Pulmonx Corporation (LUNG) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon. Thank you for standing by, and welcome to the Pulmonx Q2 2021 Earnings Conference Call. [Operator instructions] I would now like to hand the conference over to your speaker today, Brian Johnston with the Gilmartin Group. Thank you. Please go ahead.

Thanks, operator. Good afternoon, and thank you all for participating in today's call. Joining me from Pulmonx are Glen French, President and Chief Executive Officer; and Derrick Sung, Chief Financial Officer. Earlier today, Pulmonx released financial results for the quarter ended June 30, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization, market opportunity, guidance for revenue, gross margin and operating expenses, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the Securities and Exchange Commission, including the quarterly report on Form 10-Q filed with the SEC on May 12, 2021. This conference call contains time sensitive information and is accurate only as of the live broadcast today, August 3, 2021. Pulmonx Corporation disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. With that, I'll now turn the call over to Glen.

Thanks, Brian. Good afternoon, everyone and welcome to our second quarter 2021 earnings call. Here with me today is Derrick Sung, our Chief Financial Officer. I'm very pleased to report that our business was quite resilient through the second quarter as we drove adoption of our life changing Zephyr Valve treatment. In Q2, we achieved worldwide sales of $12.2 million, which represents our highest level of quarterly revenue ever. In the United States, we experienced a recovery in procedure volume as hospital restrictions eased following the increase in vaccinations and decrease in COVID cases across the country. After working through some backlog in the first month of the quarter, we were encouraged by the sustained recovery in activity at our U.S. treating centers and the clear resumption of underlying demand for our Zephyr Valve treatment. Outside the U.S., our business faced continued pressure in the first part of the quarter because of the spring COVID surge that led to a new wave of lockdowns across a number of our markets in Europe. However, we saw a marked recovery in sales in June as COVID cases waned and hospitals began to reopen to procedures, and we remain optimistic that the recovery of our international business will be sustained in the back half of the year. Through the second quarter, we also made steady progress in other key objectives, building on our success in Q1. We’ve further augmented our commercial team, expanding our base of treatment centers, and we were successful in securing incremental commercial payer coverage in the U.S. Thus, we are updating our outlook for the rest of the year and now expect full year 2021 revenue to be in the range of $49 million to $51 million, up from our prior guidance of $48 million to $50 million. As we build a foundation to deliver on these expectations and sustain future growth, we continue to expand our commercial infrastructure. In the U.S., we have nearly completed our targeted sales territory expansion for the year with a total of 53 active territories, and we expect to add just 1 or 2 more through the remainder of the year. Outside the U.S., we've added 2 additional territories in Europe, bringing our total of international sales territories to 30. We have also continued our success in adding new Zephyr treatment centers and building interest among physicians for our life-changing therapy. In the U.S., we added 20 new treating centers during the second quarter, bringing our total U.S. treating centers to 180. We have -- we are well on track to meet our year-end objective to offer Zephyr Valve in at least 200 treating centers in the U.S. As we continue expanding our commercial footprint in the second quarter, we also launched a software upgrade to our Chartis system to new and existing customers that makes it simpler, faster, and more effective to definitively identify the patients most likely to benefit from our Zephyr Valve treatment. The upgrade enables highly accurate prediction of the absence of collateral ventilation at lower flow rates and in less time while also allowing physicians to easily record, export, and share video assessments. This upgrade is a testament to our dedication to innovation and further enhances the value of Chartis, which remains a key platform differentiator. Turning now to reimbursement. We have secured further positive policy wins across the Blue Cross Blue Shield plans. On our last call, we mentioned that we had received positive coverage policy from Blue Cross Blue Shield of Massachusetts, which took effect in June. Since our last call, we have also received a positive coverage policy decisions from Blue Cross Blue Shield of North Carolina, the largest payer in the state with over 2 million covered lives and Regent's Blue Cross Blue Shield, which covers nearly 2 million lives across Oregon, Washington, Idaho, and Utah. As we've discussed in the past, our policy wins with commercial payers in the U.S. validate the clinical acceptance of our technology and reduce the prior authorization time for patients waiting to receive Zephyr Valve treatment, but we no longer see reimbursement as a major barrier to adoption of our treatment. At Pulmonx, we take great pride in our scientific leadership in the field of interventional pulmonology. We are the first and only company to have demonstrated across four randomized controlled clinical trials that patients selected with our Chartis system and successfully treated with Zephyr Valves, show clinically meaningful and statistically significant improvements in lung function, exercise capacity, and quality of life compared to medical management alone. Zephyr Valve have been included in treatment guidelines for COPD worldwide, and the quality of evidence for treatment with endobronchial valves has been graded A by the global initiative for chronic obstructive pulmonary disease, widely known as GOLD. As part of our continued efforts to lead the science in our field, we were pleased to see the presentation and publication of long-term follow-up data from two of our key studies demonstrated the durability of the benefits associated with our Zephyr Valve treatment. Long-term follow-up data from the TRANSFORM study was presented at the American Thoracic Society Virtual Conference in May. TRANSFORM is the first multicenter randomized controlled trial to evaluate effectiveness and safety of Zephyr Valves in patients with heterogeneous emphysema selected for the absence of collateral ventilation in the target lobe. The original publication reported results out to 6 months, and we were pleased that the long-term follow-up data showed sustained quality of life improvement out to 24 months post treatment, lasting lung function improvement out to 24 months treatment -- post treatment, increased exercise capacity out to at least 18 months post treatment, and long-term reduction in hyperinflation, resulting in reduced breathlessness. In late July, long-term follow-up data from the IMPACT study was published in respiration, the International Journal of Thoracic Medicine. IMPACT was a multicenter randomized clinical trial that showed that Zephyr Valves deliver benefits to a group of patients who have very few treatment options because of wide spread and consistent destruction of lung tissue, also known as homogeneous distribution of emphysema. Zephyr is the only endobronchial valve to receive approval from FDA for the treatment of patients with homogeneous distribution of emphysema and is the only minimally invasive option available to help these patients breathe easier. We estimate that patients with homogeneous emphysema make up approximately half of the severe emphysema patients who are candidates for our treatment, and we believe our unique indication for treatment of this group of patients is a key differentiator that sets us apart from other competing technologies. Data from the July IMPACT publication demonstrated that improvements from baseline to 6 months seen in the Zephyr Valve group were maintained out to 12 months with clinically and statistically significant improvements in lung function, exercise capacity, quality of life, and reduced breathlessness. That is the -- this is the first report of a multicenter study, showing benefit out to at least 1-year of this homogeneous emphysema patient population. Together, the long-term data from both TRANSFORM and IMPACT demonstrate that our Zephyr Valve is a safe and effective treatment option with long-term benefits for patients with severe emphysema, including those with homogeneous disease who have few other alternatives. To summarize, we've continued to make strong progress across all of our key commercial objectives, have made progress in advancing both science and technology around our offering and continue to receive validation from our clinical and economic stakeholders that Zephyr Valve offer lasting and life-changing benefits to our patients. As we look ahead, we are optimistic in our long-term growth trajectory given our performance to date. With that said, I will now turn the call over to Derrick to provide a more detailed review of our second quarter results.

Thank you, Glen, and good afternoon, everyone. Total worldwide revenue for the 3 months ended June 30, 2021, was $12.2 million, a 232% increase from $3.7 million in the same period of the prior year and an increase of 218% on a constant currency basis. U.S. revenue in the second quarter was $6.6 million, our highest quarter of U.S. sales to date and represents a 343% increase from $1.5 million during the prior-year period. The record U.S. sales reflect an easing and COVID-related hospital restrictions and a recovery in procedure volumes as well as the commercial progress that we've made in driving adoption of our Zephyr Valve into new accounts. International revenue in the second quarter of 2021 was $5.6 million, a 157% increase from $2.2 million during the same period last year and represents a return of our international sales to pre-pandemic level. On a constant currency basis, international sales increased by 134%, driven by a recovery in the last month of the quarter as hospitals in certain European markets began to resume procedures following the spring COVID lockdowns. Gross margin for the second quarter of 2021 reached 74% compared to 28% in the prior period -- year period, which was depressed due to a slowdown in production during the first few months of the pandemic. Gross margin in the second quarter of 2021 benefited from increasing overhead absorption and production efficiencies. Given these improvements, we are increasing our outlook for gross margin in the back half of the year to around 73%. Total operating expenses for the second quarter of 2021 were $21.1 million, a 68% increase from $12.5 million in the second quarter of 2020. Stock-based compensation expense was $2.2 million in the second quarter of 2021 and accounted for 24% of the increase in operating expenses from the prior-year period. We now expect non-cash stock-based compensation to account for about $10 million of our total operating expenses for the full-year 2021, up from our prior forecast of $9 million. Despite this increase in non-cash expense, we continue to expect operating expenses for the full year of 2021 to be in the range of $85 million to $90 million as we build out our commercial operations, invest in our research and development programs and further scale our business. R&D expenses for the second quarter of 2021 were $3.5 million compared to $1.4 million in the same period of the prior year. Aside from stock-based compensation, the increase was primarily due to an increase in personnel, clinical studies, and development related expenses needed to support our product development and clinical research activities. Sales and general and administrative expenses for the second quarter of 2021 were $17.6 million compared to $11.1 million in the second quarter of 2020. Aside from stock-based compensation, the increase was attributable to an increase in sales and marketing expenses as we expanded our commercial team and increased commercial activities, as well as public company expenses related to the scaling of our general and administrative infrastructure. Net loss for the second quarter of 2021 was $12.4 million or a loss of $0.34 per share as compared to a net loss of $11.9 million or a loss of $6.15 per share for the same period of the prior year. An average weighted share count of 36 million shares was used to determine loss per share for the second quarter 2021. We ended June 30, 2021, with $211.5 million in cash, cash equivalents, and marketable securities, a decrease of $10 million from March 31, 2021. Finally, turning to our outlook for the remainder of 2021. While COVID-19 continues to pose a risk of uncertainty, we now expect full year 2021 revenue to be in the range of $49 million to $51 million, representing a 50% to 56% revenue growth over 2020, and up from our prior guidance of $48 million to $50 million. Our revenue guidance reflects confidence from our momentum exiting Q2 and the progress we've made expanding our commercial infrastructure and footprint tempered by an expectation of summer seasonality, which has historically impacted our sales in the third quarter, particularly in international markets. And with that, I'd like to thank you all for your attention, and we will now open-up the call for questions. Operator?

[Operator Instructions] Your first question comes from the line of Bob Hopkins from Bank of America. Your line is now open.

Great. Thank you, and good afternoon and congrats on all the progress. There's so much good stuff going on at the company. I almost hate to ask this question, but I feel obligated to just obviously around the current spread of COVID in the United States, and how you went about incorporating that in your guidance in the back half, because obviously you do need a nice acceleration, it seems from Q2 to Q3 to Q4. So understanding that COVID hopefully will be quite temporary, but what gives you confidence that you'll be able to see that acceleration in the back half, despite what's going on with the Delta variant? Thank you.

Yes. I think we may split this answer up and Derrick can talk about how we got integrated into our guidance, and I will just talk about how we view COVID in general. It's been quite a ride. And I think everybody on this call knows that we get impacted by COVID in a fairly significant way, most particularly as that flows through to the ICUs. And what we've seen over time is that hospitals become significantly better at managing these patients or I should just say, you sort of managing all the things that are out in front of us. And the first wave of the pandemic, everything got shut down and 100% of everyone's attention was on COVID. And I think that we've demonstrated even through the last really big wave that hit that these hospitals are able to manage it. Also, what we see is that COVID tends to hit us across geographies at different times and so that mitigates some of our exposure. And what we're seeing is that in these countries, most of them -- our biggest revenue countries has a significant amount of vaccination. And though we see the rates of COVID going up at alarming rates, there is not the same relationship between COVID rates going up and the demand on ICU beds. At least, we were certainly seeing it in certain geographies. We've definitely had situations, for example, in the United States and outside the United States where certain focused geographies have been impacted directly by COVID, but we are -- we feel good, really good about how we exited the second quarter and what that means for our ability to continue to execute in the back half of the year. So, Derrick, maybe you could talk about how you've integrated things into our projections going forward.

Sure. And I think that was a great backdrop, Glen. And certainly, we integrate numerous factors, obviously, into our guidance. And so as we look to the back half of the year, we took into consideration, first off, the strong momentum that we had coming out of Q2, as Glen mentioned. We took into consideration the underlying demand that we saw as we were opening up new accounts and reactivating existing ones, particularly in the U.S. We took into account kind of summer seasonality certainly that we do expect to see a bit in kind of Q3. And typically, we always see sort of particularly in our international market. Summer seasonality as physicians and patients go on vacation, and there's certainly a question as to whether that may be -- might be more pronounced or not this summer, given that the lockdowns are just opening up and folks are having an opportunity to take a break for the first time. And of course, we certainly are cognizant of the Delta variant and the uncertainty that this kind of strain brings on hospital ICU capacity. And so we certainly have that and are watching that closely. That said, as Glen said, every quarter that's gone by, we've seen both in our own business as well as the broader health care system, the ability of the broader health care system to be able to manage these uncertainties better and better. And so that, of course, is also accounted for. So I think we have taken as much as all of these factors as we can into account to the back half of our guidance and that's what you've got in our numbers.

Okay. That's great. Yes, I mean, sorry to ask the question. I know it's short-term oriented, but it's not unimportant. And then I'm curious, as things recovered over the course of the second quarter, just -- I love the metric you've been providing us in terms of the percentage of accounts that have been active. How high did that go here through the second quarter in the U.S.?

Yes. So we were -- as you will recall, we found ourselves at the turn of the year down on a monthly basis with in the low 30s of our accounts that were active, and we pulled out, obviously, the quarterly numbers are a little bit stronger in the first quarter of this year. We were at about 68% of our accounts who are activated, and we're right up around 80% coming out of the second quarter. So that's moving almost exactly the way that we had anticipated.

That's great. Thanks so much.

Your next question comes from the line of Cecilia Furlong from Morgan Stanley. Your line is now open.

Great. Good afternoon, and thank you for taking the questions. I wanted to start and ask, what you've seen from recently opened accounts versus your established accounts? Just around the rate of recovery and productivity you're seeing in those accounts as COVID headwinds start to aside.

So recent -- by definition, recently opened accounts, we don't have a ton of bait on. I can tell you that we are opening accounts in the face of sort of what's been happening. We do look back quite a ways back, and we look at accounts that were kind of up and running for a year in the pre-COVID phase. So when COVID hit, these accounts had all been up and running for at least a year. And then we look at the accounts that we have essentially brought on since then or that reached their one-year anniversary in the midst of COVID. And at this point, we don't see significant differences between those accounts. So we find that kind of encouraging. I think there were some moments across the year where people were really able to catch their breath and catch up in some ways in terms of those newer accounts. I was quite personally concerned about whether those groups would look fundamentally different and that whether COVID would sort of retard the development of these newer accounts, but they look good.

Thanks, Glen. And I did want to ask as well just what you're seeing from a referral basis either physician refer versus patient self-referral really trying to get out just the awareness around Zephyr now versus a year-ago. And then as you think forward, just what you're thinking about direct-to-patient targeting initiatives or else driving awareness among the referring community. Just any other color you could provide there would be helpful. Thank you.

Okay. So, better write these down, these multi-part questions. The -- as far as the referrals, we -- it's about 80% of our patients come through referring physicians. So that's an area of focus. We also want to make sure it's an interesting combination. I mean we’ve demonstrated the ability to drive patients more quickly than we do directly toward -- or for them to initiate. And when we've held back a bit on that on a broad basis because there is essentially three steps to the process. You've heard us talk about this before, where we need to get the treating sites in a given geography set up and have the systems in place to be able to efficiently take the patients from the front door and take them through to the procedure. We then need to make sure that they're referring physicians that are surrounding that area and through which a lot of these patients are going to come or coming up online. And so we've spent a lot of time ensuring that we're engaging with those physicians, but whether that be through electronic means or orchestrating Zoom calls between the treating physicians and the referring physicians or what have you. And even most recently, we've gotten closer with some of these referring physicians through the patients themselves who have indicated to us that they are interested in -- they said, hey, my doctor doesn't really know a lot about this, would you mind swinging by? And feel free to mention that I, James Smith, said so. So we've -- there's been a lot of interaction with referring physicians and both to bring them up to speed, and we've also had some good experience in driving patients themselves through some of our digital mechanisms that we've talked about a lot on prior calls.

Great. Thank you.

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Your line is now open.

Good afternoon, guys. Thanks for taking this question. One on kind of the outlook and one on the strong new center adds you had in the quarter. Just on the outlook, based on your comments, we assume that things continue to get better in July, Glen? And the pipeline, you have good visibility with StratX, is that looking good? And, Derrick, I know you're going to get this question or we're going to get it, but you raised the guidance by the amount you beat in the quarter. Should we assume that's conservatism given the uncertainty in the environment? And I did have a follow-up.

Well, my comments on the first may actually speak a little bit to the last. July is typically a strong month for us. We had a really good July. So I mean it was -- so we came out of the second quarter feeling really good, and July made us feel better. But historically, you look back at our Julys and they're all pretty good. And I think it has something to do with the fact that August tends to be soft because particularly, outside the United States, in Europe, where 80% of our international businesses where people take a lot of time off in that window. So yes, August was solid. Pipeline, we feel good about sort of how we exited the second quarter and how things are set up. I think that the third quarter is, there's two things that I'm sure everybody is thinking about is, what is this -- if you look at sort of COVID and the impact that it has in a number of the nations that it's already passed through, whether that be India or the United Kingdom where you see that sort of Delta variant peak, it's not a terribly wide -- it's a very tall peak in certain situations, but not very wide. And so we are not sure exactly what the ramifications will be in the third quarter and so -- and also this vacation question, which happens every year, but it doesn't come off the back of this extended fatigue that I think a lot of these clinicians may be feeling. So we are still -- we are anxious to get on the other side of August and see what that looks like before. We are going to start multiplying July by three or something. Derrick, do you have any comment on that?

I think it's well said. And as I kind of mentioned before, we're trying to take all these factors into our guidance, Larry. And so Glen pointed to a couple that sort of temper us, which is summer seasonality. And of course, we are not ignoring COVID, but then on the other side, we are really excited about the strength of our business exiting June and into July and opening up the new accounts, as you mentioned. I think all of those are really strong signs that, that underlying demand is there. So we're doing the best we can to incorporate a lot of uncertain variables.

That makes sense. And just to ask about a follow-up on the new center adds, very strong this quarter with 20. And I think the guidance was for over 200 this year. Is there any reason you can't continue at that pace? Can you accelerate the center add from where they've historically been? Our survey work suggests the demand is there. Thanks for taking the questions, guys.

Sure. We -- we are very -- we want to make sure that we don't say we can do something unless we demonstrate we can do it. And what we know and what we are staying with is that we know when there isn't a massive COVID headwind that we can open about 15. We have one data point that suggests we can open 20. I guess at the end of the third quarter, we may move off to 15, but right now, we said we would do 10, 10, 15, 15 across this year. We are still holding on to the 15. I would probably bet the over on that, but that's where we are.

Thank you, guys for taking the questions.

Your next question comes from the line of Rick Wise from Stifel. Your line is now open.

Good afternoon to you both. Glen, maybe just -- maybe you will expand on your EU comments a little bit and the recovery. And I think you said that recovery you think is going to be sustained into the second half. I would just be curious, a little more color on your optimism there. And maybe talk us through, it's like are there particular countries where you're seeing a really strong recovery? Are there others that are lagging that just could swing one way or the other up or down that could affect the second half?

Well, we had a lot of things that were going on in Europe before this Delta variant started invading, and we were just sort of coming out of that. And I would say that France and Germany, our two biggest markets in Europe, our second and third largest markets globally, we are just starting to come out of that and then Delta variant starts to leak on in. I'm happy to say that if you look at where Germany is right now and this could change dramatically in the coming weeks, it's either going to miss this to some extent or -- and get enough people vaccinated that they don't swamp the ICUs or it's going to -- we've got -- they're going to have a wave out in front of them. The U.K. clearly seems to be on the back side of the wave. One of the nice things, I mean, just intellectually about kind of looking at daily data when you think about case rates and so forth is, you can start with the countries that start first. And so you can look at the how steep the curve was in India and how steep it went up and how steep it came down. You can see in the U.K. that they seem to be on the backside of a very steep backside of a curve. Other markets like France seem like they may be at the top. Spain seems to be trending down. It's really too early to tell with any -- and in places like Sweden and Germany, it's unclear whether they're going to get hit or whether that's just going to happen later. Places like Italy, looks like they're on the way up. So I don't -- it's a tricky call, but the good news about COVID, as I mentioned before, is that hospitals are able to manage it way better than they used to before. And when it hits, it tends to hit in different places at different times. And so this global footprint that's being in 30 different markets even across the United States when you think about our 50 reps, 50 plus, 53, covering all these different geographies, we’ve got enough diversification that through the last couple of waves, we’ve been able to do increasingly okay in the face of this. We will be more than -- nobody will be happier than us when we get on the other side of this. I should -- I'm sure the doctors that are managing these patients will be happier than us, but we are right up high on that list.

For sure. Derrick, maybe one for you on gross margins. It was great to see the 74% number. And the second half, I think I heard you correctly say, 73%. In simple amount of terms, is that 72% in the third quarter because of seasonal slowness and back to 74% in the fourth and that gives you 73%. And maybe just help us understand, maybe the drivers the sustainers of this and maybe the potential to improve beyond 74% from here?

Absolutely. Thanks, Rick, for that question. We were really pleased with achieving 74% gross margin in Q2. This is obviously a new high for us, and it reflects increasing overhead absorption as we ramp production to meet demand and also reflect some continued production efficiencies. And all of that we do think is sustainable. For the remainder of the year, you are right, I indicated that we are comfortable kind of forecasting gross margin around 73% for the back half. I won't get too cute around how that divides up. I think we are comfortable right now with a forecast of 73% across both quarters. And what that reflects is relative to this quarter is high, we do think we may incur some additional kind of in-period expenses related to the scaling of our operations. And so that may sort of temporarily bring down the gross margin a bit. But the kind of underlying drivers of our gross margin expansion, primarily increasing production volumes and efficiencies driven by overhead absorption. That is sustainable, and we continue to expect that to continue to drive our gross margins even higher. So over time, we do expect our gross margins to step up beyond even 74%, probably to the high 70s at some point. So that's our longer term outlook.

Got you. And one last one for me, if I could. Just some of our recent doc checks -- just I don't know it wasn't a surprise, but Glen reminded me of how important, how valued Chartis is by your docs. And I want to comment it from two ways. One, just remind us, I assume these are free software upgrades, but is there revenue associated? And just in general, I heard about all the ease-of-use comments you made that may all sound great, does it change anything? Just it's not a minute off the procedure or 10 minutes. Does it do anything tangible? And just last, and sorry for so much on Chartis, I’m so intrigued with these conversations. I’m very clear that this is a significant -- I was clear before, but some clearer even at the significant difference competitively this is for you. Are you concerned or should we be concerned that your competition could try to replicate Chartis? Just talk about it a little bit from those vantage points. I would appreciate it. Thank you.

Sorry, I was on mute. Chartis is an important tool for us. It essentially helps us identify patients that are most likely to benefit. And as a consequence, if one was to look at our clinical data relative to, say, clinical data that others have generated, it's undoubtedly positively impacted by -- I mean, I think we have a better valve. But it also -- we also stacked the deck with Chartis. We identify the patients that are most likely to benefit our responder rates higher, and as a consequence, our mean changes in clinical trials is better. The new software change we will be charging for. So there is some revenue there. We don't -- it's not a big part of our revenue. 90% of our revenue comes from selling valves, not selling Chartis, but there is a nice opportunity there to upgrade. We are providing a path to upgrading for existing accounts, and it will impact, obviously, the new purchases down the road as well. The software itself is time savings. It's measured in minutes. Procedure could be 30, 40 minutes long. And so saving minutes is important. It's not going to save 10 minutes. But there's a certain amount of noise in the data that gets generated from Chartis in the old configuration and the new software improves sort of the signal-to-noise ratio, if I can -- if that's the right phrase to use. So we are looking at mean changes over time, integrating that and really simplifying the signal that comes back out to the physician. And so as a consequence with lower flow and in shorter time, you are able to identify whether you've got a good patient or not. And so that's -- it's not the most interesting part of the procedure. So I think the physicians really appreciate the added efficiency that this new advance provides. With regard to our competitive situation, we obviously have IP in this area and tremendous expertise that has been developed across more than a decade of experience with this technology. So we got to where we are based on that data, and we continue to make improvements based on the data that we have. One of the interesting things in this field is that when you have a great therapeutic that couples with a really good patient identification tool, you can jump into a market super fast. When we launched StratX, there were other sort of quantitative CT analysis softwares that were out there, we became the market leader in a matter of weeks, probably 3 weeks. We were the market leader, and we left everybody in the dust because we have the best valve, and we had Chartis. And it just all fit together. And I think that, that unto itself is a pretty significant competitive challenge, ignoring the intellectual property that we have that somebody would have to navigate.

Thank you so much.

Keep in mind, Rick, that we are the -- this is all we do every single day, and Olympus does a lot of other things.

Your next question comes from the line of Bill Plovanic with Canaccord. Your line is now open.

Hey, great. Thanks. Good evening. Just I think a lot of it has been hit. I just have two questions to finish with is, just first on the seasonality. I mean, should we think that OUS would be flat? I think that’s the messaging that I'm taking away, but I wanted to just make sure that I'm in the ballpark there. And then the second question is, I mean the strength in July, but I think you have a unique look into your pipeline given the scanning and diagnostic procedures you're doing. And is there anything in there that would maybe say that July is not the peak for the quarter and that you can continue strong through the balance at least in the U.S.? Thanks.

I’m going to allow Derrick to talk about the first part of the question. The back part of the question in terms of July, I mean, if the doctors aren't in the hospitals than the procedures aren't going to get done. And so I think that, that seasonality component is something. So if there are patients in our pipeline, yes, I think we will probably feel the seasonality in August. And really, the question is how much comes back in September in my view. So I don't think we power our way through a bunch of vacations because we have a pipeline. So -- and that’s sort of my view on the other point. So I wouldn't -- I don't -- anyway, I will -- maybe Derrick can pick up the first part of the question.

Sure. Bill, so you're right. So in terms of seasonality, particularly in our international business, we’ve a little bit more history in our international business. So if we look back to our OUS sales in 2018 and 2019, excluding 2020, which was an odd year. Typically, we've seen kind of a flattish sales or flattish revenue between Q2 and Q3. Now this year -- again, it's not a normal year, so even though some question around what that means for this year, but I would say, that's kind of a baseline that we have in mind as we think about the seasonality. Now in the U.S., we just don't have enough history, right, to know how we are impacted by the summer situation. So there, I think there's a little bit more uncertainty. But certainly, in the back of our mind is the -- what we are hearing about folks wanting to take vacation and not having had an opportunity for a long time. So I would say, the U.S., it's also in the back of our mind, but we have more history, and we’ve seen it more historically with our international sales.

Okay. And then to go back to the -- with the scans and the diagnostic procedure. I guess part of the question is, if we're starting to see a lift in productivity of accounts, I understand folks will be going on vacation, but if there's just that much more of a backlog, it does sometimes give you the ability to kind of continue that momentum, right? You have more accounts, you have people who take vacations. I think one of the questions people have is, did they take vacations earlier than normal? And you've already seen the run to that. And that's kind of what I’m trying to figure out, but I appreciate you taking my questions.

Yes. I think we just -- there's a lot of uncertainties there. I think you brought up a lot of good points, Bill. We will see how this all plays out.

Your next question comes from the line of Jason Bednar from Piper Sandler. Your line is now open.

Hey, good afternoon. Congrats on nice quarter. Really just a couple of follow-up questions for me to some of the earlier questions. I really appreciate the insight on the active centers that are now at around 80%. But I guess, what's going to be needed to flip that switch even higher? And I ask is, procedure volumes have improved broadly across med tech. So I guess, is this some blocking and tackling type education and reeducation with some of your centers? Or do you think we need to see COVID really no longer a discussion point in order to move that active center percentage above 90% or 95%?

I feel like 80% to 90% is a range that's solid. I think the key metric here is going to be what we have on prior calls called productivity, which is how many cases per quarter are they doing? So that’s the area of our primary focus. And I don't know -- I don't think I’ve mentioned it in this call, but that's stepped up about 20% quarter-over-quarter. You may recall, we were at about four on average in our established accounts for procedures per quarter, and we are more in the five range now. So that -- and we clearly need to continue to move that, particularly as you heard in our earlier comments about sort of getting up to the mid 50s on number of territories filled and then kind of riding that through the better part of the -- basically, through the back end of the year. The way that we drive things, particularly as we get the more and more accounts activated, the only way we grow is if we start increasing that productivity, and we've started to see that. So that's great news. And we would expect that, that will continue. And it is, in fact -- both metrics are, in fact, impacted by COVID. So the fact that Arkansas or you name the state has certain regions and so forth that are becoming problematic and accounts are shutting down. We are going to have a quiet quarter with some number of accounts that’s going to increase the number of inactive accounts. So that's being pushed down. So I mean, sneaking from 80% up toward 90%, that -- I would expect that, that will happen in the post-COVID phase. I don't expect that we will probably be much above that, particularly as the denominator gets bigger and bigger.

Sure. Okay. Yes, that makes sense, and that's helpful. Thanks, Glen. And then for my other question, the patient selection tools have been a competitive advantage for Pulmonx. I don't want to give your competitor too much airtime here, but they've made available an AI solution now to help with patient selection. I know it's early, but just curious if you have any opinion on this competitive offering and just how you think it might stack up with, I guess, versus what Pulmonx offers clinicians? I think I know your answer, but I will let you opine there.

I’m aware of what you're referring to. I don't -- I think we -- we are very -- we are happy to have a competitor in the field with us. We get a disproportionate amount of the growth of this marketplace. We think our tools are better. We think that the way that we execute on our StratX works better as it relates to getting the right answer to the question of whether a patient is a good candidate or not. If you don't use Chartis, you have to come to terms as a physician with leaving patients behind because we Chartis patients who have a fisher completeness of greater than 80% and Olympus says greater than 90%. What that means is that if somebody is between 80% and 90% fissure [ph] completeness, they're not going to get valves, if they are using Olympus' product. In our case, there is some number of patients that are CV negative on Chartis, and they get valves and they get better. So you've got to reconcile the idea that you're going to leave some patients who could benefit behind. And then on the other end of the spectrum, there are some patients who are 95% fissure completeness on any one of these measures, who are Chartis negative, they're Chartis red lights. So you've got to come to terms with the idea that you're going to put a permanent implant into a patient who you could have known in advance wasn't going to benefit. And roughly 90% of the people around the world that are doing this procedure are choosing to do it with our technology. And I think it has a lot to do with StratX, a lot to do with Chartis. And we're collaborating with them on using our tools as well to help them understand in that small proportion of patients where the technology is not successful, what went wrong, and what actionable steps can be taken to get that patient to a better place. So again, we are leading the science. We are leading the development, and we continue to feel good about where we are with our StratX, and even though there aren't acronyms it's assigned to it, like Olympus may have right now.

All right. Appreciate it. Thanks, Glen.

You bet.

Your next question comes from the line of Joanne Wuensch from Citi. Your line is now open.

Thank you for taking my questions. I have two of them. I think if I heard you correctly, pent-up demand was resolved in the first month. Definitely seem like a lot of pent-up demand, did I hear that correctly? Or am I not thinking about it correctly?

You heard it correctly. You -- I don't -- I can't -- I won't speak to whether you're thinking about it correctly. I think we got some pent-up demand that hit at the end of the first quarter. So I think we had some pent-up demand that we saw in March, and we saw some pent-up demand in April. That was U.S. pent-up demand. The U.S. sort of -- although I talk about the diversification across the U.S., I think as it relates to that period of time, we were sort of coming out more broadly across the U.S. Outside the United States, we don't see pent-up demand in the same way as we do in the U.S. So probably, just because it's 20 something different countries, but in any case, it came across in two months and that’s fairly typical in the U.S. in terms of other waves that we’ve come out of.

All right. That's helpful. My second question has to do with understanding the pathway from getting a patient identified as a Zephyr Valve recipient into the physician and into having the procedure done. How much line of sight do physicians have on that? And how much line of sight do you have on that?

Well, the treating physicians and Pulmonx have -- I guess it depends on what you consider line of sight. StratX is a real good indicator of -- we call them StratX screen light patients. So basically, you have a patient who meets sort of treatment criteria, you take their CT data, you run it through StratX. StratX says, they've got a better than 80% complete fissure and the patient gets scheduled. And I mean, after you go through the process. If there are -- most of the patients are Medicare patients. So about 50% of our patients just they go ahead and schedule a procedure, and about 50% -- 25% of our patients are managed Medicare so they got an -- or commercial patients, so they got to go through a process. 95% of the time, they're popping out of that or better. They're popping out of that process with a green light. So when they get treated is not exact. So it's sometime over the next month or three essentially is when that normally happens. But StratX green light patients are a really good indicator of future patients that are going to get -- that are going to end up getting treated, and about 80% of them get valves.

Helpful. Thank you.

I’m showing no further questions at this time. I would now like to turn the conference back to Glen French.

Well, thank you very much. I wanted to thank everybody who is on this call, and I don't think I’ve done this before, but I’m probably not supposed to. I’m sure my CFO will correct me after this, but I really want to acknowledge the great work that you all have done in coming up to speed. Questions are always great. I feel really good about how we came out of the second quarter. I mentioned that our July performance continued to be strong. Our StratX trends are up. Our calls into our reimbursement services group is up across the second quarter. Calls into accounts, web traffic, new accounts, feet on the street, and we've got this. We've got an array of both patient and physician engagement programs that we’ve started out across the first couple of quarters, and we’ve a lot more coming in the back half of the year. So I feel really good about where we are and where we are headed and just appreciate the ongoing interest and great questions. So thank you very much. We are off and running in the third quarter and look forward to talking to you in a few months.

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