All right. Good afternoon, everybody. Travis Steed, medical device analyst at Bank of America. We have Pulmonx up next. Glen French, CEO, and Derrick Sung, CFO. Maybe just, we just reported Q1 last week. Maybe walk through the quarter. Anything different between January, February, March, April? Just kind of walk through a little bit kind of some momentum we saw in Q1 and the overall environment.
The quarter went pretty much as we had anticipated. We came into the quarter and as has been the case over prior years, we had a soft entry into the quarter as people got up and running after the holidays. The H1 of January was pretty soft and then strengthened across the balance of January and continued to strengthen in February and March and, you know, nice exit out of the period into the next. Went as anticipated.
All right. Great. In terms of the Q1, you know, Q1 came in a little ahead, decided not to raise the guidance. I assume that's just mostly conservatism at this point, given it's only Q1.
Yeah. I mean, look, we again felt really good about where Q1 landed and how we did. I think looking forward to the year, certainly the Q1 performance gives us greater confidence in our ability to achieve the guidance that we set out. It's just premature. I think it's early in the year, we didn't really wanna get in front of ourselves, that's the reason why, you know, we kept guidance as it is.
Makes sense. Then what about the sequential growth in Q2? I think you've set up 10% sequentially for Q2.
That's right. Yeah. We, you know, there's seasonality. We would expect to see seasonality throughout the year. We would expect to see a nice step-up in Q2 over Q1 for the reasons that Glen mentioned. There is that seasonality in Q1, and then, you know, we do tend to see some summer seasonality as well. I would expect Q3 would be, you know, flatter to maybe down versus Q2 and then another step up in Q4. That's how I'd think about it.
Just like an 8% sequential step-up Q3 to Q4, right?
I wouldn't get into specific numbers.
All right. Okay.
Again, I think it would be a step up.
Step up. Okay.
Yeah.
I guess there was the kind of the reset, you know, in the, in the guidance a while back. You know, obviously been hitting and executing a lot better since then. Maybe just philosophy, you know, big picture, you know, walk us through kind of what's changed, where you are today, level setting the guidance, you know, and kinda executing better at this point.
As we've talked about, we came into the Q3 last year, and a couple things as we looked back, we had started to see the lifting of the impact of COVID on our business, which was really profound over the prior years. We learned a tremendous amount and felt like we had a track record, or a path to continuing to execute against, you know, sort of best practices at hospitals and really focused on ensuring that our accounts are taking advantage of those best practices and embracing mechanisms by which to ensure efficiency and also to tap into the patients that are within those hospitals.
We understood what good looked like, and we've been executing against ensuring that our accounts continue to move up on that curve. You know, through that execution, the numbers are following, so.
Right. Those numbers are kind of 28% growth. Is kind of longer term is how you're seeing this?
Yeah. Across that. That's the macro number. We're obviously continuing to grow faster in the United States than we are outside the United States. The numbers are, you know, 20%-30% in the United States and 15%-20% outside.
Okay. Maybe in switching to productivity, active accounts 4.1 in Q1, expecting that to climb to 5 over the course of the year. Can we just put some like color around, you know, getting to that ramp in productivity and kind of where that can go over time?
We see ourselves exiting the year with a productivity number that starts with a five. It's not as though we expect that we're gonna de-deliver that in this coming quarter. We're moving in that direction. It's very much aligned with the activities that we're taking on an account by account basis to make sure that those accounts are doing the things and following the best practices. In parallel, in those geographies where we've established these efficient accounts, we're focusing our efforts on ensuring that the referring physicians are up to speed on what it is we're doing, the magnitude of benefit we deliver. Then also, that the variety of treating physicians in their geography they're familiar with and comfortable with.
Productivity, I guess 3.9 going to five, kind of a point increase a year. Is that the right trajectory to think about productivity, or does that accelerate?
I think we're focused on the productivity number coming out of the year. I mean, I think we do expect to see productivity increase over time. I mean, I think that's the cornerstone of how we're gonna drive growth in the commercial model that we set out for ourselves.
Yeah. I think if you think about it's a little tricky on a quarter- by- quarter basis for the reasons that we talked about already.
Right.
Certain, like the first and the Q3 have different nuances to them. Just actually the fourth has. Everything's a little bit different. If you look at the mean across the years, I think what you'll see is a really nice step up as we go forward. It really is a story ultimately about same-store sales once we get these elements all along.
Right. How are you, kind of pushing that same-store sales growth? Or just what are you doing to kind of push that same-store sales growth, if you will?
Yeah. It's just these fundamentals, making sure that the accounts are able to take a patient from the front door to the procedure room efficiently, making sure that they're leveraging the available opportunity to treat the patients that are within their hospital. Each of these hospitals typically has a pulmonary function lab. There's a great number of patients that are lost unless the physicians and the respiratory therapists go looking for them. Then making sure that we are doing what we can to introduce the technology to the physicians that are kind of out in the community, that are managing probably about 90% of the opportunity.
Mm-hmm. Yeah, I guess the awareness of the referring physicians is still pretty low at this point. I'm trying to think about the referral channel here.
Yeah. I think so. It depends on how you define awareness. If you were, you know, about 50% of the patients are being managed by community pulmonologists. I would say virtually all of them are aware of the technology. You know, if you'd ask them, what are endobronchial valves? Have you heard of the Zephyr valve? I think where the education is on the magnitude of the benefit, and certainly in relation to what they can get from drugs that they're giving to these patients.
This paradigm shift behind, my job is to make these people comfortable, to try to reduce their breathlessness through the addition of drugs and the escalation of the doses of drugs, effectively kind of leading to ultimately putting them on oxygen and saying goodbye, to thinking about turning back the clock and getting these patients to a point where they can engage in their life the way that they were able to several years back. When those patients are made aware of that opportunity, and that conversation happens with the referring physician, we see that a very high probability through the data that we've seen, that those patients ultimately get moved on to the treating centers.
That makes sense. I guess one question, do you need AeriSeal to actually get this market to actually expand? Like is that gonna be an inflection point? Just kind of curious how important that is in terms of like really making this market inflect, if you will.
We're about 5% penetrated into the, into the incident opportunity that exists in this market right now. We got plenty of opportunity with valves. Beyond valves, I mean, in the patients that are CV-positive, essentially AeriSeal right now is being studied in. If you look at the patients that we identify through StratX, the quantitative CT analysis software that we schedule for a procedure that we anesthetize and we bronchoscope, about 20% of those patients, one out of five is not gonna get valves because we determine on Chartis right before we place the valves that they're CV-positive. One out of five patients wakes up, goes back to their referring doctor, all kinds of disappointed because they went through a bunch of hoops to get to that point because they didn't get treated.
What we reported was some data back in November of last year, which clearly indicated early returns from the from our study of AeriSeal, that we have about an 80% chance of being able to take those patients that we would normally rotate back and make them CV negative using AeriSeal, which is spectacular. What it does is not only it increases the, essentially the addressable market by about 20%, but what I get really excited about is eliminating effectively that 20% feedback loop that's going back into the referring network and saying, "Hey, I'm really disappointed." We think that that's gonna be a good tailwind for us. We've got plenty of opportunity before AeriSeal's available.
That makes sense. In Japan, reimbursement's coming there at this point, maybe frame the opportunity there and how quickly that could go?
Yeah. Well, we got approval at the end of last year, as expected. As we've talked about in each call, we expect that by the end of this year, we're gonna have reimbursement in place. That will allow us to commence a post-approval study. 100% of the patients that we treat in Japan right out of the blocks will be revenue generating, but they'll be going into our post-approval study, which will happen at, you know, somewhere between 10 and 15 different accounts. We expect to populate that study, get that out of the way next year, and then ultimately open up that market in a, you know, in an unconstrained way in 2025. We see it as 100,000 patients. It's about a billion-dollar market opportunity.
Right. Anything else to kind of highlight internationally that you think probably is not getting enough airtime?
I mean, you know, we are killing it in a lot of our major markets, and particularly in Europe. You know, I think it's pointing out our top... If you look at our top markets, three out of the top four are screaming right now, you know, growing at 40%, 50%.
Sure. I know there's been some conversation on the DP drug, but kind of clarified that with anything else. Are you seeing anything on the drug side that's changing that could be a competitive threat, you know, in the future?
They're making a lot of progress on the drug side. To the extent that you can attack certain challenges from the drug side, I think, you know, it's wonderful news for patients with COPD. I mean, I think it's important to note that COPD is really composed of two different diseases. There tends to be some amount of overlap. Emphysema, which is almost always caused by cigarette smoking, is really a disease of tissue destruction. It's not the airways or the tubes, it's the tissue that surrounds those things where there's a destruction and air trapping. We're really solving for air trapping. The predecessor approach was lung volume reduction surgery. We're just able to accomplish essentially the same thing without, you know, encumbering the patient with a lot of morbidity and mortality.
That's the side that we're focused on. The drugs are really looking to try to manage things that are in the airways themselves. Either airway wall inflammation, which can narrow the airway, excess mucus production, which is really the chronic bronchitis side of the equation, that's where the drugs are working on. Dupixent, as an example, is really focused on that chronic bronchitis side. Mechanism of action, fundamentally different. The thing that they're attacking is fundamentally different. We're happy for patients with COPD, but it's not something that we anticipate is gonna negatively impact our business.
Derrick, to bring you in on margins, maybe progression from Q1 to the rest of the year, confidence in getting to profitability breakeven with current cash on hand.
Yeah. In terms of gross margin, you know, we expect to be in that kinda 73% range in the H1 in Q2 of this year, and then move closer to 74% in the back half this year. You know, I think I feel very comfortable, you know, mid, in the mid-seventies in terms of gross margin over the next year or two, and we still think we can move up to kind of the higher, the high seventies at scale. On a cash from a cash perspective, really comfortable with our balance sheet. We've got $155 million on the balance sheet today.
if we weren't to reduce our cash burn at all, that's, you know, roughly four years of forward cash burn. We expect to show both cash burn leverage and operating leverage moving forward this year. I think we'll burn less than $44 million of cash that we burned last year, and that'll keep going down. This quarter is also notable in that it was one of the first quarters that we demonstrated cash operating loss leverage. We're now reporting on an adjusted EBITDA loss metric that just takes out stock-based compensation. This quarter on a year-over-year basis, we had a favorable adjusted EBITDA loss relative to same quarter last year. We feel good about that trend moving forward.
All right. Great. Any questions in the audience? Okay, I think we're out of time. We'll end there. Thank you.
Thanks very much.
Thanks.