PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Pulmonx Corporation's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, cash flows, and detailed notes on key financial aspects Condensed Consolidated Balance Sheets Total assets and stockholders' equity decreased from December 2024 to March 2025, while cash increased and short-term marketable securities significantly declined | Metric (in thousands) | March 31, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Total Assets | $150,736 | $162,850 | $(12,114) | -7.4% | | Total Liabilities | $73,069 | $77,041 | $(3,972) | -5.2% | | Total Stockholders' Equity | $77,667 | $85,809 | $(8,142) | -9.5% | | Cash and cash equivalents | $74,555 | $70,905 | $3,650 | 5.1% | | Short-term marketable securities | $14,147 | $30,577 | $(16,430) | -53.7% | | Accounts receivable, net | $13,975 | $13,120 | $855 | 6.5% | | Inventory | $16,809 | $16,915 | $(106) | -0.6% | | Short-term debt | $7,803 | $3,176 | $4,627 | 145.7% | | Long-term debt | $29,393 | $34,002 | $(4,609) | -13.6% | Condensed Consolidated Statements of Operations and Comprehensive Loss Q1 2025 saw revenue increase by 19.5% and gross profit by 16.1%, but net loss rose 5.1% due to higher operating expenses and lower interest income | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Revenue | $22,538 | $18,854 | $3,684 | 19.5% | | Cost of goods sold | $6,196 | $4,776 | $1,420 | 29.7% | | Gross profit | $16,342 | $14,078 | $2,264 | 16.1% | | Gross margin | 72.5% | 74.7% | -2.2% | | | Total operating expenses | $30,905 | $28,614 | $2,291 | 8.0% | | Loss from operations | $(14,563) | $(14,536) | $(27) | 0.2% | | Interest income | $864 | $1,441 | $(577) | -40.0% | | Interest expense | $(781) | $(883) | $102 | -11.6% | | Net loss | $(14,448) | $(13,749) | $(699) | 5.1% | | Net loss per share, basic and diluted | $(0.36) | $(0.36) | $0.00 | 0.0% | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from January to March 2025, primarily due to net loss, partially offset by stock-based compensation and common stock issuances | Metric (in thousands, except shares) | Balances at January 1, 2025 | Balances at March 31, 2025 | Change | | :----------------------------------- | :-------------------------- | :------------------------- | :----- | | Common Stock Shares | 39,785,969 | 40,247,480 | 461,511 | | Additional Paid-In Capital | $551,211 | $557,428 | $6,217 | | Accumulated Other Comprehensive Income | $2,113 | $2,202 | $89 | | Accumulated Deficit | $(467,555) | $(482,003) | $(14,448) | | Total Stockholders' Equity | $85,809 | $77,667 | $(8,142) | - Net loss for the three months ended March 31, 2025, was $(14,448) thousand24 - Stock-based compensation expense contributed $5,553 thousand to additional paid-in capital during the period24 Condensed Consolidated Statements of Cash Flows Operating cash flow usage increased in Q1 2025, but investing activities shifted to a cash provision, primarily from marketable securities maturities, leading to a net cash increase | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net cash used in operating activities | $(13,222) | $(11,795) | $(1,427) | | Net cash provided by (used in) investing activities | $16,313 | $(2,507) | $18,820 | | Net cash provided by financing activities | $664 | $864 | $(200) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $3,650 | $(13,390) | $17,040 | | Cash, cash equivalents, and restricted cash at end of period | $74,812 | $70,394 | $4,418 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide essential context for the financial statements, detailing business operations, accounting policies, debt, revenue, equity, and other key financial disclosures Note 1. Formation and Business of the Company Pulmonx is a commercial-stage medical technology company treating severe emphysema; despite deficits and negative operating cash flows, management believes current liquidity is sufficient for 12 months - Pulmonx Corporation is a commercial-stage medical technology company providing a minimally invasive treatment for patients with severe emphysema, utilizing the Zephyr Endobronchial Valve, Chartis Pulmonary Assessment System, and LungTraX Platform30 - The company has incurred operating losses and negative cash flows from operations, with an accumulated deficit of $482.0 million as of March 31, 202531 - As of March 31, 2025, the company had $88.7 million in cash, cash equivalents, and marketable securities, which management believes will fund planned operations for at least the next 12 months3132 Note 2. Summary of Significant Accounting Policies This note outlines the company's accounting policies, covering U.S. GAAP compliance, estimates, fair value measurements, and credit risk management for cash and customer accounts - The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, with certain disclosures condensed or omitted3335 - Management's preparation of financial statements involves significant estimates and assumptions, particularly for inventory, long-term assets, stock-based compensation, goodwill, and deferred tax assets3738 - The company faces concentration of credit risk from cash and cash equivalents held with established financial institutions (some exceeding FDIC limits) and relies on single-source suppliers for critical product components4042 - One customer accounted for 10% of revenue for the three months ended March 31, 2025, and 17% of accounts receivable as of March 31, 202541 Note 3. Recent Accounting Pronouncements The company adopted ASU 2023-09 (Income Taxes) in Q1 2025 with no material impact and is evaluating ASU 2024-03 (Expense Disaggregation Disclosures) for future effects - ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' was adopted as of January 1, 2025, and did not have a material impact on the company's financial statements4748 - The company is evaluating ASU No. 2024-03, 'Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,' effective for fiscal years beginning after December 15, 202649 Note 4. Fair Value Measurements Assets and liabilities are categorized by fair value using a three-level hierarchy; as of March 31, 2025, total financial assets were $26.2 million, primarily money market funds and marketable securities, with minor unrealized losses - Assets and liabilities measured at fair value are categorized into Level 1 (unadjusted quoted prices in active markets) and Level 2 (observable inputs) based on the subjectivity of inputs515253 | Category (in thousands) | March 31, 2025 | December 31, 2024 | | :---------------------- | :------------- | :---------------- | | Total Cash Equivalents | $12,011 | $6,616 | | Total Marketable Securities | $14,147 | $30,577 | | Total Financial Assets | $26,158 | $37,193 | - Commercial paper held as marketable securities had $4 thousand in unrealized losses as of March 31, 2025, and $8 thousand as of December 31, 2024, primarily due to changes in interest rates5860 Note 5. Balance Sheet Components This note details key balance sheet items, showing increased cash, new commercial paper, slightly decreased inventory, nearly doubled capitalized software costs, and reduced accrued liabilities | Cash and Cash Equivalents (in thousands) | March 31, 2025 | December 31, 2024 | | :--------------------------------------- | :------------- | :---------------- | | Cash | $62,544 | $64,289 | | Money market funds | $6,034 | $6,616 | | Commercial paper | $5,977 | — | | Total | $74,555 | $70,905 | | Inventory (in thousands) | March 31, 2025 | December 31, 2024 | | :----------------------- | :------------- | :---------------- | | Raw materials | $3,378 | $3,406 | | Work in process | $503 | $457 | | Finished goods | $14,304 | $14,733 | | Total inventory | $18,185 | $18,596 | - Capitalized implementation costs for cloud-based hosting arrangements increased from $0.5 million as of December 31, 2024, to $0.9 million as of March 31, 202567 - Accrued liabilities decreased significantly from $16,472 thousand as of December 31, 2024, to $11,547 thousand as of March 31, 2025, primarily due to a reduction in accrued employee bonuses and commissions70 Note 6. Long Term Debt The CIBC Loan, the company's primary long-term debt, has been amended to extend maturity and interest-only periods, bears a floating rate, and was in compliance with all covenants as of March 31, 2025 - The CIBC Loan, totaling $37.0 million, had its maturity date extended to October 31, 2027, and its interest-only period extended to November 2025 (and further through maturity in April 2025)7475113 - The loan bears a floating interest rate equal to 1.0% above the Wall Street Journal Prime Rate, with an annual effective interest rate of 9.0% as of March 31, 20257778 - As of March 31, 2025, the company was in compliance with all financial covenants of the Amended and Restated CIBC Agreement76 | Debt Component (in thousands) | March 31, 2025 | December 31, 2024 | | :---------------------------- | :------------- | :---------------- | | Term loan | $37,000 | $37,000 | | Less: debt issuance costs | $(88) | $(99) | | Total | $36,912 | $36,901 | | Reported as: Short-term debt | $7,708 | $3,083 | | Reported as: Long-term debt | $29,204 | $33,818 | Note 7. Revenue Recognition Contract liabilities for deferred revenue remained consistent at $0.1 million as of March 31, 2025, with prior period deferred revenue recognized in the current quarter - Contract liabilities for deferred revenue were $0.1 million as of both March 31, 2025, and December 31, 202483 - Deferred revenue as of December 31, 2024, was recognized as revenue during the three months ended March 31, 202583 Note 8. Commitments and Contingencies Pulmonx extended Redwood City leases, secured a new Switzerland office lease, and is managing a USDOJ civil investigative demand regarding sales practices, which became an unsealed Qui Tam Action - The company extended its Redwood City office lease through July 31, 2035, and its expansion premises sublease through May 31, 20288586 - A new five-year office lease in Switzerland commenced in Q1 2025, with total future minimum rent payments of $0.5 million90 - Total lease liabilities as of March 31, 2025, were $19,753 thousand, with $1,101 thousand classified as current91 - The USDOJ informed the company in March 2025 that its investigation under the Anti-Kickback Statute and False Claims Act, initiated by a Civil Investigative Demand in December 2022, was based on a Qui Tam Action, and the USDOJ elected not to intervene94 Note 9. Income Taxes Q1 2025 income tax expense was $0.1 million, mainly from state minimum and foreign taxes, with no U.S. tax benefit due to a full valuation allowance against deferred tax assets | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $135 | $186 | - The income tax expense is primarily due to state minimum income tax and income tax on foreign earnings, with no U.S. tax benefit recognized due to a full valuation allowance against U.S. deferred tax assets9596 Note 10. Stockholders' Equity Common stock authorization remains at 200 million shares, with 12.5 million reserved; Q1 2025 introduced performance-based restricted stock units (PSUs) and recorded $5.6 million in stock-based compensation expense - The company's certificate of incorporation authorizes up to 200,000,000 shares of common stock97 | Shares Reserved for Future Issuance | March 31, 2025 | December 31, 2024 | | :---------------------------------- | :------------- | :---------------- | | Common stock options issued and outstanding | 3,677,727 | 3,627,606 | | Common stock restricted stock units issued and outstanding | 4,624,106 | 2,728,599 | | Common stock available for future grants | 2,290,039 | 3,006,773 | | Common stock available for employee stock purchase plan | 1,946,695 | 1,648,046 | | Total | 12,538,567 | 11,011,024 | - In fiscal year 2025, the company began granting performance-based restricted stock units (PSUs), with the final number of shares awarded based on consolidated cumulative revenue over a two-year period103 | Stock-Based Compensation Expense (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of goods sold | $543 | $381 | | Research and development | $652 | $773 | | Selling, general and administrative | $4,417 | $4,519 | | Total | $5,612 | $5,673 | Note 11. Net Loss per Share Attributable to Common Stockholders Basic and diluted net loss per share remained $(0.36) for Q1 2025 and Q1 2024, as all potentially dilutive securities were excluded due to the company's net loss | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss per share attributable to common stockholders, basic and diluted | $(0.36) | $(0.36) | - Potentially dilutive securities, including stock options and unvested restricted stock units, were excluded from the diluted net loss per share computation because their inclusion would have been anti-dilutive due to the company's net loss108 Note 12. Segment Information Pulmonx operates as a single segment, with the CEO reviewing consolidated financials and geographic revenue, notably with significant Asia Pacific growth in Q1 2025 - The company operates as a single reportable and operating segment, with the Chief Executive Officer reviewing financial information on a consolidated basis and by geographic region109 | Geographic Region | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | % Change YoY | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | United States | $14,221 | $12,869 | 10.5% | | EMEA | $5,484 | $5,116 | 7.2% | | Asia Pacific | $2,795 | $698 | 300.4% | | Other International | $38 | $171 | -77.8% | | Total | $22,538 | $18,854 | 19.5% | - Revenue from China represented 10% of total revenue for Q1 2025, a significant increase from 2% in Q1 2024110 Note 13. Subsequent Events In April 2025, the CIBC Loan was amended to extend the interest-only period through maturity in October 2027 and modified financial covenants, adding a new revenue-based requirement - In April 2025, the CIBC Loan terms were amended to extend the interest-only period through maturity, with full principal repayment due in October 2027113 - The loan amendment introduced a new financial covenant: if cash and cash equivalents fall below $80.0 million, trailing twelve-month revenue must be at least 10.0% greater than the corresponding prior-year period113 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Pulmonx Corporation's Q1 2025 financial condition and results, covering business overview, performance factors, revenue and expense analysis, liquidity, capital resources, and critical accounting estimates Overview Pulmonx is a commercial-stage medical technology company treating severe emphysema with FDA-approved Zephyr Valve. Q1 2025 saw increased revenue but higher net loss, with sufficient liquidity for 12 months - Pulmonx is a commercial-stage medical technology company providing a minimally invasive treatment for severe emphysema using the Zephyr Valve, Chartis System, and LungTraX Platform115 - The Zephyr Valve has U.S. FDA pre-market approval (PMA) and established reimbursement in major markets globally, while the AeriSeal System has 'Breakthrough Device' designation and CE Mark, currently in a global clinical trial (CONVERT II)116117 | Metric (in millions) | Q1 2025 | Q1 2024 | | :------------------- | :------ | :------ | | Revenue | $22.5 | $18.9 | | Gross Margin | 72.5% | 74.7% | | Net Loss | $(14.4) | $(13.7) | - As of March 31, 2025, the company had $88.7 million in cash, cash equivalents, and marketable securities, with an accumulated deficit of $482.0 million, and expects to fund operations for at least the next 12 months122124 Factors Affecting our Business and Results of Operations Key factors influencing Pulmonx's business include sales force effectiveness, market adoption, reimbursement, competition, manufacturing efficiency, R&D investment, and sales seasonality - Successful recruitment, training, and retention of a direct sales force is critical for achieving growth and increasing product adoption125 - Business growth depends on promoting awareness and educating hospitals, physicians, and patients on the advantages of the Zephyr Valve solution, requiring significant marketing and sales investment127128 - Third-party reimbursement is crucial; while major commercial payors have positive policies, some do not consider the solution medically necessary, and Medicare covers on a case-by-case basis, leading to potential challenges in securing approvals129130 - The company operates in a highly competitive industry, facing larger competitors with established relationships and greater resources, as well as alternative treatments for severe emphysema131 - Improving gross margin is dependent on increasing production volume to spread fixed manufacturing costs and investing in manufacturing efficiencies132 - Continued investment in research and development, including the CONVERT II pivotal trial for the AeriSeal System, is aimed at improving products, enhancing patient selection, and expanding the addressable market133134 - The company historically experiences seasonality in the first and third quarters, a trend anticipated to continue due to holidays, vacations, and the elective nature of procedures135 Components of Our Results of Operations This section details Pulmonx's financial components: revenue from Zephyr Valves, cost of goods sold, operating expenses (R&D, SG&A) expected to rise with growth, and interest income/expense Revenue Revenue primarily comes from Zephyr Valves and delivery catheters, with fluctuations driven by case volume, pricing, geographic mix, reimbursement, sales force effectiveness, and foreign currency rates - Substantially all revenue is derived from the sale of Zephyr Valves and delivery catheters to hospitals and distributors, with a smaller amount from the Chartis System136 - Revenue fluctuates based on factors such as volume of cases, average number of Zephyr Valves used per patient, pricing, discounts, incentives, mix of U.S. and international sales, reimbursement availability, sales force success, and seasonality137 - One customer accounted for 10% of total revenue for the three months ended March 31, 2025136 Cost of Goods Sold and Gross Margin Cost of goods sold includes payroll, materials, and manufacturing overhead; gross margin is influenced by costs, pricing, and sales mix, with long-term improvement expected from increased production volume - Cost of goods sold primarily consists of payroll, materials, third-party costs, manufacturing overhead, equipment depreciation, and charges for excess, obsolete, and non-sellable inventories138 - Gross margin is affected by manufacturing costs, pricing pressures, and the percentage of products sold in the United States versus internationally, and directly to hospitals versus through distributors139 - Gross margin is expected to increase over the long term as production volume increases, spreading fixed manufacturing costs over more units, but will fluctuate period-to-period due to various factors and seasonality140 Operating Expenses Operating expenses, comprising R&D and SG&A, are expected to increase as the company invests in product development, sales expansion, and administrative infrastructure - Operating expenses consist solely of research and development costs and selling, general and administrative costs141 - Both research and development expenses and selling, general and administrative expenses are expected to increase in absolute dollars due to continued investment in product development, sales and marketing expansion, and administrative support142144 Research and Development Expenses R&D expenses, driven by engineering and research for product development and improvements, include personnel, consulting, and clinical trial costs, expensed as incurred and expected to increase with innovation - Research and development activities focus on engineering and research programs for products under development and improvements to existing products142 - Expenses include payroll, stock-based compensation, consulting, clinical trial expenses, prototyping, testing, laboratory supplies, and facility overhead142 - Research and development costs are expensed as they are incurred and are expected to increase in absolute dollars with additional personnel hires for new product offerings and enhancements142 Selling, General and Administrative Expenses SG&A expenses include payroll for sales, marketing, and administrative staff, variable compensation, travel, marketing, and professional fees, anticipated to rise with sales infrastructure expansion and public company operations - Selling, general and administrative expenses include payroll for sales, marketing, and administrative personnel, variable sales compensation, travel, consulting, marketing, customer training, professional fees, and depreciation143 - Variable sales compensation is expensed at the time of sale143 - These expenses are expected to increase in absolute dollars due to expanding sales support infrastructure, additional marketing programs, increased headcount, and costs associated with being a public company144 Interest Expense and Income Interest expense primarily stems from term loan facilities and debt discount amortization, while interest income is generated from money market funds and marketable securities - Interest expense primarily relates to term loan facilities, including amortization of debt discount and issuance costs145 - Interest income is predominantly derived from investing surplus cash in money market funds and marketable securities145 Other Income, Net Other income, net, primarily comprises foreign currency exchange gains and losses - Other income, net, primarily consists of foreign currency exchange gains and losses146 Results of Operations: Comparison of the Three Months Ended March 31, 2025 and March 31, 2024 Q1 2025 revenue grew 19.5% to $22.5 million, but cost of goods sold rose 29.7%, decreasing gross margin by 2.2 percentage points, leading to a 5.1% higher net loss of $14.4 million despite lower interest expense | Metric (in thousands) | Q1 2025 | Q1 2024 | Change | % Change | | :-------------------- | :------ | :------ | :----- | :------- | | Revenue | $22,538 | $18,854 | $3,684 | 19.5% | | Cost of goods sold | $6,196 | $4,776 | $1,420 | 29.7% | | Gross profit | $16,342 | $14,078 | $2,264 | 16.1% | | Gross margin | 72.5% | 74.7% | -2.2% | | | Research and development | $4,756 | $4,210 | $546 | 13.0% | | Selling, general and administrative | $26,149 | $24,404 | $1,745 | 7.2% | | Net loss | $(14,448) | $(13,749) | $(699) | 5.1% | | Interest income | $864 | $1,441 | $(577) | -40.0% | | Interest expense | $(781) | $(883) | $102 | -11.6% | - The increase in revenue was primarily attributable to continued volume growth of Zephyr Valve sales in both the United States and international markets148 - The decrease in gross margin was primarily due to geographic mix during the three months ended March 31, 2025150 - The increase in research and development expense was primarily due to a $0.5 million increase in clinical trial costs and a $0.2 million increase in services and other expenses for product development151 - Selling, general and administrative expenses increased due to higher advertising and marketing expenses ($1.9 million), payroll ($0.3 million), and travel ($0.3 million), partially offset by a decrease in legal and professional expenses ($0.8 million)152 Liquidity and Capital Resources; Plan of Operation Pulmonx had $88.7 million in cash, cash equivalents, and marketable securities as of March 31, 2025, and a $482.0 million accumulated deficit; the CIBC Loan was amended, and Q1 2025 saw a net cash increase, with future operations funded by existing capital and potential additional financings Liquidity and Capital Resources As of March 31, 2025, Pulmonx held $88.7 million in cash and marketable securities, with a $482.0 million accumulated deficit and $37.2 million in debt; the CIBC Loan's interest-only period was extended through maturity in October 2027, with modified covenants - As of March 31, 2025, the company had $88.7 million in cash, cash equivalents, and marketable securities, an accumulated deficit of $482.0 million, and $37.2 million outstanding under the CIBC Loan and Credit Agreement (net of debt discount and issuance costs)155 - The CIBC Loan's interest-only period was extended through maturity (October 2027) in April 2025, with full principal repayment due at maturity163 - The April 2025 amendment to the CIBC Loan includes a financial covenant requiring trailing twelve-month revenue to be at least 10.0% greater than the prior year if cash and cash equivalents are less than $80.0 million113 - Interest expense on the CIBC Loan was $0.8 million for Q1 2025, down from $0.9 million for Q1 2024163 Summary Statement of Cash Flows Q1 2025 saw a net increase of $3.7 million in cash, cash equivalents, and restricted cash, a significant improvement from Q1 2024's $13.4 million decrease, primarily due to a shift in investing activities | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(13,222) | $(11,795) | | Net cash provided by (used in) investing activities | $16,313 | $(2,507) | | Net cash provided by financing activities | $664 | $864 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $3,650 | $(13,390) | Cash Flows from Operating Activities Net cash used in operating activities increased to $13.2 million in Q1 2025, driven by net loss and decreased accrued liabilities, partially offset by non-cash adjustments and working capital changes - Net cash used in operating activities was $13.2 million for Q1 2025, primarily driven by a net loss of $14.4 million and a $4.9 million decrease in accrued liabilities166 - Offsetting factors in Q1 2025 included $5.6 million in stock-based compensation expense, a $0.5 million increase in accounts payable, and a $0.4 million decrease in inventory166 - For Q1 2024, net cash used in operating activities was $11.8 million, mainly due to a $13.7 million net loss and a $6.0 million decrease in accrued liabilities167 Cash Flows from Investing Activities Investing activities generated $16.3 million in cash in Q1 2025, a significant turnaround from a $2.5 million usage in Q1 2024, primarily due to higher proceeds from marketable securities maturities - Net cash provided by investing activities was $16.3 million in Q1 2025, consisting of $20.5 million from marketable securities maturities, offset by $3.9 million in purchases of investments and $0.3 million in property and equipment168 - Net cash used in investing activities was $2.5 million in Q1 2024, with $13.8 million in marketable securities purchases and $0.5 million in property and equipment purchases, partially offset by $11.8 million from maturities169 Cash Flows from Financing Activities Financing activities provided $0.7 million in cash in Q1 2025, mainly from employee stock purchase plan proceeds and common stock option exercises, a slight decrease from $0.9 million in Q1 2024 - Net cash provided by financing activities was $0.7 million in Q1 2025, primarily from $0.6 million in employee stock purchase plan proceeds and $0.1 million from common stock option exercises170 - For Q1 2024, net cash provided by financing activities was $0.9 million, including $0.8 million from the employee stock purchase plan and $0.1 million from stock option exercises171 Material Cash Requirements Pulmonx anticipates ongoing cash outflows for operating expenses, capital expenditures, and significant lease and debt payments, expecting current liquidity to fund operations for at least 12 months, with additional financing potentially needed - Net cash operating expenditures were $13.2 million in Q1 2025 and $11.8 million in Q1 2024172 - Future lease payments total $31.4 million as of March 31, 2025, with $2.9 million expected within the next 12 months172 - Total future short-term and long-term debt payments amount to $37.2 million, with $3.2 million in interest expected within the next 12 months due to the April 2025 CIBC Loan amendment172 - The company expects its $88.7 million in cash, cash equivalents, and marketable securities as of March 31, 2025, to fund operating expenses for at least 12 months173 - Future funding requirements depend on commercialization costs, R&D, intellectual property, market acceptance, and potential acquisitions, with additional capital potentially sought through equity or debt financings174175 Critical Accounting Estimates The company refers to its Annual Report on Form 10-K for critical accounting estimates, noting no material changes in Q1 2025 beyond those detailed in Note 2 of the interim financial statements - Critical accounting policies are described in the 'Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates' section of the Annual Report on Form 10-K for the fiscal year ended December 31, 2024177 - There were no material changes to critical accounting estimates during the three months ended March 31, 2025, except as described in Note 2 to the unaudited interim condensed financial statements177 Recent Accounting Pronouncements For information on recent accounting pronouncements, the company directs readers to Note 3 of its consolidated financial statements - Additional information on recent accounting pronouncements can be found in Note 3 to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q178 Item 3. Quantitative and Qualitative Disclosures About Market Risk Pulmonx faces market risks from interest rates, foreign currency, and inflation; while interest rate changes may not significantly impact financials, foreign currency fluctuations could affect net loss, and inflation may increase operating costs - The company is exposed to interest rate risks related to its cash, cash equivalents ($74.6 million as of March 31, 2025), and outstanding debt ($36.9 million at a 9.0% effective interest rate); a 10% change in interest rates is not expected to have a significant impact181182 - Foreign currency exchange risk arises from 36.9% of Q1 2025 revenue being from outside the U.S., billed in local currencies; a 10% change in weighted average foreign currency exchange rates would impact Q1 2025 net loss by approximately $0.3 million183 - Inflation may increase costs for labor, commercial support, manufacturing, and clinical trials, and an inability to offset these higher costs could harm the business184 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded Pulmonx's disclosure controls were effective as of March 31, 2025, with no material changes in internal control over financial reporting, acknowledging inherent system limitations - Management, with CEO and CFO participation, evaluated and concluded that disclosure controls and procedures were effective as of March 31, 2025186 - No changes in internal control over financial reporting occurred during the three months ended March 31, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting187 - Management believes that disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance, acknowledging inherent limitations that prevent absolute assurance against all error and fraud188189 PART II. OTHER INFORMATION Item 1. Legal Proceedings Pulmonx is not currently involved in material legal proceedings, though it may face various claims; further details on contingencies, including a USDOJ investigation, are in Note 8 - The company is not a party to any material legal proceedings at this time191 - Legal fees and other costs associated with litigation are expensed as incurred, and accrual estimates are recorded when a liability is probable and reasonably estimable93 - Further information on contingencies, including a civil investigative demand from the U.S. Department of Justice, is provided in Note 8 to the unaudited interim condensed consolidated financial statements191 Item 1A. Risk Factors This section outlines significant risks to Pulmonx's business, financial condition, and operations, covering financial performance, product commercialization, manufacturing, competition, growth, international operations, IT security, product liability, government regulation, and intellectual property Summary Risk Factors Pulmonx faces significant risks including net losses, reliance on the Zephyr Valve, market adoption and reimbursement challenges, manufacturing limitations, IT compromises, and IP disputes, making future profitability uncertain - The company has a history of significant net losses, which are expected to continue, and may not achieve or sustain profitability194195 - Reliance on the Zephyr Endobronchial Valve as a single product for limited indications means commercialization failure would negatively affect the business194199 - Business success is dependent on hospital, physician, and patient adoption of the solution, which may be hindered by unwillingness to change current practices194202 - Inability to achieve and maintain adequate levels of coverage or reimbursement for the solution, or significant patient out-of-pocket costs, could severely hinder commercial success194217 - Limited experience manufacturing products in significant commercial quantities and reliance on single-source suppliers pose manufacturing risks that could adversely affect production and gross margins194236 - Compromise of information technology systems or data, or those of third parties, could lead to operational interruptions, data protection breaches, and harm to reputation and financial condition194239 - The company may become involved in intellectual property litigation, infringement claims, or administrative proceedings that could be costly and interfere with its ability to sell and market products194409 Risks Related to Our Business and Strategy Pulmonx faces strategic business risks including persistent net losses, Zephyr Valve commercialization challenges, supply chain vulnerabilities, intense competition, growth management complexities, international operation risks, IT security breaches, and product liability claims Financial Performance and Funding Pulmonx has a history of net losses expected to continue, requiring substantial additional capital; future funding may dilute stockholders or impose restrictive debt covenants, impacting financial stability - The company has incurred net losses since inception, including $14.4 million in Q1 2025 and $13.7 million in Q1 2024, with an accumulated deficit of $482.0 million as of March 31, 2025195122 - Significant investments in sales, marketing, R&D, and regulatory activities are expected to continue, requiring substantial additional funding, which may not be available on acceptable terms195123286 - Future capital raises through equity or convertible debt offerings could dilute existing stockholders' ownership, while debt financing may impose covenants limiting specific actions175287289 - Outstanding debt of $37.0 million as of March 31, 2025, under the CIBC Agreement, includes covenants that limit operational flexibility and could lead to default if breached272274275 Product Commercialization and Market Adoption Zephyr Valve commercialization success depends on market acceptance, physician/patient education, and hospital access, facing inherent risks like pneumothorax and contraindications that may limit adoption - The business depends entirely on the successful commercialization of the Zephyr Valve, as there are no other therapeutic products currently approved for sale in the United States199 - Market acceptance is difficult to predict due to limited commercialization experience, uncertainties in market size, and the need to educate physicians and patients on the solution's benefits over existing alternatives196197201202 - Access to hospital facilities requires lengthy contracting processes, which can delay sales and negatively affect operating results206 - The Zephyr Valve involves risks such as pneumothoraces (occurring in 18-34% of patients in clinical trials) and, in rare cases, death (3.1% in the LIBERATE study), and is contraindicated in certain patients, which may limit adoption210211212216 Manufacturing and Supply Chain Pulmonx relies on single-source suppliers, risking shortages and price fluctuations; limited manufacturing experience and a single facility expose it to production disruptions, while inaccurate demand forecasting can lead to inventory issues - The company relies on single-source suppliers for critical components, sub-assemblies, and materials, making it vulnerable to supply shortages, price fluctuations, and manufacturing delays if suppliers are unable to meet demand42233 - Limited experience manufacturing products in significant commercial quantities and reliance on a single Redwood City facility for production expose the company to manufacturing risks, including quality issues, production disruptions, and inability to scale efficiently236237291 - Inaccurate forecasting of customer demand can lead to excess inventory (resulting in write-downs) or insufficient supply (damaging reputation and customer relationships)253254 Competition and Market Dynamics The highly competitive medical device industry, dominated by larger players, poses challenges for Pulmonx to establish its solution as standard of care, facing competition from existing treatments, new technologies, price pressure, and IP disputes - The industry is highly competitive and subject to rapid change from new products and technologies, with existing treatments including medical management, lung volume reduction surgery (LVRS), lung transplantation, and other minimally invasive options131276277 - Competitors, many with longer operating histories, more established products, and greater resources, enjoy advantages in name recognition, sales, and marketing, potentially hindering Pulmonx's market penetration131280 - Competitors may engage in price competition through rebates, promotional programs, and product bundling, which could erode Pulmonx's gross margins281 - New product introductions or additional indications for existing drugs could reduce patient symptoms, delaying referrals for Pulmonx's procedures276 Operational and Growth Management Pulmonx's growth requires significant expansion of sales, manufacturing, and administrative infrastructure, posing challenges in personnel recruitment and retention; risks also include acquisitions, industry consolidation, and uncertainties in new product development - Future growth necessitates expanding sales personnel, manufacturing operations, and general and administrative infrastructure, which imposes significant responsibilities on management, including identifying, recruiting, training, and integrating additional employees282 - The company's success depends on attracting and retaining highly qualified management and personnel; the loss of key employees or inability to attract new talent could significantly delay business objectives293294296 - Potential acquisitions or investments in businesses, applications, or technologies could divert management's attention, result in dilutive equity issuances or debt incurrence, and may not yield anticipated benefits312313314 - Consolidation in the healthcare industry or among group purchasing organizations could lead to demands for price concessions or reduced reimbursement rates, negatively affecting operating results315 - Long-term growth depends on enhancing existing solutions and developing new products/indications, which is expensive, time-consuming, and uncertain, with the risk of focusing resources on unsuccessful candidates316317318319 International Operations and Economic Conditions Pulmonx's international operations face risks from staffing, competition, trade restrictions, and currency fluctuations; unfavorable global economic conditions, geopolitical conflicts, and trade policy changes could further impact demand, costs, and supply chains - International sales, accounting for 36.9% of Q1 2025 revenue, are subject to risks such as difficulties in staffing and managing operations, increased competition, export restrictions, foreign tax laws, and fluctuations in currency exchange rates297 - Significant changes in U.S. and international trade policies, including new tariffs, could increase costs of raw materials and finished goods, reduce margins, harm competitive position, and disrupt supply chains304305306307 - Foreign currency exchange fluctuations have negatively impacted and may continue to negatively impact revenue from international markets, as a majority of international sales are denominated in foreign currencies322 - Unfavorable global economic conditions, including those resulting from geopolitical conflicts, could weaken demand for products, strain suppliers, and impact the ability to raise additional capital311 Information Technology and Data Security Pulmonx's reliance on IT systems and third-party services, including the LungTraX Platform, makes it vulnerable to security incidents, data breaches, and system failures, leading to operational disruptions, reputational harm, and financial losses; generative AI use also introduces new data privacy risks - Extensive reliance on IT systems, networks, and third-party services (including for the LungTraX Platform) exposes the company to evolving threats like social engineering, malware, ransomware, and supply-chain attacks239240243244264 - Security incidents, whether actual or perceived, could result in government enforcement actions, fines, litigation, reputational harm, loss of customers, diversion of funds, and operational interruptions247248 - The reliability and continuous availability of the LungTraX Platform are critical; software errors, defects, or security vulnerabilities could prevent physicians from receiving essential patient assessment reports251265 - Employee use of generative AI technologies could lead to the disclosure of sensitive information, increased compliance costs, regulatory investigations, and lawsuits, potentially making the business less efficient249401403 Product Liability and Insurance Pulmonx faces significant product liability claims inherent in the medical device industry, which could be expensive and harm its reputation; insurance coverage is limited and may not adequately cover all potential losses - The business is exposed to the risk of product liability claims inherent in the testing, manufacturing, and marketing of medical devices, with the Zephyr Valve's use potentially leading to patient injury or death268 - Product liability claims, regardless of merit, can result in substantial costs, management distraction, inability to commercialize products, decreased demand, damage to reputation, and product recalls268269 - Insurance policies (product liability, clinical study liability, cyber) are expensive, subject to deductibles and coverage limitations, and may not be adequate to protect against all future claims or losses, potentially exposing the company to significant uninsured liabilities270271 Other Business Risks Pulmonx faces additional business risks from unsuccessful collaborations, significant changes in trade policies (including tariffs), and adverse impacts of public health crises and natural disasters on operations and financial condition - Entering into collaborations, in-licensing arrangements, joint ventures, or strategic alliances may not result in commercially viable products or significant future revenues, and could lead to conflicts or termination300301302303 - Significant changes or developments in U.S. and international laws or policies, including trade policies and tariffs, could increase costs, reduce margins, and adversely impact business and financial condition304305306307309 - Public health crises and natural disasters could adversely affect global economies, demand for products, supply chains, and provider capacity, leading to significant negative impacts on business, financial condition, and results of operations298326327328 Risks Related to Government Regulation and Our Industry Pulmonx operates in a highly regulated industry, facing extensive government oversight, risks in obtaining and maintaining regulatory approvals, compliance with quality standards, adapting to evolving healthcare laws, and potential fraud, data privacy breaches, and clinical trial uncertainties Regulatory Approvals and Compliance Pulmonx's products are extensively regulated by the FDA and foreign authorities; failure to obtain/maintain approvals or comply with post-marketing, quality system, and adverse event reporting requirements could lead to penalties, recalls, and business harm - The Zephyr Valve and other medical devices are subject to extensive regulation by the FDA in the United States and comparable foreign regulatory authorities, covering all stages from design to post-marketing surveillance329330 - The 510(k) or PMA process and foreign equivalents are expensive, lengthy, and unpredictable, with no guarantee of obtaining necessary clearances, certifications, or approvals, which can also be revoked330331332 - Failure to comply with post-marketing regulatory requirements, such as periodic reports to the FDA and medical device reporting (MDRs) for adverse events, could result in enforcement actions, sanctions, and product recalls344345357359360 - Manufacturing and design processes must comply with the FDA's Quality System Regulation (QSR) and the European Union Medical Device Regulation (MDR); non-compliance could lead to operational delays, shutdowns, and significant fines362365 - Modifications to the Zephyr Valve may require new regulatory clearances, certifications, or approvals, which, if not granted, could prevent the sale of modified products and lead to marketing cessation or recalls354355356 Healthcare Laws and Reimbursement Pulmonx is subject to complex and evolving healthcare laws (anti-kickback, false claims, HIPAA, GDPR); changes in reimbursement and healthcare reform could limit coverage, reduce payments, and increase compliance costs, with non-compliance leading to substantial penalties - Healthcare laws and regulations change frequently, potentially requiring operational restructuring and negatively affecting revenue and operating results335339 - The European Union Medical Device Regulation (MDR) imposes stricter requirements for clinical evidence, pre-market assessment, and quality management, increasing compliance costs for products in the EU market340 - The company is subject to federal and state fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act), health information privacy laws (HIPAA), and transparency laws (Physician Payments Sunshine Act); violations could lead to substantial penalties and exclusion from government programs347348349352353 - A civil investigative demand from the USDOJ regarding Anti-Kickback Statute and False Claims Act allegations led to an unsealed Qui Tam Action after the USDOJ declined to intervene351 - Changes in Medicare payment levels, reductions in reimbursement by CMS, and varying coverage policies by third-party payors could make it difficult for hospitals to adopt products and create additional pricing pressure217218219220221336339 - Healthcare reform measures, such as the Affordable Care Act and Inflation Reduction Act, and potential future legislative changes, could impact revenues, profitability, and demand for solutions384385386387388389 Data Privacy and Information Security Pulmonx is subject to stringent and evolving data privacy laws (HIPAA, CCPA, CPRA, GDPR); non-compliance, security incidents, or cross-border data transfer challenges could lead to investigations, litigation, fines, reputational harm, and business disruption, with generative AI introducing new risks - The company is subject to diverse and evolving data privacy and information security laws globally, including HIPAA, CCPA, CPRA, and GDPR, which impose extensive compliance requirements391393394395 - Cross-border data transfer laws (e.g., EEA/UK to U.S.) are significantly restricted and subject to legal challenges, posing risks of operational interruption, relocation expenses, and increased regulatory scrutiny if lawful transfer mechanisms are unavailable396397398 - As a potential HIPAA Business Associate due to the LungTraX Platform, the company is subject to HIPAA requirements and significant penalties for non-compliance404 - Employee use of ge
Pulmonx(LUNG) - 2025 Q1 - Quarterly Report