Good morning, everyone, and thank you for joining us at Canaccord Genuity's 2026 MedTech, Diagnostics, Digital Health, and Services Forum. My name is John Young. I am one of the MedTech analysts here. I am very pleased to be joined today by Derrick Sung, Chief Operating Officer and Chief Financial Officer of Pulmonx. Derrick was Pulmonx's CFO from 2019 to 2023, including the company's 2020 IPO, and then rejoined in November 2025. For those less familiar with the story, Pulmonx is a commercial-stage medical device company focused on severe emphysema. Its product, the Zephyr Valve, is a one-way valve placed in the lung through a bronchoscope that blocks off the diseased part of the lung so healthier parts work better and patients can breathe more easily.
Derrick, thanks for being here today. Pulmonx just reported its first year-over-year revenue growth after declines in Q4, Q1, and Q2. Looking back on the one year you and Glen have returned, what was the core problem that you found, and how much of the turnaround is behind you versus ahead?
Sure, and thanks for having me, John, and thanks for that introduction and the brief overview on the company. When Glen and I returned a year ago, what we found was that the company had just lost focus. We were trying to do too many things, trying to do it all at once, and while much of it was well-intentioned, the end result was that we saw a rapid slowdown in our sales. We saw our expenses kind of go in the opposite direction, and those increased, and we saw turnover across our employee base, specifically in our U.S. sales force, which is where we saw the biggest slowdown happen. We came in with a turnaround plan, and it was a really simple three-step turnaround plan. Step one was to realign our cost structure.
We had just, again, started spending way out in front of revenues that just never materialized, and so we took out roughly 10% of our recurring costs, brought our cash burn down. We burned $32 million last year. We are going to burn closer to $22 million this year, so nearly a 30% reduction in our cash burn. That was step one. The second step was we wanted to strengthen our balance sheet. We had $40 million of debt that was coming due earlier this year. We refinanced that debt. We kicked it out five years, interest only, so we do not have to worry about it until 2031. In that process, we also got access to an additional $20 million of undrawn capital that will give us a little buffer.
With those two steps from a financial perspective, we went from having less than a year's worth of cash to now we have the capital that we need to get to cash flow break-even. Those two pieces of our turnaround are largely complete. The third and most important step to our turnaround is, of course, getting our company back to positive sales growth. This is a work in progress, but we are making really good progress. We have refilled the majority of the open positions in our U.S. sales team.
We have refocused our U.S. sales strategy, and as you mentioned, we are seeing early signs of good progress. We returned to growth for the first time, which is a real milestone, since we got back here in Q3. Even prior to that, every quarter since we have been here, we have seen a nice year-over-year improvement in our revenue profile. Plenty of work to be done, but we are on track with the plan that we laid out for ourselves, and we are feeling good about it.
Definitely want to dive deeper into those, but maybe also taking a step back. You rejoined as both CFO, but now also COO. Maybe you could just talk about your increased responsibilities, and also, what brought you back to Pulmonx? What did you see that made you want to rejoin the company too?
Sure. What brought me back was, look, I knew the market opportunity was large. I knew our technology worked. Our technology, our Zephyr Valve technology, it is serving a huge unmet need in these patients with severe emphysema. These are patients who really have exhausted all medical options available to them. Most of them are not candidates for a surgical procedure. What our Zephyr Valve does is it really rolls back the clock on their disease. It gives them their lives back. So it is a critical unmet need. The product works, and we know it works, and it has been proven in multiple clinical studies. When I looked at the company and was making my decision to come back, what I knew was that the market had not really changed, that the broader end market had not changed.
We were not facing any new large competitive threat that was not there before. There wasn't any disruptive reimbursement that wasn't there before. None of these things had changed. I felt confident that it was something that we could fix. It was something internal that we could come back and fix it. I also felt, from a personal perspective, that there was just a lot of value that we could create here. Pulmonx is, we're a $90 million plus revenue company. We're a 75% + gross margin company. If we can get back to positive growth and sustainable growth, which I do believe we can, I felt like there was a lot of value to be created. That was the reasons why, what drove me back here. In terms of roles and responsibilities, when Glen and I kind of laid out our plan, we took a divide and conquer approach.
Glen is spending a lot of his time focused on the commercial turnaround, so he's getting involved in the day-to-day operations of our commercial team. He's driving that turnaround in the U.S. sales force, managing directly our area vice presidents on the U.S. side. To give him that leverage and to give him the bandwidth, I've taken on responsibilities for all of the non-commercial operations within the company, so R&D, clinical, quality, regulatory, and manufacturing ops, in addition to the finance and G&A functions. Of course, we all have really great leaders and great talent in place running all of those functions, and those leaders are really executing and bringing our execution to kind of the next level. That's how we've divided things up, and it seems to be working out pretty well.
Got it. In Q3, your revenue roughly beat consensus by about $1 million, yet full-year revenue guidance of $90 million-$92 million was reiterated. How has your approach to forecasting changed since you got back? Maybe just talk about your guidance philosophy so far.
Yeah. We have always been, since we were here last and currently, very focused on delivering on our commitments, focused on not getting out in front of our skis in terms of what we're committing to. Especially now, I think we know that we're a show-me story at this point, and we want our results to speak for themselves rather than our words. That continues to be our philosophy. We came in with a plan, as I described, at the start of this year. We set out a guidance range at the start of this year. The guidance that you mentioned, $90 million-$92 million, we haven't deviated from the start of this year. That's a reflection of the fact that we're on track with the plan that we laid out for ourselves.
Got it. A big part of that plan is the U.S. commercial sales force. As you highlighted, there was a lot of turnover when you came in, 50% in 2025, to be specific. The mean and median tenure now, I think, is at 1.8 and 1.2 years. What did you and Glen do to stabilize the sales force? What are you doing differently in hiring, training, and retention, and what are you seeing today that makes you optimistic?
Sure. There were a lot of reasons for the sales force turnover that we saw last year. It was kind of a confluence of events, almost a perfect storm, that included changes in roles and changes to comp plans and to what the sales reps were being asked to do and how they were being managed. I think the first thing we did was we really took kind of a back-to-basics approach and tried to address these issues that were causing a lot of the angst. We shuffled the organization a bit. As I mentioned, Glen got involved. We have new sales managers in place. We've been really largely successful in refilling all of the open territories that were opened up. At this point, we've got nearly all of our territories filled in the U.S.
There's always going to be some level of turnover, which I think is healthy in any medical device sales organization, but we're back to kind of normalized turnover rates, if you will. We're focused on getting these folks up to speed, so we have worked on optimizing our training program to get these folks up to speed. We do have a lot of new folks, as you mentioned, right? Average tenure has gone down. We not only have new territory managers, new sales reps, we also have new sales managers in place as well. It's all a matter of getting these folks up to speed, up the learning curve. That can take some time. But I think we're making good progress, and it feels like morale has improved, and we're really in the right direction.
Got it. Any of the KPIs that you look at that makes you optimistic about just how they're returning to productivity, and just thoughts on that productivity too?
Yeah. I think typically, it takes anywhere from roughly six to nine months to get territories back to where they were before. That can vary, though, territory by territory. We're obviously looking at that. It depends on the state that the territory was left in. It also depends on whether or not we have a junior rep in some of these territories, a non-quota-carrying, but junior rep in these territories. In some cases, we'll have promoted a junior rep into a more quota-carrying senior rep level, and those will go faster. In other cases, we're bringing someone new from the outside, but they're a very experienced territory manager, and they'll come in with a lot of medical device selling experience, but they'll need to learn our business. So, it varies, but overall, from what we've seen, we're happy with the progress that we're making.
Got it. The full-year guidance for Q4 implies revenue roughly between $23.8 million- $25.8 million. It's about 5%-14% year-over-year growth. What gets you to the higher part of that range, and what gives you confidence in exiting the year at or near double-digit growth?
I'd start by pointing out that the midpoint of our revenue guidance range that you just gave reflects roughly 10% growth, so double-digit growth. If you think about it, if the question is, what are the variations, what drives variation around that midpoint, I would say the biggest piece is what I just talked about, which is the time it takes to get the new team, the new folks up the productivity curve. Really, we're doing everything that we can to try and drive that, ramp up the productivity curve, and I think that's probably the biggest driver of variation within our guidance range. There is a little bit of seasonality in Q4 that's always a little tough to predict too. You've got the holidays, you've got end-of-year effect, and so that probably drives a little variation there within the range as well.
Got it. Maybe also just touching on 2027, consensus of roughly $99 million or high single-digit growth. You did say on the call that you guys are committed long-term, sustained double-digit growth. What has to go right, beyond obviously the sales force maturation, to get to that level long-term, and when do you think we see that sustained level of growth quarter- to- quarter?
Yeah. I think that you said it. I think it is all about sales force maturation. It is all about commercial execution. Again, we feel like we have got the right strategy in place. We have got the right people in place. It is a matter of executing to that sales strategy, frankly. That sales strategy, again, from a sales strategy perspective, I think we have also kind of taken a back-to-basics approach, where we have really narrowed the focus of our sales team down to kind of the key things that matter and the key things that we know have worked in the past. That is focusing on the treating centers, starting with our clinical champions, making sure that they are getting good clinical outcomes.
It is focusing on ensuring that our clinical champions have the support, the administrative support that they need within the treating centers, whether that is coordinators or service level support. Then it is identifying those COPD physicians who are treating these COPD patients that are already aligned in some way or fashion with the treating centers and the treating physicians. We are really kind of taking a very narrow focus on this selling strategy. Going back to your original question, I think it is just a matter of executing on that sales strategy and keeping folks in their seats.
Got it. Maybe we could jump to AeriSeal. CONVERT II enrollment is expected to complete in the back half of next year, with limited AeriSeal launch in Europe in 2027, and then material revenue in 2028 upon FDA approval. What are the key milestones that investors should look for between now and then? For example, when could we see the data from the trial? Also, how should we think about the investment required to get it commercialized too?
Yeah. So, just to clarify in terms of timeline, so we were currently enrolling our CONVERT II pivotal IDE study. We expect to complete enrollment of that study in the back half of next year. When we do complete that enrollment, we do have CE mark of the product available outside the U.S. So in those countries where we do have CE mark, we will initiate a limited commercial launch next year. We expect to see first revenues from that next year, material revenues from that OUS launch in 2028. In the U.S., the FDA timeline, the timeline to commercialization is a bit longer. So, probably roughly two years, a couple years post-completion of our clinical study is the time it will take for us to get through the treatment and follow up these patients and the preparation of the submission.
We probably expect to be commercial in the U.S. market a couple years after completion of enrollment. Maybe just to even take a step back and talk about AeriSeal in general. We are really excited about AeriSeal. It is our next pipeline product. Just to talk a little bit about how it works and the opportunity that provides for us. The way our Zephyr Valve works, and you mentioned this a bit in your introduction, is that emphysema is a disease of tissue destruction and air trapping. What happens in these emphysema patients is that the emphysema destroys the lung tissue, the lung tissue loses elasticity, the airways collapse, and air, basically dead air, gets trapped in these lungs.
Our Zephyr Valves, the way they work is we insert them into the airways that feed the most diseased lobe of the lung, cuts off the airs to those diseased lobes of the lungs, essentially deflates them, and then the healthy lung tissue expands in its space, and that is what gives the patients relief from these symptoms. There is a subset of patients who have what we call collateral ventilation between the lobes of their lungs. That means that the completeness of the fissure, the division between the lobes of their lungs, is not complete. What that leads to is air can flow in from an adjacent lung into the target lobe that we are trying to drop down, even after we cut off the air from the airways with our valves. Those patients do not respond today to our Zephyr Valve procedure.
Roughly today, after patients have gone through the workup process, they are ready to get the procedure, we do a final physiological test with our Chartis catheter to determine whether or not they have this collateral ventilation. About 20% of our patients have this collateral ventilation, and they are not candidates for valves. What the AeriSeal product does is the AeriSeal product, essentially it is a polymeric foam that is injected through the airways, and it kind of seals off those incomplete fissure defects, if you will, between the lobes of the lungs and takes those patients who have collateral ventilation, who are collateral ventilation positive, and converts them to collateral ventilation negative patients who can then be recipients of our valve.
We conducted a feasibility study, a roughly 100-patient OUS feasibility study a couple years ago that we have presented already at scientific conferences that has shown that roughly 75% of these patients in this feasibility study were able to convert from CV positive, collateral ventilation positive, to collateral ventilation negative. Then now we are initiating this CONVERT II larger pivotal study, that is going to drive us towards FDA approval. So, that is a product that we think is a real market expander for us, and we are really excited about.
I know you guys have talked extensively too about some of the physicians who refer their patients for a Zephyr Valve, and unfortunately, they come back with a negative. They're part of that 20%, and it kind of dissuades them from continuing to convert, I mean, to refer patients to that. How have you thought about just the ability for AeriSeal, once it is approved and on market, to really unlock beyond that 20% TAM, but really just make referral patterns easier and more strong for Pulmonx too?
Yeah. I think it will. We haven't quantified it, if you will, but I think there's a halo effect where, as you said, no one wants to see two out of 10 patients come back disappointed, and it's kind of a reality of the current situation. I do think that when this product gets out there and it's now 95% of patients who go through our procedure are able to get a valve versus 80%, I think that that'll make a difference, and I think that'll certainly have a halo effect overall in volumes is what we would hope.
Got it. Moving to China, the registration's been renewed, and shipments to your distributor should resume by early next year. China is just about 2% of company revenue, but what is embedded, if any, for China revenue in Q4? Also, how should we think about the gross margin drag as China sales return?
Yeah. I think China is a market that we like. We don't want to over-index on it. As you said, it's a couple percent of total global sales. It drove some wacky comps this year, and so that's why we've been talking about it this year. We're happy to have gotten the renewal of our registration certificate behind us. We're working with our distributors. We're restarting our accounts within China, expect to kind of go have completed and gone through that delisting process by the end of this year. As you mentioned, we do expect to get our first shipments out to China by early next year. Whether or not some of that gets pulled in, I think, is contemplated within the range of our guidance for Q4. It is a lower gross margin product for us, but remains very profitable to our bottom line.
It's accretive on a bottom line perspective, has very attractive operating margins. As China comes online, we would expect a very modest impact to our gross margin. I do believe that we'll stay at or above 75% from a gross margin perspective, even with China coming online. We've got a lot of different forces that are driving our gross margin, and we're continuing to see improvements to our supply chain. We're continuing to see production efficiencies and overhead absorption. I think all of those wash out, and from a gross margin profile, I'm comfortable that we'll stay at or above 75%.
Got it. Moving down the P&L, just to OPEX, down 18% year-over-year as the cost reductions that you have taken really come to fruition. You said you expect only modest growth in OPEX from here. If revenue in the top line outperforms, where would you reinvest first in the business, and is there anything that you cut this year that you would put back?
Sure. We're very comfortable with the cost structure that we've established, right? We made a one-time adjustment in our cost structure at the start of this year. We really rolled back our cost structure, if you take a look at it, to where we were a couple years ago, back in 2023, just before I left. At that time, we were growing the company healthily in the 25%-30% range. I feel like we have a cost structure that is in place today that can drive the growth that we need.
I don't think there's nothing that I would say we need to put back, or we do expect to grow our cost structure. I would say low single digits as we move forward. That's how we think about it. If we accelerate revenue growth, I think that's great. It just drops down and we get to cash flow break-even that much easier, that much earlier.
Got it. Just long-term gross margins, how should we think about them once AeriSeal is commercialized? Obviously, you're going to have the benefit of more valve sales from it too, and I know you haven't given ASPs yet to investors on it, but just how should we think about the margin structure going forward with that?
Yeah. We'll see two benefits from AeriSeal. One, it takes patients who weren't qualified for valves and they will become qualified for valves, so we'll get the valve revenue benefit. Then we do expect and are planning to charge for AeriSeal. We haven't talked about ASP, as you mentioned, but we'll have revenue benefit from there. So, when you put those two together, I don't expect a meaningful impact negatively to gross margin from AeriSeal. So, my comments on 75%+ gross margin moving forward still hold.
Okay, great. You ended Q3 about $53 million in cash, and you expect to burn roughly $22 million in 2026, which is down about 30% year-over-year. On the Q3 call, you noted you have a very clear pathway to cash flow break-even with that debt facility you had put in place. Just what revenue level and timeline do you think you'll reach cash flow break-even at this point?
Yeah. I don't want to put a timeline on it specifically. Again, I think we can get there with modest growth. I would say, from an annualized revenue perspective, in the range of $120-ish million is probably what I would say gets us to cash flow break-even. Again, I think we can get there within the runway of the capital that we have access to today.
Got it. Then just lastly, if we sit down together at this time next year, what do you want to be able to point to as proof that Pulmonx has turned the corner?
I think it is just going to be in our numbers. Like I said, we want our results to speak for themselves, and when we sit here today, I would expect that you will see it and hear it in our numbers.
CFO loves the numbers. Thank you very much. Appreciate it.
Thanks, John. Thanks for having me.