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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from        to
Commission File Number: 001-39562
PULMONX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
77-0424412
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
700 Chesapeake Drive
Redwood City, California 94063
1-650-364-0400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareLUNGThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No
As of October 31, 2023 there were 38,308,113 shares of the Registrant’s Common Stock, par value $0.001 per share, outstanding.


Table of Contents
TABLE OF CONTENTS
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy, plans, and objectives of management for future operations and statements that are necessarily dependent upon future events are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties, and assumptions, including risks described in the section entitled “Risk Factors.” These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely on these forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or to changes in our expectations, whether as a result of any new information, future events, changed circumstances or otherwise. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to design, develop, manufacture and market innovative products to treat patients with challenging medical conditions, particularly those with severe chronic obstructive pulmonary disease (“COPD”) and emphysema;
our expected future growth, including growth in international sales;
our expected future growth of our sales and marketing organization;
the size and growth potential of the markets for our products, and our ability to serve those markets;
the rate and degree of market acceptance of our products;
coverage and reimbursement for procedures performed using our products;
the performance of third parties in connection with the development of our products, including third-party suppliers;
regulatory developments in the United States and foreign countries;
our ability to obtain and maintain regulatory approval or clearance of our products on expected timelines;
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our plans to research, develop and commercialize our products and any other approved or cleared product;
our ability to retain and hire our senior management and other highly qualified personnel;
the development, regulatory approval, efficacy and commercialization of competing products and technologies in our industry;
our ability to develop and maintain our corporate infrastructure, including an effective system of internal controls;
our financial performance and capital requirements;
our expectations regarding our ability to obtain and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing the intellectual property rights of others; and
our expectations regarding the impact of any public health crises, including a resurgence of COVID-19 infections, on our business, financial condition and results of operations.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
All brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Pulmonx” the “Company,” “we,” “us,” and “our” refer to Pulmonx Corporation.
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Part I. Financial Information
Item 1. Financial Statements
Pulmonx Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)

September 30, 2023December 31, 2022
Assets
Current assets
Cash and cash equivalents$94,945 $101,736 
Restricted cash236 231 
Short-term marketable securities21,537 39,402 
Accounts receivable, net10,091 8,677 
Inventory16,131 14,564 
Prepaid expenses and other current assets4,424 4,343 
Total current assets147,364 168,953 
Long-term marketable securities23,271 5,924 
Long-term inventory3,445 5,283 
Property and equipment, net4,065 4,694 
Goodwill2,333 2,333 
Intangible assets, net62 154 
Right of use assets4,061 5,806 
Other long-term assets415 529 
Total assets$185,016 $193,676 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$3,189 $1,758 
Accrued liabilities13,684 13,276 
Income taxes payable 19 
Deferred revenue85 120 
Short-term debt91 90 
Current lease liabilities3,436 3,229 
Total current liabilities20,485 18,492 
Deferred tax liability97 94 
Long-term lease liabilities1,537 3,849 
Long-term debt37,154 17,234 
Total liabilities59,273 39,669 
Commitments and contingencies (Note 8)
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Stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022
  
Common stock, $0.001 par value, 200,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 38,301,446 shares issued and outstanding as of September 30, 2023 and 37,555,565 shares issued and outstanding as of December 31, 2022
38 38 
Additional paid-in capital521,034 502,712 
Accumulated other comprehensive income1,944 1,575 
Accumulated deficit(397,273)(350,318)
Total stockholders’ equity125,743 154,007 
Total liabilities and stockholders’ equity$185,016 $193,676 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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Pulmonx Corporation
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenue$17,668 $13,502 $49,397 $38,237 
Cost of goods sold4,639 3,350 13,045 9,556 
Gross profit13,029 10,152 36,352 28,681 
Operating expenses
Research and development4,220 4,366 14,184 11,494 
Selling, general and administrative23,985 19,717 70,184 61,197 
Total operating expenses28,205 24,083 84,368 72,691 
Loss from operations(15,176)(13,931)(48,016)(44,010)
Interest income1,490 477 4,027 781 
Interest expense(893)(286)(2,327)(707)
Other income (expense), net(262)(432)(316)(597)
Net loss before tax(14,841)(14,172)(46,632)(44,533)
Income tax expense59  323 107 
Net loss(14,900)(14,172)(46,955)(44,640)
Other comprehensive (loss) income
Currency translation adjustment(12)119 230 101 
Change in unrealized (losses) gains on marketable securities (79)139 (416)
Total other comprehensive (loss) income(12)40 369 (315)
Comprehensive loss$(14,912)$(14,132)$(46,586)$(44,955)
Net loss per share attributable to common stockholders, basic and diluted$(0.39)$(0.38)$(1.24)$(1.21)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted38,119,824 37,190,352 37,838,822 37,001,136 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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Pulmonx Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders’ Deficit
SharesAmount
Balances at January 1, 202337,555,565 $38 $502,712 $1,575 $(350,318)$154,007 
Issuance of common stock upon vesting of restricted stock units66,895 — — — — — 
Issuance of common stock upon exercise of stock options23,006 — 46 — — 46 
Issuance of shares pursuant to employee stock purchase plan85,210 — 676 — — 676 
Change in shares subject to repurchase— — 56 — — 56 
Stock-based compensation expense— — 4,764 — — 4,764 
Currency translation adjustment— — — 72 — 72 
Change in unrealized gains on marketable securities— — — 173 — 173 
Net loss— — — — (15,860)(15,860)
Balances at March 31, 202337,730,676 38 508,254 1,820 (366,178)143,934 
Issuance of common stock upon vesting of restricted stock units222,598 — — — — — 
Issuance of common stock upon exercise of stock options63,503 — 139 — — 139 
Change in shares subject to repurchase— — 47 — — 47 
Repurchase of early exercised common stock options(106)— — — — — 
Stock-based compensation expense— — 5,891 — — 5,891 
Currency translation adjustment— — — 170 — 170 
Change in unrealized losses on marketable securities— — — (34)— (34)
Net loss— — — — (16,195)(16,195)
Balances at June 30, 202338,016,671 38 514,331 1,956 (382,373)133,952 
Issuance of common stock upon vesting of restricted stock units193,954 — — — — — 
Issuance of common stock upon exercise of stock options25,189 — 62 — — 62 
Issuance of shares pursuant to employee stock purchase plan65,632 — 508 — — 508 
Change in shares subject to repurchase— — 33 — — 33 
Stock-based compensation expense— — 6,100 — — 6,100 
Currency translation adjustment— — — (12)— (12)
Net loss— — — — (14,900)(14,900)
Balances at September 30, 202338,301,446 $38 $521,034 $1,944 $(397,273)$125,743 
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Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders’ Deficit
SharesAmount
Balances at January 1, 202236,931,762 $37 $482,885 $1,712 $(291,395)$193,239 
Issuance of common stock upon vesting of restricted stock units21,392 — — — — — 
Issuance of common stock upon exercise of stock options99,265 — 221 — — 221 
Issuance of shares pursuant to employee stock purchase plan46,002 — 1,108 — — 1,108 
Change in shares subject to repurchase— — 59 — — 59 
Stock-based compensation expense— — 3,615 — — 3,615 
Currency translation adjustment— — — (24)— (24)
Change in unrealized losses on marketable securities— — — (245)— (245)
Net loss— — — — (15,828)(15,828)
Balances at March 31, 202237,098,421 37 487,888 1,443 (307,223)182,145 
Issuance of common stock upon vesting of restricted stock units93,988 — — — — — 
Issuance of common stock upon exercise of stock options73,621 — 151 — — 151 
Change in shares subject to repurchase— — 58 — — 58 
Stock-based compensation expense— — 4,554 — — 4,554 
Currency translation adjustment— — — 6 — 6 
Change in unrealized losses on marketable securities— — — (92)— (92)
Net loss— — — — (14,640)(14,640)
Balances at June 30, 202237,266,030 37 492,651 1,357 (321,863)172,182 
Issuance of common stock upon vesting of restricted stock units68,387 — — — — — 
Issuance of common stock upon exercise of stock options29,947 — 72 — — 72 
Issuance of shares pursuant to employee stock purchase plan43,664 — 834 — — 834 
Change in shares subject to repurchase— — 58 — — 58 
Stock-based compensation expense— — 4,468 — — 4,468 
Currency translation adjustment— — — 119 — 119 
Change in unrealized losses on marketable securities— — — (79)— (79)
Net loss— — — — (14,172)(14,172)
Balances at September 30, 202237,408,028 $37 $498,083 $1,397 $(336,035)$163,482 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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Pulmonx Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended September 30,
20232022
Cash flows from operating activities
Net loss$(46,955)$(44,640)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation expense16,503 12,198 
Loss on disposal of fixed assets(19)7 
Allowance for doubtful accounts(60)65 
Inventory write-downs912 315 
Depreciation and amortization expense1,261 1,127 
Amortization of debt discount and debt issuance costs35 46 
Amortization of premiums and discounts on investments(699)(56)
Non-cash lease expense1,997 1,859 
Net changes in operating assets and liabilities:
Accounts receivable(1,342)(906)
Inventory(431)(4,174)
Prepaid expenses and other current assets(189)1,798 
Other assets30  
Accounts payable1,353 1,077 
Accrued liabilities923 (2,236)
Income taxes payable(87)(258)
Lease liabilities(2,357)(1,447)
Deferred revenue(36)(52)
Net cash used in operating activities(29,161)(35,277)
Cash flows from investing activities
Purchases of investments(41,395)(36,886)
Maturities of investments42,750 34,530 
Purchases of property and equipment(607)(1,142)
Net cash provided by (used in) investing activities748 (3,498)
Cash flows from financing activities
Proceeds from borrowing under term loan20,000  
Repayment of credit agreement(47)(44)
Proceeds from exercise of common stock options246 454 
Proceeds from issuance of common stock under the employee stock purchase plan1,184 1,942 
Net cash provided by financing activities21,383 2,352 
Effect of exchange rate changes on cash and cash equivalents244 345 
Net decrease in cash, cash equivalents, and restricted cash(6,786)(36,078)
Cash, cash equivalents, and restricted cash at beginning of year101,967 148,711 
Cash, cash equivalents, and restricted cash at end of year$95,181 $112,633 
Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets:
Cash and cash equivalents$94,945 $112,402 
Restricted cash236 231 
Cash, cash equivalents, and restricted cash in consolidated balance sheets$95,181 $112,633 
Supplemental non-cash items:
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Lapse in repurchase rights of common stock$136 $175 
Purchases of property and equipment in accounts payable and accrued liabilities$57 $500 
Amount receivable from exercise of common stock options$1 $1 
Operating lease right of use assets obtained in exchange for new lease liabilities$252 $191 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$368 $337 
Cash paid for interest$2,107 $628 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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Pulmonx Corporation
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

1.    Formation and Business of the Company
The Company
Pulmonx Corporation (the “Company”) was incorporated in the state of California in December 1995 as Pulmonx and reincorporated in the state of Delaware in December 2013. The Company is a commercial-stage medical technology company that provides a minimally invasive treatment for patients with severe emphysema, a form of chronic obstructive pulmonary disease (“COPD”). The Company’s solution, which is comprised of the Zephyr Endobronchial Valve (“Zephyr Valve”), the Chartis Pulmonary Assessment System (“Chartis System”) and the StratX Lung Analysis Platform (“StratX Platform”), is designed to treat a broad pool of patients for whom medical management has reached its limits and either do not want or are ineligible for surgical approaches. The Company has subsidiaries in Germany, Switzerland, Australia, the United Kingdom, Italy, France, Hong Kong and Japan.
Liquidity and Going Concern
The Company has incurred operating losses and negative cash flows from operations to date and has an accumulated deficit of $397.3 million as of September 30, 2023. During the nine months ended September 30, 2023 and 2022, the Company used $29.2 million and $35.3 million of cash in its operating activities, respectively. As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $139.8 million. Historically, the Company’s activities have been financed through the sale of equity securities, debt financing arrangements and sales of its products.
The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Management believes that the Company’s existing cash, cash equivalents and marketable securities will allow the Company to continue its planned operations for at least the next 12 months from the date of the issuance of these unaudited interim condensed consolidated financial statements.
2.    Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The condensed consolidated balance sheet as of December 31, 2022 was derived from the Company’s audited financial statements, but does not include all disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. Accordingly, these financial statements should be read in conjunction with the audited financial statements as of and for the fiscal year ended December 31, 2022 and notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed
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Pulmonx Corporation
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

with the SEC on March 1, 2023. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of September 30, 2023 and condensed consolidated results of operations for the three and nine months ended September 30, 2023 and 2022 and condensed consolidated cash flows for the nine months ended September 30, 2023 and 2022 have been made. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 31, 2023.
Use of Estimates
The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.
Significant estimates and assumptions include reserves and write-downs related to inventories, classification of short-term and long-term inventories, the recoverability of long-term assets, stock-based compensation, intangible assets, goodwill, debt and related features, deferred tax assets and related valuation allowances and impact of contingencies.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments consisting of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loan approximates their fair value. The fair value of marketable debt securities is estimated using Level 1 and Level 2 inputs (Note 4).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents balances with established financial institutions and, at times, such balances with any one financial institution may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits. As of September 30, 2023 and December 31, 2022, the Company also had cash on deposit with foreign banks of approximately $4.4 million and $4.5 million, respectively, that was not federally insured.
The Company earns revenue from the sale of its products to hospitals and other customers such as distributors. Sales of Zephyr Valves and delivery catheters accounted for most of the Company’s revenue for the nine months ended September 30, 2023 and 2022. The Company’s accounts receivable are derived from revenue earned from customers. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. As of September 30, 2023 and December 31, 2022, no customer accounted for more than 10% of accounts receivable. For the three and nine months ended September 30, 2023 and 2022, no customer accounted for more than 10% of revenue.
The Company relies on single source suppliers for the components, sub-assemblies and materials for its products. These components, sub-assemblies and materials are critical and there are no or relatively few alternative sources of supply. The Company’s suppliers have generally met the Company’s demand for their products and services on a timely basis in the past.
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Pulmonx Corporation
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

Foreign Currency Translation and Transaction Gains and Losses
The functional currencies of the Company’s wholly owned subsidiaries in Switzerland, Germany, Australia, the United Kingdom, France and Hong Kong are the Swiss franc. The functional currency of the Company’s subsidiaries in Italy and Japan is the Euro and Yen, respectively. Accordingly, asset and liability accounts of Switzerland, France, Germany, Australia, the United Kingdom, Italy, Hong Kong and Japan operations are translated into U.S. dollars using the current exchange rate in effect at the balance sheet date and equity accounts are translated into U.S. dollars using historical rates. The revenues and expenses are translated using the average exchange rates in effect during the period, and gains and losses from foreign currency translation adjustments are included as a component of accumulated other comprehensive income in the condensed consolidated balance sheet. Foreign currency translation adjustments are recorded in other comprehensive (loss) income in the condensed consolidated statements of operations and comprehensive loss and was less than $(0.1) million and $0.1 million during the three months ended September 30, 2023 and 2022, respectively, and $0.2 million and $0.1 million during the nine months ended September 30, 2023 and 2022, respectively.
Foreign currency transaction gains and losses are included in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss and was $(0.3) million and $(0.4) million during the three months ended September 30, 2023 and 2022, respectively, and $(0.4) million and $(0.6) million during the nine months ended September 30, 2023 and 2022, respectively.
Credit LossesMarketable Securities
For marketable securities in an unrealized loss position, the Company periodically assesses its portfolio for impairment. The assessment first considers the intent or requirement to sell the marketable security. If either of these criteria are met, the amortized cost basis is written down to fair value through earnings.
Beginning January 1, 2023, if the criteria above are not met, the Company evaluates whether the decline resulted from credit losses or other factors by considering the extent to which fair value is less than amortized cost, any changes to the rating of the marketable security by a rating agency, and any adverse conditions specifically related to the marketable security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the marketable security is compared to the amortized cost basis of the marketable security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive loss.
Credit LossesAccounts Receivable
Accounts receivable are recorded at the amounts billed less estimated allowances for credit losses for any potential uncollectible amounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from a customer’s inability to make required payments. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic related risks and economic conditions that may affect a customer’s ability to pay. Accounts receivable are written-off and charged against an allowance for credit losses when the Company has exhausted collection efforts without success. As of September 30, 2023 and December 31, 2022, accounts receivable is presented net of an allowance for credit losses of $0 and $0.1 million, respectively.
Net Loss per Share Attributable to Common Stockholders
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options and common stock subject to
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Pulmonx Corporation
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

repurchase related to early exercise of stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities. The Company considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of the shares issued upon early exercise of stock options subject to repurchase do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.
Inventories
Inventories are valued at the lower of cost to purchase or manufacture the inventory or net realizable value. Cost is determined using the first-in, first-out method (“FIFO”) for all inventories. Net realizable value is determined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company records write-downs of inventories which are obsolete or in excess of anticipated demand or market value based on consideration of product lifecycle stage, technology trends, product development plans and assumptions about future demand and market conditions. Inventory write-downs reduce the carrying value of inventory to its net realizable value.
The Company reviews its inventories for classification purposes. The value of inventories not expected to be realized in cash, sold or consumed during the next 12 months are classified as long-term inventory.
3.    Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. This new guidance will require financial instruments to be measured at amortized cost, and trade accounts receivable to be presented at the net amount expected to be collected. The new model requires an entity to estimate credit losses based on historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. In November 2019, the FASB issued ASU 2019-10, according to which, the new standard is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies (“SRC”) as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, including the Company, the new standard is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. The Company adopted ASU 2016-13 as of January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited interim condensed consolidated financial statements and related disclosures.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
4.    Fair Value Measurements
Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that
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Pulmonx Corporation
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3—Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis—Financial assets and liabilities held by the Company measured at fair value on a recurring basis include money market funds and marketable securities.
Assets and Liabilities Measured and Recorded at Fair Value on a Nonrecurring Basis—The Company determines the fair value of long-lived assets held and used, such as intangible assets, by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. There have been no impairment charges recorded to date. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loan approximates the fair value. The fair value of the term loan is estimated using Level 2 inputs.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
The following tables summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
September 30, 2023
Level 1Level 2Level 3Total
Assets:
Money market funds
$27,168 $ $ $27,168 
Cash equivalents27,168   27,168 
U.S. Government agency bonds5,708 30,651  36,359 
Commercial paper
 8,449  8,449 
Marketable securities5,708 39,100  44,808 
Total financial assets$32,876 $39,100 $ $71,976 
There were no liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2023.
December 31, 2022
Level 1Level 2Level 3Total
Assets:
Money market funds$4,647 $ $ $4,647 
Cash equivalents4,647   4,647 
U.S. Government agency bonds14,743 15,872  30,615 
Commercial paper 14,711  14,711 
Marketable securities14,743 30,583  45,326 
Total financial assets$19,390 $30,583 $ $49,973 
There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2022.
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The following table summarizes the cost, unrealized gains and losses and fair value of marketable securities (in thousands):
September 30, 2023
Amortized CostUnrealized LossesUnrealized GainsFair Value
U.S. Government agency bonds$36,514 $(155)$ $36,359 
Commercial paper
8,467 (18) 8,449 
Marketable securities$44,981 $(173)$ $44,808 
Amounts recognized on the consolidated balance sheet
Short-term marketable securities
21,537 
   Long-term marketable securities23,271 
Marketable securities$44,808 
December 31, 2022
Amortized CostUnrealized LossesUnrealized GainsFair Value
U.S. Government agency bonds$30,897 $(282)$ $30,615 
Commercial paper
14,740 (29) 14,711 
Marketable securities$45,637 $(311)$ $45,326 
Amounts recognized on the consolidated balance sheet
Short-term marketable securities
39,402 
   Long-term marketable securities5,924 
Marketable securities$45,326 
The unrealized losses for marketable securities relate to changes in interest rates. No allowance for credit losses was recorded as of September 30, 2023 and December 31, 2022, and no impairment losses were recognized for the three and nine months ended September 30, 2023.
Accrued interest receivable on marketable securities of $0.3 million and $0.1 million as of September 30, 2023 and December 31, 2022, respectively, is included in prepaid expenses and other current assets on the condensed consolidated balance sheet. The Company elected to exclude accrued interest receivable from the estimation of expected credit losses on its marketable securities and reverse accrued interest receivable through interest income (expense) when amounts are determined to be uncollectible. The Company did not write off any accrued interest receivable during the three and nine months ended September 30, 2023.
Contractual Maturities
The following table summarizes the contractual maturities of the Company’s marketable securities (in thousands):
September 30, 2023
Amortized CostFair Value
Due within one year$21,608 $21,537 
Due in one year to five years23,373 23,271 
Total$44,981 $44,808 

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5.    Balance Sheet Components
Cash and Cash Equivalents
The Company’s cash and cash equivalents consist of the following (in thousands):
September 30,December 31,
20232022
Cash$67,777 $97,089 
Cash equivalents:
Money market funds
27,168 4,647 
Total cash and cash equivalents$94,945 $101,736 
Inventory
Inventory consists of the following (in thousands):
September 30,December 31,
20232022
Raw materials$2,908 $3,820 
Work in process541 386 
Finished goods16,127 15,641 
Total inventory$19,576 $19,847 
Reported as:
Inventory$16,131 $14,564 
Long-term inventory3,445 5,283 
Total inventory$19,576 $19,847 
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
September 30,December 31,
20232022
Prepaid expenses$2,135 $2,044 
Prepaid insurance1,267 1,407 
VAT and other receivable829 602 
Other current assets193 290 
Total prepaid expenses and other current assets$4,424 $4,343 
Capitalized Implementation Costs of a Hosting Arrangement
The Company has several software systems that are cloud-based hosting arrangements with service contracts. The Company accounts for costs incurred in connection with the implementation of these various software systems under ASU 2018-15, Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350–40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The Company expenses all costs (internal and external) that are incurred in the planning and post-implementation operation stages. As of September 30, 2023 and December 31, 2022, the Company has capitalized approximately
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$0.2 million and $0.5 million in implementation costs, net of amortization, respectively. The capitalized costs are amortized on a straight-line basis over the non-cancelable contract terms, which are generally three years. As of September 30, 2023, approximately $0.2 million and less than $0.1 million capitalized costs were included in prepaid expenses and other current assets, and other long-term assets, respectively. Amortization expense, which was included in selling, general and administrative expenses, was $0.1 million and $0.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.3 million and $0.1 million for the nine months ended September 30, 2023 and 2022, respectively.
Property and Equipment, Net
Property and equipment, net consist of the following (in thousands):
September 30,December 31,
20232022
Machinery and equipment$2,274 $2,112 
Computer equipment and software1,947 1,773 
Furniture and fixtures263 263 
Leasehold improvements2,277 2,277 
Construction in progress1,943 1,825 
Total8,704 8,250 
Less: accumulated depreciation(4,639)(3,556)
Property and equipment, net$4,065 $4,694 
Depreciation expense for the three months ended September 30, 2023 and 2022 was $0.4 million and $0.3 million, respectively. Depreciation expense for the nine months ended September 30, 2023 and 2022 was $1.1 million and $1.0 million, respectively.
Goodwill
Goodwill was $2.3 million as of September 30, 2023 and December 31, 2022 arising from the Company’s acquisition of Emphasys Medical, Inc, in March 2009. No goodwill impairment losses have been recognized since the acquisition. There were no acquisitions or dispositions of goodwill in the nine months ended September 30, 2023 and 2022. The Company assesses goodwill for impairment annually, or more frequently, when events or changes in circumstances indicate there may be impairment. Through September 30, 2023, there have been no events or changes in circumstances that indicated that the carrying value of goodwill may not be recoverable. As a result, no impairment charge was recorded during the nine months ended September 30, 2023.
Intangible Assets
Intangible assets consist of the following (in thousands):
September 30, 2023
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Developed technology$1,658 $(1,603)$55 
Trademarks191 (184)7 
Total intangible assets$1,849 $(1,787)$62 
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December 31, 2022
Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Developed technology$1,658 $(1,520)$138 
Trademarks191 (175)16 
Total intangible assets$1,849 $(1,695)$154 
Amortization expense relating to the intangibles totaled less than $0.1 million during each of the three months ended September 30, 2023 and 2022, respectively. Amortization expense relating to the intangibles totaled $0.1 million during each of the nine months ended September 30, 2023 and 2022, respectively.
Future amortization expense is as follows as of September 30, 2023 (in thousands):
Fiscal Year Ending December 31,Amortization
2023 (remaining three months)$31 
202431 
Total amortization expense
$62 
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
September 30,December 31,
20232022
Accrued employee bonuses and commissions$5,974 $4,973 
Accrued professional fees2,094 2,366 
Accrued vacation2,295 2,113 
Other accrued personnel related expenses2,094 2,513 
Sales taxes, franchise tax and VAT808 627 
Accrued inventory purchases64 167 
Liability for early exercise of stock options11 145 
Other344 372 
Total accrued liabilities$13,684 $13,276 
6.    Long Term Debt
CIBC Loan
On February 20, 2020, the Company executed a Loan and Security Agreement with Canadian Imperial Bank of Commerce (“CIBC”), which the Company subsequently amended on April 17, 2020 and December 28, 2020 (as amended, the “CIBC Agreement”). The CIBC Agreement originally provided the Company with the ability to borrow up to $32.0 million in debt financing (“CIBC Loan”) consisting of $17.0 million advanced at the closing of the agreement (“Tranche A”), with the option to draw up to an additional $8.0 million (“Tranche B”) and an additional financing tranche (“Tranche C”) of up to $7.0 million on or prior to February 20, 2022. Neither Tranche B nor Tranche C was drawn before the option expired.
The CIBC Loan originally had a five-year term maturing on February 20, 2025, which included 24 months of interest only payments followed by 36 months of equal payments of principal and interest.
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In April 2020, the Company entered into a First Amendment to CIBC Agreement that changed the maturity date to March 15, 2022, which would be automatically extended to February 20, 2025 if the maturity of all outstanding convertible notes was extended to a date no earlier than May 21, 2025 or all convertible notes converted into convertible preferred stock of the Company. An amendment fee of $0.2 million was paid. The amendment was accounted for as a debt modification and no gain or loss was recognized.
In December 2020, to address certain post-close covenants for which the Company was not in compliance, the Company entered into a Second Amendment to the CIBC Agreement that extended the compliance of such covenants to June 30, 2021.
In March 2021, the Company entered into an Amended and Restated Loan and Security Agreement with CIBC (as amended, the “Amended and Restated CIBC Agreement”) which, among other things, extended the loan maturity date of the CIBC Loan from March 15, 2022 to February 20, 2025, and modified certain financial covenants. Per the amended terms, 36 equal payments of principal plus accrued interest would be due beginning March 31, 2022. In connection with the Amended and Restated CIBC Agreement, the Company paid fees to CIBC of less than $0.1 million which were recorded as a discount on the CIBC Loan and are being accreted over the life of the term loan using the effective interest method. The amendment was accounted for as a debt modification and no gain or loss was recognized.
In June 2021, the Company entered into a First Amendment to the Amended and Restated CIBC Agreement that extended the compliance of certain post-close covenants to March 31, 2022.
In October 2021, the Company entered into a Second Amendment to the Amended and Restated CIBC Agreement, which extended the interest only period of the loan from 24 months to 36 months. Under the amended terms, principal repayment will begin in February 2023. There was no change to the loan interest rate or maturity date.
In October 2022, the Company entered into a Third Amendment to the Amended and Restated CIBC Agreement (the “Third Amendment”) with CIBC, which amended certain provisions of the CIBC Loan. The amendment provided the option to draw up to an additional $20.0 million (“Amended Tranche B”) on or prior to October 31, 2023, which can be drawn in increments of at least $5.0 million. Upon request by the Company, CIBC may, in its sole discretion, make additional term loans of up to $10.0 million (“Amended Tranche C”) at any time. The Third Amendment extended the maturity date of the CIBC Loan from February 20, 2025 to October 31, 2027 and provided for a new interest only period of 24 months from the signing date of the Third Amendment, with the possibility of an additional extension of such interest only period of up to 12 months, subject to satisfaction of certain conditions set forth in the Third Amendment. The Company paid a commitment fee of less than $0.1 million in connection with the Third Amendment. The amendment was accounted for as a debt modification and no gain or loss was recognized.
In February 2023, the Company drew $20.0 million of the Amended Tranche B of the CIBC Loan. The Amended Tranche B bears interest at a floating rate equal to 1.0% above the Wall Street Journal Prime Rate and has the same repayment terms as the Tranche A.
Upon draw of the Amended Tranche B, the financial covenants in the Amended and Restated CIBC Agreement require that, when the cash and cash equivalents of the Company as defined in the Amended and Restated CIBC Agreement is less than $100.0 million, the Company have revenue for the trailing three-month period ending on the last day of each fiscal quarter of not less than 80.0% of the revenue for the trailing three-month period, as set forth in the annual projections delivered to the CIBC. Further, the Company is required to maintain unrestricted cash in an aggregate amount equal to the greater of $20.0 million and the Adjusted EBITDA loss as defined in the Amended and Restated CIBC Agreement for the six-month period ending on any date of determination. As of September 30, 2023, the Company was in compliance with all covenants contained in Amended and Restated CIBC Agreement.
The CIBC Loan bears interest at a floating rate equal to 1.0% above the Wall Street Journal Prime Rate at any time. The CIBC Loan is collateralized by substantially all of the Company’s assets, including cash and cash equivalents, accounts receivable, intellectual property and equipment. The Company may prepay the borrowings under the
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Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

Amended and Restated CIBC Agreement, subject to certain conditions, including a prepayment fee equal to 2.0% of the principal amount repaid during the first year after the effective date of the Third Amendment or 1.0% of the principal amount prepaid during the second year after the effective date of the Third Amendment.
As of September 30, 2023, the CIBC Loan had an annual effective interest rate of 10.1% per year.
The CIBC Loan consists of the following (in thousands):
September 30,December 31,
20232022
Term loan
$37,000 $17,000 
Less: debt issuance costs
(165)(127)
Term loan
$36,835 $16,873 
The Company paid $0.5 million fees to the lender and third parties which is reflected as a discount on the CIBC Loan and is being accreted over the life of the term loan using the effective interest method.
During the three months ended September 30, 2023 and 2022, the Company recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of less than $0.1 million and less than $0.1 million, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded interest expense related to debt discount and debt issuance costs of CIBC Loan of less than $0.1 million and less than $0.1 million, respectively.
Interest expense on the CIBC Loan amounted $0.9 million and $0.3 million during the three months ended September 30, 2023 and 2022, respectively. Interest expense on the CIBC Loan amounted $2.3 million and $0.7 million during the nine months ended September 30, 2023 and 2022, respectively.
Credit Agreement
In April 2020, Pulmonx International Sàrl, a wholly-owned subsidiary of the Company, entered into a COVID-19 Credit Agreement with UBS Switzerland AG to receive up to 0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) under Swiss Federal Government program to mitigate the economic impact of the spread of the coronavirus. In May 2020, Pulmonx International Sàrl received 0.5 million Swiss Francs ($0.5 million U.S. dollar equivalent) under the COVID-19 Credit Agreement. The COVID-19 Credit Agreement initially bore no interest through March 31, 2023. Beginning April 1, 2023, the COVID-19 Credit Agreement bears interest at a rate of 1.5% per year payable at the end of each calendar quarter. The loan principal is being repaid in twelve equal installments, paid semi-annually, which began in March of 2022. As of September 30, 2023, Pulmonx International Sàrl repaid $0.1 million to the lender.
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Contractual Maturities of Financing Obligations
As of September 30, 2023, the aggregate future payments under the CIBC Loan and Credit Agreement (including interest payments) are as follows (in thousands):
Fiscal Year Ending December 31, Amount
2023 (remaining three months)$933 
20245,658 
202515,208 
202614,035 
202710,815 
Total46,649 
Less: unamortized debt discount(165)
Less: interest(9,239)
 Term loan and credit agreement
$37,245 
7.    Revenue Recognition
The Company’s contract liabilities consist of deferred revenue for remaining performance obligations by the Company to the customer after delivery, which was $0.1 million and $0.1 million as of September 30, 2023 and December 31, 2022, respectively. The deferred revenue as of December 31, 2022 of $0.1 million was recognized as revenue during the nine months ended September 30, 2023.
The Company disaggregates its revenue by major geographic region, which has been disclosed in Note 12, “Segment Information.”
8.    Commitments and Contingencies
Leases
The Company has a lease for its headquarters location in Redwood City, California. In October 2019, the Company renewed its lease for the headquarters location in Redwood City, California for an additional five years commencing in August 2020 and expiring in July 2025. The monthly base rent during the renewed term is $0.1 million and is subject to an annual increase of 3.5%. The Company is responsible for its share of real estate taxes, common area maintenance and management fees.
During 2013, the Company entered into a five-year lease for office facilities in Switzerland. The Company had an option to extend the lease through January 2022, which was not exercised by the Company. Per the lease terms, in the event the option to extend is not exercised, the lease remains in force and can be terminated with 12-months’ notice.
In April 2020, the Company executed a sublease for another office facility in Redwood City, California for a three-year term commencing on June 1, 2020 (the “Sublease Agreement”). The Sublease Agreement provides for early termination if the Company or Sublandlord elects to terminate the lease by providing the other party at least 180 days prior written notice. The early termination may only occur on or after the expiration of the 18th full calendar month of the sublease term. The monthly base rent during the term is less than $0.1 million and is subject to an annual increase of 3.5%. The Company is responsible for its share of real estate taxes, common area maintenance and management fees.
In September 2020, the Company amended the Sublease Agreement to include additional facility space in Redwood City, California for a four-year term (the “First Amendment to Sublease Agreement”). The First Amendment to
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Sublease Agreement was accounted as a separate sublease agreement. The First Amendment to Sublease Agreement contained a rent-free period through February 14, 2021, after which rent is approximately $0.1 million per month and is subject to an annual increase of 3.5%. The Company is responsible for its share of real estate taxes, common area maintenance and management fees. The Company is eligible to receive a tenant improvement allowance of $0.7 million to fund facility enhancements. The First Amendment to Sublease Agreement can be extended for an additional twelve-month period, at the Company’s option. For accounting purposes, the lease term is 4 years as it is not reasonably certain that the Company will exercise the renewal option. The First Amendment to Sublease Agreement also changed the lease term entered into in April 2020, which was extended until May 31, 2024, but left the early termination clause unchanged. In September 2021, the Company became reasonably certain that the early termination clause would not be exercised as capital expenditures on the facility build-out created sufficient disincentive to terminate the lease early. The lease term was reevaluated and extended from November 30, 2021 to May 31, 2024. In April 2023, the Company entered into a Second Amendment to Sublease Agreement (the “Second Amendment to Sublease Agreement”) to remove the early termination clause and extend the lease term by four months to expire contemporaneously with the expiration date as defined in Sublease Agreement. The amendment was accounted for as a modification that resulted in additional right of use assets in exchange for lease liabilities of $0.2 million.
The Company has leases on thirteen vehicles with an average lease term of 3.0 years.
Operating lease cost consists of the following (in thousands):
Nine Months Ended September 30,
20232022
Operating lease cost
$2,163 $2,170 
Short-term lease cost
29 25 
Variable lease cost
486 448 
Total lease cost
$2,678 $2,643 
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The following table summarizes a maturity analysis of the Company’s lease liabilities showing the aggregate lease payments as of September 30, 2023 (in thousands):
Fiscal Year Ending December 31,Amount
2023 (remaining three months)$906 
20243,197 
20251,082 
202616 
Total minimum lease payments5,201 
Less: Amount of lease payments representing interest228 
Present value of future minimum lease payments$4,973 
Less: Current lease liabilities
3,436 
Long-term lease liabilities$1,537 
The following table summarizes additional information related to the Company’s operating leases (in thousands, except weighted average data):
September 30,December 31,
20232022
Right of use asset
$4,061 $5,806 
Weighted average remaining lease term (years)1.552.08
Weighted average discount rate6.7 %6.0 %
The following table summarizes other supplemental information related to the Company’s operating leases (in thousands):
Nine Months Ended September 30,
20232022
Cash paid for amounts included in the measurement of lease liabilities included in cash flows used in operating activities
$2,645 $1,822 
Right-of-use assets obtained in exchange for lease liabilities$252 $191 
Service Agreement
In April 2022, the Company entered into an agreement with a service provider which requires total minimum purchases of $0.6 million, $0.4 million, and $0.4 million over the next three years. From inception of the agreement through September 30, 2023, the Company recorded $0.8 million of expense for services related to this agreement in cost of goods sold.
Contingencies
From time to time, the Company may be a party to various litigation claims in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with legal counsel, the need to record a liability for litigation and contingencies. Accrual estimates are recorded when and if it is determinable that such a liability for litigation and contingencies are both probable and reasonably estimable.
In December 2022, the Company received a civil investigative demand (“CID”) from the U.S. Department of Justice, Civil Division in connection with an investigation under the Anti-Kickback Statute and False Claims Act
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(the “Investigation”). The CID requests information and documents regarding the Company’s relationships with certain health care providers, medical practices, and hospitals in connection with the sales and marketing of the Zephyr Valves and related products and services. The Company is fully cooperating with the Investigation. The Company is unable to express a view at this time regarding the ultimate outcome of the Investigation or estimate an amount or range of reasonably possible loss. Depending on the outcome of the Investigation, there could be a material impact on the Company’s business, results of operations and financial condition.
9.    Income Taxes
The income tax expense for the three months ended September 30, 2023 and 2022 was $0.1 million and less than $0.1 million, respectively. The income tax expense for the nine months ended September 30, 2023 and 2022 was $0.3 million and $0.1 million, respectively. The income tax expense was determined based upon estimates of the Company’s effective income tax rates in various jurisdictions. The difference between the Company’s effective income tax rate and the U.S. federal statutory rate is primarily attributable to state income taxes, foreign income taxes, and non-recognition of US tax benefit because of a full valuation allowance against US deferred tax assets.
The income tax expense for the nine months ended September 30, 2023 and 2022 relates primarily to state minimum income tax and income tax on the Company’s earnings in foreign jurisdictions.
10.    Stockholders’ Equity
Common Stock
As of September 30, 2023 and December 31, 2022, the Company’s certificate of incorporation authorized the Company to issue up to 200,000,000 shares of common stock. Common stockholders are entitled to dividends as and when declared by the Board of Directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote.
Shares Reserved for Future Issuance
The Company has reserved shares of common stock for future issuances as follows:
September 30,December 31,
20232022
Common stock options issued and outstanding3,172,386 2,495,528 
Common stock restricted stock units issued and outstanding2,403,497 998,473 
Common stock available for future grants2,570,958 3,765,706 
Common stock available for employee stock purchase plan1,436,823 1,212,109 
Total9,583,664 8,471,816 

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Stock Option Plan
A summary of stock option activity for the nine months ended September 30, 2023 is set forth below:
Outstanding Options
Number of SharesWeighted Average Exercise Price
Balance, January 1, 2023
2,495,528 $17.35 
Options granted
835,400 11.48 
Options exercised
(111,698)2.21 
Options canceled
(46,844)21.67 
Balance, September 30, 20233,172,386 $16.28 
The aggregate intrinsic value of options outstanding as of September 30, 2023 was $7.9 million.
September 30, 2023
Number of Shares
Weighted Average Exercise Price
Weighted Average Contractual Life (in Years)
Options vested1,574,763$15.10 6.87
Options vested and expected to vest3,172,386$16.28 7.75
Total intrinsic value of options vested as of September 30, 2023 was $6.2 million.
Early Exercise of Stock Options
Under the terms of the individual option grants, options are fully exercisable on the grant date, subject to the Company’s repurchase right at the original exercise price. Accordingly, options may be exercised prior to vesting. The shares are subject to the Company’s lapsing repurchase right upon termination of employment or over the options’ vesting period of generally four years at the original purchase price. The proceeds initially are recorded in other liabilities from the early exercise of stock options and are reclassified to additional paid-in capital as the Company’s repurchase right lapses. During the nine months ended September 30, 2023, the Company repurchased 106 shares of common stock for less than $0.1 million. During the nine months ended September 30, 2022, the Company did not repurchase shares of common stock. As of September 30, 2023 and December 31, 2022, 5,142 and 77,782 shares, respectively, were subject to repurchase, with an aggregate exercise price of less than $0.1 million and $0.1 million, respectively, and were recorded in other current liabilities.
Restricted Stock Units
Activity with respect to restricted stock units was as follows:
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Number of Shares Underlying Outstanding Restricted StockWeighted Average Grant Date Fair Value
Unvested as of January 1, 2023998,473 $27.72 
Granted1,984,360 11.49 
Vested
(483,447)20.71 
Canceled
(95,889)20.10 
Unvested as of September 30, 20232,403,497 $16.03 
The aggregate intrinsic value of restricted stock units outstanding as of September 30, 2023 was $24.8 million.
Total Stock-Based Compensation
Stock-based compensation expense is reflected in the statements of operations and comprehensive loss as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cost of goods sold$357 $160 $971 $496 
Research and development760 676 2,086 1,653 
Selling, general and administrative4,886 3,466 13,446 10,049 
Total$6,003 $4,302 $16,503 $12,198 
The above stock-based compensation expense related to the following equity-based awards (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Stock options and restricted stock units$5,854 $4,168 $16,193 $11,689 
Employee stock purchase plan149 134 310 509 
Total$6,003 $4,302 $16,503 $12,198 
Stock-based compensation of $0.4 million and $0.3 million was capitalized into inventory for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation of $1.2 million and $0.9 million was capitalized into inventory for the nine months ended September 30, 2023 and 2022, respectively. Stock-based compensation capitalized in prior periods of $0.4 million and $0.2 million was recognized as cost of sales in the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation capitalized in prior periods of $1.0 million and $0.5 million was recognized as cost of sales in the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, there was $52.6 million of unrecognized compensation costs related to unvested common stock options and restricted stock units, expected to be recognized over a weighted-average period of 2.7 years. The total grant date fair value of shares vested during the three months ended September 30, 2023 and 2022 was $5.6 million and $4.1 million, respectively. The total grant date fair value of shares vested during the nine months ended September 30, 2023 and 2022 was $15.9 million and $11.5 million, respectively.
As of September 30, 2023, the Company had unrecognized stock-based compensation relating to the employee stock purchase plan of approximately $0.2 million, which is expected to be recognized over a weighted-average period of 0.4 years.
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Table of Contents
Pulmonx Corporation
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

11.    Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which excludes shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share amounts):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Numerator
Net loss attributable to common stockholders$(14,900)$(14,172)$(46,955)$(44,640)
Denominator
Weighted-average common stock outstanding38,130,182 37,325,607 37,870,713 37,169,508 
Less: weighted-average common shares subject to repurchase(10,358)(135,255)(31,891)(168,372)
Weighted-average common shares used to compute basic and diluted net loss per share38,119,824 37,190,352 37,838,822 37,001,136 
Net loss per share attributable to common stockholders, basic and diluted$(0.39)$(0.38)$(1.24)$(1.21)
The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an antidilutive impact due to the Company’s net loss, in common stock equivalent shares:
As of September 30,
20232022
Options to purchase common stock3,172,386 2,533,842 
Unvested restricted stock units2,403,497 1,067,804 
Unvested early exercised common stock options5,142 122,652 
Shares committed under employee stock purchase plan19,080 11,587 
Total5,600,105 3,735,885 

12.