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Operator: Good day and thank you for standing by. Welcome to Pulmonx Q4 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. I would like to hand the conference over to your speaker today, Laine Morgan at Gilmartin Group.

Laine Morgan: Thank you operator. Good afternoon and thank you all for participating in today’s call. Joining me from Pulmonx are Glen French, President and Chief Executive Officer; and Derrick Sung, Chief Financial Officer. Earlier today, Pulmonx released a press release announcing its financial results for the fourth quarter and year ended December 31, 2022. A copy of the press release is available on the Pulmonx website. Before I 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 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 our operating trends, commercial strategies and future financial performance, the timing and results of clinical trials, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion and product 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 of 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 November 8, 2022. 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 in our 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, February 22, 2023.

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. And with that, I will turn the call over to Glen.

Glen French: Thanks Laine. Good afternoon, everyone, and welcome to our fourth quarter and full year 2022 earnings call. Here with me is Derrick Sung, our Chief Financial Officer. I’ll begin with a few highlights to contextualize our fourth quarter and full year 2022 results before turning to our outlook and strategic priorities for 2023. 2022 was a foundational year for Pulmonx, in which we finally emerged after more than two years of intermittent disruptions into a more normalized environment that allows us to resume building the basis for long-term sustainable growth with a focus on developing our accounts to establish our Zephyr Valve procedure as a standard-of-care for the treatment of patients with severe COPD. For the full year 2022, we achieved $53.7 million in worldwide sales growing our business 11% as reported and 16% on a constant currency basis over 2021.

Further, we delivered full year 2022 revenue in the U.S. of $32.5 million, representing growth of 30% over 2021. On top of this, we also made substantial progress on our commercial and clinical initiatives. Specifically, we increased our U.S. commercial footprint in 2022, adding 64 new training centers, and thereby taking our total to 278 centers. And this provides a solid base as we focus increasingly on account development and penetration. We saw two encouraging clinical data readouts on our AeriSeal technology, our on-going convert multicentre multinational trial in Europe, and a single center feasibility study in Australia both revealed early signs that AeriSeal can successfully close air channels between lobes of the lungs, thereby allowing patients with collateral ventilation to be treated successfully with Zephyr Valves.

And lastly, we received regulatory approval for our Zephyr Valve procedure in Japan and are presently working to establish reimbursement there later this year. To cap off the year, we ended the fourth quarter with global sales of $15.4 million, our highest quarterly revenue to date, driven by another record U.S. performance of $9.5 million in sales representing 30% growth over the same period last year. Looking ahead, we are focused on continuing to ensure our procedure is done efficiently and routinely in our target hospitals. While we expect some of the macro headwinds seen in 2022 to continue into this year, we are confident in our ability to push through these headwinds. We’ve made good initial progress, increasing efficiency in our high potential accounts and intend to continue to ramp these efforts, maintaining our expectation that these will translate directly and substantially to revenue growth in the back half of this year.

Taking this into account, we anticipate full year 2023 revenue to be in the range of $63 million to $65 million. As a reminder, our strategy is three pronged; first, selecting, training and launching accounts that we believe based on our comprehensive assessment criteria have the potential to be strong Zephyr Valve centers. Second, increasing the efficiency and procedural capacity of our accounts by encouraging best practices with our physician and administrative champions. And finally, increasing center volumes by building local awareness of the substantial benefits of Zephyr Valves with both emphysema patients and the physicians who manage them thereby developing a strong referral network. Relative to assessing and launching new accounts, we were pleased to add 17 new U.S. trading centers in the fourth quarter, bringing our total number to 278.

While our focus will remain throughout 2023 on developing this cohort into high volume accounts, we expect to selectively identify and establish an additional 40 to 50 new accounts through the year. These will be accounts that are committed to developing a comprehensive Zephyr Valve program to deliver clinical efficiency and excellence. Looking forward, we believe that accounts activity and account productivity will be the best metrics to measure our progress and increasing efficiency and sales across our existing base of U.S. treating centers. We define account activity as the percentage of trained treating centers that place a revenue generating order in a given quarter. In the fourth quarter of 2022, U.S. account activity was 73%, which represents a resumption of activity to a more normalized level in a post pandemic environment.

We expect that account activity will remain in the 75% range as we continue to grow our denominator of treating centers. We define account productivity as the average number of cases conducted in a given quarter by our active and established Zephyr Valve treating centers, which are those that have been performing Zephyr Valve procedures for at least three quarters and have placed a revenue generating order in the subject quarter. After emerging from the most recent wave of COVID — the COVID pandemic the average productivity in our active established accounts across the last three quarters of 2022 range between four and five cases per quarter. More specifically, active established account productivity was approximately 4.8 cases in the fourth quarter of 2022.

We see this as the most critical metric by which to measure the success of our account development and strategy and expect to see the average account productivity in our active established accounts increase in the second half of the year, as we realize the initial benefits from our refocus strategy. Importantly, we feel strongly that we can accomplish our commercial goals this year with our existing footprint of sales territories, which at year end consisted of 55 in the U.S. and 36 internationally. While we expect to continue to operate and tunistically add sales resources and select geographies, we are confident that this team can effectively cover and grow our target markets. Part of our initiative to expand productivity focuses on building awareness of the benefits of Zephyr Valve procedure among COPD physicians.

To this end, we are — we’re pleased to have partnered with Medscape and the American College of Chest Physicians to launch physician education programs on Zephyr Valves and are already seeing strong physician engagement in these programs. We expect these partnerships to continue to facilitate our efforts to increase awareness with COPD physicians on how Zephyr Valves may substantially improve the lives of their patients with COPD and emphysema and we intend to look for incremental opportunities to advance these collaborations. Beyond these initiatives within existing markets, we are continuing to pursue ways to further tap into and expand what we believe to be a $12 billion global market opportunity. For this end, we received regulatory approval in Japan for our Zephyr Valve treatment late last year.

Our team is now working diligently toward the establishment of reimbursement and the subsequent commercial market introduction in Japan, which we expect late this year. Also, as a reminder, we estimate Japan to be a billion dollar market opportunity with approximately 100,000 patients who stand to benefit from our treatment. Further, and with regard to expanding our addressable market we continue to view AeriSeal as a possible way to leverage the large number of severe COPD patients with collateral ventilation who are not candidates today for treatment with Zephyr Valves. Last year interim findings from an on our on-going multicenter multinational CONVERT trial, showed AeriSeal successfully converted 78% of the first 40 patients in the study to having little to no collateral ventilation.

These patients were then successfully treated with Zephyr Valves. We expect to complete trial enrollment this year, with final data presented next year. Also learnings from the CONVERT trial contribute to our dialogue with FDA regarding an IDE and related clinical protocol that we expect to initiate before the end of this year. With that, I’ll turn now I’ll now turn the call over to Derrick to provide a more detailed review of our fourth quarter results.

Derrick Sung: Thank you, Glen, and good afternoon everyone. Total worldwide revenue for the three months ended December 31 2022, was a record $15.4 million, a 13% increase from $13.7 million in the same period of the prior year, and an increase of 18% on a constant currency basis. U.S. revenue in the fourth quarter reached a new high of $9.5 million, a 30% increase from $7.3 million during the prior year period. The growth in U.S. sales reflected continued commercial momentum and adoption of our Zephyr Valve therapy as we move into a more stabilized environment. International revenue in the fourth quarter of 2022 was $6 million, a 7% decrease from $6.4 million during the same period last year, and an increase of 5% on a constant currency basis, as international sales growth was negatively impacted by foreign currency exchange rates.

Notably, our fourth quarter international performance reflected a rebound from the more pronounced summer seasonality that we experienced during the third quarter in certain markets. Gross margin for the fourth quarter of 2022 was 73% compared to 75% in the prior year period, reflecting slightly lower capacity utilization. In 2023, we expect gross margins to fall within the range of 73% to 74% remaining near 73% in the first half of the year, and then trending towards 74% in the back half of the year. Total operating expenses for the fourth quarter of 2022 were $25.8 million, a 14% increase from 2020 — a 14% increase from $22.6 million in the fourth quarter of 2021. Noncash stock-based compensation expense was $4.1 million in the fourth quarter of 2022.

Excluding stock-based compensation expense, total operating expenses in the fourth quarter of 2022, increased 10% from the same period of the prior year. Looking ahead, we expect operating expenses for the full year 2023 to fall between $112 million to $114 million, inclusive of approximately $22 million of noncash stock-based compensation expense as we take a disciplined and prudent approach to managing expenses while continuing to invest to drive growth. Excluding noncash stock-based compensation expense, our operating expense guidance implies an increase in operating expense of 9% to 11% in 2023 over the prior year, demonstrating operating leverage as we expect to increase our cash operating expenses at a meaningfully lower rate than we expect to grow revenue.

R&D expenses for the fourth quarter of 2022 were $3.9 million, compared to $3.7 million in the same period of the prior year. The increase was primarily attributable to an increase in stock-based compensation expense. Sales, General and administrative expenses for the fourth quarter of 2022 were $21.9 million, compared to $18.9 million in the fourth quarter of 2021. The increase was primarily attributable to an increase in sales and marketing expenses as we expanded our commercial team and increased commercial activities, as well as an increase in stock based compensation expense. Net loss for the fourth quarter of 2022 was $14.3 million or loss of $0.38 per share, as compared to a net loss of $13 million, or loss of $0.35 per share for the same period of the prior year.

An average witness share count of 37.4 million shares was used to determine loss per share for the fourth quarter 2022. Beginning this quarter, we will be reporting on adjusted EBITDA, which we believe is representative of the on-going operating performance of our business. Adjusted EBITDA reflects our net loss before interest, taxes, depreciation and amortization expense, and also excludes noncash stock-based compensation expense. Adjusted EBITDA loss for the fourth quarter of 2022 was $9.8 million, as compared to $9.4 million in the fourth quarter of 2021. We ended December 31 2022, with $147.1 million in cash, cash equivalents and marketable securities, a decrease of $9.8 million from September 30, 2022. Earlier this week, we further strengthened our balance sheet by drawing down the remaining $20 million provided by our existing term loan, bringing the total amount drawn on this credit facility to $37 million.

Including this recent drawdown, our cash position at the end of 2022 would have been approximately $167 million. We felt it prudent to take advantage of the favorable terms of the loan to provide ourselves with the greatest degree of financial flexibility to invest in our business. As a reminder, we recently refinanced this credit facility in October of last year at an attractive rate of prime plus 1% and extended the maturity date out another 5 years, with at least 2 additional years of interest-only payments. We remain confident that we can reach cash flow breakeven in our existing current operations with the capital that we have on hand and continue to expect our annual cash burn to decrease as we grow our top line and drive operating leverage.

Now turning to our revenue outlook for 2023. We expect to deliver full year 2023 revenue in the range of $63 million to $65 million. Our guidance assumes foreign currency exchange rates will be relatively neutral to growth on an annual basis, with foreign exchange remaining a headwind to growth in the first half of the year and then transitioning to a tailwind in the back half of 2023. We expect sales in the first quarter of 2023 to be sequentially lower than the fourth quarter of last year, as we’ve typically seen in the past. Lastly, I’d like to mention that in December 2022, we received a civil investigative demand from the U.S. Department of Justice in connection with the request for information under the False Claims Act and the anti-kickback statute.

The CID request information in connection with the sales and marketing of Zephyr Valves and related products and services. We maintain policies and procedures to promote compliance with the anti-kickback statute False Claims Act and other applicable laws and regulations and are fully cooperating with this investigation. While we cannot, at this time, reasonably predict the duration or outcome of this matter, I would emphasize that at this time, we do not view this as a barrier to growth or a hindrance to the implementation of our commercial strategy. And with that, I will now turn the call back to Glen for closing comments.

Glen French: Thanks, Derrick. In summary, we look forward to delivering strong growth in 2023, particularly in the back half of the year as we build on our momentum with a refocused team and strategy. We remain confident in our commercial efforts to scale accounts, while also selectively adding new ones in addition to our efforts to start selling product in Japan before the end of the year. We also look forward to progressing the development of AeriSeal, which offers an opportunity to significantly expand our target market by possibly offering the benefits of Zephyr Valves to patients who are not currently candidates for the procedure. Taken together, we expect to execute on both commercial and clinical development objectives and thereby deliver strong growth in 2023 and beyond. With that, I’d like to thank you all for your attention, and we will now open up the call for questions. Operator?

Operator: Thank you. Our first question comes from the line of Rick Wise of Stifel. Your line is now open.

Rick Wise: Hi good afternoon everybody. Nice to see the solid fourth quarter performance. Maybe Glen, just to start off in the big picture front. You talked about the macro environment improving, and the strong fourth quarter supports that idea, that notion. Just help us understand what’s changed, what you’re able to do now that you weren’t able to do obviously or more challenged by over the last year or so? And why you’re confident or why you’re feeling good that, that macro environment improvement is going to set you up well to have another good year in 2023?

Glen French: Thanks, Rick. Appreciate the question. So the thing that’s changed, I mean, I was just thinking about 2022, we started the year with significant headwinds, with COVID basically hitting all of our markets essentially all at the same time, plus or minus a week or 2. And that had a significant negative impact. Outside the United States, our ability to rebound that was slow — rebound from that was slower than what we had experienced in the United States. And that, I think, has really fully cleared for us as we progressed across the year, albeit at different rates in different parts of the world. So that’s cleared a bit. The other thing is that we had some real staffing challenges. We talked about those in the last call.

Some of those were related to just sort of normalization and getting people back into their seats. And some of those, as we talked about in the third quarter, were related to extraordinary opportunities for folks to take time after the better part of 3 years not being able to take a vacation. And so we felt that in the third quarter. We don’t anticipate extraordinary types of impact as we look ahead in that regard. And then finally, one of the things that was revealed to us that we talked about in the last quarter call, when we had, particularly in the United States, about 6 months without COVID, which was the first time ever that we weren’t getting knocked around in one place or another, we were able to identify where we really stood with our accounts as opposed to — and in some cases, I think we were maybe assuming or hearing that COVID was the problem.

And in fact, the account hadn’t made the procedure quite as routine as a part of their offering as is appropriate in our high-performing accounts. And as we talked about in the last call, we were able to set up a process whereby we classified all of our accounts and then set specific goals for moving them into the direction of being better established and, as a consequence, being able to execute our procedure more routinely and more efficiently. So those are all things that I think put us coming into this year into a better place, whether that be with the plan or just without the headwinds that we had faced, particularly in the first part of last year.

Rick Wise: Got you. On your account productivity, obviously, you’re doing well. If I wrote it down correctly, and I think I am saying it correctly, 45K is a quarter on average. And did I hear you correctly that the average for all accounts was 4.8 in the fourth quarter? Or was that your top performing? Anyway, just maybe you’ll clarify that. But as we think about 2023, can we get into the 5% to 6% range? And maybe talk about your training and your efforts to support drive better account productivity that could get you there if that’s the right way to think about it.

Glen French: Yes. Well, we had — so across the year, across 2022 the first quarter we were — our account productivity number was 3.9. So we started below 4 in the first quarter. We are in the midrange in sort of the 4.5 range in the second 2 quarters, and we exited the year at 4.8. So yes, we were in the 4 to 5 range across the year. And it is our expectation that we will be exiting this year in the 5 to 6 range, as you talked about. And we’ll do this through executing on the plans that we had talked about before. And training is central to that. So ensuring whether that be on-site training in terms of sharing best practices to ensure that the centers themselves are able to efficiently move patients from the sort of the front door to the procedure, and then doing so decrease the time that it takes, which is a very sensitive variable in sort of our productivity equation, if you will.

And also the training itself, I think we may have talked — maybe not on one of these calls, but we have modified the way that we bring folks into training. So I would say that relative to where we were a couple of years ago, the physicians that are coming in to training are much more committed and much more engaged. We ask them to bring forward the data and information and scans on 3 patients that are talked about prior to training that they then immediately come out of face-to-face training. You may recall that in COVID times, we were doing virtual training, which is not nearly as good as having somebody face-to-face for a day going with a world expert at the front of the room going through all the various aspects of the procedure and standing in the procedure room for 1, 2 or 3 procedures.

And then we ask those physicians to immediately go back and to execute 3 procedures, which are then reviewed by experts along with them to assess what do the scans look like and how is that patient doing in terms of volume reduction and other metrics. And those conversations are very, very valuable in bringing those physicians up to speed, getting them doing the procedure quickly. And in sort of the COVID days, they’d come out of training and they start looking for patients. And then a wave of COVID would knock them off balance, and it could be 9 months before they treated their first patients. So we’re getting folks engaged much more quickly, and that’s essentially the backdrop for how we intend to drive this forward.

Derrick Sung: And Rick, this is Derrick. Let me just clarify the definition that we’re using for account productivity. It takes a few quarters for an account to get up to speed from when they do their first case. So when we look at and measure our account productivity, we’re looking at accounts that have been up and running for at least 3 quarters. They’re in their fourth quarter of implanting our Zephyr Valve. And we’re also looking at only those accounts that have actually done a case in that given quarter. So our number isn’t diluted by inactive accounts. So the numbers that Glen gave sort of in the 4 to 5 range of established active account productivity refer to those accounts that have been up and running for at least 3 quarters or active in a given quarter. And we do indeed expect those — that number to move up through the back half of the year and into that 5 to 6 range as we exit the year.

Rick Wise: Got you. And just, Derrick, last from me, if I could. Could you expand on your gross margin comment? Gross margins were a little lighter than I looked for, and your guidance is a little lighter and yet you had record volumes. Just maybe I missed it, a little more color on why gross margins are a little lower than they were earlier in the year and ditto for the look ahead to 2023? Thank you.

Derrick Sung: Sure. Sure, Rick. So that slight reduction in gross margin that we’re seeing in the fourth quarter of last year, and as we look into the first half of that — of this coming year in 2023 reflects a slightly lowered capacity utilization or production output, as we feel like we’re now kind of where we want to be in terms of inventory levels and safety stock, given our current outlook for demand in the near term. So we’re expecting to stay around that 73% range in that first half of the year. And then as in the back half of the year and into next year as we start once again ramping up our production output into next year and beyond, we expect this to move up to kind of that 74% range. And we continue to believe that — and expect that our gross margins will continue to move up as we ramp our production output to meet demand, and we’ll land over the long term in that high 70% range as we reach scale.

Rick Wise: Thank you so much Derrick.

Operator: Thank you. Please stand by while we wait for our next caller. Our next question comes from the line of Bill Plovanik of Canaccord. Your line is now open.

Unidentified Analyst: Hey Glen and Derrick, it’s John on for Bill tonight. Thanks for taking our questions. Can you just talk a bit a little bit more on the number of accounts that are efficient today with the patient flow process? In the past, you’ve highlighted 40 to 50 accounts that do as well. Where does that number stand today? And can you just give us a little bit more details on how you’re going to help with those struggling accounts? Are you going to hire more reps this year? Or just how do you work through those workflow processes? Thanks.

GlenFrench: Derrick, I don’t know if you heard all of that. It was a little choppy for me. Did you get that whole question?

Derrick Sung: Yes. So John was asked — so John, you’re asking what percentage — sort of what percentage of our accounts are kind of where we want them to be and how are we going to, I think, focus on driving those accounts that are not as high volume as we like to get to where they want to be?

Unidentified Analyst: Yes.

Derrick Sung: Right. So that’s to paraphrase your question. I would start by saying I think today, I would say approximately exiting the year, roughly speaking, maybe a quarter of our accounts are really doing kind of well and doing where we want them to be. They’re kind of €“ they’re what we would consider to be high-volume accounts. And there’s certainly an additional group of accounts that we feel can get into that range that we’re really focused on. And what we’re focused on is exactly kind of what Glen had mentioned, which was during his prepared remarks, which is driving site efficiency, making this product or the procedure routine, the new procedure that we’re setting up in a new service line that we’re setting up in these hospitals.

And so coordinating across multidisciplinary functions at driving the training and really the focus and mind share to get our positions in those hospitals to adopt our procedure as a routine procedure is really kind of what we are focused on, and that’s really kind of the site efficiency efforts that we’re going to be driving through the first half of this year. We expect to be able to do that with our existing sales force. So this isn’t going to require — and we’re not anticipating a significant increase in our sales force through 2023, which I believe was the second part of your question. It’s really just a focus of driving kind of that efficiency and mind share and making this procedure routine amongst those hospitals that we’ve already opened.

Unidentified Analyst: Thanks, Derrick. Yes. And if you could hear this question, too, just on Japan and the launch preparation, what’s the team size there today? And what infrastructure do you still need to add to be ready for launch end of this year? Thank you for taking our questions.

GlenFrench: Sure. Absolutely. We’re in pretty good shape, I think, as far as Japan goes. We have a general manager in place who joined us — a senior executive at Medtronic has joined us been leading the way and have been on board for about 6 months. We have a marketing person sort of a clinical marketing type person. I think we’ve extended a couple of offers to a couple of sales representatives to begin to get those accounts where they need to be. We’ve been leveraging significantly deeply experienced consultants from a regulatory and clinical perspective. You’re going to have to do a post-approval clinical trial. We’ve got our own personnel that have been traveling through their identified partners that we’ll be working with. So we’re, frankly, in very good shape as it relates to both the number and sort of functional expertise of the folks that we’ve — that we’re — we have or just about bringing on at this point.

Unidentified Analyst: Thanks.

Operator: Thank you. Please standby for our next caller, our next question. Our next question comes from the line of Travis Steed of BofA Securities. Your line is now open.

Unidentified Analyst: Hi. This is Ian on for Travis. Just hoping to get a bit more detail on the guide here, if possible. What is the $63 million to $65 million implied for U.S. versus OUS? I think you had previously said 25% growth, U.S.; 15%, OUS. It looks like U.S. was a little faster in Q4, OUS a little slower. And then any additional detail around expectations for Q1 here given that almost through February and then last year, you had the COVID impact. I think the Street is at around $13.5 million. Is that in the right ballpark for Q1 here?

Derrick Sung: Yes. Hi Ian, this is Derrick. I’ll go ahead and take those questions. So in terms of the implications for growth rates relative to our sales guidance, our sales guidance of $63 million to $65 million does imply kind of roughly at the midpoint, 20%-ish growth on a year-over-year basis over 2022, which is sort of the same that we communicated at the end of last year as we’re kind of given our high-level directional guidance. If we think about the breakdown between the U.S. and OUS, I think we’ll continue to remain in that 60-40 mix with about 60% of our business coming from the U.S., 40% coming from international. We do expect the U.S. to grow meaningfully faster than international. So the U.S., I think, will grow in that 25% to 30% range, whereas outside the U.S., we’re looking at something in the 15% to 20% range. So that is — I think that answers the first part of your question. Can you repeat the second part of your question?

Unidentified Analyst: Yes, just any additional detail around Q1. I think the Street is around $13.5 million.

Derrick Sung: Right. So we do expect to see sort of typical sequential seasonality in Q1. So historically, we’ve seen that the — that Q1 sales are anywhere from 10% to 15% lower on a sequential basis than Q4. That are typically driven by — outside the U.S., we see hospitals oftentimes using up their budget near the end of the year. And then globally, including the U.S., there’s generally a gradual ramp up as folks come off the holidays in the beginning of the year. Now that seasonality was more pronounced during COVID, but if we look back into the kind of the pre-COVID time period, we do typically see that sort of sequential decline. So I would expect to see something in that range — that historical range, again, in Q1. And I would expect to see international reflect more of that seasonality than the U.S., but I think both will see a level of sequential decline as we’ve typically seen in the past.

Unidentified Analyst: Okay. Perfect. And then maybe one on international. Just Japan, any early expectations around revenue numbers later this year? How fast could that potentially ramp next year? And then in terms of China, just how large of a business is that for you? Any expectations around a rebound there this year?

Derrick Sung: Yes. So with regard to Japan, we’re — we anticipate that we’re going to get approval or reimbursement later part of the year. So I think we’ll do — it takes some time to get things up and running. I don’t expect that the day after we get approval, we’re going to be treating our first patient. So we’ll get a handful of patients in this year, I think, if we’re doing well. So I don’t expect any material contribution this year to revenues by Japan. The other thing is we anticipate that the first 100 to 150 patients in Japan are likely to have to all run through a clinical trial. So we’ll probably be opening up Japan through 5 or 10 specific centers. And so I expect that, though revenues in the next year will be way stronger than they are this year, I don’t anticipate that those are going to knock the doors off of €“ they’re not going to bend the curve dramatically in terms of our OUS revenues.

I see revenues really taking off in 2025 when we’ve had an opportunity to enroll those first patients into the study and expand our footprint and move off of that. So I think that’s the way that I would think about getting into that opportunity. Over time, we see that as being probably our — certainly a top 5 market for us.

Glen French: And I think the second part of your question was around China, and China is less than $1 million and as — far as for us right now.

Unidentified Analyst: Okay, thanks for taking the questions.

Operator: We standby for our next question. Our next question comes from the line of Jason Bednar of Piper Sandler. Your line is now open.

Jason Bednar: Hey good afternoon. Thanks for taking the questions here. Glen or Derrick, yes, the number of new accounts you’re looking to on-board this year is maybe below — a little bit below what we’ve seen in past years. I think that’s probably, probably a function of maybe where you’re at on boarding a lot of your target accounts. As your reps refocus their efforts towards driving account productivity, I think this makes a ton of sense. What does the give and take look like here as the emphasis shifts? Are you expecting return on time for your reps to be higher and focusing on turning on existing accounts versus being more productive with your existing accounts? Or maybe you could help us with like what the lower new account additions mean in terms of the shift and how your reps spend their time during the day.

Glen French: Yes, we’ve never — adding new accounts has never really been central to what we’re asking the reps to do. It’s been fairly organic in terms of the opening of new accounts. And I think the thing that is new is that — and that what we’ve shared with the sales organization is that we need to get these accounts to a point that where they’re doing this procedure much more routinely. And what you see from the revenue numbers of those accounts that have gotten to that place where they’re exercising much more routinely and efficiently is that the revenues follow, and it’s fairly dramatic. So we’ve — everybody is on the same page here. This is €“ we’re not telling folks not to open new accounts. They’re going to continue to do that opportunistically.

But the real opportunity here for us, as we are now sort of moved past halfway penetrated into the hospitals that we’re targeting in the United States, is really around same-store sales. And that’s what we’re focused on. That’s €“ everyone’s on the same page. We’re not forcing anybody to do anything. We’re trying to make this technology available to the greatest number of people possible. And that’s the path that makes the most sense to everyone. So that’s where folks are focused at this time.

Jason Bednar: Okay. That’s helpful. And then maybe could you talk about the trends you’re seeing in Europe, notably Germany and France, which accounts for this proportion and part of your international franchise? It sounds like there’s still maybe some capacity constraints in those markets. Do you see those markets may be accelerating throughout 2023, almost mimicking the U.S., but on a lagged basis? Or are there other effects in Germany and France, in particular, we should have in mind that can make that more of a 2024 recovery dynamic? Thank you.

Glen French: Yes. Well, the 3 big — our big 3 international countries are Germany, France and the U.K. Together they represent two thirds of our international business. And the U.K., in some ways, is leading the way on a global basis with regard to the execution of the strategy that we’re talking about employing in the United States. I mean, they’ve been doing this for a while. They grew 31% last year year-over-year. We anticipate that they’re going to do great, and they’re going to continue to grow at a high rate as we look into the year. France had a — after a sort of an initial adoption curve that was very much consistent with the slope of the upward slope of the U.S. adoption, had a remarkably soft year last year. We expect them to get back on that sort of steeper curve.

And so I’m expecting really good things out of France this year. And I wouldn’t be surprised if France is nipping at Germany’s heels to be the number one market outside the United States for us, perhaps by the end of this year. So as far as Germany goes, we’re executing on the fundamentals like we are everywhere else. We’ve got good marketing activity, good commercial. Our sales activity, we’re executing the same sort of game plan that we are in other markets, and we expect them to grow as well. If I had to predict the amount of growth on a percentage basis, I’d probably put the U.K. and France ahead of Germany. But I expect all three to make significant contributions across the year.

Jason Bednar: Thank you.

Operator: Okay. Thank you. I would now like to turn it back to Glen French for closing remarks.

Glen French: Thank you everybody for your questions. They’re much appreciated. We remain very confident in the opportunity as well as our ability to access it. This opportunity is clearly large. The patients are there. They’re seeking information on the procedure. They’re seeking access to the procedure. We feel like we’ve got a great plan that we’re executing on. It’s very, very clear. Our data are strong. They’re consistent. They’re compelling. We’re included in the global guidelines. Reimbursement sorted out in all of our major markets. Our treating doctors view our reversible procedure as the standard of care and collateral ventilation negative patients. These are the folks that are doing the procedures. And we are working to expand our total addressable market through both geographic expansion into Japan as well as expanding our indication that we’re working on with AeriSeal and enabling us to treat with Zephyr Valves a large population of severe emphysema patients, who are today not candidates for the procedure.

So in short, we remain very optimistic about the future. We appreciate everyone’s interest. And I think given — unless people have any additional questions, I think that where we’ve gotten to the end of the call.

Operator: Okay. Well, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.