Q3 2024 Pulmonx Corp Earnings Call
[inaudible]
Be advised that today's conference is being recorded.
Speaker Change: I would now like to hand, the conference over to your first speaker today Elisabeth spray Seo Investor Relations. Please go ahead.
Elisabeth spray: Good afternoon, and thank you all for participating in today's call. Joining me from harmonics are Stephen Williamson, President and Chief Executive Officer, and Mahle Joshi, Chief Financial Officer.
Earlier today <unk> issued a press release announcing its financial results for the quarter ended September 32024.
A copy of the press release is available on <unk> website.
Elisabeth spray: 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.
Statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements.
Elisabeth spray: All forward looking statements, including without limitation.
Turning to our operating trends commercial strategies and future financial performance, the timing and results of clinical trial expense management market opportunity guidance for revenue gross margin and operating expenses.
Expansion and product pipeline development are based upon our current estimates and various assumptions.
Elisabeth spray: 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, including our quarterly report on Form 10-Q filed with the SEC on August <unk> two.
Elisabeth spray: 2024.
Elisabeth spray: Also during this call we will discuss certain non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results.
This conference call contains time sensitive information and is accurate only as of the live broadcast today October 32024.
Elisabeth spray: <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.
Speaker Change: That I will turn the call over to Steve.
Thanks, Elizabeth Good afternoon, everyone and welcome to our third quarter 2024 earnings call here with me is made will Joshi, our chief financial Officer.
Steve: I am pleased with our third quarter performance and our team's continued execution across several of our most critical commercial and clinical initiatives. Our commercial strategy continues to gain traction as we achieved worldwide sales of $24 million.
Representing 15% growth over the same period of the prior year.
In the U S revenue was $13 $8 million, representing 17% growth year over year, while O U S revenue was $6 6 million, representing 12% growth year over year.
Elisabeth spray: We were pleased by our growth in procedure volumes, despite seeing a more typical seasonal impact in the U S. In Q3 compared to the third quarter of 2023.
As a reminder, we viewed the decreased impact of seasonality in the third quarter of 2023 as a potential anomaly.
Elisabeth spray: We were also pleased by the increase in the number of active accounts in Q3 as we enter the final months of the year, we remain confident in our ability to deliver on the previously communicated revenue guidance of $81 million to $84 million for the full year 2024.
Elisabeth spray: As a reminder, our commercial strategy is built on three pillars first training physicians and hospitals that have the potential to be a high performance ever valve centers second automated patient workflows and facilitating the sharing of best practices among existing centers to optimize those up our valve programs and third building local awareness.
The benefits of our treatment among COPD physicians and patients.
My experiences over the last few months have given me even greater confidence in this playbook and I believe we are well positioned for significant sustained growth.
Opportunity to start a high level of hospital executives meet key opinion leaders and to spend time with our customers and their patients. Most recently I attended cases with a key position in London, and then talk with one of his patients in the recovery room just minutes. After this valve replace the benefit of the procedure was evident as the patient explained we could already breathe better as these.
Elisabeth spray: Smiled when he left with US. This is just one example of how life changing as after valves can be for patients with severe emphysema and how valuable our solution may be to any COPD treatment program. We remain confident in the high demand for our solution and our ability to provide needed relief to this massively underserved patient population.
Elisabeth spray: In conjunction with our first strategic commercial pillar training physicians and hospitals that have the potential to be a high performing zephyr valve centers. We added 15, new accounts in the U S. In Q3, ending the quarter with 280 active accounts as a reminder, we define active accounts with centers that placed a revenue generating quarter in the quarter.
Elisabeth spray: Importantly, our value proposition continues to resonate with hospital system administrators as well as interventional Pulmonologists, who are eager to provide separate valve treatment to their patients.
While we continue to identify potentially high performing zephyr valve centers and expect to Opportunistically established new accounts I'll remind you that our primary focus remains on increasing awareness of zephyr valves and driving utilization at treatment centers.
Elisabeth spray: With respect to our second strategic pillar automating patient workflows and facilitating the sharing of best practices. Among existing centers. We are pleased to provide an update on our long track platform, which is in pilot release and is garnering a high level of interest from our customers <unk> is designed to streamline customer workflows and identify patients eligible for <unk>.
As we previously shared long tracks connected the tax integration solution that eliminates the manual Cte upload process by allowing the Cts and to be uploaded directly to the strat X platform from the hospitals Pac system. Additionally.
Additionally, it enables the care team to track and share patient workup status potentially reducing time to treatment for the patient.
Elisabeth spray: This stands to meaningfully reduce key friction points in patient workflow and allows centers to better manage the growth in there is that for valve case loads.
Building on these efficiency capabilities, we are now expanding the functionality of our platform to enable hospitals to screen for new potential patients with lung tracks. The tech currently chest Cts and ordered for lung cancer detection or other diagnostic purposes are not routinely evaluated for severe emphysema or new screening.
Elisabeth spray: We're prospectively analyze us non contrast, Jeff Cds hospital wide to identify patients who have radiographically significant emphysema, regardless of the primary health concern. This represents a long term opportunity to help patients already moving through the health care system receive an accurate diagnosis and better care in a more.
Timely manner.
We expect to implement our long track to connect into tech pilot programs and a handful of select centers towards the end of the year as we move to optimize the software and user experience before launching them more broadly.
Elisabeth spray: Importantly, I'd like to note that we are not yet generating direct revenue for our long tracks platform and we believe it will take some time to launch into customer accounts complete the work necessary to integrate infrastructure with any treating centers and initiate and complete beta testing we.
We anticipate the lung tracks platform will streamline patient identification and workup, which should provide a meaningful tailwind to procedure volumes over the medium to long term as we.
Elisabeth spray: We engage customers on lung tracts, we continue to develop new capabilities for the platform that have the potential to further enhance the case management efficiency.
On our third strategic commercial pillar building awareness of the benefits of this effort treatment. We continue to do focus education of COPD clinicians and patients we sponsor live and virtual education programs, which see a lot of provider interest and our recent partnership with <unk>, we had over 12000 providers take online CMA.
Horses about Endobronchial valve patient selection, we also directly educate patients about zephyr balance via targeted direct to patient initiatives and year to date over 34000 potential patients as actively engaged by phone or online with this represents a 150% increase over the same period.
In the prior year, we see targeted patient education is a valuable means of both spring conversations with doctors enhancing awareness and increasing patients' ability to access specialized care.
Shifting to our international performance, we've been investing in our foundation for commercial success in our international business and are already beginning to see the impact we delivered international year over year revenue growth of 12% in Q3 growth was fueled in part by recurring orders for our new distributor in China offset somewhat by seasonal dynamics typical in the third quarter.
And our European markets, we continue to adapt many of the proven sales tools, we've developed and utilized in the U S for use in local geographies such as operational best practice sharing community physician engagement and peer to peer education programs. We believe these will drive continued growth in our international business.
Outside of Europe, we're making progress on our post market surveillance study in Japan. We are encouraged by the positive reception of our technologies received from participating centers and the ability of our Japanese team to drive adoption of Zephyr valves.
We anticipate it will take time to grow widespread awareness of this new treatment option and we expect the bulk of participating patients to be treated in the back half of the enrollment period. We continue to expect more material revenue contribution from Japan. In 2026. This study marks an essential step toward broader commercialization of new market, where an estimated 100000 patients.
Standard benefit from Zephyr valves.
Elisabeth spray: In addition to growing our global footprint, we remain committed to our goal of expanding the number of patients that can be treated was that for valves for our <unk> clinical development program.
Elisabeth spray: At the European Respiratory Society Congress in October new clinical data from our <unk> convert one trial demonstrated successful conversion of collateral ventilation status in 77, 6% of patients following treatment with the <unk> system.
Elisabeth spray: Notably patients treated with separate valves following conversion experienced clinically meaningful benefits over the baseline, including in lung function and quality of life at.
At six months following valve implantation, 89% of converted patients achieved target low volume reduction or tldr equal to or greater than 350 millimeters the minimal clinical relevant difference the.
The actual <unk> was 1062 milliliters three times greater than the targeted production volume.
We are excited by these results that indicate CV positive patients can successfully undergo treatment was ever valves following closure of the Fisher gap with our <unk> system.
Through Q3, we've expanded enrollment in our convert two pivotal trial, a multicenter global study designed to support our FDA pivotal trial and evaluate the safety and effectiveness of the <unk> system and limiting collateral ventilation and severe COPD emphysema patients we continue to activate centers around the <unk>.
World and our convert to trial and anticipate commercial launch for <unk> outside of the U S and approximately 2026 and in the U S and approximately 2027.
<unk> has the potential to expand our immediately addressable market of eligible and motivated patients by an estimated 20% globally.
Elisabeth spray: We continue to advance the science around Zephyr valves at the IRS Congress long term safety and durability data from the liberate study demonstrated positive durable improvements for patients treated with zipper valves out to at least five years daily.
Data demonstrated annual improvements in lung function from year, one to five and important advantage over medical treatment alone given the known decline in lung function over time.
Elisabeth spray: The five year data also demonstrated improvements in survival when compared to historical controls.
In addition, a post hoc analysis of deliberate study also presented at <unk> demonstrated that those patients treated with Zephyr valves, who achieved a <unk> of 50% or more experienced significantly fewer severe COPD exacerbations, requiring hospitalization over the long term when compared to medical management alone.
Elisabeth spray: Yeah.
In summary, the results from the five year follow up and post hoc analysis of deliberate study further validate the positive clinical benefits of Zephyr valves for patients with severe emphysema in COPD.
Finally at the recent American College of chest physicians meeting in Boston, We saw high engagement by referring Pulmonologists. Our research has shown that 94% of Pulmonologists know about valves, but only 36% say they feel confident about which patients to refer.
At the conference we engaged extensively with community Pulmonologists to discuss patient selection criteria and received post conference feedback that our discussions had a positive effect on these physicians willingness to refer.
Elisabeth spray: I am encouraged by the high interest and desire to learn I heard from this community of physicians as they came to our booth attended <unk> clinical presentations and packed our educational symposium.
Elisabeth spray: We are pleased with the strong presence <unk> had at these recent key scientific meetings and view our growing portfolio of positive clinical evidence as a crucial component of our strategy to drive increased awareness of zephyr valves and their clinical benefits.
Now I'll turn the call over to able to provide more detailed review of our third quarter results.
Speaker Change: Thank you, Steve and good afternoon, everyone total worldwide revenue for the three months ended September 32024 was $24 million, a 15% increase over the prior year period, and also an increase of 15% on a constant currency basis.
Our performance was driven by continued commercial execution and adoption of Zephyr valves offset by pronounced seasonality, particularly in the U S compared to the prior year period.
U S revenue in the third quarter was $13 8 million at.
Elisabeth spray: A 17% increase over the prior year period.
International revenue in the third quarter of 2024 was $6 6 million an increase of 12% over the prior year period, and also an increase of 12% on a constant currency basis.
Gross margin for the third quarter of 2024 was 74% compared to 74% in the prior year period, reflecting slightly improved capacity utilization offset by geographic mix.
Elisabeth spray: Total operating expenses for the third quarter of 2024, or $29 2 million, an increase of 3% over the prior year period.
Per share for the same period of the prior year.
Elisabeth spray: An average weighted share count of $39 3 million shares were used to determine loss per share for the third quarter of 2024.
Adjusted EBITDA loss for the third quarter of 2024 was $8 1 million as compared to $9 million in the third quarter of 2023% to 10% improvement on a year over year basis.
Elisabeth spray: Please refer to our reconciliation of net loss to non-GAAP adjusted EBITDA for further details.
We ended September 32024, with $107 8 million in cash cash equivalents and marketable securities a decrease of $6 8 million from June 30 of 2024.
Our current cash position combined with our demonstrated ability to drive revenue growth and operating leverage beyond our existing operating plan assumptions continues to provide confidence in our ability to become cash flow breakeven with the existing cash on hand.
Elisabeth spray: Turning now to full year 2024 guidance, we are reiterating our previously communicated fiscal year 2020 for revenue guidance and updating gross margin and Opex guidance.
Elisabeth spray: We expect to deliver full year 2020 for revenue in the range of $81 million to $84 million.
Representing approximately 20% growth at the midpoint.
We remain confident in our guidance as we continue executing our commercial strategy.
Moving down the P&L, we expect gross margin for the full year 2024 to be approximately 74%.
Elisabeth spray: Gross margin is slightly impacted by the strength of distributor revenue in the current year, despite being accretive to operating margin.
Lastly, operating expenses for the full year 2024, it will fall within a range of $122 million to $124 million <unk>.
Including approximately $22 million of noncash stock based compensation expense.
Total operating expense growth at the midpoint is expected to be approximately 9% and continues to demonstrate our focus on operating leverage.
We didn't feel that it would be prudent to make changes to the guidance at this time.
Elisabeth spray: Thank you.
Our next question comes from Jason Bednar with Piper Sandler. Please go ahead.
Got it.
Hey, good afternoon, I've got a couple I'll, maybe dovetail off of that last question.
He chose to adjust to the gross margin opex parts of the guidance.
You did leave the revenue guide unchanged. It is a bit of a wide range or least opens up a range of outcomes for the fourth quarter. So if I can pin you down ste.
Steve or May how are you more comfortable at one end or the other of that revenue range.
Hey, Jason this is mahle so.
Mahle Joshi: All year, we've kind of guided to the midpoint of her with 20% growth and that's where we feel comfortable with.
Elisabeth spray: At this point.
We thought about narrowing the guidance but.
Elisabeth spray: We just wanted to make sure that the guidance that was set earlier on in the year is what we're focused on achieving and driving to at least that midpoint.
Yes, Jason if I can add on to that if you look at our guide it's relatively small range and so it just didn't seem prudent really to hone in on anything right now.
We're coming up against that.
We're coming out of a quarter that had high seasonality as I mentioned, we will start to see that grow in Q4, which is typical of pulmonary procedures and what we've seen in the past.
And so as we go into Q4 I think it would just be it seem to be in line with what we've been saying for the year, which is that we will continue to deliver on the expectations that we gave at the beginning of the year.
Okay Fair enough and then one other one on on the guide.
And if we could just maybe unpack the opex spend reductions pulling that range in by about 5 million watched whats changing in the spending plans I heard the call out on the cost optimization program.
Elisabeth spray: Effecting.
And I don't think it will get to a significant level probably until late 'twenty five early 'twenty six we will start to see that really take off but we've ramped up that distributor and we are seeing good adoption. There. So China has been a help and then our key European target markets are doing well also the major.
Markets have shown some growth and I believe that is tied to the implementation of the U S sales process and then finally I think theres. Some other things to be bullish about as you look at European markets in general.
The UK just came out with a targeted lung health check program, where they've launched across the UK pre screening for patients that are between 55% to 75 years old that are either prior or current smokers.
Those patients can come in and receive screening for lung cancer, but they also were screened for emphysema as well. So there's a lot of positivity going on outside the U S right now.
Do believe that over the long term, though we will see significant growth in the U S and that will be our driving force.
Speaker Change: Got it. Thank you and then just a follow up so with all of that and it sounds like theres. Good upon the catalyst coming especially out of Europe. How can we think about the growth rates for us whether it's Josh.
Q4 or in 2025 going forward. Thank you.
Elisabeth spray: Yes, I'd say, we expect continued growth in U S.
In Q4 as well as in the future.
We're not going to guide to 2025 growth yet until the Q4 call.
We will continue to expect similar types of growth.
Elisabeth spray: As we've experienced over this first three quarters.
Speaker Change: Thank you.
Speaker Change: Thank you.
Our next question comes from Frank <unk> with Lake Street Capital markets. Please go ahead.
Speaker Change: Program.
And so we wanted to make sure that we got it right and we were meeting all the customer needs. There on the third leg of the stool is the COPD physician and patient awareness one of the things that we've done although that we our Opex guide is down as we've reallocated spend to more targeted direct to patient advertising as well as peer to peer education events and the feedback from those.
Speaker Change: <unk> been very very strong if you look we've got 34000 patients have engaged with us thats, a significantly higher 150% higher than where we were last year. So that spend is showing that we are able to educate physicians and patients alike.
We've increased our presence in some of these in the UK with this targeted lung health check and we're doing what we can to drive COPD physician awareness, there as well as patient awareness too. So we're looking at accelerators for that plan that we would like to see kick in in 2025 and beyond.
So that's really been our focus here over the last seven months I would say it's early innings with these though we had to come in we needed to understand the needs of our customers. We develop a plan I spent a lot of time in the field talking to customers and validating that plan, making sure that we are meeting their needs and that we're delivering products that will be useful to them once.
We do that we have to drive the adoption of the hospitals. So the hospital has to come on board. There is contracting that goes along with our long tracks programs. So you involved.
Speaker Change: Which can be can take a little bit of time, the legal aspects of it as well so adoption of our solution by the hospital. Once that's adopted then we need to go implement and work with the teams to implement the software solution and then once that's done we need to go through and get patients through so they then need to be identified worked up and treated so it takes a.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].