Pulmonx Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise stated.
Business context
Pulmonx is a commercial-stage medical technology company focused on minimally invasive treatment for severe emphysema. Its solution includes the Zephyr Endobronchial Valve, Chartis Pulmonary Assessment System and StratX Lung Analysis Platform. The filing describes Q2 sales recovery from pandemic-related procedure disruptions, but results remain exposed to procedure volumes, reimbursement and market adoption.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $12.2 | $3.7 | $21.4 | $12.3 |
| Gross profit | $9.0 | $1.0 | $15.6 | $6.7 |
| Gross margin | 74.0% | 27.6% | 72.9% | 54.2% |
| Operating expenses | $21.1 | $12.5 | $39.8 | $24.3 |
| Operating loss | $(12.1) | $(11.5) | $(24.1) | $(17.6) |
| Net loss | $(12.4) | $(11.9) | $(24.4) | $(19.1) |
| Net loss per share, basic and diluted | $(0.34) | $(6.15) | $(0.68) | $(9.93) |
- Revenue mix, Q2: U.S. revenue was $6.6 million and EMEA revenue was $4.7 million; Asia Pacific contributed $0.9 million. International revenue overall was $5.6 million.
- Cash flow, six months: Operating activities used $22.4 million; investing activities used $13.7 million, mainly for marketable securities; financing activities provided $3.3 million, principally from option exercises and the employee stock purchase plan. Cash and restricted cash decreased $32.9 million.
- Liquidity at June 30: Cash and cash equivalents were $198.7 million, marketable securities were $12.8 million, and cash, cash equivalents and marketable securities totaled $211.5 million. Current assets were $233.1 million versus current liabilities of $16.3 million.
- Debt: The CIBC term loan was $16.8 million net of debt discount; together with the Swiss credit agreement, financing obligations were approximately $17.4 million net. The term loan matures in February 2025, with principal payments scheduled to begin in March 2022, potentially extendable to March 2023 subject to a revenue condition. The company reported covenant compliance at June 30.
- Equity: Accumulated deficit was $267.2 million; stockholders’ equity was $209.9 million. Common shares outstanding were 36.6 million at June 30.
Material changes versus comparable periods
- Q2 revenue increased 232% year over year; first-half revenue increased 74%. Management attributed the increases mainly to recovery in procedure volumes from the low levels early in the COVID-19 pandemic in 2020.
- Gross margin improved substantially, which management attributed to higher shipments and more favorable production variances than during pandemic-affected Q2 2020.
- Operating expenses rose materially: Q2 R&D increased 146% and SG&A increased 59%; for the first half, R&D increased 119% and SG&A increased 56%. Higher staffing and stock compensation, clinical trial costs, marketing, public-company insurance and facilities contributed.
- Net losses widened year over year despite the Q2 revenue rebound, as expense growth exceeded gross-profit growth. Q2 2020 also included a $3.0 million deferred IPO-cost write-off in SG&A, affecting comparability.
- Per-share loss comparisons are affected by the 2020 IPO and the conversion of preferred stock and convertible notes into common stock; weighted-average shares increased substantially.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expects continued net losses for several years, ongoing investment in sales and marketing, R&D and clinical programs, and potentially a need for additional financing. It believes existing cash, cash equivalents and marketable securities can fund planned operations for at least 12 months from issuance of the interim financial statements.
- COVID-19 remained a material uncertainty: U.S. procedure recovery continued through Q2, while European markets faced spring lockdown pressure and a June recovery. Resurgent cases, hospital capacity constraints and patient backlogs could again affect demand.
- Key business risks include dependence on Zephyr Valve sales, adoption and reimbursement uncertainty, competition, limited long-term clinical data, device-related complications, reliance on single-source suppliers, and manufacturing concentration at the Redwood City facility.
- The filing describes a former international distributor lawsuit alleging unfair competition and violation of exclusive distribution rights; management said it did not expect a material effect. The filing also identifies product-liability, regulatory, intellectual-property, cybersecurity and foreign-exchange risks. The company reported no material change in contractual obligations and no material off-balance-sheet arrangements.
- Unusual period items include increased stock-based compensation ($4.6 million for the first half versus $0.4 million in 2020) and $0.7 million of inventory write-downs for the first half. The 2020 Notes had converted to common stock at the IPO in October 2020; no such notes remained outstanding at June 30, 2021.
Important facts for investors to verify
- Whether procedure-volume recovery and revenue growth persisted after Q2, particularly amid COVID-19 variants and international market disruption.
- Whether gross margin can be sustained as product volumes, geographic mix, pricing and discounts change.
- Cash burn and the timing of any additional financing, including the effect of planned commercial, clinical and R&D investments.
- Compliance with CIBC covenants, borrowing availability and the conditions for any additional loan tranches or delayed principal repayment.
- Coverage and reimbursement progress, and longer-term safety and effectiveness evidence for the Zephyr Valve, including required follow-up studies.
- Supply continuity from single-source suppliers, inventory quality and the company’s ability to scale manufacturing without disruption.