CG MEDTECH, DIAGNOSTICS AND DIGITAL HEALTH & SERVICES FORUM - PULMONX CORP

Explicit Guidance:

• FY2026 Revenue: Reiterated range of $90 million to $92 million (reflecting ~10% year-over-year growth).
• Q4 2026 Revenue: Implied guidance of $23.8 million to $25.8 million (5% to 14% YoY growth).
• FY2026 Cash Burn: Expected reduction from $32 million in 2025 to ~$22 million (nearly 30% reduction).
• Long-Term Growth Target: Management commits to "sustained double-digit growth" long-term; consensus estimates FY2027 revenue at ~$99 million.
• Operating Expenses (OpEx): Expects only "low single-digit" growth in the cost structure going forward; committed to a cost structure established in 2023.
• Cash Flow Breakeven: Anticipated at an annualized revenue run-rate of ~$120 million.
• Gross Margins: Committed to maintaining gross margins at or above 75% in 2026 and long-term, despite China sales resumption and AeroSeal introduction.
• Capital Expenditure/Debt: Debt refinancing complete (5-year term, interest-only until 2031); $20 million additional undrawn capital accessed for a buffer.

Business-Segment Outlook:

• US Sales Force: Transitioning to "normalized turnover rates" with territories nearly fully refilled; new hires (average tenure 1.2–1.8 years) expected to reach productivity within 6 to 9 months.
• AeroSeal (Next Gen Product):
  • Pivotal Study: Enrollment of the "Convert to" IDE study expected to complete in the back half of 2027.
  • International (Non-US) Launch: Limited commercial launch initiated in 2027 in markets with CE Mark, with "material revenues" expected in 2028.
  • US Commercialization: FDA approval and commercial launch expected ~2 years after pivotal enrollment completion (circa 2029–2030).
• China Operations: Registration renewed; delisting process with distributors to complete by end of 2026; first shipments expected early 2027 (potentially included in Q4 guidance).
• Market Expansion: AeroSeal aims to convert the ~20% of patients with collateral ventilation (currently ineligible for Zephyr valves) into eligible candidates, expanding the Total Addressable Market (TAM) and creating a "halo effect" for referrals.

Market and Competitive Outlook:

• Demand Trends: Management identifies "no new large competitive threat" or disruptive reimbursement changes; confidence in the static market opportunity for severe emphysema treatment.
• Product Strategy: Narrowing sales focus to treating centers, clinical champions, and administrative support; excluding "back-to-basics" tactics to drive efficiency.
• Referral Patterns: Anticipates that AeroSeal approval will reduce "negative return" rates for referrals (currently 20% of patients ineligible), thereby increasing referral volume for Zephyr valves.
• Pricing: No specific ASP changes disclosed; plans to charge for AeroSeal in addition to valve revenue.

Macro / Industry Outlook:

• Regulatory Environment: Confident in navigating FDA timelines for AeroSeal; successfully navigated CE Mark and China registration renewals.
• FX/Tariffs: No specific macroeconomic risks (rates, tariffs, FX) highlighted as material headwinds in this session.
• Supply Chain: Expecting continued improvements in supply chain efficiency and overhead absorption to support margin stability.

Strategic Initiatives:

• Turnaround Plan (Step 1 & 2): Completed cost realignment (10% recurring cost reduction) and balance sheet strengthening (debt extension, $20M undrawn facility).
• Sales Force Stabilization (Step 3): Refilling open U.S. sales territories, optimizing training programs, and shifting organizational structure to improve morale and retention.
• Operational Focus: COO managing non-commercial functions (R&D, Clinical, Quality, Regulatory, Manufacturing, Finance, G&A) to allow CEO to focus on commercial execution.
• Reinvestment: No new hires or cost increases planned immediately; cost savings are expected to drive faster path to cash flow breakeven rather than immediate OpEx growth.

Risks and Headwinds to Outlook:

• Sales Force Ramp: Primary variance driver is the time required for new sales staff (average tenure <2 years) to reach full productivity (6–9 month lag).
• Seasonality: Q4 revenue guidance includes variability due to holiday and end-of-year effects.
• Execution Risk: Long-term sustained growth is contingent on "executing to the sales strategy" and retaining staff ("keeping folks in their seats").
• Margin Drag (Mitigated): China sales introduce a "slightly lower gross margin" product, though management expects the 75%+ margin to hold due to supply chain efficiencies.

Management Tone on the Future:

• Confidence Level: High confidence in the "show-me" philosophy; results are expected to speak for themselves rather than relying on forward-looking rhetoric.
• Commitment: "Feeling good" about the turnaround progress; confident in achieving cash flow breakeven within current capital runway.
• Philosophy: Conservative forecasting approach; avoided "getting out in front of our skis" by sticking to initial guidance despite Q3 beat.
• Validation Criteria: Will define success by FY2027 numbers, specifically sustained double-digit revenue growth and continued margin retention.

Miscellaneous:

• Debt Terms: $40M debt refinanced to 5-year term with interest-only payments until 2031.
• Product Mechanism: Zephyr valves block diseased lung tissue; AeroSeal injects polymeric foam to seal collateral ventilation fissures, enabling valve use in previously ineligible patients.
• Clinical Data: Feasibility study showed ~75% conversion rate of collateral ventilation-positive patients to negative.