Q3 2023 Pulmonx Corporation Earnings Call

Thank you for standing by welcome to the <unk> third 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 hub.

Lane Morgan at the Gilmartin Group Lane. 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, Amit you, an interim Chief Financial Officer, and Vice President Corporate controller earlier today <unk> issued a press release announcing its financial results for the quarter ended September 32023.

A copy of the press release is available on come on its 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 future events results or performance are forward looking statements.

All forward looking statements, including without limitation those relating to our chief financial officer transition, 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 development are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements accordingly.

Accordingly, you should not place undue reliance on these statements for a list and description of risks and uncertainties associated with our business. Please refer to risk factors section to the rest of it too.

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 August 4th 2023.

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.

non-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 Broadcasting Day October 30 of 2023 come.

Come on its 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.

And welcome to our third quarter 2023 earnings call here with me is John Mccuen, Our recently appointed interim Chief Financial Officer, who has been a leader on our finance team as VP corporate controller since our IPO.

We are very pleased with our recent performance as we achieved another quarter of record revenue in the third quarter, we delivered $17 $7 million in worldwide sales, representing 31% growth over the same period of the prior year and 29% on a constant currency basis.

Growth was driven primarily by record U S performance as we achieved $11 $8 million in sales, representing 41% year over year growth.

Outperformance in the U S was due to continued momentum and traction of our focused commercial strategy and also to slightly less seasonal impact than expected.

Meanwhile, seasonal impacts internationally were more consistent with our expectations and historical trends.

Given the strength of our business year to date, we are updating our full year 2023 revenue guidance to be in the range of $67 million to $68 million up from our prior guidance of $64 million to $66 million at the midpoint. This implies anticipated year over year growth of over 20.

5% we.

We attribute our confidence largely to the traction we are seeing with our focused commercial strategy. As we had planned this strategy designed to accelerate account productivity across our already meaningful footprint has resulted in one more existing treating centers with optimized upper valve.

Grams shoe, new treating centers launching with a greater ability to scale and three increased awareness around the benefits of our treatment among COPD physicians and the many patients who stand to benefit from it in.

Thank you for standing by.

Operator: Welcome to the Pulmonx third quarter, 2023 Ernest Conference call. At this time, all participants are in a listen only mode.

In the third quarter average U S account productivity was approximately $4 seven cases per center. Despite anticipated summer seasonality. We attribute this largely to improvement in the number of highly experienced and efficient accounts and the cases they performed offset.

Operator: After the speakers presentation, there will be a question and answer session. As a reminder, today's conference is being recorded.

Lane Morgan: I would now like to turn the conference over to your host, Lane Morgan, at the Gilmarten Group. Lane, please go ahead. Thank you, operator.

Lane Morgan: Good afternoon, and thank you all for participating today's call.

Lane Morgan: Joining me from Pulmonx are Glendon French, President and Chief Executive, Officer and John McKune, Interim Chief Financial Officer and Vice-President Corporate Controller. Earlier today, Pulmonx issued a press release announcing its financial results for the quarter ended September 30th, 2023. A copy of the press release is available on Pulmonx's website.

Continued growth in our base of actively treating centers.

As a reminder, we have measured account productivity based on the average number of cases conducted in a given quarter by our active establishes that for valve treating hospitals, which are those that have been performing zephyr valve procedures for at least four quarters and.

Lane Morgan: Before we begin, I'd like to remind you that management will make statements during this call that include four looking statements within the meeting of federal securities laws, which are made pursuant to the state corporate provisions of the Private Security's litigation reform act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance or forward-looking statements. All forward-looking statements, including without limitation, those relating to our chief financial officer transition, are 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, growth margin, and operating expenses, commercial expansion, and product pipeline development are based upon current estimates and various assumptions. These statements involve material risk and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these four looking statements. Accordingly, you should not place undue reliance on these statements.

Faced a revenue generating order in the current quarter, 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 into the fourth quarter and beyond me.

Meanwhile, U S account activity in the third quarter of 2023 was 73% representing 235 centers that placed a revenue generating order in the third quarter. We continue to expect account activity to remain in the low to mid <unk> range as we.

Grow our denominator of treating centers.

Lastly, we continue to expand our base of U S centers, we added 15, new accounts in the U S. In the third quarter, bringing the total number of U S centers.

Lane Morgan: For a list and description of risk and uncertainties associated with our business, please refer to risk factors section to the risk factor section of our filings of the Securities and Exchange Commission, including the quarterly report on form 10Q followed with SEC on August 4th, 2030.

323, and we now expect to end the year, having opened approximately 55 to 60 new accounts.

Collectively commercial trends year to date have demonstrated to us that treating centers, both established and new are eager to adopt does that for valve treatment and invest in their programs. This comes as patients and referring COPD physicians become increasingly familiar with our technology and its clinical benefit.

Lane Morgan: Also during this call, we will discuss certain non-gap financial measures where conciliations of these non-gap financial measures to the most directly comparable gap financial measures are provided in the press release, which is posted on our investor relations website. These non-gap measures are not intended to be a substitute for our gap results.

Due to our ongoing education and outreach focused in geographies with optimized zapper programs taken together, we believe that one there is still meaningful meaningfully more room to grow within existing centers and two we are still early in <unk>.

Lane Morgan: This conference call contains time-sensitive information and is accurate only as the live broadcast today, October 30th, 2023. Pomonas has claimed any intention or obligation, except as required by law, to update or revise any financial projections, afford the key statements whether because of new information, future events, or otherwise.

Trading broader patient demand.

As we look forward into 2024, we will invest in our commercial and educational capabilities to penetrate the market. We will continue to grow our base of highly trained and motivated new centers and strengthen existing centers by helping our champions explaining the value of.

Glendon French: And with that, I'll turn the call over to Gwen. Thanks, Elaine. Good afternoon, and welcome to our third quarter, 2023 earnings call.

Glendon French: Here with me is John McHughan, a recently appointed interim chief financial officer who's been a leader on our finance team as VP Corporate Controller since our IPO. We are very pleased with our recent performance as we achieved another quarter of record revenue. In the third quarter, we delivered $17.7 million in worldwide sales, representing 31% growth over the same period of the prior year and 29% on a constant currency basis. Grotesque was driven primarily by record U.S, performance as we achieved $11.8 million in sales representing 41% year-over-year growth.

Their programs.

The value that they bring to the hospital system and we will continue to share best practices on how to build advance zapper valve programs in targeted geographies with well developed programs, we will increase both patient outreach and education of COPD focused health care provider.

With proven strategies that we can replicate in scale taken together. These strategies will help developed a growing base of highly capable centers with increasing penetration of the substantial opportunity in these geographies. Meanwhile, we will continue to benefit from a growing body.

Glendon French: Outperformance in the U.S, was due to continued momentum and traction of our focus commercial strategy and also to slightly less seasonal impact and expected. Meanwhile, seasonal impacts internationally were more consistent with our expectations and historical trends.

Published clinical evidence. Most recently, we were pleased to see the publication of data from a single center retrospective analysis in Germany that published in the journal of respiratory Medicine results from this study suggested that patients who received endobronchial valve implantation experienced.

Glendon French: Given the strength of our business year to date, we are updating our full year 2023 revenue guidance to be in the range of $67 to $68 million up from our prior guidance of $64 to $66 million. At the midpoint, this implies anticipated year-over-year growth of over 25%. We attribute our confidence largely to the traction we are seeing with our focus commercial strategy. As we had planned this strategy designed to accelerate account productivity across our already meaningful footprint has resulted in one more existing treating centers with optimized Zepperville programs, two new treating centers launching with a greater ability to scale, and three increased awareness around the benefits of our treatment among COPD physicians and the many patients who stand to benefit from it.

A reduction in severe COPD exacerbations in the 12 months following implantation as compared to the 12 months prior to treatment. This is similar to the documented reductions and severe exacerbation delivered by lung volume reduction surgery.

Moving now to our international expansion plans. We are excited to have recently been approved for reimbursement for our Zephyr valve treatment in Japan, which allows pricing that is consistent with our global average.

This marks an essential step toward commercialization in Japan, starting next year with a post market approval study of approximately 140 patients at 10 to 15 sites, which will then be followed by broader commercial expansion.

Glendon French: In the third quarter, average U.S, account productivity was approximately 4.7 cases per center despite anticipated summer seasonality. We attribute this largely to improvement in the number of highly experienced and efficient accounts and the cases they performed offset by continued growth in our base of actively treating centers. As a reminder, we have measured account productivity based on the average number of cases conducted in a given quarter by our active established Zepperville treating hospitals, which are those that have been performing Zepperville procedures for at least four quarters and placed a revenue generating order in the current quarter.

Now turning to our clinical development pipeline, we remain on track with our <unk> program, which we expect will expand the addressable market for our Zephyr valve solution for severe emphysema patients with collateral ventilation and continue to expect final data of the convert one trial.

To be presented later next year. Meanwhile, we are preparing to launch our convert two trial, which will form the basis for our U S. <unk> PMA submission.

I'll now turn the call over to John to provide more detailed review of our third quarter results John.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended September 32023 reached a new quarterly high of $17 7 million or 31% increase from $13 $5 million in the same period of the prior year and 29% on a constant currency basis.

Glendon French: 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 into the fourth quarter and beyond. Meanwhile, U.S, account activity in the third quarter of 2023 was 73% representing 235 centers that placed a revenue generating order in the third quarter. We continue to expect account activity to remain in the low to mid 70s range as we grow our denominator of treating centers. Lastly, we continue to expand our base of U.S, centers. We added 15 new accounts in the U.S, in the third quarter bringing the total number of U.S, centers to 323.

U S revenue in the third quarter reached a new record of $11 8 million or 41% increase from $8 4 million during the prior year period.

The growth in U S sales reflected continued commercial momentum and adoption of our Zeppola Zephyr valve therapy, as well as less impact from seasonality compared to the prior year period.

International revenue in the third quarter of 2023 was $5 8, million% to 14% increase from $5 1 million during the same period last year and a 9% increase on a constant currency basis.

Glendon French: And we now expect to end the year having opened approximately 55 to 60 new accounts collectively commercial trends year to date have demonstrated to us that treating centers both established and new are eager to adopt Zepperville treatment and invest in their programs. This comes as patients and referring COPD physicians become increasingly familiar with our technology and its clinical benefits due to our ongoing education and outreach focused in geographies with optimized Zephyr programs.

The overall increase in international sales was driven by growth of Zephyr valve procedure volumes.

Gross margin for the third quarter of 2023 was 74% compared to 75% in the prior year period, reflecting higher inventory reserves in the quarter.

We expect gross margin for the remainder of 2023 to be approximately 74%.

Total operating expenses for the third quarter of 2023 were $28 2 million a.

A 17% increase from $24 $1 million in the third quarter of 2022.

Noncash stock based compensation expense was $6 million in the third quarter of 2023.

Excluding stock based compensation expense total operating expenses in the third quarter of 2023 increased 12% from the same period of the prior year.

Glendon French: Taken together, we believe that one, there is still meaningfully more room to grow within existing centers and two, we are still early in penetrating broader patient demand. As we look forward into 2024, we will invest in our commercial and educational capabilities to penetrate the market. We will continue to grow our base of highly trained and motivated new centers and strengthen existing centers by helping our champions explain the value of their programs and the value that they bring to the hospital system.

Looking ahead, we continue to expect operating expenses for the full year 2023 to fall between $112 million to $114 million inclusive of approximately $21 million.

Noncash stock based compensation expense as we take a disciplined and prudent approach to managing expenses, while contributing to invest to drive growth.

Glendon French: And we will continue to share best practices on how to build advanced Zephyr valve programs. In targeted geographies with well-developed programs, we will increase both patient outreach and education of COPD focused health care providers with proven strategies that we can replicate in scale. Taken together, these strategies will help develop a growing base of highly capable centers with increasing penetration of the substantial opportunity in these geographies. Meanwhile, we will continue to benefit from a growing body of published clinical evidence.

R&D expenses for the third quarter of 2023 were $4 $2 million.

Compared to $4 4 million in the same period of the prior year.

The decrease was primarily attributable to lower Aerocele program costs.

Sales general and administrative expenses for the third quarter of 2023 or $24 million <unk>.

Compared to $19 7 million in the third quarter of 2022.

The increase was attributable to continued investment in our commercial activities as well as an increase in legal and stock based compensation expenses.

Glendon French: Most recently, we were pleased to see the publication of data from a single center retrospective analysis in Germany that published in the Journal of Respiratory Medicine. Results from the study suggested that patients who received endopronchial valve implantation experienced a reduction in severe COPD exacerbations in the 12 months following implantation as compared to the 12 months prior to treatment. This is similar to the documented reductions in severe exacerbations delivered by lung volume reduction surgery.

Net loss for the third quarter of 2023 was $14 9 million or a loss of 39 per share as compared to a net loss of $14 2 million or a loss of 38 cents per share for the same period of the prior year.

And average weighted share count of $38 1 million shares was used to determine loss per share for the third quarter of 2023.

Adjusted EBITDA loss for the third quarter of 2023 was $9 million as compared to $9 7 million.

Glendon French: Moving now to our international expansion plans, we are excited to have recently been approved for reimbursement for our Zephyr valve treatment in Japan, which allows pricing that is consistent with our global average. This marks an essential step toward commercialization in Japan, starting next year with a post-market approval study of approximately 140 patients at 10 to 15 sites, which will then be followed by broader commercial expansion.

In the third quarter of 2022.

The year over year improvement demonstrates our ability to drive operating leverage.

We ended September 32023, with $139 8 million in cash cash equivalents and marketable securities a decrease of $7 $9 million from the June 32023 period.

We continue to feel very good about the strength of our balance sheet and our pathway to cash flow breakeven.

Glendon French: Now, turning to our clinical development pipeline, we remain on track with our ARISIL program, which we expect will expand the addressable market for our Zephyr valve solution for severe infosima patients with collateral ventilation and continue to expect final data of the convert-1 trial to be presented later next year. Meanwhile, we are preparing to launch our convert-2 trial, which will form the basis for our US ARISIL PMA submission.

Finally, turning to our revenue outlook for 2023.

Given our strong performance in the third quarter, we are updating our full year 2023 revenue guidance to be in the range of $67 million to $68 million.

Representing approximately 25% to 27% growth over 2022 and up from our prior guidance of $64 million to $66 million.

I'll now turn the call back to Glenn for his closing comments.

So in summary, I am very pleased with the way that we are executing our operational plans and with the resulting record third quarter results.

John McKune: I'll now turn the call over to John to provide more detailed review of our third quarter results. John? Thank you, Glenn, and good afternoon, everyone.

We are confident in our long term value proposition as we continue to drive increasingly predictable growth.

John McKune: Total worldwide revenue for the three months ended September 30, 2023, reached a new quarterly high of $17.7 million, a 31% increase from $13.5 million in the same period of the prior year, and 29% on a constant currency basis. U.S, revenue in the third quarter reached a new record of $11.8 million, a 41% increase from $8.4 million during the prior year period. The growth in U.S, sales reflected continued commercial momentum and adoption of our Zepproval therapy, as well as less impact from seasonality compared to the prior year period.

Further we are advancing key development projects and now entering Japan and in both ways are working to materially expand our already substantial addressable market.

Finally from a financial perspective, our revenue growth strong balance sheet and healthy gross margins together provide us a clear path to cash flow breakeven.

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

Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

John McKune: International revenue in the third quarter of 2023 was $5.8 million, a 14% increase from $5.1 million during the same period last year, and a 9% increase on a constant currency basis. The overall increase in international sales was driven by growth of Zepproval procedure volumes. Gross margin for the third quarter of 2023 was 74% compared to 75% in the prior year period, reflecting higher inventory reserves in the quarter. We expect gross margin for the remainder of 2023 to be approximately 74%.

Okay.

And our first question will come from Jason Bednar of Piper Sandler Your line is open.

Hey, good afternoon can you hear me okay.

Yes.

Great. Thanks, Congrats on the results in the quarter here Glenn.

Im.

I wanted to go back to maybe the set up for as we came into third quarter from your comments three months ago in early August.

John McKune: Total operating expenses for the third quarter of 2023 were $28.2 million, a 17% increase from $24.1 million in the third quarter of 2022. Non-cash stock-based compensation expense was $6 million in the third quarter of 2023, excluding stock-based compensation expense. Total operating expenses in the third quarter of 2023 increased 12% from the same period of the prior year. Looking ahead, we continue to expect operating expenses for the full year 2023 to fall between $112 to $114 million, inclusive of approximately $21 million of non-cash stock-based compensation expense, as we take a disciplined and prudent approach to managing expenses while contributing to invest to drive growth.

Talking about maybe some concerns around seasonality in the third quarter, but you clearly out executed your plan, which is really great to see.

So maybe could you help us understand where the quarter may have gone as you expected did you see the seasonality hit procedure volumes in maybe July and August and then was the upside in the quarter and the raised guidance here today was that simply to what you saw then play out in September and October.

Is that the right way to think about just how things unfolded for the quarter and you really got us to where we're at today.

Yes, thanks, Jason.

Yes, it was a very interesting quarter and I remember talking to everybody sort of in early August and.

July revealed a great deal of seasonality and I think we'd probably signaled that when we were having those conversations.

The good news is that August was not nearly as impacted us.

John McKune: R&D expenses for the third quarter of 2023 were $4.2 million compared to $4.4 million in the same period of the prior year. The decrease was primarily attributable to lower aerosil program costs. Sales general and administrative expenses for the third quarter of 2023 were $24 million compared to $19.7 million in the third quarter of 2022. The increase was attributable to continued investment in our commercial activities as well as an increase in legal and stock-based compensation expenses.

Yeah.

As it was last year in the United States.

And.

I think one of the things that fundamentally different as it relates to the U S situation this year versus last or at least.

It appears at this point is that.

A good bit of that which didn't happen in the third quarter of last year rolled into the fourth quarter. So you had these delayed yet people coming back from vacations and in many cases, they didn't get those procedures executed until into the fourth quarter. This year in the third quarter, particularly in the U S.

John McKune: Net loss for the third quarter of 2023 was $14.9 million or a loss of $0.39 per share as compared to a net loss of $14.2 million or a loss of $0.38 per share for the same period of the prior year. An average weighted share count of $0.38.1 million shares was used to determine loss per share for the third quarter of 2023. Adjusted EBITDA loss for the third quarter of 2023 was $9 million, as compared to $9.7 million in the third quarter of 2022. The year-over-year improvement demonstrates our ability to drive operating leverage.

Though we had.

A delay in procedures in the early part of the quarter. They got completed later in the quarter. So I think that's the dynamic that.

Explains the strength of this.

Period unto itself and also how it contrast to what we saw last year.

Okay, and maybe if I could just come back then on maybe a real time comment I mean, how can you talk about maybe the exit rate in September or.

What we're making maybe what we're seeing here in early October and how that is contributing to the.

The implied guidance here for the fourth quarter.

John McKune: We ended September 30, 2023 with $139.8 million in cash, cash equivalent and marketable securities, a decrease of $7.9 million from the June 30, 2023 period. We continue to feel very good about the strength of our balance sheet and our pathway to cash delivery even.

Well the what specifically are you I mean I.

Will.

Give you as much detail as we traditionally provide in terms of inter quarter results, but when you. When you are talking about the implied guidance can you be more specific.

I guess I'm wondering to what extent the momentum you had coming out of September.

John McKune: Finally, turning to our revenue outlook for 2023. Given our strong performance in the third quarter, we are updating our full-year 2023 revenue guidance to be in the range of $67 to $68 million, representing approximately 25 to 27 percent growth over 2022 and up from our prior guidance of $64 to $66 million.

That influenced what Youre expecting now for the fourth quarter because this wasn't just a typical.

Beat flow through the raise to the full year guide and this was a beat and then raised by even more than the beat so yes I.

I don't want to speak for the rest of the street, but I'm guessing that for Q numbers youre going to be moving higher today based on your updated guidance. So I'm trying to get a sense of how strong was that exit rate coming out of September.

Glendon French: I'll now turn the call back to Glenn for his closing comments. So, in summary, I am very pleased with the way that we are executing our operational plans and with the resulting record third quarter results. We are confident in our long-term value proposition as we continue to drive increasingly predictable growth. Further, we are advancing key development projects and now entering Japan and in both ways are working to materially expand our already substantial addressable market. Finally, from my financial perspective, our revenue growth, strong balance sheet and healthy gross margins together provide us a clear path to cash flowbreak even.

You are seeing in your business.

Yes no.

Our increase was greater than our beat for this quarter, but I think youll recall, we had some catching up to do so.

There are a number of questions in the past about may.

Making adjustments we made them now so.

In any case I think as we look ahead we are.

We are encouraged by the performance in the third quarter, we were sobered, a little bit by the idea that we didn't get any carryover into the fourth quarter and the way that we did last year.

And we have a limited number of.

Operator: With that, I'd like to thank you all for your attention and we will now open the call for questions. Operator? Certainly. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by where we compile the Q&A roster.

There is a significant impact on the number of shipping days in the fourth quarter as well so.

We feel good about the fourth quarter, we've always talked about that being a stronger relative.

Relative quarter, but I think this third quarter performance is pushing up against that.

And I think that's reflected in the overall guidance and what that implies as it relates to what we expect to do in the fourth quarter.

Alright, perfect and then one other maybe commercial focused one from us.

Jason Bednar: And our first question will come from Jason Bednar of Piper Samler. Your line is open. Hey, good afternoon. Can you hear me okay? Yes. Great. Thanks. Congrats on the results in the quarter here, Glenn. I want to go back to maybe this setup for as we came into third quarter, screen or comment three months ago in early August. You talked about maybe some concerns around seasonality in the third quarter, but you clearly out executed your plan, which is really great to see.

But it will be a two partner so apologies in advance.

You've got these new center additions in the U S. You've been running well ahead of your expectations from where you started the year, which again is also really good to see.

So first are you able to support this better new account activity because the core productivity improvements have been as strong as they have been like we were just talking about the last question.

And then second part given the commercial improvements you've made this year and the account activation adjustments that you've made.

Can you talk about maybe some context around the accounts that you've on boarded this year, how they've scaled relative to the accounts that you on boarded in 2021 or 2022. Just can you is there are you having more success in scaling. These accounts because you have this new commercial program in place.

Jason Bednar: So maybe could you help us understand where the quarter may have gone as you expected? Did you see the seasonality hit procedure volumes in maybe July and August? And then was the upside in the quarter and the raised guidance here today? Was that simply to what you saw then play out in September and October? Is that the right way to think about just how things unfolded for the quarter? And you really got us to where we're at today?

Yes.

Yes.

So with regard to the.

So first of all the new additions are are interesting thats always its always great to bring these new centers on I mean, we're adding about one per territory per year. So we've got we've got 55 reps will be 55 to 60, new accounts. This year with regard to our metrics. The addition of new <unk>.

Glendon French: Yeah, thanks, Jason. Yeah, it was a very interesting quarter and I remember talking to everybody sort of in early August and July revealed a great deal of seasonality and I think we probably signaled that when we were having those conversations. The good news is that August was not nearly as as impacted as as it was last year in the United States and I think one of the things that's fundamentally different as it relates to the US situation this year versus last or at least what it appears at this point is that a good bit of that which didn't happen in the third quarter of last year rolled into the fourth quarter so you had these delayed yet people coming back from vacations and in many cases they didn't get those procedures executed until into the fourth quarter this year in the third quarter particularly in the US though we had a delay in procedures in the early part of the quarter they got completed later in the quarter so I think that's a dynamic that explains the strength of this period unto itself and also how it contrasts to what we saw last year.

More greater than expected new accounts sort of dilutes the denominator in that regard.

With regard to our ability to absorb it I think was what your question or comment was.

This is kind of normal course activity and we're not realizing any challenges with regard to our ability to absorb those accounts, although I will say that as those accounts mature and they get to the one year Mark and they get included into our calculations.

Our dilutive so an account.

Though an account is much stronger at a year then than it is at say three months.

They still continue to expand and so as the greater than anticipated number of new accounts role in each quarter and to our denominator. It is dilutive to the overall number.

Now you asked about.

The context of accounts.

Today versus say, two or three years ago, and how productive those accounts are we have.

And I think we've talked about this before materially increased the number and height of the hurdles that accounts need to clear in order to become accounts today, we've learned a lot over the last few years and so I would say that these accounts that come on board.

Glendon French: Okay and maybe if I could just come back then on maybe a real time coming to me how can you talk about maybe the exit rate in September or maybe what we're seeing here in early October and how that is contributing to the implied guidance here for the fourth quarter. Well the what specifically are you at I mean I will give you as much detail as we traditionally provide in terms of inter-quarter results but when you when you're talking about the implied guidance can you be more specific?

Are much better prepared I mean, an example of it is the.

The number of steps that are treating.

Physician needs to go through in order to even get to training.

They need to identify at least three patients in advance of training they come to training they discuss those patients. They go back and they they treat the patients and then they have a 45.

They review with an expert.

Glendon French: I guess I'm wondering to what extent the momentum you had coming out of September how that influenced what you're expecting now for the fourth quarter because this wasn't just a typical you know beat and flow through the raise to the full year guide this was a beat and then raised by more than the beat so I don't want to speak for the rest of the street but I'm guessing that 4Q numbers are going to be moving higher today you know based on your updated guidance so I'm trying to get a sense of you know how strong was that exit rate coming out of September that you were seeing in your business? Yeah now our our increase was greater than our beat for this quarter but I think you'll recall we had some catching up to do so there were a number of questions in the past about making adjustments we made them now so in any case I think as we look ahead we are we are encouraged by the performance in the third quarter we were sobered a little bit by the idea that we didn't get any carry over into the fourth quarter in the way that we did last year and we have a limited number of you know if there's a significant impact on the number of shipping days in the fourth quarter as well so you know we feel good about the fourth quarter we've always talked about that being a stronger relative quarter but I think this third quarter performance is pushing up against that and and I think that's reflected in the overall guidance and what that implies as it relates to what we expect to do in the fourth quarter.

I'd say that one of the fundamental differences in terms of folks that are coming out of training today is that there are much better.

Much further along in terms of their understanding of things now going back to like does that translate directly into these accounts being way further along I think it's super important to remember that there is a six step sort of process and we take folks from step one through step sixes, where theyre developing and they are clearing through gates.

Along the way that's a process that takes time irrespective of how well trained the doctors are who enter into it.

So I would simply say that.

I wouldn't anticipate material acceleration with regard to getting an account up to speed, but we have a whole array of examples of accounts that are very material contributors after only three months and others that take longer to come up to speed. So there's a bit of a spectrum.

Okay I appreciate all the color, thanks, and congrats again on the quarter.

Thanks.

One moment for our next question.

And our next question will be coming from Rick Wise of Stifel. Your line is open Rick.

Good afternoon Glenn.

<unk>.

I want to make sure.

Understanding a couple of things if you could just expand a little bit.

Sure.

The account productivity.

And implementation of best practice.

Thank you.

Glendon French: All right, perfect. One other, maybe commercial focused one from us. Yeah, but it will be a two part or so apologies from in advance. You've got these new center additions in the U.S. You've been running well out of your expectations from where you started the year which again is also really good to see. So first are you able to support this better new account activity because the core productivity improvements have been as strong as they have been like we're just talking about last question.

When you start your remarks, you talked about the number of accounts.

You had a lot of momentum and accounts and I think your words were with optimized zephyr programs.

And.

Glenn I'm going to ask the question you rephrase it.

You feel like Im not coming out in a clear way, but I say to myself. You came you ended last year with 278.

Total active accounts.

Glendon French: And then second part, you know, given the commercial improvements, you've made this year and the account activation adjustments that you've made. You know, can you talk about maybe some context around the accounts that you've onboarded this year, how they've scaled relative to the accounts that you on boarded in 2021 or 2022. Just you know, is there are you having more success in scaling these accounts because you have this new commercial program in place.

And looking at it correctly.

Today what.

<unk>.

Those accounts have optimized.

Zephyr programs you follow me and the reason I'm asking the question is to get at are 25% of those 278.

<unk> optimized programs and gosh, we've got a lot of room in a good way to keep driving greater productivity, that's what I'm trying to get at.

Yeah.

So first of all an active account is one that's ordered in the last quarter and the active number is in the low <unk> as we talked about $73, 74%. So in any given quarter or 73 or 74% of our accounts are ordering.

Glendon French: Thank you. Yeah. So with regard to the. So first of all, the new additions are are interesting. It's always it's always great to bring these new centers on. I mean, we're adding about one per territory per year. So we've got just don't you know, we have 55 reps will be 55 to 60 new accounts this year. With regard to our metrics, the addition of new of more greater than expected new accounts sort of dilutes the denominator in that regard.

If you were to say in any six month period, it would be about 85%, but in any case.

The you said a year ago, we were at $2 78, I'll take your word for that I don't know it off the top of my head where at 330 or something now.

Glendon French: But with regard to our ability to absorb it, I think was what your question or comment was. This is kind of normal course activity and we're not realizing any challenges with regard to our ability to absorb those accounts. Although I will say that as those accounts mature and they beat and they get to the one year mark and they get included into our calculations, they are dilutive so an account though an account is much stronger at a year than it then it is at say three months.

But the.

Those are not all active accounts. That's the total number of accounts. So there is a subset of that about 70% to 75% of those would be active accounts, so let's say out of.

200.

Active accounts.

Probably about 25% to 30% of those are what I would consider to be truly.

Optimized and the reference to optimization in my earlier comments was really the the geographies in which when we were when we were when I was commenting on sort of our plans for 2024. It was in those geographies, where we would be making.

Glendon French: It's they still continue to expand and so as the greater than anticipated number of new accounts roll in each quarter into our denominator, it is dilutive to the overall number. Now you would you asked about the context of accounts today versus say two or three years ago and how productive those accounts are. We have and I think we talked about this before materially increased the number and height of the hurdles that accounts need to clear in order to become accounts today, we've learned a lot over the last few years.

Glendon French: And so I would say that these accounts that come on board are much better prepared. I mean, an example of it is the number of steps that a treating physician needs to go through in order to even get to training. They need to identify at least three patients in advance of training, they come to training, they discuss those patients, they go back and they they treat the patients and then they have a 45 day review with an expert.

Broader investments in trying to get the word out to the COPD physicians and the patients themselves.

So we've been talking about on the need to have the accounts ready one.

Then the referring physicians or the COPD physicians and then activating the patients.

Gotcha.

I know, it's early it's hard to resist asking you about 2020 for especially given the momentum.

We saw in the third quarter.

And especially when I hear you talk so clearly and positively about.

More accounts account productivity.

The patient and physician outreach and education and training.

I mean.

I'm not so much looking for exact numerical guidance feel free if you want to.

Glendon French: So I would say that one of the fundamental differences in terms of folks that are coming out of training today is that they're much better, they're much further along in terms of their understanding of things. Now going back to like does that translate directly into these accounts being way further along, I think it's super important to remember that there's a six step sort of process and we take folks from step one through step six is what they're developing and they're clearing through gates along the way.

But but more.

We just assumed that given all of this.

The outlook the possibility the likelihood of continuing.

Kind of a 20% or better growth range is a reasonable expectation based on everything we're hearing Tonight.

Well, we feel really good about where our foundation is.

We we do have a number of things lined up.

Glendon French: That's a process that takes time irrespective of how well trained the doctors are who enter into it. So I would simply say that, you know, I wouldn't anticipate material acceleration with regard to, you know, getting an account up to speed but we have a whole array of examples of accounts that are very material contributors after only three months and others that take longer to come up to speed. There's a bit of a spectrum.

And and we feel good about that but we're going to be providing you with specific guidance for 2024.

Few months here and so.

So we're not we're not providing 2024 guidance I know that.

A question was recently asked in one of these public.

Forums about how we felt about next year and where People's heads were and we continue to feel like you all are in the right place but.

Jason Bednar: Okay, appreciate all the color. Thanks, and congrats again on the quarter. Thanks.

So I'm not I'm not trying I wouldn't I wouldn't want to talk that down, but I also am not in a position to be talking it up.

Operator: One moment for our next question.

We've got we got some more information I think the fourth quarter is going to be an important data set and we'll spend a lot of time between now and when we when that all comes together.

Frederick Wise: And our next question will be coming from Rick Wise, Heavstiefel. Your line is open, Rick. Good afternoon, Glenn. I want to make sure I'm understanding a couple of things if you could just expand on a little bit. The account productivity and implementation of best practice, when you started your remarks, you talked about the number of accounts. You had a lot of momentum and accounts, and I think your words were with optimized zebra programs.

<unk> far greater clarity on how we see 2024.

That's great. Thank you and it's great to see the excellent quarter. Thank you.

Yeah.

And one moment for our next question.

Okay.

And our next question will be coming from Larry <unk> of Wells Fargo. Your line is open Larry.

Hi, This is Charles on for Larry.

Frederick Wise: And Glenn, I'm going to ask the question. You rephrase it if you feel like I'm not coming out in a clear way. But I say to myself, you ended last year with 278 total active accounts if I am looking at it correctly. Today, what percent of those accounts have optimized zebra programs? You follow me. And the reason I'm asking the question is to get at our 25% of those 278 have optimized programs. And gosh, we got a lot of room in a good way to keep driving greater productivity. That's what I'm trying to get at.

Congrats on a nice quarter a couple of questions here first just on <unk>. It sounds like that that's on track here fully enrolled can convert one because I think the final data next year.

I guess from there.

Convert to in your PMA submission, but how soon after convert.

But one completion do you think we can expect O U S sales.

So.

Convert one is it we're just following up so it's fully enrolled.

We're following up we've got all I think one year follow up that we're going to put into our or I can't remember it might be six months in any case.

We're planning on presenting those data at the European respiratory Society meeting.

Glendon French: Yeah, so first of all, an active account is one that's ordered in the last quarter and the active number is in the low 70s as we talked about 73, 74%. So in any given quarter, 73 or 74% of our accounts are ordering. If you were to say in any six month period of the about 85%. But in any case, the you said a year ago, we were at 278. I'll take your word for that.

I think what you are.

Alluding to is that we have a CE mark in place already for sale.

We have spoken about.

Limited and then expanding over time <unk>.

Commercialization of <unk> and CE Mark regulated countries of course convert two is on the critical path to getting <unk> available in the United States. So that's a separate matter.

Glendon French: I don't know it off the top of my head. We're at 330 or something now. But the those are not all active accounts. That's a total number of accounts. So there's a subset of that about 70 to 75% of those would be active accounts. So let's say out of 200 active accounts, probably about 25 to 30% of those are what I would consider to be truly optimized. And the reference to optimization in my earlier comments was really the the geographies in which when we were when we were when I was commenting on sort of our plans for 2024, it was in those geographies where we would be making broader investments and trying to get the word out to the COPD physicians and the patients themselves. So we've been talking about on the need to have the accounts ready first, then the referring physicians or the COPD physicians and then activating the patients.

Frederick Wise: Gotcha.

So we're going to go ahead and present those data we will get those published.

And then.

Selectively sort of a limited launch if you will and various different locations and that the pacing of that will likely be informed by the rate of enrollment in European centers and convert to because we don't want to create.

<unk>.

We don't want to inhibit the ability to get that study enrolled quickly because we're commercializing in the hospital next door to a clinical trial.

So in any case, so I don't have perfect information on that once we get convert two underway and begin to scale will have much greater resolution on.

Exactly when and how we will be commercializing, but we will commercialize in CE Mark countries.

Head of the commercialization of <unk> in the U S.

Okay. Thank you and then just just one follow up.

Recently.

So you are searching for a new CFO is there any update you could share on that or when when the company might hope to have that search complete by.

Frederick Wise: I know it's early it's hard to resist asking about 2024, especially given the momentum we saw in the third quarter. And especially when I hear you talk so clearly and positively about more accounts account productivity, the the patient and physician outreach and education and training. I mean, I mean, you I'm not so much looking for exact numerical guidance feel free if you want to, but but more should we just assume that given all this, the outlook, the possibility, the likelihood of continuing in a kind of a 20% or better growth range is a reasonable expectation based on everything we're hearing tonight.

You are correct, we are in the process of trying to.

That matter out.

We are in the process, we have undertaken that process.

We're going to find we're going to find the right person and I do not have specific resolution on the timing.

I will tell you that.

Derek has had two extraordinarily strong lieutenants and one of them has stepped into the interim CFO role.

John This is Ben.

With us since the IPO and it has been.

Controller, and essentially Chief accounting officer for <unk>.

One or two other companies before that publicly traded so.

Frederick Wise: Well, we feel really good about where our foundation is. We do have a number of things lined up. And we're so good about that. But we're going to be providing with specific guidance for 2024 and, you know, a few months here. And so we're not, we're not providing 2024 guidance. I know that a question was recently asked in one of these public forums about, you know, how we felt about next year and where people's heads were.

We're in good shape, but nonetheless, we are moving quickly and we will.

What we will not compromise so I don't I don't know I don't know exactly what the timing will be.

Got it thank you and again congrats on the nice quarter.

<unk>.

And one moment for our next question.

Our next question is going to come from Joanne Wuensch.

Of Citi. Your line is open.

Thank you so much and let me also say very nice quarter.

Frederick Wise: And we continue to feel like, you know, you all are in the right place. But so I'm not going to try. I wouldn't want to talk that down, but I also am not in a position to be talking it up. We've got, we've got some more information. I think the fourth quarter is going to be an important data set. And we'll spend a lot of time between now. And when we, when that all comes together to provide far greater clarity on how we see 2024.

I wanted to talk about Japan, and with reimbursement now in place and its starting to contribute to revenues next year, how should we think about the launch and the expenses that are needed for that launch.

Okay, I'm going to probably I might pull John into into part of that.

Answer, but from yes, so we.

Frederick Wise: That's great. Thank you. And it's great to see the excellent quarter. Thank you.

We got reimbursement so that's awesome, we couldnt be happier if it is a monumental task to go through that process or the entire review and approval and then reimbursement process. So.

Operator: In one moment for our next question.

As predicted by the end of this year, we said we would have it we have it now which is great and what that does is it allows us to commence a.

Larry Beagelson: And our next question will be coming from Larry Beagelson of Wells Fargo. Your line's open Larry. Hi, this is Charles.

A post approval trial in every other country.

Larry Beagelson: I'm from Larry. First congrats on the nice quarter. A couple questions here. First, just on a reseal. It sounds like that's that's on track here. Holy roll can convert one presenting a final data next year. I guess from there. I mean, that can work too in your PMA submission. But how soon after convert one completion? Do you think we can expect OUS sales? So convert one is, we're just following up. So it's fully enrolled.

That I have been at work and you do that in parallel with initial commercialization in Japan, you do it.

On the path to commercialization so literally the first 140 patients treated will be entered into a protocol they will be revenue generating.

And there'll be expenses that go along with them, but the revenue generating and the nice thing is that.

We expect our.

Our revenue per patient to be in the range of our global sort of revenue per patient number. So we talk about very very roughly $10000 per patient. So a 140 patients about $1 $4 million of revenue as expected.

Larry Beagelson: We're following up. We've got, oh, I think one year follow up that we're going to put into our, or can't remember, it might be six months. In any case, we're planning on presenting those data at the European respiratory society meeting. I think what you're alluding to is that we have a CE mark in place already for a reseal. And we have spoken about limited and then expanding overtime commercialization of a reseal and CE mark regulated countries.

That can throw off a little cash to help pay for this commercialization.

And.

John I don't I don't I don't know, if we break out our spending on Japan, but my guess is that the.

The total cost incremental cost of of <unk>.

Commencing in Japan, we've already.

We've already got the team in place we've got.

Larry Beagelson: Of course, convert two is on the critical path to getting a reseal available in the United States. So that's a separate matter. So we're going to go ahead and present those data. We'll get those published and then selectively sort of a limited launch, if you will, in various different locations. And the pacing of that will likely be informed by the rate of enrollment in European centers and convert two is we don't want to create, you know, we don't want to inhibit the ability to get that study enrolled quickly because we're commercializing in the hospital next door to a clinical trial center.

Number of sales reps marketing folks general manager already in place. So I don't know what we have incremental.

Yeah, Glenn Youre thinking about that the right way.

We.

I'll reiterate that the patients we're treating in Japan are going to be revenue generating patient.

And that.

The team there.

Have there is largely in place.

Any you know their expense and any incremental expense will be factored into our 2024 guidance when we share that with you.

Next quarter.

And one moment for our next question.

Larry Beagelson: So in any case, I don't have perfect information on that once we get convert to underway and begin to scale, we'll have much greater resolution on exactly when and how we will be commercializing, but we will commercialize and see mark countries ahead of the commercialization of a reseal in the US. Okay. Thank you. And then just one follow-up recently. So you're searching for a new CFO. Is there an update you could share on that or when the company might hope to have that search complete by?

Our next question will be from John Young of Canaccord. Your line is open John.

Hi, Brian and John Thanks for taking my question and congrats on the quarter, maybe just to follow up on Joanne question on Japan.

Long do you anticipate it will take to enroll those for our German 40 patients in the post approval study and do you have to wait for any follow ups in the study with document, saying band full commercialization in Japan.

So with regard to waiting now.

My understanding is as soon as we enrolled 140th we can we just.

So don't want to see the data, but we won't be held up for three six or 12 months before.

Larry Beagelson: You are correct. We are in the process of trying to sort that matter out. We are in the process. We have undertaken that process. We're going to find the right person, and I do not have specific resolution on the timing. I will tell you that Derek had two extraordinarily strong lieutenants, and one of them is stepped into the interim CFO role. John has been with us since the IPO, and it's been the controller and essentially chief accounting officer for one or two other companies before that publicly traded.

We can go to a broader launch.

With regard to timing as you probably know.

Clinical trials are tend to be backend loaded they take some time to get off the ground.

And then I think probably half the patients come in in the last.

Quarter of the time that it takes to execute the trial. The good news for US is that we have since we had approval we were able to go out and engage with all of the sites that we need to engage with.

And I think I think most if not all of the treating physicians have gone through a treating.

Training program I believe we we sent global thought leaders and on at least two occasions into Japan to provide.

Larry Beagelson: So we're in good shape, but nonetheless, we are moving quickly, but we will not compromise. So I don't know exactly what the timing will be. Got it. Thank you, and you can grab some a nice quarter. Thank you. And one moment for our next question.

Extensive training to those positions. So we're lining things up we had debt.

This.

We had to get Finalization of the protocol before it could be presented to ethics committees and so forth. So we haven't gotten all all of the logistics and so forth out of the way, but we will be pushing forward I would guess.

Joanne Wuensch: Our next question is going to come from Joanne Wunch. A city or line is open.

Best case, a year, probably could bleed into our second year as well and I think in the coming quarters, we will have significantly greater resolution for that because as I said these things tend to be backend loaded. So there's going to be a point in time, where we're going to have a high degree of precision on when we see that.

Joanne Wuensch: Thank you so much, and let me also say a very nice quarter. I want to talk about Japan and with reimbursement now in place and it's starting to contribute to revenues next year. How should we think about the Wunch and the expenses that are needed for that Wunch? Okay, I might pull John into part of that answer, but from, yeah, so we got reimbursement, so that's awesome. We couldn't be happier. It is a monumental task to go through that process, so the entire review and approval and then reimbursement process.

That closing out.

Thanks, Scott and then maintenance come back from the other questions on the optimize account base.

Do you see certain types of centers, maybe I guess strong academic center of certain geographies that are embracing the technology more in establishing those patient pathways and I know you talked about clinical coordinators and is it just a function of time or is it getting the interventional pulmonologists or COPD physicians are really champion there. Thanks again.

Joanne Wuensch: So as predicted by the end of this year, we said we would have it. We have it now, which is great. And what that does is it allows us to commence a post-approval trial in every other country that I have been at work in. You do that in parallel with initial commercialization in Japan. You do it on the path to commercialization. So literally the first 140 patients treated will be entered into a protocol.

Yeah.

I think that the.

The singular.

We feel really good about the process that were running folks through.

So you can you can kind of push folks along guide them through the process as we've talked about before these sensors represent 8% to 10% of the centers in the United States and thus by definition, they are sort of committed to being in the lung space.

It's not hard to get people to stay they want to be they want to embrace best practices and so long as as theyre interested in doing that it does pivot a lot off of people and process. So making sure that we're investing in the right people at the right centers, who are embracing what we see.

Joanne Wuensch: They will be revenue generating, and there'll be expenses that go along with them, but revenue generating is a nice thing. We expect our revenue per patient to be in the range of our global sort of revenue per patient number. So we talk about very, very roughly $10,000 per patient, so 140 patients about $1.4 million of revenue is expected, but can throw off the little cash to help pay for this commercialization. John, I don't know if we break out our spending on Japan, but my guess is that the total cost, incremental cost of commencing in Japan, we've already got the team in place, we've got some number of sales reps, marketing folks, general manager already in place, so I don't know what we have incremental.

See as best practices are all <unk>.

Super important but.

I mean, we there is no specific P&L University hospital in city of greater than 3 million patients or anything like that we have.

Really productive centers that would probably fall into six different buckets places.

Fairly.

The only game in town within three or four hours drive in certain parts of the southeast and so forth that are incredibly productive referral centers, where.

Yes, you just have a ton of patients that are in need of this that are seeking out that kind of care.

Joanne Wuensch: Yeah, Glendon, you're thinking about that the right way. We will reiterate that the patients we're treating in Japan are going to be revenue generating patients, and that the team that we have there is largely in place.

We have university hospitals in major cities that are also there.

Sherri care referral centers globally, well known.

Treatment treating physicians and so forth and so there is an entire spectrum and we've I think we've talked about some of these these folks and some of the more constructive.

John McKune: Any, you know, their expense and any incremental expense will be factored into our 2024 guidance when we share that with you in next quarter. In one moment for our next question.

Centers are outside of major cities, where.

Just don't want to drive down into the Big City, and so $30 40 miles outside of a big city. There is there's often a center that that people will stop in and get their procedure done as opposed to driving further and into a fairly intimidating place.

John Young: Our next question will be from John Young of Canacord, your line is open, John. Hi, John. Thank you to your question. I have a question that you can grab on the quarter. Maybe to follow up on Joanne's question on Japan. How long do you anticipate it will take and roll those for 140 patients in the post-approval study. And do you have to wait for any follow-ups in the study before commencing the end full commercialization in Japan?

Which is which is most major cities for people who aren't familiar with them.

Got it thank you.

Again, if you'd like to ask a question. Please press star one on your Touchtone telephone.

Our next question.

Okay.

John Young: So, with regard to waiting, no. My understanding is as soon as we enroll that 140th, we can, we just, you know, so they'll want to see the data, but we won't be held up for three, six, or 12 months before we can go to a broader launch. With regard to timing, as you probably know, you know, clinical trials are tend to be back and loaded. They take some time to get off the ground.

Our next question will be coming from Alex Nowak of Craig Hallum. Your line is open.

Hey, good afternoon, everyone.

Maybe expand on the sales dynamic in Europe, just what is needed to really unlock more of the potential of the region. Because you already have pretty good data over there is it reimbursement is it just for studies or is it really just an allocation of sales resources.

John Young: And then they, I think, probably half the patients come in in the last quarter of the time that it takes to execute the trial. The good news for us is that we have, since we had approval, we were able to go out and engage with all the sites that we need to engage with. I think most, if not all of the treating physicians have gone through a treating training program. I believe we sent global thought leaders in on at least two occasions into Japan that provide extensive training to those physicians.

Okay. So youre so that.

I think the biggest explanation of the relative performance in the third quarter.

Between international and the U S is.

The impact of seasonality.

Our Europe, our international sales are mostly the 80 plus percent are in Europe.

And there was a fairly typical third quarter across Europe. So I would expect the fourth quarter to be stronger.

And I think this was fairly predictable.

John Young: So we're lining things up. We had to, you know, this, we had to get finalization of the protocol before it could be presented to ethics committees and so forth. So we haven't gotten all of the logistics and so forth out of the way. But we'll be pushing forward.

There is we've got we're.

We're direct in 90%, 97% of our revenue on a global basis is.

Correct.

Sure.

<unk> have the reach and we have the we have considerable not only sales, but also marketing regional marketing resources. So I think we're good from that perspective in terms of data.

John Young: I would guess best case a year, probably, could bleed into a second year as well. And I think in the coming quarters will have significantly greater resolution for the, because these, as I said, these things tend to be back and loaded. So there's going to be a point in time where we're going to have a high degree of precision on when we see that, do that closing out.

<unk>.

We've got four randomized controlled trials, all published where in the global guidelines. So it's not so much that I think getting the word out.

In Europe.

In other countries is a bit more challenging than it is in the United States, largely because of either custom and or loss.

John Young: Thanks, Glenn. And then maybe let's go back to some of the other questions on the optimized account phase. Do you see certain types of centers, maybe like a strong academic center or certain geographies that are embracing the technology more and establishing those patient pathways. And I know you talk about clinical coordinators. Is it just a function of time or is it getting, you know, the interventional pulmonologist or COPD physicians to really champion them?

And what is acceptable and not acceptable as it relates to direct to patient directed.

Referring physician even even.

The economic incentives for the treating physician are different.

We are as it relates to executing outside the United States as we are embracing the things now that have been demonstrated to work in the United States and to the extent that we can we can leverage them outside the United States. We are focused on doing so and I think probably our greatest success story.

John Young: Thanks again. Yeah. I think that the singular, we feel really good about the process that we're running folks through. So you can kind of push folks along, guide them through the process. As we talked about before, these sensors represent 8 to 10% of the centers in the United States. And thus, by definition, they're sort of committed to being in the long space. It's not hard to get people to say they want to be, they want to embrace best practices.

As it relates to that is.

Is the U K and it's easy to argue that in some ways. The U K the execution in the U K and formed our strategies in the United States. So they're very much moving in the same direction executing.

All of those things that they can embrace and then the other larger countries.

John Young: And so long as they're interested in doing that, it does pivot a lot off of people and process. So making sure that we're investing in the right people at the right centers who are embracing what we see as best practices are all super important. But I mean, there is no specific university hospital in a city of greater than 3 million patients or anything like that. We have really productive centers that would probably fall into six different buckets.

We're we're we're sort of following the lead of the United States in terms of embracing some of these new approaches to the extent that there there are allowable.

Okay.

Helpful. And then clarification on the convert studies other than the geographies and the size are there any major differences in the protocols between the two studies or can you really compare convert wanted to get a proxy for what convert two should look like.

With regard to I think the essence of your question into the latter part of that question is do we think that convert one and the results from convert one will give us will be a.

John Young: It's, you know, places, you know, fairly kind of the only game in town within three or four hours drives in certain parts of the southeast and so forth that are incredibly productive referral centers where it's, you know, you just have a ton of patients that are in need of this that are seeking out that kind of care. We have university hospitals and major cities that are also sort of tertiary care referral centers globally well-known treatment, treating physicians and so forth.

Significant risk reducer as it relates to the variability that may or may not happen and convert to and I think the answer is that we we expect that the patients that we treat and convert to will behave similarly to those that we treat and convert one.

And we provided.

A window into some data that were.

Disclosed at last year's European Respiratory Society meeting where.

John Young: And there's an entire spectrum. And we, I think we talked about some of these folks, some of the more constructive centers are outside of major cities where, you know, folks just don't want to drive down into the big city. And so 30, 40 miles outside of a big city. There's there's often a center that that people will stop in and get their procedure done as opposed to driving further and into a fairly intimidating place, which is, which is most major cities for people who aren't familiar with them.

Glendon French: Got it. Thank you.

The data indicated that nearly 80% of the time, we tried to take a patient that was CV positive and make them CV negative. We were successful. So that was great I would expect to convert one data will will remain in that neighborhood.

<unk>.

And I would expect to convert two numbers to be in that general neighborhood experts told us that it needed to be greater than 30% to 50%. So being up around 75 to 80 is a really good place to be so we would expect that that neighborhood will stay in and then the question is.

That we also was also talked about.

Operator: Again, if you'd like to ask a question, please press star 1-1 on your touch tone telephone and one moment for our next question.

Last year was weather when you put valves and those patients do they behave similarly to those that we treated across the four randomized controlled trials and Directionally for sure. The answer is yes. So that's all good and encouraging so I would expect the data that we see from convert one to give us a good bit of confidence is.

Alex Novak: Our next question will be coming from Alex Novak of Craig Halem. Your line is open. Hey, good afternoon, everyone.

Alex Novak: Maybe expand on the sale dynamic in Europe. Just what is needed to really unlock more of the potential in the region because you already have pretty good data over there. Is it reimbursement? Is it just more studies? Is it really just an allocation of sale resources?

What we might see and convert to it's not an identical study.

But it should it should answer that question and the way I think you are asking it.

Yeah, absolutely alright, I appreciate the update thank you.

Thank you.

And Im showing no further questions I would now like to turn the conference back to Glenn for closing remarks.

Glendon French: Okay, so the you're so that I think the biggest explanation of the relative performance in the third quarter between international and the US is the impact of seasonality. Our international sales are mostly 80 plus percent are in Europe. And there was a fairly typical third quarter across Europe. So I would expect the fourth quarter to be stronger. And I think this was fairly predictable. There is, we've got, we're direct in 90, 97% of our revenue on a global basis is direct.

Great well. Thank you all very much for your time, we are we couldnt be more pleased with the way the quarter went in the way that the.

Plan seems to resonate not only for us but for our customers. So I'd like to thank you all again for your time and attention and wish you a good evening.

Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Yeah.

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Glendon French: So we're, you know, we have the, and we have the, you know, we have considerable not only sales, but also marketing, regional marketing resources. So I think we're good from that perspective in terms of data. We've got four randomized controlled trials all published. We're in the global guideline, so it's not so much that. I think getting the word out in Europe and other countries is a bit more challenging that it is in the United States largely because of either custom and or law.

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Glendon French: And what is acceptable and not acceptable as it relates to direct to patient, direct to referring physician even even. The economic incentives for the treating physician are different. Where we are, is it relates to executing outside the United States as we are embracing the things now that have been demonstrated to work in the United States and to the extent that we can leverage them outside the United States. We are focused on doing so.

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Glendon French: And I think probably our greatest success story. Oh, US is a relate to that is, is the UK and it's easy to argue that in some ways the UK, the execution in the UK informed our strategies in the United States. So they're very much moving in the same direction, executing all of those things that they can embrace. And in the other larger countries. We're sort of following the lead of the United States in terms of embracing some of these new approaches to the extent that they're, they're allowable.

Alex Novak: Okay, that is helpful.

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Glendon French: And then clarification on the convert studies, others on the geographies and the size, are there any major differences in the protocols between the two studies, or can you really compare convert one to get a proxy for what convert you should look like. With regard to the, I think the essence of your question is the latter part of that question is, do we think that convert one and the results from convert one will give us, will be a, you know, significant risk reducer as it relates to the variability that may or may not happen in convert to, and I think the answer is that we expect that the patients that we treat and convert two will behave similarly to those that we treat and convert.

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Glendon French: One. And we provided a window into some data that were disclosed that last year's European respiratory society meeting where the data indicated that nearly 80% of the time we tried to take a patient that was CV positive or, and make them CV negative, we were successful. So that was great. I would expect to convert one data will, will remain in that neighborhood. And, and I would expect to convert two numbers to be in that general neighborhood experts told us that it needed to be greater than 30 to 50% so being up around 75 to 80 is a really good place to be so we would expect that that neighborhood will stay in.

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Glendon French: And then the question is that we also talked was also talked about last year was whether when you put valves in those patients that they behave similarly to those that we treated across the four randomized controlled trials and directionally for sure, the answer is yes. So it's all good and encouraging. I would expect the data that we see from convert one to give us a good bit of confidence as to what we might see and convert to. It's not an identical study, but it should answer that question in the way I think you're asked.

Alex Novak: Yes, absolutely. Alright, appreciate the update. Thank you.

Glendon French: And I'm showing no further questions. That would now like to turn the conference back to Glendon for closing remarks. Right. Well, thank you all very much for your time. We are we couldn't be more pleased with the way the quarter went and the way that the plan seems to resonate not only for us but for our customers. So I'd like to thank you all again for your time and attention and wish you good luck. Good evening.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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Lane Morgan: . [inaudible] you you[inaudible] John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young,[inaudible] John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young,[inaudible] John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young,[inaudible] John Young, John Young,[inaudible][inaudible] John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young, John Young,[inaudible] John Young, John Young, John Young John Young, John Young All four looking statements, including without limitation, those relating to our two financial officer transition are 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, growth margin, and operating expenses, commercial expansion and product pipeline development are based upon current estimates and various assumptions.

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Thank you for standing by welcome to the <unk> third 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 Layne Morgan.

At the Gilmartin Group line. Please go ahead.

Thank you operator, good afternoon, and thank you all for participating in today's call. Joining me from <unk> are Glen French President and Chief Executive Officer, and John Mccain Interim Chief Financial Officer, and Vice President Corporate controller earlier today <unk> issued a press release announcing its financial results for the quarter ended September 32023.

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 1095.

Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.

All forward looking statements, including without limitation those relating to our chief financial officer transition, our operating trends commercial strategies and future financial performance, the timing and results of clinical trial expense management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin and operating expenses.

Commercial expansion and product pipeline development are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.

Accordingly, you should not place undue reliance on these statements for a list and description of risks and uncertainties associated with our business. Please refer to risk factors section to the Ritchie.

To the risk factors section of our filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with SEC on August four 2023.

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 call contains time sensitive information and is accurate only as of the live broadcast today October 32023.

<unk> 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 will turn the call over to Glenn.

Thanks, Dwayne good afternoon.

And welcome to our third quarter 2023 earnings call here with me is John Mccuen, Our recently appointed interim Chief Financial Officer, who has been a leader on our finance team as VP corporate controller since our IPO. We are very pleased with our recent performance as we achieved another quarter of record.

Revenue in the third quarter, we delivered $17 $7 million in worldwide sales, representing 31% growth over the same period of the prior year and 29% on a constant currency basis.

Growth was driven primarily by record U S performance as we achieved $11 $8 million in sales, representing 41% year over year growth.

Outperformance in the U S was due to continued momentum and traction of our focused commercial strategy and also to slightly less seasonal impact unexpected.

Meanwhile, seasonal impacts internationally were more consistent with our expectations and historical trends.

Given the strength of our business year to date, we are updating our full year 2023 revenue guidance to be in the range of 67% to $68 million up from our prior guidance of $64 million to $66 million at the midpoint. This implies anticipated year over year growth of over 25.

5%.

We attribute our confidence largely to the traction we are seeing with our focused commercial strategy. As we had planned this strategy designed to accelerate account productivity across our already meaningful footprint has resulted in one more existing treating centers with optimized upper valve.

Grams shoe, new treating centers launching with a greater ability to scale and three increased awareness around the benefits of our treatment among COPD physicians and the many patients who stand to benefit from it in.

In the third quarter average U S account productivity was approximately $4 seven cases per center. Despite anticipated summer seasonality. We attribute this largely to improvement in the number of highly experienced and efficient accounts and the cases they performed offset.

Continued growth in our base of actively treating centers.

As a reminder, we have measured account productivity based on the average number of cases conducted in a given quarter by our active establishes that for valve treating hospitals, which are those that have been performing zephyr valve procedures for at least four quarters and <unk>.

Placed a revenue generating order in the current quarter, 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 into the fourth quarter and beyond.

Meanwhile, U S account activity in the third quarter of 2023 was 73% representing 235 centers that placed a revenue generating order in the third quarter.

We continue to expect account activity to remain in the low to mid <unk> range as we grow our denominator of treating centers.

Lane Morgan: These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these four looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of risk and uncertainties associated with our business, please refer to risk factors section to the risk factor section of our filings of the Securities and Exchange Commission, including the quarterly report on form 10Q followed with SEC on August 4th, 2023.

Lastly, we continue to expand our base of U S centers, we added 15, new accounts in the U S. In the third quarter, bringing the total number of U S centers to 323, and we now expect to end the year, having opened approximately 55 to 60 new accounts.

Collectively commercial trends year to date have demonstrated to us that treating centers, both established and new are eager to adopt does that prove out treatment and invest in their programs. This comes as patients and referring COPD physicians become increasingly familiar with our technology and its clinical.

Lane Morgan: Also during this call, we will discuss certain non-gap financial measures where conciliations of these non-gap financial measures to the most directly comparable gap financial measures are provided in the press release, which is posted on our investor relations website. These non-gap measures are not intended to be a substitute for our gap results.

Benefits due to our ongoing education and outreach focused in geographies with optimized zephyr programs taken together, we believe that one there is still meaningful meaningfully more room to grow within existing centers and two we are still early.

Lane Morgan: This conference call contains time sensitive information and is accurate only as the live broadcast today of October 30th, 2023. Pomonis explains any intention or obligation, except as required by law, to update or revise any financial projections before the statement, whether because of new information, future events or otherwise.

In penetrating broader patient demand.

As we look forward into 2024, we will invest in our commercial and educational capabilities to penetrate the market. We will continue to grow our base of highly trained and motivated new centers and strengthen existing centers by helping our champions explain the value of.

Glendon French: And with that, I'll turn the call over to Gwen. Thanks, Wayne. Good afternoon and welcome to our third quarter, 2023 earnings call. Here with me is John McEun, a recently appointed interim chief financial officer who's been a leader on our finance team as VP Corporate Controller since our IPO. We are very pleased with our recent performance as we achieved another quarter of record revenue. In the third quarter, we delivered $17.7 million in worldwide sales, representing 31% growth over the same period of the prior year and 29% on a constant currency basis.

Their programs.

<unk> that they bring to the hospital system and we will continue to share best practices on how to build advance does that for valve programs in targeted geographies with well developed programs, we will increase both patient outreach and education of COPD focused health care provider.

Glendon French: Growth was driven primarily by record US performance as we achieved $11.8 million in sales, representing 41% year over year growth. Outperformance in the US was due to continued momentum and traction of our focus, commercial strategy, and also to slightly less seasonal impact than expected. Meanwhile, seasonal impacts internationally were more consistent with our expectations and historical trends. Given the strength of our business year to date, we are updating our full year 2023 revenue guidance to be in the range of $67 to $68 million up from our prior guidance of $64 to $66 million.

With proven strategies that we can replicate in scale taken together. These strategies will help developed a growing base of highly capable centers with increasing penetration of the substantial opportunity in these geographies. Meanwhile, we will continue to benefit from a growing body.

Published clinical evidence. Most recently, we were pleased to see the publication of data from a single center retrospective analysis in Germany that published in the journal of respiratory Medicine results from the study suggested that patients who received endobronchial valve implantation experienced.

A reduction in severe COPD exacerbations in the 12 months following implantation as compared to the 12 months prior to treatment. This is similar to the documented reductions and severe exacerbation delivered by lung volume reduction surgery.

Glendon French: At the midpoint, this implies anticipated year over year growth of over 25%. We attribute our confidence largely to the traction we are seeing with our focus, commercial strategy. As we had planned this strategy, designed to accelerate account productivity across our already meaningful footprint has resulted in one more existing treating centers with optimized Zepperville programs, two new treating centers launching with a greater ability to scale, and three increased awareness around the benefits of our treatment among COPD physicians and the many patients who stand to benefit from.

Moving now to our international expansion plans. We are excited to have recently been approved for reimbursement for our Zephyr valve treatment in Japan, which allows pricing that is consistent with our global average.

This marks an essential step toward commercialization in Japan, starting next year with a post market approval study of approximately 140 patients at 10% to 15 sites, which will then be followed by broader commercial expansion.

Glendon French: In the third quarter, average US account productivity was approximately 4.7 cases per center, despite anticipated summer seasonality. We attribute this largely to improvement in the number of highly experienced and efficient accounts, and the cases they performed offset by continued growth in our base of actively treating centers. As a reminder, we have measured account productivity based on the average number of cases conducted in a given quarter by our active, established Zephyrvalve treating hospitals, which are those that have been performing Zephyrvalve procedures for at least four quarters and placed a revenue generating order in the current quarter.

Now turning to our clinical development pipeline, we remain on track with our <unk> program, which we expect will expand the addressable market for our Zephyr valve solution for severe emphysema patients with collateral ventilation and continue to expect final data of the convert one trial.

To be presented later next year. Meanwhile, we are preparing to launch our convert two trial, which will form the basis for our U S. <unk> PMA submission.

I'll now turn the call over to John to provide more detailed review of our third quarter results John.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended September 32023 reached a new quarterly high of $17 7 million.

Glendon French: 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 into the fourth quarter and beyond. Meanwhile, US account activity in the third quarter of 2023 was 73% representing 235 centers that placed a revenue generating order in the third quarter. We continue to expect account activity to remain in the low to mid-70s range as we grow our denominator of treating centers.

A 31% increase from $13 5 million in the same period of the prior year and 29% on a constant currency basis.

U S revenue in the third quarter reached a new record of $11 8 million or 41% increase from $8 4 million.

During the prior year period.

The growth in U S sales reflected continued commercial momentum and adoption of our Zeppola Zephyr valve therapy, as well as less impact from seasonality compared to the prior year period.

Glendon French: Lastly, we continue to expand our base of US centers. We added 15 new accounts in the US in the third quarter, bringing the total number of US centers to 323, and we now expect to end the year having opened approximately 55 to 60 new accounts. Collectively, commercial trends year-to-date have demonstrated to us that treating centers both established and new are eager to adopt Zephyrvalve treatment and invest in their programs. This comes as patients and referring COPD physicians become increasingly familiar with our technology and its clinical benefits due to our ongoing education and outreach focused in geographies with optimized Zephyr programs.

International revenue in the third quarter of 2023 was $5 8, million% to 14% increase from $5 1 million during the same period last year and a 9% increase on a constant currency basis.

The overall increase in international sales was driven by growth of Zephyr valve procedure volumes.

Glendon French: Taken together, we believe that one, there is still meaningfully more room to grow within existing centers, and two, we are still early in penetrating broader patient demand. As we look forward into 2024, we will invest in our commercial and educational capabilities to penetrate the market. We will continue to grow our base of highly trained and motivated new centers and strengthen existing centers by helping our champions explain the value of their programs and the value that they bring to the hospital system, and we will continue to share best practices on how to build advanced Zephyrvalve programs. In targeted geographies with well-developed programs, we will increase both patient outreach and education of COPD focused health care providers with proven strategies that we can replicate in scale.

Gross margin for the third quarter of 2023 was 74% compared to 75% in the prior year period.

Selecting higher inventory reserves in the quarter.

We expect gross margin for the remainder of 2023 to be approximately 74%.

Total operating expenses for the third quarter of 2023 were $28 2 million.

A 17% increase from $24 1 million in the third quarter of 2022.

Noncash stock based compensation expense was $6 million.

In the third quarter of 2023.

Excluding stock based compensation expense total operating expenses in the third quarter of 2023 increased 12% from the same period of the prior year.

Looking ahead, we continue to expect operating expenses for the full year 2023 to fall between $112 million to $114 million inclusive of approximately $21 million of noncash stock based compensation expense as we take a disciplined and prudent approach to managing expenses while.

<unk> to invest to drive growth.

Yeah.

R&D expenses for the third quarter of 2023 were $4 2 million compared.

Compared to $4 4 million in the same period of the prior year.

The decrease was primarily attributable to lower <unk> program costs.

John McKune: Taken together, these strategies will help develop a growing base of highly capable centers with increasing penetration of the substantial opportunity in these[inaudible]詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩詩[inaudible]詩詩詩詩 Total operating expenses for the third quarter of 2023 were $28.2 million, a 17% increase from $24.1 million in the third quarter of 2022. Non-cash stock-based compensation expense was $6 million in the third quarter of 2023. Excluding stock-based compensation expense, total operating expenses in the third quarter of 2023 increased 12% from the same period of the prior year.

Sales general and administrative expenses for the third quarter of 2023 or $24 million <unk>.

Compared to $19 7 million in the third quarter of 2022.

The increase was attributable to continued investment in our commercial activities as well as an increase in legal and stock based compensation expenses.

Net loss for the third quarter of 2023 was $14 9 million.

Or a loss of 39 per share as compared to a net loss of $14 2 million or a loss of 38 per share for the same period of the prior year.

An average weighted share count of $38 1 million shares was used to determine loss per share for the third quarter of 2023.

Adjusted EBITDA loss for the third quarter of 2023 was $9 million as compared to $9 7 million.

In the third quarter of 2022.

The year over year improvement demonstrates our ability to drive operating leverage.

We ended September 32023, with $139 8 million in cash cash equivalents and marketable securities a decrease of $7 9 million.

From the June 30.

2023 period.

We continue to feel very good about the strength of our balance sheet and our pathway to cash flow breakeven.

Finally, turning to our revenue outlook for 2023.

Given our strong performance in the third quarter, we are updating our full year 2023 revenue guidance to be in the range of $67 million to $68 million.

Resenting, approximately 25% to 27% growth over 2022.

Up from our prior guidance of 64% to $66 million.

I'll now turn the call back to Glenn for his closing comments.

So in summary, I am very pleased with the way that we are executing our operational plan and with the resulting record third quarter results.

We are confident in our long term value proposition as we continue to drive increasingly predictable growth.

Further we are advancing key development projects and now entering Japan and in both ways are working to materially expand our already substantial addressable market.

Finally from a financial perspective, our revenue growth strong balance sheet and healthy gross margins together provide us a clear path to cash flow breakeven.

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

Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.

Okay.

And our first question will come from Jason Bednar of Piper Sandler Your line is open.

Hey, good afternoon can you hear me okay.

Yes.

Great. Thanks, Congrats on the results in the quarter here Glenn.

I wanted to go back to maybe the setup for as we came into third quarter from your comments three months ago in early August.

Talking about maybe some concerns around seasonality in the third quarter, but you clearly out executed your plan, which is really great to see.

So maybe could you help us understand where the quarter may have gone as you expected did you see the seasonality hit procedure volumes in maybe July and August and then was the upside in the quarter and the raised guidance here today was that simply to what you saw that play out in September and October.

Is that the right way to think about just how things unfolded for the quarter and you really got us to where we're at today.

John McKune: Looking ahead, we continue to expect operating expenses for the full year 2023 to fall between $112 to $114 million, inclusive of approximately $21 million of non-cash stock-based compensation expense as we take a disciplined and prudent approach to managing expenses while contributing to invest to drive growth.

Yes, thanks, Jason.

Yes, it was a very interesting quarter and I remember talking to everybody sort of in early August and.

July revealed a great deal of seasonality and I think we probably signaled that when we were having those conversations.

The good news is that August was not nearly as impacted us.

John McKune: R&D expenses for the third quarter of 2023 were $4.2 million compared to $4.4 million in the same period of the prior year. The decrease was primarily attributable to lower-era seal program costs. Sales general and administrative expenses for the third quarter of 2023 were $24 million, compared to $19.7 million in the third quarter of 2022. The increase was attributable to continued investment in our commercial activities as well as an increase in legal and stock-based compensation expenses.

Yeah.

As it was last year in the United States.

And.

I think one of the things thats fundamentally different as it relates to the U S situation this year versus last or at least.

What it appears at this point is that.

A good bit of that which didn't happen in the third quarter of last year rolled into the fourth quarter. So you had these delayed yet people coming back from vacations and in many cases, they didn't get those procedures.

Executed until into the fourth quarter this year in the third quarter, particularly in the U S.

John McKune: Net loss for the third quarter of 2023 was $14.9 million or a loss of $39 cents per share as compared to a net loss of $14.2 million or a loss of $38 cents per share for the same period of prior year. An average weighted share count of 38.1 million shares was used to determine loss per share for the third quarter of 2023. Adjusted EBITDA loss for the third quarter of 2023 was $9 million as compared to $9.7 million in the third quarter of 2022.

Though we had.

A delay in procedures in the early part of the quarter. They've got completed later in the quarter. So I think that's the dynamic that <unk>.

Explains the strength of this.

Period onto itself and also how it contrast to what we saw last year.

Okay, and maybe if I could just come back then on maybe a real time comment I mean, how can you talk about maybe the exit rate in September or.

John McKune: The year-over-year improvement demonstrates our ability to drive operating leverage. We ended September 30, 2023 with $139.8 million in cash, cash equivalence, and marketable securities, a decrease of $7.9 million from the June 30, 2023 period. We continue to feel very good about the strength of our balance sheet and our pathway to cash delivery even.

What we're making maybe what we're seeing here in early October and how that is contributing to the.

The implied guidance here for the fourth quarter.

Well.

What specifically are you I mean I.

We'll give you as much detail as we traditionally provide in terms of inter quarter results, but when you. When you are talking about the implied guidance can you be more specific.

I guess I'm I'm wondering to what extent the momentum you had coming out of September.

John McKune: Finally, turning to our revenue outlook for 2023. Given our strong performance in the third quarter, we are updating our full-year 2023 revenue guidance to be in the range of $67 to $68 representing approximately 25 to 27 percent growth over 2022 and up from our prior guidance of $64 to $66 million.

That influenced what Youre expecting now for the fourth quarter because this wasn't just a typical.

Beat flow through the raise to the full year guide and this was a beat and then raised by even more than the beat so yes I do.

Glendon French: I'll now turn the call back to Glenn for his closing comments. So, in summary, I am very pleased with the way that we are executing our operational plan and with the resulting record third quarter results. We are confident in our long-term value proposition as we continue to drive increasingly predictable growth. Further, we are advancing key development projects, and now entering Japan, and in both ways are working to materially expand our already substantial addressable market. Finally, from my financial perspective, our revenue growth, strong balance sheet, and healthy gross margins together provide us a clear path to cash flow break even.

Don't want to speak for the rest of the street, but I'm guessing that for Q numbers youre going to be moving higher today based on your updated guidance. So I'm trying to get a sense of how strong was that exit rate coming out of September that you were seeing in your business.

Yes no.

Our increase was greater than our beat for this quarter, but I think youll recall, we had some catching up to do so.

There are a number of questions in the past about making adjustments we made them now so.

In any case I think as we look ahead we are.

We are encouraged by the performance in the third quarter.

We're sobered a little bit by the idea that we didn't get any carryover into the fourth quarter and the way that we did last year.

And we have a limited number of.

Operator: With that, I'd like to thank you all for your attention, and we will now open the call for questions. Operator? Certainly.

If there is a significant impact on the number of shipping days in the fourth quarter as well so.

We feel good about the fourth quarter, we've always talked about that being a stronger.

Jason Bednar: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by, will we compile the Q&A roster?

Relative quarter, but I think this third quarter performance is pushing up against that.

And I think that's reflected in the overall guidance and what that implies as it relates to what we expect to do in the fourth quarter.

Alright, perfect and then one other maybe commercial focused one from us.

Jason Bednar: And our first question will come from Jason Bednar of Piper Samler. Your line is open. Hey, good afternoon. Can you hear me okay? Yes. Great. Thanks.

But it'll be a two parter so apologies in advance so you've got these new center additions in the U S. You've been running well ahead of your expectations from where you started the year, which again is also really good to see.

Glendon French: Congrats on the results in the quarter here, Glendon. I want to go back to maybe this setup for as we came into third quarter, from your comments three months ago in early August. You talked about maybe some concerns around seasonality in the third quarter, but you clearly out executed your plan, which is really great to see. So maybe could you help us understand you where the quarter may have gone as you expected.

So first are you able to support this better new account activity because the core productivity improvements have been as strong as they have been like we're just talking about the last question.

And then second part given the commercial improvements you've made this year and the account activation adjustments that you've made can.

Can you talk about maybe some context around the accounts that you've on boarded this year, how they've scaled relative to the accounts that you on boarded in 2021 or 2022. Just can you is there are you having more success in scaling. These accounts because you have this new commercial program in place.

Glendon French: Did you see the seasonality hit procedure volumes in maybe July and August, and then was the upside in the quarter and the raised guidance here today? Was that simply to what you saw then play out in September and October? Is that the right way to think about just how things unfolded for the quarter, and you really got us to where we're at today? Yeah, thanks, Jason. Yeah, it was a very interesting quarter, and I remember talking to everybody sort of in early August, and July revealed a great deal of seasonality, and I think we probably signaled that when we were having those conversations.

Thank you.

Yes.

So with regard to the.

So first of all the new additions are are interesting thats always its always great to bring these new centers on I mean, we're adding about one per territory per year. So we've got just got 55 reps will be 55 to 60, new accounts this year.

With regard to our metrics. The addition of new more greater than expected new accounts sort of dilutes the denominator in that regard.

Glendon French: The good news is that August was not nearly as impacted as it was last year in the United States. And I think one of the things that's fundamentally different as it relates to the US situation this year versus last, or at least what it appears at this point is that a good bit of that which didn't happen in the third quarter of last year rolled into the fourth quarter. So you had these delayed yet people coming back from vacations, and in many cases they didn't get those procedures executed until into the fourth quarter.

With regard to our ability to absorb it I think was what your question or comment was.

This is kind of normal course activity and we're not realizing any challenges with regard to our ability to absorb those accounts, although I will say that as those accounts mature and they get to the one year Mark and they get included into our calculations.

Our dilutive so an account.

Though an account is much stronger at a year then than it is at say three months.

They still continue to expand and so as the greater than anticipated number of new accounts role in each quarter and to our denominator. It is dilutive to the overall number now.

Glendon French: This year in the third quarter, particularly in the US, though we had a delay in procedures in the early part of the quarter, they got completed later in the quarter. So I think that's a dynamic that explains the strength of this period unto itself, and also how it contrasts to what we saw last year. Okay, and maybe if I could just come back then on maybe a real time coming in. How can you talk about maybe the exit rate in September, or maybe what we're seeing here in early October, and how that is contributing to the implied guidance here for the fourth quarter.

Now you asked about.

The context of accounts.

Today versus say, two or three years ago, and how productive those accounts are we have.

And I think we've talked about this before materially increased the number and height of the hurdles that accounts need to clear in order to become accounts today, we've learned a lot over the last few years and so I would say that these accounts that come on board.

Are much better prepared I mean, an example of it is the.

The number of steps that are treating physician needs to go through in order to even get to training.

Glendon French: Well, what specifically are you at? I mean, I will give you as much detail as we traditionally provide in terms of inter-quarter results, but when you're talking about the implied guidance, can you be more specific? I guess I'm wondering to what extent the momentum you had coming out of September, how that influenced what you're expecting now for the fourth quarter because this wasn't just a typical, you know, beat and flow through the race to the full year guide.

They need to identify at least three patients in advance of training they come to training they discuss those patients. They go back and they they treat the patients and then they have a 45.

Day review with an expert so.

Would say that one of the fundamental differences in terms of folks that are coming out of training today is that there are much better.

So much further along in terms of their understanding of things now going back to like does that translate directly into these accounts being way further along I think it's super important to remember that there is a six step sort of <unk>.

Glendon French: This was a beat and then raised by the more than the beat. So I don't want to speak for the rest of the street, but I'm guessing that 4Q numbers are going to be moving higher today, you know, based on your updated guidance. So I'm trying to get a sense of, you know, how strong was that exit rate coming out of September that you were seeing in your business? Yeah, no, our increase was greater than our beat for this quarter, but I think you'll recall we had some catching up to do.

Process, and we take folks from step one through step sixes, where theyre developing and they are clearing through gates along the way. That's a process that takes time irrespective of how well trained the doctors are who enter into it.

So I would simply say that.

I wouldn't anticipate material acceleration with regard to getting an account up to speed, but we have a whole array of examples of accounts that are <unk>.

Glendon French: So there were a number of questions in the past about making adjustments. We made them now. So in any case, I think as we look ahead, we are, we are encouraged by the performance in the third quarter. We were sobered a little bit by the idea that we didn't get any carry over into the fourth quarter and the way that we did last year. And we have a limited number of, you know, if there's a significant impact on the number of shipping days in the fourth quarter as well.

Very material contributors after only three months and others that take longer to come up to speed.

Glendon French: So, you know, we feel good about the fourth quarter. We've always talked about that being a stronger relative quarter, but I think this third quarter performance is pushing up against that. And, and I think that's reflected in the overall guidance and what that implies is it relates to what we expect to do in the fourth quarter. All right, perfect. One other, maybe commercial focused one from us. Yeah, but it will be a two part or so apologies for an advance.

Bit of a spectrum.

Okay I appreciate all the color, thanks, and congrats again on the quarter.

Thanks.

One moment for our next question.

And our next question will be coming from Rick Wise of Stifel. Your line is open right.

Good afternoon Glenn.

I want to make sure.

Understanding a couple of things if you could just expand a little bit.

Yes.

The account productivity.

And implementation of best practice.

Thank you.

When you start your remarks, you talked about the number of accounts.

You had a lot of momentum and accounts and I think your words were with optimized zephyr programs.

Glendon French: So you've got these new center additions in the US. You've been running well out of your expectations from where you started the year, which again is also really good to see. So first, are you able to support this better new account activity because the core productivity improvements have been as strong as they have been like we're just talking about last question. And then second part, you know, given the commercial improvements, you've made this year and the account activation adjustments that you've made.

And.

Glenn I'm going to ask the question you rephrase it.

You feel like Im not coming out in a clear way, but I say to myself. You came you ended last year with 278.

Total active accounts.

And looking at it correctly.

Today what.

<unk>.

Those accounts have optimized.

Glendon French: And you know, can you talk about maybe some context around the accounts that you've onboarded this year, how they've scaled relative to the accounts that you onboarded in 2021 or 2022. Just you know, can is there are you having more success in scaling these accounts because you have this new commercial program in place. Thank you. Yeah. So what's regard to the. So first of all, the new additions are are interesting. It's always it's always great to bring these new centers on.

Zephyr programs you follow me and the reason I'm asking the question is to get at are 25% of those 278.

Have optimized programs and gosh, we've got a lot of room in a good way to.

Keep driving greater productivity, that's what I'm trying to get at.

Yeah. So first of all an active account is one that's ordered in the last quarter and the active number is in the low seventies as we talked about $73, 74%. So in any given quarter or <unk> 73, or 74% of our accounts are ordering.

Glendon French: I mean, we're adding about one per territory per year. So we've got just don't you know, we have 55 reps will be 55 to 60 new accounts this year with regard to our metrics. The addition of new of more greater than expected new accounts sort of dilutes the denominator in that regard. But with regard to our ability to absorb it, I think was what your question or comment was. This is kind of normal course activity and we're not realizing any challenges with regard to our ability to absorb those accounts.

If you were to say in any six month period, it would be about 85%, but in any case.

The you said a year ago, we were at $2 78, I'll take your word for that I don't know it off the top of my head where at 330 or something now.

But the.

Those are not all active accounts. That's the total number of accounts. So there is a subset of that about 70% to 75% of those would be active accounts, so let's say out of.

Glendon French: Although I will say that as those accounts mature and they beat and they get to the one year mark and they get included into our calculations. They are dilutive so an account though an account is much stronger at a year than it then it is at say three months. It's they still continue to expand. And so as the greater than anticipated number of new accounts roll in each quarter into our denominator, it is dilutive to the overall number.

200.

Active accounts.

Robley about 25% to 30% of those are what I would consider to be truly.

Optimized and the reference to optimization in my earlier comments was really the the geographies in which when we were when we were when I was commenting on sort of our plans for 2024. It was in those geographies, where we would be making.

Glendon French: Now you would you asked about the context of accounts today versus say two or three years ago and how productive those accounts are. And I think we talked about this before materially increased the number and height of the hurdles that accounts need to clear in order to become accounts today. We've learned a lot over the last few years. And so I would say that these accounts that come on board are much better prepared.

Broader investments in trying to get the word out to the COPD physicians and the patients themselves.

So we've been talking about on the need to have the accounts ready one.

Then the referring physicians or the COPD physicians and then activating the patients.

Got you.

I know, it's early it's hard to resist asking about 2020 for especially given the momentum.

We saw in the third quarter.

Glendon French: I mean an example of it is the The number of steps that a treating physician needs to go through in order to even get to training. They need to identify at least three patients in advance of training. They come to training, they discuss those patients, they go back and they they treat the patients and then they have a 45 day review with an expert. So I would say that one of the fundamental differences in terms of folks that are coming out of training today is that they're much better.

And especially when I hear you talk so clearly and positively about.

More accounts account productivity.

The patient and physician outreach and education and training.

I mean.

I'm not so much looking for exact numerical guidance feel free if you want to.

Glendon French: They're much further along in terms of their understanding of things. Now going back to like does that translate directly into these accounts being way further along. I think it's super important to remember that there's a six step sort of process and we take folks from step one through step six is where they're developing and and they're clearing through gates along the way. That's a process that takes time irrespective of how well trained the doctors are who enter into it.

But that more should we just assume that given all of this.

The outlook the possibility the likelihood of continuing.

20% or better growth range is a reasonable expectation based on everything we're hearing Tonight.

Well, we feel really good about where our foundation is.

We we do have a number of things lined up.

And we feel good about that but we're going to be providing you with specific guidance for 2024.

Glendon French: So I would simply say that, you know, I wouldn't anticipate material acceleration with regard to, you know, getting an account up to speed, but we have a whole array of examples of accounts that are very material contributors after only three months and others that take longer to come up to speed. There's a bit of a spectrum. Okay, appreciate all the color. Thanks and congrats again on the quarter. Thanks. One moment for our next question.

Few months here and.

So we're not we're not providing 2024 guidance I know that.

A question was recently asked in one of these public.

Forums about how we felt about next year and where People's heads were and we continue to feel like you all are in the right place but.

So I'm not I'm not trying I wouldn't I wouldn't want to talk that down, but I also am not in a position to be talking it up.

We've got we've got some more information I think the fourth quarter is going to be an important data set and we'll spend a lot of time between now and when we when that all comes together.

Glendon French: And our next question will be coming from Rick wise have see full your line is open Rick. Good afternoon, Glenn. And I want to make sure I'm understanding a couple of things if you could just expand on a little bit. The account productivity and implementation of best practice. When you started your remarks, you talked about the number of accounts. You had a lot of momentum and accounts. And I think your words were with optimized zebra programs.

Divide far greater clarity on how we see 2024.

Glendon French: And Glenn, I asked the question. You rephrase it. If you feel like I'm not coming out in a clear way, but I say to myself, you came, you ended last year with 278 total active accounts that I am looking at it correctly. Today, what percent of those accounts have optimized zebra programs? You follow me? And the reason I'm asking a question is to get at our 25% of those 278 have optimized programs.

That's great. Thank you and it's great to see the excellent quarter. Thank you.

Yes.

And one moment for our next question.

Okay.

And our next question will be coming from Larry <unk> Wells Fargo. Your line is open Larry.

Hi, This is Charles on for Larry.

Congrats on a nice quarter Cup.

Couple of questions here first just on <unk>. It sounds like that that's on track here fully enrolled can convert one presenting the final data next year.

From there I mean.

Doesn't convert to in your PMA submission, but how soon after convert.

But one completion do you think we can expect O U S sales.

So <unk>.

Glendon French: And gosh, we got a lot of room in a good way to keep driving greater productivity. That's what I'm trying to get at. Yeah, so first of all, an active account is one that's ordered in the last quarter. And the active number is in the low 70s as we talked about 73, 74%. So in any given quarter, 73 or 74% of our accounts are ordering. If you were to say in any six month period, it would be about 85%.

Convert one is we're just following up so it's fully enrolled.

We're following up we've got all I think one year follow up that we're going to put into our.

I can't remember it might be six months in any case.

We're planning on presenting those data at the European respiratory Society meeting.

I think what you're <unk>.

Alluding to is that we have a CE mark in place already for sale and we have spoken about.

Limited and then expanding over time.

Commercialization of <unk> CE Mark regulated countries of course convert two is on the critical path to getting <unk> available in the United States. So that's a separate matter.

Glendon French: But in any case, the you said a year ago, we were at 278. I'll take your word for that. I don't know it off the top of my head. We're at 330 or something now. But the Those are not all active accounts. That's a total number of accounts. So there's a subset of that, about 70 to 75% of those would be active accounts. So let's say out of 200 active accounts, probably about 25 to 30% of those are what I would consider to be truly optimized.

So we're going to go ahead and present those data we will get those published.

And then.

Selectively sort of a limited launch if you will and various different locations and the pacing of that will likely be informed by the rate of enrollment in European centers and convert to because we don't want to create.

<unk>.

We don't want to inhibit the ability to get that study enrolled quickly because we're commercializing in the hospital next door to a clinical trial.

Glendon French: And the reference to optimization in my earlier comments was really the the geographies in which when we were when I was commenting on sort of our plans for 2024, it was in those geographies where we would be making broader investments and trying to get the word out to the COPD physicians and the patients themselves. So we've been talking about long need to have the accounts ready first, then the referring physicians or the COPD physicians and then activating the patients.

So in any case, so I don't have perfect information on that once we get convert two underway and begin to scale, we will have much greater resolution on.

Exactly when and how we will be commercializing, but we will commercialize in CE Mark countries.

Head of the commercialization of <unk> in the U S.

Okay. Thank you and then just just one.

Slow up.

Recently.

So you are searching for a new CFO is there any update you could share on that or when when the company might hope to have that search complete by.

Glendon French: Gotcha. I know it's early, it's hard to resist asking about 2024, especially given the momentum, we saw in the third quarter. And especially when I hear you talk so clearly and positively about more accounts account productivity, the patient and physician outreach and education and training. I mean, I mean, I'm not so much looking for exact numerical guidance, feel free if you want to. But, but more, should we just assume that given all this, the outlook, the possibility, the likelihood of continuing in a kind of a 20% or better growth range is a reasonable expectation based on everything we're hearing tonight.

You are correct, we are in the process of trying to.

To sort that matter out.

We are in the process.

Have undertaken that process.

We're going to find we're going to find the right person and I do not have specific resolution on the timing.

I will tell you that.

Derek has had two extraordinarily strong lieutenants and one of them has stepped into the interim CFO role.

John This is Ben.

With us since the IPO and it has been.

Controller, and essentially Chief accounting officer for.

One or two other companies before that publicly traded so.

Glendon French: Well, we feel really good about where our foundation is, we, we do have a number of things lined up. And we, and we so good about that, but we're going to be providing it with specific guidance for 2024 and. Just, you know, a few months here and so we're not, we're not providing 2024 guidance. I know that a question was recently asked in one of these public forums about, you know, how we felt about next year and where people's heads were and we continue to feel like, you know, you all are in the right place.

We're in good shape, but nonetheless, we are we are moving quickly and we will.

But we will not compromise so I don't I don't know I don't know.

So exactly what the timing will be.

Got it thank you and again congrats on the nice quarter.

Thank you.

And one moment for our next question.

Our next question is going to come from Joanne Wuensch.

Of Citi. Your line is open.

Thank you so much and let me also say very nice quarter.

I wanted to talk about Japan, and with reimbursement now in place.

Glendon French: But so I'm not, I'm not trying, I wouldn't, I wouldn't want to talk that down, but I also am not in a position to be talking it up. We got, we got some more information. I think the fourth quarter is going to be an important data set. And we'll spend a lot of time between now and when we, when that all comes together to provide far greater clarity on how we see 2024.

It's starting to contribute to revenue next year, how should we think about the launch and the expenses that are needed for that launch.

Okay, I'm going to probably I might pull John into into part of that.

The answer but from yes, so we.

Glendon French: That's, that's great. Thank you and it's great to see the excellent quarter. Thank you. One moment for our next question. And our next question will be coming from Larry Bejelson of Wells Fargo. Your line's open Larry. Hi, this is Charles. I'm from Larry. First congrats on the nice quarter. A couple of questions here. First just on a reseal. It sounds like that's, that's on track here. Holy roll can convert one presenting the final data next year.

We got reimbursement so that's awesome, we couldnt be happier if it is a monumental task to go through that process or the entire review and approval and then reimbursement process. So.

As predicted by the end of this year, we said we would have it we have it now which is great and what that does is it allows us to commence a.

A post approval trial in every other country.

That I have been at work and you do that in parallel with initial commercialization in Japan, you do it.

On the path to commercialization so literally the first 140 patients treated will be entered into a protocol they will be revenue generating.

Glendon French: I guess from there, I mean, that can work too in your PMA submission, but how soon after convert one completion, do you think we can expect OUS sales? So, ConvertOne is, we're just following up. So it's fully enrolled. We're following up. We've got, oh, I think one year follow up that we're going to put into our, or I can't remember, it might be six months in any case. We're planning on presenting those data at the European Respiratory Society meeting.

And there'll be expenses that go along with them, but the revenue generating and the nice thing is that we have.

Expect our.

Our revenue per patient to be in the range of our global sort of revenue per patient number. So we talk about very very roughly $10000 per patient. So a 140 patients about $1 $4 million of revenue as expected.

So that can throw off a little cash to help pay for this commercialization and.

Glendon French: I think what you're alluding to is that we have a CE mark in place already for Aerospeel. And we have spoken about limited and then expanding over time, commercialization of Aerospeel and CE mark regulated countries. Of course, ConvertTwo is on the critical path to getting Aerospeel available in the United States. So that's a separate matter. So we're going to go ahead and present those data, we'll get those published, and then selectively sort of a limited launch, if you will, in various different locations.

John I don't I don't I don't know that we break out our spending on Japan, but.

My guess is that the.

The total cost incremental cost of.

Commencing in Japan, we've already.

We've already got the team in place we've got.

Some number of sales reps marketing folks general manager already in place. So I don't know what we have incremental.

Yes, Glenn Youre thinking about that the right way.

We.

I'll reiterate that the.

Patients, we're treating in Japan are going to be revenue generating patient.

Glendon French: And the pacing of that will likely be informed by the rate of enrollment in European centers in ConvertTwo, because we don't want to inhibit the ability to get that study enrolled quickly because we're commercializing in the hospital next door to a clinical trial center. So in any case, I don't have perfect information on that once we get ConvertTwo underway and begin to scale. We'll have much greater resolution on exactly when and how we will be commercializing.

And that.

The team we have there is largely in place.

Any.

Their expense and any incremental expense will be factored into our 2024 guidance when we share that with you.

Next quarter.

And one moment for our next question.

Our next question will be from John Young of Canaccord. Your line is open John.

Hi, Brian and John Thanks for taking my question and congrats on the quarter, maybe just follow up on Joanne question on Japan, How long do you anticipate it will take to enroll those for Adrienne 40 patients in the post approval study and do you have to wait for any follow ups in the study with document saying that in full commercialization in Japan.

Glendon French: But we will commercialize in CE mark countries, ahead of the commercialization of Aerospeel in the U.S. Okay, thank you. And then just one follow-up, you know, recently. So you're searching for a new CFO. Is there an update you could share on that or when the company might hope to have that search complete by? You are correct. We are in the process of trying to sort that matter out. We are in the process.

So with regard to waiting now.

My understanding is as soon as we enrolled 140 <unk>, we can we just.

So don't want to see the data, but we won't be held up for three six or 12 months before.

We can go to a broader launch.

With regard to timing as you probably know.

Glendon French: We have undertaken that process. We're going to find we're going to find the right person. And I do not have specific resolution on the timing. I will tell you that Derek had two extraordinarily strong lieutenants, and one of them is stepped into the interim CFO role. John has been with us since the IPO and it's been the controller and essentially chief accounting officer for one or two other companies before that publicly traded.

Clinical trials are tend to be backend loaded they take some time to get off the ground.

And then I think probably half the patients come in in the last.

Quarter of the time that it takes to execute the trial. The good news for US is that we have since we had approval we were able to go out and engage with all of the sites that we need to engage with.

And I think I think most if not all of the treating physicians have gone through a treating.

Training program I believe we we sent global thought leaders and on at least two occasions into Japan to provide.

Glendon French: So we're in good shape, but nonetheless we are moving quickly and we will not compromise. So I don't know exactly what the timing will be. Got it. Thank you. And again, you can grab some a nice corner. Thank you. And one moment for our next question.

Extensive training to those positions. So we're lining things up we had debt.

No.

We had to get Finalization of the protocol before it could be presented to ethics committees and so forth. So we haven't gotten all all of the logistics and so forth out of the way, but we will be pushing forward I would guess.

Joanne Wuensch: Our next question is going to come from Joanne Woon, of City or Nineth Open. Thank you so much and let me also say a very nice quarter. I want to talk about Japan and with reimbursement now in place and it's starting to contribute to revenues next year.

Best case, a year, probably could bleed into our second year as well and I think in the coming quarters, we will have significantly greater resolution for that because as I said these things tend to be backend loaded. So there's going to be a point in time, where we're going to have a high degree of precision on when we see that.

Glendon French: How should we think about the launch and the expenses that are needed for that launch? Okay, I'm going to probably, I might pull John into part of that answer. But from, yeah, so we, we got reimbursements. That's awesome. We couldn't be happier. It is a monumental task to go through that process or the entire review and approval and then reimbursement process. So as predicted by the end of this year, we said we would have it.

See that closing out.

Thanks, Scott and then maybe just come back from the other question on Endoscopy optimize account base.

Do you see certain types of centers, maybe I guess strong academic center or certain geographies that are embracing the technology more.

<unk> those patient pathways and I know you talked about clinical coordinators is it just a function of time or is it getting the interventional pulmonologists or COPD physicians are really champion. Thanks again.

Yes.

Glendon French: We have it now, which is great. And what that does is it allows us to commence a post approval trial in every other country that I have been, I've worked in. You do that in parallel with initial commercialization in Japan. You do it on the path to commercialization. So literally the first 140 patients treated will be entered into a protocol. They will be revenue generating. And there'll be expenses that go along with them.

I think that.

This singular.

We feel really good about the process that were running folks through.

So you can you can kind of push folks along guide them through the process as we've talked about before these centers represent 8% to 10% of the centers in the United States and thus by definition, they are sort of committed to being in the lung space.

It's not hard to get people to say they want to be they want to embrace best practices and so long as as theyre interested in doing that.

Glendon French: But revenue generating is a nice thing. We expect our revenue per patient to be in the range of our global sort of revenue per patient number. So we talk about very, very roughly $10,000 per patient. So 140 patients, about $1.4 million of revenue is expected. That's going to throw off the little cash to help pay for this commercialization. And John, I don't know if we break out our spending on Japan. But my guess is that the total cost, incremental cost of commencing in Japan, we've already got the team in place.

It does pivot a lot off of people and process, so making sure that we.

We're investing in the right people at the right centers, who are embracing what we see as best practices are all <unk>.

Super important but.

I mean, we there is no specific P&L University hospital in city of greater than 3 million patients or anything like that we have.

Really productive centers that would probably fall into six different buckets places.

Fairly.

The only game in town within three or four hours drive in certain parts of the southeast and so forth that are incredibly productive referral centers, where.

Glendon French: We've got some number of sales reps, marketing folks, general manager already in place. So I don't know what we have incremental. Yeah, Glenn, you're thinking about that the right way. I'll reiterate that the patients we're treating in Japan are going to be revenue generating patients. And that the team that we have there is largely in place.

I just have a ton of patients that are in need of this that are seeking out that kind of care.

We have university hospitals in major cities that are also sort of turf.

Sherri care referral centers globally, well known.

Treatment treating physicians and so forth and so there is an entire spectrum and we I think we've talked about some of these these folks and some of the more constructive.

John McKune: Any, you know, their expense and many incremental expense will be factored into our 2024 guidance when we share that with you in next quarter. In one moment for our next question.

Centers are outside of major cities, where folks just don't want to drive down into the Big City, and so 30 40 miles outside of the Big City. There is there's often a center that that people will stop in and get their procedure done as opposed to driving further and into a fairly intimate.

John Young: Our next question will be from John Young of Canacord. Your line is open, John. Hi, Glenn, John. Thanks for taking our question. Thank you for your question. I can grab some of the quarter. Maybe to swap on Joanne's question on Japan. How long do you anticipate it will take to enroll us for 140 patients in the post-approval study? And do you have to wait for any follow-up from the study before commencing the end full commercialization in Japan?

Dating place.

Which is which is most major cities for people who aren't familiar with them.

Got it thank you.

Again, if you'd like to ask a question. Please press star one on your Touchtone telephone.

One moment for our next question.

Okay.

Okay.

John Young: So with regard to waiting, no. My understanding is as soon as we enroll that 140th, we can, we just, you know, they'll want to see the data, but we won't be held up for three, six or 12 months before we can go to a broader launch. With regard to timing, as you probably know, you know, clinical trials are tend to be back and loaded. They take some time to get off the ground.

Our next question will be coming from Alex Nowak of Craig Hallum. Your line is open.

Hey, good afternoon, everyone.

Maybe expand on the sales dynamic in Europe, just what is needed to really unlock more of the potential of the region. Because you already have pretty good data over there is it reimbursement is it just for studies or is it really just an allocation of sale resources.

John Young: And then they, I think probably half the patients come in in the last quarter of the time that it takes to execute the trial. The good news for us is that we have since we had approval, we were able to go out and engage with all the sites that we need to engage with. I think most, it's not all of the treating physicians have gone through a treating training program. I believe we, we sent global thought leaders in on at least two occasions into Japan that provide extensive training to those physicians.

Okay. So the euro so that.

I think the biggest explanation of the relative performance in the third quarter.

Between international and the U S is the impact of seasonality.

Our Europe, our international sales are mostly the 80 plus percent are in Europe.

And there was a fairly typical third quarter across Europe. So I would expect the fourth quarter to be stronger.

And I think this was fairly predictable.

John Young: So we're lining things up. We had to, you know, this, we had to get finalization of the protocol before it could be presented to ethics committees and so forth. So we haven't gotten all all of the logistics and so forth out of the way. But we'll be pushing forward.

There is we've got.

We're direct in 90%, 97% of our revenue on a global basis is.

Correct.

Sure.

We have the <unk> and we have the we have considerable not only sales, but also marketing regional marketing resources. So I think we're good from that perspective in terms of data.

John Young: I would guess best case a year probably could bleed into a second year as well. And I think in the coming quarters, we'll have significantly greater resolution for the, because these, as I said, these things tend to be back and loaded. So there's going to be a point in time where we're going to have a high degree of precision on when we see that, do that closing out.

John Young: Thanks.

We've got four randomized controlled trials, all published where in the global guidelines. So it's not so much that I think getting the word out.

In Europe, and other countries is a bit more challenging than it is in the United States, largely because of either custom and or loss.

Glendon French: And then maybe let's go back to some of the other questions on the optimized account phase. Do you see certain types of centers, maybe like a strong academic center or certain geographies that are embracing the technology more and establishing those patient pathways. And I know you talk about clinical coronators. Is it just a function of time or is it getting, you know, the interventional pulmonologist or COPD position to really champion them?

And what is acceptable and not acceptable as it relates to direct to patient direct.

Referring physician even even.

And thats the economic incentives for the treating physician are different.

We are as it relates to executing outside the United States as we are embracing the things now that have been demonstrated to work in the United States and to the extent that we can.

Glendon French: Thanks again. Yeah, there's, there's, I think that the singular. We feel really good about the process that we're running folks through. So you can, you can kind of push folks along, guide them through the process. As we talked about before, these centers represent eight to 10% of the centers in the United States. And thus by definition, they're sort of committed to being in the long space. It's not hard to get people to say they want to be, you know, they want to embrace best practices.

We can leverage them outside the United States. We are focused on doing so and I think probably our greatest success story.

As it relates to that is.

Is the U K and it's easy to argue that in some ways. The U K the execution in the U K and formed our strategies in the United States. So they are very much moving in the same direction executing.

All of those things that they can embrace and in the other larger countries.

Glendon French: And so long as they're interested in doing that, it does pivot a lot off of people and process. So making sure that, you know, we're investing in the right people at the right centers who are embracing, you know, what we see as best practices are all, you know, super important. But I mean, we, there is no specific, you know, university hospital in a city of greater than three million patients or anything like that.

We're we're we're sort of following the lead of the United States in terms of embracing some of these new approaches to the extent that there there are allowable.

Okay.

Helpful. And then clarification on the convert studies other than the geographies and the size are there any major differences in the protocols between the two studies or can you really compare convert wanted to get a proxy for what convert two should look like.

Glendon French: We have really productive centers that would probably fall into six different buckets, you know, places, you know, fairly. It's kind of the only game in town within three or four hours drives in certain parts of the southeast and so forth that are incredibly productive referral centers where it's, you know, you just have a ton of patients that are in need of this that are seeking out that kind of care. We have university hospitals in major cities that are also tertiary care referral centers globally well known.

With regard to I think the essence of your question into the latter part of that question is do we think that convert one and the results from convert one will give us will be a cigna.

Significant risk reducer as it relates to the variability that may or may not happen and convert to and I think the answer is that.

We expect that the patients that we treat and convert to will behave similarly to those that we treat and convert one.

And we provided.

A window into some data that were.

Glendon French: Treatment, treating physicians and so forth and there's an entire spectrum and we I think we talked about some of these these folks and some of the more constructive centers are outside of major cities where, you know, folks just don't want to drive down into the big city and so 30 40 miles outside of a big city. There's there's often a center that that people will stop in and get their procedure done as opposed to driving further and into. To a fairly intimidating place which is which is most major cities for people who aren't familiar with.

<unk> disclosed at last year's European Respiratory Society meeting where.

The data indicated that nearly 80% of the time, we tried to take a patient that was CV positive and make them CV negative. We were successful. So that was great I would expect to convert one data will will remain in that neighborhood.

Glendon French: Got it.

And.

And I would expect to convert two numbers to be in that general neighborhood experts told us that it needed to be greater than 30% to 50%. So being up around 75 to 80 is a really good place to be so we would expect that that neighborhood will stay in and then the question is.

Yet we also was also talked about.

Alex Novak: Thank you. Again, if you'd like to ask a question, please press star one one on your touch tone telephone one moment for our next question. We'll be coming from Alex Novak of Craig Halem you line is open. Hey, good afternoon everyone. Maybe expand on the sales I name and can you're up just what is needed to really unlock more of the potential in the region because you already have pretty good data over there.

Last year was weather when you put valves and those patients do they behave similarly to those that we treated across the four randomized controlled trials and Directionally for sure. The answer is yes. So it's all good and encouraging so I would expect the data that we see from convert one to give us a good bit of confidence is.

What we might see and convert to it's not an identical study.

But it should it should answer that question and the way I think you are asking it.

Alex Novak: Is it reimbursement into just more studies or is it really just an allocation of sale resources. Okay, so the your so that I think the biggest explanation of the relative performance in the third quarter between international and the US is the impact of seasonality. Our our international sales are mostly 80 plus percent are in Europe and there was a fairly typical third quarter across Europe. So I would expect the fourth quarter to be stronger.

Yeah, absolutely alright, I appreciate the update thank you.

Thank you.

And Im showing no further questions I would now like to turn the conference back to Glenn for closing remarks.

Great well. Thank you all very much for your time, we are we couldnt be more pleased with the way the quarter went in the way that the <unk>.

Plan seems to resonate not only for us but for our customers. So I'd like to thank you all again for your time and attention and wish you a good evening.

Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Alex Novak: And I think this was fairly predictable. There is we've got we're direct in 90 97% of our revenue on a global basis is direct. So we're you know we have the reason we have the you know we have considerable not only sales but also marketing regional marketing resources. So I think we're good from that perspective in terms of data. We've got four randomized controlled trials all published where in the global guidelines so it's it's not so much that I think getting the word out in Europe and other countries is a bit more challenging that it is in the United States largely because of either custom and or law.

Alex Novak: And what is acceptable and not acceptable is it relates to direct to patient direct to referring position even even you know in the the economic incentives for the treating position are different. Catherine. Where we are as it relates to executing outside the United States is we are embracing the things now that have been demonstrated to work in the United States and to the extent that we can leverage them outside the United States.

Alex Novak: We are focused on doing so. And I think probably our greatest success story, OUS as it relates to that is, is the UK. And it's easy to argue that in some ways the UK, the execution in the UK and formed our strategies in the United States. So they are very much moving in the same direction, executing all of those things that they can embrace. And in the other larger countries, we are sort of following the lead of the United States in terms of embracing some of these new approaches to the extent that they are allowable.

Glendon French: Okay, that is helpful. And then clarification on the conferred studies other than the geographies in the size, are there any major differences in the protocols between the two studies, or can you really compare convert one to get a proxy for what convert you should look like. With regard to the, I think the essence of your question is the latter part of that question is, do we think that convert one and the results from convert one will give us will be a, you know, significant risk reducer as it relates to the variability that may or may not happen in convert to.

Glendon French: And I think the answer is that we expect that the patients that we treat and convert to will behave similarly to those that we treat and convert one. And we provided a window into some data that were disclosed that last year's European respiratory society meeting where the data indicated that nearly 80% of the time we tried to take a patient that was CV positive or and make them CV negative, we were successful.

Glendon French: So that was great. I would expect to convert one data will will remain in that neighborhood. And, and I would expect to convert two numbers to be in that general neighborhood experts told us that it needed to be greater than 30 to 50% so being up around 75 to 80 is a really good place to be. So we would expect that that neighborhood will stay in and then the question is that we also talk was also talked about last year was whether when you put valves in those patients that they behave similarly to those that we treated across the four randomized controlled trials and directionally for sure the answer is yes.

Glendon French: So it's all good and encouraging that I would expect the data that we see from convert one to give us a good bit of confidence as to what we might see and convert to it's not an identical study. But it should it should answer that question in the way I think you're asking it. Yeah, absolutely.

Alex Novak: All right. Appreciate the update. Thank you.

Glendon French: And I'm showing no further questions that would now like to turn the conference back to go in for closing remarks. Well, thank you all very much for your time. We are we couldn't be more pleased with the way the quarter went in the way that the plan seems to resonate not only for us but for our customers. So I'd like to thank you all again for your time and attention and wish you a good evening. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.