Ladies and gentlemen, thank you for standing by, and welcome to Pulmonx Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jeremy Feffer of LifeSci Advisors Investor Relations. Please go ahead. Jeremy F

Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonx this afternoon are Steve Williamson, President and Chief Executive Officer; and Mehul Joshi, Chief Financial Officer. Earlier today, Pulmonx issued a press release announcing its financial results for the second quarter ended June 30, 2025. A copy of the press release is available on Pulmonx's website. Before we begin, I would 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 the company's operating trends, commercial strategies and future financial performance, the timing and results of clinical trials, expense management, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion and product demand, adoption and pipeline development are based on our current estimates and various assumptions. Forward-looking statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of Pulmonx's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-Q filed with the SEC on May 2, 2025. Also during this call, management 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 Pulmonx's Investor Relations website. These non-GAAP measures are not intended to be a substitute for the company's GAAP results. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, July 30, 2025. Pulmonx disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. Now I'll turn the call over to Steve.

Thank you, Jeremy. Good afternoon, everyone, and thank you for joining us today. We're pleased to report second quarter 2025 revenue of $23.9 million. Our international business excelled, delivering $9.1 million in revenue, well above expectations and a testament to the strength of our global footprint. Growth was robust across all key regions, reinforcing our conviction that the foundational investments we've made internationally, particularly in education, market development and pathway creation are scaling effectively. We continue to see momentum in these markets from repeatable initiatives such as peer-to-peer education, regional multidisciplinary emphysema boards and targeted physician engagement. These are not isolated tactics. They are building blocks of long-term sustainable OUS growth, and the results are becoming increasingly evident. Shifting to the U.S. In the second quarter, U.S. revenue totaled $14.7 million, reflecting slower-than-expected growth in procedure volume. This trend has been driven by a combination of tough year-over-year comparisons, a decline in conventional StratX scans and operational pressures at interventional pulmonology centers. We believe increasing attention on robotic bronchoscopy and lung cancer screening has, in many cases, temporarily constrained bronch suite availability and diverted IP focus. Now it's important to note, we view these dynamics not as threats, but as future tailwinds. The rise of lung cancer screening is a good thing. It's servicing more disease earlier, expanding imaging volume and enabling timely intervention. In fact, we're intentionally aligning with these trends. We believe that the very same infrastructure being built for early cancer diagnosis, including the hiring of clinicians and support staff will create capacity to find and treat more patients with severe emphysema. That said, our original 2025 guidance assumed a second half rebound in U.S. performance, fueled by the ramp-up of our new commercial initiatives. Based on current conversion trends, we now believe that this inflection will take more time to materialize than initially anticipated. As a result, we are revising our full year 2025 revenue guidance from a range of $96 million to $98 million to a range of $90 million to $92 million. This is a recalibration based on timing, not a shift in strategic direction or a change in our confidence in the opportunity. Importantly, this revision to guidance gives us the opportunity to exceed expectations of our initiatives ramp faster than expected while also providing flexibility if conversion time lines continue to vary across programs and geographies. We believe this is a prudent and transparent adjustment based on current visibility while preserving meaningful upside. So let me walk you through what happened, what we're doing about it and why we remain confident in our path forward. The softness in Q2 procedure volume was primarily due to a decline in StratX scans in prior quarters, a leading indicator for Zephyr bronchoscopic lung volume reduction procedures. We expected some of this softness driven by capacity constraints and evolving priorities within IP centers. We also expected that our new commercial initiatives, direct-to-patient outreach, referring physician engagement and the rollout of LungTrax Detect would help overcome that decline by opening up alternative pathways to the funnel. These programs are gaining traction, but they're taking longer than traditional referral models to convert. These new pathways involve multiple stakeholders and more complex workflows, often requiring 1 or 2 additional quarters from identification to procedure. In response, we've taken deliberate targeted steps to expand the funnel, improve conversion, accelerate adoption and grow StratX across the U.S. market. First, our direct-to-patient campaigns continue to gain momentum. We expect to exceed 70,000 first-time patient engagements this year through a mix of digital quizzes, inbound calls, SMS-based support and connected TV advertising. These efforts are driving measurable increases in website traffic and patient inquiries. Already, 1/3 of the patients treated in 2025 were engaged through these campaigns, a strong indicator that we're not just creating awareness, but driving action. We've also launched the therapy awareness specialist, or TAS role to bridge the gap between community pulmonologists and treating centers. Many referring physicians remain unclear on how to identify the right patient, where to send them or whether the procedure is reimbursed. In territories where TAS have been deployed, we've seen patient workups increase by an average of 19% compared to the 4-quarter average. That's the type of early signal we look for when we're launching a new commercial model. We also continue to invest in clinical training and enablement across our IP customer base. This includes onboarding new physicians, providing procedural best practices and supporting multidisciplinary teams in building sustainable workflows. Finally, we're making steady progress with LungTraX Detect, our AI-powered screening tool that passively identifies emphysema patients from routine CT scans. Several hospitals are already live and early site data is encouraging. At one hospital, a patient flagged by Detect was originally undergoing follow-up for a lung nodule and was successfully treated with Zephyr Valves. At another, 5 patients were identified and moved into the diagnostic workup phase within 30 days of installation. The adoption of LungTraX Detect involves the engagement of a number of stakeholders from identifying a clinical champion to clearing IT and security reviews to contracting to integrating into clinical workflow. Each step takes time, but the payoff is clear. We continue to evolve our sales and implementation processes based on customer feedback, and we currently have a robust and growing pipeline of hospitals that are in line to adopt this technology. We've also expanded our capacity footprint. In Q2 alone, we opened 12 new screening centers and trained 26 new physicians. These actions don't just grow our network, they create new points of patient access and expand our capacity to treat. So why are we confident this strategy will work? First, StratX referrals rebounded to record levels in June and July, which we view as a direct response to the initiatives we've deployed. Second, lung cancer screening is scaling rapidly, nearly tripling since 2020 and generating millions of CT scans annually. Based on published data and our internal experience to date, we estimate that 15% of these CT scans will show valve-eligible radiographic emphysema and about 25% of those patients will be eligible for further Zephyr Valve evaluation. That's a massive and growing opportunity that we are now better equipped than ever to capture. Third, health systems continue to prioritize high-value minimally invasive interventions. Zephyr valves offer a strong clinical value proposition, a favorable reimbursement profile and a scalable procedural workflow. We fit squarely within those strategic objectives. Fourth, physician enthusiasm remains high. Reimbursement remains stable and an estimated 500,000 patients in the U.S. remain untreated despite being eligible. The unmet need is not in question. The challenge is matching the right patient with the right care, and that's exactly what our strategy is built to do. We're also continuing to invest in long-term value drivers. The CONVERT II trial evaluating AeriSeal in collateral ventilation- positive patients is progressing well. This product was designed to unlock treatment for the 20% of patients who complete a StratX workup only to be ruled out for valves due to collateral ventilation. Enrollment is expected to complete in the back half of 2026. In Japan, we continue to enroll patients in our post-approval study. This study is required before full commercialization and will unlock access to a market with an estimated 100,000 BLVR eligible patients. We remain on track to complete enrollment in approximately 2026. And finally, we've launched a new collaboration with Jaeger, a global leader in pulmonary function testing to embed BLVR screening logic into their diagnostic platforms. Over 16 million PFTs are conducted in the U.S. annually. Based on published data, roughly 35% to 40% of those tested have COPD. And within that group, up to 30% may have emphysema severe enough for Zephyr consideration. This is what we mean when we say we're not just selling a product. We're building an ecosystem for long-term sustainable 20% growth. We're also advancing our robust clinical evidence base. At the American Association of Bronchology and Interventional Pulmonology meeting in Austin this August, early results from LungTraX Detect will be presented, showing how AI-enabled detection of emphyhysema from routine low-dose CT scans can shorten the time from diagnosis to treatment. In September, the European Respiratory Society Congress will feature multiple presentations from new screening techniques to combination therapies that continue to broaden clinical validation and support practical adoption of Zephyr Valve treatment. So while we are revising our full year outlook, our conviction in our long-term growth trajectory is stronger than ever. We're investing behind a clear, scalable strategy. We're seeing positive signals across all major initiatives, and we will continue to improve and drive focused execution of our strategy, and we remain confident that the work we're doing today will translate into sustainable, durable future growth. Finally, we're committed to transparency with our shareholders, our customers, our employees and most importantly, the patients we serve. That's why we've taken the time today to walk you through not just the what, but the why behind this guidance revision and why we believe the underlying drivers are both sound and strengthening. Now I'll turn the call over to Mehul to provide more detail on our financial performance.

Thank you, Steve, and good afternoon, everyone. Total worldwide revenue for the 3 months ended June 30, 2025, was $23.9 million, a 15% increase from $20.8 million in the same period of the prior year and an increase of 13% on a constant currency basis. This performance reflects sustained adoption of Zephyr Valves and continued execution across our organization. U.S. revenue in the second quarter reached $14.7 million, a 6% increase from $13.9 million in the prior year period. While this growth was below our expectations, it's important to note the challenging prior year comparison. International revenue for the second quarter of 2025 was a record $9.1 million, a 32% increase compared to $6.9 million in the same period last year and a 27% increase on a constant currency basis. Growth was distributed across our core markets in Europe and Asia, underscoring the continued expansion of global demand for Zephyr Valves and the strengthening of our commercial execution outside of the United States. International revenue performance aligns with our outlook, which anticipated outsized international growth in the first half of the year, followed by a more moderate trajectory in the second half of the year. We remain encouraged by the long-term potential of our international footprint and continue to invest in strategic markets to support sustainable growth over time. Gross margin for the second quarter of 2025 was 72% compared to 74% in the same period last year and consistent with our prior expectations. The year-over-year decline was primarily driven by an anticipated shift in geographic revenue mix with international markets, including distributor sales accounting for a larger share of total revenue. Total operating expenses for the second quarter of 2025 were $32 million, a 3% increase over $30.9 million in the second quarter of 2024. Noncash stock-based compensation expense was $5.6 million in the second quarter of 2025. Excluding stock-based compensation expense, total operating expenses in the second quarter of 2025 increased 4% from the same period of the prior year. Research and development expenses for the second quarter of 2025 were $5.3 million compared to $5.6 million in the prior year period. The year-over-year decline was due primarily to the onetime noncash impairment charge related to internally developed software recorded in Q2 2024. Excluding this item, R&D spending increased 36% year-over-year, reflecting higher clinical trial activity and ongoing investments in R&D programs. Sales, general and administrative expenses for the second quarter of 2025 were $26.7 million, up 5% from $25.3 million in the second quarter of 2024. The increase was driven by continued investment in our commercial efforts, including enhanced direct-to-patient outreach and targeted initiatives aimed at increasing clinician awareness and adoption of Zephyr Valve therapy. Net loss for the second quarter of 2025 was $15.2 million or a loss of $0.38 per share as compared to a net loss of $15.3 million or a loss of $0.39 per share for the same period of the prior year. An average weighted share count of 40.4 million shares was used to determine loss per share for the second quarter 2025. Adjusted EBITDA loss for the second quarter of 2025 was $8.4 million as compared to $7.6 million in the second quarter of 2024. We ended the quarter with $84.2 million in cash, cash equivalents and marketable securities, down $4.5 million from March 31, 2025. Total cash utilization for the first half of 2025 was $17.3 million and in line with our 2025 operating plan. We remain laser-focused on disciplined capital allocation and cash burn as we continue to fund key growth initiatives, including advancing our clinical programs. Turning to guidance. We are revising our full year 2025 outlook for revenue and operating expenses to reflect updated expectations and current market dynamics. Gross margin expectations remain unchanged. We are updating our full year 2025 revenue guidance to a range of $90 million to $92 million, representing year-over-year growth of approximately 7% to 10%. As Steve mentioned, this revision reflects a shift in the expected timing of contribution from our growth initiatives in the U.S., which are ramping slower than originally anticipated. Our guidance continues to incorporate current full year foreign exchange rate assumptions, though we acknowledge that future currency fluctuations may impact reported results. International performance was strong in the first half of 2025 as anticipated, driven by robust demand across both direct and distributor markets. Looking ahead, we expect a return to typical seasonality in the second half of the year. As previously communicated, our distributor channel, including China, is expected to moderate. However, we expect continued momentum in our direct markets across Europe and Asia, where underlying demand and commercial execution remains strong. We are closely monitoring the global trade environment, including evolving tariff policies and continue to assess potential implications for international revenue. At this time, we do not anticipate any material near-term impact. We are reaffirming our full year gross margin outlook of approximately 74%. We continue to expect sequential improvement in the second half of the year, driven by a more favorable geographic revenue mix, increased production volumes and the ongoing benefits of cost optimization initiatives. All our products are manufactured in the United States using a blend of in-house processing and third-party suppliers for raw materials and components. The proportion of imported materials remains minimal. And with our current inventory position, we do not anticipate any material impact to gross margin from near-term fluctuations in global trade or tariff policy. We are revising our full year 2025 operating expense guidance down from a range of $133 million to $135 million to a range of $128 million to $130 million, which includes approximately $22 million in noncash stock-based compensation. This reduction reflects the impact of targeted cost efficiency initiatives implemented across the organization aimed at enhancing operating leverage. Importantly, this revised operating expense outlook continues to support full investment in our acquired test and treat strategy, the cornerstone of our long-term growth and market expansion plans. We remain committed to scaling our platform with discipline, ensuring we balance strategic execution with prudent financial management. Our revised revenue and operating expense outlook remains aligned with our original cash utilization targets for 2025, and we currently expect cash burn to track at or below 2024 levels. With a strong balance sheet and a disciplined execution-focused operating plan, we remain confident in our ability to meet near-term milestones while advancing our long-term growth strategy. With that, I'd like to turn the call back to Steve for his closing remarks.

Thanks, Mehul. Before we wrap up, I want to reiterate a few key points. We're delivering strong international performance, expanding our reach and laying the foundation for long-term sustainable growth. While we've adjusted our full year revenue guidance to reflect the longer time lines associated with ramping our U.S. initiatives, the underlying signals from physician training to patient engagement to ecosystem development are all moving in the right direction. The conviction we have in our strategy is grounded in real-world traction and reinforced by the steps we're taking to broaden access, accelerate identification of workup and support physicians and patients throughout the treatment journey while maintaining fiscal discipline. This is not a question of if, but when. And we believe the work we're doing now sets us up to unlock meaningful value over time. We appreciate your continued partnership and interest in Pulmonx, and we look forward to keeping you updated on our progress in the quarters ahead. With that, we'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets.

I was hoping to first follow up on one related to the revised guidance. I was hoping you could help us kind of parse out Q3 versus Q4 expected contribution. And then underneath that, expectations on a U.S. versus OUS growth basis.

Yes. Frank, this is Mehul. Maybe I'll start by saying our initial guidance indicated international revenue growth would drive the first half growth in 2025. The U.S. would drive the second half growth. International growth is consistent with initial guidance, the first half was robust. The second half was slow, primarily from very low ordering from China, and we expect direct markets to be robust with typical seasonality in the second half. So there has really been no change to international revenue expectations. But as I said, distributor revenue was high in the first half, and it will be significantly lower in the second half. So that's kind of a first half, second half dynamic. The U.S. will grow in the second half, but not to the extent we originally expected due to the slower ramp of our growth initiatives that Steve described. U.S. revenue in the first half was approximately 62% of total revenue. And in the second half, we expect it to be at least 2/3, maybe a little bit higher in the second half of the year. So that's kind of the U.S. international breakout. We do expect Q3 to probably be flat to Q3 of a year ago, and then you can figure out Q4 from there. So the first half, second half guidance appears to be a little bit disproportionate. But if you normalize for some of the China revenue that we did get in the first half, it will make more sense. So hopefully, that's helpful.

Yes, that's great. I appreciate that color. And then I was hoping to follow up on some of Steve's comments related to StratX scanning trends. One, can you just help us understand a little bit better maybe what was, I don't know, distracting is the correct word, but what the IPs were up to instead of doing StratX. And then any metrics around the June, July record scanning, just how much larger were those than previous StratX scanning months?

Yes. If you look back -- Frank, by the way, if you look back across the -- from the beginning of the year, we saw a slight decline in StratX as we went into the year, but we were expecting that, that would pick up as we saw the pilot sites really start to engage and start putting more patients through. And really, there's been 2 things in my mind that as we look at where we're headed for the second half that made us find it prudent to change the guidance. The first is these pilot sites ramped up pretty quickly. They came on board quickly. They got through their contracting processes, their security reviews quicker than we're seeing after our broader launch. You'll recall that we launched this to the sales force in Q1, got them trained up in Q1. They started launching in Q2 and selling then. And as we're starting to go through these contracting processes, which we're doing more of now, our funnel is robust and is growing there, as I mentioned, but it's taking longer. And I don't know that, that's all bad. As I look at the -- some of the accounts that we've gone into, they're part of larger organizations. Those larger organizations have to sign off on new software coming in. And so it's given us visibility at higher levels to talk about ways that we can help address this patient population that's not currently being addressed. Capacity is really -- constraints have come from the cancer screening and cancer procedures that are being done, the biopsies that are being done. But with that capacity constraint comes a lot of low-dose CT scans. And those offer an opportunity to integrate both cancer and COPD detection in a single clinical pathway. And that's what we're seeing in some of these accounts. And I think that's what's really driving our June and July uptick in StratX. We see that the work that we're doing in these accounts have really increased their StratX utilization and are putting more patients into the funnel. What it's also done, though, is it's shown us that there is a capacity constraint. These accounts now have these lists of patients that they need to follow up based on the software telling them that they've got patients that have radiographic emphysema. There's a follow-up process that needs to go through. Those patients need to be worked up. And really, what we've been focused on is talking to these administrators that were instrumental in bringing in additional capacity to do these lung cancer screening programs and build up these nodule biopsy programs to show them that they have the opportunity to not only take care of these patients, but to take care of the incidental findings and early intervention that's capable for these severe emphysema patients. So as we build out this ecosystem, I'll tell you, I've been in a number of these conversations. I've been on a number of these calls, and it's resonating. There's a positive response from hospitals that have made significant investments in building out lung cancer screening to take advantage of those patients that are coming through. But to broaden that out and say we've already made this investment. What else do we need to do to capture even a broader patient population and realize a bigger return.

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

I want to follow up on some of the points you made, and thanks for all the detail. And I just want to make sure I'm understanding clearly. As you said, you may regret saying it, but StratX trends at record levels in June and July. If those June, July trends continue on the whatever trend line they are, you haven't quantified it, but feel free to, however you want. But if those trends continue through the end of the year in that direction, whatever that is, would that basically meet -- would that be the biggest factor causing you to meet the guidance you're giving us? Or it sounds like you would do better all things -- a lot of moving pieces here, but help me think that through.

Yes. The point of telling you about the StratX is to show that we do see that we are making an impact. Now the StratX to treatment time lines vary depending on where the account is, which account it is, where those patients are in the process. In some instances, I talked about a new lung tract detect account that just came on board they found 5 patients, put them right into work up immediately. So they're moving very quickly. Others might not move as quickly. And depending on where those patients are in the process, there's just significant variability there. And that's why I was talking about potential upside to the guidance depending on how quickly they do convert. And so I think it's a little too early to tell right now, Rick, but it's a good kind of first level sign for us and lets us see that there's some progress being made here. We're really focused on a rebound in the U.S., and we're expecting one in the back half of the United States here. We're expecting that growth rate to go up. It's just how much it does and how quickly is something that we're working through right now.

And not to belabor this point, Steve, but would you say -- and I'm not trying to get you to say your numbers are too low. I appreciate you're taking hopefully prudently, thoughtfully conservative approach to giving us second half guidance. But would you say you've set the guidance or tried to frame the guidance in the most conservative terms possible. I'm sure you haven't given us your best case. But just there's so many moving pieces, a lot of moving time lines, as you're saying, it's all evolving, but how do you think you frame this guidance?

Yes. It's a multivariant problem for us, right? There's a number of different issues or opportunities that come through. And we try to see what's the speed of which we will see the patient treatments go up from those. What we've looked at is we feel pretty confident with the OUS, as Mehul said, for the year, and that hasn't changed at all. It's just in the U.S., we did see that we didn't rebound as quickly as we expected. And because of that, I don't think we want to get over our skis just yet. We know that it's taking time to get through the contracting process, security reviews. We have more of these accounts coming on. They seem excited. There is an overarching willingness to adopt the concept of lung health rather than just lung cancer screening. And so as we see more of these accounts come on board, it's how quickly we can set them up with the proper workflow to get those patients through. So our guidance is designed to say, look, if we continue to see the growth where we are right now, that would fall in our guidance. However, there is potential upside to this if these initiatives kick in faster than we expect.

Okay. And just a last one for me. Just to make sure I'm clear, this isn't about new competitive dynamics that are making clinicians pause and look at other approaches to emphysema, either detection or treatment or there's no other dynamic other than these complicated multifaceted, multivariant approaches to driving change in how patients are identified and work through the funnel, if I'm hearing you correctly.

Yes. This isn't a direct competition situation at all. We remain -- the premier offering in valves. Our sales force has done a great job of educating clinicians and training clinicians, and we continue to train more. We've done some work to make sure that we're training additional physicians in existing facilities so that they can expand their capacity in that manner. And at the same time, it's making sure that they've got the ecosystem in place so that as these patients are identified, whether it's through these CT scans or through this PFT screening agreement that we're just inking now, but we'll expect that to generate more patients as well. Theoretically, these patients should come through and already be in the workup process. So if they've already had a CT scan, that checks one box that they needed to do for workup. If they've had a PFT, same thing. So we get these patients hopefully a little bit later on in the process and they can move in quicker. The capacity is one, though, that we really need the administration to look at and say, okay, we've built this lung cancer platform, and we do thousands and thousands of procedures in this space. We have the opportunity to treat a major underserved patient population, which has a very, very strong clinical value proposition with Zephyr Valves, but also a strong economic one. It's also a very symbiotic procedure for the hospitals. So these patients that come in can be symbiotic to thoracic surgery, cardiology, other areas of the hospital that are very intriguing and good revenue drivers for the hospital systems. So by talking to the administrators about the ability to clinically take care of these patients, and again, there's hundreds of thousands of them in the United States that are just underserved. We've got a number of them coming into our direct-to-patient pipelines. We're working on getting the referrals up and making sure that the workflow is smoother for these hospitals. It's just once they get there, we need to make sure that they get treated. And in order to get treated, oftentimes, they need to have buy-in from the hospital system that they're willing to expand the capacity of that group.

[Operator Instructions] And I'm currently showing no further questions at this time. I'd like to turn the call back over to Steve Williamson for closing remarks.

Thanks, Shannon. I'd like to thank you all for joining today and thank our employees worldwide that are focused on providing relief to the hundreds of thousands of patients that are suffering from emphysema right now. I believe our strategy is working. It's just taking more time to implement. As I mentioned. We're confident we're headed in the right direction and appreciate all your support. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.