LUNG - NASDAQ

Ladies and gentlemen, thank you for standing by, and welcome to Pulmonx First Quarter 2025 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Laine Morgan, Investor Relations. Please go ahead.

Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonx are Steve Williamson, President and Chief Executive Officer; and Mehul Joshi, Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the quarter ended March 31, 2025. A copy of the press release is available on Pulmonx's website. Before we begin, I'd like to remind you that management will make statements during this call that 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 operating trends, commercial strategies, and future financial performance, the timing and results of clinical trials, expense management, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion, and product demand, adoption and pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our filings with the Securities and Exchange Commission, including our annual report on Form 10-K filed with the SEC on February 25, 2025. 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, April, 30, 2025. Pulmonx disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Steve.

Thanks, Laine. Good afternoon, everyone, and welcome to our first quarter 2025 earnings call. Here with me is Mehul Joshi, our Chief Financial Officer. I am pleased to report that Pulmonx delivered worldwide sales of $22.5 million in the first quarter of 2025, representing 20% growth over the same period last year and 21% on a constant currency basis. We're encouraged by our team's continued execution of our commercial initiatives, and we remain confident in our ability to deliver on our previously communicated revenue guidance of $96 million to $98 million for the full year 2025. Throughout the first quarter, we made steady progress executing our acquired test and treat strategy, setting the stage for sustained growth and long-term success. This strategy is focused on helping our customers more efficiently acquire the right patients, test them for eligibility and ultimately treat more patients suffering from COPD. We expect the strong foundation we are building will help accelerate penetration into our estimated $12 billion market opportunity, and support growth at/or above 20% over the long-term. As part of the first step of our strategy to acquire the right patients, we're increasing both clinician and patient awareness and engagement, while at the same time, rolling out tools like LungTraX Detect to help our customers identify patients with severe emphysema who are already under their care. Our market research indicates that the vast majority of pulmonologists are aware of endobronchial valves, but less than a third have referred a patient for evaluation. Our data indicate this is primarily related to a lack of familiarity with patient eligibility criteria. To address this gap in awareness, in Q1, we hosted over 40 peer to peer events, engaging and educating providers in the community who manage COPD patients about the selection criteria and benefits of

Thank you, Steve, and good afternoon, everyone. Total worldwide revenue for the three months ended March 31st, 2025 was $22.5 million, a 20% increase from $18.9 million in the same period of the prior year and an increase of 21% on a constant currency basis. Our strong top line performance underscores the continued execution of our long-term strategy and adoption of

Thanks, Mehul. In summary, we had a strong start to the year marked by robust first quarter growth and continued success in our innovative commercial and clinical programs. Looking ahead, we've got a strong balance sheet and a clear strategy that we believe will support continued future growth at or above 20% over the long term. We remain confident in our opportunity, plans and team as we build a promising future for patients around the world with severe lung disease. I'd like to thank you for your attention, and we'll now open up the call for questions. Operator?

Thank you. [Operator Instructions] The first question comes from Rick Wise with Stifel. Your line is open.

This is Annie on for Rick. Thanks for taking our questions. I was hoping you could give us some additional color on your guidance outlook. It's nice to see the outperformance in the first quarter, but I'm hoping to better understand your caution about raising guidance given all these positive commercial initiatives that are underway? And kind of are you just thinking it might be too early in the year? Or are there other reasons that you're thinking about? Any color there would be great. Thanks

Yeah. Annie, this is Mehul Joshi. I don't know if you said raising guidance. We have reiterated 2025 revenue guidance at $96 million to $98 million as we had stated in the Q4 call. And in that, we had guided the first half growth to be driven by our international business and the second half growth to be driven by the US business. Q1 mostly materialized as anticipated, and the first half is on track. So there has been no change from what we discussed about a quarter ago. And this is – we're also continuing to execute on our US initiatives, which Steve talked about, LungTrax physician education programs, virtual Navigator, pilots, DTP and so on to help drive the US. growth. So our guidance stands as is based on Q1 hitting as we anticipated.

Okay. Got it. Thank you. And then just one more follow-up. Can you kind of help us understand where upside to full year guidance could come from as the year unfolds? Thanks.

Yes. I would say -- I think the other question you had asked maybe that I hadn't answered is why aren't we raising guidance. So I think because we hit 21% constant currency growth and our guidance is 96% to 98%, which is 16% to 18% on a constant currency basis. I think the one thing, as I think everyone is concerned about is the global macroeconomic environment is in flux and tariffs and FX drives some uncertainty. So we're kind of watching and waiting on that. Where there is opportunity is adoption of some of our initiatives in the US, specifically LungTrax, how we're working to educate COPD prescribing physicians and our DTP program. So as those investments take hold and we make progress on those initiatives, that could be upside for Pulmonx in the second half of the year.

Yes, Annie, I'll just add on to that. So if you look at the DTP metrics that we have, they're actually doing very well. We see a large number of patients are first-time patients that are coming into our website and either taking a quiz or calling into our help line and becoming educated on the product. There's -- those numbers continue to grow quarter-over-quarter. We also have a strong foundation of treatment centers that are set up across the United States. And the connection between those two is really what we're focused on. We've got a number of different initiatives. These are therapy awareness specialists that I talked about. We've got some of them have – that will be -- actually, they just joined and they've been trained. So if we start to see a big pickup there. And that, coupled with what we're seeing with LungTraX Detect, and as we go through the contracting process with that with some of these larger hospital systems, those would be potential tailwinds for the back half of the year.

Great. That's really helpful color. Thank you.

And the next question will come from Frank Takkinen with Lake Street Capital Markets. Your line is open.

Hi. Thanks for taking the questions. Congrats on the solid start to the year. I wanted to start with maybe kind of boiling down the acquired test and treat strategy you're implementing, Steve? I know there's a number of initiatives that you're putting in place at once. And I'm sure there's some early learnings. So that's what I wanted to ask about. Which of the programs do you think have been most impactful in the early days? And which of these do you think are really going to get at the bottlenecks that you referenced earlier in the quarter -- earlier in the remarks.

Yes. Our marketing and peer-to-peer education have really been highlights for us. We see very, very good response from the physicians that attend our peer-to-peer events. We also do a clinical excellence summit, which we bring in some of the smaller facilities or new programs to talk with some of the facilities that have built out big programs. I think those have been early success stories for us. The next phase of that is really getting after these community physicians with the therapy awareness reps, that's going to be a good indicator for us as they get out there and we can start educating these doctors. And hopefully, we'll be able to move that needle on the percent of these doctors that are actually sending patients into treaters. So that's one. Secondly, I would say long tracks. We really have seen a positive momentum. The sales force is out there. They're aggressively promoting it. We're seeing great traction. We've got dozens of accounts that have actually begun. They're in various phases of the contracting stage right now. And so I think that would be really -- that's a big, big potential growth driver for us in the future.

Okay. And sorry, one clarifier, and sorry if I missed it. Did you disclose how many lung tracks accounts are active today?

We're really early in the process, Frank. So we haven't disclosed that. I will say that we've got dozens, several dozen contracts that are currently going through process. So as you may or may will not know. In late January, we trained our sales force on this. They got out -- started rolling it out to their customers in kind of the February and March time frame. So once they do that, we begin security reviews and contracting. And so, those take a little bit of time to get through the hospitals. And so, I would say the traction that we're getting as we get into this contracting phase is something that I feel good about. I think we're seeing a willingness of customers to adopt this technology to identify patients passively that are already in their system.

Got it. That's helpful. And then just last one. I know it's a fluid environment, but what have you been hearing from some of your international partners as it relates to some of the tariff commentary. Have any of them changed ordering patterns? Is there kind of given you any inclination to think that they may change ordering patterns? Any color related to the tariffs in your international market would be helpful.

Yes. Hey Frank, this is Mehul. So we haven't heard too much from most of our international partners and our direct businesses. But per our prepared remarks, we have strength in international revenue that was pronounced by stronger results in China. And as I had indicated that we believe that strong demand was really driven by underlying demand for

I'll add on to that, Frank, if I can quickly. So in Europe, we haven't really seen much as Mehul said. I don't know that we've seen really anything. What we have seen is, obviously, in China, there's a lot of back and forth there. However, that's something that's been contemplated in our 2025 guidance. We realized that there would be some first half buying from our Chinese distributors. And so we're seeing that play out as we had originally expected.

Got it. That’s helpful. Thanks.

And the next question comes from Jon Young with Canaccord. Your line is open.

Hi. Good evening, everyone. Thanks for taking our questions. Mehul, I want to also focus maybe a bit on China. Any maybe help us think about how much China is today of OUS sales? And any metrics you're willing to share to on the amount of stocking or pull-forward you saw in Q1? And also, do you expect continued China orders in Q2?

Yes. Hey Jon, thanks for the question. So, we did -- as indicated, there was some strong buying. We believe our distributor bought ahead of some of the macro environment changes that are happening. There's likely -- we don't know exactly. There's pretty strong demand in China. They've opened up 12 regions. There's approximately 20 sales reps that they have out there. So, there's a lot of robust selling. And we think the distributor bought maybe a quarter's worth of inventory in the first quarter. So, but we do expect continued purchasing in the second quarter from the distributor.

And then just as a follow-up to that, has the reciprocal tariffs been factored into the Q2 buying at this point? And how have you factored that into the 2025 guidance?

Yes, I mean we haven't really reflected any potential impact of future tariffs on -- or trade policy changes that will affect global macroeconomic environment, right? But we do expect the distributor to buy in Q2 and I won't get into how, when and how much, but yes, we do have that expectation. The other question you had asked is can we break it out? We don't -- as you know, we don't break out revenue by international market, but we do report in our Q, in the segment information note, kind of, the regional breakout. So you'll be able to see that very shortly.

Okay. Thank you so much.

And our next question comes from Joanne Wuensch with Citi. Your line is open.

Hi. It's Jane Mary [ph] on for Joanne. Thank you for the question. How are you balancing SG&A leverage with your treatment center expansion, physician training and all those different program implementations associated with building awareness?

Yes. Thanks for the question. We are really focused on operating leverage. It's one of our key strategic initiatives. And we're mostly investing in initiatives that drive revenue and future revenue. So, we are balancing leverage with investment, but our goal is to grow revenues as Steve cited in his remarks. And so we're really focused on driving revenue growth with the investment that we have on hand. Now, in Q1, our leverage was not as high because our gross margins were lower as a result of the geographic mix. But as we get into the second through fourth quarters, we'll continue to drive leverage in our P&L.

Cool. And as a follow-up, it also sounds like your R&D will continue to go for now, given all your trials and other innovations up ahead. When do you see it moderating or at least start to leverage as well?

Well, clinical trial expenses are always consistent with enrollment. So, as enrollment increases, our R&D expenses will continue to go up. And as we roll through 2025 into 2026 and complete enrollment, we'll see R&D expenses go up. But once enrollment is complete, they'll start to trail down thereafter.

Thank you so much. That was really helpful.

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

Well, thank you, everybody, for joining us today. To conclude, I want to take a moment to thank our Pulmonx employees worldwide for their continued dedication. They're out there fighting every day for every breath, so our patients don't have to. And for that, I'm very thankful. So thank you all for your time, and have a great week.