Pulmonx Corporation

Good day and thank you for standing by. Welcome to the Palminix Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Elaine Morgan at Gilmartin Group.

Thank you, operator. Good afternoon, and thank you all for participating in today's call. Joining me from Pomonix are Glenn French, President and Chief Executive Officer, and Derek Sun, Chief Financial Officer. Earlier today, Pomonix issued a press release announcing its financial results for the fourth quarter and year ended December 31st, 2022. A copy of the press release is available on Pomonix's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends, commercial strategies, and future financial performance. The timing and results of clinical trials, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin operating expenses, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events that materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with the business, please refer to the risk factors section of our filings with the Securities and Exchange Commission included in our quarterly report on Form 10-Q followed with the SEC on November 8, 2022. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted in our investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. This conference contains time-sensitive information and is accurate only as of the live broadcast today, February 22nd, 2023. Plymouth claims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Glenn.

Thanks, Elaine. Good afternoon, everyone, and welcome to our fourth quarter and full year 2022 earnings call. Here with me is Derek Sung, our Chief Financial Officer. I'll begin with a few highlights to contextualize our fourth quarter and full year 2022 results before turning to our outlook and strategic priorities for 2023. 2022 was a foundational year for pulmonics in which we finally emerged after more than two years of intermittent disruptions into a more normalized environment that allows us to resume building the basis for long-term sustainable growth with a focus on developing our accounts to establish our Zephyr valve procedure as a standard of care for the treatment of patients with severe COPD. For the full year 2022, we achieved $53.7 million in worldwide sales, growing our business 11% as reported and 16% on a constant currency basis over 2021. Further, we delivered full year 2022 revenue in the US of $32.5 million, representing growth of 30% over 2021. On top of this, we also made substantial progress on our commercial and clinical initiatives, Specifically, we increased our U.S. commercial footprint in 2022, adding 64 new treating centers and thereby taking our total to 278 centers. And this provides a solid base as we focus increasingly on account development and penetration. We saw two encouraging clinical data readouts on our AeroSeal technology, our ongoing Convert multi-center multinational trial in Europe, and a single center feasibility study in Australia both revealed early signs that aerosol can successfully close air channels between lobes of the lungs, thereby allowing patients with collateral ventilation to be treated successfully with Zephyr valves. And lastly, we received regulatory approval for our Zephyr valve procedure in Japan and are presently working to establish reimbursement there later this year. To cap off the year, we ended the fourth quarter with global sales of $15.4 million, our highest quarterly revenue to date, driven by another record U.S. performance of $9.5 million in sales representing 30% growth over the same period last year. Looking ahead, we are focused on continuing to ensure our procedure is done efficiently and routinely in our target hospitals. While we expect some of the macro headwinds seen in 2022 to continue into this year, we are confident in our ability to push through these headwinds. We've made good initial progress increasing efficiency in our high potential accounts and intend to continue to ramp these efforts, maintaining our expectation that these will translate directly and substantially to revenue growth in the back half of this year. Taking this into account, we anticipate full-year 2023 revenue to be in the range of $63 to $65 million. As a reminder, our strategy is three-pronged. First, selecting training and launching accounts that we believe, based on our comprehensive assessment criteria, have the potential to be strong Zephyr Valve Centers. Second, increasing the efficiency and procedural capacity of our accounts by encouraging best practices. with our physician and administrative champions. And finally, increasing center volumes by building local awareness of the substantial benefits of Zephyr valves with both emphysema patients and the physicians who manage them, thereby developing a strong referral network. Relative to assessing and launching new accounts, we were pleased to add 17 new U.S. treating centers in the fourth quarter, bringing our total number to 278. While our focus will remain throughout 2023 on developing this cohort into high volume accounts, we expect to selectively identify and establish an additional 40 to 50 new accounts through the year. These will be accounts that are committed to developing a comprehensive ZephyrValve program to deliver clinical efficiency and excellence. Looking forward, we believe that account activity and account productivity will be the best metrics to measure our progress in increasing efficiency and sales across our existing base of U.S. treating centers. We define account activity as the percentage of trained treating centers that place a revenue generating order in a given quarter. In the fourth quarter of 2022, U.S. account activity was 73%, which represents a resumption of activity to a more normalized level in a post-pandemic environment. We expect that account activity will remain in the 75% range as we continue to grow our denominator of treating centers. We define account productivity as the average number of cases conducted in a given quarter by our active and established Zephyr Valve treating centers, which are those that have been performing Zephyr Valve procedures for at least three quarters and have placed a revenue generating order in the subject quarter. After emerging from the most recent wave of the COVID pandemic, the average productivity in our active established accounts across the last three quarters of 2022 ranged between four and five cases per quarter. More specifically, active established account productivity was approximately 4.8 cases in the fourth quarter of 2022. We see this as the most critical metric by which to measure the success of our account development strategy and expect to see the average account productivity in our active established accounts increase in the second half of the year as we realize the initial benefits from our refocus strategy. Importantly, we feel strongly that we can accomplish our commercial goals this year with our existing footprint of sales territories. which at year end consisted of 55 in the US and 36 internationally. While we expect to continue to opportunistically add sales resources and select geographies, we are confident that this team can effectively cover and grow our target markets. Part of our initiative to expand productivity focuses on building awareness of the benefits of Zephyr Valve Procedure among COPD physicians. To this end, we're pleased to have partnered with Medscape and the American College of Chest Physicians to launch physician education programs on Zephyr valves and are already seeing strong physician engagement in these programs. We expect these partnerships to continue to facilitate our efforts to increase awareness with COPD physicians on how Zephyr valves may substantially improve the lives of their patients with COPD and emphysema, and we intend to look for incremental opportunities to advance these collaborations. Beyond these initiatives, within existing markets, we are continuing to pursue ways to further tap into and expand what we believe to be a $12 billion global market opportunity. For this end, we received regulatory approval in Japan for our Zephyr Valve treatment late last year. Our team is now working diligently toward the establishment of reimbursement and the subsequent commercial market introduction in Japan, which we expect late this year. Also, as a reminder, we estimate Japan to be a billion-dollar market opportunity with approximately 100,000 patients who stand to benefit from our treatment. Further, and with regard to expanding our addressable market, we continue to view aerosol as a possible way to leverage the large number of severe COPD patients with collateral ventilation who are not candidates today for treatment with Zephyr valves. Last year, interim findings from our ongoing multicenter multinational convert trial showed Aracil successfully converted 78% of the first 40 patients in the study to having little to no collateral ventilation. These patients were then successfully treated with Zephyr valves. We expect a complete trial enrollment this year with final data presented next year. Also, learnings from the CONVERT trial contribute to our dialogue with FDA regarding an IDE and related clinical protocol that we expect to initiate before the end of this year. With that, I'll turn now, I'll now turn the call over to Derek to provide a more detailed review of our fourth quarter results.