Q1 2024 Pulmonx Corporation Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to Pulmonx's Q1 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. 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 speaker today, Elizabeth Spauriccio, Investor Relations at the Gilmartin Group. Please go ahead.
Speaker Change: Good day, and thank you for standing by welcome to pull them on ex Q1 2024 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.
Speaker Change: Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your Speaker today Elisabeth Spa Reseal Investor Relations at the Gilmartin Group. Please go ahead.
Elizabeth Spauriccio: Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonx are Steve Williamson, President and Chief Executive Officer, and Mehul Joshi, Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the quarter ended March 31st, 2024. A copy of the press release is available on Pulmonx's website.
Speaker Change: Good afternoon, and thank you all for participating in today's call. Joining me from <unk> are Steve Williamson, President and Chief Executive Officer, and the whole Joshi, Chief Financial Officer earlier today Puma issued a press release announcing its financial results for the quarter ended March 31 2020.
Speaker Change: Sure.
Speaker Change: Copy of the press release is available on <unk> website.
Elizabeth Spauriccio: 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 relating to our operating trends, commercial strategies, and future financial performance, the timing and results of clinical trials, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, growth margin, and operating expenses, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and Accordingly, you should not place undue reliance on these statements.
Speaker Change: Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Elizabeth Spauriccio: 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, including our annual report on Form 10-K filed with the SEC on February 27, 2024. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on our Investor Relations website.
Elizabeth Spauriccio: These non-GAAP measures are not intended to be a substitute for our GAAP results. This conference contains time-sensitive information that is accurate only as of the live broadcast today, May 1st, 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.
Speaker Change: Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.
Speaker Change: All forward looking statements, including without limitation those relating to our operating trends commercial strategies and future financial performance the timing and results of clinical trials the impact of COVID-19 on our business and prospects for a recovery.
Speaker Change: Since management expectations for hiring growth in our organization market opportunity guidance for revenue gross margin operating expenses commercial extension and product pipeline development are based upon our current estimates and various assumptions.
Speaker Change: 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.
Speaker Change: <unk> of our filings with the Securities and Exchange Commission, including our annual report on Form 10-K filed with the SEC on February 27 2024.
Speaker Change: Also during this call we will discuss certain non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on our Investor Relations website.
Speaker Change: These non-GAAP measures are not intended to be a substitute for our GAAP results.
Speaker Change: This conference contains time sensitive information that is accurate only as of the live broadcast today May <unk> 2024.
Speaker Change: <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 and with that I will turn the call over to Steve.
Steve Williamson: Thanks, Elizabeth. Good afternoon, everyone, and welcome to our first quarter 2024 earnings call. Here with me is Mehul Joshi, our Chief Financial Officer. I am pleased to report that Pulmonx delivered $18.9 million in worldwide sales in the first quarter of 2024, representing 30% growth over the same period last year and 29% on a constant currency basis. We're excited to see such strong momentum early in this year, which leaves us increasingly confident in our ability to deliver on our previously communicated revenue guidance of $81 to $84 million for the full year 2024.
Steve Williamson: Thanks, Elizabeth Good afternoon, everyone and welcome to our first quarter 2024 earnings call here with me as well Joshi, our Chief Financial Officer.
Steve Williamson: I am pleased to report that <unk> delivered $18 $9 million in worldwide sales in the first quarter of 2024, representing 30% growth over the same period last year and 29% on a constant currency basis. We're excited to see such strong momentum early in this year, which leaves us increasingly confident in our ability to deliver on our previously communicated.
Steve Williamson: <unk> revenue guidance of $81 million to $84 million for the full year 2024, our Q1 results reflect our team's continued success in executing our comprehensive strategy to drive long term sustainable growth and I look forward to sharing with you today key updates on our progress.
Steve Williamson: Our Q1 results reflect our team's continued success in executing a comprehensive strategy to drive long-term, sustainable growth, and I look forward to sharing with you today key updates on our progress. Before detailing our performance and key priorities, I'd like to speak about some of the recent leadership changes at Pulmonx. First, I'd like to congratulate Glenn French on his retirement and thank him for his innumerable contributions to the company and to interventional pulmonology more broadly through his long tenure in the space and while serving as our CEO.
Steve Williamson: Glenn and I have worked closely over the last few months to ensure an exceptionally smooth transition, and I look forward to our continued collaboration as he maintains his position on our Board of Directors. Second, I'd like to welcome Mehul Joshi to our team.
Steve Williamson: Before detailing our performance in key priorities I'd like to speak about some of the recent leadership changes at <unk> first I'd like to congratulate Glenn French on his retirement and thank him for his innumerable contributions to the company and the interventional pulmonology more broadly through his long tenure in the space and while serving as our CEO Glenn and I have worked closely over the last few months to ensure.
Steve Williamson: An exceptionally smooth transition and I look forward to our continued collaboration as he maintains its position on our board of directors.
Steve Williamson: Appointing an accomplished financial executive as CFO was a high priority for our board and myself, and I'm delighted to have hired an experienced industry veteran for the role. Mehul brings a depth of knowledge, leading global finance teams within high-growth companies, such as Gilead and ResMed, as they scale revenue and operating leverage. I'm thrilled to be working alongside him and our broader leadership team to drive Pulmonx into its next phase of growth. I'd also like to take the opportunity to thank John McKune for serving as our interim CFO, and I look forward to his continued contributions as our VP of corporate control.
Steve Williamson: Second I'd like to welcome <unk> Joshi to our team appointing an accomplished financial executive as CFO was a high priority for our board and myself and I'm delighted to have hired an experienced industry veteran for the role Mayhall brings a depth of knowledge, leading global finance teams within high growth companies, such as Gilead and resume as they scale revenue.
Steve Williamson: And operating leverage I'm thrilled to be working alongside him and our broader leadership team to drive harmonics into its next phase of growth.
I'd also like to take the opportunity to thank John Macoun for serving as our interim CFO and I look forward to his continued contributions as our VP and corporate controller.
Steve Williamson: Before we discuss the details of the quarter, I'd like to share a bit of my background and why I'm so excited to be leading Pulmonx through this next growth phase. I've spent nearly three decades leading teams that have helped revolutionize patient care across large markets with transformational technologies. More specifically, I've led large, diversified businesses at Hologic, CR Bard, and Becton Dickinson, as well as cross-functional teams at high-growth companies such as Outset Medical.
Steve Williamson: Before we discuss the details of the quarter I'd like to share a bit of my background and why I'm. So excited to be leading <unk> through this next growth phase.
Steve Williamson: Nearly three decades, leading teams that have helped revolutionize patient care across large markets with transformational technologies more specifically I've led large diversified businesses at Hologic CR Bard in fact in Dickinson as well as cross functional teams at high growth companies such as outset medical.
Steve Williamson: Across each role, I've focused on understanding customer needs, developing a strong cadence of new product development, and driving rapid global market adoption. As I evaluated the Pulmonx opportunity, I focused my diligence on three pillars. First, does the company serve a large patient population with significant unmet needs? Second, is its solution a highly impactful transformative technology with a demonstrated clinical and economic value proposition? And third, has the company developed a foundation for long-term success?
Steve Williamson: Across each rollout focus on understanding customer needs developing a strong cadence of new product development and driving rapid global market adoption.
Steve Williamson: As I evaluated the pulmonic opportunity I focus my diligence on three pillars first does the company serve a large patient population with significant unmet needs.
Steve Williamson: Is it solution a highly impactful transformative technology with the demonstrated clinical and economic value proposition and.
Steve Williamson: And third has the company developed a foundation for long term success through.
Steve Williamson: Through the last month and a half as CEO, I've collectively affirmed what I learned in my diligence, that Pulmonx checks each of these three boxes. First, Pulmonx is focused on a large underserved patient population with limited treatment options. More specifically, we estimate that approximately 1.2 million patients with severe emphysema stand to benefit from the Zephyr valve treatment, resulting in a global addressable market of approximately $12 billion. This represents our opportunity today and does not account for the incremental market opportunity associated with Aeroseal, which we expect has the potential to expand our total addressable market by up to 20% globally.
Steve Williamson: Through the last month and a half as CEO I've collectively affirmed what I learned in my diligence that pulmonic checks each of these three boxes.
Steve Williamson: First <unk> is focused on a large underserved patient population with limited treatment options more specifically, we estimate that approximately $1 2 million patients with severe emphysema stand a benefit from the zephyr valve treatment, resulting in a global addressable market of approximately $12 billion.
Steve Williamson: This represents our opportunity today and does not account for the incremental market opportunity associated with <unk>, which we expect has the potential to expand our total addressable market by up to 20% globally.
Steve Williamson: Patients with severe emphysema face a progressive disease that significantly limits their day-to-day activity. Many live with chronic breathlessness that robs them of the ability to do basic life activities and puts them on a downward spiral of deconditioning, which increases their risk of mortality.
Steve Williamson: Patients with severe emphysema face a progressive disease that significantly limits their day to day activity. Many live with chronic breathlessness that robs them of the ability to do basic life activities and puts them on a downward spiral of D conditioning, which increases their risk of mortality.
Steve Williamson: Current treatment options include medical management and pulmonary rehabilitation, both of which show limited long-term efficacy, as well as highly invasive treatments such as long-volume reduction surgery or lung transplantation, which both present significant morbidity and mortality risk. This obvious gap in the treatment spectrum resonates with me given my experience developing and expanding markets while altering the standard of care with transformative new technologies, just as we're doing with ZephyrVet. I am confident that we will be successful because patients undergoing minimally invasive treatment with Zephyr Valves show significant, durable benefits, as validated by four randomized clinical trials and over 100 scientific articles.
Steve Williamson: Current treatment options include medical management, and pulmonary rehabilitation, both of which showed limited long term efficacy as well as highly invasive treatments such as long volume reduction surgery or lung transplantation, which both presents significant morbidity and mortality risks.
Speaker Change: This obvious gap in the treatment spectrum resonates with me given my experience developing and expanding markets, while altering the standard of care with transformative new technologies, just as we're doing with suffer valves.
Speaker Change: I am confident that we will be successful because patients undergoing minimally invasive treatment with zephyr valves showed significant durable benefits as validated by four randomized clinical trials in over 100 scientific articles. These.
Steve Williamson: These data, which have been validated by real-world outcomes and have served as the basis for broad payer coverage and inclusion in key treatment guidelines, demonstrate that patients treated with Zephyr valves experience clinically meaningful and statistically significant improvements in lung function, exercise capacity, and quality of life compared to medical management alone.
These data, which have been validated by real world outcomes and have served as the basis for broad payer coverage and inclusion in key treatment guidelines demonstrate that patients treated with zephyr valves experienced clinically meaningful and statistically significant improvements in lung function exercise capacity and quality of life compare.
Speaker Change: The medical management alone.
Steve Williamson: In summary, I took this opportunity at Pulmonix because it is clear to me just how impactful the Zephyr valve treatment can be for so many patients and because I view the company as well-positioned operationally and financially to execute a successful long-term growth strategy. As I look ahead, I'm excited to leverage the expertise of our entire team, whose collective experience in interventional pulmonology and dedication to our mission to deliver on our commitments as the global leader in minimally invasive treatments for COPD are unparalleled.
Speaker Change: In summary, I took this opportunity a pulmonic because it is clear to me just how impactful the zephyr valve treatment can be for so many patients because I view the company is well positioned operationally and financially to execute a successful long term growth strategy as I look ahead I am excited to leverage the expertise of our entire team who.
Speaker Change: Collective experience in interventional Pulmonology and dedication to our mission to deliver on our commitments as the global leader in minimally invasive treatments for COPD is unparalleled.
Steve Williamson: With that said, I'd like to pivot back to our first quarter performance, my early perspectives on our strategy, and our team's key priorities for 2024. As I mentioned earlier, Pulmonx delivered $18.9 million in worldwide sales in the first quarter of 2024, representing 30% growth over the same period last year and 29% on a constant currency basis.
Speaker Change: With that said I'd like to pivot back to our first quarter performance My early perspectives on our strategy and our team's key priorities for 2024.
Speaker Change: As I mentioned earlier <unk> delivered $18 $9 million in worldwide sales in the first quarter of 2024, representing 30% growth over the same period last year and 29% on a constant currency basis as expected growth was primarily fueled by our success in the United States, where the team is.
Steve Williamson: As expected, growth was primarily fueled by our success in the United States, where the team has been laser focused on executing the commercial strategy. Specifically, our team has been focused on three areas. First, training physicians at hospitals that have the potential to be high-performance Zephyr valve centers. Second, facilitating the sharing of best practices among existing centers to optimize their Zephyr valve programs. And third, building local awareness of the benefits of our treatment among COPD physicians and patients.
Speaker Change: Been laser focused on executing the commercial strategy specifically our team has been focused in three areas first training physicians or hospitals that have the potential to be high performing zephyr valve centers.
Speaker Change: Facilitating the sharing of best practices among existing centers to optimize their zephyr valve programs and third building local awareness of the benefits of our treatment among COPD physicians and patients.
Steve Williamson: Based on my early experiences in the field and our recent success, I am increasingly confident in our ability to drive sustainable growth with this three-pronged strategy. Over the coming weeks and months, I intend to work closely with the team to design region-specific strategies that will serve to optimize the building blocks we have in place. I look forward to providing more detail on these perspectives in the near future. Regarding new Zephyr valve centers, we added nine new centers in the US in the first quarter of 2024, bringing our total number to 346. Of these, 253 were active accounts, having placed a revenue-generating order in the first quarter, which is in line with our expectations.
Speaker Change: Based on my early experiences in the field and our recent success I am increasingly confident in our ability to drive sustainable growth with this three pronged strategy over the coming weeks and months I intend to work closely with the teams to design region specific strategies that will serve to optimize the building blocks. We have in place I look forward to providing more <unk>.
Speaker Change: Tail on these perspectives in the near future.
Speaker Change: Regarding new Zephyr valve centers, we added nine new centers in the U S. In the first quarter of 2024, bringing our total number to 346.
Speaker Change: These 253, we're active accounts, having placed a revenue generating order in the first quarter, which is in line with our expectations. We will continue to identify potentially high performing zephyr valve centers and expect to Opportunistically established new accounts with a focus on driving utilization and our active accounts.
Steve Williamson: We'll continue to identify potentially high-performing Zephyr valve centers and expect to opportunistically establish new accounts with a focus on driving utilization in our active accounts. The team continues to establish our Zephyr valve treatment as a more routine procedure, particularly through the sharing of best practices of our higher utilization treatment centers. We're seeing an increasing number of Zephyr valve hospitals investing in dedicated staff to help screen prospective valve candidates, as well as instituting procedures to routinely identify patients whose test results indicate they may be Zephyr valve candidates.
Speaker Change: The team continues to establish our zephyr valve treatment as a more routine procedure, particularly through the sharing of best practices of our higher utilization treatment centers, we're seeing an increasing number of zephyr valves hospitals investing in dedicated staff to help screen prospective valve candidates as well.
Speaker Change: As instituting procedures to routinely identified patients whose test results indicate they may be zephyr valve candidates.
Steve Williamson: Additionally, we're piloting programs that will enable customers to optimize patient workflow, resulting in reduced time to treatment, improved patient experience, and greater capacity for centers to evaluate more patients. Collectively, these efforts have led to sustained year-over-year improvement in the average number of cases per active center, and we expect to continue benefiting from year-over-year gains on an annualized basis moving forward. Lastly, our cost-efficient education efforts aim to inform patients and providers on the benefits and availability of our treatment, particularly in geographies with already well-developed Zephyr valve programs.
Speaker Change: Additionally, we're piloting programs that will enable customers to optimize patient workflow, resulting in reduced time to treatment improved patient experience and greater capacity for centers to evaluate more patients.
Speaker Change: Collectively these efforts have led to sustained year over year improvement in the average number of cases per active center and we expect to continue benefiting from year over year gains on an annualized basis moving forward.
Speaker Change: Lastly, our cost efficient education efforts aimed to inform patients and providers on the benefits and availability of our treatment, particularly in geographies with already well developed zephyr valve programs, we continue to identify and engage high volume COPD physicians and have launched several field based education programs, which have garnered early traction.
Steve Williamson: We continue to identify and engage high-volume COPD physicians and have launched several field-based education programs that have garnered early traction. We're also focusing on supporting patients who are seeking to learn more about Zephyr valves and find a treatment center more rapidly, while enhancing our digital geofencing tactics to identify and educate additional prospective patients who may benefit from Zephyr treatment based on search trends. Our confidence in these strategies has been reinforced by early success in recent quarters in driving improved engagement and reduced acquisition costs across ongoing pilot programs and select geographies, thereby demonstrating that we have the right playbook and that there is even more room to grow even within our top cohort of accounts. As we look ahead, we'll continue to deploy resources and tactics strategically on an account-by-account basis, ensuring that critical success pieces are in place within a given geography before investing more heavily in local awareness camps.
Speaker Change: We're also focusing on supporting patients who are seeking to learn more about zephyr valves and find a treatment center more rapidly while enhancing our digital geo fencing tactics to identify and educate additional prospective patients who may benefit from zephyr treatment based on search trends.
Speaker Change: Our confidence in these strategies has been reinforced by early success over recent quarters, and driving improved engagement and reduced acquisition costs across ongoing pilot programs in select geographies, thereby demonstrating that we have the right playbook and that there is even more room to grow even within our top cohort of accounts as we look ahead.
Speaker Change: We will continue to deploy resources and tactics strategically on an account by account basis, ensuring that critical success pieces are in place within a given geography before investing more heavily in local awareness campaigns.
Speaker Change: While our primary commercial focus remains on growing our U S business, we continue to see substantial growth opportunity internationally in Europe over the course of the last three quarters, we have been making substantial enhancements to our field team and management capabilities. In addition, we have been taking many of the sales tools. We've developed for use in the U S and adapting them for use in <unk>.
Steve Williamson: While our primary commercial focus remains on growing our U.S. business, we continue to see substantial growth opportunities internationally. In Europe, over the course of the last three quarters, we've been making substantial enhancements to our field team and management capabilities. In addition, we've been taking many of the sales tools we've developed for use in the U.S. and adapting them for use in European markets, such as operational best practice sharing, community physician engagement, and peer-to-peer education programs. As a result of these changes, we saw our international business grow as a whole in Q1 by 15% year over year, and 24% in our top geographies of Germany, France, the UK,
Speaker Change: European markets, such as operational best practice sharing community physician engagement and peer to peer education programs. As a result of these changes we saw our international business grow as a whole in Q1 by 15% year over year, and 24% and our top geographies of Germany, France, UK and Spain, we.
Steve Williamson: We anticipate the impact of our international efforts to become increasingly evident in 2025 as we focus on foundation building this year. In addition to our commercial efforts outside the United States, I am excited to announce the treatment of the first patient in our Japanese post-market approval study. We're encouraged by the positive reception of our technology at the recent Japanese Respiratory Society meeting and the growing interest among centers to join in the post-approval study.
Speaker Change: Dissipate the impact of our international efforts to become increasingly evident in 2025 as we focus on foundation building this year.
Speaker Change: In addition to our commercial efforts outside the United States I am excited to announce the treatment of the first patient in our Japanese post market approval study. We are encouraged by the positive reception of our technology at the recent Japanese respiratory society meeting and the growing interest among centres to join in the post approval study.
Steve Williamson: As a reminder, we anticipate it will take time to grow awareness of this new treatment option, and we expect the bulk of enrollment to occur in the back half of the enrollment period as we train additional sites and move the first patients through the treatment funnel. We do not expect a material revenue contribution from Japan until approximately 2026, when we are able to commercialize more broadly.
Speaker Change: As a reminder, we anticipate it will take time to grow awareness of this new treatment option and we expect the bulk of enrollment to occur in the back half of the enrollment period as we train additional sites and move the first patients through the treatment funnel, we do not expect a material revenue contribution from Japan until approximately 2026, when we are able to commercialize <unk>.
Speaker Change: More broadly this.
Steve Williamson: This study marks an essential step toward broader commercialization in a new market where we estimate approximately 100,000 patients stand to benefit from Zephyr Valve. We have also continued to make progress toward our goal of expanding the number of patients that can be treated with Zephyr Valves following receipt of IDE approval for our 200-patient Convert2 pivotal trial from the FDA. In February, we announced the treatment of the first patient in the trial, a multi-center, global study evaluating the safety and effectiveness of the Arasil system in limiting collateral ventilation in severe COPD emphysema patients.
Speaker Change: Study marks an essential step towards broader commercialization in a new market, where we estimate approximately 100000 patient standard benefit from Zephyr valves.
Speaker Change: We have also continued to make progress toward our goal of expanding the number of patients that can be treated with zephyr valves following receipt of approval.
Speaker Change: Approval for our 200 patient convert to pivotal trial from the FDA in February we announced the treatment of the first patient in the trial, a multicenter global study evaluating the safety and effectiveness of the <unk> system and limiting collateral ventilation and severe COPD emphysema patients. We currently expect to enroll through.
Steve Williamson: We currently expect to enroll through approximately the end of next year. Patients who experience conversion to CV-negative status following aeroseal treatment will then be implanted with Zephyr valves per current standard of care for lung volume reduction. Conversion Success Rate, Lung Volume Reduction Success Rate, and other clinical parameters will be evaluated at six months post-valve placement and will be used to support our PMA application. We also look forward to the presentation of final data from our CONVERT-1 study following enrollment completion last year.
Speaker Change: Approximately the end of next year.
Speaker Change: Patients, who experienced conversion to CV negative status. Following <unk> treatment will then be implanted with zephyr valves per current standard of care for lung volume reduction.
Conversion success rate lung volume reduction success rate and other clinical parameters will be evaluated at six months post valve placement and will be used to support our PMA application.
Speaker Change: We also look forward to the presentation of final data from our convert one study following enrollment completion last year. We expect these data to be presented at the European Respiratory Society Congress in early September in Vienna.
Steve Williamson: We expect these data to be presented at the European Respiratory Society Congress in early September in Vienna. In conclusion, we are pleased with our Q1 performance, excited about our growth outlook in 2024, and encouraged by the progress we've made with our market development campaigns and the Aeroseal Clinical Development Program. In the time I've been with Pulmonx, my experience has validated my initial competence in the significant market opportunity for our treatment, the benefits realized by patients receiving Zephyr valves, and the commercial foundation already in place.
Speaker Change: In conclusion, we are pleased with our Q1 performance excited for our growth outlook in 2024 and encouraged by the progress we've made with our market development campaigns and the <unk> clinical development program.
Speaker Change: In the time I've been with <unk> My experience has validated my initial confidence in the significant market opportunity for our treatment the benefits realized by patients receiving zephyr valves and the commercial foundation already in place I look forward to working with our leadership team to continue to execute on our strategy identify opportunities to accelerate growth.
Steve Williamson: I look forward to working with our leadership team to continue to execute on our strategy, identify opportunities to accelerate growth, and achieve profitability. Now, I'll turn the call over to Mehul to provide a more detailed review of our first quarter results.
Speaker Change: And to achieve profitability.
Mike: Now I'll turn the call over to make whole to provide a more detailed review of our first quarter results.
Mehul Joshi: Thank you, Steve, and good afternoon, everyone. Before I review our first quarter results and guidance for 2024, I want to expand upon Steve's comments and highlight why I'm excited to have joined Pulmonx at such a pivotal time. For the past two decades, I have dedicated much of my career to driving sustained profitable growth within innovative healthcare companies. As Steve alluded to... Pulmonx represents a unique opportunity as the leading innovator with a differentiated technology platform in a market that has been significantly underserved.
Mike: Thank you, Steve and good afternoon, everyone before I review, our first quarter results and guidance for 2024, I want to expand upon Steve's comments and highlight why I am excited to have joined <unk> at such a pivotal time.
Make Whole: For the past two decades I have dedicated much of my career to driving sustained profitable growth within innovative health care company.
Make Whole: As Steve alluded to.
Make Whole: <unk> represents a unique opportunity.
Make Whole: As the leading innovator with a differentiated technology platform in a market that has been significantly underserved.
Mehul Joshi: In the last year, the team at Pulmonx has demonstrated its ability to deliver meaningful growth and, in my view, positioned the company well from both an operational and financial perspective for continued success. With a strong balance sheet and increasingly focused execution, I believe Pulmonx is well poised to continue bringing life-changing solutions to patients in need, while also achieving continued revenue growth and delivering profitability. And with that, I will move on to our financial results.
Make Whole: In the last year the team at <unk> has demonstrated its ability to deliver meaningful growth and in my view.
Make Whole: <unk> the company well from both an operational and financial perspective for continued success.
Make Whole: With a strong balance sheet and increasingly focused execution I believe <unk> is well poised to continue bringing life changing solutions to patients in need while also achieving continued revenue growth and delivering profitability.
Speaker Change: And with that I will move on to our financial results.
Mehul Joshi: Total worldwide revenue for the three months ended March 31, 2024 was $18.9 million, a 30% increase from $14.5 million in the same period of the prior year and an increase of 29% on a constant currency basis. Our strong performance was driven by sustained momentum across the U.S., as well as a rebound in our international markets as we continue to optimize our commercial infrastructure and introduce new tools and capabilities. U.S. revenue in the first quarter was $12.9 million, a 38% increase from $9.3 million during the prior year period.
Speaker Change: Total worldwide revenue for the three months ended March 31, 2024 was $18 9, million% to 30% increase from $14 5 million in the same period of the prior year.
Speaker Change: And an increase of 29% on a constant currency basis.
Speaker Change: Our strong performance was driven by sustained momentum across the U S as well as a rebound in our international markets as we continue to optimize our commercial infrastructure and introduce new tools and capabilities.
Speaker Change: U S revenue in the first quarter was $12 9 million or.
Speaker Change: A 38% increase from $9 3 million during the prior year period.
Mehul Joshi: International revenue in the first quarter of 2024 was $6.0 million, a 15% increase from 5.2 million during the same period last year and an increase of 13% on a constant currency basis. Gross margin for the first quarter of 2024 was 75%, compared to 73% in the prior year period, reflecting favorable geographical mix and higher utilization.
Speaker Change: International revenue in the first quarter of 2024 was six <unk>.
Speaker Change: <unk> million dollars, a 15% increase from $5 2 million during the same period last year and an increase of 13% on a constant currency basis.
Speaker Change: Gross margin for the first quarter of 2024 was 75% compared to <unk> 73 in the prior year period, reflecting favorable geographical mix and higher utilization.
Speaker Change: Total operating expenses for the first quarter of 2024 were $28 $6 million of.
Mehul Joshi: Total operating expenses for the first quarter of 2024 were $28.6 million, a 6% increase from $27 million in the first quarter of 2023. Non-cash stock-based compensation expense was $5.3 million in the first quarter of 2024. Excluding stock-based compensation expense, total operating expenses in the first quarter of 2024 increased 3% from the same period of the prior year. R&D expenses for the first quarter of 2024 were $4.2 million, compared to $4.3 million in the same period of the prior year. We expect R&D expenses to increase from the first quarter as enrollment in our clinical trials ramps up.
Speaker Change: A 6% increase from $27 million in the first quarter of 2023.
Speaker Change: Noncash stock based compensation expense was $5 3 million in the first quarter of 2024 <unk>.
Speaker Change: Excluding stock based compensation expense total operating expenses in the first quarter of 2024 increased 3% from the same period of the prior year.
Speaker Change: R&D expenses for the first quarter of 2024 or $4 2 million.
Speaker Change: Compared to $4 3 million in the same period of the prior year.
Speaker Change: We expect R&D expenses to increase from the first quarter as enrollment in our clinical trials ramps.
Mehul Joshi: Bales' general and administrative expenses for the first quarter of 2024 were $24.4 million compared to $22.7 million in the first quarter of 2023. The increase was attributable to continued investment in commercial activities and stock-based compensation. The net loss for the first quarter of 2024 was $13.7 million, or a loss of 36 cents per share, as compared to a net loss of $15.9 million, or a loss of $0.42 per share, for the same period of the prior year.
Speaker Change: Sales general and administrative expenses for the first quarter of 2024 or $24 4 million <unk>.
Compared to $22 7 million in the first quarter of 2023 that.
Speaker Change: The increase was attributable to continued investment in commercial activities and stock based compensation.
Speaker Change: Net loss for the first quarter of 2024 was $13 7 million.
Speaker Change: Or a loss of 36 per share.
As compared to a net loss of $15 9 million or a loss of <unk> 42 per.
Speaker Change: <unk> per share for the same period of the prior year.
Speaker Change: And average weighted share count of $38 6 million shares was used to determine loss per share for the first quarter of 2024.
Mehul Joshi: An average weighted share count of 38.6 million shares was used to determine the loss per share for the first quarter of 2024. Adjusted EBITDA loss for the first quarter of 2024 was $8 million, as compared to $11.2 million in the first quarter of 2023.
Speaker Change: Adjusted EBITDA loss for the first quarter of 2024 was $8 million as compared to $11 2 million in the first quarter of 2023.
Mehul Joshi: We ended March 31, 2024 with $120.4 million in cash, cash equivalents, and marketable securities, a decrease of $11.1 million from December 31, 2023. Finally, turning to our guidance for 2024, we are reiterating our previously communicated Fiscal Year 2024 Revenue and Gross Margin Guidance and updating OPEX. As a reminder, we expect to deliver full year 2024 revenue in the range of 81 to $84 million, representing approximately 20% growth at. We remain confident in our guidance as we continue executing our focused commercial strategy.
Speaker Change: We ended March 31, 2024 with $124 million in cash cash equivalents and marketable securities a decrease of $11 1 million from December 31 2023.
Mehul Joshi: Our guidance continues to assume a neutral to slightly negative impact on revenue from foreign currency exchanges. Moving down the P&L, we expect gross margin for the full year 2024 to fall within the range of 74 to 75%. And lastly, we expect operating expenses for the full year 2024 to fall between $127 to $129 million, inclusive of approximately $25 million of non-cash stock-based compensation. The reduction in stock-based compensation expense is due to a change in the expected accounting treatment of expenses related to an executive transition.
Speaker Change: Finally, turning to our guidance for 2024, we are reiterating our previously communicated fiscal year 2020 for revenue and gross margin guidance and updating opex guidance.
As a reminder, we expect to deliver full year 2020 for revenue in the range of $81 million to $84 million representing.
Speaker Change: Representing approximately 20% growth at the midpoint.
Speaker Change: We remain confident in our guidance as we continue executing our focused commercial strategy. Our guidance continues to assume a neutral to slightly negative impact on revenue from foreign currency exchange rates.
Speaker Change: Moving down the P&L, we expect gross margin for the full year 2024 to fall within the range of <unk>, 74% to 75%.
Speaker Change: And lastly, we expect operating expenses for the full year 2024 to fall between 127% to $129 million.
Speaker Change: Inclusive of approximately 25 million of noncash stock based compensation expense.
Speaker Change: The reduction in stock based compensation expense is due to a change in the expected accounting treatment of expenses related to an executive transition.
Mehul Joshi: Given our continued revenue growth and prudent cash management, in addition to our commitment to driving further operations, we remain focused on our current operating plan to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive with the capital on hand. In all, we are confident in our outlook for 2024 and look forward to providing additional perspectives on the business and our longer-term strategy on our next quarterly call. With that, I'd like to thank you for your attention, and we will now open the call up for questions. Operator.
Speaker Change: Given our continued revenue growth and prudent cash management. In addition to our commitment to driving further operating leverage we remain focused on our current operating plan to maintain our cash runway of at least three years of forward cash burn until we turn cash flow positive with the capital on hand.
Speaker Change: In all we are confident in our outlook for 2024 and look forward to providing additional perspectives on the business and our longer term strategy on our next quarterly call.
Speaker Change: With that I'd like to thank you for your attention and we will now open the call up for questions operator.
Speaker Change: Yes.
Operator: Thank you. As a reminder to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Joanne Wuensch from Citi.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards the draw. Your question. Please press star one one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Anthony: Hey, good afternoon. This is actually Anthony on behalf of Joanne.
Speaker Change: Our first question comes from the line of Joanne Wuensch from Citi.
Anthony: Thanks for taking our questions. I guess, first on the guidance. You beat by about a million, which has been similar to previous quarters, but you kept the range. I'm just curious if this is more conservatism; should we be thinking about, you know, maybe closer to the higher end of the range? And then, second question, can you just talk about what you're seeing so far this quarter in terms of operating activity, account productivity, and procedure volumes? Thanks.
Speaker Change: Hey, good afternoon. This is actually Anthony on for John Thanks for taking our questions.
Anthony: I guess first on the guidance.
Anthony: By about $1 million, which has been similar to previous quarters, but you kept the range.
Anthony: Just curious if this is more conservatism should we be thinking about maybe closer to the higher end of the range and then the second question can you just talk about.
Anthony: What youre seeing so far this quarter in terms of operating activity account productivity and.
Our cedar volumes. Thanks.
Mehul Joshi: Yeah. Hi Anthony. This is Mehul Joshi.
Anthony: Yes, Hi, Anthony this is mahle Joshi.
Mehul Joshi: I'd say we are very pleased with our Q1 performance. You know, there was underlying strength in the U.S. with continued commercial execution that drove account productivity. The OUS business rebounded as most of our major markets grew, and that's a result of increased sales capability and implementation of processes and tools that, you know, are in process right now. The Q1 results are enabling us to be increasingly confident in the annual revenue guidance. I think it's still a little early in the fiscal year, and we don't want to really get ahead of ourselves and want to see continued momentum and commercial traction. As far as account productivity is concerned,
Mahle Joshi: I would say we are very pleased with our Q1 performance there was underlying strength in the U S. With continued commercial execution that drove account productivity.
Mahle Joshi: The O U S business rebounded as most of our major markets group and Thats. A result of increased sales capability and implementation of process and tools that that is in process right now.
Mahle Joshi: The Q1 results.
Mahle Joshi: Enabling us to be increasingly confident in the annual revenue guidance.
Mahle Joshi: I think it's still a little early in the fiscal year and we don't want to really get ahead of ourselves and want to see continued momentum in commercial traction.
Steve Williamson: As far as account productivity goes, I'll jump in there. We continue to see improvement in productivity from our accounts. I think as you look at that metric, it's a little bit of a skewed metric. There are a number of different puts and takes there. But as we look at the metric itself, we did see about a 10 percent improvement in productivity in our account base. I think, as we look moving forward, I think U.S. revenue growth is probably a better metric to focus on to show the progress of the organization.
Speaker Change: As far as the account productivity goes I'll jump in there.
Speaker Change: Continue to see improvement in productivity from our accounts I think as you look at that metric, it's a little bit of a skewed metrics.
Speaker Change: There's a number of different puts and takes there.
Speaker Change: As we look at the metric itself, we did see about 10% improvement in productivity in our account base I think as we look moving forward I think U S revenue growth is probably a better metric to focus on to show the progress of the organization.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Operator: One moment for our next question, which comes from the line of John Young from Canaccord.
Speaker Change: Our next question comes from the line of John Young from Canaccord.
John Edward Young: Excuse me, can you hear me OK? Yes, yes.
John Edward Young: Thanks, Steve May how can you hear me okay.
John Edward Young: Yep.
John Edward Young: Hi, thanks for taking our questions and congratulations on the quarter. Steve, it sounds like as you're reviewing the strategic priorities of the company since gaining the seat since March, it kind of sounds like steady as it goes right now. Do you expect to have any, you know, large changes to strategy going forward? Or do you think you have, you know, finished your evaluation phase at this point?
John Edward Young: Alright. Thanks.
John Edward Young: Our questions and congrats on the quarter.
John Edward Young: It sounds like as you're reviewing the strategic priorities of the company.
John Edward Young: Again the seats in March it kind of sounds like steady as it goes right now.
John Edward Young: You expect to have any.
John Edward Young: Large changes to strategy going forward or do you think you've finished your evaluation phase at this point.
Steve Williamson: John, thanks for the question. I think it's a good one.
John Edward Young: John Thanks for the question I think it's a good question as I look at the strategy. That's in place I think it's the right strategy I.
Speaker Change: I think we've shown growth of the company has shown growth over prior quarters and it's been effective I think over time, we'll probably make some small refinements or add some specificity to different arms of it over time, but I think all in all our ability to bring on.
Speaker Change: Accounts that can be big Zephyr valve users or big Zephyr valve treatment centers is important we will continue to do that I think driving efficiency and and really the ability for these to facilitate best practices. Among the accounts that are already up and running is really an area of focus.
Speaker Change: For Us I think that's something that we've seen significant progress and then third obviously, we will still look to to drive COPD physician awareness and patient awareness over time so.
Speaker Change: To answer the question, specifically I think it's I think the strategy is the right strategy. It just might need some some fine tuning here and there.
Steve Williamson: As I look at the strategy that's in place, I think it's the right strategy. I think we've shown growth, or the company has shown growth, over prior quarters, and it's been effective. I think over time, we'll probably make some small refinements or add some specificity to different arms of it over time. But I think, all in all, our ability to bring on accounts that can be big Zephyr Valve users or big Zephyr Valve treatment centers is important.
Speaker Change: Great. Thanks, and then as you came in with fresh eyes too.
Speaker Change: What are your thoughts on M&A do you see potential other products you could add to the bag and the long term.
Speaker Change: The COPD position or the interventional Pulmonology call point.
Speaker Change: Yes, it's a good question as we look at the.
Speaker Change: The IP space and you look at our sales force.
Speaker Change: We get the question quite a bit and I've got my eyes open to different technologies that are out in this space that could be potentially.
Speaker Change: That could fit in the bag.
Speaker Change: But right now if you look at the size of the untapped market that we're going after and really the progress we are starting to make and the physician by and that we're seeing we've got patients that are motivated I think the opportunity in front of US is really a great. One so I wouldn't say no to M&A, but I will say that we're going to focus on executing the strategy that's out in front of.
Speaker Change: This right now.
Speaker Change: Great. Thanks, Steve.
Speaker Change: Thank you John.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Rick Wise from Stifel.
Steve Williamson: We'll continue to do that. I think driving efficiency and really the ability for these to facilitate best practices among the accounts that are already up and running is really an area of focus for us. I think that's something that we've seen significant progress on. And then third, obviously, we'll still look to drive COPD physician awareness and patient awareness over time. So to answer the question specifically, I think the strategy is the right strategy. It just might need some fine tuning here and there.
Frederick Allen Wise: Good afternoon gentlemen.
Frederick Allen Wise: Welcome to you both.
Frederick Allen Wise: Steve maybe just start off with a high level question and then I'll ask a financial question.
Frederick Allen Wise: Okay.
Frederick Allen Wise: You talked about the.
Frederick Allen Wise: The three pronged approach and you sort of touched a little bit earlier, but I'd be curious given your unique background in your experience inevitably youre looking at things with fresh eyes, and also bringing your unique background.
Steve Williamson: Great, thanks. And then I came in with fresh eyes, too.
Where do you think.
You walk in and Where's the low hanging fruit from.
Frederick Allen Wise: Through your experience Prism, if you will and you think Wow I really think we can accelerate is it.
Frederick Allen Wise: Is it.
Frederick Allen Wise: Is it literally the thoughts around strategy about uptake in existing accounts.
Frederick Allen Wise: Just if you see what I'm getting at.
Steve Williamson: What are your thoughts on M&A? Do you see potential other products we could add to the bag in the long term at either the COPD physician or the interventional pulmonology call point? Yeah, it's a good question. You know, as we look at
Speaker Change: I do Rick and thanks for the question.
Speaker Change: A very good one.
Speaker Change: I have been able to spend some time in the field and spoke to physicians I've been able to speak to hospital administrators I spend time with our sales force as well as the sales management team and it's really interesting because it's different account by account and that's what we've seen across the country and I'll give you a couple of examples if I can.
Speaker Change: Is that an account on the east coast, we consider them.
Speaker Change: High volume Zephyr valve user now at that account they don't really have the clinical coordination and the navigation and the efficient processes in place to continue to grow that as quickly as they could you've got physicians that want to do it but they don't have the infrastructure and support in place to do it the flip side of that as I go to an account.
Speaker Change: The Midwest and they've got two clinical coordinators, they've got a nurse practitioner. They have multiple physicians that are doing zephyr valves and really they will benefit from COPD physician awareness in the market as well as patient awareness. So it's totally a different strategy there and then even taking a little bit further.
Speaker Change: A highly prestigious.
Speaker Change: University Hospital here on the West Coast was in the office yesterday I was speaking with one of the interventional Pulmonologists there and you have a really eager physician that's looking to continue to grow the practice they have the strong clinical and operational foundations that they need in order to do so they would benefit from COPD.
Speaker Change: Physician awareness in the marketplace to let the market know that they are actually doing procedures at this at this facility. So each one has different needs I think that gets to my my talk on my thoughts on strategy, where we need to put a little bit more specificity into a couple of areas and really define that path.
Speaker Change: Specifically, depending on where that account is along the sales process.
Speaker Change: Gotcha, and then one more high level.
Speaker Change: You highlighted.
Speaker Change: Making an impact on our priorities.
Speaker Change: Okay.
Speaker Change: By in place.
Speaker Change: It sounds like.
Speaker Change: Probably M&A is not going to be.
Speaker Change: Near term priority.
Speaker Change: Everything else going on.
Speaker Change: Okay.
Speaker Change: What do you mean.
Speaker Change: Innovation pipeline is there something.
Speaker Change: Beyond what we know and Youre not ready to talk about it or.
Speaker Change: There are opportunities to invest internally and drive innovation in some way that we're not appreciating.
Speaker Change: Not really there is nothing thats.
Speaker Change: Some secret program that we're working on right now we're really focused on the <unk> clinical trial I think there is a lot of innovation with that product and I think it's going to open our Tam up significantly overtime. So so that's part of the innovation I'm talking about I think our ability to continue to innovate our current product offering.
Speaker Change: Certain components easier to use or just refinements from a sustaining perspective are very important over time.
Speaker Change: He's of use is obviously, a big driver for adoption and so we want to continue to make the procedure as easy as possible for our positions. So we will continue with sustaining work in that area and then as we go through and develop the strat plan and spend more time on that there may be other areas that we go after but but right now the primary.
Speaker Change: Innovation that we're looking at from an R&D perspective is <unk> seal and some.
Speaker Change: Kind of sustaining improvements I think more broadly when you think about innovation.
Speaker Change: There's ways that we can innovate the way that we interact with.
Speaker Change: Physicians the way that we interact with patients so so marketing innovation and.
Speaker Change: Also I think <unk> seen innovation from our sales perspective in the sales process. That's in place. So we'd look to innovate across the organization coming up with creative ways to get after this this really large Tam this big untapped market with physicians that want to do more procedures with motivate motivated patients that will advocate.
Steve Williamson: Yeah, it's a good question. You know, as we look at the IP space, and you look at our Salesforce, we get that question quite a bit. And I've got my eyes open to different technologies that are out in this space that could potentially, that could fit in the bag. But right now, if you look at the size of the untapped market that we're going after, and really the progress we're starting to make, and the physician buy-in that we're seeing, and we've got patients that are motivated, I think the opportunity in front of us is really a great one. So I wouldn't say no to M&A, but I will say that we're going to focus on executing the strategy that's out in front of us right now.
Operator: One moment for our next question, which comes from the line of Rick Wise from Stiefel.
Speaker Change: Kate for themselves and in most cases, we have administrative buying as well. So it seems like all the pieces are in place. We just have to innovate that workflow and the process to get these customers up and get their their productivity.
Speaker Change: <unk> continuing to grow.
Speaker Change: Gotcha and just.
Speaker Change: If I could.
Speaker Change: Ask a third here.
Speaker Change: Gross margins came in at a 100 basis points better than I was looking for this quarter.
Speaker Change: And I look back at last year and I appreciate it's not perfect.
Speaker Change: Example, maybe but.
Speaker Change: Gross margins sort of stepped up first quarter and second quarter and sort of stayed there basically.
Speaker Change: At the 74 or better level.
Speaker Change: In the last three quarters.
Speaker Change: Why are we still thinking about 74% 75, what gets you to or at or above the upper end of that range.
Speaker Change: Your perspective would be very welcome. Thank you both.
Speaker Change: Yeah, Thanks, Rick and nice to meet you I'd say, our Q1 gross margins were driven primarily by a favorable geographic mix. So U S O U S revenue.
Speaker Change: We had about 68% of our revenue coming from the U S and the rest of it from our USO.
Frederick Allen Wise: That helps quite a bit on the gross margin side and then we also had some higher manufacturing capacity utilization, which helps so that's what raised the number in Q1 and.
Frederick Allen Wise: It's 30 40 basis points right.
Frederick Allen Wise: Rounds up to 75 so.
Frederick Allen Wise: As you know.
Frederick Allen Wise: We did some see some benefit mostly from geographic mix, but as we get into the second half of the year and that's what we've guided to that we expect higher volumes too.
Frederick Allen Wise: A move through the factory and that is the <unk>.
Frederick Allen Wise: Primary driver and.
Frederick Allen Wise: Increase in gross margins. So Geo mix will also have helped but thats again.
Frederick Allen Wise: Volume base, and then better utilization. So that's what we expect in the second half of this fiscal year to drive gross margins up to 75%.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards the draw. Your question. Please press star one one again.
Speaker Change: Our next question comes from the line of Larry <unk> from Wells Fargo.
Frederick Allen Wise: Good afternoon, gentlemen. Welcome to both of them.
Speaker Change: Hey, good afternoon, Vik Chopra in for Larry and Thanks for taking my questions.
Vik Chopra: Welcome to <unk> in May hold so maybe just two questions for me one for you.
Vik Chopra: You could talk a little bit about your priorities over the next year, maybe you can talk about what would success look like for you in the next 12 months and then I had a follow up.
Frederick Allen Wise: Steve, maybe start off with a high-level question, then I'll ask a financial question. You talked about the three-pronged approach, and you sort of touched on it a little bit earlier, but I'd be curious, given your unique background and your experience, inevitably, you're looking at things with fresh eyes and also bringing your unique background. Where do you think you walk in and where's the low-hanging fruit from through your experience prism, if you will, you know? And you think, Wow, I really think we can accelerate. Is that it? Is it literally you who thinks about the thoughts around strategy about uptake and existing accounts or just if you understand what I'm getting at?
Speaker Change: Sure we've got.
Speaker Change: An aggressive program in front of US I think we've got a new sales process since in place, we're doing quite a bit from <unk>.
Speaker Change: Clinical perspective.
Speaker Change: Both with our convert two trial as well as our Japanese post approval study.
Speaker Change: And.
Speaker Change: Ongoing from a marketing perspective, reaching out and doing more training from a COPD physician and patient perspective.
Speaker Change: Raising awareness there. So I think good for me it looks like continued progress on all of those areas. We've got as I said I believe in the plan that's in place and execution of that plan and our ability to do so would be.
Speaker Change: Big win for Us and if I can add and we'd also.
Speaker Change: Want to make sure that we're meeting or beating our guidance and really focus on.
Speaker Change: Driving operating leverage through our P&L into our business.
Speaker Change: Okay.
Speaker Change: Great helpful. Good transition to my next question as well.
Speaker Change: Lower your Opex guidance for.
Speaker Change: This afternoon, maybe just talk about what's driving that thank you.
Speaker Change: Yes sure.
Speaker Change: So when we set guidance.
Speaker Change: In February.
Speaker Change: We assumed a accounting methodology for SBC.
Speaker Change: Expenses.
Speaker Change: For an executive transition and as we.
Speaker Change: We continue to evaluate that and close the books for the quarter.
Speaker Change: We had a methodology change.
Speaker Change: I mean, the SBC is a noncash expense. So it was a methodology change that was affirmed by our auditors and.
Speaker Change: That's what drove the reduction in the SPC.
Speaker Change: <unk>.
Speaker Change: Non opex guidance stayed the same.
Speaker Change: <unk>.
Speaker Change: I mean, non SBC opex guidance stayed the same so we're still managing to that number which is around 12%.
Speaker Change: Year on year growth and Thats investing in not only our commercial activity, but also in the <unk>.
Speaker Change: Clinical trials and the R&D initiatives that we have underway.
Speaker Change: Okay.
Steve Williamson: I do, Rick, and thanks for the question. It's a very good one.
Speaker Change: Yes.
Steve Williamson: You know, I've been able to spend some time in the field, and I've spoken to physicians, I've been able to speak to hospital administrators, and I spent time with our sales force as well as the sales management team. And it's really interesting because it's different account by account. And that's what we've seen across the country. And I'll give you a couple of examples, if I can.
Speaker Change: Thank you.
Steve Williamson: I was at an account on the East Coast; we consider them a high volume Zephyr valve user. Now, at that account, they don't really have the clinical coordination and the navigation and the efficient processes in place to continue to grow that as quickly as they could. You've got physicians that want to do it, but they don't have the infrastructure and support in place to do it. The flip side of that is, I go to an account in the Midwest, and they've got two clinical coordinators, they've got a nurse practitioner, and they have multiple physicians that are doing Zephyr valves.
Steve Williamson: And really, they'll benefit from COPD physician awareness in the market, as well as patient awareness. So it's a totally different strategy there. They would benefit from COPD physician awareness in the marketplace to let the market know that they are actually doing procedures at this facility. So each one has different needs. I think that gets to my thoughts on strategy, where we need to put a little bit more specificity into a couple areas and really define that path specifically, depending on where that account is in the sales process.
Speaker Change: I would now like to turn the conference back over to Stephen Williamson for closing remarks.
Steve Williamson: Gotcha. And again, one more high level. You highlighted making the innovation pipeline a priority. There's obviously an innovation pipeline in place. I mean, it sounds like probably M&A is not going to be a big near-term priority given everything else going on. But what do you mean by that innovation pipeline? Is there something beyond what we know, and you're not ready to talk about it? Or are there opportunities to invest internally and drive innovation in some way that we're not appreciating?
Steve Williamson: Not really. There's nothing that's some secret program that we're working on right now. We're really focused on the Arasil clinical trial. I think there's a lot of innovation in that product, and I think it's going to open our TAM up significantly over time. So that's part of the innovation I'm talking about. I think our ability to continue to innovate our current product offering, make certain components easier to use, or just refinements from a sustaining perspective will be very important over time. Ease of use is obviously a big driver for adoption, and so we want to continue to make the procedure as easy as possible for our physicians.
Steve Williamson: So we'll continue with sustaining work in that area, and then as we go through and develop the STRAT plan and spend more time on that, there may be other areas that we go after. But right now, the primary innovation that we're looking at from an R&D perspective is Arasil and some kind of sustaining improvements. But I think more broadly, when you think about innovation, there are ways that we can innovate the way that we interact with physicians, the way that we interact with patients, so marketing innovation.
Steve Williamson: And also, I think you've seen innovation from our sales perspective and the sales process that's in place. So we look to innovate across the organization, coming up with creative ways to get after this really large TAM, this big untapped market with physicians that want to do more procedures with motivated patients that will advocate for themselves. And in most cases, we have administrative buy-in as well. So it seems like all the pieces are in place. We just have to innovate that workflow and the process to get these customers up and get their productivity continuing to grow.
Stephen Williamson: Thank you operator to conclude we had a great first quarter and I'd like to take a moment to thank pulmonic employees worldwide for their continued dedication to helping patients with severe emphysema, abbreviated year do more and to lead Fuller lives. I think this is really a great time to be at <unk> and with that thank you all for your time and have a great rest of your day.
Mehul Joshi: Gotcha. And just, Mehul, if I could ask you a third question here.
Mehul Joshi: Gross margins came in 100 basis points better than I was looking for this quarter. And I look back at last year, and I appreciate it's not a perfect example, maybe, but gross margins sort of stepped up in the first quarter and second quarter and sort of stayed there, basically, at the 74 or better level in the last three quarters. Why are we still thinking about 74 to 75? What gets you to or at or above the upper end of that range? Just your perspectives would be very welcome. Thank you both. Yeah, thanks Rick, and nice to meet you.
Mehul Joshi: Thanks, Rick, and nice to meet you. I'd say our Q1 gross margins were driven primarily by a favorable geographic mix, so U.S. to O.E.U.S. revenue. We had about 68 percent of our revenue coming from the U.S. and the rest of it from O.U.S. That helps quite a bit on the gross margin side. And then we also had some higher manufacturing capacity utilization, which helps. So that's what, you know, raised the number in Q1. And, you know, it's 30, 40 basis points, right? That rounds up to 75.
Mehul Joshi: So it's, you know, we did see some benefit, mostly from geographic mix. But as we get into the second half of the year, and that's what we've guided to expect, higher volumes to move through the factory. And that is the primary driver and, you know, increasing gross margins. So geo mix will also help, but that's, again, volume-based and then better utilization. So that's what we expect in the second half of this fiscal year to drive, you know, gross margins up to 75%.
Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1.
Operator: To conclude, we had a great first quarter, and I'd like to take a moment to thank Pulmonx employees worldwide for their continued dedication to helping patients with severe emphysema breathe easier, do more, and lead fuller lives. I think this is really a great time to be at Pulmonx, and with that, thank you all for your time and have a great rest of your day.
Vic Chopra: Hey, good afternoon. This is Vic Chopra on behalf of Larry V.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Steve Williamson: Sure. You know, we've got an aggressive program in front of us. I think we've got a new sales process that's in place. We're doing quite a bit from a clinical perspective, both with our CONVERT-2 trial as well as our Japanese post-approval study. And ongoing from a marketing perspective, reaching out and doing more training from a COPD physician and patient perspective, raising awareness there. So I think good for me looks like continued progress in all of those areas. We've got, as I said, I believe in the plan that's in place, and execution of that plan, and our ability to do so would be a big win for us.
Mehul Joshi: And if I can add, we'd also want to make sure that we're meeting or beating our guidance and really focus on, you know, driving operating leverage through our P&L and through our business.
Vic Chopra: Great, helpful. Good transition to my next question as well. You know, you lowered your OPEX guidance for the year this afternoon. Maybe just talk about what's driving that. Thank you. Yeah, sure. So, you know, when we
Mehul Joshi: Yeah, sure. So, you know, when we set guidance, you know, in February, we assumed a accounting methodology for SBC, you know, expenses, you know, for an executive transition. And as we, you know, continue to evaluate that and close the books for the quarter, you know, we had a methodology change. I mean, SBC is a non-cash expense. So it was a methodology change that was affirmed by our auditors. And, you know, that's what drove the reduction in the SBC guidance; non-OPEX guidance stayed the same.
Mehul Joshi: I mean, non-FBC OPEX guidance stayed the same. So we're still managing to that number, which is around 12% year-on-year growth. And that's investing in not only our commercial activity but also in clinical trials and the R&D initiatives that we have underway.
Steve Williamson: I would now like to turn the conference back over to Stephen Williamson for his closing remarks.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
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Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: [music].