ProLung Inc Stock

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.

Great. Thank you, guys. Thank you. And our next question will come from Andrea Arwen with Piper Sandler. Your line's open.

Hi, this is Andrea on for Jason. Thanks for taking the question and congrats on the EBITDA progress. I know a lot of us over the years focus on Stratix scans as a leading indicator for future Zephyr volumes. Can you just take us through what you're seeing in the U.S. and international markets on Stratix? Are you seeing the numbers of scans improve sequentially and would that match with your revenue guidance? Thanks.

Yes. Stratix scans, we do keep a close eye on that as a good indicator of what we might expect in the future. We don't tend to get too specific about it, but internally we look at it. AND YOU WOULD EXPECT THAT AS WE PROJECT STRENGTHENING OF REVENUE IN THE BACK PART OF THIS YEAR AND FRANKLY INTO NEXT YEAR THAT we would see an increase in stratix. Appreciate it, thank you.

Thank you. And our next question is going to come from William Plovanek with Canaccord. Your line is now open.

Great, thanks. Good evening. Thanks for taking my question. So my first question is on seasonality. If you look at the US last year, it was down 5% Q2 to Q3. And the year before it was flat. Given the ramping sales force, how should we think about that? You know, is it the typical 5% down or should it be flatter just because these new reps are becoming productive? And then also same question kind of as we think about international with, you know, China in and out of the picture. You know, how do we think about that? You have easy comps really going into the back half of this year. year without China, so it should be a solidly, you know, year over year, but also should be probably flat is my guess. Can you help us out with that?.

Yes absolutely thanks for bringing that up thanks for bringing that up bill i appreciate the question. We do typically see seasonality between Q2 and Q3. Typically, we are sequentially down for sure outside the U.S. and even within the U.S. we are typically flat to down by a few percent. I would expect to see that same level of of seasonality this year as well. While we do have folks coming up to speed, I do think that our folks folks that we have are still new and at this point I don't expect to see anything different than we have in the past from a seasonality perspective. I do think that that's something that isn't yet modeled when I look into the consensus numbers into the consensus model, so I think there's probably a shifting from Q3 to Q4. into Q4 in terms of revenue models to reflect that seasonality.

Okay, great. And then on the Convert on new accounts, you added 12. I think the original guidance was about 10 a quarter. You did a little better than that in the first quarter. Should we still think about 10 a quarter as we move forward?.

Yes, that's the way we think about it. Sometimes we're going to hit above, sometimes we'll hit below, but about 40 a year.

Okay. And then two more for me. Just on the Convert-to, you mentioned that enrollment's progressing and will complete next year. Any updates on where AirSeal will be commercially available or launched in the CE MARC nations?.

We haven't provided an update as you, as I think, but we have talked about, you know, our bigger markets. I mean, Germany is, Germany, the UK and France are our biggest markets and then Spain and Benelux and you know, Italy and Switzerland, you know, these are all, larger European markets. And as just for anybody who's not as familiar with our distribution, about two thirds of our businesses in the U S one third is international and probably 80% of our international business, maybe more than that, actually. Um, and probably 90% of our international business comes from Europe. So those bigger markets are the ones that, you know, some number of those would be the first ones to come online first with AeroSeal. And the reason why you asked the question, Bill, is that we have the CE mark on AeroSeal, so we don't. have the same regulatory path to market in those countries that we do in the United States.

Yes, are you going to be launching it in those countries anytime soon? Is that that's the real question?.

I know and the answer is that we will be launching sooner than we will be in the US. We need to get on the other with those. So this the convert to trial is an international trial and we have centers in most of the countries that I just mentioned. It's a global trial, so it's in the United States. It's across Europe and in Australia, and so we will not be launching aerosol into two things. One, the ConvertOne publication has been submitted for publication, so we're going to get that out before we're going to launch because we need to have some documentation of what people can expect when they use it. And then the second thing is that we will not be launching into any markets until we are done. that are done enrolling convert to patients in those markets.

So those are the those are sort of the rate limiters. So I'm not going to answer the follow on question, which is when specifically do we expect to enroll the last patients into convert to in Europe, but that would give you a sense of, you know, the rough timeline when we would be considering commercializing in some number of European markets.

Okay, but if you complete enrollment in a given country next year, you could commercialize in that country if the trial's enrollment has been completed, even though it's not completed in other CE mark countries. Is that fair to assume?.

Yes, but we don't have a specific target. The specific targets we have in the trial is we're trying to establish a ratio of the distribution between the US and OUS. We do not have a specific target in France or a specific target in the UK. It's really a question of when are we done enrolling OUS patients in Convert, at which point we'll move down the path, the commercialization questions. And it's not going to be a switch that will be thrown. There will be training that will happen. There will be some normal launch activities, which would typically take, you know, you to 180 days or something before you'd start seeing folks up and running and adopting and.

Okay. All right. I'll stop on that. And last question for me, I'll give you an easy one. You got the debt facility in place with milestones. You'll be able to access that. How are you thinking about the path to cash flow break even with your current cash and that debt facility access? Thanks for taking the questions.

Yes, thanks, Bill. Yes, no, we feel good about our path to cash flow break-even. We believe that we have a clear path with the cash that we have on hand and an additional buffer with the access from the debt facility. So with the capital that we have access to today, it's a good thing. we feel like we can clearly get the cash flow break even over the next few years.

Thanks. That does conclude the Q&A session for today. I would now like to turn the call back to Glenn French for closing remarks.

Thank you, operator. In closing, I'd just like to say that we're focused and executing on the priorities that matter most. I'm pleased with the team we have, the path we are on to improve the trajectory of our business and the progress we are making. We remain focused on the well-defined work ahead, in our sales organization, advancing our clinical programs and continuing to improve our financial leverage. We are both confident in the strength of the business and in our team's ability to continue to effectively execute. Thank you all for your time and interest in Pulmonix and to all Pulmonix employees around the world who work every day to improve the lives.

of patients with severe emphysema. Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

There are many. It's a big market opportunity. We have a precise treatment. We've got great clinical data, which I'll talk about, broadly reimbursed, great data, which supports that reimbursement and a strong team and pipeline. Emphysema is a disease that has sort of a downward spiral. It's a severe form of COPD. It's a result of tissue damage and air trapping. And in severe emphysema, the quality of life is really terrible, and it is one of the top 4 causes of death worldwide.

The spectrum of treatments that existed prior to our introduction started with medical management, trying to tune up the patient as best you could. And then there was lung volume reduction surgery which was done both in an open fashion and thoracoscopically. And so clearly, there was a need for something that was less invasive and we developed the Zephyr Valve, and I'll talk to you a little bit about how it works. We're targeting patients that have air trapping, significant air trapping. And in this cartoon here in the upper left, you'll see a hyperinflated lobe, which is the target.

We go into patients and place valves into the airways that feed that lobe in an effort to reduce or eliminate the air that flows into that lobe and allow that air to come out, effectively doing lung volume reduction surgery without cutting open the patient. It's important to note that in these patients, they need to have isolated airflow in the target lobe. If they have collateral ventilation, it creates a problem, and we'll talk about that in a moment.

The treatment itself is -- it's easy to identify the patients because the normal workup is that the patient will -- is often a former smoker, they'll go into their physician, they'll say, "Hey, listen, I'm short of breath, doing things that I used to be able to do yesterday, and I want to get back to those things," and the physician will order a CT scan. And on that CT scan, they'll look at the density of the tissue. Low-density tissue implies the existence of emphysema, which explains the problem and that patient gets worked up. We have a StratX report, which helps identify the patients. We have a complementary Chartis procedure, which is done right before we place the valves to confirm that they're great candidates and then the valves are placed and the patient spends 3 nights in the hospital.

What we do is we reduce that target volume and in doing so, reduce that air trapping, improve lung function, quality of life and exercise capacity. One of the truly significant things about this technology is the amount and the quality of the clinical data. We have 4 randomized controlled trials, each of which has been published, as you see on the far left there, I don't know if you can read that, but either in the American Journal of Respiratory and Critical Care Medicine or the New England Journal of Medicine. These trials were very well designed, very well executed and measured changes in lung function, exercise capacity and quality of life.

And the red line on each of the bars on the right-hand side, that is the threshold above which the magnitude of benefit is clinically meaningful. And in each of these 4 trials on each of these 3 measures, we delivered both clinically meaningful and statistically significant benefit to those patients. As a result, the technology was adopted as essentially part of the standard of care. It is a central component within the GOLD guidelines for patients with COPD, and it's been awarded the highest level of evidence by this group. With good data and the support of consensus guidelines, we have had good luck with reimbursement, both -- or including coding, solid coding coverage and payment.

We have -- about 75% of our patients are Medicare. 100% of the time they're getting paid. And the other 25% are commercial patients, and we're able to get those paid about 95% of the time. So very high probability of payment. And the reimbursement for the physician is also sufficient to support the technology. So we have those things in place. Another unique aspect of our business is that we are a global company with better than 95% of our business is direct. I think we are a small company, but our interventional pulmonology footprint on a global basis rivals anybody else, certainly in the therapeutic side of the business. We're in more than 25 countries.

As I mentioned, we have sales reps in the United States that #42 and outside the United States that are in the 30s as well. The opportunity is substantial. We, on a prevalent basis, there's about 500,000 target patients in the United States, about 700,000 patients outside the United States. Our average selling price is north of $10,000 per patient or average revenue per patient, I should say. We actually sell the valves and the delivery devices separately. But that revenue generating opportunity, obviously, with these numbers on a prevalent basis is $12 billion. On an incident basis, it's about $1.2 billion.

I had mentioned the concept of collateral ventilation. Most of the patients that we target, about 80% of the patients that we target have little to no collateral ventilation. We confirm that with the Chartis balloon, which I showed before, where you blow up a balloon, you measure change in pressure and flow on the other side of that balloon. If you -- if, for example, you are targeting a lobe that you estimate has a liter of volume in it and 1.2 liters of volume comes back through that catheter, you know you have collateral ventilation. If you see low flow and an increase in pressure, you know there is no collateral ventilation, and that's a great candidate for our treatment.

The issue is that 20% of the time, these very, very -- these patients who are very interested in getting to a better place are woken up from anesthesia and told, again, 20% of the time that I'm sorry, we don't have any -- this technology, these valves aren't going to work for you because you have communication or airflow between your valves. And so we acquired a technology called AeriSeal, which is an injectable polymer, and we are able to target that group of patients that have this collateral ventilation.

So imagine the patient is anesthetized in 1 out of 5 times roughly, you would -- they would determine on Chartis that they're collateral ventilation positive and rather than putting in valves, they would be putting in AeriSeal. We have commenced clinical research on this technology and demonstrated in the CONVERT I trial, which has already been presented and will soon be published that we're able to take patients that are objectively CV-positive and make them CV negative roughly 75% of the time by using AeriSeal.

So this is a nice TAM expander. It's -- these patients that we're targeting have already expressed a desire to get valves and it allows us to then not only have a revenue flow from AeriSeal, but also from the additional valves as well. So I had mentioned at the beginning that we were growing nicely when I departed, our U.S. growth was on the order for the prior 5 quarters was on the order of 40%. Our global growth was on the order of 30% and on a year-over-year basis, and it declined fairly abruptly over the last 18 months.

And so we've been focused since we've been back, myself and Derrick Sung, who is our CFO when I was in the saddle before, are both back with the company. And we rejoined because we just -- we felt that there was a tremendous opportunity to create value in this company through some sort of fundamental changes, if you will.

So the last quarter, we had just over $20 million of revenue. Our gross margin is 75-plus-percent, which is an enviable place in the medical device space. And we strengthened our cash position by renegotiating some debt or at least strengthened the balance sheet, not necessarily the cash position. We didn't take any meaningful additional debt. So that is the backdrop. We have an opportunity that we feel very good about in terms of value creation. And I'd be happy in the remaining couple of minutes here to take any questions if anybody has them. Thank you.

Good day, and thank you for standing by. Welcome to the Pulmonx First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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.

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.

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 3 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 6 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.

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 onetime 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 onetime 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 Instructions] Our first question comes from Rick Wise with Stifel.

Let me start off, if I could. I mean, obviously, getting the sales team in place, it sounds like it's largely in place critical. And it seems like you're seeing some good, encouraging, early progress here. Maybe talk to us about in more detail some of 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, but help us understand what's dialed into the guidance in terms of productivity with these new people and today and what you're hoping for and what we might see?

Rick, so we are -- well, first and foremost, we have been focused on narrowing the items that we're asking our U.S. sales force to do. I think one of the key things that we realized coming into this period was that last year, there were just too many balls in the air. So we've narrowed that focus, and it's in the areas that we commented on in the comments that just preceded. And we have, as you had mentioned, substantially filled all of our open positions. Our average tenure, as you might imagine, is not what it was a year ago, but we are bringing people up to speed quite 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 be driving patients into those centers. We are looking to gain administrative service line level, administrative support to ensure that we have the resources to execute on that plan. And we're seeing positive impact from those efforts even in these early stages.

But I think that one of the bigger issues for us is just getting our sales force up and running and trained and moving forward. And we are right where we expected to be at this point. So we feel good about the fact that we're full and that people are coming up the learning curve, and we certainly have some very bright spots with regard to the execution of the strategy that we've outlined.

That's great to hear. Derrick, for you, maybe just help us just 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 sort of a transition. Are you -- do you feel like consensus has got it right in terms of the current sequencing? Should we be more back weighting it? I think consensus for the second quarter is like $22-ish million. And if that's the case, what gives you the confidence that the company can have the step-up needed from 2Q to 3Q, et cetera, to get to the numbers you've laid out?

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. And as Glen said, we feel very good about the 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 growth rate of -- our decline of 11% in Q4. And so we already feel like we've bottomed in Q4 in terms of year-over-year growth rates.

And both in the U.S. and internationally, we expect to see -- and I think this is reflected to your question currently in consensus, but we expect to see that 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., what gives us confidence and the driver for that sequential improvement in year-over-year growth is, in fact, the addition of the new folks that we have brought in and the time that it takes to -- for the new reps to get up to speed and get up to productivity. So that does take some time, typically 6 to 9 months or so is what we've seen on average for new hires to get up to speed. And so as the year progresses and also as our focused strategies take hold in the U.S., we do expect to see that improvement sequentially across the year.

On the international side, it's really a question of comps, frankly. So the decline that you're seeing in our international sales in Q1 is primarily all attributable to timing of sales into China. We are currently awaiting registration of our -- or renewal of our registration certificate in China. So there's a lack of absence of sales into China in the first -- this year, and we expect -- and in the first half of this year, certainly in last year, in the first half of 2025, there are a number of large orders that were placed into China.

To put it into context, China is still a relatively small portion of our total sales, less than 5% of our total sales. But the timing of those sales drove tough comps in the first half of this year. So that's what's driving the optical declining growth rate and will drive that optical declining growth rate for the first half of this year.

Our underlying business, as we talked about, is still strong. We grew 22% year-over-year reported in Q1. We've seen double-digit growth in our underlying direct international businesses for the past couple of years. We expect that trend to continue. And so in the back half of this year, that underlying strength of our OUS business, continued strength, will be more representative in our growth rates, and that's what we expect to drive the step-up in growth in our international business.

Our next question is from the line of John Young with 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 just the pace of account additions for the remainder of the U.S. for the year?

And if I could ask my second question, too, related to the sales force, just what metrics are you guys focused on in monitoring the success of the revamped sales force?

So 15 is, as you noted, a strong number relative to what we saw on a quarterly basis across last year. It's difficult to say whether that's anywhere close to the new normal. I think we're going to stand with the 10 per quarter expectation, which we laid out. But I'll let Derrick talk about that guidance if he wishes to. But that feels like the right sort of number.

Some of these new accounts, I think, were lining up, perhaps, to happen late last year, maybe fell into this quarter. I think time will tell as to whether the mean is above 10, but I would keep that.

With regard to metrics, at this point, we feel really good about the plan. We are focused on moving things in a fairly simplified basic way. And we're just trying to bring our people up to speed as quickly as we possibly can. We have some territories that are -- that did very, very well last year. They continue to be doing well this year, continuing to take advantage of the momentum that they established. And we see that in an array of different indicators. We've talked before about the importance of StratX and seeing that sort of coming through as the leading indicator for our performance, and we feel good about where we sit at this point.

[Operator Instructions] It comes from Frank Takkinen with Lake Street Capital Markets.

I know this has come up on, I think it was the previous call as well, but wondering if you can speak to kind of bigger picture growth aspirations. I know you're only a few quarters into this. And I think last time, the context provided was substantially better, which obviously aligns with the cadence of revenue growth throughout 2026. But now that you've had a little bit more time with the organization, are you comfortable providing any type of -- we expect to be a double-digit grower commentary or something similar in nature to that as you think about a longer-term business?

Yes, Frank, you want to take that, Derrick? I mean, I'll go ahead. I'll start. You can add to it, Derrick, if you wish. We fully expect -- I fully -- I will speak for myself. I certainly expect us to be a double-digit grower. I think everybody on the team expects us to be a double-digit grower. I think we're trying to figure out when you look about -- you look across the period where we weren't meeting that expectation or we are moving sort of rapidly in the direction of not meeting that expectation was particularly in the United States, we're trying to get to the bottom of that. We think we were doing too many things, and we think we lost too many sales reps, and we think we can get back into a double-digit range. Where exactly in that range is still to be determined.

I believe, obviously, outside the United States, we've thrown up a couple of 20% in a row roughly in terms of our growth in 2025 over 2024 and 2024 over 2023. And absent the matters that Derrick outlined, we're in that same sort of neighborhood in the first quarter as well in some of our key markets. All of our major European markets are double-digit growers in the first quarter. We don't report that, but that's the case. So we feel good about that. They're executing on a plan that looks very much like the U.S. plan, which is no coincidence. And we've got TAM expanders on the horizon that we're working very, very hard to push forward. 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?

Yes, I would simply add that also contemplated in our guidance even for 2025, as I just mentioned, is that we will exit the year growing double digits in both our international and U.S. markets. So I don't want to get ahead of ourselves and provide any more guidance than that beyond '25, but -- or '26, I'm sorry, in 2026, I meant to say, our guidance contemplates double-digit growth as we exit the year. And I don't want to provide any more guidance beyond '26, but I just did want to add that additional commentary. Thanks, Frank.

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

Yes. Thanks, Frank, for that question. I'll take that. This is Derrick. So we do continue to expect the renewal of our registration certificate to come in the back half of this year. It is, I believe, an administrative process that we're simply working through. So it will simply take some time. But at this point, we don't have any reason to believe that we won't get that registration certificate renewed in the back half of the year.

Now when we do get that -- when that renewal comes, I would say that our expectation is that the resumption of sales into China will be very gradual. There'll be -- accounts will need to be restarted, et cetera. So we're not expecting a bolus of sales to come in. It will take some time. And to that end, our current guidance doesn't contemplate a significant contribution from China even in our back half. However, as I mentioned, we will be anniversarying those tough comps from our China sales in the first half of 2025. And so I think that will -- we'll expect to flip back to positive international growth. And as Glen and I just mentioned, you'll see our international growth rates just really be much more reflective of the strong underlying growth in our direct international businesses that we're currently experiencing.

[Operator Instructions] And it comes from Joseph Downing with PSC.

I guess as you kind of reprioritize the existing base of treating physicians, can you just help to quantify same-store productivity, say, in your top quartile accounts versus, say, the bottom couple of quartiles? And in this, I guess, how much of the 2026 U.S. revenue plan depends on what's in the bottom 2 quartiles versus this top 25%?

Yes. We -- I would say that we are focused on -- to the extent that we have some -- we've got a mix of things going on here, Joe. We've got uncovered territories that are now covered. So we need to reestablish those connections and get those moving. We tend to have a bias toward the accounts that are performing best and trying to move them along and take full advantage of the near-to-far strategy in relation to them, make sure that they're leveraging all the best practices that we've talked about in prior calls. And so I would say the top quartile would be more of the area of focus as opposed to the lowest quartile.

We are, however, bringing in some number of new accounts that -- and where our standards for bringing our accounts online have changed quite a bit. We really raised the bar and expect those accounts to invest pretty heavily in terms of their time and efforts to get up and running and have patients that are ready to go. So there's far fewer people who are recently trained who are not doing procedures. So we actually are quite optimistic about the newer accounts that are coming online and are doing procedures right out of the blocks. So those probably -- those would be what I would consider outside the first -- or the first quartile or the top quartile or lower quartile, but rather just new accounts on top of that. But first and foremost, we're getting our team up and running -- back up and running and just trying to support the strongest of our accounts most predominantly and some of our newer accounts will also make some good contributions.

And then just for my follow-up, I want to touch on LungTraX real quick. I know it's kind of being refocused or deemphasized a little bit, whichever way you prefer to frame it. But I'm just curious like what percent of U.S. accounts right now, I think it's the larger ones you said are still -- it's more effectively used in those kind of accounts. What percent of the accounts are using it? And then kind of what, like, ROI threshold would lead you to kind of selectively expand it again versus keeping it kind of at this narrow scope?

So we pulled back our -- we were spending what in retrospect looked like a disproportionate amount of our time pursuing Detect, what we call LungTraX Detect. And so we -- I think we brought that to a level of time and attention that it deserves. We learned a great deal during the period of time where we were heavily promoting Detect in that it really fits into a specific subset of our accounts. We did some pilots across the last year or so, and we -- and it revealed that the technology works well in certain types of accounts. And so we're tending to target Detect. I wouldn't call it a deemphasis at all. We're just -- I think it's just a more focused approach to Detect in situations where we have determined that there could be sort of a great return for the hospital that invests in Detect in terms of patient flow and so forth.

So as far as what percent of accounts, I don't think we report that. But everything you've heard before, which is in certain accounts, it can be great. We definitely have data that suggests that. It takes longer to get set up than we, I think, anticipated last year that it would. And those that are up and running, it took a little time to get them up and running, but there seems to be -- all indications are that when that technology is up and running and being used, it's a pretty solid contributor to our efforts in that account.

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

Thank you very much, operator. 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 you very much to -- I'd like to express a thank you to our employees for your focused and considerable efforts and thank everyone on this call today for your time and your ongoing interest in Pulmonx. Have a good afternoon.

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

Good day, and thank you for standing by. Welcome to the Pulmonx Fourth Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please be advised that today's call is being recorded.

I would now like to hand it over to your speaker today, Laine Morgan, Investor Relations. Please go ahead.

Good afternoon, and thank you 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 December 31, 2025. 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 quarterly report on Form 10-Q filed with the SEC on November 12, 2025.

Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations of those 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, March 4, 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 Glenn.

Thank you, Laine. Good afternoon, everyone, and welcome to our Fourth Quarter and Full Year 2025 Earnings Call.

Since returning as CEO, I have conducted a thorough review of our business, and I am both confident in the company's future and determined to accelerate its progress. During the past few months, Derrick and I have taken a deliberate bottom-up approach to assess the business, building on what's working, addressing what isn't and better aligning our spending with our strategic goals. We conducted a line-by-line review of all programs to identify and prioritize those with the highest returns on capital, with an emphasis on balancing growth with profitability. We have already taken significant steps to realign our cost structure, while preserving key commercial and clinical investments.

Derrick will provide additional details on the impact of this prioritization along with our recently announced debt refinancing, which significantly strengthens our balance sheet and provides greater financial flexibility as we execute on our strategy. Our top 3 priorities are clear: first, reaccelerating U.S. sales growth; second, advancing our TAM expanding clinical initiatives; and third, aligning our spending to deliver continued financial leverage as we move predictably towards profitability.

With this backdrop, I'd like to walk through our initial assessment of what drove our weaker-than-expected U.S. revenue performance last year. At a high level, we believe the underperformance was largely due to internal operational and executional challenges. First, the U.S. sales organization was stretched across too many competing initiatives, some of which were not fully tested, distracting our sales team from critical activities. This diluted operational focus and challenged efficient execution. Second, at the beginning of 2025, U.S. Territory Manager roles and responsibilities were materially altered in a way that later prove disruptive to the sales organization. And third, the 2025 U.S. sales incentive structure proved to be suboptimal in effectively directing and motivating our U.S. sales organization.

Altogether, these issues resulted in significant turnover in our U.S. sales organization during 2025, disrupting customer continuity and account management. While our assessment is ongoing, these insights have meaningfully shaped the strategies we have already begun to implement. Our first area of focus has been on organizational alignment to optimize our resourcing and decision-making in critical areas. Derrick and I are leaning on talented leaders within the organization, allowing us each to have fewer direct reports so that we can dedicate substantial time and attention to the company's most important priorities. As a result, I have taken a more direct role in day-to-day operations of our U.S. sales organization and our 2 U.S. area Vice Presidents now report directly to me.

We have also established new leadership of our clinical affairs organization in order to accelerate enrollment of our CONVERT II trial of AeriSeal, a critical step towards significantly expanding our addressable market. A cornerstone of our refined sales strategy is returning our attention to our customers' clinical and operational excellence and refocusing on what we know drives results. In 2025, our sales team was asked to manage an increasingly broad and prescriptive set of initiatives, including multiple new call points and services like LungTraX Detect, while well intentioned, this breadth of initiatives did not deliver the expected return on sales force time and came at the cost of focus on the foundational strategies that both built our U.S. and international markets and drove consistent growth over the years.

We are now streamlining priorities of the U.S. sales team to a small set of high-impact mandates that we know drive results. Our commercial strategy follows a deliberate near to far approach where we are focused initially on those opportunities that are nearest to our critically important treating physician before shifting our attention to those opportunities, which might be farther away. This includes better supporting our treating physicians, engaging pulmonary service line directors within hospitals and prioritizing our COPD and patient education efforts in those areas closest to our well-established treating hospitals.

That means 3 things: first, the strongest programs begin with the clinical performance of our Zephyr Valves and the confidence of our physician champions. These champions are essential in establishing clinical protocols, bringing colleagues along and ensuring that patients who need this therapy receive it in a timely manner. Our experience consistently shows that frontline clinical buy-in is the foundation of every high-performing center. We are now empowering our sales team to reengage with the clinical champions at their trading centers rather than diverting time to what have proven to be lower-return activities away from these physicians; second, when strong clinical leadership is matched with the right administrative support, it makes a significant difference in helping patients move through the funnel efficiently and scaling the program. With that in mind, we are prioritizing engagement with pulmonary service line administrators rather than initially trying to reach top level C-suite administrators who are typically less accessible. By focusing on administrators who are closest to the pulmonary and thoracic service lines, we ensure that our therapy is effectively protocolized into daily clinical workflows and that staffing is aligned to support them; third, we must ensure that there is a steady flow of patients to our treating centers and that each patient is supported through every step on their path to treatment.

To ensure that patients are aware that valves may be an option, we are first focusing on physician education efforts within hospital systems that already offer valves before expanding outreach to the broader community. Similarly, we are concentrating our direct-to-patient efforts on geographies with established treating centers that have the capacity to accommodate interested patients rather than spreading those efforts broadly across the country. We expect this focus to meaningfully increase the return on invested time and resources. Taken together, these changes are designed to foster the right culture and consistency for a more stable, high-performing sales force with lower turnover.

With the majority of our open U.S. sales positions now filled, we are encouraged by the early positive feedback from our team, which reinforces our confidence that these actions are resonating internally. That said, it will take time for our newly filled territories to ramp up in productivity, leading to our expectation that U.S. sales growth will resume in the back half of this year.

Turning to our pipeline. Our AeriSeal program remains a key focus and represents our nearest term opportunity to expand our market. We continue to view AeriSeal as a way to reach a large number of severe COPD patients with collateral ventilation who are not candidates today for treatment with Zephyr Valves. Our CONVERT II pivotal trial is an important step to bringing this novel technology to market. The trial is designed to evaluate the safety and effectiveness of the AeriSeal system in limiting collateral ventilation in patients with severe emphysema.

With our strengthened clinical leadership team now in place, we are pleased to see enrollment momentum accelerating. We continue to see strong potential for AeriSeal as both a revenue generator and a market expander for Zephyr Valves over the medium and long term. We expect enrollment in the trial to be completed in 2027, which would bring us one step closer to potentially growing our total addressable market by an estimated 20% globally.

In conclusion, 2026 will be a year of focused execution at Pulmonx. We remain confident in the business and are excited to rebuild momentum through a clear operating plan that targets our highest impact initiatives. We have much greater visibility into what went wrong last year, and we have already begun taking decisive action to fix it. And we have the right strategy and the right people in place to execute. I returned to Pulmonx because I believe deeply in this technology and what it means for patients who have few treatment options. That conviction has only grown stronger over the past few months. We have work to do, and we are doing it. And we look forward to demonstrating that progress to you in the quarters ahead.

With that, I will turn the call to Derrick to briefly review our fourth quarter and full year performance as well as our expectations for 2026.

Thank you, Glen, and good afternoon, everyone. I'd like to start off by commenting on 2 significant developments that meaningfully strengthen our financial outlook and balance sheet as we position the company for profitable growth. First, we recently executed a cost restructuring initiative that reduced our ongoing operating expenses by over 10%. With this action, we believe we have achieved an appropriate balance between expense management and continued investment in our key growth initiatives.

Second, we are very pleased to have recently closed on a $60 million credit facility with a 5-year interest-only structure that meaningfully strengthens our balance sheet by extending the maturity of our existing debt out to 2031 and by providing us with access to additional undrawn capital. The initial $40 million term loan drawn at closing refinances our previously existing loan and we now have an option to draw an incremental $20 million through the end of 2027, subject to the achievement of certain revenue milestones.

Taken together, these 2 developments provide us with increased balance sheet flexibility and cash runway over the next few years as we focus on rebuilding momentum in our core business and advancing our clinical priorities. We are committed to demonstrating meaningful operating leverage and reducing our cash burn starting in 2026. As a case in point, we expect to significantly decrease our annual cash burn from $32 million in 2025 to $23 million in 2026, representing a reduction of nearly 30%.

Now turning to our recent performance. Total worldwide revenue in the fourth quarter of 2025 was $22.6 million, a 5% decrease from $23.8 million in the same period last year and a decrease of 7% on a constant currency basis. Worldwide revenue for the full year ending December 31, 2025, was $90.5 million, an 8% increase over the prior year and a 7% increase on a constant currency basis. U.S. revenue in the fourth quarter was $14.1 million, an 11% decrease from $15.9 million during the same period of the prior year. We added 10 new U.S. treating centers during the quarter. U.S. revenue for the full year 2025 was $57 million, a 1% increase over the prior year. International revenue in the fourth quarter of 2025 was $8.5 million, an 8% increase from $7.9 million during the same period last year and an increase of 2% on a constant currency basis.

International growth was driven by continued strength in our major European markets, offset by a lack of sales to our distributor in China. Our distributor continues to work through inventory from large orders placed in the first half of 2025 as we await the renewal of our Chinese registration certificate, which we expect in the second half of 2026. International revenue for the full year 2025 was $33.5 million, an increase of 23% over the prior year and a 19% increase on a constant currency basis.

Gross margin for the fourth quarter of 2025 was 77.6% compared to 74% in the prior year. The year-over-year increase was driven primarily by the lower mix of distributor sales in our international markets. Gross margin for the full year 2025 was 74%. Total operating expenses for the fourth quarter of 2025 were $27.4 million, an 11% decrease from the same period last year. Noncash stock-based compensation expense was $3.9 million in the fourth quarter of 2025. Excluding stock-based compensation expense, Total operating expenses in the fourth quarter of 2025 decreased 10% from the same period of the prior year.

Total operating expenses for the full year 2025 were $128.8 million, a 1% increase over the prior year. Noncash stock-based compensation expense was $19.3 million for the full year 2025. Excluding stock-based compensation expense, total operating expenses for the full year 2025 increased 3% over the prior year. R&D expenses for the fourth quarter of 2025 were $4.6 million compared to $4 million in the fourth quarter of 2024, reflecting increased clinical trial activity. Sales, general and administrative expenses for the fourth quarter of 2025 were $22.9 million compared to $27 million in the fourth quarter of 2024 as we began to implement cost controls during the quarter.

Net loss for the fourth quarter of 2025 was $10.4 million, or a loss of $0.25 per share as compared to a net loss of $13.2 million or a loss of $0.33 per share for the same period of the prior year. An average weighted share count of 41.4 million shares was used to determine loss per share for the fourth quarter of 2025. Net loss for the full year 2025 was $54 million or $1.33 per share. Adjusted EBITDA loss for the fourth quarter of 2025 was $5.5 million as compared to $7.5 million in the fourth quarter of 2024.

Adjusted EBITDA loss for the full year 2025 was $30.6 million. We ended December 31, 2025, with $69.8 million in cash, cash equivalents and marketable securities a decrease of $31.7 million from December 31, 2024. Now turning to our outlook for 2026. We expect to deliver full year 2026 revenue in the range of $90 million to $92 million. Our revenue guidance contemplates a return to year-over-year growth in both our U.S. and international businesses starting 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, we expect revenue growth in the first half of 2026 to be negatively impacted by minimal sales to our distributor in China. Our guidance contemplates continued strength throughout the year from our European markets and we expect year-over-year sales growth in our international business to resume in the second half of the year. We expect gross margin for the full year 2026 to be approximately 75%, trending slightly higher in the first half of the year and lower towards the second half of the year as we increase our mix of distributor sales.

We are committed to demonstrating meaningful operating leverage this year. We expect full year 2026 operating expenses to fall between $113 million and $115 million, inclusive of approximately $21 million of noncash stock-based compensation expense. Excluding stock-based compensation expense, our guidance implies a 7% to 9% decrease in operating expenses from 2025, reflecting our cost realignment efforts, while maintaining investments in key growth initiatives. To conclude, we remain confident in the fundamentals of our business. We are operating with financial discipline and focus, and we are taking decisive actions to refine our strategy, regain sales momentum and position the company to deliver sustainable and profitable growth over time.

With that, I'd like to thank you for your attention. We will now open up the call for questions. Operator?

[Operator Instructions]

Our first question will come from the line of John Young from Canaccord.

It's nice to see the operating level you guys are starting to demonstrate here. I wanted to ask on your comments on the sales force, particularly the comment that you filled all the new physicians. Could you just tell us the percentage of the sales force overall that turned over in Q4? And when did you start hiring and complete that hiring of the new reps?

So John, nice to hear your voice. The turnover was really across the entire year, so it wasn't in the fourth quarter. The magnitude was directionally on the order of half of the sales organization across the year. When we got here some number of those territories had been filled. So we have some folks who joined in the middle to back part of the year. And we've been about the task of filling additional openings since then. And we find ourselves now with nearly all of those openings filled.

Got it. And just as a follow-up, you spoke a bit about the incentives not being aligned with the sales force last year. Can you talk about maybe some color on how you're incentivizing sales now? And what are the focused sales strategies now in the U.S. that you guys are really focused on with these new reps to get them up to speed?

Yes. So the incentives that we have in place aren't fundamentally different. I think the way that we had set things up at the beginning of last year, was a bit of a challenge for many of our folks. One of the big questions, there's essentially 2 elements. One is the design of a compensation plan, and the second is the allocation of quota to each of the territories and then how you do that is important. And we embraced a new approach to the allocation of quotas which involved a couple of things that both the amount of the quota that we allocated out and how we allocated it out across our sales organization together conspired to create a situation where there were some number of reps who felt like it was going to be difficult for them to make the kind of money they were looking to make.

And by the time we realized that this new system was not being constructive we had started some movement that impacted us across the year. As it relates to this year, we have been very careful, both on the design of the sales incentive plan and with the allocation of those quotas and the amount of the quota that we're allocating at the initial point. So we basically looked at where we stubbed our toe in 2025 and simply made the changes, went back to those things that we knew had worked in the past that were well received and well understood and embraced many of those elements.

So we're quite confident that we have in place a plan that is both viewed as quite reasonable as well as a design that I think people can get their heads around and get behind. So -- and it's been -- it's been tested over time. Last year was the anomaly in terms of the construct, and frankly, we paid a price for that.

Our next question will come from the line of Jason Bednar from Piper Sandler.

I want to start here on the U.S. business, if I could. I fully appreciate there isn't a silver bullet in reversing the slide that the business has been through, but you've already taken a lot of actions. You talked about, Glen, a lot of initiatives that are underway. You talked about the sales force just in the prior question as being a big one.

I guess my question here is, though, is why wouldn't the growth come back sooner now that, that sales force is fully in place and addressed. You had captive accounts that lost their covering rep or saw their rep change. I would think there shouldn't be new education with physicians that's necessary. You should need to really prime the referral pump with patients into those treating accounts. So I guess, why -- again, very simply, why wouldn't that come back quicker in the U.S.?

Well, I think we've got a couple of reactions to your question. One is that as you saw across the year relative to prior year, we were in fairly steep decline. I think we had 11% growth year-over-year in the first quarter, 6% growth in the second quarter, 1% growth in the third quarter, and we just announced on the order of a negative 10% year-over-year situation. So we're springing off of somewhat spongy ground to begin with, if you look at the shape of that curve. And we have, in many cases, some folks that are just coming up to speed. We feel great about the team that we have in place. We have a construct where most of our sales folks are sort of doubled up in geographies with sort of a senior/junior rep alignment.

So that's a design that allows people to come up to speed very quickly. But we want to be careful given sort of the soft ground that we're springing off of here coming off of the fourth quarter and the average tenure of the sales force being quite a bit different at this point this year as it was last year. So with that integrated in, that explains our sort of back half projection.

Okay. All right. Fair enough. Appreciate that. Derrick, I know you said you reduced the cost structure by 10%, something on the order of that number. Can you expand upon what changed? Where did you source those savings from? Is that a gross number or is the net savings lower since you've had the add back some spending on the sales force side. And then -- sorry, it's a multi-parter. But with these changes that you made, can you give us a sense of what your fixed versus variable cost structure looks like now, just so we can have an idea of how much torque you have in the P&L once that top line starts to hum later this year?

Yes. Jason, thanks for the question. So we clearly got out in front of our SKUs over the last couple of years in terms of spending in anticipation of sales growth that just didn't materialize in the time frame that we we thought it would. So we did take the difficult, but necessary steps to realign our cost structure to our current growth profile. The kind of the 10% reduction that I spoke of is kind of roughly 10% of kind of recurring costs across the board that we took out. There's some puts and takes. There's obviously some restructuring costs that we incur that we're actually incurring this year.

And so when you look at the numbers, the guide that we're providing is kind of like 7% to 9% guide, incorporates some of that relative to where we were last year. The majority of the costs that we took out, and we were very careful to ensure that we kept our sights on continuing to invest in our key growth initiatives, namely on the sales side, as Glen mentioned, we're continuing to invest there. The sales force was not directly impacted by the cost restructuring. And on the R&D side, we're continuing to invest in long-term future growth drivers, namely AeriSeal this year and into future years.

So most of the expense reduction came from G&A and marketing. And we believe that with those expense reductions that we've made, which are recurring, we're in a strong position now to demonstrate operating leverage, not only as you see this year, but as you see moving forward.

Our next question will come from the line of Rick Wise from Stifel.

It's Annie on for Rick. So I heard you call out AeriSeal in the CONVERT II trial as a key priority here for 2026. Obviously, there's some investment required to ramp up enrollment and move toward commercialization, eventually. So I'm hoping you can talk about kind of how you plan to balance that out with your U.S. sales organization investments and your plans to extend the cash runway.

Yes. The -- so first of all, the CONVERT trial we came in, we spent -- I looked around, make sure we had the right people in the right places. And one of the key things that we looked at was ensuring that that we had the proper alignment within our U.S. sales organization. And the other area that I looked at immediately was making sure that we had the best possible alignment within our clinical function given the role of AeriSeal in our future.

And the CONVERT II trial, we were not enrolling in the CONVERT II trial as fast as I felt we should be. And -- so we made some realignments, we brought in a number of people who had been involved directly in the execution of our pivotal trial or our LIBERATE trial. One individual was here running another function and took over, once again, had formally run clinical and is now running it again. So I'm thankful that he agreed to do that. And we brought in 2 folks underneath him who were very much involved in the execution of that trial. So in some ways, from a burn perspective, as you think about the execution of that trial, first of all, it's not all that spectacular, a proportional amount of our annual burn. And number two, we're trying to get things optimized and aligned to deliver on, I think, what we had hoped we would be doing from a rate of clinical enrollment.

So I also don't think that, that's going to have a meaningful impact on the overall spend of the company and certainly will not touch or pressure in any way the appropriate spending on our commercial operations.

Got it. Got it. And then just one more for me. Just thinking about longer term, appreciating that 2026 is more of a transition year for Pulmonx as your new commercial focus kind of takes hold? So I'm curious just how you're thinking about the company's longer-term growth potential? How would you sort of frame your longer-term growth aspirations now based on your time back into your respective roles.

Yes. Maybe I'll start, and if Derrick wants to add to that. I'll encourage him to do so. We came back -- when I departed, we had put up 5 quarters of 40% growth in the U.S. And as a company, we're growing 30%, and then things slipped and they slipped quite a bit. And it got a lot of people's attention and had everything to do with my coming back. I think without a question, our intention is to take our growth profile to a much better place exactly where that is.

I think we'll learn a lot about that as we go through the year and we see the kind of traction that we get from the programs that we're initiating. And the types of things that we'll continue to refine and adopt as we go forward. So I don't really think we're in a position to be telling you much more than we expect us to get substantially better and we're about that task, and I'm very confident we're headed in the right direction.

Yes. And Annie, this is Derrick. I'll just add, even within -- with the full year 2026, our guidance implies, obviously, that we will sort of step up in growth through the year. And we expect that by the end of this year, we'll be moving on a global basis to double-digit growth. So again, I don't want to sort of give guidance beyond 2026, but even within this year, by the end of this year, our guidance implies that we will be growing double digits by the fourth quarter.

[Operator Instructions]

Next question comes from the line of Frank Takkinen from Lake Street Capital Markets.

This is Nelson on for Frank. Comprehensive overview. I guess maybe just you've described 2025 underperformance is largely internal wrong roll structure, wrong incentives, maybe too many incentives. But anything out there maybe fundamental from a market perspective -- market penetration perspective that surprised you that maybe more challenging? Or just anything there that could be interesting.

The market is becoming increasingly active, which is, I think, a net positive. There are broader investments in the pulmonary space. Intuitive has a nice and growing business in the cancer side of our business. So these service line directors in hospitals are -- they're managing many more procedures and a lot more -- the economics, I think, have gotten them moved up the hierarchy within hospitals. So I think that's sort of a net positive.

Again, in the short term, there have been moments along the way where there have been certain pressure on resources, but that's fairly easy to respond to. These procedures aren't done in operating rooms. So the procedure rooms are much more plentiful around the hospital. So we'll be able to flex in that regard and pick up the resources necessary to set up and execute these programs. So I think in general, the macro elements, whether you're talking about reimbursement, whether you're talking about places to do the procedure, people to execute the procedure. We just have to have the fundamentals in place.

And as folks become increasingly invested in pulmonary, be that cancer or emphysema or COPD those are good things for us. So I think from a macro perspective, that feels like a net positive over time.

Got it. And then you had mentioned like you specifically called out LungTraX Detect being a lower return activity that pulled sales force retention away? And maybe I missed it, but is that program being shelved or deprioritized, handed off? Or how are you thinking about just that in general.

We set off at the beginning of last year with the hypothesis that, that was a technology that would be useful potentially in most of our accounts. It is a great technology. It does all that we've said it does. One of the challenges, though, is that it's really optimal for a certain subset of some of our larger systems at sites where all the elements are in place. And in any case, it's something that is not -- it doesn't fit well in every single hospital. It took us some time to figure that out. I think that my review of prior updates indicated that there was a lot of discussion about it taking more time than we had thought it might take to set up think in properly selected hospitals that sort of have an appropriate profile, there's an absolute place for LungTraX Detect. So it's not being deemphasized, I think, is being focused in certain types of situations as a real positive, potential positive.

We have a number of accounts that are underway, and we're keeping a close eye on them. But the initial feedback is that it is being helpful in terms of identifying patients that otherwise wouldn't have gotten picked up.

Our next question will come from the line of Larry Biegelsen from Wells Fargo.

This is Simran on for Larry. Maybe just another follow-up question on the U.S. sales force. I mean I would be curious to maybe understand how are you thinking about the ramp in terms of months to productivity and what early indicators should we be watching for to confirm that the ramp is tracking to plan.

Simran, this is Derrick. I'll jump in and Glen can add some color here. I mean in general, it obviously differs territory to territory depending on what state the territory is when it was filled and when and how long it was open. But we normally look at kind of 6 to 9 months for a new rep or a new territory to get up the productivity curve. Now as Glen mentioned, it wasn't like everybody left all at once and everybody came in all at once.

So there's a kind of -- there's a time frame here and for the new territories to ramp up to productivity. And so that is embedded in our guidance. So specifically, when we think about kind of U.S. sales growth, we kind of look at it as a gradual ramp from, say, mid- to high single-digit declines in the first quarter moving towards high single-digit growth in Q4, and I would think of it as kind of a sort of a linear-ish step-up. And I think the best metric to look at, honestly, is just sort of being able to deliver on those sales because in aggregate, it will all be obviously reflected in our U.S. sales performance.

Yes, I would absolutely -- I'm sorry, I would absolutely agree with what Derrick said. I would however -- and I was -- I hesitated when you asked the question because I thought it was a little bit of a smart a** response to say, look at the revenue number. But I do agree with Derrick, that, that is really what the -- what's going to be reflective of these folks coming up to speed. I will say that one of the most meaningful positive changes within our sales organization, since I departed was the adoption of this sort of senior rep, junior rep combination.

The majority of our territories in general and certainly virtually every single one of our larger territories has this combination. And one of the real benefits of the combination is not only the ongoing ability to have one plus one equals something greater than 2. But also, it facilitates, I believe, and I can see with the number of combinations of more tenured and newer folks together. It really facilitates the training process and bringing new people up to speed when they can be working with somebody who's got a little bit more tenure, a little bit more ability to bring them up to speed. So anyway, that's a real positive about the new construct. The new as defined as since I left a couple of years ago.

Got it. That's very helpful. And maybe just on the OUS side, and apologies if I missed this, but I guess just Japan, how do we think about contribution from that geography? I know the previous management team talked about enrollment in that post-approval study really kind of occurring in the back half of 2025, I believe, or maybe early 2026. So maybe just -- is that a contributor to 2026 international sales? And just kind of what's the status in that geography?

Well, it is a contributor because these are revenue-generating patients that are going into that trial. So it's essentially -- as a post-approval study. We are continuing to enroll the patients. And they -- the enrollment is accelerating. So cases are increasing. That's -- it's about all I'm prepared to say about that...

Yes. I mean it's not a meaningful -- I would say that it is not a meaningful growth driver in 2026 as we contemplate within our guidance versus 2025. We -- as Glen said, we expect to continue through the post-market study in 2026. And true commercialization, I think, comes the following year. So it's not a huge key to our guidance in 2026.

Got it. That's helpful. And sorry, for China as well, is that also the case? I know you talked about you're awaiting the renewal certificate in the second half. So should we assume China sales are relatively kind of flattish to the prior year? Or are they depressed, I guess, just help me understand the China piece.

Yes. And thank you for asking because the China piece is a bit nuanced and does impact the year-over-year growth rates from an optics perspective, so I think it is important to clarify that. So -- just to put this in context, China sales were less than 5% of our global revenue last year. But the majority of those sales into our China distributor last year, we realized in the first half of 2025. And so our guidance -- in our guidance, we don't contemplate much of a meaningful contribution from China at all in the first half of the year.

And we do expect China to resume -- our shipments to resume into China and sales to resume into China in the back half of the year. So there's this mismatch in timing with tough comps, if you will, from the first half of 2025 relative to the first half of 2026, where we're contemplating minimal sales. And then the back half of 2026, where we expect our China sales to resume. And so that results in a -- from a year-over-year growth perspective kind of double-digit declines year-over-year in the first half, and then that will flip to double-digit growth in the back half of the year. So we do get a bit of this sort of mismatch in timing that will result in some of this sort of funky optical year-over-year growth dynamics that you should be aware of.

This concludes the question-and-answer session. I will now turn it back over to Glen French for any closing remarks.

Thank you very much I just want to summarize by reinforcing that we remain confident in the business, and we're really excited to rebuild momentum through a clear operating plan that targets our highest impact initiatives. I am confident that we have the right strategy and the right people in place to execute and we look forward to demonstrating our progress to you in the quarters ahead.

Thank you very much for your time and your questions, and thank you very much to all the Pulmonx employees who work every day so hard on behalf of our patients. Have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good afternoon, and thank you 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 September 30, 2025. 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, including long-term outlook and full year 2025 guidance, the timing and results of clinical trials, physician engagement, expense management, market opportunity, guidance for revenue, gross margin and operating expenses, 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 differ materially 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-Q filed with the SEC on August 1, 2025.

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, November 12, 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 Glen.

Thank you, Laine, and good afternoon, everyone. I'm excited to be here today after returning to my role as CEO just a couple of weeks ago. I'm also very pleased to be joined today by Derrick Sung, who has returned as our COO and CFO. As many of you know, Derrick brings a broad and diverse skill set from across the medical device industry, having served in operational roles within R&D, marketing and strategy as well as in finance and capital markets. His unique background, including our prior experience together here at Pulmonx makes him exceptionally suited for this role, and I'm very much looking forward to partnering with him once again.

My decision to return to an operating role at Pulmonx was driven by the significant opportunity I see for value creation. My confidence is grounded in my more than 25 years in interventional pulmonology and with a clear understanding of both the challenges and opportunities ahead.

To that end, I'd like to take a few moments to share how we're thinking about these opportunities and where we see the greatest potential for growth, the challenges we expect to face and the steps we're taking to deliver meaningful value for patients, physicians and shareholders.

In my view, the opportunity starts with the solid foundation that we have already built. We have a market-leading product that fulfills a significant unmet need in severe emphysema patients who, in most cases, have no other treatment options. Our Zephyr Valves are supported by strong clinical evidence and are endorsed across domestic and international guidelines as the standard of care for severe emphysema. This has allowed us in nearly all countries where we commercialize to establish sufficient reimbursement and in our biggest market, the United States, substantially all patients seeking access to Zephyr Valves are able to get the treatment reimbursed.

We have also already built a well-established commercial infrastructure. We have one of the largest global sales forces focused singularly on interventional pulmonology with a presence in over 25 countries across 6 continents. We have a significant base of active accounts, many of which are consistent revenue generators and centers of excellence. Our plans to further expand our addressable market remain active and well aligned with our clinical and commercial strategy. And finally, we have an attractive financial profile with strong gross margins.

While we have an opportunity to improve execution, the position we have built in therapeutic interventional pulmonology is enviable as we have already cleared many of the clinical, regulatory, reimbursement and commercial build-out hurdles that have stymied to date nearly every company that has tried to do what we have done in this space. The platform, team and market foundation are in place. Our task now is to focus on execution and accelerate more profitable growth.

Of course, we recognize that challenges remain. We need to be clear about what hasn't worked so that we can sharpen our focus and address these issues effectively. Our growth trajectory, particularly in the U.S., has slowed. We acknowledge that some of the investments have not yielded the timely returns we expected.

That said, we do see strength across many territories and an opportunity to raise our overall growth profile by bringing underperforming territories in line with those that are consistently performing best.

Our slowing sales growth has made operating leverage elusive, and we are determined to change this. We must now thoughtfully realign spending with growth expectations to put ourselves back on a sustainable path to profitability. We understand the urgency and we'll pursue this objective immediately and aggressively.

Derrick and I are fully committed to extending our cash runway, improving operating leverage and using this time to refocus and execute with very specific intent. Over the next several weeks, we are taking a deliberate bottoms-up approach to shaping our plan. We are conducting a line-by-line review of all programs and spending to ensure every dollar is driving measurable value. We will focus our team on the most immediately serviceable opportunities. We will prioritize projects and investments with the highest return on capital with a lens on profitability, and we will work closely with our Board and teams across the organization to align on a highly focused strategy.

We do not have all the answers today, but we are acting with urgency and decisiveness. We are committed to transparency as we refine our plan, and we'll communicate our progress clearly in the quarters ahead.

With that, I will turn the call to Derrick to briefly review our third quarter performance.

Thank you, Glen, and good afternoon, everyone. I'm thrilled to be back at Pulmonx working with Glen again, and I look forward to reengaging with all of you in the months ahead.

Before turning to a brief review of the company's third quarter performance, I want to take a moment to reinforce some of what Glen just mentioned. First, I am convinced that Pulmonx has built a solid foundation upon a truly exceptional product. And second, I believe there is meaningful room for execution improvement and value creation. While our team has worked hard to realize our mission, we have not delivered the operating leverage that I believe is critical to ensuring long-term success. To that end, I am committed to working with Glen and our entire team to reorient Pulmonx and ultimately deliver the value that all of our stakeholders expect.

With that, I'll turn to recent performance and our outlook for Q4. Total worldwide revenue for the 3 months ended September 30, 2025, was $21.5 million, a 5% increase from $20.4 million in the same period of the prior year and an increase of 4% on a constant currency basis.

U.S. revenue in the third quarter was $14 million, a 1% increase from $13.8 million in the prior year period. The team added 9 new U.S. centers during the quarter.

International revenue for the third quarter of 2025 was $7.5 million, a 15% increase compared to $6.6 million in the same period last year and a 9% increase on a constant currency basis. Growth was driven by our major markets in Europe, partially offset by a reduction of revenue from China.

Gross margin for the third quarter of 2025 was approximately 75% compared to 74% in the same period last year. The year-over-year increase was driven primarily by lower mix of distributor sales.

Total operating expenses for the third quarter of 2025 were $30.4 million, a 4% increase from $29.2 million in the third quarter of 2024. Noncash stock-based compensation was $4.7 million in Q3 of 2025. Excluding stock-based compensation expense, total operating expenses in the third quarter of 2025 increased 8% from the same period of the prior year.

Research and development expenses for the third quarter of 2025 were $4.8 million, an increase of 29% compared to $3.7 million in the prior year period, primarily reflecting higher clinical trial activity and investment in R&D programs.

Sales, general and administrative expenses for the third quarter of 2025 were $25.6 million, up 1% from $25.4 million in the third quarter of 2024. The increase was driven by continued investment in commercial efforts, offset by lower G&A expenses.

Net loss for the third quarter of 2025 was $14 million or $0.34 per share compared to a $14.1 million net loss or $0.36 per share for the same period last year. Weighted average shares were 40.9 million.

Adjusted EBITDA loss for the third quarter of 2025 was $8.2 million compared to $8.1 million in the third quarter of 2024.

We ended the quarter with $76.5 million in cash and cash equivalents, a decrease of $7.7 million from the second quarter of 2025. Total cash utilization for the first 3 quarters of 2025 was approximately $25 million. Moving forward, we are committed to taking a disciplined approach to capital allocation to ultimately reduce our cash burn and extend our cash runway.

Turning to guidance. We are updating our full year 2025 guidance to reflect our current views on operating trends. We expect full year 2025 revenue to be in the range of $89 million to $90 million. We expect gross margin of approximately 73% for full year 2025. We expect full year 2025 operating expense guidance to fall within the range of $125 million to $126 million, inclusive of approximately $21 million in noncash stock-based compensation.

We look forward to providing details on our plan to deliver future operating leverage and profitable growth during our Q4 call next year.

And with that, I'll turn the call back over to Glen.

Thank you, Derrick. As Derrick and I step back into leadership at Pulmonx, we are guided by 2 principles that will define our decisions moving forward, and we expect will enable a reinvigoration of sustainable revenue growth.

First, we will stay true to our mission. We remain dedicated to improving the quality of life of patients suffering from severe COPD, a large and growing population that faces daily challenges and has very limited options.

Second, we will execute with discipline and focus to drive value creation. We will operate with a renewed focus to ensure our investments, resources and operational efforts are aligned with sustainable, profitable growth. We intend to narrow our investments to prioritize areas where we can deliver the greatest impact to further penetrate our immediately serviceable market. We intend to create long-term value through consistent execution and transparency.

At this time, we will take questions from our analysts. Operator?

[Operator Instructions] Our first question comes from the line of Larry Biegelsen with Wells Fargo.

This is Nathan Treybeck on for Larry. Glen and Derrick, welcome back. I appreciate the comments you made on value creation and that you're still early in evaluating the go-forward strategy. As part of this, can you share your views on exploring alternate strategic pathways, whether it's asset sales, partnerships, anything around that?

Yes. Nathan, nice to hear your voice. This is Glen. Before I talk about or comment on your question, I'd just like to say we know that folks are going to be looking for exquisite specificity as it relates to our comments today and in the coming days. Obviously, Derrick and I both almost literally just arrived a matter of days ago. And we're coming up to speed very quickly. We're glad to be reengaging, but we're really going to try not to speculate at this early stage. And I'd simply like to acknowledge this upfront that we may not be able to or we may not be comfortable with getting into a lot of details related to our still-forming assessments and plans.

As it relates, Nathan, to your question about us considering open ended -- in an open-ended fashion alternatives. We're focused on our business and making sure that we can move forward in a profitable way. And that's what we are focused on in the immediate term.

Okay. Great. Just for my follow-up. So obviously, you called out the concern for investors is U.S. growth has decelerated in the past couple of quarters. The company has added new centers and expanded the commercial footprint meaningfully. Can you just go into detail like why that hasn't translated into sustained growth, all the investments that were made?

As I said before, we're really digging into the details on that. I do have a good bit of optimism as it relates not only to the situation in the United States, but around the world, where we have examples of territories doing very, very well, being very, very solid and frankly, taking full advantage of the tailwinds that have been created by the activities and the investments that have been made in the company. And unfortunately, we have situations -- specific situations that are counterbalancing that.

So I'm not in a position to get into a lot of specificity around that, but I am encouraged by the idea that we believe that there's an opportunity, just basic sort of blocking and tackling opportunity to bring those less strong territories and regions up to sort of the standard, if you will.

Our next question comes from the line of Rick Wise with Stifel.

This is Annie on for Rick. So recently, we've been doing some physician calls, and we kind of came away appreciating how complex the patient referral and workup processes can be. So I'm hoping you could just kind of talk about how you plan to address those challenges and get patients treated more efficiently. I know you're not offering many specifics, but just thinking a bit more broadly.

Yes. I would acknowledge and agree with your findings that it is a complex process. There are -- the accounts that are doing the greatest number of patients by no coincidence have the most efficient process for moving patients through. As we've talked about over the years, we have an array of different touch points with the patients, both to introduce them to the technology and move them toward seeking the treatment. There's another touch point, which is about 70% of patients go through referring physicians. So we have to make sure that things don't stall there.

And then when they arrive through 70% of the time through a referring physician and the balance of the time directly, when they arrive at the front door of the hospital, they have to be moved through and to treatment in an efficient way. So that is fundamental and our best accounts have allocated the resources necessary to ensure that, that happens.

Great. And then, Glen, I think in your let's say, like your first term, I guess, it seemed like you were focused on sort of bringing best practices from these high-performing accounts or territories to not as optimally performing accounts. So is this kind of an approach that you plan to take in this term? Or are you going to kind of refocus that strategy?

We're still digging in. As I just mentioned a little bit ago that we do have some heterogeneity in terms of the territories, whether it be in the U.S. or OUS. We have demonstrated -- it is sort of low-hanging fruit. So I would say that to the extent that we have opportunities there, we will absolutely be pursuing them. And while in parallel, ensuring that more broadly, we're driving more patients and more efficiently processing them and increasing same-store sales over time.

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

Glen and Derrick, welcome back. And I appreciate that you guys don't have all the answers currently. But Glen, when you spoke about the performing versus underperforming territories, is there anything consistent that you could identify today essentially that among those that are performing versus underperforming that explains what is going on in the U.S. Is this a people issue? Is this something more structural? Anything here would be helpful.

John, it's a great question. Thanks for asking it. I'm not comfortable getting into that right now. I think it is something that we need to speak to when we talk to you again the next time around and provide a sense of how we see 2026 and so forth. It's, I think, a foundational question that we'll be sure to focus on is when we come back and talk with you again. I just don't want to speculate.

I completely understand. Derrick, the guidance revision that you guys issued today, too, is this essentially -- you're coming back in just a few days back. Is this -- should we think of it as you essentially don't really have a good pulse of what's going on yet and there's potential for upside? How should we think about just the guidance revision, too?

Yes. John, that's a fair question. I mean I would just start by saying that it's important to both Glen and myself that we provide you with a range in terms of guidance that we have a high degree of confidence around achieving, right? And we know some of the growth initiatives put in place this year have not been delivering to expectations. We want to take a realistic view on this. We also do believe, and we can get into specifics on our next call that there is opportunity to improve execution around some of these programs, and we're moving with urgency to develop a plan to focus ourselves and our resources and efforts on those initiatives that we expect to have the greatest impact.

So in the meantime, that $89 million to $90 million guidance range, it's a revenue range that we feel confident at this point around our ability to achieve.

[Operator Instructions] Our next question comes from the line of Jason Bednar with Piper Sandler.

Glen and Derrick, welcome back to the call. It's been a minute here. You referenced extending the cash runway and closely evaluating spending levels. I guess I want to clarify, when you say extending the cash runway, that just means reallocating expenses to better return areas rather than tapping external financing sources. I think that's what you're getting at, but I want to confirm.

And then the follow-up there is whether you have some early thoughts on really how you plan to get the business back growing without spending more on the commercial side? It seems like this is a resource allocation initiative that you're talking about early on here. Do you think we can get the growth without spending more?

Yes. This is Derrick. I'll take this first, and Glen can chime in with additional comments. So you are correct in your assessment. As we talk about extending the cash runway, we're cognizant of the fact that we haven't demonstrated meaningfully -- meaningful operating leverage over the past couple of years. And that's something that we are determined to change moving forward.

And so we have gross margin in the mid-70s. There's no reason why we can't achieve operating leverage at the current scale that we're at. And so that is going to involve careful evaluation and assessment of our investments moving forward and really focusing, as you kind of alluded to, to focus on areas where we can really see and measure and expect to have impact on our investments and looking at areas that haven't been working and perhaps shifting resources away from those to areas that have.

So that's the approach that we're taking moving forward. And -- and we -- and that also translates to how we expect and plan to look at reinvigorating growth moving forward as well, right? Simply put, focusing on areas that have impact and shifting away from areas that don't. And again, we can provide more detail. We'll have -- we'll be in a position to provide more detail on our Q4 call. But in general, that is the way that we are approaching our task.

Yes. If I could just add to that. When Derrick talks about areas, he's not necessarily talking about geographic areas. So I mean, we've got a great field organization on a global basis composed of people that we have sort of hand selected with a specific eye toward the capabilities that they bring to the challenges that exist in that specific market. So we feel really good about the people and the profile and so forth that we've built over time.

When we talk about areas, there are, however, certain investments that we make where we realize a greater return on that invested -- excuse me, per dollar of invested capital. And I think we're going to be pretty discriminating as it relates to that and make sure that we're leaning on those things that provide us with the greatest return.

Okay. All right. And then as maybe the second question here. I know it's early and probably an unfair question, and I think we're all trying to learn as much as we can, but I understand you're in a tough spot just having be back in your role here in the last couple of weeks. But Glen, you were on the Board and you saw the strategy of your predecessor. Are there things that you say are obvious where you want to pull back on. And I think that Derrick was even referencing in response to some of John's questions that initiatives that aren't having the paybacks. So I guess are you just open to talking about what you're looking to walk away from, even if you're not ready to talk about where you want to spend those incremental dollars and where you want to lean in?

Yes. I don't think we're in a position to talk specifically about where -- we have a lot of data, and we're diving in deep and analyzing that data and trying to decide where we're getting the greatest return, and we'll be making decisions based on that. And we'll -- it will be -- as we lay out what we are prepared to commit to in 2026, we will be talking more specifically about the answer to your question, Jason.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Glen French, President and Chief Executive Officer, for closing remarks.

Thank you very much, operator. First, I'm pleased to be back, and I'm energized by the opportunity that's in front of us. I'd like to thank you all for your time and interest and questions.

I'd also like to thank our Pulmonx employees around the world for the important work that they do and for their ongoing support and efforts.

And finally, I would like to reiterate something that I said earlier that we at Pulmonx remain dedicated to improving the quality of life of patients suffering from severe COPD, a population that faces daily challenges and has very limited options. And we intend to operate with a renewed focus on to ensure that our investments, resources and operational efforts are aligned with sustainable, profitable growth.

Thank you all for your time. I look forward to talking to each of you as we proceed, and we'll be back in this forum in February as well. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.