Ladies and gentlemen, thank you for standing by. Welcome to Pulmonx Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Operator provides instructions to participants. Please be advised that today's conference is being recorded. I would like now to turn the conference over to the first speaker today, Elizabeth Sparicio, Investor Relations. Please go ahead.

Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonx are Steve Williamson, President and Chief Executive Officer; and Mehul Joshi, Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the quarter and year ended December 31, 2024. A copy of the press release is available on Pulmonx's 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 future events, results, or performance are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends, commercial strategies, and future financial performance, the timing and results of clinical trials, expense management, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion, and product 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 November 1, 2024. 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, February 19, 2025. Pulmonx 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 Steve.

Thanks, Elizabeth. Good afternoon, everyone, and welcome to our fourth quarter and full year 2024 earnings call. Here with me is Mehul Joshi, our Chief Financial Officer. I'm pleased to report that we closed the year with worldwide sales of $23.8 million in the fourth quarter of 2024 reflecting 23% growth over the same period last year. Our performance was driven by record U.S. sales of $15.9 million representing 16% growth against the high year-over-year comp, as well as record international sales of $7.9 million representing 42% growth year-over-year. This enabled us to deliver full year 2024 worldwide revenue of $83.8 million representing 22% growth over 2023. Our strong results reflect the substantial progress we made in 2024 across several key commercial initiatives. Specifically, we continue to opportunistically expand our U.S. account base, adding 52 new centers in 2024 and ending the year with 283 active accounts in Q4. We remain focused on physician and patient education, broadening our marketing presence and targeted direct to patient advertising, while partnering with organizations like the American Lung Association to build awareness of the benefits of Zephyr treatment. We initiated the pilot launch of our LungTraX platform designed to streamline customer workflows and efficiently identify eligible patients, and we increased our growth trajectory in key international markets in Europe, where we adopted proven U.S. sales strategies on growing awareness and efficiency, and also in China, where we partnered with a new distributor to significantly expand our market reach while reducing our operating costs. In 2024, we also made progress on important clinical initiatives. Specifically, we launched the AeriSeal CONVERT II Pivotal Trial and our Japanese post market study, both of which stand to meaningfully expand our addressable market and global footprint. We also showcased data from our AeriSeal CONVERT Trial where we demonstrated successful conversion of collateral ventilation status in 77.6% of patients after treatment with the AeriSeal system. The converted patients then underwent Bronchoscopic lung volume reduction with Zephyr valves and 89% of those achieved reduction of the treated lobar volume and improved clinical outcomes. The work our team has done in 2024 has positioned us extremely well to drive several key growth strategies that we believe will lead to sustainable and increasingly profitable growth of at least 20% over the long term. Over my first year at Pulmonx, I've been amazed at the impact our technology has on patients' lives and the growing physician and hospital interest in building world class valve and lung health programs. My experiences with our commercial team and our customers have confirmed to me that we have a broad base of capable users that are excited by our therapy, but who face operational challenges reaching as many patients as they'd like. These insights have collectively informed what I view as a clear formula to expand access to our Zephyr valve procedure and further establish it as the standard of care for the treatment of severe emphysema and COPD. That formula is focused on helping our customers to more efficiently acquire the right patients, test for eligibility, and treat a growing range of disease. We believe, our acquire, test and treat strategy is the key to unlocking this $12 billion market opportunity, which we believe is validated by the tremendously positive response to our recent marketing initiatives. We intend to remain highly focused on driving physician adoption, patient engagement, workflow automation, new indications, and geographic expansion. Our efforts in 2024 have shown that these foundational elements, when executed efficiently, deliver consistent and predictable results. However, it takes time to build, implement, and allow patients to work through the system. In 2025, we anticipate scaling the initiatives we began piloting in 2024 to broaden and deepen this foundation, which we expect will support continued future growth at or above 20% over the long term. The first step in our growth strategy is getting more patients into the funnel. In the acquire leg of our strategy, we are unleashing the power of awareness and physician engagement while opportunistically adding new centers to our strong U.S. account base. In 2024, we made substantial upgrades to our patient support capabilities, adding a fully staffed call center that can help patients navigate the journey to treatment, expanding our online tools to help patients discuss lung valves with their doctor, and following up with patients by phone or email to ensure a high-quality experience. For patients who engage directly with our care team, we educate them on the process and benefits of Zephyr valve treatment, answer any questions they may have, help them advocate for themselves, and assist in locating nearby Zephyr valve centers. In Q4, we launched our first TV commercial in the U.S., reaching over 11 million people within our target demographic, including a very high proportion of potential COPD patients and physicians. We believe roughly one-third of patients treated in 2024 started their journey to treatment with our website, supporting our belief that awareness is driving demand. In 2024, we saw a 135% increase in first-time callers and online quiz takers, representing 54,000 patients. In 2025, we expect this number to surge to nearly 70,000, creating an even bigger pipeline of motivated patients ready for referral. We believe these indicators are representative of the underlying demand for our treatment and validate the significant unmet need that we are addressing for severe emphysema patients who have limited alternatives. We estimate just over half of valve-eligible patients are currently managed by a pulmonologist, and about three-quarters see a pulmonologist at some point in their care. This means the majority of our target patients are managed by a concentrated set of physicians who need to embrace valve treatment and better understand which patients to refer. Because only about one-third of these doctors know the proper patient selection criteria for Endobronchial valves, there's substantial opportunity for growth through education. Often, the most powerful way to gain physician acceptance of a new treatment is through peer recommendations. To address this, we doubled the number of peer-to-peer medical education events from 2023 to 2024 and aim to host about 50% more events in 2025 to significantly increase awareness among community pulmonologists. In addition to investing in peer-to-peer education, we're scaling our field presence by hiring therapy awareness specialists dedicated to community physician education, which we expect will result in greater referrals for valve treatment. We've identified our first seven target geographies for this new initiative and may look to expand based on the performance of these territories against our success criteria. We expect to hire and train these specialists over the next few months and anticipate they'll make an impact in the second half of the year. One of the programs I'm most excited about unlocks a completely new patient acquisition channel by identifying patients already in the hospital system. LungTraX Detect prospectively analyzes hospital PACS systems to identify patients with radiographic emphysema and seamlessly integrates them into a simple workflow for further evaluation. This novel screening software allows our customers to proactively find and treat patients already moving through the health care system, regardless of their initial health concern. We installed and tested the system with our first customers in December and by late January, had seen the first patient treated with Zephyr Valves. The patient was in the hospital for follow-up on a lung nodule biopsy when Detect flagged their CT scan as one that showed radiographic emphysema. The early positive feedback we're receiving from customers is further supported by recent clinical data presented at the CHEST annual meeting in October. Data from a retrospective analysis demonstrates lung image analysis software can identify a high incidence of patients with undiagnosed emphysema who may qualify for BLVR. Of these identified patients, 65% were not under the care of a pulmonologist and 71% did not have pulmonary function testing. This suggests these patients will be incremental to those from our other acquire efforts. The combination of early results from the pilot launch of LungTraX Detect and positive new clinical data presented at CHEST leave us increasingly confident that Detect can effectively screen patients from the hospital PACS system, automate workflows and provide a critical patient management tool on the back end. Looking ahead, we're preparing to roll the product out more broadly and expect to see more customers coming on board in Q2. Now, I'll shift from patient acquisition to testing. Here, we are focused on scaling high volume treatment centers by simplifying workflow to drive adoption. As demand for our treatment increases, hospitals must scale infrastructure to meet that demand. This is critical in supporting a long term growth rate of 20% by ensuring that once patients are identified, they can easily access treatment. One way to address this is simply open more treating centers, though this is limited by the number of centers with higher volume bronchoscopists. We estimate there are between 500 and 700 centers currently doing higher volumes of bronchoscopies in the United States. In Q4, we added 11 new U.S. accounts, ending the quarter with 283 active accounts. As a reminder, we define active accounts as centers that have placed a revenue generating order in the quarter. Looking ahead, we'll continue to add new high potential accounts opportunistically and at a similar rate. LungTraX Connect is another key component of our test strategy as it enhances diagnostic efficiency by automatically and easily routing CTs for analysis, as well as helping the team at the treatment center coordinate patient workflow. This innovative software not only accelerates patient workup, but also provides hospitals with a repeatable scalable system that includes secure storage of patient data and current workup status. A member of a large West Coast IDN is choosing to purchase LungTraX Connect because the CT list upload streamlines their process, saving both radiology and clinical coordinators significant time, while also providing an easy to use tracking system for their teams to move patients through workup towards treatment. For the reasons I've just mentioned, we're encouraged by LungTraX's early technical performance and believe it has strong potential to be a long term growth driver for the business, as well as for hospital systems looking to invest in their valve programs. In parallel, we're also engaging hospital executives to convey the value of building and scaling lung health programs within their hospitals. Our goal in these discussions is to gain commitment to hire the resources and clinical support needed for account development. We found that the most successful centers have dedicated support staff, including clinical navigators that enhance workflow efficiency by guiding patients through the testing process. However, some institutions hesitate to add headcount. To address this, we're testing a program that offers our hospitals a third-party tech enabled solution to virtually manage patients through the hospital's workflow process. Recently, we initiated the first center and look forward to launching additional centers over the next few quarters. This has the potential to remove a critical barrier to adoption and increase patient throughput. Together, the combined efforts of LungTraX Connect and Navigators can enhance patient testing efficiency, improving both the patient experience and their overall care. These initiatives along with LungTraX Detect are empowering our customers to build and maintain integrated best-in-class lung health programs that stand to be sustainable value creators and key regional brand differentiators. I look forward to sharing additional details on future calls. Finally, on the treatment front, we're increasing our global footprint, expanding indications and optimizing procedures, all of which fuel long-term growth potential. Through 2024, we continue to invest in our foundation for commercial success in our international business and are already seeing positive results. In Q4, we delivered international year-over-year revenue growth of 42%. Growth was fueled in part by strength in our major European markets and recurring orders from our new distributor in China. In Europe, we continue to adapt many of the proven sales tools we utilize in the U.S. for use in local geographies. This includes operational best practice sharing, community physician engagement, virtual case discussions with experts, and peer-to-peer education programs. Furthermore, in 2025, we're exploring a variety of targeted approaches to increase severe emphysema screening and existing accounts looking to develop their volumes further. Outside of Europe, we're making progress on our Japanese post-market surveillance study, which supports our plans for broader commercialization in approximately 2026. As a reminder, Japan is one of the largest medical device markets in the world, where an estimated 100,000 patients stand to benefit from Zephyr Valves. On expanding indications, we continue to increase enrollment and activate centers around the world in our AeriSeal CONVERT II trial. Once complete and we receive PMA approval, AeriSeal will allow us to treat patients with collateral ventilation, which we expect to expand our immediately addressable market of eligible patients by an estimated 20% globally. We continue to anticipate the commercial launch for AeriSeal outside of the U.S. in approximately 2026 and in the U.S. in approximately 2027. Pulmonx remains focused on driving innovation across every aspect of our business. More specifically, we will enhance our product, clinical, and commercial ecosystem to increase patient identification, improve procedural success, and drive market expansion. We are leading advancements in the following three areas. First, we are refining our commercial strategies to optimize our sales and training processes and maximize ROI by leveraging data-driven insights. Second, we're continuing to advance our proprietary AI-driven platform, LungTraX, to further automate patient identification and streamline workflow for physicians. Last, we're optimizing our products and solutions to enhance ease of use and improve patient outcomes. Through these initiatives, Pulmonx remains committed to improving patient care, physician experience, and business performance on a global scale. We're pleased with our 2024 performance and remain confident that Pulmonx is well-positioned for sustainable growth of 20% or more in the long-term. This is just the beginning. As we execute the acquire, test and treat strategy, we're setting the stage for continued growth and long-term success. Based on what we learned in 2024, we know how to execute this plan with increasing efficiency as we continue to penetrate the significant market opportunity. Now, I'll turn the call over to Mehul to provide a more detailed review of our fourth quarter results.

Thank you, Steve, and good afternoon, everyone. Total worldwide revenues for the three months ended December 31, 2024 was $23.8 million, a 23% increase over the prior year period, and also an increase of 23% on a constant currency basis. Our performance was driven by strong execution of our strategy and adoption of Zephyr Valves. Total worldwide revenue for fiscal year 2024 was $83.8 million, a 22% increase over 2023. U.S. revenue in the fourth quarter was $15.9 million, a 16% increase over the prior year period, reflecting a solid quarter against a significant comp from a year ago. U.S. revenue for fiscal year 2024 was $56.5 million, a 23% increase over 2023. International revenue in the fourth quarter of 2024 was $7.9 million an increase of 42% over the prior year period and an increase of 40% on a constant currency basis. International revenue was driven by strong growth in all major markets. International revenue for fiscal year 2024 was $27.3 million a 20% increase over 2023 and an increase of 19% on a constant currency basis. Gross margin for the fourth quarter of 2024 was 74% compared to 75% in the prior year period, driven by robust growth in our international business. Gross margin for fiscal year 2024 was 74%, consistent with 2023 gross margin. Total operating expenses for the fourth quarter of 2024 were $31 million, an increase of 9% over the prior year period. Non-cash stock-based compensation expense was $4.9 million in the fourth quarter of 2024. Excluding stock-based compensation expense, total operating expenses in the fourth quarter of 2024 increased by 13% over the prior year period. We continue to demonstrate strong operating leverage with our focus on supporting revenue growth initiatives, while effectively managing operating expenses and executing on our cost optimization program. Total operating expenses for 2024 were $119.7 million a 6% increase over 2023. R&D expenses for the fourth quarter of 2024 were $4 million, an increase of 3% over the prior year period. The increase was driven by higher clinical expenses as enrollment in our clinical trials continue to ramp. Sales, general and administrative expenses for the fourth quarter of 2024 were $27 million, an increase of 11% over the prior year period. The increase was driven primarily by additional spend in patient and clinician therapy awareness programs and other commercial investments. Net loss for the fourth quarter of 2024 was $13.2 million or a loss of $0.33 per share as compared to a net loss of $13.9 million or a loss of $0.36 per share for the same period of the prior year. An average weighted share count of 39.6 million shares were used to determine loss per share for the fourth quarter of 2024. Net loss for fiscal year 2024 was $56.4 million, an improvement of 7% over 2023. Adjusted EBITDA loss for the fourth quarter of 2024 was $7.5 million as compared to $8.4 million in the fourth quarter of 2023, a 10% improvement on a year-over-year basis. Adjusted EBITDA loss for the fiscal year 2024 was $31.3 million, an improvement of 20% over 2023. Please refer to our reconciliation of net loss to non-GAAP adjusted EBITDA for further details. We ended December 31, 2024 with $101.5 million in cash, cash equivalents and marketable securities, a decrease of $6.3 million from September 30, 2024. Cash, cash equivalents and marketable securities decreased $30 million from December 31, 2023, a reduction in cash burn of 16% versus the prior year period. Our current cash position combined with our demonstrated ability to drive revenue growth and operating leverage beyond our operating plan assumptions, continue to provide confidence in our ability to achieve cash flow breakeven with the cash on hand. Looking ahead to our full year 2025 guidance, we expect reported revenue to fall between $96 million and $98 million. We anticipate a negative impact of approximately 100 basis points on reported revenue due to foreign exchange fluctuations and expect constant currency revenue growth to be in the range of 16% to 18%. In 2024, we launched several pilot initiatives in the United States to drive growth which have already demonstrated positive results. We plan to scale these initiatives in the first half of 2025 and expect a re-acceleration of growth for the U.S. in the second half of the year as patients work their way through the healthcare system. Also, as we continue to broaden the foundation of commercial success in our international markets, we foresee strong OUS growth during the first half of 2025 and expect typical seasonality in the latter half of the year. Moving down the P&L, we expect gross margins for the full year 2025 to be approximately 74%, trending higher in the second half of the year and driven by higher production volumes, geographic mix, and cost optimization initiatives. Lastly, operating expenses for the full year 2025 will fall within a range of $133 million to $135 million, including approximately $22 million of non-cash stock-based compensation expense. Our 2025 operating expense guidance range includes fully funding our current acquire, test, and treat initiatives. In conclusion, we are confident in our outlook for 2025 and look forward to executing on the next stage of growth. With that, I'd like to turn the call back to Steve for his closing remarks.

Thanks, Mehul. In summary, 2024 was a foundational year for Pulmonx, marked by robust growth over 20%, the launch of key efficiency programs like our LungTraX Platform, positive new clinical data from our AeriSeal CONVERT trial, and the advancement of our CONVERT II trial in Japanese post-market surveillance study. Our continued success reflects our ongoing commitment to improving the lives of our patients by helping them breathe better. Looking ahead, we have a strong balance sheet and remain confident in our opportunity, plans, and team as we build a promising future for patients with severe lung disease. I'd like to thank you all for your attention, and we'll now open the call for questions. Operator?

Operator provides instructions to participants. And our first question will come from Frank Takkinen with Lake Street Capital Markets.

Thanks for taking the questions. Congrats on a really strong finish to the year. I was hoping to start with one around the guidance for 2025. I heard the comments around international strength in first half and then some of the growth initiatives that you've put in place throughout 2024, driving an acceleration in the second half. Can you maybe help quantify that a little bit on what we should expect from a growth rate first half versus second half as we build our models?

Yeah. Hey, Frank, this is Mehul. Thanks for your question. As you know, we don't really comment on first half growth versus second half growth, but we do expect the international business to grow really strongly in the first half of the year as a result of some of the programs we've deployed in 2024, and then we'll expect it to turn to normal seasonality with a slowdown in Q3. In the U.S. we don't see a continued deceleration of the U.S. business. But as we deploy these pilot initiatives in full implementation, we'll continue to see growth in the first half, and we should see further acceleration of growth in the second half of the year.

Okay. That's helpful. And then maybe just a little bit more color on LungTraX. You've had the pilot out there for a little bit. I'm assuming there's been some valuable learnings so far. Maybe talk about some of the anecdotes you've heard from your centers of excellence or centers building towards becoming centers of excellence. What are you changing? What's working really well? And then what is that resulting in from kind of a utilization standpoint on a per center basis?

Sure, Frank. I'll take that one. So, what we found from the customers that are in our pilot or that have gone through our pilot is that they like being able to passively find new patients. They like the concept of it and they like how it's working. I think the thing that was most interesting to me for this past quarter was that I wanted to make sure that the integrations went well and that the interface is easy to use, and the customer feedback was positive in those areas and we've seen that. We've shown that we can actually plug in and transmit the CT scans from the PACS system, which was a handoff we had to get right and I am happy with where we landed on that. We have got a handful of active sites that are sending in scans right now and in general their results are similar to the data that came out at CHEST. And just to put that in a little bit of perspective, what the CHEST data said was 10% to 15% of patients with chest CTs were identified with radiographic emphysema. Now those patients have to go back through and they do a full workup and some fall out for smoking or other reasons, maybe they're not healthy enough for a procedure. So, there's really kind of a spectrum of outcomes that we've seen with our pilot sites. The middle ones are kind of right in line with CHEST. We have one site and what's happening in those middle accounts is they're really sending in these lung cancer nodule cases and those are the CT scans that we're seeing or the lung cancer screening cases. Some have actually gone and broadened that and they're pulling all the CT scans out of their PACS system. So, that's car crashes or whatever reason that there is a chest CT in the system; they're pulling that. So, it's a much broader pool of data and we'll see less than 10% to 15% of those have radiographic emphysema. On the other side of that spectrum, we've got an account that's a very focused pulmonary account where there's a good strong pulmonology department and a lot of those patients really fall into our sweet spot and are patients that are more likely to be former smokers or more likely to have lung issues and we see a higher rate in those. So, our initial scans have come in, the data are looking like they are in line with what we saw at CHEST. It's still very early innings here, but it's very promising for us. Because of that, we've rolled that out to the sales force and we look to bring on more accounts here in the second quarter and then look to see the results in the back half of the year.

Operator provides instructions to participants. And our next question will come from Jon Young with Canaccord.

I just want to first start on just the OUS. I mean, it was up significantly quarter over quarter in Q4. I heard you say it was a broad-based strength in the business, but would you call it anything in terms of one-time stocking orders and your geographies or any ASP changes? And then, as we think of next year and the strength that you think you'll see in the first half in the OUS business with Q4, a good jumping off point in terms of the model?

Hey, Jon, this is Mehul. A lot of questions there. I'll try and answer as many as I can and remind me if I don't answer any other questions. So, I'd say there weren't really a lot of stocking orders in Q4. On the U.S. side, it was just recurring business. We were really focused on our high-volume accounts in the quarter. That was our sales strategy. So, those were the accounts that drove a lot of the business, and that's what our sales teams called on. So, I wouldn't say there was a lot of stocking on the U.S. side. On the international side, also about the same answer; all of our European markets as well as our China market grew pretty extensively. We had very, very strong growth in Europe, and then we had a recurring order from our China distributor. As you heard over the last couple of quarters, our China business has been growing, and our distributor is doing a great job with additional sales reps and opening up new accounts and things like that. So, we don't expect that kind of a growth rate in 2025 that we hit in 2024 with the OUS business. But we do expect continued growth that's predictable in our OUS market, including China. We reset the base a little bit in China, but going forward, it'll continue to have some growth in that. What didn't I answer of your question?

You've got all my many questions. Thank you for that one. And then just as a follow-up, on the U.S., if you're thinking of next year on the second half acceleration, do you think that could overcome the normal seasonality we see in Q3? And how should we think of the balance of the Q3 seasonality versus the acceleration that you think you guys will see?

So, just on the international side, we will see the typical seasonality. On the U.S. side, as you recall, seasonality has been up and down over the last three or four years. So, we believe that some of the initiatives that Steve mentioned will help maybe normalize some of the Q3 revenue seasonality for the U.S., but we'll have to kind of wait and see what happens in the summer season. But we do expect acceleration in the second half of the year on the U.S. side with the initiatives that we're implementing in the first half of the year, including what Steve just mentioned around LungTraX and some of the other marketing initiatives.

Hey, Jon, if I can add on to that real quick. So, if you think about 2024, it was a good learning year for us. What we did was we identified a lot of the growth drivers for this market and found ways to efficiently take advantage of them and capitalize and execute against them. So, if you think down the growth drivers that we identified in 2024, one was in the marketing area. We talk a lot about direct-to-patient advertising. One is in R&D and innovation. We're pushing forward with AeriSeal. I think LungTraX is really an R&D success story for us. Our ability to get that product out quickly, have it work well, and get good customer feedback is a big win for us in 2024 and will drive growth in the back half of 2025. We also had product enhancements that we did on our standard catheter, our Chartis Precision Catheter. We broadly rolled out a new catheter here in Q4. It's got a small premium over the prior catheter, and really what that does is it provides better visibility for the physician, better trackability down the scope channel and there's a new tip design on it that's designed to facilitate easier placement. And the goal of that innovation was really ease of use, make it easier for our customers to use, but also outcomes. If they have the ability to get the catheter in the right spot and not have the tip plugged up against the wall, they'll get better outcomes from their patients and the patients will get better outcomes. So, R&D and innovation were an area that we've really spent a lot of time on. Medical education, I talked about we doubled down on medical education. That should start to work its way through the funnel and we'll continue to do medical education in the back half of the year. One thing that I mentioned in the prepared remarks was our sales force structure. We're making some changes to our sales force structure based on the analytics that we've gotten to get more involved with some of these COPD physicians that are in the marketplace, getting them to identify better patients, more patients, the right patients and getting those through to StratX. So that's a big initiative for us. We identified kind of the call point and this administrative sale and expansion into a broader call point is an area. We started with that. I'd say we're still early innings there. One of the things that I found with that is that the call point sale is very connected to the LungTraX Detect sale. If people are interested in LungTraX Detect and building out programs that typically gets support from an administrative level. So, those two are really tied together. Our capital allocation, I think Mehul and his team have done a great job of making sure that we are allocating our money to key revenue growth drivers. We talk about geographic expansion. We've made some moves in China. As you've seen, they are starting to pay off for us. And just overall OUS execution in our core business has been another big driver for us. So, based on what we saw in 2024 and the changes in rollout that we've put in place, we expect to see these when efficiently executed in the first half of 2025 to pay dividends in the back half of 2025.

Operator provides instructions to participants. And our next question will come from Larry Biegelsen with Wells Fargo.

Steve, you're guiding to 17% at the midpoint in 2025, but you expect 20% growth over the long term. Why is 2025 expected to be below 20% and when do you think you could get to the 20% growth?

Yes. So, the midpoint at 17% was really, I think it's very credible guidance for us, Larry. We've got these programs where we've tested them in 2024. We're going to roll them out. It takes time once we roll them out to get the patients through that system. We've got to get them stood up and then get the patients through. So, we would expect to see that in the latter half of '25. We'd see a pickup here in the U.S. especially. And then going into '26, we should see a tailwind from those on top of our Japanese post approval study should be completed in approximately '26 as well as AeriSeal OUS launch in that timeframe. And then moving forward, AeriSeal launch in 2027. So, we've got a number of growth drivers. It's just in the first half of the year we wanted to be reasonable on our guidance, and make sure that we didn't get out of our skis before we initiated or executed these drivers.

That's helpful. And then on the OpEx guidance, I mean, if I look at the revenue guidance, it calls for incremental $13 million in sales at the midpoint. If I look at the OpEx guidance, it calls for incremental $14 million in spending. Hopefully, I'm doing the math right. Why aren't we maybe for Mehul, why aren't we seeing more leverage this year?

Yeah, I think at the midpoint, Larry, of the guidance on revenue, it's 17%. At the midpoint on expenses, it's 12%. So we still continue to drive leverage, right, as revenues grow faster than expenses. We are investing in clinical trials, as Steve just spoke about, both for CONVERT, as well as the Japan post-approval study. So as enrollment ramps up, we'll continue to spend more money on the R&D side. And R&D will grow significantly based on enrollment. We'll continue to get leverage on the SG&A side, where that'll grow significantly lower than the revenue guidance.

Operator provides instructions to participants. And our next question will come from Joanne Wuensch with Citi.

There's a lot of activity that you're doing right now to, what I would say, build the base to create the funnel. How are you measuring some of the investments that you are making, whether they are in new centers, new salespeople, or direct consumer campaigning?

Yeah, there's a number of different ways. Thanks for the question, Joanne. If we look at the direct to patient advertising, that's an area where we really look to see what happens with the advertising spend that we have as far as our ability to acquire patients and capture them. Typically, they come through our website. And so we continue to see significant growth through that web portal. And we measure that quite often. That's something that our marketing team spends a lot of time on, making sure that we can continue to build mechanisms to track them through the funnel. As you know, once we get them and they go off to a COPD physician, sometimes we lose them. And then we pick them back up when they come out to a treatment center. So finding ways to make those connections are an area that we're spending some time. I believe as far as our new territory or our therapy awareness specialists, which I mentioned that we hired seven of or we're in the process of hiring seven of, we'll measure those based on the COPD community physicians and their efficiency sending in StratX. So right now, there's probably low single-digits of StratX come from the majority of the COPD physicians that are in the market. We'll measure what those look like moving forward to see if the utilization of this therapy awareness specialist is the right way to go. And if it is, then we'll continue to invest in that as an opportunity.

Operator provides instructions to participants. And our next question will come from Joseph Downing with Piper Sandler.

On the gross margin line, can you just provide a bit of detail around how you're thinking about the interplay between scale, inflationary effects, and geographic mix over the balance of the year? And then is there additional headroom for the gross margin line to expand beyond that 74% to 75% we've seen in the past few years moving forward?

Thanks for the question. So gross margin, as you're aware, is impacted by a number of things. It's production and then the geographic mix, as well as a number of our cost optimization initiatives. So as we think about geographic mix, we talked about the international business being very strong in the first half, U.S. business being very strong in the second half. So, the U.S. has slightly higher gross margins than the international business. So, you'll see gross margins fluctuate a little bit. And as I mentioned in the prepared remarks, our guidance is 74 for the year, but it should trend up over time in terms of the second half of the year. So, that's geographic mix. We do have some inflation built into our production plans. We do have quite a bit of inventory on hand, roughly nine months. So that will not impact 2025 purchases of raw materials or components, and we're actively monitoring all the tariff situation around that as well. So, there's a lot of moving parts, but we are confident in the gross margin guidance. And we do expect that over the longer term, our gross margin should increase, again driven by production volumes and geographic mix and some of the cost reduction initiatives that we put in place late last year that will then start to drive dividends late in 2025 and 2026.

If I could just add on to that, if you look at our overall margin, one of the largest contributors is the overhead associated with our manufacturing. We manufacture in Northern California right now. And so, as we have production volumes increase, obviously that helps us considerably. So, over time, as our volumes continue to increase, we'd expect to see leverage on that margin line in the future. So, a little bit further outlook for you, but there are opportunities for growth there.

And then just one more. So, with hospitalizations running high right now as a result of strong flu and respiratory season, we're just curious what you're seeing in hospitals at the moment and whether you see this as an issue for procedures here in 1Q?

We haven't seen a whole lot of effect here. Right now, pulmonologists obviously spend a lot of time with these patients. And so, I haven't heard it bubbling up as a key issue. That said, when you've got patients that are in the hospital and they're getting CT scans, as they have pulmonary issues, then perhaps in some of our LungTraX accounts, it could be an opportunity to identify additional patients that might have gone undetected without it.

Operator provides instructions to participants. I show no further questions in the queue at this time. I would now like to turn the call back to Steve Williamson for closing remarks.

Thank you, Michelle. Again, I'm very pleased with our 2024 performance. I'm also excited about what we learned in 2024 and what it says about our future. I'd like to thank our Pulmonx employees worldwide for delivering a strong year and also for their continued dedication to fight every day for every breath, so our patients don't have to. Thank you all for your time and for joining us today.

This concludes today's conference call. Thank you for participating. You may now disconnect.