Pulmonx Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2023

There are 10 speakers on the call.

Operator

Welcome to the pulmonics Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Lane Morgan at the Gilmartin Group.

Operator

Lane, please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and thank you all for participating in today's call. Joining me from Pelemonics are Glenn French, President and Chief Executive Officer and John McEwen, Interim Chief Financial Officer and Vice President, Corporate Controller. Earlier today, pulmonics issued a press release announcing its financial results for the quarter ended September 30, 2023. A copy of the press release is available on pulmonics' website.

Speaker 1

Before we begin, I'd like to remind you that management will make statements during this call that include forward looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this Call that relate to expectations or predictions of future events, results or performance are forward looking statements. All forward Looking statements, including without limitation, those relating to our Chief Financial Officer transition, our operating trends, commercial strategies and future financial performance, The timing and results of clinical trials, expense management, expectations for hiring, growth in our organization, market opportunity, Guidance for revenue, gross margin and operating expenses, commercial expansion and product pipeline development are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

Speaker 1

For a list and description of risks and uncertainties associated with our business, please refer To the Risk Factors section of our filings with the Securities and Exchange Commission, including the quarterly report on Form 10 Q filed with the SEC on August 4, 2023. Also during this call, we will discuss certain non GAAP financial measures. Reconciliations of these non GAAP financial measures 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, Today, October 30, 2023.

Speaker 1

Pulmonics 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'll turn the call over to Glenn.

Speaker 2

Thanks, Lane. Good afternoon, and welcome to our Q3 2023 earnings call. Here with me is John McCune, our recently appointed Interim Chief Financial Officer, who's been a leader on our finance team as VP Corporate Controller since our IPO. We are very pleased with our recent performance as we achieved another quarter of record revenue. In the Q3, we delivered $17,700,000 in worldwide sales, representing 31% growth over the same period performance as we achieved $11,800,000 in sales, representing 41% year over year growth.

Speaker 2

Outperformance in the U. S. Was due to continued momentum and traction of our focused commercial strategy and also to slightly less seasonal impact than expected. Meanwhile, seasonal impacts internationally were more consistent with Our expectations and historical trends. Given the strength of our business year to date, we are updating our Full year 2023 revenue guidance to be in the range of $67,000,000 to $68,000,000 up from our prior guidance of $64,000,000 to $66,000,000 At the midpoint, this implies anticipated year over year growth of over 25%.

Speaker 2

We attribute our confidence largely to the traction we are seeing with our focused commercial strategy. As we had planned, this strategy designed to Accelerate account productivity across our already meaningful footprint has resulted in 1, more existing treating centers With optimized Zeprival programs 2, new treating centers launching with a greater ability to scale And 3, increased awareness around the benefits of our treatment among COPD physicians and the many patients who stand to benefit from it. In the Q3, average U. S. Account productivity was approximately 4.7 cases per center Despite anticipated summer seasonality, we attribute this largely to improvement in the number of highly Experienced and efficient accounts and the cases they performed offset by continued growth in our base of actively treating centers.

Speaker 2

As a reminder, we have measured account productivity based on the average number of cases conducted in a given quarter by our active established Zephyr valve treating hospitals, which are those that have been performing Zephyr valve procedures for at least 4 quarters and placed a revenue generating order in the current quarter. While seasonal trends will drive some variability in this metric from quarter to quarter, On average, over time, we expect account productivity to continue to move higher into the 4th quarter and beyond. Meanwhile, U. S. Account activity in the Q3 of 2023 was 73%, representing 2 And 35 centers that placed a revenue generating order in the 3rd quarter.

Speaker 2

We continue to expect account activity To remain in the low to mid-70s range as we grow our denominator of treating centers. Lastly, we continue to expand our base of U. S. Centers. We added 15 new accounts in the U.

Speaker 2

S. In the Q3, bringing the total number of U. S. Centers to 323, and we now Expect to end the year having opened approximately 55 to 60 new accounts. Collectively, commercial Trends year to date have demonstrated to us that treating centers, both established and new, are eager to adopt to Zephyr valve treatment and invest in their programs.

Speaker 2

This comes as patients and referring COPD physicians become increasingly familiar with our technology and its clinical benefits Due to our ongoing education and outreach focused in geographies with optimized Zephyr programs. Taken together, we believe that, 1, there is still meaningfully more room to grow Within existing centers and 2, we are still early in penetrating broader patient demand. As we look forward into 2024, we will invest in our commercial and educational capabilities to penetrate the market. We will continue to grow our base of highly trained and motivated new centers and strengthen existing centers by helping our champions Explain the value of their programs and the value that they bring to the hospital system and we will continue to share best practices on how to build advanced ZEPRA valve programs. In targeted geographies with well developed programs, We will increase both patient outreach and education of COPD focused healthcare providers with proven strategies that we can replicate and scale.

Speaker 2

Taken together, these strategies will help develop A growing base of highly capable centers with increasing penetration of the substantial opportunity in these geographies. Meanwhile, we will continue to benefit from a growing body of published clinical evidence. Most recently, We were pleased to see the publication of data from a single center retrospective analysis in Germany that published in the Journal of Respiratory Medicine. Results from the study suggested that patients who received endobronchial valve implantation experienced a reduction in This is similar to the documented reductions in severe exacerbations delivered by lung volume reduction surgery. Moving now to our international expansion plans, we are excited to have recently been approved for reimbursement For our Zephyr valve treatment in Japan, which allows pricing that is consistent with our global average.

Speaker 2

This marks an essential step toward commercialization in Japan, starting next year with a post market approval study of approximately 140 patients at 10 to 15 sites, which will then be followed by broader commercial expansion. Now turning to our clinical development pipeline. We remain on track with our Aeroseal program, which we expect We'll expand the addressable market for our Zephyr valve solution for severe emphysema patients with collateral ventilation and continue to expect final data of the CONVERT-one trial to be presented later next year. Meanwhile, we are preparing to launch our CONVERT-two trial, which will form the basis for our U. S.

Speaker 2

ARACYL PMA submission. I'll now turn the call over to John to provide more detailed review of our Q3 results. John?

Speaker 3

Thank you, Glenn, and good afternoon, everyone. Total worldwide revenue for the 3 months ended September 30, 2023, Reached a new quarterly high of $17,700,000 a 31% increase from $13,500,000 in the same period of the prior year and 29% on a constant currency basis. U. S. Revenue in the 3rd quarter reached A new record of $11,800,000 a 41% increase from $8,400,000 during the prior year period.

Speaker 3

The growth in U. S. Sales reflected continued commercial momentum and adoption of our Zephyr valve therapy as well as less impact from seasonality compared to the prior year period. International revenue in the Q3 of 2023 was $5,800,000 a 14% increase from $5,100,000 during the same period last year and a 9% increase on a constant currency basis. The overall increase in international sales was driven by growth Gross margin for the Q3 of 2023 was 74% Compared to 75% in the prior year period, reflecting higher inventory reserves in the quarter, we expect gross margin for the remainder of 2023 to be approximately 74%.

Speaker 3

Total operating expenses for the Q3 of 2023 were $28,200,000 A 17% increase from $24,100,000 in the Q3 of 2022. Non cash stock based compensation expense was $6,000,000 in the Q3 of 2023. Excluding stock based compensation expense, total operating expenses In the Q3 of 2023, increased 12% from the same period of the prior year. Looking ahead, we continue to expect operating expenses for the full year 2023 to fall between $112,000,000 to $114,000,000 inclusive of approximately $21,000,000 of non cash stock based compensation expense, as we take a disciplined and prudent approach to managing expenses, while contributing to invest to drive growth. R and D expenses for the Q3 of 2023 were $4,200,000 compared to $4,400,000 in the same period of the prior year.

Speaker 3

The decrease was primarily attributable to lower Aeroseal program costs. Sales, general and administrative expenses for the Q3 of 2023 were $24,000,000 compared to $19,700,000 in the Q3 of 2022. The increase was attributable to continued investment in our commercial activities as well as an increase in legal and stock based compensation expenses. Net loss for the Q3 of 2023 was $14,900,000 or a loss of $0.39 per share As compared to a net loss of $14,200,000 or a loss of $0.38 per share for the same period of the prior year, An average weighted share count of 38,100,000 shares was used to determine loss per share for the Q3 of 2023. Adjusted EBITDA loss for the Q3 of 2023 was $9,000,000 as compared to $9,700,000 In the Q3 of 2022, the year over year improvement demonstrates our ability to drive operating leverage.

Speaker 3

We ended September 30, 2023 with $139,800,000 in cash, cash equivalents and marketable securities, a decrease of $7,900,000 from the June 30, 2023 period. We continue to feel very good about the strength of our balance sheet and our pathway to cash flow breakeven. Finally, turning to our revenue outlook for 2023. Given our strong performance in the Q3, we are updating our full year 2023 revenue guidance to be in the range of $67,000,000 to $68,000,000 representing approximately 25% to 27% growth over 2022 and up from our prior guidance of $64,000,000 to $66,000,000 I'll now turn the call back to Glenn for his closing comments.

Speaker 2

So in summary, I am very pleased with the way that we are executing our operational plan and with the resulting record 3rd quarter results. We are confident in our long term value proposition as we continue to drive increasingly predictable growth. Further, we are advancing key development projects and now entering Japan and in both ways are working to materially our already substantial addressable market. Finally, from a financial perspective, our revenue growth, Strong balance sheet and healthy gross margins together provide us a clear path to cash flow breakeven. With that, I'd like to thank you all for your attention, and we will now open the call for questions.

Speaker 2

Operator?

Operator

Certainly. And our first question We'll come from Jason Bednar of Piper Sandler. Your line is open.

Speaker 4

Hey, good afternoon. Can you hear me okay?

Speaker 2

Yes.

Speaker 5

Great. Thanks. Congrats on the results in the quarter here, Glenn. I want to go back to maybe the setup for as we came into 3rd quarters from your comments 3 months ago in early August. You talked about maybe some concerns around seasonality in the Q3, but you clearly out executed your plan, which is really great to see.

Speaker 5

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

Speaker 2

Yes. Thanks, Jason. Yes, it was a very interesting quarter, and I remember talking to everybody sort of in early August, And July revealed a great deal of seasonality, and I think we probably signaled that when we were having those conversations. The good news is that August was not nearly as impacted As it was last year in the United States. And I think one of the things that's fundamentally different As it relates to the U.

Speaker 2

S. Situation this year versus last or at least what it appears at this point is that A good bit of that which didn't happen in the Q3 of last year rolled into the 4th quarter. So you had these delayed, you had people coming back from vacations and in many cases they didn't get those procedures executed until Into the Q4, this year in Q3, particularly in the U. S, though we had A delay in procedures in the early part of the quarter, they got completed later in the quarter. So I think that's the dynamic that Explains the strength of this period unto itself and also how it contrasts to what we saw last year.

Speaker 5

Okay. And maybe if I could just come back then on maybe a real time comment.

Speaker 4

I mean, how can you

Speaker 5

talk about Maybe the exit rate in September or maybe what we're seeing here in early October and how that is contributing to The implied guidance here for the 4th quarter?

Speaker 2

Well, what specifically are you I mean, I will give you as much detail as we traditionally provide in terms of inter quarter results. But When you're talking about the implied guidance, can you be more specific?

Speaker 5

I guess, I'm wondering to what extent the momentum you had coming out of September, how that influenced What you're expecting now for the Q4 because this wasn't just a typical beat and flow through the raise to the full year guide. This was a Beat and then raised by even more than the beat. So I don't want to speak for the rest of the Street, but I'm guessing that 4Q numbers are going to be moving higher today Based on your updated guidance, so I'm trying to get a sense of how strong was that exit rate coming out of September that you were seeing in your business?

Speaker 2

Yes. No, our increase was greater than our beat for this quarter, but I think you'll recall we had some catching up to do. So There were a number of questions in the past about making adjustments. We made them now. So, in any case, I think as we look ahead, We are encouraged by the performance in the 3rd quarter.

Speaker 2

We were sobered a little bit by the idea that we didn't get any carryover into the Q4 in the way that we did last year. And we have a limited number of there's a significant impact on the number of shipping days in the Q4 as well. We feel good about the Q4. We've always talked about that being a stronger relative quarter, but I think this 3rd quarter performance is pushing up against that and I think that's reflected in the overall guidance And what that implies as it relates to what we expect to do in the Q4.

Speaker 5

All right, perfect. And then one other maybe commercial focused one from us, Yes, but it will be a 2 parter, so apologies in advance. So you've got these new center additions in the U. S. You've been running well ahead of your from where you started the year, which again is also really good to see.

Speaker 5

So first, are you able to support this better new account activity because the core The improvements have been as strong as they have been, like we're just talking about in the last question. And then second part, given the commercial improvements you've made this year And the account activation adjustments that you've made, can you talk about maybe some context around the accounts that you've onboarded this year, how they've scaled Relative to the accounts that you onboarded in 2021 or 2022, just are you having more success in

Speaker 2

Yes. So with regard to the So first of all, the new additions are interesting. It's always great to bring these new centers on. I mean, we're adding about 1 per territory Per year, so we've got just we've got 55 reps, we'll be 55 to 60 new accounts this year. With regard to our metrics, The addition of new of more greater than expected new accounts sort of dilutes the denominator in that regard.

Speaker 2

But with regard to our ability to absorb it, I think was what your question or comment was, this is kind of normal course activity and we're not Realizing any challenges with regard to our ability to absorb those accounts. Although I will say that as those accounts Sure. And they get to the 1 year mark and they get included into our calculations, they are dilutive. So an account Though an account is much stronger at a year than it is at say 3 months, They still continue to expand. And so as the greater than anticipated number of new accounts roll in each quarter into our denominator, It is dilutive to the overall number.

Speaker 2

Now you had asked about the context of accounts Today versus say 2 or 3 years ago, and how productive those accounts are. We have, and I think we've talked about this before, materially increased the number and height of the hurdles that Accounts need to clear in order to become accounts today. We've learned a lot over the last few years. And so I would say that these accounts that Come on board, are much better prepared. I mean, an example of it is the number of steps that a treating physician needs to go In order to even get to training, they need to identify at least 3 patients in advance of training.

Speaker 2

They come to training, they discuss those patients, they go back and they treat the patients and then they have a 45 day review with an expert. So I would say that one of the fundamental differences in terms of folks that are coming out of training today is that they're much better They're much further along in terms of their understanding of things. Now going back to like does that translate directly into These accounts being way further along, I think it's super important to remember that there's a 6 step sort of process and we take folks from step 1 through step 6 is what they're developing and they're clearing through gates along the way. That's a process that takes time, of how well trained the doctors are who enter into it. So I would simply say that I wouldn't anticipate material acceleration with regard to getting an account up to speed, but we have A whole array of examples of accounts that are very material contributors after only 3 months and others that take longer to come up to speed.

Speaker 2

There's a bit of a spectrum.

Speaker 5

Okay. Appreciate all the color. Thanks and congrats again on the quarter. Thanks.

Operator

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

Speaker 6

Good afternoon, Glenn. I just want to make sure I'm understanding a couple of things, if you could just expand on a little bit. The account productivity and implementation of best practice, When you started your remarks, you talked about the number of accounts. You had a lot of momentum in accounts, and I think your words were with Optimized Zephyr programs. And Glenn, I'm going to ask the question, you rephrase it, if you feel like I'm not coming out in a clear way.

Speaker 6

But I say to myself, you came you ended last year with 278 total active accounts, if I I'm looking at it correctly. Today, what percent of those accounts have optimized Zephyr Programs, you follow me? And the reason I'm asking the question is to get at our 25% of those 278 Have optimized programs and gosh, we got a lot of room in a good way to keep driving greater productivity. That's what I'm trying to get at.

Speaker 2

Yes. So first of all, an active account is one that's ordered in the last Quarter and the active number is in the low 70s as we talked about 73%, 74%. So in any given quarter, 73% or 74% of our accounts Our ordering, if you were to say in any 6 month period, it will be about 85%. But in any case, You said a year ago, we were at 278. I'll take your word for that.

Speaker 2

I don't know it off the top of my head. We're at 330 or something now. But the those are not all active accounts. That's the total number of accounts. So there's a subset of that, About 70% to 75% of those would be active accounts.

Speaker 2

So let's say out of 200 Active accounts, probably about 25% to 30% of those are what I would consider to be truly Optimized. And the reference to optimization in my earlier comments was really the geographies in which When we were when I was commenting on sort of our plans for 2024, it was in those geographies where we would be making Broader investments in trying to get the word out to the COPD physicians and the patients themselves. So we've been talking about on the need to have the accounts ready first, then the referring physicians or the COPD physicians And then activating the patients.

Speaker 6

Got you. I know it's early. It's hard to resist asking about 2024, Especially given the momentum we saw in the Q3, and especially when I hear you talk So clearly and positively about more accounts, account productivity, the Patient and physician outreach and education and training. I mean, should do you I'm not so much looking for exact numerical guidance. Feel free if you want to.

Speaker 6

But more, Should we just assume that given all this, the outlook, the possibility, the likelihood of Continuing in a kind of a 20% or better growth range is a reasonable expectation based on everything we're hearing tonight?

Speaker 2

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

Speaker 2

But, so I'm not trying I wouldn't want to talk that down, but I also am not in a position to be talking it up. We've got some more information. I think the 4th quarter is going to be An important data set and we'll spend a lot of time between now and when we when that all comes together to provide far greater clarity on how we see 2024.

Speaker 6

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

Speaker 5

Thank you.

Operator

And one moment for our next question. And our next question We'll be coming from Larry Biegelsen of Wells Fargo. Your line is open, Larry.

Speaker 7

Hi. This is Charles on for Larry. First, congrats on the Quarter. A couple of questions here. First, just on ARISEAL, it sounds like that's on track here, We enrolled in CONVERT-one, presenting the final data next year.

Speaker 7

I guess from there, I mean that's in CONVERT-two in your PMA submission, but How soon after Convert-one completion do you think we can expect OUS sales?

Speaker 2

So, ConvertOne is we're just following up. So, it's fully enrolled. We're following up. We've got, I think, a 1 year follow-up that we're going to put into our or I can't remember, it might be 6 months. In any case, We're planning on presenting those data at the European Respiratory Society meeting.

Speaker 2

I think what you're Alluding to is that we have a CE Mark in place already for ARISIL and we have spoken about Limited and then expanding over time commercialization of Aeroseal and CE Mark regulated countries. Of course, CONVERT-two is on the critical path to getting ARISIL available in the United States. So that's a separate matter. So we're going to go ahead and present those We'll get those published and then selectively sort of a limited launch, if you will, in various different locations. And the pacing of that will likely be informed by the rate of enrollments in European centers in convert to

Speaker 6

We don't want to create we don't

Speaker 2

want to inhibit the ability to get that Study enrolled quickly because we're commercializing in the hospital next door to a clinical trial center. So in any case, I don't have Perfect information on that. Once we get convert 2 underway and begin to scale, we'll have much greater resolution on Exactly when and how we will be commercializing, but we will commercialize in CE Mark Countries Ahead of the commercialization of Aeroseal in the U. S. Okay.

Speaker 7

Thank you. And then just one follow-up. You announced recently, so you're searching for a new CFO. Is there any update you Share on that or when the company might hope to have that search complete by?

Speaker 2

You are correct. We are in the process of trying to sort that matter out. We are in the process we have undertaken that process. We're going to find the right person and I do not have specific resolution on the timing. I will tell you that Derek has had 2 extraordinarily strong lieutenants, and one of them has stepped into the interim CFO role.

Speaker 2

John has been with us since the IPO and has been the Controller and essentially Chief Accounting Officer for 1 or 2 other companies before that publicly traded. So, we're in good shape, but nonetheless, we are moving quickly and we will But we will not compromise. So I don't know exactly what the timing will be.

Speaker 7

Got it. Thank you. And again, congrats on the nice quarter.

Speaker 2

Thank

Operator

you. And one moment for our next question. Our next question is going to come from Joanne Wuensch of Citi. Your line is open.

Speaker 8

Thank you so much. And let me also say a very nice quarter. I want to talk about Japan and with reimbursement now in place And it's starting to contribute to revenues next year. How should we think about the launch and the expenses that are needed for that launch?

Speaker 2

Okay. I'm going to probably I might pull John into part of that answer. But From yes, so we got reimbursement. So that's awesome. We couldn't be happier.

Speaker 2

It is a monumental task to go through that process or the entire review and approval and then reimbursement process. So As predicted by the end of this year, we said we would have it. We have it now, which is great. And what that does is it allows us to commence A post approval trial in every other country that I have been I've worked in. You do that in parallel with initial commercialization.

Speaker 2

In Japan, you do it on the path to commercialization. So Literally, the first 140 patients treated will be entered into a protocol. They will be revenue generating And there'll be expenses that go along with them, but revenue generating is a nice thing. It's we expect Our revenue per patient to be in the range of our global sort of revenue per patient number. So We talk about very, very roughly $10,000 per patient.

Speaker 2

So 140 patients, about $1,400,000 Revenue is expected. That's going to throw off a little cash to help pay for this commercialization. And John, I don't know if we break out our spending on Japan, but my guess is that The total cost incremental cost of commencing in Japan, we've already got the team in place. We've got Some number of sales reps, marketing folks, general manager already in place. So I don't know what we have incremental.

Speaker 3

Yes, Glenn, you're thinking about that the right way. I'll reiterate that The patients we're treating in Japan are going to be revenue generating patients and that The team that we have there is largely in place. Any their expense and any incremental expense We'll be factored into our 2024 guidance when we share that with you next quarter.

Operator

And one moment for our next question. Our next question will be from John Young of Canaccord. Your line is open, John.

Speaker 4

Hi, John. Thanks for taking our question and congrats on the quarter. Maybe just to follow-up on Joanne's question on Japan. How long do you anticipate it will take to enroll this for 140 patients in the post approval study? And do you have to wait for any Follow-up in the study before commencing the end full commercialization in Japan?

Speaker 2

So with regard to waiting, no. My understanding is as soon as we enroll that 140th, we can we just don't want to see the data, but we won't be Held up for 3, 6 or 12 months before we can go to a broader launch. With regard to timing, As you probably know, clinical trials tend to be back end loaded. They take some time to get off the ground. And then they I think probably half the patients come in, in the last quarter of the time that it takes to execute the trial.

Speaker 2

The good news for us is that we have since we had approval, we were able to go out and engage with all the sites that we need to engage with. I think most, if not all of the treating physicians have gone through a training program. I believe we sent Global Thought Leaders in on at least two occasions into Japan to provide Extensive training to those physicians, so we're lining things up. We had to this We had to get finalization of the protocol before it could be presented to ethics committees and so forth. So we haven't gotten all of the logistics and so forth out of the way.

Speaker 2

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

Speaker 4

Thanks, Glenn. And then maybe just go back to some of the other questions on just the optimized account base. Do you see certain types of centers, maybe like Strong academic center or certain geographies that are embracing the technology more and establishing those patient pathways and I know you talked about clinical coordinators. Is it just a function of time or is it getting the interventional pulmonologist or COPD physician to really champion? Thanks again.

Speaker 2

Yes. There's I think that the singular We feel really good about the process that we're running folks through. So you can kind of push folks along, guide them through the process. As we talked about before, these sensors represent 8% to 10% of the centers in the United States, and thus by definition, they're sort of committed to being in the lung Space, it's not hard to get people to say they want to be they want to embrace best practices. And so long As they're interested in doing that, it does pivot a lot off of people and process, so making sure that We're investing in the right people at the right centers who are embracing what we see as best practices are all Super important, but I mean, we there is no specific university Hospital in a city of greater than 3,000,000 patients or anything like that.

Speaker 2

We have really productive centers That would probably fall into 6 different buckets, places fairly kind of the only game in town within 3 or 4 hours drive in certain parts of the Southeast and so forth that are incredibly productive referral centers where it's You just have a ton of patients that are in need of this that are seeking out that kind of care. And major cities that are also sort of tertiary care referral centers, globally well known Treatment, treating physicians and so forth, and there's an entire spectrum. And I think we've talked about some of these folks and some of the more constructive Centers are outside of major cities where folks just don't want to drive down into the big city. And so 30, 40 miles outside of a big city, there's often a center that people will stop in and get their procedure done as opposed to driving further And into a fairly intimidating place, which is most major cities for people who aren't familiar with them.

Speaker 4

Got it. Thank you.

Operator

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

Speaker 9

Hey, good afternoon, everyone. Maybe expand on the sales dynamic in Europe. Just what is needed to really unlock more of the potential in the region? Because you already have pretty good data over there. Is it reimbursement?

Speaker 9

Is it just more studies? Or is it really just an allocation of sale resources?

Speaker 2

Okay. So the I think the biggest explanation of the relative Performance in the Q3 between international and the U. S. Is the impact of seasonality. Our international sales are mostly 80% plus are in Europe.

Speaker 2

And there was a fairly typical Q3 across Europe. So I would expect the Q4 to be stronger. And I think this was fairly predictable. There is we've got we're directing 97% of our revenue on a global basis is direct. So we're we have the and We have considerable not only sales, but also marketing regional marketing resources.

Speaker 2

So I think we're good from that perspective. In terms of data, We've got 4 randomized controlled trials all published. We're in the global guidelines. So it's not so much that. I think getting the word out Because of either custom and or law and what is acceptable and not acceptable as it relates to Direct to patient, direct to referring physician, even and The economic incentives for the treating physician are different.

Speaker 2

Where we are as it relates to executing outside the United States is we are Embracing the things now that have been demonstrated to work in the United States and to the extent that we can leverage them outside the United States, we And I think probably our greatest success story OUS as it relates to that Is the U. K. And it's easy to argue that in some ways the U. K. The execution in the U.

Speaker 2

K. Informed our strategies in the United States. So They're very much moving in the same direction, executing

Speaker 5

all of

Speaker 2

those things that they can embrace. And in the other larger countries, We're sort of following the lead of the United States in terms of embracing some of these new approaches to the extent that They're allowable.

Speaker 9

Okay. That is helpful. And then clarification on the CONVERGE studies. Other than the geographies and Are there any major differences in the protocols between the two studies? Or can you really compare CONVERT-1 to get a proxy for what CONVERT-two should look like?

Speaker 2

With regard to I think the essence of your question is the latter part of that Do we think that convert 1 and the results from convert 1 will give us will be a Significant risk reducer as it relates to the variability that may or may not happen in CONVERTY. I think the answer is that We expect that the patients that we treat in convert to will behave similarly to those that we treat in convert 1. And we provided a window into some data that were Closed at last year's European Respiratory Society meeting where the data indicated that nearly 80% of the time we tried Take a patient that was CV positive and make them CV negative, we were successful. So that was great. I would expect the CONVERT-one data We'll remain in that neighborhood and I would expect the convert two numbers to be in that general neighborhood.

Speaker 2

Experts told us that it needed to be greater than 30% to 50%. So being up around 75% to 80% is a really good place to be. So we would expect That neighborhood will stay in. And then the question is that we also talked was also talked about last year was whether when you Valves in those patients, do they behave similarly to those that we treated across the 4 randomized controlled trials? And directionally, for sure, the answer is yes.

Speaker 2

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

Speaker 9

Yes, absolutely. All right. Appreciate the update. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 2

Great. Well, thank you all very much for your time. We couldn't be more pleased with the way the quarter went and the way that The plan seems to resonate not only for us, but for our customers. So I'd like to thank you all again for your time and attention and wish you a good evening.

Operator

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

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Earnings Conference Call
Pulmonx Q3 2023
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