Pulmonx Corp Q2 FY2021 Earnings Call

Good afternoon. Thank you for standing by, and welcome to the Pulmonx Q2 2021 Earnings Conference Call. 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 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 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 Valves 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 that 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 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 widespread and consistent destruction of lung tissue, also known as homogeneous distribution of emphysema. Zephyr is the only endobronchial valve to receive approval from the 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. 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 offers 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 of 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 levels. 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 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 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.

Your first question comes from 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 should divide this answer, and Derrick can explain how we integrated this into our guidance while I will discuss our general view on COVID. It's been quite a journey. Everyone on this call knows that we are significantly affected by COVID, particularly in relation to ICU capacity. Over time, hospitals have improved their ability to manage these patients and the challenges we face. During the initial wave of the pandemic, everything was shut down, and all attention was on COVID. However, we have shown that hospitals can manage through subsequent waves. Additionally, COVID impacts different regions at different times, which helps reduce our risk. In many of our major revenue-generating countries, vaccination rates are high. While we are noticing alarming increases in COVID cases, the correlation between rising COVID rates and ICU bed demand does not hold true in certain regions. For instance, in both the United States and abroad, specific areas have been directly impacted by COVID, but we feel optimistic about how we ended the second quarter and what it means for our performance in the latter half of the year. Derrick, perhaps you can discuss how you have factored this into our future projections.

Sure. I think that was a great backdrop, Glen. We integrate numerous factors into our guidance. As we look to the second half of the year, we considered the strong momentum we had coming out of Q2, as Glen mentioned. We took into account the underlying demand from opening new accounts and reactivating existing ones, especially in the U.S. We also factored in the expected summer seasonality for Q3, which we typically see, particularly in our international markets, as physicians and patients go on vacation. There's a question of whether this seasonality may be more pronounced this summer since lockdowns are easing and people can take breaks for the first time. We are also mindful of the Delta variant and the uncertainty it brings regarding hospital ICU capacity, and we are closely monitoring that. However, as Glen said, with each passing quarter, both our business and the broader health care system have improved their management of these uncertainties. We have taken all of these factors into account for the second half of our guidance, and that is reflected in our numbers.

Okay. That's great. I apologize for asking this question. I understand it is short-term focused, but it is still significant. I'm interested to know, as things improved in the second quarter, what was the highest percentage of active accounts in the U.S. during that period?

Yes. As you may remember, at the beginning of the year, we had around 30% of our accounts active on a monthly basis. However, we saw a significant improvement, with approximately 68% of our accounts activated in the first quarter of this year, and we climbed to around 80% by the end of the second quarter. This aligns closely with our expectations.

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 subside.

So for recently opened accounts, we don't have a lot of data yet. However, we are successfully opening accounts despite the current situation. We review our historical data, focusing on accounts that were operational for at least a year before COVID began. When the pandemic hit, those accounts had already been active for a year. We also examine accounts onboarded during or that reached their one-year mark during COVID. So far, we haven't noticed significant differences between these accounts, which is encouraging. There were moments throughout the year when people managed to catch their breath and regain momentum with the newer accounts. I was personally worried about how these groups would compare and whether COVID would hinder the growth of new accounts, but they are performing well.

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, please note these multi-part questions. About 80% of our patients come through referring physicians, which is a key focus for us. It's an interesting combination. We've shown we can drive patients to their procedures more efficiently than when they initiate themselves. We've held back on broader initiatives because there are three steps in the process. We've discussed this before: first, we need to establish the treating sites in each geography and have the necessary systems to efficiently guide patients from arrival to procedure. Then, we must ensure that referring physicians in that area are ready to accept those patients. We've devoted significant effort to engage with those physicians, whether through electronic communication or arranging Zoom calls between treating and referring physicians. We've interacted extensively with referring physicians to bring them up to speed, and we've also had success using our digital platforms to drive patient engagement, as discussed in previous 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.

My comments on the first may actually relate to the last. July is usually a strong month for us, and we had a very good July. Coming out of the second quarter, we felt optimistic, and July heightened that sentiment. Historically, our Julys have been strong, and I believe this trend is linked to the typical softness in August, particularly outside the United States, in Europe, where a large portion of our international business operates and many people take time off during that period. August was solid for us. We feel positive about how we emerged from the second quarter and the current setup. Regarding the third quarter, there are two main considerations. One is the impact of COVID, particularly in nations like India and the United Kingdom, where we see the Delta variant having a significant but narrow peak. We are uncertain about the exact implications this will have in the third quarter. Additionally, the yearly vacation trend is present again, but it doesn't stem from the extended fatigue that many clinicians may be experiencing. Therefore, we are eager to pass through August and understand its effects before making any projections based on July's performance. Derrick, do you have any thoughts on this?

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 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 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, could you elaborate on your comments regarding the EU and the recovery? You mentioned that you believe this recovery will continue into the second half. I'm curious to hear more about your optimism. Are there specific countries where you're observing a strong recovery, and are there others that are lagging but could potentially go either way, impacting the second half?

We had a number of developments in Europe before the Delta variant emerged, and we were beginning to recover from that situation. In France and Germany, which are our two largest European markets and second and third largest globally, we were just starting to see a rebound when the Delta variant started to affect us. Currently, Germany is in a position where it could either manage to vaccinate enough people to avoid overwhelming the hospitals or it may experience a surge in cases. The U.K. seems to be past its peak, which is a positive sign. Analyzing daily case data can be insightful; we can see the trends in countries that experienced the outbreak early, like India, and observe how their curves went up and then came down. The U.K. appears to be on the decline now, while other countries like France might be reaching their peak, and Spain seems to be improving. However, it's still too early to draw firm conclusions about countries like Sweden and Germany, where the outcome is uncertain. Italy seems to be rising in cases. It's a challenging situation, but the encouraging aspect of COVID now is that hospitals are managing it much better than before. When surges occur, they happen in various regions at different times. Our presence in 30 markets, along with having over 50 representatives covering diverse areas, provides us with enough diversification to weather the recent challenges fairly well. We will be extremely relieved when this situation is behind us, and while healthcare professionals will certainly be happier than us, we are very much looking forward to that day as well.

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 reflects 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. That reflects, as I said, 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. 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 question from me. In our recent discussions with doctors, Glen reminded me how much they value Chartis. I want to address this from two perspectives. First, I assume these are free software upgrades, but is there any revenue linked to them? Secondly, I heard all the comments about ease of use, which sound great, but does it really make a difference? Is it a matter of saving a few minutes in procedure time, or does it have any tangible impact? Lastly, I apologize for focusing so much on Chartis, but I'm really interested in these discussions. I was already aware of the significant competitive advantage this provides you, but I’m curious if you have any concerns about competitors trying to replicate Chartis. Could you elaborate on that? I would appreciate it. Thank you.

I apologize for being muted. Chartis is a crucial tool for us, as it helps identify patients most likely to benefit from our treatments. Consequently, when comparing our clinical data to that of others, it's evident that we see positive outcomes, and I believe we have an superior valve. Moreover, Chartis allows us to hone in on the patients who are more likely to respond, resulting in higher responder rates and improved mean changes in clinical trials. We will be charging for the new software, which will contribute to our revenue, although it's not the primary source since 90% of our income comes from valve sales. Nonetheless, there is an opportunity to upgrade existing accounts, which will influence future purchases as well. The software saves time, measured in minutes. Given that procedures can take 30 to 40 minutes, even small time savings are significant. While it won't save ten full minutes, it enhances the data clarity from Chartis’s older configuration, improving the signal-to-noise ratio. We focus on mean changes over time, simplifying the data for physicians so they can quickly determine patient suitability. Although this aspect isn't the most exciting part of the procedure, physicians value the efficiency gains the new upgrade offers. Regarding our competitive landscape, we possess intellectual property and deep expertise developed over more than ten years, which has guided our progress and ongoing improvements. An interesting aspect of this field is that when a strong therapy pairs with an effective patient identification tool, you can quickly capture market share. For instance, when we launched StratX, we encountered other quantitative CT analysis software but became the market leader in just about three weeks, surpassing all competitors due to our superior valve and Chartis working together effectively. This creates a significant competitive advantage, alongside the intellectual property barriers that others would have to overcome.

Thank you so much.

Keep in mind, Rick, that this is all we do every single day, while Olympus is involved in many other activities.

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’ll let Derrick address the first part of the question. Regarding the latter part about July, if doctors aren't present in hospitals, procedures won't take place. I believe that seasonality is a factor here. If we have patients in our pipeline, I think we'll likely see the effects of seasonality in August. The real question is how much activity returns in September, in my opinion. I don’t believe we can simply push through vacation periods due to our pipeline. That’s my perspective on the other point, and I’ll let Derrick respond to the first part of the question.

Sure. Bill, you are correct. Regarding seasonality, especially in our international operations, we have more historical data. If we examine our overseas sales from 2018 and 2019, excluding the unusual year of 2020, we generally observe stable sales or revenue from Q2 to Q3. This year is not typical, so there are questions about what that means for us, but I would consider that as a baseline when thinking about seasonality. In the U.S., however, we lack sufficient historical data to understand the impact of the summer period. Therefore, there is greater uncertainty there. That being said, we are mindful of reports that people are eager to take vacations after a long time without the opportunity. While this is in our thoughts for the U.S., we have more historical data to draw from with our international sales.

Okay. To revisit the topic of scans and diagnostic procedures, part of my question is regarding the productivity increase in accounts. I understand that some individuals will be going on vacation, but with a considerable backlog, it can sometimes enable you to maintain that momentum. With more accounts and people taking time off, one question that arises is whether they took vacations earlier than usual, and if so, you've already experienced the effects of that. I'm trying to clarify this point and appreciate you addressing my questions.

Yes. I believe there are many uncertainties in this situation. You raised several important points, Bill. We'll have to wait and see how everything unfolds.

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

Hey, good afternoon. Congrats on a 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 believe that a range of 80% to 90% is solid. The key metric for us will be productivity, which measures how many cases each quarter are being handled. This area is our primary focus. I don't think I mentioned this during the call, but productivity has increased about 20% quarter-over-quarter. We were averaging around four procedures per quarter in our established accounts, and now we're closer to five. We need to keep improving this, especially as we aim to fill more territories and maintain momentum for the rest of the year. Our growth relies on increasing productivity, and we're starting to see progress there, which is encouraging. We believe this trend will continue. Both metrics are being affected by COVID, as some regions face challenges and accounts are shutting down, leading to a temporary rise in inactive accounts. Therefore, it's likely that we will gradually move from 80% towards 90%, especially in the post-COVID phase. I don't anticipate we will go much higher than that, particularly as the numbers grow larger.

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 understand your point. We are pleased to have a competitor in the field. We capture a significant share of growth in this market. We believe our tools are superior, and our execution with StratX provides better answers regarding patient candidacy. If a physician doesn't use Chartis, they risk neglecting some patients because Chartis identifies patients with a fissure completeness of over 80%, while Olympus sets the threshold at over 90%. This means patients with fissure completeness between 80% and 90% will not receive valves if using Olympus' product. In contrast, some patients may show a negative result on Chartis but still receive valves and improve. Thus, there’s a decision to make about potentially leaving some patients who could benefit behind. Conversely, there are patients with 95% fissure completeness who may be Chartis negative, indicating they are not good candidates for treatment. You have to consider the implications of placing a permanent implant into a patient who might not benefit, which is a key concern. Approximately 90% of practitioners worldwide are choosing our technology because of its effectiveness. We attribute this success largely to StratX and Chartis. We are also collaborating to analyze cases where our technology hasn't succeeded to determine the issues and how to address them effectively. We are at the forefront of scientific and technological development and remain confident in our position with StratX.

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. I can't say whether your understanding is accurate. I think we experienced some pent-up demand that emerged at the end of the first quarter. We noticed this demand in March and April, specifically in the U.S. While I discuss the diversification across the U.S., during that period, we were emerging more broadly across the country. Outside of the United States, we don't observe pent-up demand in the same manner as we do domestically. This is likely due to the differences across the various countries. Nonetheless, the demand appeared over those two months, which is fairly typical for the U.S. based on previous trends we have seen.

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?

The treating physicians and Pulmonx have varying degrees of visibility into the process. StratX serves as a strong indicator for what we refer to as StratX screen light patients. In essence, when a patient qualifies for treatment, their CT data is processed through StratX. If StratX indicates that the patient has over an 80% complete fissure, they move forward with scheduling. Typically, most of these patients are Medicare beneficiaries. About 50% of our patients proceed to schedule a procedure, and 25% are managed Medicare or commercial patients, necessitating a specific process. In 95% of cases, they come through that process successfully. The timing of when treatments occur can vary, generally happening within one to three months. However, StratX green light patients are a solid predictor of those who will receive treatment, with approximately 80% going on to 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 are 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. 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.