Pulmonx Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited, with comparison to Q1 2021. Pulmonx is a commercial-stage medical technology company focused on severe emphysema. Its solution includes the Zephyr Endobronchial Valve, Chartis Pulmonary Assessment System and StratX Lung Analysis Platform.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $10.8 million | $9.2 million | Up 16.7% |
| Gross profit / margin | $8.1 million / 75.2% | $6.6 million / 71.5% | Margin up 3.7 percentage points |
| Operating expenses | $23.8 million | $19.1 million | Up 24.5% |
| Operating loss | $15.7 million | $12.5 million | Loss widened |
| Net loss | $15.8 million | $12.5 million | Loss widened 26.5% |
| Basic and diluted loss per share | $0.43 | $0.35 | Loss per share widened |
| Operating cash flow | $(15.0) million | $(9.7) million | Cash use increased |
Revenue growth was primarily driven by U.S. sales, up to $6.0 million from $4.3 million. International sales were $4.8 million versus $5.0 million; management cited COVID-19 effects and foreign exchange. By region, U.S. revenue was $6.0 million, EMEA $4.1 million and Asia Pacific $0.7 million. Gross-margin improvement was attributed primarily to production efficiencies.
Selling, general and administrative expense rose 26% to $20.2 million, reflecting higher personnel costs, including stock-based compensation, advertising, travel and conference costs, and facility and software expenses. Research and development expense increased 16.5% to $3.5 million. Stock-based compensation expense was $3.5 million, versus $2.3 million.
Financial position and liquidity
- Cash and cash equivalents were $129.2 million at March 31, 2022, down from $148.5 million at year-end. Marketable securities totaled $47.3 million; cash, cash equivalents and marketable securities together were $176.5 million.
- Total assets were $222.8 million and stockholders’ equity was $182.1 million. Accumulated deficit was $307.2 million.
- Total debt and credit agreements, net of debt discount and issuance costs, were approximately $17.4 million, including $16.9 million under the CIBC term loan. The CIBC loan bears a floating rate; its effective annual interest rate was 4.71% at quarter-end. Principal payments are scheduled to begin in February 2023, and the loan matures in February 2025. The company reported compliance with loan covenants.
- Net cash used in investing activities was $5.6 million, mainly reflecting net purchases of marketable securities and $0.6 million of property and equipment. Financing activities provided $1.3 million, primarily from employee stock purchase plan proceeds and option exercises. Cash, cash equivalents and restricted cash fell by $19.3 million during the quarter.
- Management said existing cash, cash equivalents and marketable securities should fund planned operations for at least 12 months from issuance of the financial statements. The company expects continued losses and negative operating cash flows and says additional funding may be needed longer term.
Changes, outlook and notable matters
- Q1 procedure volumes were adversely affected by the Omicron variant, followed by a recovery as treatment centers rescheduled procedures. Management cited new account openings, physician participation in virtual training, patient-pipeline indicators and renewed hospital acceptance of elective procedures as encouraging, but cautioned that recovery may not persist.
- No specific revenue, earnings or margin guidance was provided. Management expects net losses for the next several years and continued investment in sales and marketing, research and development, clinical programs and commercialization.
- Management estimates its solution addresses approximately 500,000 U.S. patients and 700,000 patients in selected international markets, with an estimated global opportunity of approximately $12 billion. These are company estimates, not reported financial results.
- The company relies on single-source suppliers for critical components and manufactures its products at its Redwood City headquarters. It reported building more than four months of inventory as a supply-protection measure.
- Disclosure controls were deemed ineffective at March 31, 2022 because an unremediated material weakness involved IT general controls, particularly user access and segregation of duties for systems supporting expenditure reporting. Management reported no material misstatement in the periods presented and said remediation work was ongoing.
- The filing describes two lawsuits involving the Swiss subsidiary and former distributors. Management characterized the claims as meritless and did not expect a material impact. The filing also identifies product-safety risks, including pneumothorax and, rarely, death; in the cited LIBERATE trial, pneumothorax occurred in 18%–34% of treated patients.
Key facts for investors to verify
- Whether U.S. revenue growth and the reported recovery in procedure volumes continue, particularly amid COVID-19 variants and hospital capacity constraints.
- Whether improved gross margin persists as sales mix, pricing, discounts and manufacturing costs change.
- Cash burn, working-capital needs and the timing or terms of any additional financing; management’s runway estimate depends on assumptions.
- Progress in remediating the material weakness and whether related controls operate effectively after testing.
- Developments in reimbursement coverage, clinical follow-up and product safety, single-source supply continuity, and the former-distributor litigation.