Pulmonx Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 8, 2023. Pulmonx is a commercial-stage medical technology company selling the Zephyr Endobronchial Valve and related emphysema assessment products.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $14.5 million | $10.8 million; up 34.8% |
| Gross profit / margin | $10.6 million / 72.9% | $8.1 million / 75.2% |
| Operating expenses | $27.0 million | $23.8 million; up 13.5% |
| Operating loss | $16.4 million | $15.7 million |
| Net loss | $15.9 million ($0.42 per share) | $15.8 million ($0.43 per share) |
| Operating cash flow | $(12.6) million | $(15.0) million |
| Cash, cash equivalents and marketable securities | $155.5 million | At March 31, 2023 |
| Debt, net of discounts and issuance costs | $37.3 million | At March 31, 2023 |
U.S. revenue was $9.3 million, up from $6.0 million; international revenue was $5.2 million, up from $4.8 million. U.S. sales represented a larger share of revenue. Cash and cash equivalents were $110.4 million, with $45.1 million of marketable securities. Current assets were $181.3 million and current liabilities were $17.1 million.
Material changes versus the prior comparable period
- Revenue growth reflected higher U.S. Zephyr Valve procedure volumes and increased international volumes, partly offset by foreign-exchange effects.
- Gross margin declined 2.3 percentage points, primarily because of lower manufacturing capacity utilization and higher manufacturing costs.
- Research and development expense rose 20.3% to $4.3 million, including higher clinical-trial and product-development costs. Selling, general and administrative expense rose 12.3% to $22.7 million, mainly due to personnel, legal, travel and conference costs.
- Net loss was broadly unchanged year over year. Higher interest income largely offset increased interest expense and the larger operating loss.
- Operating cash use improved year over year. Financing provided $20.7 million, principally from a $20.0 million CIBC loan draw in February 2023; cash increased $8.7 million during the quarter.
Outlook, risks and unusual items
- Management expects continued net losses for the next several years and substantial investment in sales and marketing, research and development, clinical work and commercialization. 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 revenue or earnings guidance is provided.
- The CIBC loan has a floating rate of 1% above the Wall Street Journal Prime Rate; its effective annual rate was 9.6% at March 31, 2023. The loan is secured by substantially all company assets, matures in 2027, and includes minimum-cash and revenue covenants. Pulmonx reported compliance with all covenants at quarter-end.
- In December 2022, the company received a DOJ civil investigative demand concerning its relationships with certain healthcare providers, practices and hospitals in connection with Zephyr sales and marketing. Pulmonx is cooperating but cannot estimate the outcome or a reasonably possible loss; an adverse outcome could materially affect the business and financial results.
- Management cited recovery in U.S. and some international procedure volumes, while noting slower recovery in other markets, possible regional COVID-related disruptions and provider-capacity constraints. The company also identified reimbursement and adoption uncertainty, competition, reliance on single-source suppliers, manufacturing and inventory risks, and continued funding needs.
- Management states it has no material legal proceedings at this time; the DOJ investigation is separately disclosed as a contingency. Disclosure controls and procedures were considered effective as of March 31, 2023.
Important facts for investors to verify
- Whether procedure-volume growth and U.S. revenue momentum continue, and whether capacity utilization supports gross-margin recovery.
- Cash burn, available liquidity and funding needs relative to the stated 12-month runway and expectations for ongoing losses.
- Debt costs, covenant headroom and repayment obligations under the floating-rate CIBC facility.
- Developments in the DOJ investigation, including any assessment of potential financial, operational or compliance impact.
- Reimbursement coverage, hospital and physician adoption, and any supply, safety or regulatory developments affecting the Zephyr Valve.