Good afternoon, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. My pleasure to host this session with the management team from Pulmonx. With us, we have Glen French, President and CEO, and Derek Sung, the CFO. In terms of format, it'll be a fireside chat. If you have a question, please raise your hand, and we'll come around to you. So, Glenn and Derek, thanks so much for being here. Thank you. You know, I wanted to start off, you know, Glenn, with the recent trends, which have been good. You started off 2023 with strong growth of 35% in the 1st quarter, 23% in the 2nd quarter. What went well in the first half, and how are you feeling about the momentum in the business coming out of COVID? We feel great about how things are going coming out of COVID. COVID for us, I know there's been a recent spike in everything, but COVID largely went into our rearview mirror coming out of the 1st quarter of last year when Omicron impacted everything. And as a result, it really provided us with far greater understanding of our business and where we were in relation to being in a good place in our treating accounts. So over the better part of the last year, we've really been focused on our treating accounts. As you may recall, we estimated that a minority of the patients are controlled and within the direct field of view of the treating physician, and the majority of the patients are out with the COPD physicians, the referring physicians. But one of the things that we wanted to make sure was that we moved our treating accounts to a place where they had adopted best practices, which include systems in place to ensure that they were doing this procedure as a routine part of their offering and embracing things that drove efficiency. And over the last several quarters, I think a large part of our performance has really been driven by these accounts, not only adopting these best practices with regard to efficiency, but also tapping into the patients that are right there in front of them. And in our last quarterly commentary, we talked about tapping into pulmonary function lab information. We solve for hyperinflation in patients with emphysema, and therefore you can find patients in the pulmonary function lab who are clearly hyperinflated based on their residual volume measures. We're working to ensure that those patients get referred for evaluation for our procedure. You can also similarly find patients in the pulmonary rehabilitation lab and so forth. So, we've been doing that. We've been taking— We have a group of what we consider our best accounts, sort of the upper quartile, if you will, that are doing on the order of 10 procedures per quarter, with a range between six and 25 procedures per quarter. So we looked at what good looked like there, and we've been doing, I think, a really good job at moving our accounts in the direction—in that direction. And it's explained a good bit not only of our revenue generation to this point, but also as we look to next year. We thus have reserved, to a large extent, this COPD physician effort, where the referring physicians in those best-performing accounts, we have been driving patients through those COPD physicians and have, you know, examples where those folks are referring into treating accounts, you know, 25-50 patients a year. So that's also been very productive, but we got to have the accounts where they need to be before we can turn on the referring physicians. So that's, that's super helpful and good to hear. Can you, can you talk a little bit more about what some of those best practices are and how you're facilitating sharing across centers? Yeah. So there's the moving the patients efficiently from the front door to the procedure. So there's best practices around managing the patients. Sort of an obvious example which would be a best practice is for the to coordinate all the pre-testing. We're dealing with patients that are seriously sick. They've got a lot of comorbidities. One of the big questions is whether they can even withstand anesthesia, so they have to have cardiac testing. Typically, they go through pulmonary rehabilitation. They have to be evaluated in the Pulmonary Function Lab to make sure that they have sufficient trapped gas. In some cases, they undergo a CT scan that has to be evaluated based on StratX. There's a big difference between the patient showing up and the site saying: Here's a list of the five departments you need to go to, and they have to go schedule thereafter. It's another thing, and one of the best practices is you walk in at 9:00 A.M., you're here for 30 minutes. We've already made the appointment for you across the hall to have your pulmonary function test done. one hour later, you move your way through the hospital, and you substantially get that work done in a morning. So that would be one example. Right. Other examples are the things that I already mentioned. You know, looking at patients that might be candidates for the procedure in other areas of the hospital. So those are the types of things that are being adopted. Administratively, our largest centers today typically have a clinical coordinator, either a fraction of a person or a full-time person. And when an account grows from, say, running toward a $1 million run rate and going to it, say, we're targeting, what are the things we need to do? Typically, they would add another clinical coordinator to support that administrative movement of those patients efficiently. Right. toward the procedure. That, that's clear, but what is Pulmonx doing to kind of facilitate sharing those best practices? Yeah, so we have individuals that are dedicated to interacting with some of the thought leaders, if you will, in these various areas, and we leverage Zoom and the like to get groups of folks together to talk about these best practices. We have specific selling tools that we've given to our sales organization that support those best practices as well. So we're very active in terms of communicating with the various parts of the hospital as to how to move these patients through quickly. The ultimate goal, of course, is simply to get a hospital that used to just try to keep the patient stable to embrace a new therapeutic approach that can get these patients to a better place. Got it. And you talked about a, you know, a mid-Midwest center or centers measuring hyperinflation when doing a lung function test. Is that-- was that one center or multiple centers? That was... Well, so yes, this was in our prepared comments- Right in the quarterly, and we got advice that, "Hey, investors want to hear anecdotes. Right. So that was our anecdote. We've got tens of centers that are doing that. Okay. We might even have 100 centers or approaching 100 centers that are beginning to really look at the... And I'd mentioned both pulmonary rehab, but also the pulmonary function testing area as a place where they can find patients to do this procedure. So what we're looking for, and one of the key measures before we begin to engage with a center, with the marketing department of a center, to reach out beyond the walls of that hospital, we're saying: Listen, you've got to demonstrate the commitment to adopt best practices and to tap into the patients that are right there in your center or in your network. And so that's what that anecdote was about. Got it. But it is not, like, one center? No, no, no, no. That was just... It was- Okay -a single center that I talked about. Simple right. I would imagine. Yeah. Which is- Right ... it is at least tens of centers that we have, we have tapped into- Got it the Pulmonary Function Lab in the same way as that hospital in Ohio Right -that I mentioned in the prepared comments. We were talking before, people are seeing COVID cases spike. What gives you the confidence that, you know, COVID's not going to have a negative impact on your business again? Well, it's interesting. You know, we've been watching the COVID numbers as well, and as you see the number of cases go up, in the past, before people had, you know, the human body had ever seen COVID before, you'd see a very direct relationship between the consumption of hospital resources, you know, hospitalizations, and a corresponding increase in ICU bed consumption. And though, you know, very fragile, older people who might have COVID will find their way into the intensive care unit, that has always been our point of sensitivity, is if we were to see ICU bed consumption go through the roof, so there'd be an excess, you know, overcapacity or overutilization of the ICU beds, that would impact our business. We haven't seen that. You don't see it in the data on a macro basis. New York Times just came out with some data, and I think they maintain that data. You see that the ICU consumption line is pretty flat, while the positive tests... I think the way that I think about COVID is that it's an incidental finding now. So every patient that's going into certainly a surgical procedure is going to have a COVID test in advance. Their reason for being in the hospital is not COVID, but they get tested, and they might have COVID, so we're seeing those- I got it. ... those incidences spike. Okay, that's helpful. Derek, we'll, we'll get you involved here. So first half, 30% or so, constant currency growth. You guided to, you know, the implied, you know, growth in the second half is mid- to high-teens, constant currency. You know, what, what, what's driving the deceleration? Yeah. Well, so I think we're very. We see very positive trends coming out of Q2. All the traction that Glenn mentioned that we're seeing, particularly with our treating centers, and we expect that that traction will continue through the back half of the year and even into next. When we look at the exact, you know, the specific numbers, I think you do have to be careful around the fact that there was an easy comp in Q1 of this year relative to last year. So, I would be careful around that. Last year, we were just coming out of the last big COVID wave, if you remember, it was the Omicron wave. So that impacted things a bit. Q2, we did grow 23% globally, and I think that was a really strong level of growth. So as we look in the back half of the year, you know, we've contemplated into our guidance, summer seasonality. Summer seasonality was something that we were caught off guard with last year. We always see a certain level of, physicians, hospital staff, even patients taking vacations through the summer months, particularly out in Europe. But last year, it was much more pronounced in terms of the extent of those vacations. It was certainly pronounced, in the U.S., and so, we certainly don't want to be caught off guard this year like we were last year. So we've contemplated that into the guidance. But overall, we feel really good about being able to achieve the guidance that we've set out, and more importantly, the trends that we saw through Q2 and the increasing traction with those treatment centers, we expect to see through the back half of the year and into next. That's helpful. But when you gave specific guidance for Q3 of, I think, down 5%-7% sequentially, which is a little more pronounced seasonality than I think you saw in prior years, including last year, I guess the question is, is that, well, did I get that right, Derek? I think so. Yeah, I mean, what I would say is we were, again, we were caught off guard last year. We don't know what the new normal is gonna look like coming out of COVID. We want to make sure that we're not caught off guard this year, so we wanted to fully contemplate that into our guidance. I wouldn't read anything more into it than that. Yeah. Any, you know, we've asked all our companies these questions, so we're not picking on you. The summer seasonality, anything unusual this year in terms of, you know, pent-up demand for vacations? Anything you'd point out? I think we're seeing continued the same sort of pent-up demand that we saw last year. I think we're certainly seeing this year. But again, whether it's any better or any worse, I don't think, you know, we'll let the quarter play out and we'll see. But we just want to make sure that we took that into account, but I would say nothing that I would call out specifically. And new center adds were also strong in the first half of the year. Any reason why that was slow in the second half of the year? You know, not, not specifically, no. I, I would say, at the beginning of, of this year, we guided to opening up 40-50 accounts, new accounts, this year. We've opened up 30 for the first half of the year. So the commentary that we provided on the second quarter call was that we now expect, to land somewhere near the high end of that guidance, which would be 50. Specifically where we land, we'll see. But we feel good about the pace of new accounts that we're opening them up, opening up. I, I will say that increasingly, over time, we have been shifting the focus of our commercial organization, from opening up new accounts to, driving, same-store sales or driving, procedure volumes through our existing accounts. So that is going to be an increasing, a natural increasing focus of our commercial organization. That said, we're still targeting, over time, roughly 500 or so accounts in the U.S. So you can expect that we'll continue to open 10-15 accounts a quarter, whether it's plus or minus that. You know, a lot of it is just timing related, frankly. All right. And then, 2024, I mean, you basically said on the Q2 call, you were comfortable with consensus in 2024, so earlier than most companies. I guess I'd want to confirm that you still feel that way? So, I'm gonna try and refrain from providing any further guidance on 2024 until we typically provide 2024 guidance when we deliver our Q4 earnings. But I will say that nothing in our outlook on our business has changed since our Q2 call. So- I understand. How's that? But nothing changed? Nothing has changed in our outlook for our business since the Q2 call. Well, just want to be clear about that. Yeah. 'Cause you obviously did say you were... on the Q2 call, you were comfortable with consensus and this year. I would, I will say that nothing materially from a large, macro perspective- I'll comment on that on a macro basis. Sure. I mean, I think we've got a great plan in place. I feel very good about the plan. We've pressure tested it over the last year, and we've got objective reasons to believe that it's the right plan. Our commercial organization, it resonates for them. It makes a ton of sense. As we talk to our customers, it also makes a great deal of sense to them. So, and our, I think we've got the right team. So right plan, right team, resonating for all the stakeholders that are involved in the process. So I mean, as it relates to whatever we said we thought we were gonna do next year, I think just from a macro basis, I think the fundamentals, in my view, are very solid. It's good to hear. Productivity per account has been a key metric for you, Glenn. I think you're at about 4.7 in the 2nd quarter. You know, what are the limiting factors for practices growing their utilization, and what are you doing to address that? What, what do you need to do to drive utilization? Yeah. Well, I mean, like, we've got, I think the most an account has done in a quarter is over 30. So I think that the range that we have in the upper quartile is between six and 25, or I guess now 30. And the average in that group is about 10. So, you know, the, the number that we're talking about is all established accounts. It gets diluted out every quarter by the addition of some number of accounts. So to the extent that we're overachieving on adding new accounts, that catches up and increases that denominator. I think the way that we increase the throughput of the accounts is to, to do the things that we're doing right now. That is to spend the time with the accounts to ensure that they've adopted best practices so that they can efficiently make this a standard offering as a lung hospital. We're specifically focusing on 8%-10% of the hospitals in the United States that are committed to be a lung hospital and making sure that they make this an efficient offering to their patients. Then after they've tapped into the opportunity that they have, to work together with them to connect with the referring physicians. We tend to do that more. We connect with the referring physicians and then introduce them to an array of hospitals in a given geography that are doing the procedure. They find whoever they're most comfortable with. Then once that geography is set up, begin to start pushing patients, you know, out of the 200,000 patients we're engaged with on social media. There are ways that we can move those. We've demonstrated in certain geographies that we can move them, and we have certain accounts that are at that stage, and so we're, you know, doing some of this in staggered parallel. That's helpful. We'll transition, Glenn, to my favorite topic, as you know. You can. You got it. So any update on, on, reimbursement here? I know you have approval- Yeah. You're just waiting for reimbursement. We got approval at the end of last year. We've been saying for some time now that we expect to have reimbursement by the end of this year. We're still on that path. I think the Japanese were remarkably predictable in us moving through the regulatory process, and fingers crossed, we're hoping that by the end of this year, in a predictable way, we'll have reimbursement sorted out. It's important to note that, though this is a big opportunity, Japan we peg is about 20% of the opportunity that exists in the United States, which specifically means about 100,000 patients, roughly a billion-dollar opportunity. We need to-- before we can tap into that in a traditional commercial way, the thing that's unique about Japan is that all-- the first 140 patients have to run through a clinical protocol. We've talked about this before in various different meetings. So we've already trained those accounts. We brought a global thought leader over from the Royal Brompton in London, did the first training of those lead physicians at some number of centers in Japan. We recently then had a second training where we brought Jerry Criner, who is one of the senior people in the global consensus guidelines called GOLD, who's out of Temple University Hospital, one of the best-known people in the United States. He went over there and led some training. So the good news is that we're moving forward at getting the treating sites in that study up and running. Undoubtedly, although not under the protocol, they're beginning to think about patients that are passing through their office. And so we hope to hit the ground running, but we expect at least a year to populate that trial. The good news is that these are the thought-leading sites in Japan, very probably the most hierarchical market that we will enter. So in some ways, this will serve us well to build that foundation. And then once we pop out of that, we expect the adoption curve in Japan, on a sort of opportunity-adjusted basis, to look very much like the U.S., France, Belgium, you know, all of Spain, all the countries... The United States is the first country in the world that we ever entered, any country with reimbursement, all the papers published in the global guidelines. Each of the countries we have entered since then have delivered a sort of a growth curve relative to the opportunity that looks the same as the United States. Interesting. We expect Japan to be there as well. So at least a year for those 140 patients? Yeah. So, I mean, it's hard to predict right now. I mean, it's probably— I imagine it's going to be slightly over a year. How much over that year? I don't know, but it's on that order. It will be a revenue-generating proposition for us, but it's $1.4 million, roughly- Right. of revenue that's going to be spread out Right over a year or 14, 16, I don't know, however, however many months. All right. And then switching gears to AeriSeal. Yeah. CONVERT-1, when should we expect to see the data next year? Yeah, well, so we just have to decide, you know, how and when we want to reveal it. The European Respiratory Society meeting is double the size of any other, you know, scientific meeting in the pulmonary space anywhere in the world. It happens in sort of the September timeframe. In fact, it's starting this weekend. Next year, we would anticipate that that's going to happen. We... CONVERT-1 is, you know. We fully enrolled it. We're in the follow-up phase. We're going to analyze those data and have them ready. There, I wouldn't be surprised if there's a publication that coincides with the actual presentation. Often, the top journals like to do that sort of thing, get a little press out of it. So we'll have to decide. We're not in a massive hurry. The first-level issue or opport... You know, situation for us is to really get the CONVERT-2 trial underway. That's going to be a global, multicenter, multinational study, and we're going to take great care to make sure that we don't get ahead on commercialization in certain international markets to a degree that it inhibits our ability to enroll patients in CONVERT-2. So we're not going into Germany until we've, you know, gotten all of our CONVERT-2 patients out of Germany. We're not going into France until we've gotten our CONVERT-2 patients out of France. So that's the plan. Okay. That's interesting. That—so that means that being able to commercialize AeriSeal outside the U.S., it's going to be kind of a little bit delayed, if you will, because you have CE mark. I was under the impression that CONVERT-1 finishes, you can take that to the payers and, you know, you can start commercializing AeriSeal outside the U.S. I didn't realize till CONVERT-2, if it's global, you want to recruit patients in Europe, so you want them to go in the clinical trial before, you know, they're commercialized. So we are a company that has built, I think, an extraordinary reputation with our clinicians on the back of the science that we've delivered. In this space, for a company to come to market with four randomized controlled trials- Right Across a spectrum of disease severity, to be published in the New England Journal of Medicine and the American Journal of Respiratory and Critical Care Medicine, is, is put us in an extraordinary position in the minds of our customers. And so it's very important that we, that we commercialize and commence commercialization in the second-largest geography in the world, which is Europe, in, in the right sort of way. So I would imagine that'll, that'll likely coincide with, at the very least, with us seeing the data and knowing it's a big win, which we anticipate it will be, but probably coinciding with the publication. So if we're publishing in September of next year, and we start enrolling in CONVERT-2 later this year, it's very possible that we could have all the patients we need in Europe under our belts in certain of these markets within that timeframe. We anticipate, and FDA has indicated to us, that they would like to see 50% of the patients in CONVERT-2 be in the US. And it's possible that the European patients could get into that study before we're done enrolling the US patients. That's helpful. CONVERT-2 will be a randomized controlled trial? There's a control arm? No. Did I say control? No, no. I apologize. The reason I'm asking is because if there's a control arm, I would think patients wouldn't want to- Yeah, that's a problem. Right. Okay. Um, and- It's an ethical problem, and that's why. I mean, it would be a randomized controlled trial if we could ethically execute such a trial. But given what we know at this point, and given what CONVERT-1 has revealed, this trial will be an open label trial. You know, like, it sounds like the CONVERT-2 IDE or whatever the trial itself, hasn't... Has it been finalized with FDA? So we've had very specific in-depth discussions with FDA around the protocol. But an IDE is more than just the clinical protocol that it supports. Though we acquired AeriSeal some number of years ago, and it had an open IDE and some preclinical work, some of the standards have changed, and so we've replicated that preclinical work, so we're checking all those boxes along the way with FDA. So though we can confidently commence enrollment outside the United States in CONVERT-2, at some point in the not too distant future, we're still checking the boxes, and we're probably gonna be... I would imagine our first patient, patients will be enrolled in the United States sometime in the first half of next year. But outside the U.S. before that? Likely. It's still a little confusing to me why you need CONVERT-2, given the strength of- Yeah -CONVERT-1. That's a U.S. FDA phenomenon. It's kind of like the, you know- At least the preliminary CONVERT-1 data. Yeah. Obviously, we haven't seen the- FDA, you know, you get a PMA, it's going to go to panel. They want, you know... ideally, they'd love to have a randomized sham-controlled trial. It's not an ethical option in this case, but they do like you to call your shot in advance. And so what that means is you go in, you talk to them about the nature of the protocol, what you're trying to accomplish. When we set out on CONVERT-1, it was a feasibility trial. We talked to customers in advance, and they said, "If you could convert 30%-50% of patients, that would be a win." We converted 80% of patients. And then, of course, the question was, are they, you know, are these patients going to look the same? We were, again, pleasantly surprised that when you put valves into these converted patients, they behave the same way as the patients did in the four randomized controlled trials. If you think about that, that was a discovery that we had in CONVERT-1. That's not enough in terms of calling your shot in advance for FDA. So this is not uncommon for them to require, again, for a PMA, for a new technology, for them to require us to properly lay out the protocol, even though it's very. You know, the good news is that if CONVERT-1 is a win, it gives you a lot of confidence around CONVERT-2, because CONVERT-2 looks a lot like CONVERT-1. That's interesting. Glenn, you know, I'm curious how you're thinking about leveraging your call point, which is relatively unique? Yeah. You know, early on, I think you had hired, you know, a head of strategy, business development, but, you know, it makes sense you've been focused on Zephyr. Has your thinking evolved, in terms of being able to leverage this unique call points you have with interventional pulmonologists? Well, we have a very unique call point. I mean, I think in some ways, it doesn't matter whether you're comparing us to little companies or big companies, and we have a footprint in 25 different countries. 97% of our business today is direct. So we've got... You know, we have our people talking to, you know, people, thought leaders around the globe. Having said that, we're just scratching the surface on this opportunity. We think the COVID blanket lifted roughly a year ago. We learned a ton. We refined our plan. We're executing against that plan, and we're building out a foundation. Do I think that our footprint is leverageable? Absolutely. I think there's a lot of, in some ways, our footprint, it might be our most unique asset, you know, in a way. It's incredibly expensive to build out a commercial organization on a global basis, and that commercial organization today is paying for itself with regard to the gross margin that we're generating. We're not paying for everything else yet, but this is something that is leverageable down the road. There are no assets that we find super interesting today that we could drop into our bag. But two years down the road, three years down the road, there may be new technologies that are presenting themselves that are scratching their heads, thinking about, "How are we going to commercialize this? You know, I-- who's going to give me another $100 million to build out this call point?" And we think there might be some opportunity for us to leverage what we have. That's, that's interesting. But it's down the road. We got plenty to do today to create value. No, that was loud and clear. Appreciate that. Derek, the cash position, profitability goals? ...Yeah, we feel good about our balance sheet today. We've got $148 million of cash equivalents on our balance sheet as of the end of last quarter. We only burned $8 million in cash at the end of the last quarter. So, I think we've got a very nice runway. We expect our cash burn to continue to decrease. So last year, we burned about $44 million in cash. This year will probably be closer to $40 million or so. And with our gross margin profile of, you know, low to mid-70s, right? 74%-ish, we, that gives us a lot of operating leverage. So we continue to expect to grow our sales at a rate much faster than we're going to grow our operating expenses this year. We're growing our sales 20%+. We're growing our operating expenses on a cash basis, around 10%. I think you can expect that to continue. We do expect to be able to get to cash flow breakeven. There's a clear pathway to get there with the capital that we have on hand, and we feel good about that so- Have you said what kind of revenue you need to break even, under the EBITDA or operating income basis? Yeah, you know, we, we've said, and we still think that, you know, roughly $150 million plus or minus run rate is where we can kind of get to a cash flow break even in our existing business. Got it. And Glenn, how has your thinking evolved, if at all, on the Dupixent data from Regeneron, you know, for COPD? You know, do you still see these as kind of complementary mechanisms of action between Dupixent and your Zephyr Valve? Yeah. So, I think it's important to note that COPD is an umbrella term under which there's chronic bronchitis, which is a productive cough for at least three months across two years. So, I mean, it's kind of. It's got this broad definition. And then also under the umbrella is emphysema. So in the first case, it's about mucus, hypersecretion, excess cough, and the like. Emphysema is a disease of tissue destruction and air trapping. There's a mechanical problem, you know, it's like having a one or two liter empty bottle sitting in your chest cavity, taking up space, inhibiting the ability of healthy tissue to expand in its space. Our procedure solves a mechanical problem. We go in and we take, effectively take out that trapped air and allow healthier tissue to expand in its space. So, that Dupixent is an interesting technology. It's completely unrelated to the trapped gas issue, and it's more related to, you know, sort of mucus production and the chronic bronchitis side of the equation. So the other thing is that they're targeting, I think, primarily, exacerbations, so sort of COPD exacerbations, and that's not been our primary focus either. So it's different mechanism of action, fundamentally different patient population. There is some overlap between the two, but I don't expect that we're going to lose any patients to Dupixent, and I don't expect that Dupixent is going to lose any patients to us. Okay. Competition, anything new from Olympus? No. No, Olympus is out there. We compete very well head-to-head against Olympus in every market that we serve. We have a very strong share position, again, in every market we're in. And lastly, China just been topical here. It's a small part of your business. Have you disclosed what percent of sales China is? Less. What have we said? Less than a couple of percent. Yeah, a couple percent Anything new there with these anti-corruption policies? Nothing specific to—I mean, our business has strengthened against some pretty weak comps over the last several years. But beyond... But it's still a very small part of our business, and no, nothing has fundamentally changed. I mean, we entered there with what we feel are good policies, and we've got a small team of people that are well-trained and executing. All right. Well, we'll end it there. Glenn and Derek, really appreciate you being here. Thanks for the update. Thank you very much. Thanks, Larry.