Pulmonx Corporation — Q2 2022 Form 10-Q
Business context and reporting period
Pulmonx is a commercial-stage medical technology company focused on severe emphysema, selling the Zephyr Valve and related Chartis and StratX products. This unaudited report covers the three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods unless noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $14.0 million | $12.2 million | $24.7 million | $21.4 million |
| Gross profit / margin | $10.4 million / 74.7% | $9.0 million / 74.0% | $18.5 million / 74.9% | $15.6 million / 72.9% |
| Operating loss | $(14.4) million | $(12.7) million | $(30.1) million | $(25.2) million |
| Net loss | $(14.6) million | $(13.0) million | $(30.5) million | $(25.5) million |
| Net loss per share, diluted | $(0.40) | $(0.36) | $(0.83) | $(0.71) |
| Cash used in operating activities | Not provided separately | Not provided separately | $(24.6) million | $(22.4) million |
At June 30, 2022, cash and cash equivalents were $121.9 million and marketable securities were $44.8 million, totaling $166.8 million in cash, cash equivalents and marketable securities. Total assets were $212.7 million, current assets $192.8 million, and current liabilities $20.4 million. Debt and credit agreements, net of debt discount and issuance costs, totaled $17.4 million; the CIBC term loan had a 4.71% effective annual interest rate. The company reported an accumulated deficit of $321.9 million.
Material changes versus the prior comparable period
- Q2 revenue grew 14.3%; U.S. revenue increased $2.0 million, while international revenue declined $0.3 million, with foreign exchange cited as a factor in the international decrease. For the first half, revenue grew 15.3%, led by a $3.8 million increase in the United States; international revenue declined $0.5 million.
- Gross margin improved, which management attributed primarily to production efficiencies.
- Q2 operating expenses rose 14.4%, driven largely by a $3.0 million increase in selling, general and administrative costs. First-half SG&A increased 21.0%; higher personnel and stock-based compensation, advertising, travel and conference costs were key drivers.
- First-half net loss increased 19.6%, and operating cash use increased to $24.6 million from $22.4 million.
- Cash, cash equivalents and restricted cash declined $26.5 million during the first half. Inventory increased to $19.2 million from $16.3 million at year-end, partly reflecting production to support anticipated sales.
Outlook, risks and unusual items
Management expects continued net losses for the next several years and says substantial additional funding may be required. It believes existing cash, cash equivalents and marketable securities are sufficient to fund planned operations for at least 12 months from issuance of the interim financial statements. No numerical revenue or earnings guidance is provided.
Management reported some recovery in procedure volumes in the U.S. and larger international markets during Q2, but slower recovery in smaller international markets, including continuing lockdowns in China. COVID-19, hospital and provider capacity constraints, reimbursement uncertainty, competition, reliance on the Zephyr Valve, and single-source suppliers remain significant risks. The company also cited inflationary pressure on labor, transportation and other costs, and foreign-exchange exposure; it does not currently hedge currency exposure.
A material weakness in internal control over financial reporting remained unremediated at June 30, 2022, involving IT user access and segregation of duties for systems supporting expenditure reporting. Management said the weakness had not caused a material misstatement in the periods presented and that remediation work was ongoing; disclosure controls were deemed ineffective. Management reported covenant compliance at June 30, 2022. It reported no pending claims believed likely to have a material adverse effect, while risk disclosures describe former-distributor litigation in Switzerland that management considers meritless and not expected to be material.
Important facts for investors to verify
- Whether U.S. procedure growth continues and international revenue stabilizes despite COVID-related disruption and foreign-exchange effects.
- Whether improving gross margin persists as sales grow and as product mix, pricing, discounts and manufacturing costs change.
- Cash burn relative to the $166.8 million cash and securities balance, and the assumptions behind management’s 12-month liquidity assessment and possible future financing needs.
- Debt terms, future repayment requirements, floating-rate exposure and continued compliance with CIBC covenants.
- Progress and testing evidence for remediation of the material weakness in financial reporting controls.
- Developments in reimbursement coverage, clinical follow-up, product safety, supplier continuity and the disclosed Swiss distributor litigation.