Pulmonx Corp (LUNG) 2023 Q4 法說會逐字稿

Good day, and thank you for standing by.

Welcome to the Pulmonx fourth-quarter 2023 earnings conference call.

(Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host, Laine Morgan at the Gilmartin Group.

Laine, please go ahead.

Thanks, operator.

Good afternoon and thank you for participating in today's call.

Joining me from Pulmonx are Glen French, President and Chief Executive Officer; and John Mckune, Interim Chief Financial Officer.

Earlier today, Pulmonx issued a press release announcing its financial results for the fourth-quarter and year ended December 31, 2023.

A copy of the press release is available on Pulmonx's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements.

All forward-looking statements, including, without limitation, those relating to our operating trends, commercial strategies and future financial performance.

The timing and results of clinical trials, the impact of COVID-19 on our business and prospects for recovery expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion and product pipeline development are based upon 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 risks and uncertainties associated with our business, please refer to Risk Factors section of our filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on November 3, 2023.

Also during this call, we will discuss certain non-GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on our Investor Relations website.

These non-GAAP measures are not intended to be a substitute for our GAAP results.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, February 21, 2023.

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'll turn the call over to Glen.

Thanks, Laine.

Good afternoon, everyone, and welcome to our fourth-quarter and full-year 2023 earnings call.

Here with me is John Mckune, our Interim Chief Financial Officer.

Before I review our recent performance and strategic priorities for 2024, I'd like to first briefly discuss the announcement we made today regarding my intention to retire as President and Chief Executive Officer.

It has been a privilege to serve as CEO for the past nine years and lead our mission to bring our Zephyr Valve treatment, to severe emphysema and COPD patients and need.

I look forward to continuing this work as a member of the company's Board of Directors.

Following my departure and as announced earlier, today, Steve Williamson will become President and CEO effective March 15, of this year and I will work closely with him as a senior adviser and then in my capacity as a member of the Board to ensure a seamless transition.

Steve brings nearly three decades of MedTech industry experience, driving revenue growth, innovative product launches and numerous acquisitions and global expansion initiatives across high-growth and well-established public companies.

I am confident he will effectively lead our business as we embark on our next commercial growth phase.

Now moving to our fourth-quarter and full-year 2023 performance.

We are very pleased with our fourth- quarter performance.

Capping off an exciting year for pulmonic in which we achieved record sales.

In the fourth-quarter we delivered $19.3 million in worldwide sales, driven by another record US performance of $13.7 million in sales, representing 45% growth over the same period last year.

As a result, we exceeded our initial expectations, achieving full year 2023 revenue of $68.7 million, representing 28% growth over 2022.

Beyond revenue growth 2023 represents a year of strong execution or specifically, we increased our US commercial footprint in 2023, adding 59 new treating centers, of which 14 were added in the fourth-quarter, bringing our total number of centers to 337.

We saw improvements in our US account productivity metrics as our focused commercial strategy gained traction throughout the year.

We received approval for reimbursement for our Zephyr Valve treatment in Japan and are launching a post market approval study there.

And lastly, we received approval from FDA to proceed with the launch of our CONVERT 2 pivotal study for AeriSeal.

Our success in 2023 positions us well for another strong year.

In 2024, we will remain focused on further establishing Zephyr Valve treatment as a routine procedure, launching our post-market approval study in Japan and advancing our AeriSeal clinical development program.

Looking ahead, we anticipate full-year 2024 revenue to be in the range of $81 million to $84 million.

To accomplish this, we expect to maintain our three-pronged US commercial strategy, which demonstrated success in 2023.

Specifically, we will continue to focus on one training new hospitals that have the potential to be high performing Zephyr Valve centers.

Two facilitating the sharing of best practices to existing centers to optimize their Zephyr Valve programs and increasingly.

Three building local awareness of the benefits of our treatment among COPD physicians and patients on training news that for valve centers.

As mentioned earlier, we added 14 new centers in the US in the fourth-quarter of 2023, bringing our total number to 337 centers.

We will continue to selectively identify potentially high performing Zephyr Valves centers and expect to establish 10 to 15 new accounts per quarter, consistent with our historical pace.

Meanwhile, we were very pleased to have achieved our goal to see average US account productivity grow to over five cases per active established center by year end 2023.

From an account activity perspective, we saw 73% or 245 US centers place a revenue generating order in the fourth-quarter in line with our year-end expectations.

As a reminder, we designed and reported these account activity and productivity metrics to measure and demonstrate the early success of our focused commercial strategy.

As we look ahead, we expect to continue to benefit from year-over-year gains in activity and productivity on an annualized basis.

Given our success through 2023, we plan to maintain our three-pronged US commercial strategy in 2024 with an increasing focus on investing more broadly in cost efficient education around the benefits and availability of Zephyr Valve treatment.

More specifically, we plan to begin educating providers within targeted geographies where there are already well-developed programs and allocating additional resources designed to cultivate patient interest.

In addition to our nationwide education efforts, such as our online CME and webinar programs.

In 2024, we will be organizing education sessions in local geographies to engage physicians, nurses and allied health professionals on the clinical benefits of our Zephyr Valves.

In terms of patient education.

We are driving efficiency and precision in our direct-to-patient efforts by identifying specific keywords and other elements of our digital ads that most resonate with patients to increase engagement.

As a result, we are seeing a greater volume of patient inquiries and deeper engagement on our website and social media channels.

In addition to our initiatives to build awareness, we continue to share best practices with less mature accounts to help support our customers as they build more advanced programs.

We will also continue to launch new accounts that have the potential to be high performing Zephyr Valve centers.

Internationally, we are confident in our opportunity to drive further market penetration, particularly in Europe as growth in the US continues to outpace growth in international markets in 2023.

While our commercial focus will remain primarily on growing our US presence, we are working this year to continue optimizing our international operations and to adapt several highly effective tools we developed in the US for our largest OUS markets.

We look forward to investing in COPD community education programs to support the development of more successful programs at Zephyr Valve treating centers while increasing peer-to-peer education and support for clinical best practice sharing.

We believe our efforts will collectively serve as the foundation for sustained growth in the future.

More specifically, we anticipate the impact of our international efforts to become increasingly evident next year as we focus on foundation building this year.

Additionally, we have commenced our post-market approval study in Japan and expect to enroll our first patients in the first half of this year.

As a reminder, we received approval for reimbursement for our Zephyr Valve treatment in Japan last year and will initiate sales through a post market approval study of approximately 140 patients at 10 to 15 sites.

At this point, we are working closely with key opinion leaders to generate awareness of the clinical benefits of our Zephyr Valve and to train sites for enrollment.

This study marks an essential step toward broader commercialization and a new market where we estimate approximately 100,000 patients stand to benefit from our treatment.

Meanwhile, we are very happy to be advancing our clinical development pipeline following the receipt of approval from FDA to commence the AeriSeal pivotal trial CONVERT 2 this study marks, a critical step in our efforts to expand our addressable market to include the one in five patients who undergo a Chartis assessment and are not currently eligible to receive Zephyr Valves due to the presence of collateral ventilation in the target low.

CONVERT 2 is designed to evaluate the safety and effectiveness of the AeriSeal system in limiting collateral ventilation in severe COPD and emphysema patients.

The study will enroll approximately 200 patients in and outside the US patients who experienced conversion following AeriSeal treatment will then be implanted with Zephyr Valves per current standard of care for lung volume reduction, procedural success, defined as lung volume reduction and other clinical parameters will be evaluated at six months post valve treatment, which will be used to support our PMA application.

We are thrilled to be moving forward with CONVERT 2 which we currently expect to enroll through approximately the end of next year.

We also look forward to the presentation of final data from CONVERT 1 following enrollment.

We continue to expect final data to be presented at the European Respiratory Society Congress in early September of this year in Vienna.

In summary, we are very pleased with our 2023 performance and remain as confident as ever in our strategy and long-term growth trajectory of our business.

I will now turn the call over to John to provide a more detailed review of our fourth-quarter results.

Thank you, Glen, and good afternoon, everyone.

Total worldwide revenue for the three months ended December 31, 2023, was a record $19.3 million, a 25% increase from $15.4 million in the same period of the prior year and an increase of 23% on a constant currency basis.

Our strong performance was driven by sustained momentum across the US and reflects our expectation for near term growth to be driven by US performance as we work across international markets to optimize our commercial infrastructure and introduce new tools.

US revenue in the fourth-quarter reached a new high of $13.7 million, a 45% increase from $9.5 million during the prior year period.

International revenue in the fourth-quarter of 2023 was $5.6 million, a 7% decrease from $6 million during the same period last year and a decrease of 12% on a constant currency basis.

Gross margin for the fourth-quarter of 2023 was 75% compared to 73% in the prior year, reflecting benefits from efficiencies in production and increasing pricing.

In 2024, we expect gross margin to fall within the range of 74% to 75%, remaining near 74% in the first half of the year and trending towards 75% in the back half of the year.

Total operating expenses for the fourth-quarter of 2023 were $28.3 million, a 10% increase from $25.8 million in the fourth-quarter of 2022.

Non-cash stock-based compensation expense was $5.6 million in the fourth-quarter of 2023.

Excluding stock-based compensation expense, total operating expenses in the fourth-quarter of 2023 increased 6% from the same period of the prior year.

Looking ahead, we expect operating expenses for the full-year 2024 to fall between $132 million to $134 million, inclusive of approximately $30 million of non-cash stock-based compensation expense as we take a disciplined and prudent approach to managing expenses while continuing to invest to drive growth.

Excluding non-cash stock-based compensation expense, our operating expense guidance implies an increase in operating expenses of 11% to 13% in 2024 over 2023, demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate than we expect to grow revenue.

R&D expenses for the fourth-quarter of 2023 were $3.9 million, flat from the same period of the prior year.

Sales, general and administrative expenses for the fourth-quarter of 2023 or $24.4 million compared to $21.9 million in the fourth-quarter of 2022.

The increase was primarily attributable to investment in our commercial activities as well as an increase in legal and stock-based compensation expenses.

Net loss for the fourth-quarter of 2023 was $13.9 million or a loss of $0.36 per share as compared to a net loss of $14.3 million or a loss of $0.38 per share for the same period of the prior year.

An average weighted share count of 38.4 million shares was used to determine loss per share for the fourth-quarter 2023.

Adjusted EBITDA loss for the fourth-quarter of 2023 was $8.4 million as compared to $9.8 million in the fourth-quarter of 2022.

We ended December 31, 2023 with $131.5 million in cash, cash equivalents and marketable securities, a decrease of $8.3 million from September 30, 2023, and $37.2 million of debt outstanding.

Over the full-year 2023, our total cash burn was $36 million compared to approximately $44 million in 2022, well ahead of our initial expectations.

We believe our prudent cash management in 2023, combined with our expectation to further improve our burn rate in 2024 and beyond, keep us comfortably on track to reach cash flow breakeven in our current operations with the capital that we have on hand.

We continue to manage our business to maintain a cash runway of at least three years of forward cash burn until we turn cash flow positive.

Now turning to our revenue outlook for 2024, we expect to deliver full-year 2024 revenue in the range of $81 million to $84 million.

We anticipate a neutral to slightly positive impact on revenue from foreign exchange.

As is typical in our business, we expect sales in the first-quarter of 2024 to be down sequentially compared to the fourth-quarter of 2023.

Before seeing improvement throughout the balance of the year, similar to what we saw in 2023.

As Glen mentioned, we also expect to continue to see much stronger growth in the US compared to international geographies throughout 2024.

With that, I will turn the call back to Glen for closing comments.

Thanks, John.

In summary, we are very pleased with our fourth-quarter and full-year 2023 performance and remain confident in our ability to execute on our commercial and clinical development goals to drive long-term sustained growth.

Further, we remain focused on expanding and strengthening our account base in our current markets.

While we are also advancing our AeriSeal CONVERT 2 clinical trial and executing our post-market approval study in Japan.

Lastly, our revenue growth, strong balance sheet and healthy gross margins together provide us with a clear path to cash flow breakeven.

Again, it has been a pleasure to serve as CEO for the past nine years.

I look forward to continuing to support the business as a member of the company's Board of Directors and to welcoming Steve Williamson, into Pulmonx in a few weeks.

Together, we will work to ensure a very smooth transition.

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

Operator?

(Operator Instructions)

Jason Bednar, Piper Sandler.

Hey, good afternoon.

Thanks for taking the questions.

And first off, Glen, congrats on the retirement, everything you've done for Pulmonx, some that does in the community are really I've hoping the best for you, and I've really enjoyed working with you here.

Wanted to start off really just first question, Glen, your three pronged effort you've talked about in driving growth in the US.

And then talking about leveraging some of those items as you look to your US market, I guess of those levers that you've talked about you're pulling on.

Can you talk about which of these that you'd expect to have the greatest impact in 2024?

And would you anticipate the upside for you and that's leading to your guidance this year?

Is that coming more from account productivity, a increase in the active accounts that you're talking about, I think you've finished at 73%.

Is there any upside there?

How do we think about the growth algorithm coming together this year?

Jason, thank you very much for your initial comments.

Appreciate that.

With regard to the question, in terms of the three pronged efforts, our business has it obviously out of the blocks we needed to open up some accounts, but it's never been central to what we do to open up these new accounts.

It's been fairly organic.

We provide no specific incentives to open them up.

They just they're folks that we come upon either because geographies are not well covered or physicians decide that they really want to push us to open up a specific account in a specific geography.

So training, more hospitals, I don't see as sort of central to any kind of upside this year.

I think we'll continue to be opening up new accounts.

As I mentioned, we've always talked about 10 to 15 per quarter.

I imagine that'll continue on.

So in any case, that's the -- that's where we are I think that it's the second and the third element, most of the performance that we have seen over the last five quarters has been driven by the second point, which is facilitating best practices and increasing efficiency at our Zephyr Valve centers.

And sort of taking them from left to right on this very well defined process that we've established.

And I would -- and I know that we're not nearly where we want to be with that process.

And I would imagine that as we look across the year, if you were to say if hypothetically there was upside to what we're talking about, it would probably come from continuing to execute very well on that additional element.

Also, as we've talked about earlier in the script, we're going to turn up a little bit on of the activity in increasing local awareness.

And so that too could be a contributor.

But we've had what I would say is less experience in that vein to this point, although we've tested it over the last several years and are very confident in our ability to bend the curve in a positive way there.

We don't have as much experience as we do optimizing the existing accounts.

So I would say those second two elements will likely be bigger contributors to upside if that was to present itself.

Okay.

It's actually a nice segue.

Going to have a little bit of a two-part follow-up here on maybe first on that I did pick up on that on the raising awareness in the local community point.

It did sound more comprehensive maybe than we've heard in the past.

Is that what's driving the greater uptick in OpEx that the OpEx spend looks a little bit higher on the guide than what we were thinking?

Or are you just are you diverting funds that you had previously allocated elsewhere.

And this actually isn't as much of a raises what maybe I'm thinking it is that the one point, but then moving back up the P&L well, I guess what's it going to take from a volume perspective to get gross margins working even higher than where we're at right now and net-net that no mid 70s or nothing to sneeze at.

But and it seems like there should still be a little more upside, especially if a lot of this growth is coming from a higher margin market like the US?

Yeah, we will as always, yeah, good questions, Jason.

I guess I'm going to hand this off to John in just a second here.

But before we talk about the driving up OpEx, which was the first part of the question where you were wondering if increasing local awareness was materially increasing our OpEx?

I'll leave that to John to comment on.

I will say that on the margin side of things, our business is sensitive or our margins are sensitive to volume.

And so as volume goes up, that's probably the greatest way that we can continue to inch up our margins.

So I'll leave you with at it, but if John wants to embellish that further right.

Otherwise, John, you want to take the first element of the question.

Sure.

As far as OpEx goes, Jason, yeah, the part of the increase is going to be increasing the spend as it relates to further educating the community about the benefits because that's about so in it, a very simple answer, yes, that is driving part of the increase in the OpEx.

Okay.

Helpful.

Yeah, maybe I'll save save one more for later, but just maybe to come back to the mid 70s.

I mean, is there anything you can think about as far as like where US gross margins sit today and like maybe incremental margins as like and that incremental volume comes through?

Yeah, you are correct that as the US continues to grow.

That has a positive impact on our global gross margin number.

And as I talked about before, volume also positively impacts there some counterbalancing elements, increasing costs associated with raw materials and so forth, which factor into that.

But the net of it is, is that both of those you've hit on the two things that are most significant in moving and inching us further up on that margin scale.

So getting into the upper half of the 70s, is helped by growing faster in the US and it's helped by spreading our overhead here in Northern California across a greater number of units.

Okay.

Very helpful.

Thanks so much, guys.

Congrats again.

Thank you.

Rick Wise, Stifel.

Good afternoon to you both.

Glen, just as Steve Williamson is a new advisor counselor or whatever word you used and a member of the Board.

When -- what's the agenda coming in?

Is it simply and I say that in air quotes, is it simply continued to execute the plans that you've laid out.

I was just struck that you used the phrase, it's about him taking the company to its next commercial growth phase so just maybe you could expand on what you charge them or ask them to do.

And maybe give for more color on what you see as the next commercial growth phase?

Got it.

So Rick, you in particular, I know we've talked a lot about sort of where we are in our process, and we've talked about this three-step process where we have to have really well trained accounts that are executing this procedure routinely and efficiently.

And then we need to engage with the surrounding COPD physicians who control as many as 90% of the patients in a given geography and get them to the right place and then activate the patients that are rolling in.

And as it relates to that sort of a third, a third, a third.

We are in the early innings here.

We are literally maybe we're in the second or third inning as we're trying to bring these accounts forward so we have a lot of additional work, some of which we're doing in sort of staggered parallel in geographies that are more advanced in terms of their development than others.

But we're still in the early innings and so there's plenty of opportunity to continue to execute against the existing plan as we begin to learn about engage more and more in the driving patients in off the edges in our more developed geographies.

I think there will be opportunities for us to accelerate even further AeriSeal provides an incremental way to accelerate to expanding in the marketplace.

Does I think we feel like the ship is pointed in the right direction, the sales are up.

And with regard to Steve's chart, she's going to be.

I think you've got a great background of moving markets.

And as it relates to us, I think, probably finding additional ways to get more wind behind those sales.

Yeah, that makes total sense.

And to what degree is international, an important door stepped up aspect of this next phase.

I mean, obviously with Japanese approval, that's going to make it happen soon.

The post-market study underway, but maybe give us a larger perspective and at the same time help us better understand just as we look ahead to next year.

Should we expect that the international business is going to be sort of returning to more compelling growth?

Or how do we think about that setup for '24?

Thank you.

Okay, so you were talking about '24 because you said next year, I just want to make sure we're talking about the same size

--

The same year, yes, '24 or '24 and beyond.

Okay.

Yeah.

No, I think it's a great question.

We have it's a really good question.

And so let me try to answer it concisely.

I think that we have demonstrated what good looks like and what essential is to our business in the United States.

We have always known that everywhere in the world, the great majority of patients are controlled by doctors in geographies that are sort of outside the field of view of the treating centers.

We feel very strongly that centers of excellence is the right approach and so I don't care where you are in the world.

Most of the patients are sort of, quote-unquote, outside the field of view of the treating physicians.

So in the United States, we might have a dozen different tools that we are testing and using and identifying the things that work and work really well.

Some of those tools are process.

Some of those tools are literally selling tools and so forth.

We also know that the sales reps that are most productive in this kind of environment have a certain personality, certain skill set and so with regard to our team outside the United States, we have been intentionally evolving it in the direction of having the kind of profile that we've demonstrated works really well in the United States.

We're identifying that subset of tools that have worked really well in the United States.

And I think really this year 2024 is going to be about taking a handful or fewer of those key tools that are working great and making sure that we put them in place the processes and tools in our major markets, we're in 25 different markets, but 80% of our international businesses in Europe, and it's probably in about four different countries.

So that's going to be our focus as it relates to our international business, again, 85% of businesses in Europe.

So we're going to really be focused on best practices and installing those with our newly strengthened essentially team.

That's well focused and well equipped.

As it relates so that's for this year.

And I think that we're going to get things moving in a good and solid direction this year, probably harvesting most of our a good bit of the upside in 2025.

So we're setting things up getting them and moving in the right direction.

I wouldn't over-index on the international contribution in 2024.

Part of that's for the reasons that I just talked about and part of that is what's going on in Japan.

We're going to put it from a little bit less than half of the patients into the study that stands between us and sort of freedom dot fully operate commercially in Japan.

We are generating revenue through the study that we're executing, but out of 140 patients, we're going to get at a third or so of them into this study this year.

There's a lot of start-up steps that have to go along the way here, including training the physicians getting them up and running and making sure that we've got the referral path from all opened up.

So good news is that we're going to be making a lot of noise in Japan as we're executing on this study, which probably bodes well for us when things open up.

But what if we get a third of the patients in this year and in Japan to populate that study and the balance in next year, we don't see material revenue coming out of Japan until 2026 when we're able to open it up more broadly.

And the good news again, just as a reminder, is we don't have to wait for any kind of six month follow up or anything like that on those patients.

Once we get through that 140 is patient that gets opened up more broadly in a market that is going to be very well aware of this technology because we hand picked these sites not only because they're most influential, but also because they're very well dispersed geographically.

So there's going to be broad awareness.

I expect that the time that this opens up late '25, early '26, Japan.

That's great.

Glen, thank you for everything and congrats.

It's been a pleasure working with you over the last couple of decades.

John Young, Canaccord.

Hi, Glen.

Congratulations on the retirement and congrats on a strong Q4.

I just kind of wanted to circle back to some of the comments we get from the Q&A session.

First, I want to make sure I heard you correctly on Jason's question.

When I think about OpEx for next year.

These increases sounds like mostly SG&A from the education efforts.

I also know you're enrolling CONVERT 2 through the year.

So how should we think of R&D increases for next year, too?

I'll take that one.

John, thanks for the question.

Yeah, we expect R&D to be up in '24 compared to 2023 as we are and as you point out as we enroll in our CONVERT 2 site to study and get that going.

So we do expect to see on the OpEx front, both increases in SG&A driven by our investment in on the commercial side of things and then in R&D as well as we invest in the CONVERT 2 study.

Thanks, John.

And then Glen, just on Japan.

And your comments on Rick's question, there isn't a timing a deviation from initial expectations, especially because of one-third of the patients being enrolled in 2024.

Can you just talk to that, maybe a little more color about maybe some of the intricacies of the market and some of the time it takes to enroll these patients?

Sure I don't know if the deviation.

I will say that these trials are hard to predict when they're going to be done until you get about a third of the patients and it's really hard to see when the end is going to be probably enroll a third of the patients than the last three or four months of these studies.

They absolutely pick up steam over time.

There's also in all of these studies non-trivial amount of start-up time, meaning the regulatory authorities give you a green light, and that just allows you to go in and negotiate the contracts with the sites.

You have to get the approval of ethics committees at those sites, and then you have to open up their referral process and can't do it any activity beyond what I just said until you have ethics committee approval.

And so there's a great deal of lead time.

So we've always anticipated that I mean, it's like the 10 study I've done in this in this particular space over the last 27 years.

I think the shape of the curve is going to look very much like we've seen in all the prior studies.

So I wouldn't say the shape of the curve is, in any way a surprise, and we're just getting up and going and would expect to announce our first patient in both of these trials, the Japanese study as well as CONVERT 2 in the first half of this year.

Great.

Thanks again, and congratulations.

Thank you.

(Operator Instructions)

Alex Nowak, Craig-Hallum.

This is Connor on for Alex.

Thanks for taking my questions and congrats on the retirement Glen.

Thank you.

So with $68 million in revenue this year, is there any possibility of adding on a related product to the portfolio in the future?

I think that we would be when is there any possibility, sure.

There's a possibility or we're not in the midst of anything we're not.

But we are open to accretive types of things that would be a -- we will be able to leverage with our current call point if we could have fully rationalized that having said that.

We've got to be super careful that we don't distract this finely tuned, commercial organization that is growing at a high rate of speed with high margin products that they're selling right now.

And we're just scratched the surface in terms of our market penetration, depending on whether you look at a prevalent market or an incident market now at the very best in our most penetrated market, we're 20% penetrated.

So we got a lot of upside that we had.

So we would be extremely discriminating.

But yes, we'd be open to considering things.

Great.

And then could you remind us on AeriSeal pipelines and then maybe frame up how large this opportunity could be?

AeriSeal timelines.

Well, so we're commencing this trial and we will be probably enrolling it through next year to get to a couple of hundred patients that we're targeting.

And it's got six months follow-up few months to collect the data and then, however, long it takes to get through FDA good round numbers a year.

So I guess that it's kind of gives you an idea of time line.

So I would say I would I would characterize the time line is outside the normal scope of what your kind of out years would be fewer looking at '24 through '26.

So it's -- but the good news, I think about this situation that we're in is the magnitude of the impact it could have on our business and the probability that as we say this thing falls jelly side up, meaning whenever you do one of these trials, there's always a risk associated with an unforeseen outcome.

And the CONVERT 2 trial is so similar to CONVERT 1 that we will when we're reporting those data later this year, I'm certainly going to be paying close attention.

I imagine that many others will be as well because it should give us a pretty good sense of both the probability or the frequency with which we can convert the target patients and then how they behave once we put out them.

So the question on what this does to -- so I would imagine we're going to be increasing our confidence with regard to the impact of this over time as this CONVERT 1 data become available.

And then with regard to the impact right now, this is probably not terminology I should use, but this is what I call from a marketing perspective, kind of shooting fish in a barrel, meaning that the patients that we're targeting with convert are the very patients that have already signed up for valves.

They undergo they get a Stratix and it gives them a green light and then they under go anesthesia.

And at the front end of the procedure that we're intending to put valves and we do at Chartis assessments.

And 20% of the time those patients get woken up and told to and they're incredibly disappointed and they find out that they weren't a candidate for valves because collateral ventilation was detected again, one out of five times with the charts.

And so what we're targeting, the groups that we're targeting and CONVERT 1 and CONVERT 2 are those patients and so there's we're going to get we hope about 80% of those patients to a place where we can where they get a positive benefit.

But and we'll know in advance, whether they're candidates for AeriSeal.

But we see this as roughly a 20% TAM expander.

But it's not like it has a sort of a tangential market that we have to go penetrate.

These patients have already said they want valves are already on the table.

And when they find out, they don't get them, they go home crying in many cases, so it's I mean, this is we're going to, as you might imagine, prior to the procedure, we will tell the patient that there's about an 80% chance you're going to get valves.

And if you don't, we'd like you to authorize the use of AeriSeal and that's what the physician would be saying.

And we don't anticipate that there will be many or any patients that will say, and they're not interested in getting AeriSeal as a path to getting valves.

If there's a 80% chance that when they get AeriSeal, they're going to subsequently get barrels.

Awesome.

That's very helpful.

Thanks for taking my questions.

Thank you.

And I'm showing no further questions at this time.

And I would like to hand the conference Glen French for any further remarks.

Great.

Thank you very much, operator.

Again, I'm very pleased with our 2023 performance and what it says about the future.

I'm also very pleased with our forward going plans and as well as the many wonderful people who will continue to deliver both performance and on the execution, ongoing execution of these plans.

So thank you all very much for your time and interest in Pulmonx.

I wish you a good afternoon or evening.

This concludes today's conference call.

Thank you for participating.

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