Pulmonx Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results. Pulmonx is a commercial-stage medical technology company focused on severe emphysema treatment, principally through its Zephyr Endobronchial Valve, supported by its Chartis System and StratX Platform.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $17.7m | $13.5m | $49.4m | $38.2m |
| Gross profit | $13.0m | $10.2m | $36.4m | $28.7m |
| Gross margin | 73.7% | 75.2% | 73.6% | 75.0% |
| Operating loss | $(15.2)m | $(13.9)m | $(48.0)m | $(44.0)m |
| Net loss | $(14.9)m | $(14.2)m | $(47.0)m | $(44.6)m |
| Net loss per share, basic and diluted | $(0.39) | $(0.38) | $(1.24) | $(1.21) |
Revenue mix: Q3 U.S. revenue was $11.8m, EMEA $4.9m, Asia Pacific $0.8m and other international $0.2m. Management attributed growth to higher Zephyr Valve procedure volumes in the U.S. and international markets. International revenue was 34.8% of nine-month revenue, down from 39.8% a year earlier.
Cash flow and liquidity: For the first nine months, operating cash use was $29.2m, compared with $35.3m in 2022; investing activities provided $0.7m and financing activities provided $21.4m, principally from a $20.0m CIBC loan draw. Cash and cash equivalents were $94.9m and marketable securities were $44.8m at September 30, for total cash, cash equivalents and marketable securities of $139.8m. The company reported $37.2m of debt, net of discount and issuance costs. Current assets were $147.4m and current liabilities $20.5m.
Material changes versus prior comparable periods
- Revenue increased 30.9% in Q3 and 29.2% for the nine-month period. U.S. revenue growth was the largest contributor.
- Gross margin declined 1.5 percentage points in Q3 and 1.4 points year to date, primarily due to higher scrap and inventory reserve expense; cost of goods sold rose faster than revenue.
- Q3 selling, general and administrative expense rose 21.6%, mainly from personnel costs, including stock-based compensation, and legal and professional expenses. Nine-month R&D expense rose 23.4%, including higher clinical trial and product development costs.
- Net loss widened 5.1% in Q3 and 5.2% year to date. Higher interest income partly offset increased operating expenses and interest expense.
- Long-term debt increased from $17.2m at December 31, 2022 to $37.2m at September 30, 2023, largely reflecting the February 2023 $20.0m borrowing. CIBC debt bears a floating rate; its annual effective interest rate was 10.1% at quarter-end.
- Stock-based compensation was $16.5m for the first nine months, versus $12.2m in 2022. Outstanding common shares increased to 38.3m from 37.6m at year-end 2022.
Outlook, risks and unusual items
- No specific revenue, margin or earnings guidance is provided. Management expects continued net losses for the next several years and substantial investment in commercial expansion, R&D and clinical programs. It believes existing cash, cash equivalents and marketable securities will fund planned operations for at least 12 months from the financial statement issuance date, but says estimates depend on assumptions and additional financing may be needed.
- The company was in compliance with CIBC loan covenants at September 30, 2023. The loan is secured by substantially all company assets and includes minimum cash and revenue covenants; future debt or equity financing is not assured and could constrain operations or dilute shareholders.
- A DOJ Civil Investigative Demand received in December 2022 concerns an investigation under the Anti-Kickback Statute and False Claims Act regarding relationships with certain healthcare providers, practices and hospitals. Pulmonx says it is cooperating, but cannot estimate a reasonably possible loss; an adverse outcome could materially affect the business and financial condition.
- Key operating risks include reliance on the Zephyr Valve as the principal revenue source, case-by-case reimbursement for some patients, competition, procedure-related complications, dependence on single-source suppliers, manufacturing and inventory risks, and foreign currency exposure. The filing also highlights cybersecurity, regulatory and clinical-development risks.
- Management reported effective disclosure controls as of September 30, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether procedure-volume growth can continue and translate into improving gross margins despite elevated scrap and reserve costs.
- Cash burn, forecast runway and financing needs, including the impact of floating-rate debt and CIBC covenant requirements.
- Developments in the DOJ investigation, for which the company has not estimated a potential loss.
- Reimbursement coverage, adoption and safety trends for the Zephyr Valve, and progress of clinical and product-development programs.
- Supplier continuity, inventory adequacy and the effect of stock-based compensation and equity issuance on shareholder dilution.