Stifel 2026 Healthcare Conference - PULMONX CORP

Financial Performance:

• U.S. revenue grew 7% and International (ex-China) grew 9% in the reported quarter; previous quarters showed sequential improvement from -7% and -4% to +7%.
• International business achieved 15% growth in 2024 and targets 15% growth in 2025, with double-digit growth expected outside China.
• Pre-CEO return period (last five quarters) saw growth average 41%, bottoming out at 11% before the turnaround; current trajectory aims to return to consistent double-digit growth.
• Gross margins remain high at approximately 75%+, enabling opportunistic sales force expansion.
• The company manages approximately 44 sales territories, with average territory values around $1.4 million (ranging from $500k to over $3 million).

Guidance and Future Outlook:

• Management explicitly targets a return to double-digit growth rates in the near term.
• Revenue from Aracel/AeroSeal commercialization is expected to begin in late 2025 in CE mark markets, with meaningful revenue generation projected for 2028.
• U.S. FDA approval for Aracel is estimated for late 2029, following the completion of the CONVERT-2 IDE trial and a subsequent regulatory review process.
• Long-term view suggests the company is only ~10% penetrated into the available market opportunity for immediate (non-collateral) patients, with a 10x larger total addressable market (TAM) via new indications.
• Strategic focus remains on "same-store sales" and increasing patient throughput within existing 400+ accounts rather than rapid new account acquisition.

Business Segments and Product Lines:

• Core Valve Therapy: Execution focus shifted to filling seats, rapid training, and driving patients through existing treating centers (COPD/emphysema).
• Aracel (AeroSeal): A new technology to seal collateral ventilation, expanding the treatable patient pool by ~20%. Data shows 75% success rate in sealing fissures, potentially making 75% of previously excluded patients eligible for valve therapy.
• Training & Proctoring: Replaced traditional classroom training with a "proctoring" model involving remote pre-op collaboration and in-procedure expert supervision, significantly accelerating the time for physicians to treat multiple patients.
• Strat-X & Chartus: Utilization of quantitative CT analysis software (Strat-X) and intra-procedural balloon catheters (Chartus) to assess fissure completeness and collateral ventilation, filtering out non-responsive candidates prior to valve placement.

Market and Competitive Landscape:

• Market penetration is currently low (~10% of immediate opportunity); the strategy leverages pulmonary function labs to identify patients with air trapping.
• Competition is noted in the space of lung volume reduction, but the company highlights that their bronchoscopic procedure volume will exceed total historical surgical lung volume reduction (LVR) procedures in the U.S. this year (10x more).
• The company operates in a "same-store" heavy environment where the majority of growth comes from existing accounts rather than new center openings.
• Sales territories are being split opportunistically where business volume or geography dictates (e.g., splitting large, high-revenue territories to cover under-penetrated rural or massive areas).

Risks and Challenges:

• High sales turnover (approx. 50% in the prior management cycle) necessitated rapid hiring and training of new representatives.
• Physician hesitation and "learning curve" issues previously slowed patient throughput; this is being mitigated by new proctoring protocols.
• Regulatory timeline risk: U.S. commercialization of Aracel is delayed until late 2029 due to the duration of the CONVERT-2 follow-up and FDA review.
• Execution risk regarding the ramp-up of the new sales team and ensuring new accounts reach proficiency levels comparable to established ones.
• International growth reliance on Europe (bulk of international business) creates concentration risk if European market dynamics shift.

Management Commentary and Tone:

• CEO Glenn French (returning after a decade) emphasized a "back to basics" strategy, moving away from 30 disparate imperatives to four core focus areas: account efficiency, patient identification, and driving patients to treatment.
• Tone is confident and operational, citing visible improvements in the commercial engine and a clear path to double-digit growth.
• Management dismissed the need for a broad sales force expansion, favoring an opportunistic, low-cost approach to splitting territories and promoting junior reps.
• Emphasis is placed on discipline in patient selection (using Chartus/Strat-X) to avoid treating non-responders, which previously caused patient disappointment and reduced referrals.

Analyst Questions and Answers:

• Q: How does the new training model impact revenue acceleration? A: It significantly shortens the time for physicians to reach proficiency (treating 5+ patients) compared to the traditional 6-12 month ramp, accelerating throughput.
• Q: What is the primary driver of growth: new accounts or existing accounts? A: Existing accounts and same-store sales growth are the primary drivers; new account growth is opportunistic and currently accounts for a minor portion of the total base.
• Q: Is there a need to hire more sales reps? A: Not necessarily a large-scale hiring initiative; growth is driven by splitting existing large territories and elevating junior reps to manage new sub-territories cost-effectively.
• Q: Details on the Aracel/AeroSeal TAM expansion? A: Expected to expand the Total Addressable Market by ~20% by allowing treatment of patients with collateral ventilation who are currently excluded from standard valve therapy.

Other Key Points:

• The company previously lost 50% of its sales organization, leading to a reset in strategy and personnel.
• 20% of patients historically failed valve placement due to collateral ventilation; AeroSeal is designed to seal these fissures, converting 75% of these "failures" into successful treatments.
• International operations are centered in Europe, with a specific strategy to drive patients from "front door to procedure room" within treating centers like the Cleveland Clinic.
• The "low-hanging fruit" strategy involves targeting patients with severe emphysema and trapped gas who are often overlooked by pulmonologists in large hospital systems.