Earnings Call Transcript - LUNG Q1 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to the Pulmonx First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Brian Johnston with Investor Relations. Please go ahead.

Brian Johnston, Investor Relations

Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonx are Glen French, President and Chief Executive Officer; and Derrick Sung, Chief Operating Officer and Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the quarter ended March 31, 2026. A copy of the press release is available on the Pulmonx 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, including long-term outlook and full year 2026 guidance, the timing and results of clinical trials, physician engagement, expense management, market opportunity, guidance for revenue, gross margin, operating expenses, 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 annual report on Form 10-K filed with the SEC on March 10, 2026. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations to 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, April 29, 2026. 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 Glen.

Glendon French, President and Chief Executive Officer

Thank you, Brian. Good afternoon, everyone, and welcome to our first quarter 2026 earnings call. Here with me is Derrick Sung, our Chief Operating Officer and Chief Financial Officer. Pulmonx delivered total worldwide revenue of $20.6 million in the first quarter of 2026. Since our last update, we are increasingly encouraged by continued operational momentum, and we remain confident in our ability to achieve our previously communicated revenue guidance of $90 million to $92 million for the full year 2026 with a return to global growth in the back half of this year. We are making good progress in our efforts to address internal operational and executional challenges that have led to recent underperformance, and we remain highly focused on three key priorities: First, reaccelerating U.S. sales growth; second, advancing our market-expanding clinical initiatives; and third, aligning our cost structure to drive profitability. Let me take each of these in turn, starting with our progress on driving U.S. sales growth. A foundational element of reaccelerating U.S. revenue growth is having the right people and the right culture in place, and I'm encouraged by our progress. We have filled with top talent all our sales leadership positions and substantially all our U.S. field sales roles. We are also seeing clear improvements in our commercial team culture. Further, sales turnover has stabilized over the last six months, a marked improvement from earlier in 2025. We expect turnover from here to be in line with industry standards. We believe this stabilization is a direct result of our efforts to increase leadership transparency and streamline selling priorities to focus on our highest impact activities. These priorities are grounded in our previously discussed near-to-far approach, specifically: one, setting up high-quality and efficient valve programs; two, engaging with COPD-oriented clinicians aligned with hospital systems offering Zephyr Valves; three, working together with our champions to educate service line administrators to ensure appropriate resourcing of their programs; and four, concentrating our direct-to-patient efforts on geographies with established treating centers that have the capacity to accommodate interested patients. We are encouraged by early feedback from the field force and from our customers on this approach, which reflects greater focus, stronger engagement and a more consistent execution model overall. As the newer members of our team become increasingly productive, we expect U.S. sales performance to improve over the course of the year with growth reacceleration in the back half of 2026. Turning to our second priority, growing our addressable market with our AeriSeal program remains a key focus. Our CONVERT II pivotal trial is progressing well, and we are especially encouraged by our pace of enrollment since bringing on new leadership within our clinical affairs organization. Today, we are highly confident in our ability to complete enrollment of this trial in 2027, bringing us one step closer to expanding our total addressable market by approximately 20% globally. We see meaningful potential for AeriSeal to serve as both a revenue driver and a market expander for Zephyr Valves over the medium to long term and look forward to providing updates on enrollment progress in the quarters ahead. On our third priority, we have made substantial progress in aligning our spending with our strategic priorities. As previously discussed, we executed a broad cost reduction initiative in the first quarter. With these actions, our underlying expense trajectory has significantly improved, and we remain on track to deliver meaningful operating leverage and lower cash burn while maintaining investments in our key growth drivers. In closing, we have greater conviction in our strategy to refine execution to further penetrate the substantial remaining market opportunity for our products. While 2026 is a year of execution and transition, we are confident in the progress we are making. We have a better understanding of what drove prior underperformance. We have taken meaningful steps to address those issues. And we have aligned the organization around initiatives that matter most. We remain confident in the underlying strength of the business, the size of the opportunity ahead of us and our ability to deliver sustainable, profitable growth over time. With that, I will turn the call over to Derrick to provide a more detailed review of our first quarter results.

Derrick Sung, Chief Operating Officer and Chief Financial Officer

Thank you, Glen, and good afternoon, everyone. Total worldwide revenue in the first quarter of 2026 was $20.6 million, a 9% decrease from $22.5 million in the same period last year and a decrease of 12% on a constant currency basis. U.S. revenue in the first quarter was $13.3 million, a 7% decrease from $14.2 million during the same period of the prior year. We added 15 new U.S. treating centers during the quarter. International revenue in the first quarter of 2026 was $7.3 million, a 12% decrease from $8.3 million during the same period last year and a decrease of 21% on a constant currency basis. The decline in revenue was fully attributable to the absence of sales to our distributor in China. As a reminder, we are currently awaiting the renewal of our Chinese registration certificate, which we expect to come in the second half of 2026. Excluding China, we continue to see solid performance across all our other international markets, which grew 22% as compared to the same period last year and 9% on a constant currency basis. Gross margin for the first quarter of 2026 was 78% compared to 73% in the prior year period. The year-over-year increase was driven primarily by the lower mix of distributor sales in our international markets. Looking forward, we continue to expect gross margin to be approximately 75% for the full year of 2026, trending higher in the first half of the year and lower towards the second half of the year based on the mix of distributor sales. Total operating expenses for the first quarter of 2026 were $29 million, a 6% decrease from the same period last year. Noncash stock-based compensation expense was $3.8 million in the first quarter of 2026. Operating expenses in the first quarter included approximately $1.4 million of one-time costs related to the restructuring initiative that we executed at the start of the year. Excluding stock-based compensation expense and the restructuring costs, operating expenses in the first quarter of 2026 decreased 8% from the same period of the prior year. We remain committed to decreasing spend in 2026 through our cost alignment efforts while maintaining investments in our key growth initiatives. To that end, we continue to expect full year 2026 operating expenses to fall between $113 million and $115 million, inclusive of approximately $19 million of noncash stock-based compensation expense. R&D expenses for the first quarter of 2026 were $4.9 million compared to $4.8 million in the first quarter of 2025. Sales, general and administrative expenses for the first quarter of 2026 were $24.1 million compared to $26.1 million in the first quarter of 2025. Net loss for the first quarter of 2026 was $13.7 million or a loss of $0.33 per share as compared to a net loss of $14.4 million or a loss of $0.36 per share for the same period of the prior year. An average weighted share count of 41.9 million shares was used to determine loss per share for the first quarter of 2026. Adjusted EBITDA loss for the first quarter of 2026 was $8.5 million, consistent with the first quarter of 2025. Excluding one-time restructuring charges, adjusted EBITDA loss was $7 million and 18% favorable to the same period of the prior year. We ended March 31, 2026, with $61.6 million in cash, cash equivalents and marketable securities, a decrease of $8.2 million from December 31, 2025. In the first quarter of 2026, we took meaningful steps to strengthen our balance sheet and extend our cash runway. First, we executed a cost restructuring initiative that reduced our ongoing operating expenses by over 10%. Second, we closed on a $60 million credit facility with a 5-year interest-only structure, extending the maturity of our existing debt out to 2031 and providing us with access to an additional $20 million in undrawn capital subject to certain revenue milestones. With these measures in place, we expect to burn roughly $23 million of cash for the full year 2026, which would be a substantial decrease from the $32 million of cash that we burned in 2025. Finally, turning to our revenue outlook for 2026. We are reiterating our full year 2026 revenue guidance of $90 million to $92 million. Our guidance contemplates sequential quarterly improvement in our year-over-year revenue trend with a return to year-over-year growth in both our U.S. and international businesses in the back half of the year. In the U.S., we expect our recently filled sales positions and our refocused commercial strategy to gradually drive improving sales productivity as the year progresses. Internationally, revenue growth through the first half of 2026 will continue to be negatively impacted by the lack of sales to our distributor in China. That said, we expect continued strength throughout the year from our remaining international markets with year-over-year sales growth in our international business resuming in the second half of the year. To conclude, we entered 2026 with a clear plan, and our first quarter reflects early progress. We 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 our team's ability to execute. With that, I'd like to thank you for your attention, and we will now open the call up for questions.

Operator, Operator

Our first question comes from Rick Wise with Stifel.

Rick Wise, Analyst (Stifel)

Let me start off, if I could. Obviously, getting the sales team in place sounds like it's largely in place and critical. It seems like you're seeing some good, encouraging, early progress here. Maybe talk to us in more detail about the points you made about going deeper in the accounts and some of the specific strategies you're using to see sales growth accelerate. And maybe just as part of that, help us — maybe it's a question for Derrick — help us understand what's dialed into the guidance in terms of productivity with these new people today, what you're hoping for and what we might see?

Glendon French, President and Chief Executive Officer

Rick, first and foremost, we have been focused on narrowing the items that we're asking our U.S. sales force to do. One of the key things that we realized coming into this period was that last year there were too many balls in the air. So we've narrowed that focus to the areas I mentioned earlier. We have substantially filled all of our open positions. Our average tenure is not what it was a year ago, but we are bringing people up to speed quickly. We are focusing our activity on setting up high-quality and efficient valve programs, and we're doing that by engaging COPD physicians around these centers to drive patients into those centers. We are seeking administrative service line level support to ensure that we have the resources to execute on that plan. We're seeing positive impact from those efforts even in these early stages. One of the bigger issues for us is getting our sales force trained and productive. We are where we expected to be at this point. We feel good about being fully staffed and that people are coming up the learning curve, and we have some very bright spots with regard to execution of the strategy we've outlined.

Rick Wise, Analyst (Stifel)

That's great to hear. Derrick, for you, maybe just help us think through with the first quarter in hand, the 2026 growth cadence and thinking about the reaffirmed '26 guidance range you laid out — it implies 60 basis points for the year. This is a transition. Do you feel like consensus has it right in terms of the current sequencing? Should we be more back-weighting it? I think consensus for the second quarter is around $22 million. If that's the case, what gives you the confidence that the company can have the step-up needed from Q2 to Q3 to get to the numbers you've laid out?

Derrick Sung, Chief Operating Officer and Chief Financial Officer

Sure, Rick, and thanks for the question. As it relates to guidance, we do expect to demonstrate a sequential quarterly year-over-year improvement in growth as the year goes on. As Glen said, we feel very good about performance in Q1. We're already demonstrating that, particularly in the U.S. Our year-over-year growth rate, while down 7% in Q1, is a meaningful improvement from our decline of 11% in Q4. So we feel like we've bottomed in Q4 in terms of year-over-year growth rates. In both the U.S. and internationally, we expect to see sequential improvement every quarter, flipping to positive year-over-year growth in the back half of the year and even exiting the year with double-digit growth, both U.S. and international. In the U.S., the driver for that sequential improvement is the addition of the new hires and the time it takes for new reps to get up to speed and productive. Typically, six to nine months is what we've seen on average for new hires to reach productivity. As the year progresses and as our focused strategies take hold in the U.S., we expect to see improvement sequentially across the year. On the international side, it's mostly a question of comps. The decline in our international sales in Q1 is primarily attributable to timing of sales into China. We are awaiting renewal of our registration certificate in China, so there's an absence of sales into China in the first half of this year. China is still a relatively small portion of our total sales, less than 5% of total sales, but the timing drove tough comps in the first half of this year. Excluding China, our underlying business is strong — we grew 22% year-over-year reported in Q1 and have seen double-digit growth in our underlying direct international businesses for the past couple of years. We expect that trend to continue. In the back half of this year, the underlying strength of our OUS business will be more representative in our growth rates, and that's what we expect to drive the step-up in growth internationally.

Operator, Operator

Our next question is from the line of John Young with Canaccord.

John Young, Analyst (Canaccord)

Appreciate the progress update provided today. I want to go to the U.S. accounts — 15 added in Q1. I think that was higher than any number that was added last year according to our model. I would love to know, is this due to the refocused sales team ramping quickly? And maybe how should we think about the pace of account additions for the remainder of the year? And if I could ask my second question related to the sales force, what metrics are you focused on in monitoring the success of the revamped sales force?

Glendon French, President and Chief Executive Officer

So 15 is, as you noted, a strong number relative to what we saw on a quarterly basis last year. It's difficult to say whether that's the new normal. We are sticking with the 10 per quarter expectation that we laid out. Some of these new accounts may have been lining up to happen late last year and fell into this quarter. Time will tell whether the mean is above 10, but 10 per quarter feels like the right number. With regard to metrics, we feel good about the plan. We are focused on a simplified approach and bringing people up to speed quickly. We have some territories that did very well last year and continue to do well this year, taking advantage of momentum. We see that in an array of different indicators. We've talked before about the importance of StratX and seeing that sort of signal coming through as a leading indicator for our performance, and we feel good about where we sit at this point.

Operator, Operator

It comes from Frank Takkinen with Lake Street Capital Markets.

Frank Takkinen, Analyst (Lake Street Capital Markets)

I know this has come up previously, but wondering if you can speak to bigger-picture growth aspirations. Now that you've had more time with the organization, are you comfortable providing any type of commentary such as 'we expect to be a double-digit grower' as you think about the longer-term business?

Glendon French, President and Chief Executive Officer

Yes, Frank. I will start. I fully expect us to be a double-digit grower. I think everyone on the team expects that. We're trying to understand the period where we weren't meeting that expectation, particularly in the United States. We think we were doing too many things, we lost too many sales reps, and we can get back into a double-digit range. Exactly where in that range is still to be determined. Outside the United States, we've delivered roughly 20% growth in back-to-back periods in recent years, and absent the matters Derrick outlined, we're in that same neighborhood in the first quarter in some key markets. All of our major European markets are double-digit growers in the first quarter. They are executing on a plan similar to the U.S. plan, which is no coincidence. We also have TAM expanders on the horizon that we're working to advance. We are excited about AeriSeal and look forward to talking more about that as we move deeper into the year. Derrick, did you want to add something to that?

Derrick Sung, Chief Operating Officer and Chief Financial Officer

Yes, I would simply add that our guidance for 2026 contemplates that we will exit the year growing double digits in both our international and U.S. markets. I don't want to get ahead of ourselves and provide more guidance beyond 2026, but our current guidance contemplates double-digit growth as we exit the year.

Frank Takkinen, Analyst (Lake Street Capital Markets)

Perfect. Maybe just a follow-up on the Chinese registration renewal. Is there reliance on that to hit the second-half expectations for OUS growth? And related to that, what needs to happen for that renewal? Is this more administrative in nature? Is there some risk to this renewal not occurring on time with your guided timelines?

Derrick Sung, Chief Operating Officer and Chief Financial Officer

Thanks, Frank. We continue to expect the renewal of our registration certificate to come in the back half of this year. It is an administrative process that we're working through, and at this point we don't have reason to believe we won't get the renewal in the back half of the year. When that renewal comes, we expect the resumption of sales into China will be gradual. Accounts will need to be restarted, so we're not expecting a bolus of sales. Our current guidance doesn't contemplate a significant contribution from China even in the back half. However, we will be anniversarying tough comps from China sales in the first half of 2025, and we expect to flip back to positive international growth. As Glen and I mentioned, you'll see our international growth rates be more reflective of the strong underlying growth in our direct international businesses.

Operator, Operator

It comes from Joseph Downing with PSC.

Joseph Downing, Analyst (PSC)

As you reprioritize the existing base of treating physicians, can you help quantify same-store productivity, say in your top quartile accounts versus the bottom quartiles? How much of the 2026 U.S. revenue plan depends on what's in the bottom two quartiles versus the top 25%?

Glendon French, President and Chief Executive Officer

We are focused on a mix of initiatives. We have uncovered territories that are now covered and need reestablishing connections. We tend to bias toward accounts that are performing best and try to move them along and take full advantage of the near-to-far strategy, ensuring they leverage best practices. The top quartile is our primary area of focus rather than the lowest quartile. We're also bringing in new accounts where our standards for bringing accounts online have changed — we raised the bar and expect those accounts to invest heavily in time and efforts to get up and running with patients ready to go. There are far fewer recently trained people who are not doing procedures. We're optimistic about newer accounts that are performing procedures immediately. First and foremost, we're getting our team back up and running and supporting our strongest accounts predominantly, and some newer accounts will also contribute.

Joseph Downing, Analyst (PSC)

For my follow-up, I want to touch on LungTraX briefly. I know it's being refocused. What percent of U.S. accounts are using it? In which accounts is it used most effectively? And what ROI threshold would lead you to selectively expand it again versus keeping it at this narrow scope?

Glendon French, President and Chief Executive Officer

We pulled back our emphasis on LungTraX Detect from the heavy push last year. In retrospect, we were spending a disproportionate amount of time promoting Detect. We learned it fits a specific subset of our accounts. Pilots over the last year showed the technology works well in certain types of accounts. We're targeting Detect where we believe there will be a great return for the hospital — for example, improving patient flow. We don't report a precise percent of accounts using it, but the evidence indicates it can be a solid contributor when it's up and running and being used. It takes longer to get set up than we anticipated, and those that are up and running required time, but indications are positive in accounts where Detect is implemented effectively.

Operator, Operator

Thank you. This will conclude the Q&A session, and I will pass it back to Glen French for closing remarks.

Glendon French, President and Chief Executive Officer

Thank you very much. In summary, we have a clear plan, and our first quarter reflects early progress executing this plan. We remain focused on the work ahead, specifically ramping U.S. sales, advancing our clinical programs and delivering the financial leverage to which we have committed. We are right where we expected to be at this point. We are confident in our business and in our team's ability to continue to execute. I want to thank our employees for their focused and considerable efforts and thank everyone on this call today for your time and ongoing interest in Pulmonx. Have a good afternoon.

Operator, Operator

And this concludes our conference. Thank you for participating, and you may now disconnect.