All right, good afternoon, everyone. I'm Jason Bednar. I cover med tech here at Piper. Next fireside chat is with Pulmonx. Very happy to have with us today CEO Steve Williamson and CFO Mehul Joshi. Thanks a lot for making the trip, gentlemen. I really appreciate taking the time to be with us today.
Great to be here. Thanks for having us.
Yeah. So why don't we get right into Q&A? So Steve and Mehul, first time we've had the pleasure of hosting at the conference since you joined Pulmonx. So maybe just to start, can you reflect on the first year here at the company? Take us through what elements of the strategy that you might have kept the same and maybe where you've devoted more focus?
Sure, sure. You know, it's interesting. It's been nine months for me, eight months for Mehul. So we're up and running, and we've had a great opportunity over the first year here with that, an opportunity to get out, meet a lot of our customers, meet a lot of the KOLs that are out there, talk to patients, actually see how we're doing with the patients, and also the team, just the global team, getting to see them. Really, what's impressed me the most as we've done that is the opportunity that's in front of us. As we come on board, we talk about a big TAM. We've got 1.2 million patients that are potential patients for our product and 500,000 in the U.S., and this year we'll do 8,000 procedures. So huge, huge untapped market. And you just want to say, okay, is that reasonable? Is that market real?
What I've seen is that it is. There are a lot of patients out there that really can benefit from our technology. A lot of them don't know about it, but the ones that do will go and they'll push their doctors for it, and we can push through the funnel that way, which brings me to my next point, which is not only do we see the benefit it gives patients, but also that the strategy that we have in place is the right strategy. We inherited the strategy, and what we wanted to do was take this three-pronged strategy and find ways to accelerate, and in each prong of that strategy, we've put new programs in place, so for instance, the first prong of the strategy is to develop these high-performing centers. I get asked about new accounts all the time.
How many new accounts are you bringing on? I don't really pay a lot of attention to that. I know a lot of people care. They want to see 10-15. I want to see really good centers. I want to go in and make sure that we're building up programs that can actually support the long-term growth and better same-store sales over time. So that first prong of our strategy, we're going in now and we're actually talking from a top-down approach too. The company has done a great job at selling physicians on the product. We've got phenomenal clinical data. We've got good reimbursement. We've got four randomized control trials. We've got 100 publications that are out there. We are the standard of care. We're the grade A GOLD guidance. So the clinical data, there's no dispute there. We've got a good, strong economic value proposition.
It's like, okay, so where's the hiccup come in the strategy? Well, we need to go in and not just sell that clinical value to the doctor, but we need to sell the economic value to the hospital system. As you think about hospital systems right now, they make the majority of their money on coronary procedures, on neuro procedures, and on orthopedics. A lung health program can be another program, another system or service line that's profitable for the hospital system. So by going in and sharing that there's an economic benefit here, if you build a lung health program the right way, there's an incentive to build out the infrastructure to support more patients coming through that, which gets to the second prong of our strategy, which is really sharing of best practices.
Those best practices in the past have really been around hiring people to support the patients through the journey. There's a workflow aspect to this as well, and what we've done is we've innovated and actually moved forward the launch of our LungTraX program. We brought that up front. We've got that in front of our patients or our customers now, where they can not only identify these patients, but take the information right out of the PACS system, send it up, get a StratX, get that patient back, and with it is delivered a workflow. So we're making it easier for those hospital systems to get through, and then the third prong of the strategy is around awareness. It's patient awareness as well as COPD physician awareness. We found that the patients actually our marketing is really strong.
We had over 34,000 patients through our first three quarters come into our website and actually engage with us in a positive way, so that's not a website hit. That's somebody came to the website, took a quiz on COPD, on their breathlessness, or they actually called into our helpline. Our helpline is staffed by respiratory therapists. We can actually forward them on to physicians that can actually treat them, so we've had 34,000 patients come into that channel, so we are seeing good movement there. I think one of the areas that we can do better and we're continuing to invest in is getting that COPD community physician better prepared for when that patient comes in to identify the right patient, to identify the patient that will go in and have valves and see the benefit from that, and so we're working on that right now.
Great. Now, a lot I could actually unpack further from that. Maybe a couple of things that came to mind. You talked about building almost like a new pillar within a hospital, a new kind of economic source or with this whole clinical value versus economic value. Because I agree with the clinical value is unquestioned, right? So it really is convincing and compelling on that economic value. Do you need to do that alone or can you do that in partnership? And I ask that because usually docs that are doing a Zephyr valve, they're doing other stuff too. So is there a way to bring in other players, other partners to really drive home that point of kind of a lung therapy type vertical would be very valuable for hospitals?
It's a great question, so we would call it a lung health vertical, basically. If you look, the targeted lung healthcare programs in the U.K. that they just launched go out and they offer lung cancer screening to patients or actually lung screening to patients that are 55-75 years old that are prior smokers. People in the U.K. that are 55-75 that were prior smokers can come in and they get a CT scan, they get a workup for lung health. That CT scan would typically just be done for cancer screening, but it's actually done for emphysema screening as well. We'll take the results of that emphysema screening and we'll overlay breathlessness scores that come out of a different test that's run on them and overlay those and identify patients that would be good candidates through that process.
So there are some other companies that we could partner with in this area.
Okay. So there are, but I guess are you or is that something you're pursuing?
We're not doing it right now, but it's possible.
Okay. And then the other thing that you brought up, just on that 34,000 patients from an engagement level, I guess two kind of sub-questions within this. How does the 34,000 compare to a prior year? And then if it's maybe that's just the second part, are you getting better at converting that 34,000? Is there a way to measure or track that?
Yeah. So the first part of your question, it's about 150% higher than it was last year. So we are seeing significant benefit from our marketing efforts. As far as the conversion goes, that helpline that we have, we've done quite a bit to staff that up and to reach out to patients that fill out a survey and actually outbound call to get them more engaged and get them tied into the helpline. So we'll see progress there. That's something that we just recently started. And so one of the issues that we run into as far as tracking them though is once they get into the process, I lose sight of them for a little while. I'll get sight to them if they get a StratX done, and then I lose sight as they're going through the workup process.
And then if they get a procedure, they pop back up for us.
Mehul, bring you in here. If you were to look back in your tenure here, Steve, you can feel free to pile on. What are the top, if you had to list them out, top two or three successes, excuse me, during your time? And if you had to pick out maybe one or two things you wish you could have gone better, what would those be?
Yeah. Thanks for the question, Jason. I'd say, as Steve mentioned, we've been here eight, nine months, and we have really evaluated the strategy and brought a certain set of programs, or I should say enhancements into play around the three prongs of the strategy that Steve talked about, and that's LungTraX , that's some of the focus marketing and DTP efforts. It's the sales force optimization, which Steve hadn't talked about, but bringing in a certain set of reps that can call on COPD physicians, and then also the hospital selling that profitability capability. I'm really proud that we were able to bring those enhancements into play as fast as we did. We will see some results of that in future quarters, probably mostly in the second half of 2025, but I would say we've done this very fast.
A lot of it is on Steve's shoulders as he's had some of these experiences before, and we've channeled our expenses to drive those enhancements to accelerate growth.
If I can just pile on, I think one other thing. So from a marketing perspective, I think we've done really good things. I think from a peer-to-peer education perspective, we've really ramped that up as well. One of the things that I'm really proud of is if you look at our CONVERT data that came out at ERS, this is on our AeriSeal product, we showed a 77.6% conversion rate, and then of those patients that converted, so those patients wouldn't have been able to be treated with valves. They went through the whole process, wouldn't have been able to be treated with valves. They were converted to CV negative, and then from that, 89% of those had a clinically meaningful result when they had valves placed afterwards. I think that's great data, and I'm proud that the team was able to get that out there.
That's our CONVERT that actually fuels our pivotal trial that we're going through now.
Yeah. Okay. And then anything that either of you wish could have gone better in your first year? I mean, I know it's been a successful year, but is there anything that if you could look back and say, "I wish I would have done this," or, "Business would have done this," or, "A macro would have cooperated differently"?
Yeah. I think the thing that's kind of disappointing just looking at the year. We came in and there was a bit of an overhang. We had a CEO that retired. He's on my board. I talk to him frequently. There was nothing nefarious there. We had a CFO that had retired or that left several months before that. And so there was an overhang when we came in. There were questions about guidance. Are we going to bring guidance down? What are we going to do with the strategy? And are all the salespeople going to leave because you've got new leadership? I'd say on all three of those, we didn't bring guidance down. We affirmed guidance, and we continue to drive towards our guidance. From a strategy perspective, we didn't change the core of the strategy. We just put specificity and accelerators around it.
So I think that's a positive. And then third, from a sales perspective, my background was sales and marketing. I think salespeople typically like somebody that has sales experience in the higher roles just because I've got a customer focus and can help from that sales perspective. So with those and what we've been able to do, we were kind of guided that that was the overhang on the stock and why we saw a big hit. And I'm just surprised that we haven't seen it bounce back as we've continued to deliver quarter after quarter.
Yeah. I couldn't agree more. All right. So when we think about kind of your focus as you initially started around starting this conversation around really focusing on those developing high-performing centers, I think you said you've got about a quarter of your existing accounts that are what you call high volume or high performing. That leaves 75%. It's a big number still that you could move from low to mid up to that high level. I guess what's the timeframe or what are the things that you'd be focusing on to really shift those low to mid volume centers up to that high volume status?
Yeah. That's what we're looking to do now. We're in the early innings there, as Mehul and I were both talking about, that administrative sale is going to help with that and that we can build the infrastructure to support better patient flow through the system. The procedure itself is not the most difficult part of the procedure. The workup as they go through and making sure that the patient has a good experience, they go back and talk to their referring physician and say, "Hey, I went through this. I can breathe." I mean, they'll wake up from this procedure and they take the first deep breath they've taken in years. I mean, it's an acute result that they get.
If they can go back and they had a good workup process and they go through the procedure, they go back and tell their referring physician, "These patients are out there," and it's making sure that those patients can come in.
Okay. Connected to this, what's the right level of involvement from Pulmonx to actively develop the funnels for the treating physicians?
So the patients are out there. It's really an education perspective. I mean, we're driving education for not just the patients, but also those COPD physicians that are out there. If we don't do it, I don't know that anybody will. We play a big role in that, and that's where we've invested a lot of our time and effort.
If you had $100, how do you divvy up that $100 towards educating physicians versus educating patients?
You know, the patient education is going quickly right now. We spend more on patient education than we do on physician education from a direct perspective. But if you look at the sales force time, our sales force isn't really talking to patients out there. They're not driving that. They're driving those referring physicians. We currently have 16 what we call TSAs or territory sales associates. They're focused on educating that peripheral COPD doc that has these patients coming in. And then we've got 55 sales reps that are focused on supporting the hospital systems. We might even see that change over time. There might be more of a push out to these COPD physicians. We did some research that showed 94% of COPD physicians that are out there are aware of valves, but only 36% of them know the proper patient, the patient that will do well with the valve procedure.
We need to educate them on how to find that patient, what that patient looks like. So we're spending time on that right now.
Okay. Shifting gears a little bit, you talked a little bit about LungTraX. This is probably one of the bigger developments, I think, within the business this year. You've got some physicians that are piloting the software. Talk about early feedback on the product or the software. What do you expect out of a full launch when you get to that point?
Yeah. The initial feedback has been good, but we are really early innings right now. I've got a beta product. We launched it earlier than we normally would have expected to launch it because I didn't want it to sit in an R&D lab for another year. So we put it out there. I think we're probably 90%-95% of where we need to be. There'll be some modifications that come out of the beta, and then we'll roll it out broader. But initial feedback has been very positive, and it ties into that top-down discussion as well.
So if we can go into an administrator of a hospital and talk about building this lung health program and say, "Hey, not only can we make it easy to get these patients through, but we can actually proactively identify patients in your PACS based on non-contrast CT scans of the chest, patients that came in for other reasons, but they're in the system, we can identify those patients earlier and get them treatment faster." I think that'll continue to fuel the funnel. That's really a big deal. That LungTraX Connect and LungTraX Detect are key levers for growth here as we go into 2025 and 2026.
Is there a good timeframe to think about on when you have that full rollout, understanding you probably have to work through some of the modifications after the beta test?
Yes. Well, so one of the things that happens with software, obviously, you go to the hospital, we have to sell it to somebody at the hospital. They have to agree to buy it. Once they do, we go through contracting. We have to go through an IT review. We have to go through a security review. That can take time. I think some of the facilities have been much faster to go through that than others, as you can imagine. Some facilities are just slower to work like that. And so it's hard to give you just a real snapshot. My expectation is that in the back half of next year, we'll start to see some benefit from this. And once you've identified those patients and you put them in the process, there's still a workup timeframe that goes as well, which can be five months.
Yeah. Okay. All right. Mehul, on bringing it to some of the financial questions and looking at fourth quarter guidance, help us understand how you get to the high end versus how you get to the low end. I usually don't like these types of questions, but you gotta, there's also, I mean you don't either. Sorry. I still got to ask it. I guess in relation to the typical seasonality that we have in a normal year, how does that function or factor into how you've thought about the guidance this year?
As you know, our revenue guidance is $81-$84. That's 18%-22% growth at both ends of the ranges. The midpoint is $82.5, which is 20% growth. And as Steve mentioned earlier, when we came in late in Q1, we stuck to the company commitments of the guidance. And from day one, we are driven to achieve that. And so that's our focus. And also, as Steve mentioned, the expectation was we would take it down, right, and overachieve, but we stuck with our conviction. On the top end, bottom end, I'd say Q3 U.S. seasonality was something we talked about and were concerned about before Q3 happened and as we conveyed it after the results came in. Seasonality, U.S. seasonality was very strong, meaning we had lower growth, especially relative to the prior year.
So that was kind of how we thought about the lower end of the guidance. Now that's resolved, right? So the remaining driver is the Q4 number, the sequential growth in Q4, both in the U.S. and international. So depending on how Q4 lands, that'll determine where in the range we'll land. One thing I'd remind you is that if you looked at our U.S. growth rate a year ago, it was a very, very strong growth rate, and the comp is really high in the U.S. Internationally, not as much. So those are the dynamics that are playing out, and we'll see when we report Q4 where we land within that range.
Okay. Okay. Maybe picking up off of that, I think the Street's high-teens level of revenue growth for 2025. I know we'll have to wait until fourth quarter call probably in February to get formal guidance. But maybe asking it this way, is high-teens growth the right way to think about the sustainable growth profile of this business?
This is another question I don't like.
Oh, yeah. Sorry. I give Steve all the easy ones.
I'd say either I'd rather not respond. We're going to wait till the Q4 call to issue guidance, and then we'll see where it lands relative to consensus. But I would say this: that Steve and I were brought in to drive growth, and we put in some of these programs that we've talked about, and we'll see that growth starting in the second half of 2025 and 2026 and 2027, right? Given all of that, our long-term sustainable growth objective is around 20% on the revenue side. And so that's our long-term objective, and we'll see how it pans out. It's going to change quarter in, quarter out, right, year in, year out. But as these enhancements take effect and the clinical trials in Japan and so on get implemented into our strategy, that'll determine kind of how we achieve the growth over the next three to five years.
Okay. Steve, I'll ask you one that you probably don't like then. Give Mehul a break.
That's fun.
Yeah. So there's not really a precedent to go off of with the two of you, just given we're going through our first full year cycle. I guess, how do you think about the probability or possibility of pre-announcing results next month at a big institutional conference?
I don't mind the question. We don't have a presentation at that conference, so it would be unlikely that we would. We haven't talked about it. We haven't nailed anything down, but it would be unlikely that we would do that.
Okay. Fair enough. Should have given that one to Mehul.
Yeah. We will be there hosting meetings, but we're not presenting. So unlikely we will pre-announce.
Okay. All right. When we look at step back, big picture, how do you think about the operating dynamics and the market dynamics being different when you look at the U.S. versus some of your European markets? Because your business is a little unique in that it started in Europe and then came to the U.S. U.S. was a big opportunity, but we don't want to ignore the fact that there's still plenty of patients that need to be treated or can be treated in Europe. So I guess the question here, are there different operating dynamics? Are your interactions with physicians different? And is the role of the rep any different?
Yeah. So we replicated OUS, some of the things that we've done in the U.S. We saw some good growth based on a couple of the programs in our strategy, and now we've done that in Europe. And that includes peer-to-peer education. That includes community physician education and awareness. So we know that those are driving forces for long-term growth. And so we've adopted those outside the United States. And I think we're starting to see some results from it.
Okay. All right. Fair enough. China is a market that maybe is coming back a little bit for you all. I guess, what are you seeing out of China with the recent distributor that you signed? I think the China market's primarily self-pay. So I guess, how big can that market be for Pulmonx?
Yeah. So we've been in this distributor arrangement for a couple of quarters now. Previously, we had a direct model in China. The distributor has done really well and has made significant progress. They're hiring sales resources. They're opening up hospitals. They're even working on patient access. Granted, it's a self-pay market there. So we're really excited about the progress they've made in the last two quarters. And we expect continued progress over the next three to four quarters as well. We may see a little bit of an inflection point in China in 2026, which is another one of our growth drivers. We don't really talk about the TAM or how big it is. We may not even know at this point. And the distributor business in our overall revenue base is like 5% or less.
So it's not material at this point, but we're still focusing on driving that. And the last point I'd make here, Jason, is that the two months we have this arrangement, we're already operating margin accretive relative to our direct model. So it's a really good arrangement for us.
That's great. Final question. Go to Mehul for the final one here. I actually think cash burn has been, the narrowing of the cash burn has been pretty impressive. That's definitely taken some steps forward here, really, since you've taken over, Mehul. And I don't want to leave you out, Steve, but I need to get some points back with Mehul. Do you think Pulmonx, I guess, needs to consider a capital raise at some point? Or do you think the progress you've made on the cash burn front is enough? And we've got a nice trajectory here where we can operate without needing to think about that.
Yeah. Operating leverage, growing revenues faster than operating expenses, is a key strategic initiative for our company, and as we continue to drive that, we believe that'll get us to cash flow break even with the cash we have on hand. There are a lot of drivers in that, and we have an operating plan that we're beating all the assumptions on, on the revenue side as well as gross margins and OpEx, so we feel pretty confident right now that we can get to cash flow break even with the cash on hand.
Okay. Perfect. Well, with that, I think we are out of time, but gentlemen, really appreciate you joining us today, making the trip across the country to be with us, and thank you to everyone in the room as well.
Thanks. Appreciate it, Jason. Thank you.
Thanks, guys.