Pulmonx Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 31, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Pulmonic's 2nd Quarter 2024 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 Please be advised that today's conference is being recorded. I would now like to turn the conference over to Elizabeth Ferricio, Investor Relations.

Operator

Please go ahead.

Speaker 1

Good afternoon, and thank you all for participating in today's call. Joining me from Plamanix are Steve Williamson, President and Chief Executive Officer and Mehul Joshi, Chief Financial Officer. Earlier today, pulmonics issued a press release announcing its financial results for the quarter ended June 30, 2024. A copy of the press release is available on pulmonics' website. Before we begin, I'd like to remind you that management will make statements during this call that include forward looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

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-nineteen on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or applied 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 May 3, 2024.

Speaker 1

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, July 31, 2024. 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.

Speaker 1

And with that, I will turn the call over to Steve.

Speaker 2

Thank you, Elizabeth, and good afternoon, everyone. Welcome to our Q2 2024 earnings call. Here with me today is Mehul Joshi, our Chief Financial Officer. Overall, I am pleased with our 2nd quarter performance as we achieved a record quarter of $20,800,000 worldwide sales, representing 21% growth over the same period of the prior year. We are encouraged by our team's continued execution of our commercial and clinical pipeline strategies as we seek to further expand patient access to Zephyr valves and serve the 1,200,000 patients with limited treatment options who stand to benefit from BLVR.

Speaker 2

The momentum we built exiting the quarter leaves us increasingly in our ability to deliver on the previously communicated revenue guidance of $81,000,000 to $84,000,000 for the full year 2024. As expected, our 2nd quarter results were driven by the continued traction of our commercial strategy in the United States, where we achieved sales growth of 26% compared to the Q2 of 2023. As a reminder, our U. S. Commercial strategy is 3 pronged.

Speaker 2

The first is that training physicians at hospitals that have the potential to be high performing Zephyr valve centers. The second is automating patient workflows and facilitating the sharing of best practices among existing centers to optimize their ZEPRA valve programs. And third, building local awareness of the benefits of our treatment among COPD physicians and patients. Throughout the quarter, we made substantial progress in each prong of our commercial strategy. In Q2, we added 17 new accounts in the United States and ended the quarter with 267 active accounts or centers that placed a revenue generating order in the quarter.

Speaker 2

As we continue to expand our U. S. Account base, we're engaging with the C suite of hospital systems, which provides the opportunity to present the benefits of a Zephyr valve treatment program to hospital administration, who then have the ability to provide needed resources for clinical support and account development. We're excited by the opportunity to serve more patients in need of our life changing treatment with our continuously growing base of U. S.

Speaker 2

Centers. While we continue to identify potentially high performing Zephyr valve centers and expect to opportunistically establish new accounts, our primary focus remains on driving utilization in existing accounts. Within our existing base of Zephyr valve centers, the team continues to establish our treatment as a more routine procedure, particularly through the sharing of best practices of our higher utilization treatment centers and the development of workflow automation tools. In June, we hosted our 2nd annual advanced clinical summit where we had 45 dedicated professionals from 24 hospitals passionate about advancing patient care in the field of bronchoscopic lung volume reduction gather together. Attendees participated in a comprehensive curriculum designed to identify patients most likely to benefit from Zephyr valves, build efficient patient pathways and engage administration to secure necessary resources.

Speaker 2

We heard from 1 hospital in the Southeast who attended our inaugural summit last year about their experience implementing these best practices into their own workflows. As a result, the hospital saw increased efficiency and procedural capacity, allowing them to grow their Zephyr valve volumes from a handful of cases last year to over 40 cases in the first half of this year. This remarkable anecdote is one of many and further validates our commercial strategy and the vast opportunity we have for continued growth. During the summit, I was inspired by our growing community of partnering physicians and staff who all share a common goal of helping patients with severe emphysema and COPD breathe easier. Over the last few months, I visited treating centers across the U.

Speaker 2

S. And abroad to connect with physicians and gain field based insights on the success of our commercial initiatives. I was humbled by my experience witnessing the impact of our Zephyr valve treatment on patients. My conversations with treating physicians on building efficient work streams and establishing Zephyr valve as a routine procedure have also helped to inform the region specific strategies we're designing today to optimize the building blocks we have in place. For example, an account Colorado that averaged 10 cases per quarter took about 6 months to move patients through the treatment funnel from initial visit to implant.

Speaker 2

Together with all the key stakeholders, we helped identify bottlenecks in the process, which included a lack of procedure capacity and a clear program owner. As a result, the customer defined a new Zephyr valve program owner and implemented process changes designed to improve workflow such as setting up routine order sets in their EMR for all key action items. Today, the center is seeing time to treatment decrease as the number of cases per week increase. The interventional pulmonology team recently went to hospital administration and asked for and received 2 additional case slots per week with plans to ask for more as they realize the benefit of their new workflow implementation. As part of our efforts to enable cost effective workflow efficiencies more broadly, I'm pleased to announce the upcoming pilot launch of our LungTracks Connect program, an automation software that enables a streamlined, efficient and collaborative workup process.

Speaker 2

Currently, users need to transfer CT scans onto a disc and then manually upload the scan to the Stratix platform to generate a report for physician evaluation. Our new software eliminates this manual process by allowing the CT scan to be uploaded directly to the Stratix platform from the hospital's PAC system. Additionally, it enables the care team to track and share patient workup status, potentially reducing time to treatment for the patient. This stands to meaningfully reduce key friction points in patient workflow and allow centers to better manage growing Zephyr valve caseloads. We expect to initiate our pilot program in a handful of select centers in the back half of this year and I look forward to providing further details on our progress on future calls.

Speaker 2

As we continue to share best practices, drive workflow automation and help our customers build efficient programs that deliver a positive patient experience, we're also continuing to promote regional awareness programs for patients and community COPD physicians. These initiatives collectively enabled 20 1,000 patient engagements in the first half of twenty twenty four, provided peer to peer education to over 450 physicians and drove broader awareness with another 6,000 physicians through digital channels like our CME program. While our primary commercial focus remains on growing our U. S. Business, we are pleased with our performance across our international markets in Q2, which resulted in OUS year over year revenue growth of 12%.

Speaker 2

We're continuing our work this year to adapt many of the sales tools we've developed for use in the U. S. For use in European markets, such as operational best practice sharing, community physician engagement and peer to peer education programs. The progress we've made on these initiatives was evident at our EMEA summer sales meeting in July, where I left increasingly confident in our team's ability to continue executing our commercial strategy. We anticipate the impact of our international efforts to become increasingly evident in 2025 as we focus on foundation building this year.

Speaker 2

Beyond Europe, we also continue to make progress with our expansion efforts in Asia. First, we entered into a new distribution agreement with an innovative medical supply distribution company in China. While this market represents a small portion of our business, we believe this transition to a new distributor will allow us to expand our market reach in China in a more cost effective manner. Secondly, earlier this month, I attended the 47th Annual Meeting of the Japanese Society of Respiratory Endoscopy in Osaka, where I connected with thought leaders spearheading the launch of Zephyr valves in Japan. I'm encouraged by the positive reception our technology has received from participating centers in the early days of the post market study and the progress our Japan team has made in driving increased awareness of Zephyr valves.

Speaker 2

That being said, we still anticipate it will take time to grow widespread 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 1st patients through the treatment funnel. As we have said in the past, we do not expect a material revenue contribution from Japan until approximately 2026. 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 valves. In addition to growing our global footprint, we remain committed to our goal of expanding the number of patients that can be treated with the Zephyr valves through our ARISEAL clinical development program. We continue to make progress with our CONVERT-two pivotal trial, a multicenter global study designed to evaluate the safety and effectiveness of the ARISIL system in limiting collateral ventilation and severe COPD and emphysema patients.

Speaker 2

I'm excited to announce that earlier in July, I attended the first U. S. Case in the CONVERT-two pivotal trial, where a patient was successfully treated with ARO seal by Doctor. Jerry Kreiner, the Chair of Thoracic Medicine and Surgery at Temple University in Philadelphia, a leading Zephyr valve center. We believe ARISCL has the step forward in our journey to unlocking this important market segment.

Speaker 2

The U. S. Enrollment milestone follows the initiation of enrollment for convert to in select international centers in February of 2024. As it pertains to convert 1, our European study, we look forward to the presentation of the 6 month follow-up data at the European Respiratory Society Congress in early September in Vienna. We expect the presentation will demonstrate high conversion to CV negative status in the target lobe following ARISIL and positive clinical outcomes following subsequent treatment with Zephyrvouse.

Speaker 2

As we remain committed to further advancing long term clinical research in our field, I'm pleased to announce 8 abstracts have been accepted and an additional 2 abstracts have been submitted for presentation at upcoming key scientific meetings, including ERS, the American Association of Bronchology and Interventional Pulmonology meeting, the CHEST Annual Meeting and the World Congress of Bronchology and Interventional Pulmonology. These abstracts will cover a spectrum of new data including the 5 year follow-up data from the LIBERATE study, reduction of severe exacerbations in patients with substantial volume reduction following upper valve placement and real world results from our multicenter French registry. We look forward to connecting with our clinical network at these global events, which we view as a crucial component of our strategy to drive increased awareness of Zephyr valves and their clinical benefits. We are confident that the strategies we've implemented, the automation tools we are developing and the ongoing release of new long term clinical data will continue to drive global growth in 2025. Further, the scheduled completion of the Japanese post approval surveillance study and the commercial launch of ARISEAL in our OUS markets will provide growth catalysts in 2026.

Speaker 2

Finally, the expected U. S. Launch of ARISEAL in 2027 rounds out a cadence of significant innovative and market expanding launches. It is for these reasons that I believe pulmonics is well positioned for continued significant long term growth. Now I'll turn the call over to May Hul to provide a more detailed review of our Q2 results.

Speaker 3

Thank you, Steve, and good afternoon, everyone. Total worldwide revenue for the 3 months ended June 30, 2024 was $20,800,000 a 21% increase over the prior year period and also an increase of 21% on a constant currency basis. Our strong performance was driven by continued commercial momentum and adoption of Zephyr valve therapy. U. S.

Speaker 3

Revenue in the Q2 was $13,900,000 a 26% increase over the prior year period. International revenue in the Q2 of 2024 was $6,900,000 an increase of 12% over the prior year period and also an increase of 12% on a constant currency basis. Gross margin for the Q2 of 2024 was 74%, essentially flat versus the prior year period, reflecting lower utilization, partially offset by favorable geographic mix. Total operating expenses for the Q2 of 2024 were $30,900,000 an increase of 6% over the prior year period. Operating expenses included a one time non cash charge in R and D of $1,700,000 to impair internally developed software following a strategic decision to adopt a more efficient solution.

Speaker 3

This was a result of one of our gross margin improvement initiatives that will be gross margin accretive in the long term. Excluding the one time charge, total operating expenses were flat over the prior year period. Non cash stock based compensation was $5,500,000 in the Q2 of 2024. Excluding stock based compensation expense and the one time impairment charge, total operating expenses in the Q2 of 2024 were flat over the prior year period. R and D expenses for the Q2 of 2024 were $5,600,000 a decrease of 2% over the prior year period.

Speaker 3

R and D expenses excluding the one time software impairment charge were $3,900,000 down 32% versus the prior year period. The decrease was driven by lower clinical trial expenses and lower development costs. We expect R and D expense to increase from the 2nd quarter as enrollment in our clinical trials continues to ramp. Sales, general and administrative expenses for the Q2 of 2024 were $25,300,000 an increase of 8% over the prior year period. The increase was primarily driven by additional investment in patient awareness programs.

Speaker 3

Net loss for the Q2 of 2024 was $15,300,000 or a loss of $0.39 per share as compared to a net loss of $16,200,000 or a loss of $0.43 per share for the same period of the prior year. An average weighted share count of 38,900,000 shares was used to determine loss per share for the Q2 of 2024. Adjusted EBITDA loss for the Q2 of 2024 was $7,600,000 as compared to $10,300,000 in the Q2 of 2023, a 26% improvement on a year over year basis. Please refer to our reconciliation of net loss to non GAAP adjusted EBITDA for further details. We ended June 30, 2024 with $114,500,000 in cash, cash equivalents and marketable securities, a decrease of $5,900,000 from March 31, 2024.

Speaker 3

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 cash on hand. We remain laser focused on prudent cash management and have extended the interest only payment period for our $37,000,000 term loan by 1 year. As a reminder, in October 2022, we refinanced the term loan to secure a more attractive rate and extend the maturity date to 2027 with the ability to extend the interest only period for an additional 12 months subject to certain conditions, which were satisfied. The principal repayment will now begin in November 2025 with no changes to the loan interest rate or maturity date. Turning now to full year 2024 guidance.

Speaker 3

As we look ahead, we are reiterating our previously communicated fiscal year 2024 revenue, gross margin and OpEx guidance. As a reminder, we expect to deliver a full year 2024 revenue in the range of $81,000,000 to $84,000,000 representing approximately 20% growth at the midpoint. 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. Moving down the P and L, we expect gross margin for the full year 2024 to fall within the range of 74% to 75%.

Speaker 3

Lastly, we expect operating expenses for the full year 2024 to fall between $127,000,000 to $129,000,000 inclusive of approximately 25,000,000 dollars of non cash stock based compensation expense. In all, we are confident in our outlook for 2024 and look forward to executing on the next stage of growth. With that, I'd like to thank you for your attention and we will now open the call for questions. Operator? Thank

Operator

Our first question is from Jason Bednar with Piper Sandler. Please proceed with your question.

Speaker 4

Hey, afternoon guys. Thanks for the questions here. Nice quarter. Wanted to start with the assumptions underlying the reaffirmed guide and just really ask on how you're thinking about the cadence of procedure volume and revenue performance here in the second half? Anything outside the typical seasonality you would anticipate for the business as we look at the typical sequential performance 2Q to 3Q, same question 3Q to 4Q or maybe just ask more directly, are you comfortable with where the street is currently sitting for the back half of the year on revenue?

Speaker 2

Yes. So I appreciate the question, Jason, and thanks for the kind words there. As we're looking at the back half guidance right now, obviously, we take a look at how we performed in the first half of the year and we're happy with where we've landed in the first half of the year. I think we've shown good growth and as we move into the back half, we haven't been through this seasonality cycle yet, Mehul and I haven't. And as we look at 2022, we saw seasonality in both the U.

Speaker 2

S. And OUS. In 'twenty three, it looks like we're able to muscle through that seasonality in the U. S, which gave us kind of a tough comp for Q3. So with the variability between 2022 and 2023 and using that as kind of predictors for the future, We just we don't want to get over our skis there.

Speaker 2

And so we feel comfortable with our performance so far and that's why we're able to reaffirm the guide. Mehul, anything you want to add to that? No.

Speaker 3

I think you got it, Steve.

Speaker 4

Okay. I appreciate that's helpful. Maybe along that same vein as we break out U. S. Versus international performance, I guess any differences in expectations on the mix that you're seeing?

Speaker 4

Is it playing out as you would have expected? And then maybe the follow-up to that is, what's it going to take to get that international business back to maybe where the U. S. Is growing in that mid-twenty percent plus range? Or should we just anticipate double digits is good enough for international?

Speaker 4

Just how you're thinking about that as we look over the next several quarters?

Speaker 2

Sure. As we look at the OUS performance, it is really playing out how we expected it to play out. As you rightfully pointed out, obviously, they're not growing as quickly as they are in the U. S. Or as we are in the U.

Speaker 2

S. What we've gone and done is we've implemented the sales process tools in our European businesses and I was actually over there for the European sales meeting and I was really impressed. I think the team is really focused on executing that sales process. I left the meeting bullish about their plan. And really as we look forward, they're building out patient screening, they're looking at developing practice efficiencies, physician education, we're seeing a lot of physician education coming from Europe as well.

Speaker 2

And so they've also built these sales plans around those tactics. And I was like I said, I was very impressed with the plans that they put together. And I think we'll start to see this play out a little bit more in 2025. So I would say that the management and the team that are there are doing the right things to get that growth rate up over time.

Speaker 4

All right. Excellent. And just if I can squeeze in one more just as more of a little bit of a check the box here question, but seeing if there's anything we need to consider modeling wise on the new China distribution agreement you have in place with the new distributor you're bringing on, any inventory load in or any, Mehul, any accounting we need to think about as you go through that transition? Yes.

Speaker 3

Great question, Jason. Well, I think no, nothing on the loading or accounting at all. It's a new distributor that we brought into the mix here in our OUS strategy. I think what we believe is that going down the distributor route will enable revenue to grow significantly faster than if we were going out there and building a commercial infrastructure in China. And so, as you would expect in a distributor arrangement, your gross margins are a little bit lower, but over the long term, we expect gross profit dollars and operating margins to be accretive relative to building a business there ourselves.

Speaker 2

This is Steve real quick. Jason, if I can add on to that. As I think about that China market, you've got a huge population, you've got a huge smoking population as well. So it would naturally seem to be a place where we would be able to go and we would want to launch our product. I think one of the issues you run into is it's a self pay population out there and there's a large portion of that country is self pay and because of that it becomes cost prohibitive for procedures like ours.

Speaker 2

So what we've done is aligned with a distribution partner and they'll be able to identify the proper areas and they actually have the bandwidth to go in and tactically take on that market. So from our perspective, we see it as a small revenue grower over the next couple years. But hopefully in the future, a couple of years out, we'll see that start to grow faster.

Speaker 5

Got it. Helpful color. Thank you.

Operator

Thank you. Our next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed with your question. Larry Biegelsen, your line is open. Please check your mute button.

Speaker 4

Are you there, Larry?

Operator

Our next question comes from the line of Joanne Wuensch with Citi. Please proceed with your question.

Speaker 5

Hey, good afternoon, guys. This is Anthony on for Joanne. Congrats on the solid quarter. My first question, the 17 new U. S.

Speaker 5

Centers, that was a pretty robust step up from last quarter. What should we be expecting through the rest of the year? And was there any particular reason why it was so strong this quarter just outside of normal course of business?

Speaker 2

Anthony, it's this is Steve. As we've been guiding, it's about 10 to 15 new accounts per quarter is what we expect to bring on. On. We were a little bit light in Q1, we were at 9 and here we're at 17. So I think combined we're actually a little bit above where we would expect to be right now.

Speaker 2

But it's there's nothing out of the ordinary there. We've had a couple of opportunities and opportunistically gone in and brought on new accounts in different areas. I will say that our focus remains on growing in the same store sales as well. I think it's nice for us to bring on these new accounts, especially in areas where patients have to drive hours in order to get a treatment. But really what we want to do is these centers that are set up, they've got physicians that are on board, they've got their COPD referring physicians are already referring to them.

Speaker 2

They've built in workflow, they have coordinators and there's patient awareness and marketing activities going on in these areas. That's really where we see growth over time. And so that's a big, big focus for us. But obviously, we will bring on new accounts opportunistically as we need to or as we see the opportunity to do so.

Speaker 5

Okay. That makes sense. And then maybe we'll just could you talk about the cadence of margins in the back half? Is 2023 sort of a good place to look at that? And then as we think about the slight step up in OpEx, is that going it sounds like it's going to be more weighted towards R and D on a dollar basis, but just want to confirm that that's the correct way to think about it?

Speaker 3

Yes. Hey, Anthony. So we do we guided to 74% to 75%. We've kind of on average are at slightly over 74% in the first half. We do expect a tick up in the second half on gross margins.

Speaker 3

It's going to be driven by increased production in our factory, which will enable us to manage utilization better. And the other factor is that impacts gross margin is really geographical mix, right? So as geographical mix varies, that impacts gross margin significantly. And so we've had a little bit of that, both on a year over year and a quarter over quarter basis. But we do expect a slight tick up in gross margins in the second half of the year.

Speaker 3

On expenses, specifically on R and D, as I mentioned in the prepared remarks, as enrollment starts to tick up in our clinical trials, we would expect some R and D dollars to increase. So, as you know, there's usually a slow ramp upfront when you start a clinical trial and it'll ramp much faster as you get through various different timeframes. But we do expect it to tick up in the second half for R and D.

Speaker 5

Great. Thanks guys.

Operator

Thank you. Our next question comes from the line of John Young with Canaccord. Please proceed with your question.

Speaker 4

Hey, good afternoon guys. Thanks for taking the question and congrats on the quarter too. Maybe just going to convert 1, maybe just turn out for investors what you think a successful trial data would be? And will you go for CE Mark for ARISTEAL using this data or will you wait for convert

Speaker 2

channel? Hi, John. So we already have the CONVERT-1 data will be presented at ERS, the 6 month data will be presented then. The CONVERT-two data, we actually already have CE Mark for ARISIL. So we're just the convert-two data will be used for the PMA, it's IDE trial in the U.

Speaker 2

S. So once we've completed our enrollment, we would then plan to commercially launch into the EU and we expect that to be in the 2026 timeframe. And then we would expect 2027 to be when we would launch in the United States once we go through the PMA approval process.

Speaker 4

Okay. Thank you for that. And then it sounds like you've been really identifying friction points around just the commercial process itself, especially when you talk about the software upgrades, SIM crews, the Stratex workflows. What other friction points have you identified? And what internal R and D work is being done?

Speaker 4

Anything around chargers or anything else in the commercial procedure that you've identified given your time in the field now?

Speaker 2

Not really. So it's a good question. We did launch a new Chartus balloon that had some ease of use benefits for the physician, but those aren't really holdups to the overall growth and long term scale of the business. I think it really comes down to the workflow and what we can do to efficiently move patients through the process. And one of the things that I'm most excited about John is I've gone out in the field.

Speaker 2

I think our sales process is working. It's working in both the U. S. And it's working outside the United States. Our clinical trials are progressing well in both Japan as well as convert to.

Speaker 2

Our clinical publications are strong. We've got 8 different abstracts coming out. We've got 2 more that we're waiting to hear on, but I mean that's significant new clinical data that speaks to the long term efficacy of this product. If you look internally, I think the people are bought in. Our year over year employee turnover is slightly down year to date.

Speaker 2

So we're not seeing significant turn, which I think people were originally concerned about. We've got good strong effective patient engagement and that continues to grow for us and now we've got workflow automation software. So you've got a big untapped market, you have eager physicians that want to do more, you've got motivated patients that benefit from the procedure, we've got administrative buy in, it's really that workflow is the key linchpin in my mind in order to really unleash a much larger volume in some of these larger centers.

Speaker 4

Got it. Thank you again.

Operator

Thank you. Our next question is from Frank Tikhonnen with Lake Street Capital Markets. Please proceed with your question.

Speaker 6

Great. Thanks for taking the questions. Maybe I'll start with the first question that was asked related to guidance. Wanted to revisit that point you made about seasonality from Q2 to Q3. Steve, I know you said it's been a little volatile in 2022 versus 2023.

Speaker 6

But kind of help us with the exact read through we should be thinking about. I know one went up, one went down. So maybe starting there and trying to understand how we should think about Q3 of this year from a sequential standpoint, if there were any one time items in either of the previous 2 years that you were aware of that we can kind of glean some information from?

Speaker 2

Yes, Frank, thanks for the question and good to have you on the call. As we looked at 2022, we saw a decrease in both the U. S. And OUS revenue. I think in both instances, we were pointed towards seasonality.

Speaker 2

And seasonality in this space is not only patients going on vacation, but perhaps you have doctors that go on vacation. If you have high volume physicians that take a couple of weeks, a month off, obviously that will affect the numbers. And so I think in 2022 that seasonality, I wasn't here, but we did see the seasonality in those revenue numbers. Moving to 2023, we were able to muscle through in 2023 in the United States and we didn't see the fall off that we had seen in the prior year. I think there was a lot of momentum coming in from a couple of different projects that were going and they were able to push through in Q3 of 'twenty three.

Speaker 2

And now in 'twenty four, we don't know which U. S. Sales we're going to get. We do know that we will see seasonality in Europe as the physicians take a month off in many instances. And so those are just procedures that won't take place.

Speaker 2

As we look in the U. S, it's kind of a mixed bag. And as we brought on a lot of new accounts, that helps, right. So we dilute the impact of a small number of physicians going on vacation or not seeing patients, but overall you also have patients that are saying, maybe I'll wait till I come back from my the only

Speaker 3

external data point I think about the only external data point I think about is level of travel has increased substantially, right, this summer versus last summer. And as Steve mentioned, there are vacation schedules and things like that. So we're just uncertain of what the impact of seasonality will be in the quarter, specifically in the U. S. So I think we're just kind of waiting to understand that a little bit better before we kind of think about what to do with guidance.

Speaker 6

Okay, that's helpful. And then maybe kind of a 2 parter on the pilot programs. Obviously, you heard a lot about efficiencies and workflow processes, but can you maybe call out a couple of those bottlenecks that you're seeing? Is it a consistent bottleneck that the patient is getting stopped by? Or is it kind of case by case basis?

Speaker 6

And then secondly, also on the pilot programs, can you talk about maybe some of channels you may use to enhance local awareness?

Speaker 2

Sure. So on the first, is it your question is, are the bottlenecks consistent across the board or is it different in different places? I would say it's different in different places. We find that when accounts will add a coordinator or a navigator that can actually manage that patient through the process, they do significantly more than accounts that do not have coordinators and navigators. The physicians will if you have a physician that's left on their own to manage the work flow associated with bringing a patient through the process, they do fewer than if they have a navigator that is managing that process.

Speaker 2

If you think about our tools that we've launched, I talked about LungTrax Connect. LungTrax Connect makes it easier for the facility for that navigator coordinator or physician, whoever is managing that patient to upload the CT scans without having to put burn a CD in radiology, go through, find a computer that actually takes CDs these days, plug it in, upload it to the cloud. Now they'll be able to pull these directly from the PAC system. So I think that's a good workflow improvement that will make it easier for patients to receive the treatment. I think more importantly on LungTrax Connect is the ability to track the patient through the process.

Speaker 2

So there's a workflow component that will actually track has that patient gone through different areas and different levels of testing that are necessary in order to get that patient treated. Right now, you've got coordinators, you have physicians that are on excel spreadsheets, that are on sheets of paper. It's just not very it's not automated. And so we have the ability, we put together patients are aware in the process and then go about their day with action items that come from that. So, we'll continue to work on automation here.

Speaker 2

It's really as I've been looking at the workflow, I think it's 3 different things. We talk about sharing best practices. Those best practices are adding coordinators, educating local doctors and screening programs and then finally communication back to those referring physicians. If you have a physician that refers patients into an interventional pulmonologist and that doctor treats the patient or doesn't treat the patient, something happens, but they don't get back to that referring physician. That physician is less likely to send more patients to that interventional pulmonologist.

Speaker 2

If the pulmonologist gets back to them and says, hey, this is what we found, this is what happened, your patient did great, this is where we are, I'm sending your patient back to you, you'll see referrals increase more. So when we talk about sharing of best practices, there's a number of different things that fall under that. The second step for us from workflow is this LungTracks Connect and our ability to automate the workflow and then we'll work on the 3rd step in future quarters to continue to make it more efficient for patients to get through the process.

Speaker 6

Okay. Thanks for taking the questions.

Operator

Thank you. I show no further questions at this time. I would now like to turn the call back to Steve Williamson for closing remarks.

Speaker 2

Thank you, operator. To conclude, I'd like to take a moment to thank pulmonics employees worldwide for delivering a strong second quarter and their continued dedication to fighting every day for every breath, so our patients don't have to. Thank you all for your time. I appreciate it.

Operator

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

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Key Takeaways

  • Pulmonics delivered a record Q2 with $20.8 million in sales, up 21% year-over-year (26% in the U.S. and 12% internationally), and reaffirmed full-year revenue guidance of $81 to 84 million.
  • The company added 17 new U.S. Zephyr valve centers in Q2, bringing the total to 267 active accounts, while intensifying efforts to boost utilization through best-practice sharing, physician training and C-suite engagement.
  • Pilot launch of LungTracks Connect is planned for H2 2024, introducing direct CT-scan uploads and automated workflow tracking to reduce friction and accelerate time to treatment.
  • Progress continues in the ARISEAL clinical program, with the first U.S. patient treated in the CONVERT-2 pivotal trial, CE-mark clearance in Europe, and OUS commercial launch and U.S. PMA expected in 2026 and 2027 respectively.
  • Q2 operating expenses were flat year-over-year excluding a one-time $1.7 million R&D impairment, adjusted EBITDA loss improved 26% to $7.6 million, and cash stood at $114.5 million with the term-loan interest-only period extended through 2025.
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Earnings Conference Call
Pulmonx Q2 2024
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