Good day and thank you for standing by. Welcome to the Pulmonix Q3 2026 earnings conference call. At this time, all participants are in a listen-only mode. To ask a question during our Q&A session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Webb Campbell of Investor Relations. Please go ahead.

Good afternoon and thank you all for participating in today's call. Joining me from Palmonix are Glen French, President and Chief Executive Officer, and Derrick Sung, Chief Operating Officer and Chief Financial Officer. Earlier today, Palmonix issued a press release announcing its financial results for the quarter ended September 30th, 2026. A copy of the press release is available on the Palmodix website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. all forward-looking statements, including without limitation, those relating to our operating trends, commercial strategies, and future financial performance, including long-term outlook and full-year 2026 guidance, the timing and results of clinical trials, physician engagement, expense management, market opportunity, guidance for revenue, gross margin, operating expense, cash usage, commercial expansion, and product demand Adoption and pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business Please refer to the risk factors section of our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC on August 4th, 2026. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the press release, which is posted on the investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, October 27th, 2026. Palmonix disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Glen.

Thank you, Webb. Good afternoon, everyone, and welcome to our third quarter 2026 earnings call. Here with me is Derrick Sung, our Chief Operating Officer and Chief Financial Officer. I am very pleased to report that Pulmonix delivered total worldwide revenue of $22.8 million in the third quarter of 2026, marking our organization's return to revenue growth with a 6% increase over the prior year period. This milestone is evidence of our strategy in action. Our continued progress built on consistent execution leaves us increasingly confident in our ability to achieve our previously communicated revenue guidance of $90 million to $92 million for the full year 2026. Beyond returning to growth, we continue to deliver on our commitment to significantly improve operating leverage by reducing our year over year adjusted EBITDA loss by nearly 60% to $3.5 million. Derrick will provide further details on this later in the call. I will focus my remarks today on our priorities for re-accelerating sales growth and advancing our market expanding clinical initiatives. Our organization wide emphasis on disciplined execution of the highest impact selling activities consistent with the near to far framework for market development we've outlined previously continues to drive success for our commercial team and is responsible for the 7% year over year growth that we delivered this quarter in the US. To reiterate, this means setting up high quality and efficient valve programs engaging with and educating physicians who treat COPD and who are aligned with hospital systems offering Zephyr valves, concentrating our direct-to-patient efforts specifically on geographies with established treating centers that have the capacity to accommodate interested patients, and finally, continuing to work together with our champions to educate service line administrators ensuring that their programs are properly resourced and can provide a high quality patient experience. We are seeing evidence that our sharper focus on fewer initiatives is accelerating growth by prioritizing what matters most. With the right people, focus and culture now in place in the U.S., we are confident that we have rebuilt a foundation for continued revenue growth. At the start of the year, our focus was on rebuilding our sales leadership team and filling open territories. We have been finding great talent and have presently filled substantially all open US sales positions. Since the start of the year, we have seen broad-based increases in activity within our accounts that are associated with long-term growth, such as regular reviews of patients being considered, dedicated valve program coordinators and systematic reviews of pulmonary function test results to identify potential patients. In our digital advertising, we have been able to reduce our cost per patient engagement and are seeing increased yield of those engagements to successful treatment. All of these are markers of progress on our near-to-far strategy that we believe are contributing to our improved growth trajectory in the US. We have seen strong engagement in recent specialty society meetings. At the European Respiratory Society Congress in Barcelona, there was significant scientific focus on bronchoscopic lung volume reduction, including a panel symposium and 19 poster presentations with particular interest in the patient pathway, patient experience, and multidisciplinary approaches to severe COPD management. At the American Association of Bronchoscopy and Interventional Pulmonology meeting in Denver, the five-year follow-up data from our Liberate Pivotal Trial was presented, and there were multiple sessions focused on emerging uses of endobronchial valves. Shifting gears, we also remain centrally focused on expanding our addressable market through AeroSeal. Enrollment in our Convert2 IDE trial continues to progress and we remain on track to complete enrollment in the back half of next year. We believe that AeroSeal represents a TAM expansion tool and a further revenue contributor with the ability to expand our addressable market by roughly 20% globally. In closing, the third quarter marked an important milestone for Pulmonix as we return to year-over-year revenue growth in both our US and international businesses. While 2026 remains a year of execution and transition, we're very pleased with our pace of progress and we have greater conviction in our strategy to refine execution and further penetrate the substantial market opportunity for our products. The organization remains aligned and focused on our top priorities. We're confident in the underlying strength of this business and the opportunity in front of us and in our ability to deliver growth and operating leverage as our year-over-year trends continue to strengthen. With that, I will turn the call over to Derrick to provide more detailed review of our third quarter results.

Thank you, Glenn, and good afternoon, everyone. I'm very pleased to report results that reflect meaningful progress in improving our financial trajectory and advancing pulmonics towards sustained revenue growth and profitability. Total worldwide revenue in the third quarter of 2026 was $22.8 million, a 6% increase from $21.5 million in the same period last year on both a reported and constant currency basis. This marks our first return to global year-over-year growth since Glen and I rejoined the company last year. U.S. revenue in the third quarter was $14.9 million, a 7% increase from $14 million during the same period of the prior year. The return to year-over-year growth for our U.S. business gives us confidence that our effort to regain commercial momentum are starting to take hold. We added eight new U.S. treating centers during the quarter. International revenue in the third quarter of 2026 was $7.9 million, a 5% increase from $7.5 million during the same period last year, and an increase of 6% on a constant currency basis. Excluding China, our international markets remain strong and grew approximately 9% on both a reported and constant currency basis as compared to the same period last year. With the renewal of our China registration certificate now secured, We have restarted commercial activity in the region and expect to resume shipments to our distributor by early next year. Gross margin for the third quarter of 2026 was 76% compared to 75% in the prior year period. The year-over-year increase was driven by a lower mix of distributor sales in our international markets, as well as cost efficiencies across our supply chain. Looking forward, we now expect gross margin for the full year 2026 to be approximately 77% as we expect these benefits to persist through the remainder of the year. Total operating expenses for the third quarter of 2026 were $24.9 million, an 18% decrease from $30.4 million in the same period last year. Non-cash stock-based compensation expense was $3.2 million in the third quarter of 2026. Excluding stock-based compensation expense, operating expenses in the third quarter of 2026 decreased 16% from the same period of the prior year. The decrease in operating expenses reflects the cost reduction efforts that we initiated at the start of the year, and we remain on track to meaningfully reduce our expense trajectory in 2026 while maintaining investments in our key growth initiatives. To that end, we now expect full-year 2026 operating expenses to fall between $108 and $109 million inclusive of approximately $14 million of non-cash stock-based compensation expense. R&D expenses for the third quarter of 2026 were $4.9 million compared to $4.8 million in the third quarter of 2025. Selling, general, and administrative expenses for the third quarter of 2026 were $20 million compared to $25.6 million I'm pleased to report that net loss for the third quarter of 2026 was $8.4 million, a reduction of 40% as compared to a net loss of $14 million in the same period of the prior year. Net loss per share was 19 cents down from a loss of 34 cents per share in the prior year period. Adjusted EBITDA loss, which excludes non-cash stock-based compensation expense, for the third quarter of 2026 was $3.5 million compared to $8.2 million in the same period of the prior year. This nearly 60% reduction in adjusted EBITDA loss further demonstrates the progress we've made in realizing near-term operating leverage, which we are now pairing with a return to top-line growth. Our balance sheet remains strong. Operating leverage combined with the restructuring of our credit facility earlier this year, which extends the maturity of our debt to 2031 and provides us with access to an additional $20 million in undrawn capital subject to certain revenue milestones, has left us well positioned to continue our positive trajectory. We ended September 30th, 2026 with $52.7 million in cash and cash equivalents, a decrease of $3.2 million from June 30th, 2026. We now expect to burn roughly $22 million of cash for the full year 2026, which would be a 30% reduction from our cash burn in 2025. Finally, turning to our revenue outlook for 2026. We are reiterating our expectation of full year 2026 revenue in the range of $90 to $92 million. Having returned to year-over-year growth in both our US and international businesses in the third quarter, We expect this trend to continue for the remainder of the year as our rebuilt US sales team continues to ramp up productivity and as we continue to execute against our refocused commercial strategy. In conclusion, we began 2026 with a clear plan to strengthen the trajectory of our business and our return to year-over-year growth demonstrates that our plan is successfully unfolding. Our focus remains on ramping our sales organization, advancing our clinical programs, and delivering the financial leverage we've committed to. We continue to have great confidence in the strength of our business and in our team's ability to execute. With that, I'd like to thank you all for your attention and we will now open the call for questions. Operator?

As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again Please stand by while we compile our Q&A roster. Our first question will be coming from the line of John Young of Canaccord. Your line is open.

Hi, Glenn and Derrick. Congratulations on the great results, and thank you for taking the questions. You know, just to start on the U.S. business, you know, Q3 beat the seasonality you usually see in the U.S. growing sequentially. Any way you could parse out where this growth came from in the U.S. in terms of DTC efforts? The third quarter is always a bit of a mystery with regard to how much kind of headwind you're going to get from the softness that comes from vacations and so forth.

And I think in a healthy We had opportunities to do procedures and we ended up executing those during the period. I don't believe that there's any one thing that we can point to. We have More people filled in territories today than we did even in the prior quarter. So we're moving in a positive direction. It's difficult to parse out exactly how that strength presented itself, but it is encouraging to see that when I look at the third quarter relative to the second.

Okay, great. And then Glenn, of those reps that you've hired, and just looking at the entire US sales force, what percentage today have been in their seats for more than six months now? And how should we think about just where we are in the productivity curve today? Thanks again for taking the questions.

Yeah, well, thanks for the question. And then, you know, the question just for those who were, you know, just wondering where this is coming from. About a year and a half ago, the mean and median tenure of our U.S. sales organization was about three years. And today, the mean is about 1.8 years and the median is about 1.2 years. because of the turnover that we realized. So that data, I'm not breaking it down in a six-month period. Things have been, I think, slightly strengthening as of late in terms of these numbers. But yeah, the average tenure of our sales organization is a little bit on the junior side. We have a high degree of variability in the time it takes to bring somebody up to speed. We have examples of people who've been in their seat for a year who are absolutely crushing it. And so there's some encouragement as it relates to some of the changes that we've made from a training perspective and also the success that we've had on several situations promoting and sort of our junior reps that we call TAMs into quota carrying territory managers so they can sort of have a running start in that regard. So in any case, the tenure is short, but people are coming up to speed and we're going to try to get those numbers to be moving up and to the right.

And our next question will be coming from the line of Rick Wise. Your line is open.

Hi, this is Annie. I'm for Rick. Thanks for taking our questions. Maybe to start on the full year guide, it looks like it implies you could exit 2026, growing at or close to double digits. So aside from China coming back online and easier comps, can you just talk about what other drivers are giving you confidence that underlying business growth can sort of continue to accelerate from here? And then I have a follow-up after that. Thanks.

Yeah. Hi, Annie. This is Derrick. Thanks for the question. So that's right. Our guidance implies we are back to growth and continue to stay back to growth in Q4 of this year. Just to clarify one of your comments on China, we're currently expecting China for us to resume shipments to our Chinese distributor by early next year. It may be in the fourth quarter, it may be early next year. That variability is contemplated in our guidance. Really what's driving our guidance or what's driving our growth in Q4 is similar to what Glenn mentioned in Q3, which is a variety of factors, but we are getting our rebuilt sales team up to speed. We have seats filled. We have refocused the commercial organization on some of our key priorities. and those seem to be taking traction. So it's really just a continuation of the momentum that we've been building in Q3 and getting this relatively new team up to speed and executing and that we expect to continue to drive growth through the remainder of this year.

Okay, great. And thank you for the clarification on China. And then maybe to to ask you another question, Derrick. It would be sort of when you're highlighting this cost restructuring initiatives and you've talked about how they've reduced recurring costs by 10% without even impacting any commercial and R&D investments. I'm just, I'm curious as revenue growth improves, how should we think about spending from here? Like, can you keep it roughly flat year over year or where will you need to reinvest in what areas?

Yes, that is another great question. Thanks, Annie. So we are quite comfortable right now with where our cost structure sits. As you can see in our numbers, our OPEX, our cash OPEX is down roughly $4 million or 16% on a year over year basis. Where we are now, I think we are comfortable that we have a cost structure that can continue to drive the growth that we need and provide the operating leverage that we're currently realizing. I don't expect that we will see meaningful increase in that cost structure moving forward. I think it maybe increases a little bit with inflation, but where we are today, we're very comfortable with that cost structure and maintaining costs at this level and moving forward with our gross margins at 75 plus percent I think we will certainly continue to see meaningful operating leverage driven through our P&L as we continue to grow our top line. Great.

Thanks so much.

And our next question will come from the line of Frank Takanan of Lake Street Capital Markets. Your line is open, Frank.

Thank you for taking the questions and congrats guys on a good quarter. I wanted to ask maybe a little bit about how you're thinking about next year. I know the street is at about 8% growth versus the 2026 implied midpoint. Maybe talk through what are some of the key drivers. Obviously, you made comments about China at the beginning of the year. My assumption is the Salesforce productivity curve. And then if I remember correctly, potentially some OUS era seal later in the year. And then maybe put all those pieces together and help us think about long-term growth. Is this a high single-digit growth business, a low double-digit growth business, and help us kind of think about the long-term growth prospects? Thanks.

Great. Thanks, Frank. I appreciate your question. So first off, we're very happy to have returned to growth in Q3. And as I talked about previously, our guidance for 2026 implies continued meaningful growth in Q4. We're going to refrain from providing 2027 guidance and details on 2027 until our next earnings call. I will say that we are comfortable right now with where ConsenSys currently sits, but we don't want to get out in front of ourselves and we are really focused right now on executing and finishing this year strong. From a long-term perspective, we've said and continue to be committed to sustaining double-digit growth for our company moving forward. But again, I mean, having just returned to growth here in Q3, which again, we're very happy about. We think it's premature to put a timeframe on that. So we're not going to put a timeframe on that. But I think the trends that you're seeing in Q3 and the trends that will continue into Q4 will continue into next year. And certainly we're committed to growing our business in Q4 as well, or in 2027 as well.

Yeah. If I could just add to that, Frank, you asked about sort of the drivers and you asked about China being one of them. I just want to put into context here just to make sure everybody's on the same page. You know, like 64% of our business comes from the US and 33% comes from Europe and 3% right now comes from Asia Pacific. And when China comes back online, it'll represent about 2% of our business. So I think we've been talking a lot about China on a quarter over quarter basis recently. And as a consequence, it may have become a focal point. And the reason for that is that the combination of anticipating Thank you very much. Thank you. But it's, you know, 2% of our business. It's just not, and I don't expect it's, I mean, we're cheering for China. We like that market. We do everything we can to grow it. But it is a distributor market, so it is not quite as predictable. It's certainly more lumpy than what you would see in one of our direct markets. And again, this last quarter, we were 99% direct. So just to put all of that into perspective. So that's the China thing. You asked about Salesforce productivity. Yes, as people come up to speed, we would expect that we will see, you know, continued Salesforce productivity. And we see that as a factor in driving our 2027 numbers. You asked about AeroSeal, implying that we might have meaningful revenues outside the United States. as a result of AeroSeal. And I just want to point out that though we do expect to be commercial with AeroSeal in 2027, we will be in Europe. So that's a third of our business roughly overall on a global basis. And we will launch in what would be considered sort of a limited launch fashion, get everything up and running, tested and then expand beyond that. So I would Anticipate material revenues out of Europe with AeroSeal in 2028, not so much in 2027.

Okay, great color, very helpful. Maybe just one other quick one. Now that you've got a full sales bench at this point, any expectations to continue to expand that as you look over the next few years?

Yes, you know, it's not central to what we do. We do this very opportunistically. It's very similar to the way that we've done it in the past. I think that we, and the mix between TMs and TAMs, the junior reps, is always sort of on the move. But I think overall, the kinds of, I would imagine we'll probably see modest increases in the number of territories we have when territories get super large and either with regard to revenues and the complexity of managing them and or situations where the geography is truly spectacular in terms of its breadth. We have historically divided territories and I think we will continue to do that opportunistically where we believe that the addition of the cost associated with another sales resource will be more than paid for by fairly prompt realization of upside on the revenue front.

Got it. Very helpful. Thanks for taking the questions.

And our next question will be coming from the line of Jason Bednar of Piper Sandler. Your line is open.

Hey, good afternoon. Thanks for taking the questions and nice work on the progress here. I actually want to start with building off of some of John's questions earlier. I've been wondering about if you have these newer reps that extend their tenure, just how you think about the balance between onboarding new accounts, which often gets a lot of attention from all of us on the street, versus reactivating what might be some dormant accounts for you. How do you think about the strategy in striking that balance, Glenn? You know, what's the highest return on time for those reps?

So we we are obviously we opportunistically open up new accounts and we we guide to about 40 a year. I think we're tracking a little bit ahead of that at this point. So that's sort of a natural place. And that's those are revenues that come against a zero base. As we grow our business, as we have always said, with regard to penetrating this opportunity, the way that we do that is through same store sales. And central to our current strategic focus, which we've described on a number of different fronts, and we've abbreviated by referring to near to far, the near to far strategy is about same store sales and driving incremental revenues. with the newer reps. I don't know whether you were implying that they might be drawn to the shiny object that is often a new account versus growing an existing account, but I can tell you we've had a tremendous amount of experience with newer reps, obviously people that we have brought in over the last year to fill rep positions and also a considerable number of folks that we've promoted from the junior rep position and they've done a really nice job at reigniting accounts that had sort of gone a little, I wouldn't call it dormant, but what weren't sort of in full stride, maybe the way they were in the past or hadn't evolved to the next level. And I think that they've done a spectacular job. One of the things that's super encouraging to me right now is if you look at We're divided into eight different regions, and the region right now that is number one in terms of dollar growth over prior year is 100% composed of people who started with the company as territory account managers or junior reps. They've all been promoted into rep positions, and they're leading the charge right now. So it's... I'm not worried about our newer people being able to focus. The least experienced people tend to be coming up from the TAM position, and when we bring people in from the outside, they're very seasoned, 10 years experience and so forth, and they know how to focus on building a business over time.

Okay, that's helpful. Thanks. Derrick, one for you, More focused on the cash side. I'm not sure if there's going to be any oddities on the cash conversion cycle as you ramp China back up, but really just trying to get a sense of the pace at which cash burn narrows from here after 26 has been very successful. Certainly a few variables that play into it as we look ahead, but the pace of improvement we saw from 25 to 26, either percentage or absolute dollars, Is that a reasonable way to think about the go forward for 27? Or are there factors you'd have us consider when we model out cash?

Yeah, that's a great question, Jason. So I would think about it primarily from the perspective of on a go forward basis. As I mentioned before, we feel like our cost structure is in a pretty good place and expect our OPEX to increase by maybe a few percent. Moving forward, but nothing significant. And so the operating leverage, which drops down to our bottom line and really drives the cash leverage that you're talking about, I think moving forward, kind of next year and beyond, once we anniversary this year and the sort of one-time cost realignment that we've done really comes from top-line growth. So I think that should be your guide. And again, with gross margins being above 75%, and you mentioned China, we believe that even with China coming online, which is a modest drag on our gross margin, but still highly profitable from an operating margin perspective, we expect to stay above 75% in terms of our gross margin profile. And so that operating, that gross profit All right. Very helpful. Thanks, Derek.

and I would now like to turn the conference back to Glenn for closing remarks.

Thank you very much. First, I'd like to express my greatest appreciation to all Pulmonix employees for their ongoing engagement and consistent execution of our plans. Simply put, it's great to return to year-over-year revenue growth. We expect to continue to execute on our commercial strategy, advance our longer-term strategic priorities, and, with a realigned cost structure, deliver operating leverage. Thank you all for your time today and interest in Pullmonix.

And this concludes today's program. Thank you for participating. You may now disconnect.