Over the past year average account productivity in the U S has ranged between four and five cases per account and in the second quarter of 2023 average U S account productivity trended back up to four seven cases per center.
While seasonal trends will drive some variability in this metric from quarter to quarter on average over time, we expect account productivity to continue to move higher mean.
Meanwhile, U S account activity in the second quarter of 2023 was 73% as a reminder, we define account activity as a percentage of treating accounts that place a revenue generating order.
In a given quarter, we continue to expect account activity to remain in the mid Seventy's range as we grow our denominator of treating centers.
We also further expanded our commercial footprint, adding 15, new centers in the U S.
In the second quarter of 2023, bringing our total number of U S centers to 308, we now expect to end the year, having opened approximately 50, new centers, which is toward the high end of our previously communicated expectation of 40 to 50 new centers this year.
From a geographic expansion perspective, we achieved regulatory approval of our Zephyr valve in Japan last year and continue to anticipate the establishment of reimbursement in Japan. Later this year. Once reimbursement is established we will initiate sales in Japan.
Post market study.
As a reminder, though we anticipate it will take time to grow awareness.
This new treatment option, we estimate Japan has approximately 100000 patients who stand to benefit from our treatment.
In our clinical development timeline, we remain on track with our <unk> program, which we expect will expand the addressable market of our Zephyr valve solution for severe emphysema patients with collateral ventilation.
I'm happy to announce that during the second quarter, we completed enrollment in our convert one trial and expect final data to be presented next year.
We are also preparing to launch our next multinational clinical trial convert too.
And in support of this are in the.
We are in the late stage discussions with FDA again results from convert two will form the basis of our <unk> PMA submission.
In summary, our commercial execution is on track.
I am confident in our go forward strategy.
Our expectations for 2023, and the long term growth trajectory of our business.
With that I'll now turn the call over to Derek to provide a more detailed review of our second quarter results.
Thank you Glenn and good afternoon, everyone.
Total worldwide revenue for the three months ended June 32023 reached a new quarterly high of $17 2 million.
A 23% increase from $14 million in the same period of the prior year.
U S revenue in the second quarter reached a new record of $11 million, a 28% increase from $8 6 million during the prior year period.
The growth in U S sales reflected continued commercial momentum in adoption of Zephyr valve therapy.
International revenue in the second quarter of 2023 was $6 2 million.
A 16% increase from $5 $3 million during the same period last year.
The overall increase in international sales was driven by growth of Zephyr valve procedure volumes.
Gross margin for the second quarter of 2023 was 74% compared to 75% in the prior year period, reflecting slightly lower capacity utilization.
We continue to expect gross margin for the full year 2023 to fall within the range of 73% to 74% trending towards 74% in the back half of the year.
Total operating expenses for the second quarter of 2023 or $29 2 million.
17% increase from $24 $8 million in the second quarter of 2022.
Noncash stock based compensation expense was $5 5 million in the second quarter of 2023.
Excluding stock based compensation expense total operating expenses in the second quarter of 2023 increased 15% from the same period of the prior year.
Looking ahead, we continue to expect operating expenses for the full year of 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.
R&D expenses for the second quarter of 2023 were $5 7 million compared to $3 6 million in the same period of the prior year. The increase was primarily attributable to an increase in clinical and development costs related to our <unk> program as well as an increase in stock based compensation expense.
Sales general and administrative expenses for the second quarter of 2023, or $23 5 million compared to $21 2 million in the second quarter of 2022.
The increase was attributable to selling costs as we ramp the commercial activities as well as an increase in legal and stock based compensation expenses.
Net loss for the second quarter of 2023 was $16 2 million or a loss of 43 per share as compared to a net loss of $14 6 million or a loss of <unk> 40 per share for the same period of the prior year and.
An average weighted share count of 37 8 million shares was used to determine loss per share for the second quarter 2023.
Adjusted EBITDA loss for the second quarter of 2023 was $10 $3 million as compared to $9 $8 million in the second quarter of 2022.
We ended June 32023, with $147 6 million in cash cash equivalents and marketable securities a decrease of $7 9 million from March 31, 2023 weeks.
We continue to feel very good about our pathway to cash flow breakeven as we grow our top line and deliver operating leverage.
Finally, turning to our revenue outlook for 2023.
Given our strong performance in the first half of the year. We are updating our full year 2023 revenue guidance to be in the range of $64 million to $66 million representing.
Approximately 19% to 23% growth over 2022 and up from our prior guidance of $63 million to $65 million.
Our sales guidance incorporates seasonality in the third quarter, which is typically down sequentially to the second quarter due to the summer holidays.
With that I'd like to thank you for your attention and we will now open up the call for questions.
Operator.
In order to ask a question at this time. Please press star one on your telephone and wait for your name to be announced soon.
Withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Rick Wise with Stifel. Your line is now open.
Good afternoon, Glenn Hi, Derik, how are you doing nice to see the solid quarter and the beat and raise.
You keep doing it.
It's nice to see.
Maybe starting off.
I was hoping you could add some extra color on the guide.
The new range does currently.
Seem to imply a sequential step down in the third quarter and I just wanted to understand how much of this is seasonality.
I know you are always opening new centers and training new docs in the sales force gets more.
Productive and you step up.
Utilization of active accounts, why not and im not asking this argumentative, but I'm just sort of curious.
Why not sequentially, even or higher in the third quarter.
Sure Rick This is Derek thanks for thanks for your question. So yes, we are obviously super happy with our performance in the second quarter, we're seeing that increased traction and engagement with our hospital customers exactly as we hoped and we did raise our overall guidance both the top and bottom.
Range for the year.
Now that said.
And as you pointed out we are.
Currently aware of the summer slowdown, which typically effects our Q3.
Last summer, we saw a very pronounced seasonal summer impact.
We have no reason to believe that this year will be any different or perhaps even.
More substantial so.
That has been contemplated into our guide.
<unk>.
That's the primary reason for.
Sure.
Our belief that we expect Q3 to be down sequentially I think somewhere on the order of $5, 7% would be what wed expect given what we've seen in the past and what we're factoring in.
But that said, we really do expect to see a nice step up back in Q4, and particularly kind of given all the dynamics that we saw.
The positive dynamics that we saw in Q2, we expect Q4 to step up nicely. We just don't want to get ahead of ourselves and we really want to see how the summer plays out this year. So.
That's the primary explanation.
Sure.
Glen maybe for you.
Sure.
Yes.
There's been a lot of discussion.
For several quarters now about.
Patients coming back post Covid and recovery and obviously the intersection with <unk>.
Staffing and other linger.
A lingering issues, but given what seems to be a stable to improving environment continued recovery.
Are you noticing do you feel like it.
Just everything else that's going on are you seeing a meaningful.
Or any difference in patient backlogs here are patients seeking treatment as you.
If all of these programs.
Share best practices and build local awareness.
Is that making a difference in the pipeline or the patient backlog or however, you would characterize it.
Okay. Thanks, Rick.
So with regard to.
Two our activities. So first of all COVID-19 to a large extent.
Was behind us coming out in the first quarter of last year.
Our focus since then has really been on account efficiency the patients as.
I have always been there all along I think we've talked about in many of the prior calls couple 100000 patients that are engaged.
With us and with others through social media.
And through our website and so forth. So the patients are out there and one of the things that we've really been focused on and when we popped out of Covid. It really became obvious to US was that we thought that the accounts had established our treatment as a standard of care in a way that was a little bit different than what was actually the case and so we've been very much focused on.
Sharon best practices and trying to bring these trading accounts.
Up the learning curve as it relates to that and then to make sure that they are taking full advantage of the opportunity that's right around that by by looking around the hospital around their hospital system for the patients that are there right now and that's been really the primary focus over the last.
A few quarters and we feel very good about the progress we've made we feel good about the plan.
And as we look ahead, we think it provides us with a nice foundation to begin to to move those patients into hospitals that are ready to accept them.
Yeah.
And maybe just last for me for now.
Okay.
And I know everybody hates it when analysts ask on these calls about the outlook for the next year I can't help myself as we think.
About 2024, it seems like the setup is positive for all the reasons you've you've articulated.
Are you comfortable with where consensus is I mean, we're thinking about 20% growth you're you keep delivering it.
<unk>.
Yes.
Maybe talk us through just at a high level.
The drivers we might want to be sensitive to us.
We think about the year ahead. Thanks, so much.
Yeah. Thanks, Rick so so.
We feel we certainly feel good about.
What we've seen in the first half of this year and as Glen kind of outlined a lot of what we're putting in place. This year built that foundation for us to continue to drive growth forward. So we really like what we've been seeing relative to how we were hoping to execute relative to our plan this year.
Now next year, its obviously premature and we're not going to comment on guide et cetera.
I do feel we do feel good about next year.
I feel comfortable where consensus currently sits today, so that's not something that I would.
Feel a need to move around.
But I think most importantly.
We like what we're seeing and the way things are playing out this year and that's going to build a strong foundation for us to grow next year.
Two thirds of our business is in the U S. About a third is outside the United States and of that it's it's actually 64 36, I think a year to date, but in any case, it's moving in that direction. We've got.
Five countries, including the U S that represents over 90 per cent of our global business. If you look across those markets I think all of them all of them were headed in a in a positive direction. It looks it looks solid. Thank one of them was is is really set up the the weakest of the full of the <unk>.
Five is really setup I think for a strong back half of the year. So we feel good about that foundation that exists outside the United States.
Perfect Alright fair enough.
And then.
Press, you a little bit Derek I appreciate the kind of the directional color here on three Q, but I guess when I when I did a quick math an implied guidance then for four Q I dunno. It just I guess it looks a little lighter than I would have would have thought I don't know if that's true conservatism.
But just just to be think about that in the context of how you responded to Rick's question for the 2024 outlook I guess, just looking for entering your level of confidence or you know maybe conservatism that you built into the back half of the year and again I'm kind of coming out. This with you know you guys would be pretty nicely here in the second quarter more than a million.
Beat versus consensus you raise the guide by a million dollars. The last quarter you were already pointing to the upper end of your prior guide. So maybe helped me Mary all that together and I'm really is I drill drill into trying to model out four Q appropriately.
Yeah, I I think it's a great question again, I think what really goes into the back into the guidance implied in the back half of the year and and kind of funding center of our mind is is Q3 and I think there is some uncertainty as to how impactful that summer seasonality will be this quarter we were.
Frankly surprised by the severity of it last year and you know at this point as we go into the summer you know I don't think there are any indications that things will be any different and I you know I think there's <unk>.
Potential that it could be worse or better, but certainly that I think is is some of the uncertainty that we're factoring in and really again.
Due to these access and and more pronounced summer vacations that folks appear to be taking both outside the U S and inside the U S. So if.
If you if you take that into account and you look at Q4, we we've historically seen very nice step that between Q3 and Q4 Q4 has historically been one of the strongest quarters of the year for us and and we would expect that to be the case.
Again this year so.
I think we <unk>, we feel good about the fundamentals of our business and the foundation that we're building and.
We look forward to that momentum showing itself through two four and into into next year, but again uhm. We just don't want to get ahead of ourselves.
Sure sure enough.
<unk> Congrats again.
One moment for your next question.
And your next question comes from the line.
Hold on Nick with kind of course, when you're ready your line is now okay.
Hey, guys and Zachary owns will go today. Thank you for taking my question and congrats on the quarter. So regarding Japan, you said that you're still expecting regulatory approval.
And expect reimbursement later this year with that what do you mean, the cadence would be on that going into the commercial launch like do do you have an idea of how long the gap between those two events would be thank you very much for taking my question.
Thanks, <unk>, we got regulatory approval near the in the back half of last year, and we are anticipating reimbursement in place.
By the end of this year and we we we will begin to commence commercialization.
Within a.
Clinical trials sort of a post approval trial, so the Japanese government will require us to enroll the first.
Hunter is slightly over 100 patients into a postapproval study. So every one of those patients will go in under that.
Where in the <unk>, because we already have approval or in the process of training of physicians right now and we don't anticipate there to be a long lag before that study commences and it'll take on the order of a year or two to get all those patients in I think because of the number of accounts that we're gonna be limited to and at which point will.
Be able to expand more broadly and that's where we were in the script that we we're just we're reading from made reference to the idea that we're going to be increasing awareness overtime, and then expanding into that substantial opportunity beyond the completion of the enrollment of this post approval trial.
Okay, great. Thank you very much sorry, thank you for clearing that up.
Just to be clear that will be a revenue generating.
Proposition for us, although it'll just be at a fairly low level.
Awesome. Thank you so much.
Again as a reminder, in order to ask a question. Please press Taiwan one on your telephone.
And your next question comes from the line I'll spell it Lamar with city in line is now okay.
Hey, this is actually Anthony odd for Joanna lunch. Thank you for taking our questions. Just another one on Japan. So once you sort of get past. This initial year in the trial and you expand more meaningfully is there anything structurally about the Japanese market that we should be taking in.
Taking into account, whether it's maybe differences in the referral pathway or the work up and then I just had a follow up after.
The Japanese well.
That's a complicated question that you asked very simply but it's a very hierarchical market. That's no big mystery is probably the most hierarchical market.
That I'm aware of in the in the <unk> Big market in the World and therefore, you you really need to do things in a specific order and there's a price to be paid if you don't we have engaged with the thought leaders, they're both national and global thought leaders that are based in Japan.
They have been we've been working together with them through the approval process and the reimbursement process. So we are very confident that we're working with the right people and that we're on the right path.
And.
We ultimately expect that this hierarchical nature of the medical community there.
May in fact play out in our case to our benefit as it relates to communicating out that this is something that is accepted by.
Kind of the buy it through Japanese standards and as a consequence may.
Drive.
Interesting sort of adoption curve relative to some of the markets like the U S that may be even aren't as you know one one doctor across town doesn't typically care in the United States, what another doctor across town is doing whereas in Japan. It's it's really all about what the what the key professor is doing and.
And others.
In other Martin other experiences that I've had have followed so we'll see how that plays out it's still to be determined.
Okay that makes sense.
Then an account activity I feel like it's been sort of hovering in the low to mid seventies for the past few quarters is there room for that to push up or do you think this mid seventies level is a natural ceiling. Thank you.
Yeah. It has everything to do with how you define it we're in the mid seventies, we talk about that's where we expect to be it's sort of I think literally.
We are more or less on top of.
Plus or minus 1% exactly where we've been for like the last three years and even though the denominator goes up the activity number sort of stays flat now there is a dynamic here, where we're having more and more people who are you know when we first start out everything's trunk stock and then we moved to stocking accounts to after some period of time Uhm. So there's some.
I think we're we're <unk>, we're getting more and more accounts that are that are stocking up.
And in any case we.
If you were so if somebody's, placing an order at the end of one quarter and they don't place until after the start of the the quarter that follows the next quarter you've got challenges. There. If I was to say for example to expand this three months horizon from three months to six months. That's 75 goes 85, I think when people.
L. C 75, they assume that we've lost 25% of our of our customers and that's absolutely not the case I think the flip side to the 85 per cent number is well what happened to those 15% and the reality is that much of our businesses in academic centers of <unk> and her original Pulmonologists are moving.
Around we focus on trying to get more than one physician doing the procedure at each of the centers. There typically is one who's. The later if that leader moves from University of Chicago too.
Columbia Press in New York, then there's a certain amount of inefficiency in downtime and I think that those that movement of these folks is probably the biggest explanation for that 15 per cent and then the last little bit the smallest part of that that last 15% is is you know, we'd probably just didn't make a good <unk>.
<unk> of the account so we got some sort of stuff at the bottom of the barrel that we haven't scraped out probably made a mistake in picking those accounts, so, but that's a very small single digit proportion of that whole.
Great. Thank you very much.
Okay that is one one to ask a question.
Alright, I see no questions and acute <unk> call back over to Glenn French.
Right. We are very pleased with with this record quarter that we've just reported were confident in the strategy that we have in place and we're also very please both to raise the bar with regard to our whole your revenue expectations and also with our longer term growth trajectory. So.
With that I'd like to thank you all for your time and interest in <unk> and wish you all the best.
Basically today's conference call. Thank you for your participation you may not disconnect.
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