Q4 2023 Pulmonx Corporation Earnings Call

Yeah.

Operator: Good day, and thank you for standing by. Welcome to the Pulmonx fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Good day, and thank you for standing by welcome to the Pulmonic fourth quarter and full year 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 to ask a question. During the session you will need a press star one on your telephone you will then hear an automated message advising you. Your hand, just raised to withdraw your question. Please press star one again, please be advised today's.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Laine Morgan, from the Gilmartin Group. Laine, please go ahead.

The conference is being recorded I would now like to hand, the conference over to your host today Lynn Morgen out the Gilmartin group. Please go ahead.

Laine Morgan: Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Pulmonx are Glenn French, President and Chief Executive Officer, and John McKune, Interim Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2023.

Thanks, operator, good afternoon, and thank you for participating in today's call. Joining me from homeowners are Glen French President and Chief.

Chief Executive Officer, and Shaun Mcewan, <unk> interim Chief Financial Officer earlier today, Puma issued a press release announcing its financial results for the fourth quarter and year ended December 31 2023.

Laine Morgan: A copy of the press release is available on Pulmonx's website. Before we begin, I'd like to remind you that management will make statements during this call that are 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 related to our operating trends, commercial strategies, and future financial performance, the timing and results of clinical trials, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunities, guidance for revenue, gross margin, and operating expenses 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.

A copy of the press release is available on somebody's website before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 any statements contained in this call about.

To expectations or predictions of future events results or performance are forward looking statements.

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

Operating expenses commercial expansion in the product pipeline develop and the product pipeline development are based upon our current estimates and various assumptions.

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

Laine Morgan: For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on November 3, 2023. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is 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.

Including our quarterly report on Form 10-Q filed with the SEC on November three 2023 also during this call we will discuss certain non-GAAP financial measures reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures 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 February 21st 2024, harmonics 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.

Laine Morgan: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 21, 2024. Pulmonx 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.

Future events or otherwise.

And with that I will turn the call over to Quentin.

Thanks, Lynn good afternoon, everyone and welcome to our fourth quarter and full year 2023 earnings call here with me is John Mccune.

Glendon E. French: Good afternoon, everyone, and welcome to our fourth quarter and full year 2023 earnings call. Here with me is John McKune, our Interim Chief Financial Officer. Before I review our recent performance and strategic priorities for 2024, I'd like to first briefly discuss the announcement we made today regarding my intention to retire as President and Chief Executive Officer. It has been a privilege to serve as CEO for the past nine years and lead our mission to bring our Zephyr valve treatment to severe emphysema and COPD patients in need. I look forward to continuing this work as a member of the company's board of Following my departure and as announced earlier today, Steve Williamson will become president and CEO effective March 15, this year, and I will work closely with him as a senior advisor and then in my capacity as a member of the board to ensure a seamless transition.

Our interim Chief Financial Officer before I review, our recent performance and strategic priorities for 2024 I'd like to first briefly discuss the announcement, we made today regarding my intention to retire as president and Chief Executive Officer, and it's been a privilege to serve as CEO for the past 10 or so in the past nine years.

And lead our mission to bring our zephyr valve treatment to severe emphysema in COPD patients in need I look forward to continuing this work as a member of the company's board of directors.

Following my departure and as announced earlier today, Stephen Williamson will become president and CEO effective March 15th of this year and I will work closely with him as a senior adviser and then in my capacity as a member of the board to ensure a seamless transition Steve brings nearly three decades of med tech industry experience driving.

Growth innovative product launches and numerous acquisitions and global expansion initiatives across high growth and well established public companies.

Glendon E. French: Steve brings nearly three decades of medtech industry experience driving revenue growth, innovative product launches, and numerous acquisitions and global expansion initiatives across high-growth and well-established public companies. I am confident he will effectively lead our business as we embark on our next commercial growth phase. Now moving to our fourth quarter and full year 2023 performance. We are very pleased with our fourth quarter performance, capping off an exciting year for Pulmonx in which we achieved record sales. In the fourth quarter, we delivered $19.3 million in worldwide sales, driven by another record U.S. performance of $13.7 million in sales, representing 45% growth over the same period last year.

I am confident he will effectively lead our business as we embark on our next commercial growth phase now moving to our fourth quarter and full year 2023 performance. We are very pleased with our fourth quarter performance capping off an exciting year for <unk> in which we achieved record sales.

In the fourth quarter, we delivered $19 $3 million in worldwide sales driven by another record U S performance of $13 $7 million in sales, representing 45% growth over the same period last year.

As a result, we exceeded our initial expectations achieving full year 2023 revenue of $68 $7 million representing.

Representing 28% growth over 2022.

<unk> revenue growth 2023 represents a year of strong execution more specifically, we increased our U S commercial footprint in 2023, adding 59, new treating centers of which 14 were added in the fourth quarter, bringing our total number of centers to 337.

Glendon E. French: As a result, we exceeded our initial expectations, achieving full year 2023 revenue of $68.7 million, representing 28% growth over 2022. Beyond revenue growth, 2023 represents a year of strong execution. More specifically, we increased our US commercial footprint in 2023, adding 59 new treating centers, of which 14 were added in the fourth quarter, bringing our total number of centers to 337. We saw improvements in our US account productivity metrics as our focused commercial strategy gained traction throughout the year. We received approval for reimbursement for our Zephyr valve treatment in Japan and are launching a post-market approval study. And lastly, we received approval from FDA to proceed with the launch of our CONVERT2 pivotal study for aerosols.

We saw improvements in our U S account productivity metrics as we as our focused commercial strategy gained traction throughout the year.

We received approval for reimbursement for our Zephyr valve treatment in Japan and are launching a post market approval study there.

And lastly, we received approval from FDA to proceed with the launch of our convert two pivotal study for <unk>.

Our success in 2023 positions us well for another strong year in 2024, we will remain focused on further establishing zephyr valve treatment as a routine procedure launching our post market approval study in Japan, and advancing our <unk> clinical development program look.

Glendon E. French: Our success in 2023 positions us well for another strong year. In 2024, we will remain focused on further establishing Zephyr valve treatment as a routine procedure, launching our post-market approval study in Japan, and advancing our aerosol clinical development program. Looking ahead, we anticipate full-year 2024 revenue to be in the range of $81 to $84 million.

Going ahead, we anticipate full year 2020 for revenue to be in the range of $81 million to $84 million.

To accomplish this we expect to maintain our three pronged U S commercial strategy, which demonstrated success in 2023, specifically, we will continue to focus on one training new hospitals that have the potential to be high performing zephyr valve centers.

To facilitating the sharing of best practices to existing centers to optimize their zephyr valve programs and increasingly three building local awareness of the benefits of our treatment among COPD physicians and patients.

Glendon E. French: To accomplish this, we expect to maintain our three-pronged U.S. commercial strategy, which demonstrated success in 2023. Specifically, we will continue to focus on one, training new hospitals that have the potential to be high-performance Zephyr valve centers. Two, facilitating the sharing of best practices among existing centers to optimize their Zephyr Valve programs, and increasingly, three, building local awareness of the benefits of our treatment among COPD physicians and patients. On training new Zephyr Valve centers, as mentioned earlier, we added 14 new centers in the U.S. in the fourth quarter of 2023, bringing our total number to 337 centers.

Training news after valve centers as mentioned earlier, we added 14, new centers in the U S. In the fourth quarter of 2023, bringing our total number to 337 centers. We will continue to selectively identify potentially high performing zephyr valve centers and expect to establish 10 to 15 new occur.

<unk> per quarter, consistent with our historical pace means.

Meanwhile, we were very pleased to have achieved our goal to see average U S account productivity grow to over five cases per active established center by year end 2023 from an account activity perspective, we saw 73% or 245 U S centers place a revenue <unk>.

<unk> order in the fourth quarter in line with our year end expectations.

Glendon E. French: We will continue to selectively identify potentially high-performance Zephyr Valve Centers and expect to establish 10 to 15 new accounts per quarter consistent with our historical pace. Meanwhile, we were very pleased to have achieved our goal to see average U.S. account productivity grow to over five cases per active established center by year-end 2023. From an account activity perspective, we saw 73 percent, or 245 U.S. centers, place a revenue-generating order in the fourth quarter, in line with our year-end expectation.

As a reminder, we designed and reported these account activity and productivity metrics to measure and demonstrate the early success of our focused commercial strategy. As we look ahead, we expect to continue to benefit from year over year gains in activity and productivity on an annualized basis.

Given our success through 2023, we plan to maintain our three pronged U S. Commercial strategy in 2024, with an increasing focus on investing more broadly and cost efficient education.

Glendon E. French: As a reminder, we designed and reported these account activity and productivity metrics to measure and demonstrate the early success of our focused commercial strategy. As we look ahead, we expect to continue to benefit from year-over-year gains in activity and productivity on an annualized basis. Given our success through 2023, we plan to maintain our three-pronged U.S. commercial strategy in 2024, with an increasing focus on investing more broadly in cost-efficient education around the benefits and availability of Zephyr valve treatment. More specifically, we plan to begin educating providers within targeted geographies where there are already well-developed programs and allocating additional resources designed to cultivate patient interest.

Around the benefits and availability of Zephyr valve treatment more specifically, we plan to begin educating providers within targeted geographies, where there are already well developed programs and allocating additional resources designed to cultivate patient interest.

In addition to our nationwide education efforts, such as our online CME and webinar programs in 2024, we will be organizing education sessions in local geographies to engage physicians nurses and allied health professionals on the clinical benefits of Zephyr valves in terms of pace.

In education, we are driving efficiency and precision in our direct to patient efforts by identifying specific keywords and other elements of our digital ads that most resonate with patients to increase engagement. As a result, we are seeing a greater volume of patient inquiries and deeper engagement on our website.

Right and social media channels. In addition to our initiatives to build awareness, we continue to share best practices with less mature accounts to help support our customers as they build more advanced programs. We will also continue to launch new accounts that have the potential to be high performing zephyr valve centers.

Glendon E. French: In addition to our nationwide education efforts, such as our online CME and webinar programs, in 2024, we will be organizing education sessions in local geographies to engage physicians, nurses, and allied health professionals on the clinical benefits of our Zephyr Valley. In terms of patient education, we are driving efficiency and precision in our direct-to-patient efforts by identifying specific keywords and other elements of our digital ads that most resonate with patients to increase engagement. As a result, we are seeing a greater volume of patient inquiries and deeper engagement on our website and social media channels. In addition to our initiatives to build awareness, we continue to share best practices with less mature accounts to help support our customers as they build more advanced programs.

Internationally, we are confident in our opportunity to drive further market penetration, particularly in Europe as growth in the U S continues to outpace growth in international markets in 2023, while our commercial focus will remain primarily on growing our U S. Presence. We are working this year to continue optimizing our <unk>.

International operations and to adapt several highly effective tools, we developed in the U S for our largest O U S markets. We look forward to investing in COPD community education programs to support the development of more successful programs at Zephyr valve treating centers, while increasing peer to peer.

Glendon E. French: We will also continue to launch new accounts that have the potential to be high performing Zephyr Valve Centers. Internationally, we are confident in our opportunity to drive further market penetration, particularly in Europe, as growth in the U.S. continues to outpace growth in international markets in 2023. While our commercial focus will remain primarily on growing our U.S. presence, we are working this year to continue optimizing our international operations and to adapt several highly effective tools we developed in the U.S. for our largest OUS markets. We look forward to investing in COPD community education programs to support the development of more successful programs at Zephyr Valve Treatment Centers while increasing peer-to-peer education and support for clinical best practice sharing.

Asian and support for clinical best practice sharing we believe our efforts will collectively serve as the foundation for sustained growth in the future more specifically, we anticipate the impact of our international efforts to become increasingly evident next year as we focus on foundation building. This.

Year.

Additionally, we have commenced our post market approval study in Japan, and expect to enroll our first patients in the first half of this year. As a reminder, we received approval for reimbursement for our Zephyr valve treatment in Japan last year and will initiate sales through a post market approval study of approximately 104.

<unk> patients at 10% to 15 sites at this point, we are working closely with key opinion leaders to generate awareness of the clinical benefits of Zephyr valve and to train sites for enrollment. This study marks an essential step toward broader commercialization in a new market, where we estimate approximately 100000 patients stand to benefit from our <unk>.

Glendon E. French: We believe our efforts will collectively serve as the foundation for sustained growth in the future. More specifically, we anticipate the impact of our international efforts to become increasingly evident next year as we focus on foundation building this year. Additionally, we have commenced our post-market approval study in Japan and expect to enroll our first patients in the first half of this year. As a reminder, we received approval for reimbursement for our Zephyr Valve treatment in Japan last year and will initiate sales through a post-market approval study of approximately 140 patients at 10 to 15 sites.

Treatment.

Meanwhile, we are very happy to be advancing our clinical development pipeline. Following the receipt of approval from FDA to commence the <unk> pivotal trial convert to this study marks a critical step in our efforts to expand our addressable market to include the one in five patients who undergo a cha.

Assessment and are not currently eligible to receive that for balance due to the presence of collateral ventilation in the target low convert two is designed to evaluate the safety and effectiveness of the <unk> system, and limiting collateral ventilation and severe COPD and emphysema patients.

Glendon E. French: At this point, we are working closely with key opinion leaders to generate awareness of the clinical benefits of our Zephyr Valve and to train sites for enrollment. This study marks an essential step toward broader commercialization in a new market, where we estimate approximately 100,000 patients stand to benefit from our treatment. Meanwhile, we are very happy to be advancing our clinical development pipeline following the receipt of FDA approval to commence the aeroseal pivotal trial, CONVERT-2. This study marks a critical step in our efforts to expand our addressable market to include the one in five patients who undergo a chartus assessment and are not currently eligible to receive zephyr valves due to the presence of collateral ventilation in the target lobe. CONVERT-2 is designed to evaluate the safety and effectiveness of the aeroseal system in limiting collateral ventilation in severe COPD and emphysema patients.

The study will enroll approximately 200 patients in and outside the U S patients who experienced conversion. Following aerocele treatment will then be implanted with zephyr valves per current standard of care for lung volume reduction.

Procedural success defined as long volume reduction and other clinical parameters will be evaluated at six months post valve treatment, which will be used to support our PMA application. We are thrilled to be moving forward with convert to which we currently expect to enroll through approximately at the end of next year.

We also look forward.

The presentation of final data from convert one following enrollment.

Continue to expect final data to be presented at the European Respiratory Society Congress in early September of this year in Vienna.

In summary, we are very pleased with our 2023 performance and remain as confident as ever in our strategy and long term growth trajectory of our business I will now turn the call over to John to provide a more detailed review of our fourth quarter.

Glendon E. French: The study will enroll approximately 200 patients in and outside the U.S. Patients who experience conversion following aerosol treatment will then be implanted with Zephyr valves per the current standard of care for lung volume reduction. Procedural success, defined as lung volume reduction, and other clinical parameters will be evaluated at six months post-valve treatment, which will be used to support our PMA application. We are thrilled to be moving forward with CONVERT-2, which we currently expect to enroll through approximately at the end of next year. We also look forward to the presentation of final data from ConvertOne following enrollment completion. We continue to expect final data to be presented at the European Respiratory Society Congress in early September of this year in Vienna.

<unk>.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended December 31, 2023 was a record $19 $3 million.

95% increase from $15 4 million in the same period of the prior year and an increase of 23% on a constant currency basis.

Our strong performance was driven by sustained momentum across the U S and reflects our expectation for near term growth to be driven by U S performance as we work across international markets to optimize our commercial infrastructure and introduced new tools.

U S revenue in the fourth quarter reached a new high of $13 7 million or 45% increase from $9 5 million during the prior year period.

John B. McKune: In summary, we are very pleased with our 2023 performance and remain as confident as ever in our strategy and long-term growth trajectory of our business. I will now turn the call over to John to provide a more detailed review of our fourth quarter results. Thank you, Glenn, and good afternoon, everyone.

International revenue in the fourth quarter of 2023 was $5 $6 million.

7% decrease from $6 million during the same period last year and a decrease of 12% on a constant currency basis.

Gross margin for the fourth quarter of 2023 was 75% compared to 73% in the prior year, reflecting.

Benefits from efficiencies in production.

And increasing pricing.

John B. McKune: Total worldwide revenue for the three months ended December 31, 2023, was a record $19.3 million, a 25% increase from $15.4 million in the same period of the prior year and an increase of 23% on a constant currency basis. Our strong performance was driven by sustained momentum across the U.S. and reflects our expectation for near-term growth to be driven by U.S. performance as we work across international markets to optimize our commercial infrastructure and introduce new tools. U.S. revenue in the fourth quarter reached a new high of $13.7 million, a 45% increase from $9.5 million during the prior year period.

In 2024, we expect gross margin to fall within the range of 74% to 75% remaining near 74% in the first half of the year and trending towards 75% in the back half of the year.

Total operating expenses for the fourth quarter of 2023 were $28 3, million% to 10% increase from $25 $8 million in the fourth quarter of 2022.

Noncash stock based compensation expense was $5 $6 million in the fourth quarter of 2023.

Excluding stock based compensation expense total operating expenses in the fourth quarter of 2023 increased 6% from the same period of the prior year.

Looking ahead, we expect operating expenses for the full year 2024 to fall between $132 million to $134 million inclusive of approximately $30 million of noncash stock based compensation expense.

John B. McKune: International revenue in the fourth quarter of 2023 was $5.6 million, a 7% decrease from $6 million during the same period last year and a decrease of 12% on a constant currency basis. Gross margin for the fourth quarter of 2023 was 75% compared to 73% in the prior year. Reflecting Benefits from Efficiencies in Production and Increasing Pricing. In 2024, we expect gross margin to fall within the range of 74 to 75 percent, remaining near 74 percent in the first half of the year and trending towards 75 percent in the back half of the year. Total operating expenses for the fourth quarter of 2023 were $28.3 million, a 10% increase from $25.8 million in the fourth quarter of 2022. Non-cash stock-based compensation expense was $5.6 million in the fourth quarter of 2023.

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

Excluding noncash stock based compensation expense, our operating expense guidance implies an increase in operating expenses of 11% to 13% in 2024 over 2023, demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate.

Then we expect to grow revenue.

R&D expenses for the fourth quarter of 2023 were $3 $9 million flat from the same period of the prior year.

Sales general and administrative expenses for the fourth quarter of 2023 were $24 4 million compared to $21 9 million in the fourth quarter of 2022.

The increase was primarily attributable.

<unk> investment in our commercial activities as well as an increase in legal and stock based compensation expenses.

Net loss for the fourth quarter of 2023 was $13 9 million or a loss of 36 per share as compared to a net loss of $14 $3 million or a loss of 38 cents per share for the same period of the prior year.

John B. McKune: Excluding stock-based compensation expense, total operating expenses in the fourth quarter of 2023 increased 6% from the same period of the prior year. Looking ahead, we expect operating expenses for the full year 2024 to fall between $132 to $134 million, inclusive of approximately $30 million of non-cash stock-based compensation expense, as we take a disciplined and prudent approach to managing expenses while continuing to invest to drive growth. Excluding non-cash stock-based compensation expense, our operating expense guidance implies an increase in operating expenses of 11 to 13 percent in 2024 over 2023, demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate than we expect to grow revenue. R&D expenses for the fourth quarter of 2023 were $3.9 million, flat from the same period of the prior year.

And average weighted share count of $38 4 million 30.

$38 4 million shares was used to determine loss per share for the fourth quarter of 2023.

Adjusted EBITDA loss for the fourth quarter of 2023 was $8 $4 million as.

<unk> to $9 $8 million in the fourth quarter of 2022.

We ended December 31, 2023, with $131.5 million in cash cash equivalents and marketable securities a decrease of $8 $3 million from September 32023.

And $37 $2 million of debt outstanding.

Over the full year 2023, our total cash burn was $36 million compared to approximately $44 million in 2022, well ahead of our initial expectations.

We believe our prudent cash management in 2023, combined with our expectation to further improve our burn rate in 2024 and beyond keeps us comfortably on track to reach cash flow breakeven in our current operations with the capital that we have on hand.

John B. McKune: Sales, general, and administrative expenses for the fourth quarter of 2023 were $24.4 million, compared to $21.9 million in the fourth quarter of 2022. The increase was primarily attributable to investment in our commercial activities, as well as an increase in legal and stock-based compensation expenses. The net loss for the fourth quarter of 2023 was $13.9 million, or a loss of $0.36 per share, as compared to a net loss of $14.3 million, or a loss of $0.38 per share, for the same period of the prior year. An average weighted share count of 38.4 million shares was used to determine the loss per share for the fourth quarter of 2023.

We continue to manage our business to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive.

Now turning to our revenue outlook for 2024.

We expect to deliver full year 2020 for revenue in the range of $81 million to $84 million.

We anticipate a neutral to slightly positive impact on revenue from foreign exchange.

As is typical in our business, we expect sales in the first quarter of 2024 to be down sequentially compared to the fourth quarter of 2023.

Before seeing improvement throughout the balance of the year similar to what we saw in 2023.

As Glenn mentioned, we also expect to continue to see much stronger growth in the U S compared to international geographies throughout 2024.

John B. McKune: Adjusted EBITDA loss for the fourth quarter of 2023 was $8.4 million, as compared to $9.8 million in the fourth quarter of 2022. We ended December 31st, 2023 with $131.5 million in cash, cash equivalents, and marketable securities, a decrease of $8.3 million from September 30th, 2023, and $37.2 million of debt outstanding. Over the full year 2023, our total cash burn was $36 million compared to approximately $44 million in 2022, well ahead of our initial expectation. We believe our prudent cash management in 2023, combined with our expectation to further improve our burn rate in 2024 and beyond, keep us comfortably on track to reach cash flow breakeven in our current operations with the capital that we have on hand. We continue to manage our business to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive. Now turning to our revenue outlook for 2024, we expect to deliver full year 2024 revenue in the range of $81 to $84 million. We anticipate a neutral to slightly positive impact on revenue from foreign exchange.

With that I will turn the call back to Glenn for closing comments.

Thanks, John and.

In summary, we are very pleased with our fourth quarter and full year 2023 performance and remain confident in our ability to execute on our commercial and clinical development goals to drive long term sustained growth.

Further we remain focused on expanding and strengthening our account base in our current markets. While we are also advancing our <unk> convert to clinical trial and executing our post market approval study in Japan.

Lastly, our revenue growth strong balance sheet and healthy gross margins together provide us with a clear path to cash flow breakeven.

Again, it has been a pleasure to serve as CEO for the past nine years I look forward to continuing to support the business as a member of the company's board of directors and to welcoming Steve Williams, and <unk> and a few weeks together, we will work to ensure a very smooth transition with that.

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

As a reminder to ask a question at this time. 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 stand by while we compile our Q&A roster.

And our first question is going to come from the line of Jason Bednar with Piper Sandler. Your line is open. Please go ahead.

Glendon E. French: As is typical in our business, we expect sales in the first quarter of 2024 to be down sequentially compared to the fourth quarter of 2023 before seeing improvement throughout the balance of the year, similar to what we saw in 2023. As Glenn mentioned, we also expect to continue to see much stronger growth in the U.S. compared to international geographies throughout 2024. With that, I will turn the call back to Glen for closing comments. Thanks, John.

Hey, good afternoon, thanks for taking the questions and first off Glenn Congrats on the retirement and everything you've done for <unk>.

Community really hoping best for you and really enjoyed working with you here.

Okay.

Okay.

Wanted to start off really just first question Glenn your three pronged effort, you've talked about in driving growth in the U S.

Talking about leveraging some of those items as you as you look to your O U S market I guess all of those levers that you've talked about and you're pulling on can you talk about which of these <unk> that you had.

Glendon E. French: In summary, we are very pleased with our fourth quarter and full year 2023 performance and remain confident in our ability to execute on our commercial and clinical development goals to drive long-term sustainable growth. Further, we remain focused on expanding and strengthening our account base in our current markets while we are also advancing our AeroSeal Convert2 clinical trial and executing our post-market approval study in Japan. Lastly, our revenue growth, strong balance sheet, and healthy gross margins together provide us with a clear path to cash flow breakeven. Again, it has been a pleasure to serve as CEO for the past nine years.

Expect to have the greatest impact in 2024.

And would you anticipate the upside.

That's leading to your guidance this year is that coming.

Probably more from account productivity a increase in the active accounts that you're talking about thank you finished at 73% is there any upside there just how do we think about the growth algorithm coming together this year.

Jason. Thank you very much for your initial comments appreciate that with regard to the question in terms of the three pronged efforts.

Our business is.

Obviously out of the blocks, we needed to open up some accounts, but it's never been central to what we do.

To open up these new accounts, that's been fairly organic we provide no specific incentives.

Operator: I look forward to continuing to support the business as a member of the company's Board of Directors and to welcoming Steve Williamson to Pulmonx in a few weeks. Together, we will work to ensure a very smooth transition. With that, I'd like to thank you for your attention, and we will now open the call up for questions. Operator.

To open them up they just they're folks that we that we come upon either because geographies or not well covered or physicians decide that they really want to try to push us to open up a specific account in a specific geography, so training more hospitals I don't see it as sort of central to any kind of upside this year I think we'll.

<unk> to be opening up new accounts as I mentioned, we've always talked about 10 to 15 per quarter I imagine that will continue.

Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

So in any case, that's the that's where we are I think that it's the second and the third element most of the performance that we have seen over the last.

Jason M. Bednar: Please stand by while we compile our Q&A roster. And our first question is going to come from the line of Jason Bednar with Piper Sandler. Your line is open. Please go ahead. Hey, good afternoon.

Five quarters has been driven by the second point, which is facilitating best practices and increasing efficiency at our zephyr valve centers sort of taking them from left to right on this very well defined process that we've established and I would imagine I know that we're not.

Jason M. Bednar: Thanks for taking the questions. And first off, Glenn, congratulations on the retirement and everything you've done for Pulmonx and the emphysema community. Really hoping the best for you and really enjoyed working with you here. Wanted to start off really just, you know, first question, Glenn, on the three-pronged effort you've talked about driving growth in the U.S. And then talking about leveraging some of those items as you look to your OUS market. I guess of those levers that you've talked about and that you're pulling on, can you talk about, you know, which of these you'd expect to have the greatest impact in 2024?

Nearly where we want to be with that process and I would imagine that as we look across the year. If you were to say if hypothetically there was upside to what we're talking about it would probably come from continuing to execute very well on that additional element.

<unk> as we've talked about.

We talked about earlier in the script, we're going to turn up a little bit on those on the activity and increasing local awareness and so.

That too could be a contributor.

Glendon E. French: And would you anticipate the upside for, you know, that's leading to your guidance this year? Is that coming, you know, probably more from account productivity, an increase in the active accounts that you're talking about? I think you finished at 73%.

But we've had.

What I would say is less experience in that vein to this point, although we've tested it over the last several years and are very confident in our ability to bend the curve in a positive way there.

<unk>.

We don't have as much experience as we do optimizing the existing accounts. So I would say those two elements will likely be bigger contributors to.

Jason M. Bednar: Is there any upside there? Just how do we think about the growth algorithm coming together this year? Jason, thank you very much for your initial comments. I appreciate that.

Two upside if that was 2% itself.

Okay.

That's actually a nice segue.

Little bit of a two part follow up here.

Maybe first on that.

Glendon E. French: With regard to the question in terms of the three-pronged efforts, you know, our businesses, obviously, out of the blocks, we needed to open up some accounts, but it's never been central to what we do to open up these new accounts. It's been fairly organic. We provide no specific incentives to open them up.

Just I did pick up on that on the raising awareness in the local community point It did sound.

More comprehensive maybe than we've heard in the past is that what's driving the the greater uptick in Opex that you know the the opex spend look a little bit higher.

Guide than what we were thinking.

Or are you are you diverting funds that you had previously allocated elsewhere.

Glendon E. French: They're just folks that we come upon either because geographies are not well covered or physicians decide that they really want to try to push us to open up a specific account in a specific geography. So training more hospitals, I don't see as sort of central to any kind of upside this year. I think we'll continue to be opening up new accounts, as I mentioned. We've always talked about 10 to 15 per quarter. I imagine that it'll continue. So, in any case, that's the case. That's where we are. I think that it's the second and third element.

Thats actually isn't as much of our other raises what maybe I'm thinking it is so that'd be one point, but then moving back up the P&L.

I guess, what's it going to take from a volume perspective to get gross margins working even higher.

Then where we're at right now.

Mid seventy's or nothing to sneeze at but.

It seems like there should still be a little more upside, especially if a lot of this growth is coming from a higher margin market like the U S.

Yeah, Jason we will as always.

Yes, good good questions, Jason I'm going to hand this off to.

Glendon E. French: Most of the performance that we have seen over the last five quarters has been driven by the second point, which is facilitating best practices and increasing efficiency at our Zephyr Valve Center. I'm sort of taking them from left to right on this very well-defined process that we've established. And I know that we're not nearly where we want to be with that process, and I would imagine that as we look across the year, if you were to say, if there was an upside to what we're talking about, it would probably come from continuing to execute very well on that additional element. Also, as we've talked about earlier in the script, we're going to turn up a little bit on the activity in increasing local awareness.

To John in just a second here, but.

Before we talk about the driving up Opex, which was the first.

Part of the question, where you were wondering if increasing local awareness was materially increasing our opex I'll leave that to Jon to comment on I will say that on the margin side of things our business is sensitive.

Margins are sensitive to volume and so as volume goes up that's probably the greatest way that we can continue to inch up our margin. So our I'll leave you with that.

John wants to embellish that further right.

Otherwise John you want to take the first element of the question.

Sure.

As far as Opex goes Jason Yes, the part of the increase is going to be increasing the spend.

As it relates to further educating.

The community about the benefits it was after about.

So.

Very simple answer yes that is driving part of the increase in the Opex.

Glendon E. French: And so that too could be a contributor, but we've had, what I would say is less experience in that vein to this point, although we've tested it over the last several years and are very confident in our ability to bend the curve in a positive way there. You know, we don't have as much experience as we do optimizing the existing accounts. So I would say those second two elements will likely be bigger contributors to the upside if that was to present. Okay, no, that's actually a nice segue.

Okay helpful.

Yeah.

Maybe I'll say it one more for for later, but.

Okay, just maybe to come back to that that mid 70%. I mean is there anything we can think about as far as like where U S. Gross margins sit today and like maybe incremental margins as like that in that incremental volume comes through.

Okay.

Yeah, you are correct that.

As the U S continues to grow that has a positive impact on our global gross margin number.

Jason M. Bednar: I'm going to have a little bit of a two part follow up here. You know, maybe first on that, just, I did pick up on that on the raising awareness in the local community point. It did sound more comprehensive, maybe than we've heard in the past. Is that what's driving the greater uptick in OPEX because, you know, the OPEX spend looked a little bit higher in the guide than we were thinking? Or are you just diverting funds that you had previously allocated elsewhere? And, you know, this actually isn't as much of a raise as I maybe think it is. So that'd be one point. But then moving back up the P&L, you know, I guess, what's it going to take from a volume perspective to get gross margins working even higher than where we're at right now? And that's, you know, the mid 70s are nothing to sneeze at.

And as I talked about before volume also positively impacts theres, some counterbalancing elements, increasing costs associated with raw materials, and so forth, which factor into that but the net of it is is that both of those you've hit on the two things that are most significant in moving and inching up.

Further up on the on that margin scale, so getting into the upper half of the seventies.

Is helped by growing faster in the U S and it's held.

Help to buy.

Spreading our overhead here in northern California across a greater number of units.

Okay very helpful. Thanks, So much guys congrats again.

Thank you.

Thank you and one moment for our next question.

Glendon E. French: But, you know, it seems like there should still be a little more upside, especially if a lot of this growth is coming from a higher-margin market like the US. Well, as always, Yeah, good, good questions, Jason. I'm going to hand this off to John in just a second.

Our next question is going to come from the line of Rick Wise with Stifel. Your line is open. Please go ahead.

Good afternoon to you both.

Glenn just to.

Steve.

And this.

New adviser council or whatever word you used them.

Glendon E. French: But before we talk about driving up OPEX, which was the first part of the question where you were wondering if increasing local awareness was materially increasing our OPEX, I'll leave that to John to comment on. I will say that on the margin side of things, our business is sensitive, or our margins are sensitive to volume. And so as volume goes up, that's probably the greatest way that we can continue to inch up our margins. I'll leave you with that, if John wants to embellish that further.

<unk>.

A member of the board.

When.

What's the what's the agenda.

Coming in is it simply.

That aircraft is it.

It simply continue to execute the plans that you've laid out.

I was just struck that you used the phrase.

<unk>.

About him.

Taking the company.

It's next commercial growth space.

Just maybe you could expand on.

His.

What you've charged him.

Or asked them to do and maybe give us a little more color on what you see as the next commercial growth phase.

Glendon E. French: Great. Otherwise, John, do you want to take the first element of the question? Sure. As far as OPEX goes, Jason, yeah, the part of the increase is going to be increasing the spend as it relates to further educating the community about the benefits of the Zephyr Valve. So, very simple answer, yes, that is driving part of the increase in the. Okay, helpful. You know, maybe I'll save one more for later. But maybe to come back to that mid 70s.

Got it so Ricky you in particular I know, we've talked a lot about sort of where we are in our process and we've talked about this three step process, where we have to have really well trained accounts that are executing this procedure routinely and efficiently and then we need to engage with the surrounding.

COPD physicians, who control as many as 90% of the patients in a given geography and get them to the right place and then activate the patient's that are rolling in and as it relates to the that's sort of a third a third a third we are in the early innings here. We are literally maybe we're in the second or third inning as we're trying to bring these accounts forward. So we have a lot.

Jason M. Bednar: I mean, is there anything we can think about as far as like where US gross margins sit today and maybe incremental margins as that incremental volume comes through? Yeah, you are correct that as the U.S. continues to grow, that has a positive impact on our global gross margin numbers. And as I talked about before, volume also positively impacts it. But there are some counterbalancing elements, increasing costs associated with raw materials and so forth, which factor into that.

Of additional work some of which we're doing and sort of staggered parallel in geographies that are more.

Advanced in terms of their development than others, but we're still in the early innings and so there's plenty of opportunity to continue to execute against the existing plan as we begin to learn about.

Our engage more and more in the in the driving patients and at the edges and our more developed geographies I think there will be opportunities for us to to accelerate even further.

<unk> provides an incremental way to accelerate the expanding in the marketplace does I think we feel like this ship is pointed in the right direction. The sales are up.

Glendon E. French: But the net of it is that both of those you've hit on are the two things that are most significant in moving and inching us further up on that margin scale. So getting into the upper half of the 70s is helped by growing faster in the U.S. and helped by spreading our overhead here in Northern California across a greater number of. Okay, very helpful. Thanks so much, Glenn.

And with regard to Steve's charge, he is going to be.

I think he's got a great background of of moving markets and.

And as it relates to us I think.

<unk>, probably finding additional ways to get more wind behind those sales.

That makes total sense.

And to what degree is.

Operator: Thank you, and one moment for our next question. Our next question is going to come from the line of Rick Wise with Stiefel. Your line is open. Please go ahead. Good afternoon to you both.

International.

An important tourists stepped up.

Aspect of this I mean, obviously with Chapman approval, that's going to make a difference in.

The post market study underway.

But maybe give us that larger perspective and at the same time help us better understand just as we look ahead to next year.

Frederick Allen Wise: Glenn, just as Steve Williamson's new advisor, counselor, whatever words are used, and a member of the board. When is the agenda coming in? Is it simply, and I say that in air quotes, is it simply to continue to execute the plans that you've laid out? I was just struck that you used the phrase about him taking the company to its next commercial growth phase. So just maybe you could expand on what you've charged him or asked him to do and maybe give a little more color on what you see as the next commercial growth phase. I got it.

Should we expect that the international business is going to be.

Or.

Sort of returned to more compelling growth or.

How do we think about that setup for 24. Thank you.

Okay. So you were talking about 24, because you said next year I just want to make sure. We're talking about the same in the same year, yet 24, 24 and beyond [laughter], Okay. Yes.

Yes, no I think that's a great question.

We have it's a really good question. So let me let me try to answer it concisely.

Glendon E. French: So Rick, you want to talk to you in particular? We've talked a lot about sort of where we are in our process. And we've talked about this three-step process where we have to have really well trained accounts that are executing this procedure routinely and efficiently. And then we need to engage with the surrounding COPD physicians, who control as many as 90% of the patients in a given geography, and get them to the right place and then activate the patients that are rolling in.

I think that we have demonstrated what good looks like and what essentially is to our business in the United States, We have always known that everywhere in the world.

The great majority of patients are controlled by doctors.

In geographies that are sort of outside the field of view of the trading centers, we feel very strongly that centers of excellence is the right approach and so I don't care, where you are in the world. Most of the patients are sort of quote unquote outside the field of view of the treating physicians.

Glendon E. French: And as it relates to that sort of a third, a third, a third, we are in the early innings here; we are literally, you know, maybe we're in the second or third inning as we're trying to bring these accounts forward. So we have a lot of additional work, some of which we're doing in sort of parallel with geographies that are more advanced in terms of their development than others, but we're still in the early innings. And so there's plenty of opportunity to continue to execute on the existing plan. As we begin to learn about, you know, or engage more and more in driving patients off the edges and into more developed geographies.

So in the United States, we might have a dozen different tools that we are testing and using in identifying the things that work and work really well some of those tools are processed some of those tools are literally selling tools and so forth.

We also know that the sales reps that are most productive in this kind of environment have a certain personality certain skill set and so with regard to our team outside of the United States, we have been intentionally evolving it in the direction of having the kind of profile that we've demonstrated works really well in the United States.

Glendon E. French: I think there will be opportunities for us to accelerate even further. You know, Aeroseal provides an incremental way to accelerate expanding in the marketplace. I think we feel like this ship is pointed in the right direction.

We're identifying that subset of tools that have worked really well in the United States and I think really this year 2024 is going to be about taking a handful or fewer of those key tools that are working great.

And making sure that we put them in place the processes and tools in our major markets. We're in 25 different markets, but 80% of our international businesses in Europe, and it's probably in about four different countries. So it is going to be that's going to be our focus as it relates to our international business again, 85% of that business is.

Glendon E. French: The sales are up. And with regard to Steve's charge, he's going to be, I think he's got a great background in moving markets. And as it relates to us, I think, you know, probably finding additional ways to get more wind behind those sales. Yeah, that makes total sense.

Frederick Allen Wise: And to what degree is international an important or stepped-up aspect of this next phase? I mean, obviously, with Japanese approval, that's going to make a difference in the post-market study underway. But maybe you could give us that larger perspective and, at the same time, help us better understand just as we look ahead to next year, should we expect that international business is going to, you know, sort of return to more compelling growth? Or how do we think about that setup for 24?

In Europe, So we're going to really be focused on best practices and installing those with our newly strengthened essentially team, that's well focused and well equipped.

As it relates to that.

This year and I think that we're going to we're going to get things moving in a good and solid direction. This year, probably harvesting most of or a good bit of the upside in 2025. So we're just we're setting things up getting them moving in the right direction I wouldn't over index on the international contribution in 2002.

Glendon E. French: Thank you. Okay, so we're talking about 24 because you said next year. I just want to make sure we're talking about the same year. I'm sorry.

Four.

Part of that is for the reasons that I just talked about and part of that is what's going on in Japan, we're going to put it.

A little bit less than half of the patients into the study that stands between us and sort of freedom that fully operate commercially and <unk>.

Frederick Allen Wise: The same year. Yes. 24. Well, 24 and beyond. Okay. Yeah, no. I think it's a great question.

Japan, we are generating revenue through the study that we're executing but out of the 140 patients we're going to get it a third or so of them into this study this year Theres a lot of.

Glendon E. French: You know, we have it's a really good question. So, let me, let me try to answer it concisely. I think that we have demonstrated what good looks like and what essential it is to our business in the United States. We have always known that everywhere in the world, the great majority of patients are controlled by doctors in geographies that are sort of outside the field of view of the treating doctors. We feel very strongly that Centers of Excellence is the right approach. And so, I don't care where you are in the world.

Startups steps that have to go along the way here, including training the physician getting them up and running and making sure that we've got their referral paths.

All opened up the good news is that we're going to be making a lot of noise in Japan as we're executing on this study, which probably bodes well for us when things open up but what if we get a third of the patients in this year in Japan to populate that study and the balance in next year, we don't see material revenue coming out of Japan until 2020.

Glendon E. French: Most of the patients are sort of, quote unquote, outside the field of view of the treating physician. So, in the United States, we might have a dozen different tools that we are testing and using and identifying the things that work and work really well. Some of those tools are processed. Some of those tools are literally, you know, selling tools and so forth.

Six when we're able to open it up more broadly and the good news again, just as a reminder is that we don't have to wait for any kind of six month follow up or anything like that on those patients. Once we get through that 140, <unk> patient that gets opened up more broadly in a market that.

Glendon E. French: We also know that the sales reps that are most productive in this kind of environment have a certain personality type and a certain skill set. And so, with regard to our team outside of the United States, we have been intentionally evolving it in the direction of having the kind of profile that we've demonstrated works really well in the United States. We're identifying those subset of tools that have worked really well in the United States. And I think, really, this year, 2024, is going to be about taking a handful or fewer of those key tools that are working great and making sure that we put them in place, the processes and tools, in our major markets. We're in 25 different markets, but 80% of our international business is in Europe, and it's probably in about four different countries. So, that's going to be our focus as it relates to our international business. Again, 85% of that business is in Europe.

It's going to be very well aware of this technology, because we handpicked the site's not only because they are most influential but also because they are very well dispersed geographically.

There's going to be broad awareness I expect at the time that this opens up late 'twenty five early 2016, Japan.

That's great. Thank you for everything and congrats.

Rick it's been it's been a pleasure working with you over the last couple of decades.

Thank you and our next question is going to come.

One moment for our next question.

And our next question is going to come from the line of John Young with Canaccord. Your line is open. Please go ahead.

Hi, John I, just want to ask my questions. Congratulations on the retirement congrats on a strong Q4.

I, just kind of want to circle back to some of the comments.

From the Q&A session first I want to make sure I heard you correctly on Jason's question, when I think about Opex for next year.

Glendon E. French: So, we're going to really be focused on best practices and installing those with our newly strengthened, essentially, team that's well-focused and well-equipped. As it relates, so that's this year. And I think that, you know, we're going to get things moving in a good and solid direction this year, probably harvesting most of or a good bit of the upside in 2025. So we're just setting things up to get them moving in the right direction. I wouldn't over index on the international contribution in 2024. Part of that is for the reasons that I just talked about. And part of that is what's going on in Japan.

These increases it sounds like mostly SG&A from the education effort I also know you're enrolling convert tiers through the year. So how should we think of R&D increases for next year too.

I'll take that one John Thanks for the question.

Yeah, we expect R&D to be up.

In 24 compared to 2023 as we as.

As we are as you pointed out as we enroll in our convert to.

Two study and get that going so we do expect to see on the Opex front both increases in SG&A.

Glendon E. French: We're gonna put a little bit less than half of the patients into the study that stands between us and sort of the freedom to fully operate commercially in Japan. We are generating revenue through the study that we're executing. But out of the 140 patients, we're gonna get a third or so of them into this study this year. There are a lot of startup steps that have to go along the way here, including, you know, training the physicians, getting them up and running, and making sure that we've got the referral paths all opened up.

Driven by our investment in the commercial side of things and then in R&D as well as we invest in the convert study.

Thanks, Sean and then Glenn just on Japan, and your comments on <unk> question there.

Is that timing of deviation from initial expectations, especially.

One third of the patients being enrolled in 2020 four and can you just talk maybe a little more color about.

Glendon E. French: The good news is that we're going to be making a lot of noise in Japan as we execute on this study, which probably bodes well for us when things open up. But if we get a third of the patients this year in Japan to populate that study and the balance in next year, we don't see material revenue coming out of Japan until 2026, when we're able to open it up more broadly. And the good news, again, just as a reminder, is that we don't have to wait for any kind of six-month follow-up or anything like that in those patients.

Yes, Nathan the intricacies of the market and some of the the time it takes 10, where all these patients.

Sure.

I don't know if its a deviation I will say that these.

These trials.

Are hard to predict when they're going to be done until you get about a third of the patients then it's really hard to see when the yen is going to be probably enroll a third of the patients in the last three or four months of these studies absolutely pick up steam over time.

Glendon E. French: Once we get through that 140th patient, that gets opened up more broadly in a market that is going to be very well aware of this technology because we handpick these sites, not only because they're the most influential, but also because they're very well-dispersed geographically. So there's gonna be broad awareness, I expect, at the time that this opens up, late 25, early 26. That's great.

Theres also in all of these studies non trivial amount of startup time, meaning the regulatory authorities, giving you a green light and that just allows you to go in and negotiate.

The contracts with the sites you have to get the.

<unk>.

Approval of ethics committees at those sites and then you have to open up their referral process and can't do any activity beyond.

Frederick Allen Wise: Glenn, thank you for everything and congrats. Rick, it's been a pleasure working with you over the last couple decades. Thank you.

What I just said until you have ethics committee approval and so there's a great deal of lead times. So we've always anticipated that.

Operator: And our next question is going to come soon. One moment for our next question. And our next question is going to come from the line of John Young with Canaccord. Your line is open. Please go ahead. Hi, good. I'm John.

It's like the 10th study I have done in this in this particular space over the last 27 years.

And.

I think the shape of the curve is going to look very much like we've seen in all the prior studies. So I wouldn't say the shape of the curve is in any way a surprise.

John Edward Young: I just want to wish my friends congratulations on their retirement. Congratulations on a strong Q4. I just kind of want to circle back to some of the comments we made during the Q&A session. First, I want to make sure I heard you correctly on Jason's question when I think about BEX for next year. You know, these increases sound like mostly SG&A from the education efforts. I also know you're enrolling converts through the year. So, you know, how should we think of R&D increases for next year, too? [inaudible] I'll take that one.

And we're just getting up and going and would expect to announce our first patient in both of these trials the Japanese study as well as converting to.

In the first half of this year.

Great. Thanks, again and congratulations.

Thank you.

Thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone.

John B. McKune: John, thanks for the question. Yeah, we expect R&D to be up in 24 compared to 2023. As we are, as you point out, as we enroll in our conversion to study and get that going.

And our next question comes from the line of Alex Nowak with Craig Hallum. Your line is open. Please go ahead.

Hey, Good afternoon. This is connor on for Alex Thanks for taking my questions and congrats on the retirement Glenn.

John B. McKune: So we do expect to see on the opex front both increases in SG&A, driven by our investment in the commercial side of things. And then in R&D, as well as we invest in the conversion to study. Thanks, John.

Thank you.

So with $68 million in revenue. This year is there any possibility of adding on a related product to the portfolio in the future.

There is.

John Edward Young: And then Glenn, just on Japan and your comments on Rick's question there, you know, is that timing a deviation from initial expectations, especially with one third of the patients being enrolled in 2024? And can you talk about maybe a little more color about, you know, maybe some of the intricacies of the market and some of the time it takes to enroll these patients? I'm sure, but I don't know if it's a deviation.

I mean, I think that we would be.

Is there any possibility sure.

There is a possibility or were not in the midst of anything we're not but we are open to accretive.

Types of things that would be.

We will be able to leverage with our current call point.

If we could fully rationalized that having said that.

We've got to be Super careful that we don't distract.

This finely tuned.

Commercial organization that is growing at a high rate of speed with high margin products.

Glendon E. French: I will say that these trials are hard to predict when they're going to be done. Until you get about a third of the patients in, it's really hard to see when the end is going to be. You probably enroll a third of the patients in the last three or four months of these studies. They absolutely pick up steam over time. There's also, in all of these studies, a non-trivial amount of startup time, meaning, you know, the regulatory authorities give you a green light, and that just allows you to go in and negotiate the contracts with the sites. You have to get the approval of ethics committees at those sites, and then you have to open up their referral process, and you can't do any activity beyond what I just said until you have ethics committee approval.

That they are selling right now and we're just we just scraped the surface.

In terms of our market penetration and depending on whether you look at our prevalent market or an incident market.

At the very best.

Our most penetrated market, we're 20% penetrated.

So.

We've got a lot of upside that we are so we would be extremely discriminating, but yes, we'd be open.

Considering things.

Great and then could you remind us on the <unk>.

And then.

Maybe frame up how large this opportunity could be.

Erez sale timelines well so we're commencing.

This trial.

And we will be.

Glendon E. French: And so there's a great deal of lead time. So, we've always anticipated that, I mean, this is the 10th study I've done in this particular space over the last 27 years. And I think the shape of the curve is going to look very much like we've seen in all the prior studies.

B.

Probably enrolling it through.

Next year.

To get to a couple of hundred patients that we're targeting.

And it's got six months follow up.

You know a few months to collect the data and then however long it takes to get through FDA. Good round numbers a year. So I guess that gets kind of gives you an idea of timeline, so I would say.

Glendon E. French: So, I wouldn't say the shape of the curve is in any way a surprise, and we're just getting up and going, and we would expect to announce our first patient in both of these trials, the Japanese study as well as CONVERGE-2, in the first half of this year. Great. Thanks again, Connie.

I would characterize the timeline is outside the normal scope of what you're kind of out years would be if you were looking at 24 through 26.

But the good news I think about this situation that we're in is the magnitude of the impact it could have on our business and the probability.

John Edward Young: Congratulations. Thank you. And again, ladies and gentlemen, if you would like to ask a question at this time, please press star 11 on your telephone. And our next question comes from the line of Alex Nowak with Craig Hallam. Your line is open. Please go ahead. Hey, good afternoon. This is Connor on for Alex.

That as we say this thing falls Shelly side up meaning whenever you do one of these trials, there's always a risk associated with an unforeseen outcome and the convert two trial is so similar to convert one that we will.

Operator: Thanks for taking my questions and congrats on the retirement Glenn. Um, so with 68 million in revenue this year, is there any possibility of adding a related product to the portfolio in the future? Um, there's, you know, we're, I think that we would be. Is there any possibility?

When we're reporting those data later this year.

I'm, certainly going to be paying close attention I imagine that many others will be as well because it should give us a pretty good sense of both the probability or the frequency with which we can convert the target patients and then how they behave once we put thousand to him. So.

Unknown Speaker: Sure. There's a possibility, or we're not in the midst of anything. We're not, you know, but we are open to creative types of things that would be, you know, we would be able to leverage with our current call point if we could fully rationalize that. Having said that, You know, we've got to be super careful that we don't distract this finely tuned commercial organization that is growing at a high rate of speed with high-margin products that they're selling right now. And we're just scraping the surface.

The question on what this does to so I would imagine we're going to be increasing our confidence with regard to the impact of this over time is this these convert one data become available and then with regard to the impact right now.

Now this is probably not terminology I should use but this is what I call from a marketing perspective kind of shooting fish in a barrel meaning that.

The patients that we're targeting with convert or the very patients that have already signed up for valves.

Glendon E. French: Um, in terms of our market penetration, depending on whether you look at a prevalent market or an incident market, you know, at the very best, in our most penetrated market, where 20% So, we got a lot of upside that we would be extremely discriminating about. But yeah, we'd be to consider it. Great, and then could you remind us of the air seal timelines and then maybe frame up how large this opportunity could be? AeroSeal Timelines.

<unk> undergo they get a strategy and it gives them a green light and then they undergo anesthesia and at the front end of the procedure that we're intending to put valves and we do a charter assessment.

And 20% of the time those patients get woken up and told.

They're incredibly disappointed and they find out that they werent a candidate for valves because collateral ventilation was detected again, one out of five times.

Unknown Speaker: Well, we're commencing this trial, and we will probably enroll it through next year to get to the couple hundred patients that we're targeting. And it's got six months of follow-up, you know, a few months to collect the data, and then whatever it takes to get through FDA. A good round number is a year.

With the charters and so what we're targeting that groups that were targeting and convert one and convert to are those patients.

So there's we're going to get we hope about 80% of those patients to a place where we can where they get a positive benefit but.

And we will know in advance whether they are candidates for <unk>, but we see this as roughly a 20% Tam expander, but it's not like.

Glendon E. French: So I guess that kind of gives you an idea of the timeline. So I would characterize the timeline as outside the normal scope of what your kind of out years would be if you were looking at 24th or 25th. So the good news about this situation that we're in is the magnitude of the impact it could have on our business and the probability, as we say, this thing falls jelly side up, meaning, you know, whenever you do one of these trials, there's always a risk associated with an unforeseen outcome. And the CONVERT-2 trial is so similar to CONVERT-1 that we will, you know, when we're reporting those data later this year, I I imagine that many others will be as well because it should give us a pretty good sense of both the probability or the frequency with which we can convert the target patient and then how they behave once we put valves into them. So the question is what this does.

Are you sort of a tangential market that we have to go penetrate these patients have already said they want valves are already on the table and when they find out they don't get them. They go home crying in many cases. So it's I mean this is we're going to as you might imagine prior to the procedure, we will tell the patient that there's about an 80% chance.

Youre going to get valves, and if you don't we'd like you to authorize the use of <unk> with the physician would be saying and we don't anticipate that there will be many or any patients that will say.

That they're not interested in getting <unk> as a path to getting valves, if theres, a 80% chance that when they get aerocele theyre going to subsequently get valves.

Awesome, that's very helpful. Thanks for taking my question.

Thank you and I'm showing no further questions at this time and I would like to hand, the conference back to Glenn French for any further remarks.

Glendon E. French: So I would imagine we're going to be increasing our confidence with regard to the impact of this over time as this convert one data become available. And then with regard to the impact, right now. Now, this is probably not terminology I should use, but this is what I call, from a marketing perspective, kind of shooting fish in a barrel, meaning that the patients that we're targeting with CONVERT are the very patients that have already signed up for VAL. They get a strat X, and it gives them a green light. And then they go under anesthesia.

Great. Thank you.

Very much operator, again, I'm very pleased with our 2023 performance and what it says about the future I'm also very pleased with our forward going plans and as well as the many wonderful people, who will continue to deliver both performance and end on the exit.

Houston ongoing execution of these plans. So thank you all very much for your time and interest in <unk> X I wish you a good afternoon or evening.

Glendon E. French: And at the front end of the procedure that we're intending to put the valves in, we do a chart of success, and 20% of the time, those patients get woken up and told, and they're incredibly disappointed, they find out that they weren't a candidate for valves because collateral ventilation was detected, again, one out of five times, with the chart. And so what we're targeting, the groups that we're targeting in CONVERT-1 and CONVERT-2 are those patients. And so there's, you know, we're going to get, we hope, about 80% of those patients to a place where we can, where they get a positive benefit. But, and we'll know in advance whether they're candidates for aerosil, but we see this as roughly a 20% TAM expander, but it's not like a sort of a tangential market that we have to penetrate. These patients have already said they want valves. They're already on the table, and when they find out they don't get them, they go home crying in many cases.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Glendon E. French: So it's, I mean, this is, prior to the procedure, we will tell the patient that there's about an 80% chance you're going to get valves, and if you don't, we'd like you to authorize the use of aerosil. That's what the physician would be saying.

Unknown Speaker: And we don't anticipate that there will be many or any patients that will say that they're not interested in getting aerosil as a path to getting valves. If there's a 80% chance that when they get aerosil, they're going to subsequently get valves. Okay. That's very helpful. Thanks for taking my question. Thank you. And I'm having no further questions at this time.

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Operator: And I would like to hand the conference back to Glenn French for any further remarks. Great, thank you very much, Operator. Again, I'm very pleased with our 2023 performance and what it says about the future. I'm also very pleased with our forward-looking plans, and as well as the many wonderful people who will continue to deliver both performance and on the execution, ongoing execution of these plans. So, thank you all very much for your time and interest in Pulmonx. I wish you a good afternoon or evening. This concludes today's conference call. Thank you for participating. You may now disconnect. [inaudible] Now, I want to thank you for standing by.

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Operator: Welcome to the Pulmonx fourth quarter and full year 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. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you that your hand is raised.

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Laine Morgan: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Laine Morgan, from the Gilmartin Group. Laine, please go ahead.

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Laine Morgan: Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Pulmonx are Glenn French, President and Chief Executive Officer, and John McKune, Interim Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2023.

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Laine Morgan: A copy of the press release is available on Pulmonx's website. Before we begin, I'd like to remind you that management will make statements during this call that are 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 related to our operating trends, commercial strategies, and future financial performance, the timing and results of clinical trials, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunities, guidance for revenue, gross margin, and operating expenses 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.

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Good day, and thank you for standing by welcome to the <unk> fourth quarter and full year 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 to ask a question. During this session you will need to press star one on your telephone.

Laine Morgan: For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on November 3, 2023. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is 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.

We will then hear an automated message advising you your hand is raised.

Your question. Please press Star one again, please be advised today's conference is being recorded I would now like to hand, the conference over to your host today Lynn Morgan at the Gilmartin Group. Please go ahead.

Thanks, operator, good afternoon, and thank you for participating in today's call joining me from <unk> are Glen French President and.

Laine Morgan: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 21, 2024. Pulmonx 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.

Chief Executive Officer, and John <unk> interim Chief Financial Officer earlier today, <unk> issued a press release announcing its financial results for the fourth quarter and year ended December 31 2023.

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 which are made pursuant to the safe Harbor provisions.

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.

Glendon E. French: Good afternoon, everyone, and welcome to our fourth quarter and full year 2023 earnings call. Here with me is John McKune, our Interim Chief Financial Officer. Before I review our recent performance and strategic priorities for 2024, I'd like to first briefly discuss the announcement we made today regarding my intention to retire as President and Chief Executive Officer. It has been a privilege to serve as CEO for the past nine years and lead our mission to bring our Zephyr Valve treatment to severe emphysema and COPD patients in need. I look forward to continuing this work as a member of the company's Board Following my departure and as announced earlier today, Steve Williamson will become president and CEO effective March 15, this year, and I will work closely with him as a senior advisor and then in my capacity as a member of the board to ensure a seamless transition.

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

Operating expenses commercial expansion in the product pipeline develop and the product pipeline development are based upon our current estimate 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 Burleson description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on November three 2023 also during this call we will discuss certain non-GAAP financial measures.

Glendon E. French: Steve brings nearly three decades of medtech industry experience driving revenue growth, innovative product launches, and numerous acquisitions and global expansion initiatives across high growth and well-established public companies. I am confident he will effectively lead our business as we embark on our next commercial growth phase, now moving to our fourth quarter and full year 2023 performance. We are very pleased with our fourth quarter performance, capping off an exciting year for Pulmonx in which we achieved record sales. In the fourth quarter, we delivered $19.3 million in worldwide sales, driven by another record U.S. performance of $13.7 million in sales, representing 45% growth over the same period last year.

Reconciliation 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 Libra <unk> today February 20.

<unk> 2024.

<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.

With that I will turn the call over to Glenn.

Thanks, Lynn good afternoon, everyone and welcome to our fourth quarter and full year 2023 earnings call here with me is John Mccune.

Our interim Chief Financial Officer before I review, our recent performance and strategic priorities for 2024 I'd like to first briefly discuss the announcement we made today regarding my intention to retire as president and Chief Executive Officer and has been a privilege to serve as CEO for the past 10 years or for the past nine years.

Glendon E. French: As a result, we exceeded our initial expectations, achieving full year 2023 revenue of $68.7 million, representing 28% growth over 2022. Beyond revenue growth, 2023 represents a year of strong execution. More specifically, we increased our US commercial footprint in 2023, adding 59 new treating centers, of which 14 were added in the fourth quarter, bringing our total number of centers to 337. We saw improvements in our US account productivity metrics as our focused commercial strategy gained traction throughout the year. We received approval for reimbursement for our Zephyr valve treatment in Japan and are launching a post-market approval study. And lastly, we received approval from FDA to proceed with the launch of our CONVERT2 pivotal study for aerosols.

And lead our mission to bring our zephyr valve treatment to severe emphysema in COPD patients in need I look forward to continuing this work as a member of the company's board of directors. Following my departure and as announced earlier today, Steve Williamson will become president and CEO effective March 15th of this year and I will work closely.

With him as a senior adviser and then in my capacity as a member of the board to ensure a seamless transition Steve brings nearly three decades of med tech industry experience driving revenue growth innovative product launches and numerous acquisitions and global expansion initiatives across high growth and well established public.

Companies.

Glendon E. French: Our success in 2023 positions us well for another strong year. In 2024, we will remain focused on further establishing Zephyr valve treatment as a routine procedure, launching our post-market approval study in Japan, and advancing our aerosol clinical development program. Looking ahead, we anticipate full-year 2024 revenue to be in the range of $81 to $84 million.

I am confident he will effectively lead our business as we embark on our next commercial growth phase now moving to our fourth quarter and full year 2023 performance. We are very pleased with our fourth quarter performance capping off an exciting year for <unk> in which we achieved record sales.

In the fourth quarter, we delivered $19 $3 million in worldwide sales driven by another record U S performance of $13 $7 million in sales, representing 45% growth over the same period last year.

Glendon E. French: To accomplish this, we expect to maintain our three-pronged U.S. commercial strategy, which demonstrated success in 2023. Specifically, we will continue to focus on one, training new hospitals that have the potential to be high-performance Zephyr valve centers. Two, facilitating the sharing of best practices among existing centers to optimize their ZephyrValve programs, and increasingly, three, building local awareness of the benefits of our treatment among COPD physicians and patients. On training new Zephyr Valve centers, as mentioned earlier, we added 14 new centers in the U.S. in the fourth quarter of 2023, bringing our total number to 337 centers.

As a result, we exceeded our initial expectations achieving full year 2023 revenue of $68 $7 million, representing 28% growth over 2020 to BR.

Beyond revenue growth 2023 represents a year of strong execution more specifically, we increased our U S commercial footprint in 2023, adding 59, new treating centers of which 14 were added in the fourth quarter, bringing our total number of centers to 337.

We saw improvements in our U S account productivity metrics as we as our focused commercial strategy gained traction throughout the year.

Glendon E. French: We will continue to selectively identify potentially high-performing Zephyr Valve Centers and expect to establish 10 to 15 new accounts per quarter consistent with our historical pace. Meanwhile, we were very pleased to have achieved our goal to see average U.S. account productivity grow to over five cases per active established center by year-end 2023. From an account activity perspective, we saw 73 percent, or 245 U.S. centers, place a revenue-generating order in the fourth quarter, in line with our year-end expectation.

We received approval for reimbursement for our Zephyr valve treatment in Japan and are launching a post market approval study there.

And lastly, we received approval from FDA to proceed with the launch of our convert two pivotal study for <unk>.

Our success in 2023 positions us well for another strong year in 2024, we will remain focused on further establishing zephyr valve treatment as a routine procedure launching our post market approval study in Japan, and advancing our <unk> clinical development program looks.

Glendon E. French: As a reminder, we designed and reported these account activity and productivity metrics to measure and demonstrate the early success of our focused commercial strategy. As we look ahead, we expect to continue to benefit from year-over-year gains in activity and productivity on an annualized basis. Given our success through 2023, we plan to maintain our three-pronged U.S. commercial strategy in 2024, with an increasing focus on investing more broadly in cost-efficient education around the benefits and availability of Zephyr Valve treatment. More specifically, we plan to begin educating providers within targeted geographies where there are already well-developed programs and allocating additional resources designed to cultivate patient interest.

<unk> ahead, we anticipate full year 2020 for revenue to be in the range of $81 million to $84 million.

To accomplish this we expect to maintain our three pronged U S commercial strategy, which demonstrated success from 2023, specifically, we will continue to focus on one training new hospitals that have the potential to be high performing zephyr valve centers.

To facilitating the sharing of best practices to existing centers to optimize their zephyr valve programs and increasingly three building local awareness of the benefits of our treatment among COPD physicians and patients.

On training news after valve centers as mentioned earlier, we added 14, new centers in the U S. In the fourth quarter of 2023, bringing our total number to 337 centers. We will continue to selectively identify potentially high performing zephyr valve centers and expect to establish 10 to 15 new.

Glendon E. French: In addition to our nationwide education efforts, such as our online CME and webinar programs, in 2024, we will be organizing education sessions in local geographies to engage physicians, nurses, and allied health professionals on the clinical benefits of our Zephyr Valley. In terms of patient education, we are driving efficiency and precision in our direct-to-patient efforts by identifying specific keywords and other elements of our digital ads that most resonate with patients to increase engagement. As a result, we are seeing a greater volume of patient inquiries and deeper engagement on our website and social media channels. In addition to our initiatives to build awareness, we continue to share best practices with less mature accounts to help support our customers as they build more advanced programs. We will also continue to launch new accounts that have the potential to be high performing Zephyr Valve Centers.

<unk> per quarter, consistent with our historical pace means.

Meanwhile, we were very pleased to have achieved our goal to see average U S account productivity grow to over five cases per active established center by year end 2023 from an account activity perspective, we saw 73% or 245 U S centers place a revenue <unk>.

<unk> order in the fourth quarter in line with our year end expectations.

As a reminder, we designed and reported these account activity and productivity metrics to measure and demonstrate the early success of our focused commercial strategy. As we look ahead, we expect to continue to benefit from year over year gains in activity and productivity on an annualized basis.

Given our success through 2023, we plan to maintain our three pronged U S. Commercial strategy in 2024, with an increasing focus on investing more broadly and cost efficient education.

Glendon E. French: Internationally, we are confident in our opportunity to drive further market penetration, particularly in Europe, as growth in the U.S. continues to outpace growth in international markets in 2023. While our commercial focus will remain primarily on growing our U.S. presence, we are working this year to continue optimizing our international operations and to adapt several highly effective tools we developed in the U.S. for our largest OUS markets. We look forward to investing in COPD community education programs to support the development of more successful programs at Zephyr Valve Treatment Centers while increasing peer-to-peer education and support for clinical best practice sharing.

Around the benefits and availability of Zephyr valve treatment more specifically, we plan to begin educating providers within targeted geographies, where there are already well developed programs and allocating additional resources designed to cultivate patient interest.

In addition to our nationwide education efforts, such as our online CME and webinar programs in 2024, we will be organizing education session in local geographies to engage physicians nurses and allied health professionals on the clinical benefits of Zephyr valves in terms of pace.

In education, we are driving efficiency and precision in our direct to patient efforts by identifying specific keywords and other elements of our digital ads that most resonate with patients to increase engagement. As a result, we are seeing a greater volume of patient inquiries and deeper engagement on our.

Glendon E. French: We believe our efforts will collectively serve as the foundation for sustained growth in the future. More specifically, we anticipate the impact of our international efforts to become increasingly evident next year as we focus on foundation building this year. Additionally, we have commenced our post-market approval study in Japan and expect to enroll our first patients in the first half of this year. As a reminder, we received approval for reimbursement for our Zephyr Valve treatment in Japan last year and will initiate sales through a post-market approval study of approximately 140 patients at 10 to 15 sites.

And social media channels. In addition to our initiatives to build awareness, we continue to share best practices with less mature accounts to help support our customers as they build more advanced programs. We will also continue to launch new accounts that have the potential to be high performing zephyr valve centers.

Internationally, we are confident in our opportunity to drive further market penetration, particularly in Europe as growth in the U S continues to outpace growth in international markets in 2023, while our commercial focus will remain primarily on growing our U S. Presence. We are working this year to continue optimizing our <unk>.

International operations and to adapt several highly effective tools, we developed in the U S for our largest O U S markets. We look forward to investing in COPD community education programs to support the development of more successful programs at Zephyr valve trading centers, while increasing peer to peer.

Glendon E. French: At this point, we are working closely with key opinion leaders to generate awareness of the clinical benefits of our Zephyr Valve and to train sites for enrollment. This study marks an essential step toward broader commercialization in a new market, where we estimate approximately 100,000 patients stand to benefit from our treatment. Meanwhile, we are very happy to be advancing our clinical development pipeline following the receipt of FDA approval to commence the aeroseal pivotal trial, CONVERT-2. This study marks a critical step in our efforts to expand our addressable market to include the one in five patients who undergo a chartus assessment and are not currently eligible to receive Zephyr valves due to the presence of collateral ventilation in the target load. CONVERT-2 is designed to evaluate the safety and effectiveness of the aeroseal system in limiting collateral ventilation in severe COPD and emphysema patients.

<unk> and support for clinical best practice sharing we believe our efforts will collectively serve as the foundation for sustained growth in the future more specifically, we anticipate the impact of our international efforts to become increasingly evident next year as we focus on foundation building. This.

Year.

Additionally, we have commenced our post market approval study in Japan, and expect to enroll our first patients in the first half of this year. As a reminder, we received approval for reimbursement for our Zephyr valve treatment in Japan last year, and we will initiate sales through a post market approval study of approximately 104.

<unk> patients at 10% to 15 sites at this point, we are working closely with key opinion leaders to generate awareness of the clinical benefits of Zephyr Val and to train sites for enrollment. This study marks an essential step toward broader commercialization in a new market, where we estimate approximately 100000 patients stand to benefit from our <unk>.

Glendon E. French: The study will enroll approximately 200 patients in and outside the U.S. Patients who experience conversion following aerosol treatment will then be implanted with Zephyr valves per the current standard of care for lung volume reduction. Procedural success, defined as lung volume reduction, and other clinical parameters will be evaluated at six months post-valve treatment, which will be used to support our PMA application. We are thrilled to be moving forward with Convert2, which we currently expect to enroll through approximately at the end of next year. We also look forward to the presentation of final data from CONVERT-1 following enrollment completion. We continue to expect final data to be presented at the European Respiratory Society Congress in early September of this year in Vienna.

<unk>.

Meanwhile, we are very happy to be advancing our clinical development pipeline. Following the receipt of approval from FDA to commence the <unk> pivotal trial convert to this study marks a critical step in our efforts to expand our addressable market to include the one in five patients who undergo a cha.

<unk> assessment and are not currently eligible to receive that for valves due to the presence of collateral ventilation in the target low <unk>.

<unk> two is designed to evaluate the safety and effectiveness of the <unk> system, and limiting collateral ventilation and severe COPD and emphysema patients.

The study will enroll approximately 200 patients in and outside the U S patients who experienced conversion. Following aerocele treatment will then be implanted with zephyr valves per current standard of care for lung volume reduction procedural success defined as long volume reduction and other clinical parameters will be a.

Glendon E. French: In summary, we are very pleased with our 2023 performance and remain as confident as ever in our strategy and long-term growth trajectory of our business. I will now turn the call over to John to provide a more detailed review of our fourth quarter results. Thank you, Glenn, and good afternoon, everyone.

<unk> at six months post valve treatment, which will be used to support our PMA application. We are thrilled to be moving forward with convert to which we currently expect to enroll through approximately at the end of next year.

John B. McKune: Total worldwide revenue for the three months ended December 31, 2023, was a record $19.3 million, a 25% increase from $15.4 million in the same period of the prior year and an increase of 23% on a constant currency basis. Our strong performance was driven by sustained momentum across the U.S. and reflects our expectation for near-term growth to be driven by U.S. performance as we work across international markets to optimize our commercial infrastructure and introduce new tools. U.S. revenue in the fourth quarter reached a new high of $13.7 million, a 45% increase from $9.5 million during the prior year period.

We also look forward to the presentation of final data from convert one following enrollment completion.

Continue to expect final data to be presented at the European Respiratory Society Congress in early September of this year in Vienna. In summary, we are very pleased with our 2023 performance and remain as confident as ever in our strategy and long term growth.

<unk> of our business I will now turn the call over to John to provide a more detailed review of our fourth quarter results.

Thank you Glenn and good afternoon, everyone.

Total worldwide revenue for the three months ended December 31, 2023 was a record $19 3, million% to 25% increase from $15 4 million in the same period of the prior year and an increase of 23% on a constant currency basis.

John B. McKune: International revenue in the fourth quarter of 2023 was $5.6 million, a 7% decrease from $6 million during the same period last year and a decrease of 12% on a constant currency basis. Gross margin for the fourth quarter of 2023 was 75% compared to 73% in the prior year. Reflecting Benefits from Efficiencies in Production and Increasing Pricing. In 2024, we expect gross margin to fall within the range of 74% to 75%, remaining near 74% in the first half of the year and trending towards 75% in the back half of the year. Total operating expenses for the fourth quarter of 2023 were $28.3 million, a 10% increase from $25.8 million in the fourth quarter of 2022. Non-cash stock-based compensation expense was $5.6 million in the fourth quarter of 2023.

Our strong performance was driven by sustained momentum across the U S and reflects our expectation for near term growth to be driven by U S performance as we work across international markets to optimize our commercial infrastructure and introduced new tools.

U S revenue in the fourth quarter reached a new high of $13 7 million or 45% increase from $9 5 million during the prior year period.

International revenue in the fourth quarter of 2023 was $5 $6 million.

7% decrease from $6 million during the same period last year and a decrease of 12% on a constant currency basis.

Gross margin for the fourth quarter of 2023 was 75% compared to 73% in the prior year, reflecting benefits.

Benefits from efficiencies in production.

And increasing pricing.

In 2024, we expect gross margin to fall within the range of 74% to 75% remaining near 74% in the first half of the year and trending towards 75% in the back half of the year.

Total operating expenses for the fourth quarter of 2023 were $28 3, million% to 10% increase from $25 $8 million in the fourth quarter of 2022.

John B. McKune: Excluding stock-based compensation expense, total operating expenses in the fourth quarter of 2023 increased 6% from the same period of the prior year. Looking ahead, we expect operating expenses for the full year 2024 to fall between $132 to $134 million, inclusive of approximately $30 million of non-cash stock-based compensation expense, as we take a disciplined and prudent approach to managing expenses while continuing to invest to drive growth. Excluding non-cash stock-based compensation expense, our operating expense guidance implies an increase in operating expenses of 11 to 13 percent in 2024 over 2023, demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate than we expect to grow revenue. R&D expenses for the fourth quarter of 2023 were $3.9 million, flat from the same period of the prior year.

Noncash stock based compensation expense was $5 $6 million in the fourth quarter of 2023.

Excluding stock based compensation expense total operating expenses in the fourth quarter of 2023 increased 6% from the same period of the prior year.

Looking ahead, we expect operating expenses for the full year 2024 to fall between $132 million to $134 million inclusive of approximately $30 million of noncash stock based compensation expense.

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

Excluding noncash stock based compensation expense, our operating expense guidance implies an increase in operating expenses of 11% to 13% in 2024 over 2023, demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate.

Then we expect to grow revenue.

R&D expenses for the fourth quarter of 2023 were $3 9 million.

Flat from the same period of the prior year.

John B. McKune: Sales, general, and administrative expenses for the fourth quarter of 2023 were $24.4 million, compared to $21.9 million in the fourth quarter of 2022. The increase was primarily attributable to investment in our commercial activities, as well as an increase in legal and stock-based compensation expenses. The net loss for the fourth quarter of 2023 was $13.9 million, or a loss of $0.36 per share, as compared to a net loss of $14.3 million, or a loss of $0.38 per share, for the same period of the prior year. An average weighted share count of 38.4 million shares was used to determine the loss per share for the fourth quarter of 2023.

Sales general and administrative expenses for the fourth quarter of 2023 were $24 4 million compared to $21 9 million in the fourth quarter of 2022.

The increase was primarily attributable.

<unk> investment in our commercial activities as well as an increase in legal and stock based compensation expenses.

Net loss for the fourth quarter of 2023 was $13 9 million or a loss of 36 per share as compared to a net loss of $14 3 million or a loss of 38 cents per share for the same period of the prior year.

And average weighted share count of $38 4 million 30.

$38 4 million shares was used to determine loss per share for the fourth quarter 2023.

John B. McKune: Adjusted EBITDA loss for the fourth quarter of 2023 was $8.4 million, as compared to $9.8 million in the fourth quarter of 2022. We ended December 31st, 2023 with $131.5 million in cash, cash equivalents, and marketable securities, a decrease of $8.3 million from September 30th, 2023, and $37.2 million of debt outstanding. Over the full year 2023, our total cash burn was $36 million, compared to approximately $44 million in 2022, well ahead of our initial expectations. We believe our prudent cash management in 2023, combined with our expectation to further improve our burn rate in 2024 and beyond, keep us comfortably on track to reach cash flow breakeven in our current operations with the capital that we have on hand. We continue to manage our business to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive. Now turning to our revenue outlook for 2024, we expect to deliver full year 2024 revenue in the range of $81 to $84 million.

Adjusted EBITDA loss for the fourth quarter of 2023 was $8 4 million as compared to $9 8 million in the fourth quarter of 2022.

We ended December 31, 2023, with $131 $5 million in cash cash equivalents and marketable securities a decrease of $8 $3 million from September 32023.

And $37 $2 million of debt outstanding.

Over the full year 2023, our total cash burn was $36 million compared to approximately $44 million in 2022, well ahead of our initial expectations.

We believe our prudent cash management in 2023, combined with our expectation to further improve our burn rate in 2024 and beyond keeps us comfortably on track to reach cash flow breakeven in our current operations with the capital that we have on hand.

We continue to manage our business to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive.

Now turning to our revenue outlook for 2024, we.

We expect to deliver full year 2020 for revenue in the range of $81 million to $84 million.

John B. McKune: We anticipate a neutral to slightly positive impact on revenue from foreign exchange. As is typical in our business, we expect sales in the first quarter of 2024 to be down sequentially compared to the fourth quarter of 2023 before seeing improvement throughout the balance of the year, similar to what we saw in 2023. As Glenn mentioned, we also expect to continue to see much stronger growth in the US compared to international geographies throughout 2024. With that, I will turn the call back to Glenn for closing comments. Thanks, John.

We anticipate a neutral to slightly positive impact on revenue from foreign exchange.

As is typical in our business, we expect sales in the first quarter of 2024 to be down sequentially compared to the fourth quarter of 2023.

Before seeing improvement throughout the balance of the year similar to what we saw in 2023.

As Glenn mentioned, we also expect to continue to see much stronger growth in the U S compared to international geographies throughout 2024.

With that I will turn the call back to Glenn for closing comments.

Thanks, John.

Glendon E. French: In summary, we are very pleased with our fourth quarter and full year 2023 performance and remain confident in our ability to execute on our commercial and clinical development goals to drive long-term sustainable growth. Further, we remain focused on expanding and strengthening our account base in our current markets while we are also advancing our AeroSeal Convert2 clinical trial and executing our post-market approval study in Japan. Lastly, our revenue growth, strong balance sheet, and healthy gross margins together provide us with a clear path to cash flow break even. Again, it has been a pleasure to serve as CEO for the past nine years.

In summary, we are very pleased with our fourth quarter and full year 2023 performance and remain confident in our ability to execute on our commercial and clinical development goals to drive long term sustained growth.

Further we remain focused on expanding and strengthening our account base in our current markets. While we are also advancing our <unk> convert to clinical trial and executing our post market approval study in Japan.

Lastly, our revenue growth strong balance sheet and healthy gross margins together provide us with a clear path to cash flow breakeven.

Again, it has been a pleasure to serve as CEO for the past nine years I look forward to continuing to support the business as a member of the company's board of directors and to welcoming Steve Williams Center Pulmonic and a few weeks together, we will work to ensure a very smooth transition with that.

Glendon E. French: I look forward to continuing to support the business as a member of the company's Board of Directors and to welcoming Steve Williamson to Pulmonx in a few weeks. Together, we will work to ensure a very smooth transition. With that, I'd like to thank you for your attention, and we will now open the call up for questions. Operator.

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

Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

As a reminder to ask a question at this time. 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 our Q&A roster.

Operator: Please stand by while we compile our Q&A roster. And our first question is going to come from the line of Jason Bednar with Piper Sandler. Your line is open. Please go ahead. Hey, good afternoon.

And our first question is going to come from the line of Jason Bednar with Piper Sandler. Your line is open. Please go ahead.

Hey, good afternoon, thanks for taking the questions and first off Glenn Congrats on the retirement everything you've done for pulmonic from the academic community really hoping the best for you and we've really enjoyed working with you here.

Jason M. Bednar: Thanks for taking the questions. And first off, Glenn, congratulations on the retirement and everything you've done for Pulmonx and the emphysema community. Really hoping the best for you and really enjoyed working with you here. Wanted to start off really just, you know, first question, Glenn, on the three-pronged effort you've talked about driving growth in the U.S. And then talking about leveraging some of those items as you look to your OUS market. I guess of those levers that you've talked about and you're pulling on, can you talk about which of these you expect to have the greatest impact in 2024? And would you anticipate the upside for, you know, that's leading to your guidance this year? Is that coming, you know, probably more from account productivity, an increase in the active accounts that you're talking about? I think you finished at 73%.

Right.

Okay.

Wanted to start off really just first question Glenn your three pronged effort you've talked about in driving growth in the U S and then.

Talking about leveraging some of those items as you as you look to your O U S market I guess all of those levers that you've talked about you're pulling on can you talk about which of these <unk> that you would expect to have the greatest impact in 2024.

Would you anticipate the upside.

That's leading to your guidance this year is that coming.

Probably more from account productivity increase in the active accounts that youre talking to I think you finished at 73% is there any upside there.

Glendon E. French: Is there any upside there? Just how do we think about the growth algorithm coming together this year? Jason, thank you very much for your initial comments. I appreciate that.

Do we think about the growth algorithm coming together this year.

Jason Thank you very much for your your initial comments I appreciate that with regard to the question in terms of the three pronged efforts.

Glendon E. French: With regard to the question in terms of the three-pronged efforts, you know, our business is, you know, obviously out of the blocks; we needed to open up some accounts, but it's never been central to what we do to open up these new accounts. It's been fairly organic. We provide no specific incentives to open them up.

Our business is.

Obviously out of the blocks, we needed to open up some accounts, but it's never been central to what we do to.

To open up these new accounts, that's been fairly organic we provide no specific incentives.

Glendon E. French: They just, they're folks that we come upon either because geographies are not well covered, or physicians decide that they really want to try to push us to open up a specific account in a specific geography. So training more hospitals, I don't see as sort of central to any kind of upside this year. I think we'll continue to be opening up new accounts, as I mentioned. We've always talked about 10 to 15 per quarter.

To open them up they just they are folks that we that we come upon either because geographies or not well covered or physician decide that they really want to try to push us to open up a specific account in a specific geography, so training more hospitals I don't see us sort of central to any kind of upside this year I think we'll.

<unk> to be opening up new accounts as I mentioned, we've always talked about 10 to 15 per quarter I imagine that will continue.

Glendon E. French: I imagine that it'll continue. So, in any case, that's the case. That's where we are. I think that it's the second and the third element.

So in any case, that's the case, that's where we are I think that it's the second and the third element most of the performance that we have seen over the last.

Glendon E. French: Most of the performance that we have seen over the last five quarters has been driven by the second point, which is facilitating best practices and increasing efficiency at our Zephyr Valve Center, sort of taking them from left to right on this very well-defined process that we've established. And I would imagine, and I know that we're not nearly where we want to be with that process. And I would imagine that as we look across the year, if you were to say, if, hypothetically, there was an upside to what we're talking about, it would probably come from continuing to execute very well on that additional element. Also, as we've talked about earlier in the script, we're going to turn up a little bit on the activity in increasing local awareness. And so that too could be a contributor. But we've had, what I would say is, less experience in that vein to this point, although we've tested it over the last several years and are very confident in our ability to bend the curve in a positive way there.

Five quarters has been driven by the second point, which is facilitating best practices and increasing efficiency at our zephyr valve centers sort of taking them from left to right on this very well defined process that we've established and I would imagine I know that we're not <unk>.

Nearly where we want to be with that process and I would imagine that as we look across the year. If you were to say if hypothetically there was upside to what we're talking about it would probably come from continuing to execute very well on that additional element.

Also as we've talked about.

I talked about earlier in the script, we're going to turn up a little bit on those on the activity and increasing local awareness and so that too could be a contributor.

But we've had.

I would say is less experience in that vein to this point, although we've tested it over the last several years and are very confident in our ability to bend the curve in a positive way there.

Glendon E. French: You know, we don't have as much experience as we do optimizing the existing accounts, so I would say those second two elements will likely be bigger contributors to the upside if that was to present. Okay, no, that's actually a nice segue.

We don't have as much experience as we do optimizing the existing accounts. So I would say those second two elements.

Likely be bigger contributors.

<unk>.

Two upside if that was 2% itself.

Okay.

Jason M. Bednar: I'm going to have a little bit of a two part follow up here. You know, maybe first on that, just, I did pick up on that on the raising awareness in the local community point. It did sound more comprehensive, maybe than we've heard in the past. Is that what's driving the greater uptick in OPEX, that the OPEX spend looked a little bit higher in the guide than we were thinking? Or are you just diverting funds that you had previously allocated elsewhere? And, you know, this actually isn't as much of a raise as I maybe think it is. So that'd be one point. But then moving back up the P&L, you know, I guess, what's it going to take from a volume perspective to get gross margins working even higher than where we're at right now? Mid 70s are nothing to sneeze at.

A nice segue I going to have a little bit of a two part follow up here, maybe first on just I did pick up on that on the raising awareness in the local community point It did sound.

More comprehensive maybe than we've heard in the past is that what's driving the the greater uptick in opex that the the opex spend look a little bit higher in the guide than what we were thinking.

Or are you just are you diverting funds that you had previously allocated elsewhere.

That's actually isn't as much of the other raises what maybe I am thinking it is so that'd be one point, but then moving back up the P&L.

I guess, what's it going to take from a volume perspective to get gross margins working even higher.

And then where we're at right now.

Mid seventy's or nothing to sneeze at but.

Glendon E. French: But, you know, it seems like there should still be a little more upside, especially if a lot of this growth is coming from a higher-margin market like the US. Well, as always, Yeah, good, good questions, Jason. I'm going to hand this off to John in just a second.

It seems like there should still be a little more upside, especially if a lot of this growth is coming from a higher margin market like the U S.

Yes, Jason we will as always.

Yes, good good questions, Jason I'm going to hand this off to.

To John in just a second here, but.

Glendon E. French: But before we talk about driving up OPEX, which was the first part of the question where you were wondering if increasing local awareness was materially increasing our OPEX, I'll leave that to John to comment on. I will say that on the margin side of things, our business is sensitive, or our margins are sensitive to volume. And so as volume goes up, that's probably the greatest way that we can continue to inch up our margins. I'll leave you with that, if John wants to embellish that further. Great. Otherwise, John, do you want to take the first element of the question?

Before we talk about the driving up Opex, which was the first.

Part of the question, where you were wondering if increasing local awareness was materially increasing our opex I'll leave that to Jon to comment on I will say that on the margin side of things our business is sensitive or our margins are sensitive to volume and so as volume goes up that's probably the greatest way that we can.

<unk> to inch up our margin so our I'll leave you with that.

John wants to embellish that further right.

Otherwise John you want to take the first element of the question.

John B. McKune: Sure. As far as OPEX goes, Jason, yeah, the part of the increase is going to be increasing the spend as it relates to further educating the community about the benefits of the Zephyr Valve. So, very simple answer, yes, that is driving part of the increase in the. Okay, helpful. You know, maybe I'll save one more for later. But just maybe to come back to that, the mid 70s.

Sure.

As far as Opex goes Jason Yes, the part of the increase is going to be increasing the spend.

As it relates to further educating.

The community about the benefits of this after about.

So.

Very simple answer yes that is driving part of the increase in the Opex.

Okay helpful.

Yes.

Maybe I'll say it one more for for later, but.

Okay, just maybe to come back to that that mid 70%. I mean is there anything we can think about as far as like where U S. Gross margins sit today and like maybe incremental margins as like that that incremental volume comes through.

Jason M. Bednar: I mean, is there anything we can think about as far as like where US gross margins sit today and maybe incremental margins as that incremental volume comes through? Yeah, you are correct that as the U.S. continues to grow, that has a positive impact on our global gross margin numbers. And as I talked about before, volume also positively impacts it. But there are some counterbalancing elements, increasing costs associated with raw materials and so forth, which factor into that.

Okay.

Yeah.

Our correct that.

As the U S continues to grow that has a positive impact on our global gross margin number.

And as I talked about before volume also positively impacts theres, some counterbalancing elements, increasing costs associated with raw materials, and so forth, which factor into that but the net of it is is that both of those you've hit on the two things that are most significant in moving and inching up.

John B. McKune: But the net of it is that both of those you've hit on are the two things that are most significant in moving and inching us further up on that margin scale. So getting into the upper half of the 70s is helped by growing faster in the U.S., and it's helped by spreading our overhead here in Northern California across a greater number of. Okay, very helpful. Thanks so much, Glenn.

Further up on the on that margin scale, so getting into the upper half of the seventies.

Is helped by growing faster in the U S and it's helped by.

Spreading our overhead here in northern California across a greater number of units.

Okay very helpful. Thanks, So much guys congrats again.

Jason M. Bednar: Thank you, and one moment for our next question. Our next question is going to come from the line of Rick Wise with Stiefel. Your line is open, please go ahead. Good afternoon to you both.

Thank you.

Thank you and one moment for our next question.

Our next question is going to come from the line of Rick Wise with Stifel. Your line is open. Please go ahead.

Good afternoon to you both.

Frederick Allen Wise: Glenn, just as Steve Williamson's new advisor, counselor, or whatever words you used, and a member of the board. When is the agenda coming in? Is it simply, and I say that in air quotes, is it simply to continue to execute the plans that you've laid out? I was just struck that you used the phrase about him taking the company to its next commercial growth phase. So just maybe you could expand on what you've charged him or asked him to do and maybe give us a little more color on what you see as the next commercial growth phase.

Glenn just.

As.

Steve Williams.

The adviser council or whatever word you used.

<unk>.

A member of the board.

When.

Hello.

Whats the agenda.

Coming in is it simply.

Eric.

It simply continue to execute the plan that you've laid out.

I was just struck that you used the phrase.

About him.

Taking the company.

It's next commercial growth rate.

Just maybe you could expand on.

His.

What you've charged him.

Or asked them to do and maybe give us a little more color on what you see as the next commercial growth.

Glendon E. French: So Rick, you want to talk to you in particular? We've talked a lot about sort of where we are in our process. And we've talked about this three-step process where we have to have really well trained accounts that are executing this procedure routinely and efficiently. And then we need to engage with the surrounding COPD physicians, who control as many as 90% of the patients in a given geography, and get them to the right place and then activate the patients that are rolling in.

Got it so Ricky you in particular I know, we've talked a lot about sort of where we are in our process and we've talked about this three step process, where we have to have really well trained accounts that are executing this procedure routinely and efficiently and then we need to engage with the <unk>.

Surrounding COPD physicians, who control as many as 90% of the patients in a given geography and get them to the right place and then activate the patient's that are rolling in and as it relates to that sort of a third a third a third we are in the early innings here. We are literally maybe we're in the second or third inning as we're trying to bring these accounts forward. So.

Glendon E. French: And as it relates to that sort of a third, a third, a third, we are in the early innings here; we are literally, you know, maybe we're in the second or third inning as we're trying to bring these accounts forward. So we have a lot of additional work, some of which we're doing in sort of parallel with geographies that are more advanced in terms of their development than others, but we're still in the early innings. And so there's plenty of opportunity to continue to execute on the existing plan. As we begin to learn about, you know, or engage more and more in driving patients off the edges in our more developed geographies, I think there will be opportunities for us to accelerate even further. You know, Aeroseal provides an incremental way to accelerate expanding in the marketplace.

We have a lot of additional work some of which we're doing and sort of staggered parallel in geographies that are more.

Advanced in terms of their development than others, but we're still in the early innings and so there's plenty of opportunity to continue to execute against the existing plan as we begin to learn about.

Engage more and more in the in the driving patients and at the edges and our more developed geographies I think there will be opportunities for us to to accelerate even further.

<unk> provides an incremental way to accelerate the expanding in the marketplace does I think we feel like this ship is pointed in the right direction. The sales are up.

Glendon E. French: I think we feel like this ship is pointed in the right direction. The sales are up. And with regard to Steve's charge, he's going to be, I think he's got a great background in moving markets. And as it relates to us, I think, you know, probably finding additional ways to get more wind behind those sales. Yeah, that makes total sense.

And with regard to Steve's charge, he is going to be.

I think he's got a great background of of moving markets and as it relates to us I think.

Probably finding additional ways to get more wind behind that those sales.

Yes.

Frederick Allen Wise: And to what degree is international an important or stepped-up aspect of this next phase? I mean, obviously, with Japanese approval, that's going to make a difference in the post-market study underway. But maybe you could give us that larger perspective and, at the same time, help us better understand, just as we look ahead to next year, should we expect that international business is going to, you know, sort of return to more compelling growth? Or how do we think about that setup for 24?

It'll fence.

And to what degree you.

International.

An important Doris stepped up.

Aspect of this.

Obviously with Chapman approval, that's going to make a difference.

The the post market study underway.

But maybe give us that larger perspective and at the same time.

US better understand just as we look ahead to next year.

Should we expect that the international business is going to be.

Sort of return to more compelling growth or.

How do we think about that setup.

Glendon E. French: Thank you. Okay, so we're talking about 24 because you said next year. I just want to make sure we're talking about the same year. I'm sorry.

Thank you.

Okay. So you were talking about 24, because you said next year I just want to make sure. We're talking about the same sites same year, yet 24, <unk> 24 and beyond.

Frederick Allen Wise: Yes. 24. Well, 24 and beyond.

Glendon E. French: Okay. Yeah. No. I think it's a great question.

Okay, Yes.

Yes, no I think it's a great question you know we.

Glendon E. French: You know, we have it's a really good question. So, let me, let me try to answer it concisely. I think that we have demonstrated what good looks like and what essential it is to our business in the United States. We have always known that everywhere in the world, the great majority of patients are controlled by doctors in geographies that are sort of outside the field of view of the treating doctors. We feel very strongly that centers of excellence is the right approach. And so, I don't care where you are in the world.

We have it's a really good question.

Let me, let me try to answer it concisely.

I think that we have demonstrated what good looks like and what essentially is to our business in the United States, We have always known that everywhere in the world.

The great majority of patients are controlled by doctors.

In geographies that are sort of outside the field of view of the trading centers, we feel very strongly that centers of excellence is the right approach and so I don't care, where you are in the world. Most of the patients are sort of quote unquote outside the field of view of the treating physicians.

Glendon E. French: Most of the patients are sort of quote unquote outside the field of view of the treating physician. So in the United States, we might have a dozen different tools that we are testing and using and identifying the things that work and work really well. Some of those tools are processed. Some of those tools are literally, you know, selling tools and so forth.

So in the United States, we might have a dozen different tools that we are testing and using in identifying the things that work and work really well some of those tools are process. Some of those tools are literally selling tools and so forth.

Glendon E. French: We also know that the sales reps that are most productive in this kind of environment have a certain personality type, and a certain skill set, and so with regard to our team outside the United States, we have been intentionally evolving it in the direction of having the kind of profile that we've demonstrated works really well in the United States. We're identifying those subset of tools that have worked really well in the United States, and I think really this year, 2024, is going to be about taking a handful or fewer of those key tools that are working great and making sure that we put them in place, the processes, and tools in our major markets. We're in 25 different markets, but 80% of our international business is in Europe, and it's probably in about four different countries, so that's going to be our focus as it relates to our international business.

We also know that the sales reps that are most productive in this kind of environment have a certain personality certain skill set and so with regard to our team outside of the United States, we have been intentionally evolving it in the direction of having the kind of profile that we've demonstrated works really well in the United States.

We're identifying that subset of tools that have worked really well in the United States and I think really this year 2024 is going to be about taking a handful or fewer of those key tools that are working great.

And making sure that we put them in place the processes and tools in our major markets. We're in 25 different markets, but 80% of our international businesses in Europe, and it's probably in about four different countries. So it is going to be that's going to be our focus as it relates to our international business again, 85% of our businesses.

Glendon E. French: Again, 85% of that business is in Europe, so we're going to really be focused on best practices and installing those with our newly strengthened, essentially, team that's well-focused and well-equipped. As it relates, so that's that this year. And I think that, you know, we're going to get things moving in a good and solid direction this year, probably harvesting most of or a good bit of the upside in 2025. So we're just setting things up to get them moving in the right direction. I wouldn't over index on the international contribution in 2024. Unknown Speaker, Part of that's for the reasons that I just talked about. And part of that is what's going on in Japan.

In Europe, So we're going to really be focused on best practices and installing those with our newly strengthened essentially team, that's well focused and well equipped.

Isn't it.

That's this year and I think that we're going to we're going to get things moving in a good and solid direction. This year, probably harvesting most of or a good bit of the upside in 2025. So we're just we're setting things up getting them moving in the right direction I wouldn't over index on the international contribution in <unk>.

24.

Part of that is for the reasons that I just talked about and part of that is what's going on in Japan, we're going to put it.

Glendon E. French: We're gonna put a little bit less than half of the patients into the study that stands between us and sort of Freedom.fully operating commercially in Japan. We are generating revenue through the study that we're executing, but out of the 140 patients, we're gonna get a third or so of them into this study this year. There are a lot of startup steps that have to go along the way here, including, you know, training the physicians, getting them up and running, and making sure that we've got the referral paths all opened up.

A little bit less than half of the patients into the study that stands between us and sort of freedom that fully operate commercially and Japan.

Japan, we are generating revenue through the study that we're executing but out of the 140 patients we're going to get it a third or so of them into this study this year Theres a lot of.

Startups steps that have to go along the way here, including training the physician getting them up and running and making sure that we've got their referral past all.

Glendon E. French: The good news is that we're going to be making a lot of noise in Japan as we execute on this study, which probably bodes well for us when things open up. But if we get a third of the patients this year in Japan to populate that study and the balance in next year, we don't see material revenue coming out of Japan until 2026, when we're able to open it up more broadly. And the good news, again, just as a reminder, is that we don't have to wait for any kind of six-month follow-up or anything like that in those patients. Once we get through that 140th patient, that gets opened up more broadly in a market that is going to be very well aware of this technology because we handpick these sites, not only because they're the most influential, but also because they're very well-dispersed geographically. So there's gonna be broad awareness, I expect, at the time that this opens up, late 25, early 26. That's great!

All opened up so good news is that we're going to be making a lot of noise in Japan as we're executing on this study, which probably bodes well for us when things open up but what if we get a third of the patients in this year in Japan to populate that study and the balance of next year, we don't see material revenue coming out of Japan until 2020.

Six when we're able to open it up more broadly and the good news again, just as a reminder is that we don't have to wait for any kind of six month follow up or anything like that on those patients. Once we get through that 140 is patient that gets opened up more broadly.

In a market that.

Is going to be very well aware of this technology, because we handpicked the site's not only because they are most influential but also because they are very well dispersed geographically so theres going to be broad awareness I expect at the time that this opens up late 'twenty five early 2006 in Japan.

Frederick Allen Wise: Glenn, thank you for everything and congrats. Rick, it's been a pleasure working with you over the last couple decades. Thank you.

That's great. Thank.

Thank you for everything and congrats.

Rick it's been it's been a pleasure working with you over the last couple of decades.

Okay. Thank you and our next question is going to come from.

Operator: And our next question is going to come soon. One moment for our next question. And our next question is going to come from the line of John Young with Canaccord. Your line is open. Please go ahead. Hi, good. I'm John.

One moment for our next question.

And our next question is going to come from the line of John Young with Canaccord. Your line is open. Please go ahead.

Yeah.

John Edward Young: I just want to wish my friends congratulations on their retirement. Congratulations on a strong Q4. I just kind of want to circle back to some of the comments from the Q&A session. First, I want to make sure I heard you correctly on Jason's question when I think about BEX for next year. You know, these increases sound like mostly SG&A from the education efforts. I also know you're enrolling Converg2 through the year. So, you know, how should we think of R&D increases for next year, too? I'll take that one.

Hi, John just wanted to thank Brian Congratulations on the retirement congrats on a strong Q4.

I, just kind of want to circle back to some of the comments from.

A Q&A session.

First I want to make sure I heard you correctly on Jason's question, when I think about Opex for next year.

The increase is it sounds like mostly SG&A from the education effort.

I know you're enrolling convert tiers through the year. So how should we think of R&D increases for next year too.

Yeah, I'll take that one John Thanks for the question.

John B. McKune: John, thanks for the question. Yeah, we expect R&D to be up in 24 compared to 2023, as we are, as you point out, as we enroll in our conversion to study and get that going. So we do expect to see on the OPEX front, both increases in SG&A driven by our investment in the commercial side of things, and then in R&D, as well as as we invest in the conversion to study.

Yeah, we expect R&D to be up in 24 compared to 2023 as we are.

As we are and as you pointed out as we enroll in our convert to sale two study and get that going so we do expect to see on the Opex front both increases in SG&A.

Driven by our investment in on the commercial side of things and then in R&D as well as we invest in the convert study.

John B. McKune: Thanks, John. And then Glenn, just on Japan and your comments on Rick's question there, you know, is that timing a deviation from initial expectations, especially with one third of the patients being enrolled in 2024? And can you talk about maybe a little more color about, you know, maybe some of the intricacies of the market and some of the time it takes to enroll these patients? I'm sure. I don't know if it's a trend or not.

Thanks, John and then Glenn just on Japan, and your comments on Greg's question there.

Is that timing of deviation from initial expectations, especially.

One third of the patients being enrolled in 2020 four and can you just talk maybe a little more color about.

Yes, Nathan the intricacies of the market and some of the the time it takes that Tim where all these patients.

Sure.

I don't know if its a deviation I will say that these.

John Edward Young: I will say that these trials are hard to predict when they're going to be done. Until you get about a third of the patients in, it's really hard to see when the end is going to be. You probably enroll a third of the patients in the last three or four months of these studies. They absolutely pick up steam over time. There's also, in all of these studies, a non-trivial amount of startup time, meaning, you know, the regulatory authorities give you the green light, and that just allows you to go in and negotiate the contracts with the sites. You have to get the approval of ethics committees at those sites, and then you have to open up their referral process, and you can't do any activity beyond what I just said until you have ethics committee approval.

These trials.

Are hard to predict when they're going to be done until you get about a third of the patients then it's really hard to see when the yen is going to be probably enroll a third of the patients in the last three or four months of these studies absolutely pick up steam over time.

Theres also in all of these studies non trivial amount of startup time, meaning the regulatory authorities, giving you a green light and that just allows you to go in and negotiate.

The contracts with the sites you have to get the.

Approval of ethics committees at those sites and then you have to open up their referral process and can't do any activity beyond.

What I just said until you have ethics committee approval and so there's a great deal of lead time so.

Glendon E. French: And so there's a, there's a great deal of lead time. So we've always anticipated that. I mean, this is like the 10th study I've done in this particular space over the last 27 years. And I think the shape of the curve is going to look very much like we've seen in all the prior studies. So I wouldn't say the shape of the curve is in any way a surprise.

We've always anticipated that.

It's like the 10th study I have done in this in this particular space over the last 27 years.

And it's I think the shape of the curve is going to look very much like we've seen in all the prior studies. So I wouldn't say the shape of the curve is in any way a surprise.

Glendon E. French: And we're just getting up and going, and we would expect to announce our first patient in both of these trials, the Japanese study, as well as CONVERGE-2, in the first half of this year. Great. Thanks again, Connie. Congratulations. Thank you. And again, ladies and gentlemen, if you would like to ask a question at this time, please press star 11 on your telephone. And our next question comes from the line of Alex Nowak with Craig Hallam. Your line is open. Please go ahead.

And we're just getting up and going and would expect to announce our first patient in both of these trials the Japanese study as well as convert to.

In the first half of this year.

Great. Thanks, again and congratulations.

Thank you.

Thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone.

And our next question comes from the line of Alex Nowak with Craig Hallum. Your line is open. Please go ahead.