Pulmonx Corporation (LUNG) Q3 2021 Earnings Call Transcript

Pulmonx Corporation (LUNG 1.35%)
Q3 2021 Earnings Call
Nov 02, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day. Thank you for standing by. Welcome to Pulmonx third quarter 2021 earnings conference call. [Operator instructions].

I would now like to hand the conference over to your speaker today, Mr. Brian Johnston. Thank you. Please go ahead, sir.

Brian Johnston -- Chief, Division Thoracic Surgery

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 September 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 August 10, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 2, 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. And with that, I'll turn the call over to Glen.

Glen French -- President and Chief Executive Officer

Thanks, Brian. Good afternoon, everyone, and welcome to our third quarter 2021 earnings call. Here with me today is Derrick Sung, our chief financial officer. The third quarter of 2021 proved to be yet another demonstration of the resilience of our business as we navigated the unpredictable course of the pandemic.

Despite significant and unexpected headwinds from the delta variant, we generated $13.3 million in worldwide sales in the third quarter, our highest revenue results to date and another consecutive quarter of record sales. Our strong results were driven by accelerating performance in regions less impacted by COVID, highlighting the strong underlying demand for our Zephyr valve procedure. In the United States, despite experiencing significant impact from the delta variant, we were still able to grow third quarter sales sequentially over second quarter and set a new high of $6.9 million of U.S. revenue.

We saw a strong acceleration of Zephyr procedures in areas that were less affected by COVID, such as the Northeast and the Midwest. This contrasted with sales deceleration of similar magnitude in regions, hard hit by COVID, such as the South, where we experienced prolonged procedure delays due to hospital capacity constraints. Outside the U.S., sales were strong in Europe as hospitals reopened to procedures with COVID cases receding across the quarter. Though procedure volumes were geographically mixed, we saw clear evidence of the growing demand among patients and physicians for our Zephyr valve treatment.

In the U.S., we added 18 new treating centers, an indication of the continued desire for new hospitals across the United States to bring our life-changing treatment to their patients. We now have a total of 198 treating centers in the U.S. and expect to easily surpass our target of establishing at least 200 Zephyr valve treating centers in the U.S. by year end.

We also saw continued patient interest in the procedure with sustained momentum in StratX volumes across all our geographies and an increase of both patient calls directly into our U.S. treatment centers and patient engagement via our website and social media channels. In terms of milestones, I'm pleased to say that this demand and growing awareness of Zephyr valves has translated into the treatment of over 25,000 patients worldwide. We've also cultivated a social media community of over 125,000 followers worldwide, enabling patients to share stories and experience of how Zephyr valves have transformed their lives.

Turning to our commercial expansion plans. We have completed our planned sales force expansion for the year with 54 total territories now active across the U.S. and 34 active international sales territories. We expect to continue to expand our commercial team throughout next year, and we'll provide greater detail on these plans during our next quarterly call.

On the reimbursement front, we extended our string of policy wins with a major positive coverage decision from Anthem, Blue Cross Blue Shield, the largest family of Blue Cross Blue Shield plans covering 34 million lives across multiple states. We also secured wins with Blue Cross Blue Shield of Michigan and Horizon Blue Cross Blue Shield of New Jersey, which together, cover an additional 10 million lives. These policy wins continue to validate the clinical acceptance of our technology and reduce the prior authorization time for patients waiting to receive our Zephyr valve treatment. Furthermore, outside the U.S., national treatment guidance documents in China, Spain, and Denmark were updated to recommend our procedure for patients with severe emphysema.

These recommendations, together with those already in place in the U.K., Germany, and France, will support our efforts to penetrate these markets further. Finally, our longer-term growth initiatives remain on track. We remain excited about AeriSeal the solution that we are developing to treat severe emphysema patients who are not currently eligible for Zephyr valves due to collateral ventilation. Enrollment in our multicenter international clinical trial studying the use of AeriSeal to convert patients with collateral ventilation into Zephyr valve eligible patients has picked up as the impact of COVID on our European trial sites has waned.

In addition, our efforts to introduce Zephyr valves into Japan continues to progress, and we expect to submit our application for regulatory approval to the Japanese authorities before the end of this year. All told, we remain confident in both the near and long-term prospects of our business despite both the lingering impact of COVID and indications of increasing hospital staffing challenges. As we look ahead, we maintain our strong conviction in the underlying demand for Zephyr valves and believe we are building the foundation necessary to deliver sustained growth in the years ahead. With that, I will now turn the call over to Derrick to provide a more detailed review of our third quarter results.

Derrick Sung -- Chief Financial Officer

Thank you, Glen, and good afternoon, everyone. Total worldwide revenue for the three months ended September 30, 2021, was $13.3 million, a 25% increase from $10.6 million in the same period of the prior year and an increase of 23% on a constant currency basis. United States revenue in the third quarter was $6.9 million, a 28% increase from $5.3 million during this prior year period. The record U.S.

sales reflect strong growth in continued commercial momentum of our business in regions less affected by COVID, offset by a slowdown due to procedure restrictions at hospitals and regions of the U.S. that were significantly pressured by the delta variant. International revenue in the third quarter of 2021 was $6.4 million, a 22% increase from $5.3 million during the same period last year. On a constant currency basis, international sales increased by 18% as hospital procedure volumes continued to recover in our European markets.

Gross margin for the third quarter of 2021 was 73%, compared to 70% in the prior year period. The year-over-year improvement in gross margin was driven by increased throughput and improved production efficiencies. Looking ahead, we expect gross margin to come in around 74% for the remainder of the year. Total operating expenses for the third quarter of 2021 were $19.5 million, a 52% increase from $12.8 million in the third quarter of 2020.

Stock-based compensation expense was $2.8 million in the third quarter of 2021 and accounted for 34% of the increase in operating expenses from the prior year period. We continue to expect noncash stock-based compensation to account for about $10 million of our total operating expenses for the full year 2021. We now expect operating expenses for the full year 2021 to fall between 83 and $85 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 third quarter of 2021 were $2.8 million, compared to $2 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, general and administrative expenses for the third quarter of 2021 were $16.7 million compared to $10.8 million in the third 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 third quarter of 2021 was $10.2 million or a loss of $0.28 per share, as compared to a net loss of $3.9 million or a loss of $1.37 per share for the same period of the prior year.

An average weighted share count of 36.4 million shares was used to determine loss per share for the third quarter 2021. We ended September 30, 2021, with $202.6 million in cash, cash equivalents, and marketable securities, a decrease of $8.9 million from June 30, 2021. Finally, turning to our outlook for 2021. We continue to expect our full year 2021 revenue to fall within our previously communicated guidance of 49 to $51 million, albeit at the low end of this range due to additional pressures posed by COVID.

This would represent at least 50% revenue growth over 2020. Our ability to maintain guidance in the face of persisting COVID headwinds reflects our confidence in the growing momentum of our business and in the underlying demand for Zephyr valves. With that, I'd like to thank you all for your attention, and we will now open the call up for questions. Operator?

Questions & Answers:

Operator

[Operator instructions]. Your first question is from Larry Biegelsen of Wells Fargo. Your line is open.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Good afternoon. Thanks for taking the question. Congrats on a nice quarter and obviously a very difficult environment. Glen, can you hear me OK?

Glen French -- President and Chief Executive Officer

Yes.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Great. So I'd like to hear you talk about what you're seeing in the geographies that are less impacted by COVID in terms of the growth and utilization. And if you think we'll see those types of growth rates and utilization rates in other geographies once COVID subsides. And in addition, can you talk about the strong screening volumes that you mentioned in the press release? And I had one follow-up.

Glen French -- President and Chief Executive Officer

Well, what we're seeing in the geographies that are less impacted is precisely what we expected. I mean, we're seeing a strong performance, strong revenue generation. We, obviously, those were able to sort of overcome the tougher areas that were shut down. We had certain geographies that were completely shut down for part of the quarter.

We all read about those in the headlines across the southern part of the U.S. and in the southeast. And so that was -- those are the areas that -- and we would expect that when COVID headwinds subside, that these things will continue to charge forward, and we won't be sort of running along with one hand tied behind our back, so to speak. The second part of your question was related to?

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Screening. You talked about in the press release strong screening volumes?

Glen French -- President and Chief Executive Officer

Yes. We have seen one of the strongest indicators of screening is StratX scans. It depending on the geography that happens either early on or later in the assessment process. And we saw an increase in StratX scans in the U.S., low double digits and in terms of percentage increase.

And on the international front, most particularly, the bulk of our business is in Europe outside the United States, we saw significantly stronger increase in StratX scans when you look at the third quarter versus the second quarter, which makes complete sense to us given that the U.S. and the challenges that we're facing with COVID are challenges that the Europeans have already gotten through, at least on this last very large wave of COVID that hit around the world.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

That's helpful. And just one follow-up for Derrick. So, Derrick, we understand Q3 was a challenging quarter. But you kind of -- you came in line with consensus.

So what are you seeing that leads you to believe you'll be at the low end of the full year guidance. Historically, you guys have shared a metric with us about the number of percenters doing procedures. Anything you can share with us on Q3 compared to Q2 and kind of what you're seeing now? Thanks for taking the questions.

Derrick Sung -- Chief Financial Officer

Yes. Thanks for that question, Larry. So just in terms of what we saw in Q3 and what we're moving forward to in Q4. In Q3, we saw coming out of Q2, really strong sort of sales momentum building through the quarter and is built through into July.

And so we saw strength in July across the board, across all our geographies. And then as the COVID delta variant really began to impact the U.S., we saw -- we started to see deceleration in specific regions of the U.S. that were impacted by COVID. So our Q3, our strength in Q3 really comes from strength in July across the board, across all geographies and then continued strength and momentum in the regions, both within the U.S.

and outside the U.S. that were not as impacted by COVID through the remainder of the quarter. So as we look to Q4, really kind of that the dynamics that are at play here are really kind of the recovery in those regions that were impacted by the delta variant. And what we're seeing is that, that recovery, while we've clearly bottomed, and we seem to have bottomed in kind of late September, early October.

We expect that recovery to be gradual. And so given the strength of what we saw in the early part of Q2 and July and the increased impact of the delta variant that we hadn't fully factored into our guidance when we provided it last quarter, that's what leads us to determine that will be likely falling at or near the low end of our guidance for the year, and that applies to Q4.

Glen French -- President and Chief Executive Officer

Just to put that additional context around that. I think one of the things that's important to remember, as you look across this quarter, in particular, is it, though, the sort of this bottoming out, if you will, that happened in September continued into October, we saw strengthening in the back, an increased -- an improvement in the back part of October. And as we look forward into November, we effectively lose nearly a week in November in the United States and the better part of two weeks in December. So this sort of flatness across the quarter.

If you were to calculate it on an average daily sales basis, taking into account those challenges in November and December. I think that the curve is going to look pretty strong.

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Thanks, Glen and Derrick.

Operator

Your next question is from Bob Hopkins of Bank of America. Your line is open.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Thank you, and good afternoon. Just a follow-up on that. So are you saying, Glen, that the guidance for Q4 contemplates on improvement throughout the course of the quarter in average daily sales numbers? Just want to make sure I understood that, is what you're assuming for the fourth quarter relative to how you kind of exited the third quarter?

Glen French -- President and Chief Executive Officer

Yes. Well, so there's a couple of points there. One is the exiting of the third quarter was down. I mean, if we -- one of the metrics that we've looked at before is the active accounts.

And the proportion of our U.S. accounts that were active went down across the third quarter and continued down, not further down, but sort of down at that bottom through October. But in the back part of October, we saw some real nice strengthening. So it wasn't a -- we didn't have a great exit velocity coming out of the third quarter.

What I was saying. So we strengthened in October. We put up an OK number in October, and we imagine that, that number will be matched in November and December, but November and December are handicapped by fewer days. So if you divide by the number of selling days, a smaller number in November and an even smaller number in December, the average daily sales numbers will be strengthening in the back part of this quarter.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Got it.

Derrick Sung -- Chief Financial Officer

I would just -- if I could just jump in and add a little color to that as well, Bob. I think if you look at it on a pure dollar number based on the fact that there are fewer selling days in the Q4 than Q3. And in particular, as Glenn mentioned, there aren't a lot of procedures in the U.S. that are done the week of Thanksgiving or the last couple of weeks of the year.

From a pure dollar amount, we would expect the U.S. in Q4 to be relatively flat sequentially to Q3 from a dollar perspective.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

OK. OK. I think I got it. And one other question.

Just -- I know it's early, but do you guys have any kind of early thoughts, given how weird a year it's been? And how long it might tech take for you guys to kind of get new accounts going again. Consensus is up at $77 million for next year, which is a super healthy growth rate, might strike me that, that's a little aggressive, just given all the work that has to be done. Just kind of any preliminary thoughts on that or too early to comment?

Glen French -- President and Chief Executive Officer

I think it's probably too early to comment. We're looking forward to getting specific on that front in our next call. I will say that as it relates to COVID, I mean we don't expect COVID is going to disappear. But what we have seen is that we and probably more appropriately, the healthcare systems around the world have become increasingly adept at managing COVID.

And as more and more people get vaccinated, there's fewer and fewer people that are heading to the hospital or into the intensive care units, which were super sensitive about. And when I look at kind of a good example of how that's shown itself, I think about our 2020 numbers being essentially a match to 2019. I mean we we're flat in 2020 because we were shut down for a good part of the year. Though the COVID impact on 2021 was at least as much as what we saw in 2020, we're on track, as Derrick had said and indicated we're still tracking toward consensus or toward the target that we had provided, which represents about a 50% -- a little bit better than a 50% increase year over year.

So I think that, that shows that everyone is getting a lot better at managing COVID. And I think as we look into next year, I would expect that COVID will not be gone, but that we will continue to move in the direction of -- everybody will be managing it much better.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

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

Cecilia Furlong -- Morgan Stanley -- Analyst

Great. Thank you for taking the questions. Glen and Derrick, I wanted to start just on second straight quarter of very strong new account growth in the U.S., but just how you're thinking about going forward, the potential to continue to add at this kind of closer to '20 accounts per quarter rate? And then just alongside that, any other commentary you can provide from a physician training standpoint, what you've been able to do over the last several months, notwithstanding COVID headwind?

Glen French -- President and Chief Executive Officer

Yes. So the new accounts, we feel fortunate. We were able to do '20 and then '18 and but I do believe that in these COVID quarters, it's very tricky, and the fourth quarter is a COVID quarter. So I think that it would -- we would be very lucky to put up a number like we have in the last couple of quarters.

So I don't see that accelerating as it relates to this quarter. As it relates -- so I think we've been saying that they would be more around 10 to 15 would be a number that would seem reasonable to us for the coming quarter. The -- as far as doctor training goes, we got pretty good at training folks remotely during the height of COVID. We've started back up face-to-face training, which we think is better.

And we have been executing at least one training class per month, those have been oversubscribed as a result -- so there's a waiting list for each of these. And we are in the process of opening up an additional training center in another geography to help support that demand.

Cecilia Furlong -- Morgan Stanley -- Analyst

OK. Great. And I wanted to ask as well on the staffing shortage commentary that you touched on earlier. Just how much of a headwind that was in 3Q when you really started to see this evolve? And as you think about 4Q, just how much pressure you contemplated from that standpoint?

Glen French -- President and Chief Executive Officer

That's a great question. We've definitely been hearing about it, and we experienced some of it in the third quarter. I would not -- I mean, if I had to lay COVID next to staffing shortages in the third quarter, clearly, COVID was a bigger impact than staffing shortages. But what has happened is -- and I'm sure you guys have heard this.

And what I'm about to say is entirely my perspective on this, but a lot of people have gotten fatigue from COVID. There's a lot of reasons why people are stepping away that are related and unrelated to COVID, whether that be vaccination or just fatigue or what have you. But the availability of resources is being constrained and the competition between hospitals to secure those resources, particularly those that allow them to do procedures and so forth and generate revenue has become truly extraordinary. And so there's a lot of demand and not only individuals, but groups of people are getting attracted away from centers, and there's this mad scramble.

So I think as I look ahead, I would imagine -- I don't know how COVID and staffing will balance in the fourth quarter, but I'm quite certain that staffing will become a more pronounced theme in the fourth quarter than it was at least for us in the third quarter.

Cecilia Furlong -- Morgan Stanley -- Analyst

Thank you for taking the questions.

Glen French -- President and Chief Executive Officer

Yes.

Operator

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

Rick Wise -- Stifel Financial Corp. -- Analyst

Good afternoon to you both. Maybe, Glen, we could start with the really solid international performance. Is it the recovery from COVID? I know you added a couple of new international sales territories. I'm not sure in the second quarter, you had ended up at 30%.

I'm not sure whether that expanded again. I know -- maybe I missed that. Maybe you could talk about that. And sort of where from here, I mean, you outperformed my international numbers, is another strong quarter expected as well in the fourth quarter?

Glen French -- President and Chief Executive Officer

Yes. So what's happened in some of these markets? And of course, we're in about 25 different markets around the world. Most of our international sales come from Europe. And I think one of the things that was pretty remarkable for us was probably the biggest country that was the was the United Kingdom.

And the United Kingdom is the nation in Europe that has the least capacity to withstand any kind of an insult. I mean it's not uncommon in the last six years. There were several occasions where we were down -- our business was down for a month here or there because of a tough flu season. So to get the UK back and running was a real plus for us.

And they made a nice contribution, and we're our third largest international market in the last quarter. Germany also came back, France came back strong. These are all major markets for us. So that's where our strength was.

As far as number of territories, it did go up. It wasn't material. It's sort of just filling taking advantage of opportunities and geographies that weren't optimally covered. We added somebody in Western Switzerland that we didn't have before.

We picked up a resource in Italy. So there's a number of different one in China. So there's a number of different folks. We ended the quarter with 34.

So I wouldn't look at that and say it's more than -- I mean, it is more than a 10% expansion of the size, but it didn't really drive revenue per se. But it does put us in -- we're very opportunistic. We have a low threshold for adding reps where it makes sense. We saw an opportunity and we took it.

Rick Wise -- Stifel Financial Corp. -- Analyst

Great. And just as part of that to make sure I'm thinking about it correctly. I think the U.S. revenues per procedure, something like $11,000, if I remember correctly, please correct me if I'm wrong.

Is it the same internationally less or more? Just if a quick reminder.

Glen French -- President and Chief Executive Officer

Just a little bit less. We talk about 10,000 as the sort of global as our average revenue per procedure, and our number in the U.S. is about 11.

Rick Wise -- Stifel Financial Corp. -- Analyst

Great. And if I could finish up with a couple of guidance questions. Just want to make sure, Derrick, I'm understanding some of your comments. The commentary about the fourth quarter revenue not unlike the third, if I'm adding up correctly here and bumpy up, let's say, more in the 13.5 range for the fourth quarter.

That would be a little over 48 million, slightly below your range. When you say at the low end of the range, does that incorporate a little below? Or not trying to get too [Inaudible], but just want to make sure I'm hearing you correctly.

Derrick Sung -- Chief Financial Officer

Yes. Thanks for the opportunity to clarify. So when I was referring to relatively flat, I was speaking about the U.S. specifically.

So we do expect a sequential increase in OUS revenue. So to get to kind of the bottom end of our guidance of 49 million. Another way to look at it would be to say, roughly, we might expect kind of a 50-50 or so mix between the U.S. and OUS in Q4.

But the flat -- the relatively flatness on a aggregate dollar value is the U.S., and we would expect a modest increase sequentially outside the U.S. in revenue dollars.

Rick Wise -- Stifel Financial Corp. -- Analyst

Got you. Got you. And two more P&L questions if I could. You said that gross margin, you said 74% -- if I heard your words correctly, 74% for the rest of the year.

Does that mean for the full year or for the fourth quarter? Just wondered what you intended there just to make sure?

Derrick Sung -- Chief Financial Officer

For the fourth quarter, we expect revenue -- gross margin to be around -- back up to 74% in Q4.

Rick Wise -- Stifel Financial Corp. -- Analyst

And that's because roughly similar equal volumes roughly --

Derrick Sung -- Chief Financial Officer

Right. So we -- exactly. So we've averaged gross margin of about 73% through the first nine months of this year, that's been primarily driven by increased production throughput, leading to increased overhead absorption, as well as some other cost reduction initiatives that we have in place. We continue to expect those initiatives to, as well as overhead absorption to continue to step our gross margin out from where we are today.

In Q3, in particular, this quarter, we had a little bit of higher scrap costs that are onetime in nature. So we feel comfortable that we'll be back up to 74% next quarter. And then moving forward, gradually, we continue to expect that we'll be moving up from 74% over time due to these continued initiatives that I mentioned.

Rick Wise -- Stifel Financial Corp. -- Analyst

Got you. And one last one, if I could. Opex, if -- again, if I'm understanding correctly, I think your prior guide was 85 to 90, now you're saying 83 to 85. Can you help us -- I mean, that's excellent, good.

Can you help us appreciate what's happening there? Thank you so much.

Derrick Sung -- Chief Financial Officer

Sure. Right. So on the opex side, we continue, of course, to focus on expense management. And certainly, we were happy to see this drive some incremental leverage across our P&L throughout the first nine months of the year.

So that's one piece to it. The other piece is timing related. It's simply timing related and that there's some spend on the R&D side, particularly on the clinical research side related to AirSeal, that has been impacted by COVID. So some of that clinical spend, we expect to be pushed out a little bit into Q4 and maybe into next year.

So those, I'd say are the two drivers of the opex, our expectation of opex coming in slightly lower than the range that we had originally set out for 2021. I will say that in Q4, that we do expect a meaningful step-up of a few million as our guidance implies from Q3 to Q4. And again, we expect that to be coming from clinical spend in AeriSeal on the R&D side and continued investments in SG&A as well as some sort of typical year-end increase in professional services that we'll see on the SG&A side.

Rick Wise -- Stifel Financial Corp. -- Analyst

Thanks for all of it, you two.

Operator

Your next question is from Bill Plovanic of Canaccord. Your line is open.

Bill Plovanic -- Canaccord Genuity -- Analyst

Great. Thanks for taking my question. Really COVID obviously masks a lot of things. So what I'm trying to get a feel for is in the areas, at least the geographies in the U.S.

that weren't impacted. I was wondering if you could give us any color, granularity on what the penetration of an account looks like a mature account and kind of what volumes you might be getting to and whether that be your top 10% of your accounts that weren't impacted in the quarter? Or you've had them for two years, the longest mature accounts. Just trying to get a feeling for what a top account looks like that maybe didn't have a significant impact from COVID?

Glen French -- President and Chief Executive Officer

Yes. Well, nobody has been untouched by COVID. So this is just kind of this last wave, and it's a relative thing. So everybody got hit to some extent, some way more than others.

And nobody has avoided getting hit very hard some number of times in the past. And so we have no -- when you talk about like a two-year horizon or something, there's nobody who hasn't been down for months through that time point. So the good news is we had 200 accounts in the United States roughly. And so when these things -- it has always moved along in never really knocking down everybody at once, but moving across the geography.

And I would say good is what people are striving toward is to get to a place where they're sort of running at 500,000 to $1 million kind of run rate on an annualized basis. So that's what good look like in the pre COVID phase, that's what good looks like today. And I think that we saw a real nice growth in these unimpacted areas. You can figure it out with the kind of growth that we're -- that we delivered was, I think, solid sequential growth in the face of the headwinds that we saw.

We -- if you look over the growth over the prior year's quarter, it was also very strong, and it was largely driven not only by these sites, but had to counter act the downside that we experienced in places like Texas and across the south through Florida in particular, which are Texas and Florida are some of our bigger markets.

Bill Plovanic -- Canaccord Genuity -- Analyst

Thanks for taking my question.

Operator

Your next question is from Joanne Wuensch of Citibank. Your line is open.

Joanne Wuensch -- Citi -- Analyst

Good evening, or afternoon, and thanks for taking the question. I have two, I'll put them out at the same time. The first has to do with covered lives. You added quite a number in the quarter.

And I'm curious, I don't want to say how many more but what significant pockets are still open? And my second question is for outside the United States. Could you remind us of what the opportunity in Japan looks like?

Glen French -- President and Chief Executive Officer

Got it. OK. So as far as covered lives go, just to be clear, 75% of our business is paid for by the government, 25 commercial payers. But of that government business, about a third, 25% of the whole run is managed Medicare.

So those patients go for prior authorization through commercial payers. And so that's why we're focused on just trying to reduce the time line. And at Blue's plans, most particularly at Michigan, Blue Cross Blue Shield Michigan, and at Anthem, it was taken a long time, like 90 days and sometimes even longer to get prior authorization to go ahead and do the procedure. So getting those plans to the right place shortens that time line.

Better than 95% of the time when we seek prior authorization, we get it. So it's not a question of whether that patient can get treated. It's just a question of how efficiently we can move through things. Now one way to think about kind of where we are is that we pretty much have all the big players.

I don't think there's -- we had said that there certainly aren't many that are left that are the size of Michigan or horizon that we just recently flipped. So it is -- the way I think about it is Blue Cross Blue Shield Association is the only big payer that's negative. And before Anthem flipped, we had about a third of Blue Cross Blue Shield Association affiliates that had flipped. Anthem represents another third.

So we're about two-thirds through. And then the other third is something like 30 or 40 little plans that are all -- we just kind of -- we feel like we're chopping down the tree, the tree being Blue cross Blue Shield Association by taking the LIMS down. And there's really no big LIMS left. So that's where we are on that front.

And all the other ones are neutral to -- or positive. And from a reimbursement preauthorization perspective, it really doesn't matter so long as they're not negative. So this was a really big period for us to get those 44 million lives. From a Japan perspective, we size that at about 20% the size of the U.S.

opportunity, which makes it arguably our second largest opportunity on a national basis. So we're very excited about moving forward in Japan. So it's a good-sized opportunity for us. Very, very good-sized opportunity for us.

And we're moving ahead there. We expect to have the submission in by the end of this year. We're going to go ahead and expect that by the end of next year, we'll have approval. And then it goes through about a six-month reimbursement process, and we see ourselves commercial in 2023.

Probably in the later part of that year.

Joanne Wuensch -- Citi -- Analyst

Thank you very much.

Operator

[Operator instructions]. Your next question is from Jason Bednar of Piper Sandler. Your line is open.

Jason Bednar -- Piper Sandler -- Analyst

Good afternoon. I did want to ask about the recovery here in business trends that you spoke to kind of coming out of the latest COVID wave. Derrick, I think you alluded to business coming back in a gradual fashion here for the fourth quarter. But I think in the past, you've talked about business coming back and maybe more of a quick fashion following past COVID waves.

So I guess, was this wave a bit different in how it's impacted you -- are you factoring in additional conservatism? Is it the staffing dynamic that's maybe holding back the normal post-COVID wave surge? Any additional color there would be appreciated.

Derrick Sung -- Chief Financial Officer

Yes. Jason, I'm going to ahead and jump on that one. The -- we are -- as we look forward, this year-end thing is very interesting. And we are seeing a dynamic where I think because of some of the staffing challenges that there are some folks who are saying, we're going to just get restarted in the new year.

So that's a nontrivial theme that we've heard. And so I think that staffing, as I sort of earlier alluded to, is going to impact us as we move through the fourth quarter. But we factored that in, and we're pressing forward. COVID is -- we're still pulling out of COVID on a number of fronts in a number of geographies.

And in some cases, I think we're all looking at the same data. COVID is not done with certain geographies. So I think that's all sort of factored in. As it relates to the normal kind of [Inaudible] that we get across one or two months coming out, that you're exactly right.

We've seen that a couple of times in the past. We don't expect to see it here. And I think it has to do with the dynamic that I just talked about. I think some of it is coming toward the end of the year and people saying, why don't we just do this in the new year.

But we're scheduling a bunch of cases. There's a lot of activity going on. But I don't -- I expect that to the extent that there is what would normally be a that would be spread across two months, I think it will be spread more broadly because of the end of the year impact and for the reasons that I just described.

Jason Bednar -- Piper Sandler -- Analyst

OK. That makes sense. That's right. And then I guess, Glen, you and I have talked about this in the past, but maybe hoping here you could provide some color, just really how the approach is playing out and having those assessment centers that you've got on your site, just serving as a feeder network into your training centers.

Is this something that you're looking to expand further as we think out of 2022 or any learnings from that experience and having those assessment centers that you can use here going forward? Thanks.

Glen French -- President and Chief Executive Officer

Yes. As we talked about the last time we spoke on this subject, the assessment -- there aren't many of these assessment centers, and I think most of them are flipping to being treating centers. So the original -- I think the concept is that we're trying to explore a multitude of ways to sort of enrich the profile of the patients that are arriving at treating centers. And so that was the original concept behind assessment centers, where you might have an assessment center in Missoula, Montana that would send people into wherever, Spokane, or whatever -- wherever the folks in that area would go to.

And I think what's happening is there's a certain amount of work that has to go into that process. And the trickiest or the most challenging part of doing -- of getting our -- delivering our treatment is not the procedure itself. So it's -- I think the physicians that are there are saying, well, maybe we ought to just become a treating center, which works out fine for us. So -- but this idea of coming up with tools to help the clinical coordinators at treating centers, move patients efficiently through the workup process, decentralizing or distributing assessment process out to referring doctors or referring centers is something that we have been working on in a pilot fashion.

And it's all just a way to try to reduce sort of the -- or increase flow through the tube as it relates to moving patients toward treatment.

Jason Bednar -- Piper Sandler -- Analyst

All right. Great. Very helpful. Thanks so much.

Operator

At this time, I would like to turn the conference back to the presenters for any further comments.

Glen French -- President and Chief Executive Officer

Well, thank you very much. I'd just like to close by saying that we are very pleased with having delivered another record quarter. This was largely driven by performance of sort of the less COVID impacted geographies. The fundamentals related to our business, specifically, patient engagement, StratX scans, case volumes remain strong and strengthening.

Thus, we remain quite optimistic about what's ahead for us, and we thank you all for your time and your ongoing interest in Pulmonx.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Brian Johnston -- Chief, Division Thoracic Surgery

Glen French -- President and Chief Executive Officer

Derrick Sung -- Chief Financial Officer

Larry Biegelsen -- Wells Fargo Securities -- Analyst

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Cecilia Furlong -- Morgan Stanley -- Analyst

Rick Wise -- Stifel Financial Corp. -- Analyst

Bill Plovanic -- Canaccord Genuity -- Analyst

Joanne Wuensch -- Citi -- Analyst

Jason Bednar -- Piper Sandler -- Analyst

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