Pulmonx Corporation (Nasdaq: LUNG) — Q3 2021 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and nine months ended September 30, 2021. Pulmonx is a commercial-stage medical technology company focused on severe emphysema, selling the Zephyr Endobronchial Valve and related Chartis and StratX products and services. The Zephyr Valve is its principal revenue source.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $13.3M | $10.6M | $34.7M | $22.9M |
| Gross profit | $9.7M | $7.5M | $25.4M | $14.1M |
| Gross margin | 73.4% | 70.3% | 73.1% | 61.7% |
| Operating expenses | $19.5M | $12.8M | $60.3M | $37.1M |
| Operating loss | $(9.8)M | $(5.3)M | $(34.9)M | $(23.0)M |
| Net loss | $(10.2)M | $(3.9)M | $(35.7)M | $(22.9)M |
| Net loss per share, basic and diluted | $(0.28) | $(1.37) | $(0.99) | $(10.33) |
Cash flow and balance sheet. Cash used in operating activities was $30.7M for the first nine months of 2021, versus $23.4M in the comparable 2020 period. Investing activities used $17.1M, primarily for marketable securities and property and equipment; financing provided $4.3M, mainly from stock-option exercises and the employee stock purchase plan. Cash and cash equivalents were $188.1M at September 30, 2021, down from $231.6M at December 31, 2020. Including $14.6M of marketable securities, cash, cash equivalents and marketable securities totaled $202.6M.
Total assets were $246.8M and total liabilities were $44.0M. Term-loan and credit-arrangement carrying amounts totaled approximately $17.4M, net of debt discounts and issuance costs. Accumulated deficit was $278.4M. Management said available cash, cash equivalents and marketable securities were expected to fund planned operations for at least 12 months from issuance of the financial statements.
Material changes versus the prior comparable period
- Q3 revenue rose 25.0%; nine-month revenue rose 51.5%. Management attributed growth to higher procedure volumes and commercial adoption, including recovery from COVID-19 disruptions. Nine-month sales increased in both the U.S. and international markets.
- Gross margin improved by 3.1 percentage points in Q3 and 11.4 points for the first nine months. Management cited shipment growth and improved cost absorption; inventory write-downs were $1.0M for the nine-month period.
- Operating expenses increased substantially: Q3 by 52.2% and nine-month expenses by 62.6%, driven principally by sales, marketing and administrative personnel, stock-based compensation, advertising, clinical trials and public-company costs. The operating loss consequently widened.
- Interest expense fell, primarily reflecting lower debt and the prior-year convertible-note balance; however, other income/expense shifted from significant income in 2020 to expense in 2021 because of prior-year derivative-liability fair-value changes. The 2020 IPO conversion also makes reported per-share comparisons less directly comparable.
Outlook, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided. Management expects continued net losses for several years and substantial investment in commercialization, sales and marketing, research and development, clinical programs and public-company infrastructure. It states that additional funding may ultimately be required.
- COVID-19: Q3 U.S. procedure volumes were adversely affected in some regions by the Delta variant; international volumes improved as cases declined in certain markets. Management cautions that recovery may not be sustained and that variants, hospital capacity constraints or labor shortages could further affect procedures and results.
- Debt update: On October 21, 2021, after quarter-end, Pulmonx amended its CIBC loan to extend the interest-only period from 24 to 36 months; principal payments are to begin in February 2023. The interest rate and maturity date were unchanged. The company reported compliance with CIBC covenants at September 30, 2021.
- Reporting correction: The company identified an immaterial understatement of accrued liabilities and SG&A related to social-contribution expenses on stock-option exercises in earlier 2021 quarters. It revised the affected comparative information in this filing and said amendments to those prior 10-Qs were not required.
- Risks and contingencies: Key risks include procedure disruption and elective-care dependence, reimbursement and adoption, competition, product complications (including pneumothorax), reliance on single-source suppliers and a single manufacturing site, and continued losses and cash burn. A former international distributor lawsuit is disclosed; management did not expect a material financial impact. Management reported disclosure controls were effective at quarter-end.
Most important facts for investors to verify
- Whether revenue and procedure-volume recovery persisted after Q3, particularly in U.S. regions affected by COVID-19.
- Whether gross-margin improvement can continue as volumes, geographic mix, pricing and inventory write-downs change.
- Cash-burn trajectory and the timing of any need for additional capital, alongside the terms and covenant requirements of the CIBC loan.
- Progress in expanding reimbursement coverage, hospital and physician adoption, and clinical programs, including the long-term Zephyr Valve follow-up study.
- Whether supply-chain concentration, product-safety risks, or the disclosed distributor litigation results in material operational or financial consequences.