Pulmonx Company (LUNG) This autumn 2021 Earnings Name Transcript

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Pulmonx Company ( LUNG -2.56% )
This autumn 2021 Earnings Name
Feb 23, 2022, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Women and gents, thanks for standing by, and welcome to the Pulmonx quarter 4 2021 earnings convention name. At the moment, all members are in a listen-only. Later we’ll conduct a question-and-answer session and directions will observe at the moment. [Operator instructions] I’d now like to show the convention over to your host, Ms.

Lane Morgan. Ma’am, it’s possible you’ll start.

Unknown speaker

Thanks, operator. Good afternoon, and thanks all for collaborating in at this time’s name. Becoming a member of me from Pulmonx are Glen French, president and chief government officer; and Derrick Sung, chief monetary officer. Earlier at this time, Pulmonx launched monetary outcomes for the quarter and yr ended December 31, 2021.

A duplicate of the press launch is out there on the corporate’s web site. Earlier than we start, I would prefer to remind you that administration will make statements throughout this name that embrace forward-looking statements throughout the which means of federal securities legal guidelines, that are made pursuant to the secure harbor positions of the Personal Securities Litigation Reform Act of 1995. Any statements contained on this name that relate to expectations or predictions of future occasions, outcomes or efficiency are forward-looking statements. All forward-looking statements, together with, with out limitation, these referring to our working traits and future monetary efficiency, the influence of COVID-19 on our enterprise and prospects for restoration, expense administration, expectations for hiring, progress in our group, market alternative, steerage for income, gross margin and working bills, business enlargement and product pipeline growth are primarily based upon our present estimations and varied assumptions.

These statements contain materials dangers and uncertainties that would trigger precise outcomes or occasions to materially differ from these anticipated or implied by these forward-looking statements. Accordingly, you shouldn’t place undue reliance on these statements. For an inventory and outline of the dangers and uncertainties related to our enterprise, please consult with the chance elements part of our public filings with the Securities and Trade Fee, together with the quarterly report on Type 10-Q filed with the SEC on November 9, 2021. This convention name accommodates time-sensitive info and is correct solely as of the stay broadcast at this time, February 23, 2022.

Pulmonx Company disclaims any intention or obligation, besides as required by regulation, to replace or revise any monetary projections or forward-looking statements, whether or not due to new info, future occasions or in any other case. And with that, I’ll flip the decision over to Glen.

Glen French — President and Chief Govt Officer

Thanks, Lane. Good afternoon, everybody, and welcome to our fourth quarter and full yr 2021 earnings name. Right here with me is Derrick Sung, our chief monetary officer. At this time, I want to share just a few highlights and contextualize our fourth-quarter outcomes earlier than turning to our outlook and strategic priorities for 2022.

Trying again on 2021, I am very pleased with the progress our workforce has made in an unquestionably difficult and unpredictable setting. For the complete yr 2021, we delivered $48.4 million in worldwide gross sales, grew our enterprise 48% over 2020 and achieved three consecutive quarters of report gross sales, all whereas executing on every of our business and strategic targets. Particularly, we elevated our business footprint in 2021, rising our base of U.S. treating facilities 45% to 214 facilities, enabling us to exceed our goal of opening a minimum of 200 facilities by the tip of the yr.

We met our gross sales drive enlargement targets, constructing out our U.S. gross sales administration workforce to 9 area administrators, including 9 new gross sales territories within the U.S. to carry our whole to 54 and including 6 territories exterior the U.S., bringing our whole worldwide territories to 34. We secured 10 optimistic protection insurance policies predominantly throughout the Blue Cross Blue Protect Affiliation, together with Anthem and thereby added protection for over 50 million lives throughout the US.

We submitted in December 2021, our regulatory filings in search of approval for Zephyr valve in Japan, and we initiated enrollment in our AeriSeal CONVERT trial, a multicenter, multinational research in Europe. Turning now to our efficiency within the fourth quarter. We delivered one other quarter of report gross sales within the U.S., rising our enterprise to $7.3 million. Within the fourth quarter, we noticed energy within the southern elements of the US, which had been beforehand impacted by the Delta variant, offset by a brand new improve in COVID circumstances within the Midwest.

Outdoors the US, we recorded $6.4 million of gross sales regardless of being impacted by a mid- to late quarter Delta variant surge throughout main areas of Europe. As we entered 2022, the influence from the current Omicron surge was widespread and simultaneous affecting all of our main U.S. and European markets. We anticipate the primary quarter of 2022 to be considerably impacted by COVID with a restoration in our enterprise beginning in Q2 and with revenues persevering with to speed up within the again half of the yr.

Taking this into consideration, we anticipate first quarter 2022 revenues to be just like the primary quarter of 2021 within the vary of $9 million to $10 million and full yr 2022 revenues to be within the vary of $55 million to $60 million. Regardless of the Omicron influence within the first quarter, we’ve conviction within the fundamentals of our enterprise and the energy of our workforce. All indicators proceed to level to robust underlying demand for our Zephyr valve remedy. Physicians and hospitals stay desperate to undertake our process as evidenced by 16 new hospitals, which handled their first Zephyr valve sufferers within the fourth quarter.

Affected person curiosity has by no means been stronger as indicated by a greater than doubling of affected person calls into treating facilities by 2021 as in comparison with 2020 and a doubling of the variety of social media followers. And all through the pandemic, we’ve confirmed that we have been in a position to adapt and develop our enterprise, demonstrating robust business momentum during times much less affected by COVID. To greatest place ourselves for the restoration and process volumes, we’ll proceed to deal with business initiatives in 2022 to increase our world footprint and drive consciousness of our Zephyr valve remedy. Whereas we now have full geographic protection within the U.S.

with our 54 gross sales territories, we’ll selectively and opportunistically add further gross sales territories all year long and anticipate to finish the yr with round 60 territories within the U.S. We anticipate to proceed our present tempo of opening new facilities and are concentrating on to have roughly 280 U.S. treating facilities opened by the tip of the yr. On the worldwide entrance, we’ll proceed the enlargement of our gross sales drive and anticipate so as to add roughly three to 5 further gross sales territories all year long, primarily inside Europe.

As well as, we will probably be making preparations for our geographic enlargement into Japan. As I discussed earlier, we formally submitted our regulatory software for Zephyr valve to the Japanese authorities in December of 2021. Beneath the submitting time line, we anticipate regulatory approval by the tip of this yr. Following the institution of reimbursement, we anticipate to launch business efforts within the again half of 2023, coming into what we estimate to be a $1 billion market with roughly 100,000 sufferers in want of our Zephyr valve remedy.

To arrange for commercialization, we anticipate to carry on a business chief and to start out assembling a direct presence in Japan within the latter a part of this yr. Lastly, we’re excited concerning the progress our AeriSeal medical growth program has made. Final yr, we initiated a multicenter worldwide medical trial finding out the usage of AeriSeal to transform sufferers with collateral air flow into Zephyr valve eligible sufferers and anticipate to proceed enrollment of this research by 2022. We additionally proceed to progress with preclinical research required for an IDA software with FDA to conduct a U.S.

pivotal trial. In abstract, we’re well-positioned to speed up progress in our enterprise and to supply our life-changing Zephyr valve remedy to sufferers as we transfer out of the COVID pandemic. The underlying demand for our remedy and the capabilities of our workforce have by no means been stronger, and I’m assured in our capacity to execute on our initiatives and targets as we have carried out previously. I will now flip the decision over to Derrick to supply a extra detailed evaluate of our fourth-quarter outcomes.

Derrick Sung — Chief Monetary Officer

Thanks, Glen, and good afternoon, everybody. Complete worldwide income for the three months ended December 31, 2021, was $13.7 million, a 39% improve from $9.8 million in the identical interval of the prior yr and a rise of 40% on a relentless forex foundation. U.S. income within the fourth quarter was $7.3 million, a 49% improve from $4.9 million throughout the prior-year interval.

The report U.S. gross sales replicate robust process progress and business momentum of our enterprise in areas much less affected by COVID. Worldwide income within the fourth quarter of 2021 was $6.4 million, a 30% improve from $5 million throughout the identical interval final yr and a rise of 31% on a relentless forex foundation. Worldwide process volumes had been impacted by the COVID wave that swept by elements of Europe within the again half of the quarter and led to the regional hospital process restrictions.

Gross margin for the fourth quarter of 2021 was 74.8% in comparison with 72% within the prior yr interval. The year-over-year enlargement in gross margin was pushed by improved manufacturing efficiencies. Trying forward, we anticipate gross margin to stay between 74% and 75% in 2022 as manufacturing efficiencies are partially offset by investments so as to add scale and redundancy to our provide chain in addition to will increase in materials prices. Over the long term, we proceed to anticipate margins to regularly transfer up into the excessive 70% vary.

Complete working bills for the fourth quarter of 2021 had been $22.6 million, a 38% improve from $16.4 million within the fourth quarter of 2020. Inventory-based compensation expense was $2.8 million within the fourth quarter of 2021 and $9.9 million for the complete yr 2021. Trying forward, we anticipate working bills for the complete yr 2022 to fall between 100 and $105 million, inclusive of roughly $16 million of noncash stock-based compensation expense as we proceed to construct out our business operations, put money into our analysis and growth packages and additional scale our enterprise. R&D bills for the fourth quarter of 2021 had been $3.7 million in comparison with $2.5 million in the identical interval of the prior yr.

The rise was primarily as a result of a rise in personnel, medical research, regulatory and development-related bills wanted to assist our product growth and medical analysis actions. Gross sales, normal and administrative bills for the fourth quarter of 2021 had been $18.9 million in comparison with $14.0 million within the fourth quarter of 2020. The rise was attributable to a rise in gross sales and advertising and marketing bills as we expanded our business workforce and elevated business actions and a rise in public firm bills associated to the scaling of our normal and administrative infrastructure. Web loss for the fourth quarter of 2021 was $13 million or a lack of $0.35 per share as in comparison with a internet lack of $9.3 million or a lack of $0.27 per share for a similar interval of the prior yr.

And common weighted share depend of 36.6 million shares was used to find out loss per share for the fourth quarter of 2021. We ended December 31, 2021 with $191 million in money, money equivalents and marketable securities, a lower of $11.7 million from September 30, 2021. Lastly, turning to our income outlook for 2022. We anticipate full yr 2022 income to fall within the vary of $55 million to $60 million, which represents 14% to 24% income progress over 2021 and roughly 17% to 27% progress on a relentless forex foundation as we estimate overseas alternate to current a few 3% headwind to world gross sales progress.

As beforehand talked about, we’ve been seeing a big widespread influence from the Omicron surge for the reason that begin of this yr, which has resulted within the delay in disruption of Zephyr valve procedures. Given this distinctive circumstance, we’re offering quarterly steerage on a one-time foundation for the primary quarter of 2022 to be within the vary of $9 million to $10 million. Based mostly on present traits, we anticipate to see a restoration in our enterprise within the second quarter and a sequential enchancment in gross sales all through the rest of the yr as process volumes normalize. With that, I would prefer to thanks all in your consideration, and we’ll now open the decision up for questions.

Operator?

Questions & Solutions:

Operator

Thanks. [Operator instructions]. The primary query comes from the road of Joanne Wuensch from Citi. Your line is now open.

You might ask your query.

Unknown speaker

Hello. That is really Anthony on for Joanne. Thanks for taking my query. I assume simply beginning with steerage on the midpoint, it is fairly pretty under consensus.

Are you able to simply discuss extra a number of the assumptions that went into that steerage? After which what you are seeing now that had been towards the tip of February?

Glen French — President and Chief Govt Officer

Positive. I will go forward and begin, and perhaps Derrick can take part on the dialogue of steerage. So principally, what occurred, or what’s taking place in 2022 is a mirrored image of a weak first quarter begin which principally throughout all of our main geographies, we bought impacted by Omicron. And in contrast to prior waves, all of it hit without delay.

And the excellent news, I assume, is that it is going away shortly. The dangerous information is it got here on shortly and it hit us in all completely different places. Because it pertains to how we glance forward, what we have seen is important weak spot within the first half of the — or the primary month, definitely, of the quarter and fairly important strengthening as we have moved by the center and as we venture out to the again half of the quarter. So we really feel excellent concerning the fundamentals of the enterprise.

We have seen this present earlier than, so to talk, because it pertains to pulling out of those COVID waves. We have now by no means earlier than seen a COVID wave that hit all of our markets so intensively all on the identical time. However it’s receding in a short time.

Derrick Sung — Chief Monetary Officer

Sure. Thanks Anthony. So I’d add in. So beginning with Q1 steerage, as Glen talked about, although that is most likely type of the toughest and most extreme influence that we have seen from COVID throughout the entire waves that we have seen all through the final couple of years, our Q1 steerage type of implies form of an analogous income stage as to what we did final quarter, or final yr or one yr in the past.

That winter wave that I assume final yr didn’t hit us as concurrently and as widespread as Omicron did. In order that’s type of what we’re for our Q1 steerage. And as Glen stated, the excellent news is that we do really feel like we’re coming off the again of this. We’re listening to hospitals discuss opening procedures within the March time-frame.

In order that timing of the reopening of two procedures, whether or not it is early or late March, that is going to have an effect on and influence Q1 a bit, but it surely’s a matter of when and never if. And for the rest of the yr, we’re feeling actually, actually good about our capacity to shortly get better and regain momentum, proper? So we have been constantly seeing energy and momentum in our enterprise during times of minimal COVID influence all year long. We’re constructing our base of accounts and rising buyer and affected person demand. And if you happen to overlay on prime of all this an expectation that the worst of the pandemic appears to be behind us, I feel we’re very properly arrange for reacceleration by the rest of the yr.

That stated, if there’s one factor that we realized from final yr, it is to arrange for the sudden, and there does stay some uncertainty round issues just like the time course of decision for hospital staffing shortages and potential for added doable variants which may come in a while within the yr. So we have tried our greatest to issue all that into the steerage that we have offered. And so from the place we sit at this time, we really feel actually, actually good about our capacity to attain the steerage that we set out.

Unknown speaker

Obtained it. I respect the colour.

Operator

Thanks. We have now the following query comes from the road of Larry Biegelsen of Wells Fargo. Your line is open. You might ask the query.

Unknown speaker

Hello, that is Charles on for Larry. Simply perhaps digging in a bit extra on the Q1 steerage. So I am simply wanting on the type of yr over yr. I imply, 2021 additionally, I imply has a step down in Q1 with the additional wave influence there.

Though like this one, it is wanting, your steerage is implying some 30% sequential step down over This autumn. So I feel you’ve got type of defined that it is all hitting geographies without delay, and in order that is sensible. However is that implying that you simply would possibly suppose that there is like a faster rebound when it’s carried out, if it isn’t a protracted course of impacting all geographies at completely different occasions, would possibly that come again a bit of bit quicker than what you noticed final yr on the identical time? After which I’ve one other fast follow-up to that.

Glen French — President and Chief Govt Officer

Properly, with regard to rebound, we clearly have a look at plenty of completely different measures. And proper now, I feel one of many issues that we have reported on previously has been the lively accounts. And lively accounts, for instance, in January had been principally 31%. So 70% of our U.S.

accounts had been down in January, which you principally have to return to the start of the pandemic to be down at that form of stage. Late final yr, or I ought to say, initially of final yr, late 2020, we bought hit fairly exhausting as properly. However that is the place to begin. And we’re seeing that construct out in February, an increasing number of accounts are coming again, and we’re seeing our common day by day gross sales form of strengthen throughout the interval.

So we’re anticipating continued acceleration exiting the primary quarter after which transferring by the second quarter and past. Thanks.

Derrick Sung — Chief Monetary Officer

I’d add to that, Charles, that the opposite greatest distinction that we’ve between this yr and the place we had been a yr in the past is that we’ve about 45% extra whole treating facilities within the U.S. than we did final yr. So we’ve a a lot, a lot higher base of accounts. And so, once we see the restoration in procedures and the restoration and exercise of our accounts, simply by definition, that base of accounts that we’ve is way higher, and that is clearly going to be a big tailwind for us this yr versus final.

Unknown speaker

OK. that is useful. And my fast follow-up, you answered the share of facilities doing procedures. You usually generally have a number one indicators with StratX scans seeing what number of procedures is likely to be coming and going ahead.

When these services are shut down or restricted like that, do you continue to get that very same main indicator of StratX scans? Are they nonetheless scheduling procedures additional out once they — when it is likely to be open once more? I’m wondering you probably have any colour there to share that is helpful.

Glen French — President and Chief Govt Officer

Sure. That is an ideal query. So it is really one thing that we discuss fairly a bit, which is that when COVID hits heavy in a selected geography and naturally, Omicron hit all over the place all on the identical time. However usually, what occurs is the oldsters which can be managing the sufferers within the ICU are typically pulmonary and demanding care specialists.

And once they get pulled away to do this service, they don’t seem to be analyzing sufferers as doable candidates for our process. And as a consequence, a lot of the pipeline slows down. And so the pent-up demand, if you’ll, the form of the primary procedures which can be carried out transferring out of one among these waves are virtually at all times largely composed of sufferers who’re being rescheduled. In order that’s actually what our pent-up demand is.

StratX was lumpy within the fourth quarter within the Southeast, for instance, which bought hit exhausting within the third quarter, was really strengthening within the fourth quarter. And we noticed StratX up there, whereas the higher Midwest and throughout to, by Pennsylvania bought hit exhausting within the fourth quarter, and we noticed StratX down in that geography as properly. So we do see StratX soften throughout heavy COVID occasions. So it isn’t as if we had been accumulating lots of StratX scans in heavy hit areas throughout the Omicron wave that is now receding.

Unknown speaker

That is useful. Thanks Glen and Derrick.

Operator

Thanks. Subsequent query we’ve the road of Jason Bednar of Piper Sandler. Your line is now open. You might ask your query.

Jason Bednar — Piper Sandler — Analyst

Good afternoon everybody. So, I will simply ask one other one right here on the information. I completely perceive the challenges right here which can be weighing early within the yr. However perhaps hoping you’ll be able to unpack a bit extra why we should not be considering of account productiveness bettering even a bit of bit greater than what appears to be mirrored within the information.

I assume is the information simply have you ever carried out some conservatism proper now with out but seeing that quantity come again within the door January, February? Or is there one thing else that you simply’re balancing with further waves or hospital staffing points as we take into consideration the energy of that restoration coming again perhaps starting in that March-April time-frame?

Glen French — President and Chief Govt Officer

We’re clearly, Jason, eager to be very considerate about what we decide to right here. And we did undoubtedly see some strengthening within the productiveness of accounts final yr in occasions when there was — in sure areas of the nation that weren’t being straight impacted. In order that was actually encouraging. I do know that we have been monitoring this and reporting on it throughout final yr and the yr earlier than, and it has been considerably impacted by COVID on common.

However whenever you break it down by area and have a look at the areas which can be much less impacted by COVID, we did see strengthening. So to the extent that we see as we anticipate some discount within the influence of COVID throughout the approaching yr, we’d anticipate to be transferring that productiveness quantity up.

Jason Bednar — Piper Sandler — Analyst

OK. I assume that is useful. And perhaps I will observe up only a bit, simply by my mannequin, enjoying with issues right here, it seems like productiveness perhaps would not enhance till we get to love exiting this yr and fourth quarter, perhaps we are able to deal with a few of these offline. However just a few fast again of the envelope, it seems such as you’re concentrating on perhaps one thing within the vary of 30% progress in U.S.

Zephyr procedures for the second half of ’22. And I am not asking you to essentially bless that, I do know there’s assumptions in there on what I am assuming there for second quarter and the way your worldwide markets play out. However you’ve got bought some straightforward comps there from Delta and Omicron in third quarter and fourth quarter. I assume perhaps the follow-up right here is simply why would not process volumes be higher than that 30% progress with the larger buyer footprint you might have on the market now?

Glen French — President and Chief Govt Officer

We’re going to be — we’ll deal with getting the engine going clearly within the again half of this quarter and speed up, I feel, fairly considerably on a quarter-over-quarter foundation within the second quarter after which from the second quarter on to the third quarter. So I feel we’re this in variety of alternative ways, together with the best way that you simply’re describing from a productiveness perspective, but additionally whenever you start to speak about rising quarter over quarter by the magnitude that we’re speaking about throughout the yr. It is — we wish to be considerate about what we’ll decide to.

Jason Bednar — Piper Sandler — Analyst

OK. Perhaps if I may squeeze yet one more. Is there any limitation you might have like operationally or along with your business infrastructure that might stop like perhaps a quicker acceleration or whether or not that is something on the finish buyer stage or, once more, with your individual gross sales drive or manufacturing? thanks.

Glen French — President and Chief Govt Officer

No. Is the quick reply. The enterprise is basically sound by our evaluation. I imply, we’re metrics which can be suggesting are offering us with nice confidence as we talked concerning the calls which can be going into hospitals are up 100% yr over yr, the social media is up over 100%, and these are huge numbers.

We’re within the six figures now when it comes to followers. We initiated within the latter a part of 2020, a affected person opt-in possibility the place we are able to interact with sufferers and actually domesticate and nurture their journey towards remedy. And we have seen only a spectacular progress going from 5 figures to almost six figures in that regard. So we have got lots of issues that actually appear to be lining up along with having, as Derrick stated, 45% extra accounts than we did the yr earlier than.

We have extra reps, referring docs are clearly centered on what we’re doing and we’re centered on them. And so, I do not suppose there’s something in our provide, our capacity to produce is there. So we’re simply attempting to get the engine form of restarted. We hadn’t skilled this earlier than.

The one different time the place we had been down at this stage actually was at the beginning of the pandemic, and that was actually concerning the reservation of capability. What I am saying is, like, for instance, in California, you’d have 600 mattress hospitals that had been largely closing their doorways to only about all the pieces. After which not one of the sufferers confirmed up right here in California. So there is a great quantity of reservation, whereas with this Omicron and the form of an infection charge within the U.S.

estimated at about 10 occasions, although the follow-through to the ICU was manner much less on a proportional foundation, it nonetheless drove a ton of sufferers into the ICU throughout the U.S. and throughout all of our main OUS markets. So the excellent news is it got here on — or I assume the dangerous information is it got here on superfast. However the excellent news is we’re manner down the curve.

And we’re seeing, and we’re listening to the engines begin. And we’re seeing this week, final week, revenues strengthened considerably and our scheduled procedures going ahead, we’re fairly inspired by what we see and likewise what we hear from our clients. So no constraints right here. The basics are strong.

Derrick Sung — Chief Monetary Officer

Sure, and if I may simply bounce in, going again to your query on progress charges, Jason. Our steerage, when you’re appropriate in that, on common, within the again three quarters of the yr could indicate roughly 30% progress within the U.S. Our steerage implies properly over 30% progress exiting the U.S., proper? And so, that common actually incorporates the form of restart coming off this Omicron wave that we’re hitting. And admittedly, a number of the uncertainty is round how shortly the accounts can bounce again and the way shortly we restart.

However we anticipate to be exiting the yr at a year-over-year progress charge within the U.S. and globally, of properly over 30%.

Jason Bednar — Piper Sandler — Analyst

Thanks guys.

Operator

Thanks. We have now the following query comes from the road of Rick Sensible from Stifel. Your line is now open. You might ask your query.

Rick Sensible — Stifel Monetary Corp. — Analyst

Good afternoon Glen. Hello, Derrick. I hoped if you happen to may break down this form of restoration dialogue in a bit of extra granular manner. I really feel like we have been form of speaking concerning the numbers holistically, a bit of extra leaning towards the U.S.

Perhaps Glen discuss a bit of bit extra about what’s taking place internationally. I imply, the reality is once I have a look at my numbers, the U.S. held up higher than I might need thought, form of sequentially flattish, 4Q versus 3Q. The OUS was rather a lot weaker than I anticipated in modeling.

Glen French — President and Chief Govt Officer

Sure.

Rick Sensible — Stifel Monetary Corp. — Analyst

I’ll simply squeeze this final little bit. So was OUS worse than you anticipated? Is the restoration taking place equally in every geography? How are you eager about the unfolding of the yr in that manner? Thanks.

Glen French — President and Chief Govt Officer

Boy, there’s rather a lot in that query. So let me simply strive. So beginning initially of that. Sure, we had been happy with the best way that we final reported in early November, and we had been wanting forward.

And lots of issues had been happening at the moment. Should you have a look at any of the curves, all of them appear to bend fairly dramatically upward inside a day or so of that point level. However we had been happy with how issues ended up within the U.S., all issues thought-about. We had been getting impacted fairly considerably within the fourth quarter within the higher Midwest.

In actual fact, in a spot like Michigan, the Delta variant really impacted higher — Omicron was a little bit of a reliever for them, as a result of they had been getting hit so exhausting late within the yr within the Higher Midwest. And so — however on the finish of the day, we’ve lots of accounts in the US, and so we had been in a position to carry out fairly properly within the fourth quarter and got here in, in a reasonably strong manner. I feel the place we did not anticipate issues to play out precisely the best way they did was the acceleration of the Delta variant, most significantly in German-speaking elements of Europe. And in these German-speaking elements of Europe, form of in Southern Germany, Bavaria and Saxony, we’re significantly closely hit.

And so I feel that we bought impacted in a subset of Europe, a giant a part of our enterprise to a level that we didn’t anticipate. So I feel that actually defined the shortfall to what our expectations had been the final time we reported. In order that’s the place we’re popping out at this level. After which in these geographies, if you happen to have a look at Michigan, the form of the curve in Michigan may be very very similar to the form of the curve in a spot like Germany, the place it seems like Delta simply handed off to Omicron.

So that they went from a very dangerous state of affairs to a fair worse state of affairs. After which Omicron hit in all different geographies and is basically undermined to some extent, the one that’s form of the leaping off level that we had anticipated. And we’re anticipating a way more strong first quarter, which Omicron goes to get in the best way of. And in order that largely explains the shortfall that you simply see totaling throughout the yr.

As Derrick had talked about, although, I feel that if you happen to have a look at — we’re not offering particular steerage, however I suppose if you happen to’re doing the maths on the again of the envelope, the speed at which we’re exiting this yr, 2022 is within the neighborhood of the place I feel we had been eager about or lots of the fashions on the time of the IPO had been having us in that type of neighborhood exiting 2022. So we’re making up lots of floor. I feel we really feel actually good concerning the basis that we have put in place and the way we’ll leverage that throughout the yr.

Rick Sensible — Stifel Monetary Corp. — Analyst

Sure. that is nice colour. And perhaps simply final from me on gross margin. Right here too, relative to my expectations, gross margins had been higher than we regarded for within the fourth quarter regardless of these headwinds and challenges.

Perhaps simply — perhaps I simply did not take it in. Perhaps you can, Derrick discuss that once more. And I would be curious, you’ve got emphasised at this time and as you might have previously, the long-term potential for top 70s, it is like what’s required, what sort of income base is required to get to that territory? Is it simply revenues? Or is it one thing else?

Derrick Sung — Chief Monetary Officer

Sure. Thanks for that query, Rick. So we’re feeling actually good about our gross margin, proper? This quarter, we delivered just below 75%. That is the best that we have ever delivered within the historical past of the corporate.

So clearly, we’re seeing the advantages of our manufacturing efficiencies and overhead absorption that I talked about materializing as we anticipated. We’re at all times going to see some fluctuations in margin from quarter-to-quarter relying on in-period prices and product combine and issues like that. However over time, we do anticipate our gross margins to proceed to maneuver greater as we have seen over the past couple of years. That stated, within the near-term, we’re going to be making some investments in scaling our general manufacturing infrastructure and including some redundancy to our provide chain, which I feel is ever necessary within the present setting.

And we’re additionally cognizant of a few of these provide chain pricing pressures. We’re seeing some very modest pricing stress, all very manageable, however we’re seeing some hints of modest pricing stress that is just like what’s being felt throughout the business. In order that’s why we’re guiding to remain type of inside this 74% to 75% vary for the yr proper now. Hopefully, we’ll be capable of do some higher than that, however that is the place we’re snug type of beginning the yr at.

However we do anticipate, as I discussed, that over time, properly, as you talked about, too, that we’ll proceed to creep that gross margin up. And I feel we are able to get to type of the excessive 70% vary over the following few years. And I feel that also is primarily pushed by continued manufacturing quantity will increase that drives manufacturing efficiencies. And so, I feel once we get into that income vary, with a nine-digit quantity beginning with one, someplace in that vary, and that is once I would anticipate that we’d get to that top 70% gross margin vary.

And we really feel excellent about getting there.

Rick Sensible — Stifel Monetary Corp. — Analyst

I respect that Derrick. thanks.

Operator

Thanks. There aren’t any different questions at the moment. I’d now like to show the decision over again to Mr. Glen French.

Glen French — President and Chief Govt Officer

Alright, properly, thanks all very a lot in your time and a focus at this time. We additionally thanks in your continued curiosity in Pulmonx. Good afternoon and good night.

Operator

[Operator signoff]

Period: 39 minutes

Name members:

Unknown speaker

Glen French — President and Chief Govt Officer

Derrick Sung — Chief Monetary Officer

Jason Bednar — Piper Sandler — Analyst

Rick Sensible — Stifel Monetary Corp. — Analyst

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