Pulmonx Corporation — Q1 2021 Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020 unless otherwise noted. Pulmonx is a commercial-stage medical technology company selling the Zephyr Valve and related assessment tools for severe emphysema.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $9.244 million | $8.618 million | +7.3% |
| Gross profit | $6.611 million | $5.650 million | +17.0% |
| Gross margin | 71.5% | 65.6% | +5.9 percentage points |
| Operating expenses | $18.638 million | $11.754 million | +58.6% |
| Loss from operations | $(12.027) million | $(6.104) million | Loss widened |
| Net loss | $(12.045) million | $(7.163) million | Loss widened |
| Basic and diluted loss per share | $(0.34) | $(3.76) | Share counts differ substantially |
| Net cash used in operating activities | $(9.672) million | $(9.849) million | Cash use slightly lower |
Revenue and expenses
- U.S. revenue was $4.289 million, down from $4.489 million, as the winter COVID-19 surge constrained hospital procedures.
- International revenue was approximately $4.955 million, up from approximately $4.129 million, reflecting recovery in some markets. Europe, Middle East and Africa revenue was $4.044 million; Asia Pacific revenue was $0.911 million.
- Research and development expense increased 93.9% to $3.034 million, primarily from personnel, clinical-trial, facility and other costs.
- Selling, general and administrative expense increased 53.1% to $15.604 million, including higher personnel and stock-based compensation, advertising, public-company insurance, and facility costs. Lower travel and conference expense partially offset the increases.
- Cost of goods sold fell 11.3% to $2.633 million. Management attributed the gross-margin improvement partly to unfavorable production variances in March 2020.
Cash, liquidity and debt
- At March 31, 2021, cash, cash equivalents and marketable securities totaled $221.6 million. The company reported an accumulated deficit of $254.8 million.
- Operating activities used $9.7 million of cash. Investing activities used $12.5 million, mainly for $12.3 million of marketable-security purchases and $0.2 million of property and equipment. Cash and cash equivalents declined $22.3 million during the quarter; the investment purchases contributed to the decline.
- The CIBC term loan had $17.0 million principal outstanding and a $16.8 million carrying value net of debt costs; a separate Swiss credit agreement had approximately $0.5 million outstanding. The filing describes the CIBC rate as floating and prime-linked, with principal payments beginning in 2022 and maturity extended to February 2025. Payments may be deferred to 2023 if a specified revenue threshold is met.
- Pulmonx reported compliance with CIBC covenants at quarter-end. The CIBC loan is secured by substantially all company assets. The filing also says the company could draw additional CIBC tranches subject to conditions.
Material changes and management outlook
- Revenue grew year over year, but operating and net losses widened as investment in commercial operations, research and development, and public-company costs increased.
- Management observed early signs of U.S. recovery in March 2021, while renewed European lockdowns stalled a modest international recovery. It anticipated improving sales in the second half of 2021, conditional on vaccine efficacy, availability and delivery and other societal responses. This is not quantified financial guidance.
- Management expects continuing net losses for the next several years and substantial investment in sales and marketing, product development and clinical programs. It believes current cash, cash equivalents and marketable securities will fund planned operations for at least 12 months from issuance of the financial statements; the filing cautions that assumptions may prove incorrect and additional financing may be needed.
- COVID-19 continued to delay and reduce procedures. Management noted that recovery may not be sustained, future procedure volumes may be affected by patient backlogs and hospital capacity, and the pandemic is expected to remain an adverse factor for the foreseeable future.
Risks, contingencies and unusual items
- The company relies heavily on the Zephyr Valve and on single-source suppliers for critical components; manufacturing is concentrated at its Redwood City facility.
- Coverage and reimbursement remain variable. Medicare generally covers procedures case by case, and some commercial plans do not consider the procedure medically necessary or require prior authorization.
- The filing describes serious potential treatment complications, including pneumothorax and, in rare cases, death. Adoption also depends on physician training, patient selection and clinical evidence.
- A former international distributor lawsuit alleges unfair competition and violation of exclusive distribution rights. The company stated it did not believe the matter would materially affect results or financial position. The risk-factor discussion also refers to litigation with a former distributor over termination compensation.
- The CIBC loan’s March 2021 amendment extended maturity and modified financial covenants. The filing says a prior amendment addressed certain post-close covenant noncompliance by extending the compliance date.
- The 2020 comparison includes a $0.4 million debt-extinguishment loss in interest expense, contributing to higher interest expense in Q1 2020. The IPO had closed in October 2020; the large increase in weighted-average shares makes year-over-year loss-per-share comparisons non-comparable without considering the share-count change.
Important facts for investors to verify
- Whether procedure volumes and revenue recover as management anticipated for the second half of 2021, particularly across the U.S. and European markets.
- Whether COVID-19 effects, hospital capacity constraints or patient backlogs continue to delay procedures.
- Cash burn against the stated 12-month runway, planned commercial and R&D spending, and any need for additional financing.
- The CIBC loan’s covenant terms, remaining borrowing availability and repayment schedule; the filing cites different Q1 interest-rate figures in separate disclosures (4.78% effective rate in the debt note and 4.25% in market-risk disclosure).
- Developments and potential financial exposure in the former-distributor litigation, and any changes in product safety, reimbursement or supplier availability.