Pulmonx Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Pulmonx is a commercial-stage medical technology company focused on severe emphysema, primarily through its Zephyr Endobronchial Valve, supported by the Chartis System and StratX Platform.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $17.2 million | $14.0 million | $31.7 million | $24.7 million |
| Gross margin | 74.1% | 74.7% | 73.5% | 74.9% |
| Operating expenses | $29.2 million | $24.8 million | $56.2 million | $48.6 million |
| Operating loss | $16.4 million | $14.4 million | $32.8 million | $30.1 million |
| Net loss | $16.2 million | $14.6 million | $32.1 million | $30.5 million |
| Net loss per share | $0.43 | $0.40 | $0.85 | $0.83 |
- Q2 revenue grew 23.3% year over year; management attributed growth to higher Zephyr Valve procedure volumes in the U.S. and international markets. U.S. revenue was $11.0 million and international revenue was $6.2 million.
- Q2 cost of goods sold increased 26.3%, faster than revenue, and gross margin declined 0.6 percentage points. Management cited lower manufacturing capacity utilization and costs to support anticipated growth.
- For the first six months, operating cash flow used was $20.5 million, compared with $24.6 million in 2022. Investing activities used $0.2 million; financing activities provided $20.8 million, primarily from a $20.0 million CIBC loan draw. Cash, cash equivalents and restricted cash ended the period at $102.0 million.
- Cash, cash equivalents and marketable securities totaled $147.6 million at June 30. Debt and credit agreements, net of debt discount and issuance costs, were reported at $37.2 million. The CIBC term loan carries a floating rate; its annual effective interest rate was 9.9% at June 30.
- Total assets were $193.1 million and total liabilities were $59.2 million. The accumulated deficit was $382.4 million.
Material changes versus the prior comparable period
- First-half revenue rose 28.3%; U.S. revenue increased to $20.4 million from $14.6 million, while international revenue increased to $11.4 million from $10.1 million.
- First-half R&D expense rose 39.8% to $10.0 million, reflecting higher clinical-trial, personnel, and product-development costs. SG&A rose 11.4% to $46.2 million, primarily due to personnel-related expenses, professional fees, travel, and conferences.
- First-half net loss widened by $1.6 million. Higher interest income partly offset higher operating expenses and interest expense.
- Gross margin fell 1.4 percentage points for the first half, which management attributed primarily to lower capacity utilization.
- Long-term debt increased following the February 2023 draw of $20.0 million under the CIBC facility. Shares outstanding increased to 38.0 million from 37.6 million at December 31, 2022; stock-based compensation was $10.5 million for the first half.
Outlook, risks and contingencies
- Management expects continued net losses for several years and anticipates substantial investment in sales and marketing, R&D, clinical programs, and product development. It expects existing cash, cash equivalents and marketable securities to fund planned operations for at least 12 months from issuance of the financial statements. No specific full-year revenue or earnings guidance is provided in the filing.
- The company says it may require additional capital and may seek debt or equity financing. It cautions that available capital could be used sooner than expected and future financing may be unavailable or dilutive. The filing reports compliance with CIBC covenants as of June 30; the facility includes minimum cash and revenue requirements and is secured by substantially all company assets.
- In December 2022, the company received a DOJ Civil Investigative Demand concerning an investigation under the Anti-Kickback Statute and False Claims Act. It is cooperating but cannot assess the outcome or estimate reasonably possible losses; an adverse outcome could materially affect the business and financial condition.
- Key risks include dependence on the Zephyr Valve, reimbursement and adoption uncertainty, procedure-related complications, competition, reliance on single-source suppliers and a single manufacturing site, clinical and regulatory risks, and ongoing losses and cash use. The filing also identifies seasonality and exposure to inflation, foreign exchange, and interest rates.
- Management reported disclosure controls and procedures were effective as of June 30, 2023 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether procedure-volume growth continues and whether revenue growth can translate into improved gross margin and reduced operating losses.
- Cash consumption, financing needs, and ongoing compliance with CIBC liquidity and revenue covenants, including the cost of floating-rate debt.
- Developments in the DOJ investigation, including any change in the company’s ability to estimate potential exposure.
- Coverage and reimbursement developments, especially Medicare’s case-by-case coverage and commercial payor policies.
- Whether clinical, safety, regulatory, manufacturing, and single-source supplier risks affect adoption or product availability.
- The filing contains differing statements about cyber insurance: one passage says the company carries cyber insurance, while another says it does not. Clarify the current coverage.