Pulmonx Corporation (LUNG) Earnings Call Transcript & Summary

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to Pumonik's second quarter 2026 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. ask a question during this session, you would need to press star 11 on your telephone and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the call over to Webb Campbell.

investor relations. Please go ahead. Good afternoon, and thank you for joining today's call. Joining me from Palmonix are Glenn French, President and Chief Executive Officer, and Derek Sun, Chief Operating Officer and Chief Financial Officer. Earlier today, Palmonix issued a press release announcing its financial results for the quarter-ended June 30th A copy of the press release is available on the Palmonix website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of the of future events, results, or performance are forward-looking statements. All forward-looking statements, including, without limitations, those related to our operating trends, strategies and future financial performance including long-term outlook and full year 2026 guidance the timing and results of clinical trials and physician engagement, expense management, market opportunity, guidance for revenue, gross margin, operating expense, cash usage, commercial expansion, and product demand, adoption and pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on May 4, 2026. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on our investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, July 29th, 2026. Palmonix disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information future events or otherwise. And with that I will turn the call over to Glenn.

Thank you, Webb. Good afternoon, everyone, and welcome to our second quarter 2026 earnings call. Here with me is Derek Sung, our Chief Operating Officer and Chief Financial Officer. Overall we are very pleased with the progress we are making against our three key priorities of re-accelerating sales growth, driving near-term operating leverage, and advancing our market expanding clinical initiatives. Pulmonix delivered total worldwide revenue of $22.8 million in the second quarter of 2026, consistent with our expectations as our efforts to regain commercial traction play out as anticipated. We remain confident in our ability to achieve our previously communicated revenue guidance of $90 to $92 million for the full year 2026 and remain on track to return to global sales growth later in the year. We made a commitment at the start of this year to deliver meaningful operating leverage through our cost alignment initiatives, and I am pleased that the impact of our actions is now clearly evident in our results this quarter. We have actively reduced our year-over-year adjusted EBITDA loss by nearly 40% to $5.1 million in the second quarter of 2026, and Derek will provide further details later in the call. Today, I'm pleased to report progress across our remaining two priorities, reaccelerating sales growth and advancing our market-expanding clinical initiatives. I will address each of these in turn, starting with our progress on driving U.S. sales growth. Our organization has made great strides in building and maintaining the right people and the right culture in the U.S., which we consider to be a foundational element of re-accelerating revenue growth in the region. I remain encouraged by our progress in this respect. We have now filled all of our sales leadership positions, and those leaders are making rapid progress and rounding out our U.S. field sales team with top talent. We've also seen marked improvement in our commercial team culture as priorities have become clear and incentives are better aligned with our corporate objectives. Sales turnover has normalized, consistent with industry standards, and we are thrilled with the team that we have in place. As the newer members of our team continue to ramp, we expect U.S. sales growth to build through the back half of the year. Our emphasis remains on disciplined execution of the highest impact selling activities consistent with the near to far framework we've outlined previously. To reiterate, this means one, setting up high quality and efficient valve programs. Two, engaging with and educating physicians who treat COPD and who are aligned with hospital systems offering Zephyr valves. Three, concentrating on direct-to-patient efforts specifically on geographies with established treating centers that have the capacity to accommodate interested patients, and finally, four, continuing to work together with our champions to educate service line administrators to ensure appropriate resourcing of their programs. In my interactions with our sales managers and members of our field team, I see a re-energized unit intensely focused on impacting the lives of patients. During meetings with treating physicians and administrators, I hear about hospitals focused on driving value for patients and their systems resources and processes to scale and expand referral networks. These meetings have validated my conviction that sharper focus on fewer initiatives is helping accelerate growth by focusing on what matters most. With respect to our international business, we continue to see strength and stability across international markets, which delivered 9% year-over-year constant currency revenue growth, excluding China. Related to China, we are pleased to share that in mid-June, we secured the renewal of our Chinese registration certificate. With this hurdle behind us, we look forward to resuming shipments to our Chinese distributor by early next year. For the balance of this year, we will be focused on restarting commercial activity in this region. Turning to our second priority, expanding our addressable market through AeroSeal remains a central focus. Enrollment in our Convert-2 pivotal trial is progressing and we continue to expect to complete enrollment in 2027. We We believe that AeroSeal represents a TAM expansion tool for our Zephyr valves and a future revenue contributor with the ability to expand our addressable market by roughly 20% globally. In closing, while 2026 is a year of execution and transition, we're very pleased with our pace of progress, and we have strong conviction in our strategy to refine execution and further penetrate the substantial remaining market opportunity for our products. The organization remains aligned and focused on the priorities that matter most. We're confident in our underlying strength of this business and the opportunity in front of us and in our ability to deliver sustainable, profitable growth as our year-over-year trends continue to strengthen. With that, I will turn the call over to Derek to provide more detailed review of our second quarter results.

Thank you, Gwen, and good afternoon, everyone. I'd like to start by highlighting the significant progress that we've achieved in driving operating leverage through our P&L. This was a commitment that we had made at the start of the year when we implemented our cost alignment initiative to reduce recurring operating expenses by over 10% while still maintaining investments in our key growth initiatives. As a result of these initiatives, I'm pleased to report that net loss for the second quarter of 2026 was $10.1 million, a reduction of 34% as compared to a net loss of $15.2 million in the same period of the prior year. Net loss per share was 24 cents, down from a loss of 38 cents per share in the prior year period. And most importantly, adjusted EBITDA loss, which excludes non-cash stock-based compensation expense, for the second quarter of 2026 was $5.1 million compared to $8.4 million in the same period of the prior year. This nearly 40% reduction in adjusted EBITDA loss clearly demonstrates the progress we've made in realizing near-term operating leverage as we work to re-accelerate sales growth. This operating leverage, combined with the recent restructuring of our credit facility, which extends the maturity of our debt to 2031 and provides us with access to an additional $20 million in undrawn capital subject to certain revenue milestones, has meaningfully strengthened our balance sheet. We ended June 30th, 2026 with $55 million in unpaid capital. million in cash and cash equivalents, a decrease of $5.8 million from March 31, 2026. We continue to expect to burn roughly $23 million of cash for the full year 2026, which would be nearly a 30% reduction from our cash burn in 2025. Turning back to the top line, total worldwide revenue in the second quarter of 2026 was $22.8 million, a 5% decrease from $23.9 million in the same period last year, and a decrease of 6% on a constant currency basis. U.S. REVENUE IN THE SECOND QUARTER WAS $14.2 MILLION. A 4% DECREASE FROM $14.7 MILLION DURING THE SAME PERIOD OF THE PRIOR YEAR. a 7% sequential increase from the first quarter of 2026. we added 12 new U.S. treating centers during the quarter. International revenue in the second quarter of 2026 was $8.6 million, a 6% decrease from $9.1 million during the same period last year, and a decrease of 9% on a constant currency basis. The decline in international revenue was fully attributable to the lack of sales to our distributor in China. Excluding China, we continue to see solid performance across our other international markets, which grew 12% as compared to the same period last year and 9% on a constant currency basis. As Glenn mentioned, we are pleased to have now received renewal of our Chinese registration certificate and look forward to ramping our commercial activities in the region and resuming distributor shipments by early next year. Gross margin for the second quarter of 2026 was 78% compared to 72% in the prior year period. The year-over-year increase was driven by a lower mix of distributor sales in our international markets as well as greater overhead absorption and cost efficiencies across our supply chain. Moving forward, we now expect gross margin for the full year of 2026 to be approximately 76% as we expect to continue to realize some of these benefits throughout the remainder of the year. Total operating expenses for the second quarter of 2026 were $26.8 million, a 16% decrease from $32 million in the same period last year. Non-cash stock-based compensation expense was $3.7 million in the second quarter of 2026. Excluding stock-based compensation expense, operating expenses in the second quarter of 2026 decreased 11% from the same period of the prior year. The decrease in operating expenses reflects the cost reduction efforts that we initiated at the start of the year, and we remain on track to meaningfully reduce our expense trajectory in 2026 while maintaining investments in our key growth initiatives. To that end, we now expect full-year 2026 operating expenses to fall between $109 and $111 million, inclusive of approximately $15 million of non-cash stock-based compensation expense. The reduction in our operating expense guidance primarily reflects a reduction in stock-based compensation expense due to the fair value of our shares. R&D expenses for the second quarter of 2026 were $5 million compared to $5.3 million in the second quarter of 2025. Selling, general, and administrative expenses for the second quarter of 2026 were $21.8 million compared to $26.7 million in the second quarter of 2025. Finally, turning to our revenue outlook for 2026. We are reiterating our expectation of full year 2026 revenue in the range of 90 to 92 million dollars. As a reminder, our business typically experiences seasonality that results in a sequential decrease in sales in the third quarter of the year as compared to the second quarter. Despite this seasonality, we continue to expect to return to year-over-year growth later this year as we anniversary the impact of the suspension of China shipments in our international business and as we see improvements to our U.S. business from our recently filled sales positions and our refocused commercial strategy. To conclude, we entered 2026 with a clear plan to improve the trajectory of our business, and we are pleased with the progress that we have made as reflected in our second quarter results. We will remain focused on the work ahead, ramping our sales organization, advancing our clinical programs, and delivering the financial leverage we've committed to. We are confident in the strength of our business and in our team's ability to execute. With that, I'd like to thank you all for your attention, and we will now open the call for questions. Operator?.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. The first question will come from Rick Wise with Stiefel. Your line is now open.

Thank you and hi Glenn, hi Derek. Good to see the progress here. Maybe just to start off, maybe you could dig a little deeper into the Salesforce positive evolution here, all the leadership positions filled. I just wanted to be sure I'm understanding, have you filled all the sales positions you want, or that's still something in progress, and just how much more to go on that front?.

Hi, Rick. This is Glenn. So we are... We are filling the sales positions. We have a normal amount of turnover that happens in medical device companies. I think the average is non-trivial that happens as a backdrop. What we faced last year was a doubling or a tripling of what would be considered normal. So we're back on a normal trajectory. We are in the process of, you know, the positions that were open when we got here were filled and in the normal course of things either due to departures based on the reps decision or based on our decision, there's a normal process that happens and we're back to normal again as it relates to that.

Great. And, you know, Glenn, I know you've talked in the past about it takes six to nine months, if I'm remembering correctly. Please correct me if I'm wrong. It takes six to nine months for sort of the average sales guy to sort of get up and running and start to contribute to Katria, where are you, I don't know how to ask it, on average now with the folks you've hired since you and Derek returned to Pomonix, Do you get to that sort of more optimal nine-month range this year on average for the group, the new group? Or maybe just give us a little more color when we should really start to expect to see much more visible impact from the team.

Well, I think we're starting to see visible impact from the team. Let me just start there. Whether it be the step up from the first quarter, the second quarter on a sequential basis, or whether perhaps more importantly, the step up we see in some of the other indicators that we look at across the board, frankly. we see folks coming up to speed. The six to nine months is what is correct in terms of what we've seen historically. We've made some very, I think, constructive changes to our sales training process, which I think will, that may modify that six to nine months. I'm not going to claim that it'll happen, but I'm very excited about the combination of levering, leveraging some of the field sales trainers, bringing in new resources to, um, kind of take our sales training to another level and as a result perhaps bring people up more quickly. The other thing that we have in place today that we didn't frankly have in place in the same way when I was last here roughly two years ago is a bench. The We have territory account managers who, you can think of as sort of junior reps who are able to come up to speed quite quickly because they're working under a territory manager. And those folks in some cases, actually in a lot of cases over the last couple of years have been able to step into some of these openings along the way into these territory manager openings and do a really great job. Anyway, there's a lot of things that are happening that may tighten that up, but I think you know me well enough. I'm not going to claim a win on that front until we have some amount of history in the rear view.

No, I appreciate that. And Glenn, on China, the registration is accepted. That's maybe just talk to us a little about the steps you're taking, just help us better understand the cadence of activities that'll happen now and when, you know, just when we're going to start to see that revenue more visible. I think you said first quarter, but what has to happen now?.

happen between now and then? So we had a situation, and let me first say that I'm going to, I'll talk a little bit here. Derek's been very much involved in this process. So I will invite him to share his thoughts his views if I miss anything here, but the registration was a big step. It was a binary proposition and so getting on the other side of that is wonderful news. They're very excited about that. We saw this coming and I think we've talked about this in the past and when we saw that we were at this this that we were going to have some downtime in China as a result of it. And so we we obviously stocked up some inventory tried to keep accounts going as long as we could and some number of accounts have a process at this point to restart them in particular. Some of our larger accounts in China a process to restart them and get underway. So as we look at the back half of the year, we're reigniting those accounts, get those engines up and running, and we're anticipating that we probably won't see material revenues until next year, early next year.

One last question and I'll wait to see you know, with this room for more questions as a follow up, but. And Glenn, I apologize to you. I even apologize to Derek. I hate your print and maybe just at a high level, you could help us think about it and reflect on current consensus still has you sort of in the mid 90s but I think to myself China coming back, a repurposed, rebuilt, reconfigured Salesforce, stronger leadership, more accounts open. I mean, current consensus numbers, my number in the mid 90s, seems to is very conservative. I realize there's a lot that you've got to do before you get there, and you're not going to give guidance today, I suspect, but help us, you know, think about that potential. It seems like there's room if all goes well and as as planned to be actually a very strong year.

Yes, Rick, thanks for the question. This is Derek. I'll refocus your attention to our guidance this year and what we expect this year. I don't want to get out in front of our skis and comment on 2027 guidance right now. We'll certainly do that in due course, our Q4 call, but this quarter we have said even within, or this year we have said that we are really focused on returning our company back to global sales growth. both in the US and internationally this year. And we do expect that contemplated in our guidance as we exit the year, that we'll exit the year growing at or close to double digits by the end of even this year. So I think we're going to have some very good and strong momentum going into next year. And we are really focused right now on reinvigorating our sales force, putting the pieces in place to get ourselves back to sales growth this year. And we feel really good about where we are. We're really right where we expect to be in terms of re-accelerating our growth and flipping from negative to positive growth this year.

It's great to see the progress and congratulations and all. I know it's a lot of hard work involved. Thanks for the answers. Appreciate it.

Thank you and our next question is going to come from Frank Takanan with Lake Street Capital. Your line is open.

Hey, this is Nelson Cox on for Frank. Thanks for taking the questions and congrats on the progress. Maybe just first to start, as we think about the path to double-digit growth, exiting the year that you've talked about, maybe just can you help us with the relative contribution you expect from newer reps ramping versus kind of new centers versus deeper utilization at your established programs?.

We anticipate that we're going to get some positive contribution across the board there. We've already talked – I mean, we've talked about each of these elements. I mean, if you want, we could start with the sales reps. Territories that have reps in them do better than territories that don't, and we know that there is a ramp up time for the reps when when they're new in the territory. Our average tenure in the company and in the sales organization a couple of years ago was something like two and a half years. And today it's about a year. And I'm sure you could have done that math given what you know the turnover was over across last year. But in any case, we've got to get those folks up and running. We expect them to be more productive. That will show itself. You know, greater productivity shows itself in an increase in same-store sales, I would expect. So we should see that, and we should, you know, continue to see new centers come on and so forth. So there's a number of things that will need to come together that will contribute to the growth that we envision.

on the horizon. Fair enough. And then just for my last one, you had gross margin running at 78% the last couple of quarters here, and you cited a couple of drivers, absorption, supply chain efficiencies, and... With China shipments now resuming early next year, you have 76% now in the full year guide. implies some second half moderation. Anything specific we should be modeling there? Is that just conservatism? And maybe how do you think about the long-term kind of gross margin steady state?.

Yes, that's a great question. So China or the absence of sales into China clearly help our gross margin. China does come at a lower gross margin, but still a very attractive operating margin, I'll point out. So we would expect to see our gross margin come in a little lower once we do resume shipments into China, I think there is some variability around timing of that resumption of shipments into China. So, I think we've left a little bit of room for ourselves in terms of our guidance to accommodate that timing. But I do think that over, that we have over time excluding China, made some real progress in terms of taking cost out of our supply chain, driving production efficiency. So, you know, I feel very comfortable that even when China comes back online, that But as a company, we will be comfortably at or above 75% in terms of gross margin. And we'll continue to push hard to, over time, move that number higher as we continue to drive overall efficiencies.