ARAY - Earnings call transcript Q2 2019

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Second Quarter Fiscal Year 2019 Accuray Incorporated Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded.

Now, it’s my pleasure to turn the call to Doug Sherk. Please go ahead.

Doug Sherk

good and Carmen, you, afternoon. Thank as conference Welcome for December review well results to second to XX, quarter as on Accuray the ended of financial which developments. call fiscal corporate recent XXXX, XXXX,

today and Hamamatsu, Financial Officer; Officer. us Chief and Vice Shig are President Accuray's Accuray's Joining and Levine, Executive President Senior Chief Josh

issued update after plans including, of and the are Securities associated release of and we with Radixact with to any remarks no to afternoon including on the Before we I'd remind and forward-looking other Company's to us includes Commission. questions The prepared available limit number like on expectations, we references our statements and year the themselves follow-ups; as a that actual Two more Exchange and any the today this growth, items: to to specific risks fiscal regarding the TomoTherapy to we filings that the in execution, are statements then question-and-answer to, forward-looking make could commercial There statements statements. well request date, quarters. growth, information CyberKnife order control. First, all during this we results materially described obligation involve as future Second, These the are two housekeeping quarter our not and you news session forward-looking and future that but questioners of our factors requeue are based in to in market the systems, today's future closed business call begin, assume as a with from and that risk uncertainties, strategies. our limited outside adoption fully factors cause call risks revenue our of macroeconomic differ

quarter second fiscal December XXXX. ended XX, our second regarding our refer to quarter statements example, For

the to and call like Accuray's Chief Now, Josh Officer, over Levine. turn President I’d to Executive

Josh Levine

call. $XXX.X were today's thank performance the you Accuray’s for of everyone, year-over-year. positive extends on XX% for reported you, results joining million us Good and up afternoon, orders we second Doug. Thank quarter Gross QX.

through order treatment in and gross launch can extremely we which come from quarterly best-in-class motion demand dual while customers that strong precise demand workhorse than for which bolus by system treatments. versatile system, Radixact of vault taken more system, as single dollars CyberKnife China. for real from providing order of Radixact our system’s customer and unique XXX half of of sequential orders, XX from also our rebound a roughly The and months represented recognition orders be this the attributed capabilities Our customer driven Radixact almost locations. gross have growth a platform, healthy spare time tracking XX% was orders Since CyberKnife synchronization precision. to tissue efficient continues for now ago, to the gain a or treatment have growth

XX% The quotas benefit to most growth the impact restructuring are U.S. which in as the of Americas base, point we regional gross fiscal coverage of of orders weighted all data second sales sales gross mix takeouts, were an was driven Overall, fully additional resources year. trend vaults, growth quarter our systems encouraging radiotherapy installed results in our seeing historical second and our announcement were was APAC and with with for models second XX% single our by from quarter, the the basis, quarter sites. in range. the represented second were waiting this On and strongly a order significant orders of Our B or vault regions. approximately are are provide radiotherapy of Americas QX of quarter represented the the within for Type the in our XX% APAC systems. reflecting Radixact results with QX historic systems associated been the organization XX% the and dual of in new final the A we approximately implemented replacements competitive XX have second last licenses. demand order customers formal The new to half the A of that orders who in the and territory pent-up contributor our that Type majority was consistent

the last will order and China and in we related year systems key are in we revenue thing the in win continued hospitals premium research-based fiscal the believe China radiotherapy licenses rates activated. well-positioned some and Type This brand opinion B strong support fully was carry licensing many order Tier A in in there the TomoTherapy process flow A While the were A for instrumental QX variability endorsement XXXX and believe fiscal be a community. the strong and time, when beginning our was strength momentum X awareness segment. and from we the radiation CyberKnife Type with of academic Accuray’s high issued, and in becomes to generation through strong, end in during quarter-to-quarter oncology awareness in as strong see Type demand of products driving period have leaders

October the in of you B Class XX% X,XXX many know, were quota of As Health the announced of the Ministry devices approximately by XXXX by for roughly market. covered the

of market quotas, will capitalize to manufacturing to Chinese us continued manufactured, of this under the Type negotiation opportunity the next During market B Type supporting produce a market joint participate advance access in the the execution Accuray partner strategy. decade, a which venture Accuray’s within market product would segment. over process a commercial also on for and largest B meaningfully represents the establishment allow did branded, the Type China we growth the with locally not previous joint the the broaden quarter, venture and this and in that second Chinese the B

details to the weeks. the in the China negotiation in more stages look coming and JV providing are final we We of to related strategy, forward

do financial performance discuss Shig in detail, for While was financial to a provide the quarter few I for the highlights revenue Accuray's more total will $XXX.X our quarter. outlook want and million. second

our X%, full revenue fiscal is half guidance grew first with the consistent the of which year. for year, the range For

$X.X We positive forward. our EBITDA focused also of the profitability we million and remain during to business going driving on second generated quarter, sustainable

call, on operating implemented in full-year during achieve that that growth rates our level of revenue target reduction cost a believe should in current fiscal last an savings basis announced we initiative allow going million. at cost quarter us have We As a a GAAP income profitability forward of second the of leverage creates net annual to with this action $XX XXXX.

will in reductions recognize impacting not primarily achieve We our QX that occurred or fiscal earnings ability are by the in fully advance workforce end product functional the cost of areas year. these As we identified anticipate our of the current in our to benefits pipeline. savings objectives release, our innovation we commercial

an just coupled we depending times with The XX%, reduces treatment dramatically development can can Optimizer enabling minutes. in system the by much site Multileaf time. the Collimator planning new disease ASTRO time late-October, pipeline, for treatments delivery VOLO our and planning also software This to strong to of in XX on for introduction XX update to software, product dramatically CyberKnife interest as reduce by at market up our XX%. on CyberKnife as generated in reduce delivery which Turning VOLO Optimizer treatment

feature customer treatment packages. dozen roughly impacted installed believe We our purchase to improved and through various constraints, our a the regards VOLO to that half Radixact making We past. received synchronization at I overall mitigates to upgrade on customer a which in and our treatment making currently am Accuray decision has during the a the of available base speed CyberKnife existing unique innovator efficiency times XXX(k) the approval application our have reduces gains. quarter positive we system. to locations with on are exceeded report CyberKnife also been has customer that present, VOLO platform. expectations synchronization, and of pleased We which workflow slightly motion feedback motion the at VOLO is original overall the FDA functional

brand and we to for have the Radixact tumor, fiscal beam, our treatment. CyberKnife, expect important capability Synchrony under enabling feature not sparing of by brings tracking market to will only end this feature year. during with Synchrony, will tighter Accuray the and Radixact, As beam synchronization the this to healthy provide margins two dosing launch we on the the the With name treatment. tumor systems to during the This true the motion technical radiotherapy and tissue beam able correction and current

patients Synchrony physicians. and clinicians part We the will to continuous Radixact innovation of also under best for kVCT imaging precision imaging A and capability. and believe retreatment on accuracy with third provide our possible development that opportunities hyperfractionated is expand efforts as that our provides

required reimbursement will an the which quality, well treatments will based imaging number including this operate promise expand believe providers technology. with that to adaptive already We product based the efficient combine portfolio strengthen substantially be treatments of model the cost Under diagnostic current roadmap rewards product imaging well-aligned continue to intend both this cost unique Our in Accuray's benefits care support and will versus in Synchrony possible is in to efficiently make upgrades benefits Radixact value as online continue as the kVCT leverages improved operationally delivering environment. clinically therapy. development of scenario, a throughput innovations this and effectively, care on significant outcome. area. to VOLO, reimbursement positioning help the imaging to achieve current of architecture to and what's reimbursed to investments technology the the We

delivery and With turn direction, And treatment this to our call payers. which Shig focused support on Our on dynamic. effectively performance. product’s capitalizing are ability emerging hyperfractionated timeframes to I'd trends a experience look moving to over regimen for at financial patient reduces like now, patients the in overall benefits this and deeper the both we reimbursement improves treatment

Shig Hamamatsu

and Thank afternoon, good you, Josh, everyone.

and quarter, strong regions highlighted, $XXX.X Both orders XX% year. over orders of we increase representing year-to-date prior Josh increased gross prior gross of the year. the drivers the gross the a an order over of basis, APAC second As had were Americas in On XX% growth. million

we to our gross Such through and second year orders contracts in quarter fiscal XXXX. million last on starting our mentioned call, service for As totaled upgrades the purchased started $X.X orders include in in a million our year-to-date. $X.X

second On orders XX% and system basis quarter by was APAC the and the on a regions. upgrades increased over driven orders product gross growth these mix was second CyberKnife quarter service doubling This XX% in more year. highlighted EMEA by on year-over-year. Excluding contracts, basis, the prior a the than year-to-date

as our APAC strong mentioned, the licenses a region and for customers waited quotas. China distributors release Josh demand new have result who especially As of the pent-up and of was our in from

systems. X% of TomoTherapy On XX% a see well approximately orders we quarter. as Radixact generation the the system with million our continue to Additionally represented to from in Radixact basis, platform orders continued the $XX.X to net going perform our year orders second generated quarter. shift prior newer we

mentioned As level we first anticipated and on during age-out second $XX the our of for of we age-outs call, quarter million. adjustments the higher last year, half the

We also of and recorded million adjustments. $X.X other cancellations

In A systems, addition, Type million recorded for of related orders representing the the about quarter included $X.X China total. we age-ins. revenue Net of to from age-outs XX%

the over likely XXXX. starting in to to prior we user age-out increase $XXX.X licenses, second an converting backlog a start receive to out representing As these of hospitals fiscal we million, continue X.X% year ended end most China start orders We quarter believe year. with of will revenue,

primary revenue our the X% drivers over increase growth. $XXX.X representing statement. prior our Total for year. revenue now a quarter to million, income the of EMEA Japan and second was were Turning

its prior the revenue an than from Since the approximately The year. half X% strong revenue quarter was from systems. X% over revenue our X% of driven revenue first for more was with increase by grew the was demand fiscal For Radixact revenue Radixact increase year. $XX.X or have revenue million, of for doubling over year. an Service $XX.X product introduction, quarter system increase Product recognized prior prior over for we XX million, prior year. XXXX,

of For growth revenue primarily installed of the X%. the was service base. revenue in increase the our first year, by The service driven half has grown

gross to now Turning margin.

TomoTherapy by XX% to attributable compared the to prior gross Our the as XX% year. second decrease quarter compared with the product larger quarter prior the margin XX% margin product was margin for gross Product driven in gross our in to a the sales to compared mix overall was prior percentage year. in overall year. in The of platform primarily second XX% was

prior For year XXXX, product XX%, from lower the mix in margin our the XX% was gross fiscal revenue. first to of CyberKnife systems in half down due of

gross these We see was orders product into are to of are encouraged was margin as strong which second quarter Service to which year-over-year. orders CyberKnife revenue. converting the of should current improvement margin gross XX%, gross in flat quarter translate

margin service and the the contribute we XX% continued margin XX% compared gross year. First improved to parts in look to half believe in was this as investment year. half gross our will We prior fiscal service of service XXXX fiscal reliability to second efficiency

down Operating expenses from X% the of Moving decrease were year. the statement. for a million, income the quarter $XX.X prior

include discussed operating cost $X.X call. in The expenses related second was to approximately a of severance quarter our that reduction initiative last million our charge

charge, prior expenses year. X% severance quarter year-over-year. operating $XX.X operating or the the second this year-to-date expenses Excluding On decreased a up were from basis, million X%

quarter million Excluding second for the receivable quarter, expenses compared severance and prior accounts was $X.X the in year. second first year-to-date Adjusted decreased EBITDA to million charge X% year. impairment in in the the quarter $X.X the prior operating from

compared half fiscal $X.X the We short-term cash primarily the ended by for timing EBITDA was restricted million adjusted XXXX million in of year. million earlier, in with prior cash decrease of from the mentioned $XX.X and $X.X charges one-time accounts collections. second the to cash. driven The quarter receivable the first prior was Excluding of quarter the

past end of the more $XX than the the end from the since have receivables million weeks, at collected Within December. of outstanding second we quarter, the cash three of

of expect this cash to generate remainder flow We positive year. the for fiscal

cost Before to like our on call. in to update I'd we XXXX of fiscal reduction the I the status move guidance, initiatives the discussed discuss last

we in quarter severance a I As second the result have earlier, mentioned the recorded the charge initiatives. of as

we to the benefit will approximately savings total quarter realizing action the across expect will expected margin, of $XX this continue all the the full and With initiatives be expenses the reduce annualized functions. million action the XX% year. execution in gross this start completed, from of benefit fiscal while operating to the of substantially remainder fourth to savings, Of approximately this

$XXX Today, provided for X% growth Turning which approximately over for revenue XXXX. includes fiscal calling to in to X% revenue we guidance fiscal August. the X% $XXX to of our million, guidance back now annual range will to of represent in reaffirming our are August guidance million The XXXX. product of growth. X%

In of expect our like bit first million, adjusted and in of addition, range charge the continue This to color represent provide charge million the year-over-year growth of and EBITDA EBITDA on the We to to impact between the excluding to will we $XX range performance. more our impairment half. $XX be a would XX% severance XX%. in some anticipated

on to we hospitals fiscal systems. driven winning purchasing license instance, perspective, Ministry application in quarter are pent-up of demand have more user to for order recent anticipated our on Health For a to end China be to of impact requirements focused is and the prior fiscal a remainder by order we regulatory on process the during realized quota starting meaningful our announcement the anticipate gross in we through From customer revenue the to orders China XXXX. go second China, conversion in the primarily XXXX. This timing the revenue

be XX-month will potential the order fluctuations fiscal XX%, Company. this gross illustrating quarterly China year. of trailing of remainder was Globally, there anticipate the during quarterly approximately from our our we fluctuation However, growth in orders

with for the not be are rate. order order we we gross is overall still subject the fiscal our second growth order of more line maintaining quarterly year, providing While fluctuations our funnel the rate in gross to and of XXXX gross half policy our expected to growth believe market guidance is

third A net to range million China to million XX% Turning net is age-out approximately which anticipate be be $XX outlook. in quarter our systems We $XX to of orders. the of Type to age-outs expected

we unfolds. start earlier, fiscal anticipate as back to do these mentioned I age As XXXX orders China in

of outlook. terms gross margin our In

to level percent the to a call fiscal now Radixact We down expenses year-over-year, XXXX revenue the to charges, and margin for continue expect I'd gross be revenue impact TomoTherapy excluding one-time to in to We that, we And be fiscal total hand full expect anticipate operating Josh. platform fiscal higher earlier. be of similar like overall as to impairment to of this X% the year. with X% to year severance discussed back approximately the

Josh Levine

Shig. Thanks,

Accuray Before operator, their thank difference questions. focus with patients’ making and I’d we for supporting for improving that, And that's for the to execution, important like the we're line open now ready in a and entire questions, increased open the work to team up the call commitment lives.

Operator

Thank go first And Please you. Cowen. comes with Jennings ahead. our Josh [Operator question Instructions] from

Josh Jennings

Hi. Good afternoon. Congratulations Thanks on order on to had actually I and quarter. two Josh Shig. questions the strong China.

Shig get or was past some to Class First, age-outs now. could to should an back his to be to historic as what just low-hanging quantify the were of on contributing two orders just in was represents remarks? over age-ins Any of And percentage years? and the are or happened inflow orders, A about way in Class idea orders whether the of of we licensing not how prior prepared that A hoping backlog A earlier some fruit come Class the orders this generate [ph] thinking that how I these then, and referencing many in revenue? those potentially China

Shig Hamamatsu

the thanks Josh, Sure. question. for

as far or us for cadence potential age-out thing as for as end which in, in come cadence not all really I the So, a orders, going orders It's around -- user sort way whether at to think to to there's new no type hospitals first China revenue, opportunity, look those that. predict out of as first this the we licenses. really apply of

first. think or ones don't go going can are we age-in which I which already ones predict are So, to

first that's point. So,

orders, around or $XX neighborhood recent the Type we worth have announcement. to orders As prior something somewhere million Type of far A the license million A in level as $XX the of the probably

occurred. announcement So, that’s started sort that was baseline of before the the

did there? miss -- another I I if Sorry question

Josh Jennings

be Should that know you customers quarters that made orders have I did you’re fruit age-in borne having next engagement orders from? the should those that that. maybe still fiscal ‘XX? be some in begin Thanks that assuming reference of and those there is or there with some No. over will couple to for we

Shig Hamamatsu

Absolutely. a We'll said, timing you with from they remarks a and backlog again, is my orders start engage XXXX more age-out age likely in. some completely these standpoint. policy even as to those back customers prepared And though see of likely

Josh Jennings

Great. your follow-up is China question just distributor. Thanks. on then And a

[ph] of demand. had understand quarter, orders, strong the China pursuing the pent-up that and in lot, relationship JV, the help incentivizing XX you're systems of guys was sell You finalized? and a push balancing CyberKnife being the you front JV Thanks Tomo you're how us can of to some But, here, kind strong make as you're continue to gentlemen. to clearly how a

Josh Levine

a question. visible and bigger topic in That one this deal of been and great That's issues actually to the the a has us for probably front center, with transition.

obviously in scenario -- disenfranchising hope ensure close to the the prepared to the we we matter going we’ll primary think Tomo. this that getting hope transition opportunity said we we're where -- on So, structured this we're ensure not focus we to we're a weeks. it's have that disrupting been I in literally our forward sure that are -- have But, I a we're not something have flow here we of -- and transition. plan remarks activity of -- order making And distributor and order basically ours we not announce in update in market my

process the time their forward. we'll is So, supporting installed in from right TomoKnife the or folks JV announced. of and for that still And one a constrain now, going begin work good base selling after is and that selling a period engaged we it go terms able in we've doesn't partner keep to also, got the the opportunity JV won't of being the but actively into -- structure a detail impede

relatively and to for and order think, is, this at maximum partner need detail speak really to feel the activity, order JV it, on at more I disruption, in time short about the by at the able with minimal ensure we're look we a We'll it land win-win-win a where so TomoKnife, good intelligently we now. in as underlying intent, place and Accuray So, hopefully and focus JV selling generation. And we pretty continued here. excited period and about in we're be structures are to that why right about

Operator

Thank you.

question Our Please Jefferies. with Anthony next comes ahead. from Petrone go

Anthony Petrone

an the one the Thanks and that were and China, within for envision update orders well. installed number still On recap in XX just question there? many much on number on what called base in as actual in VOLO, are eventually CyberKnife, post one quarter. orders maybe how the just Q of CyberKnife the you orders than actual of also accounted order Thanks. better congrats was with And from China, you an Maybe percent How a order on backlog, just that and do many by how out driven already for was expected of question the standpoint, backlog, VOLO? upgrade will then CyberKnife.

Josh Levine

Anthony. Yes,

talked that has just that to generated TomoKnife in those QX we brought clear, those we So, new in be orders China, orders, the orders and are about are forward.

new Just and to those those be a products clear, XX product But, of Class units of A type B are the for orders radiotherapy Type one were order. orders. XX, was

And -- get the customers the the to about stages for it end time reached order et were had that. that so, wanting that be people sort distributor and sure -- the there -- a we're of clarity they in customers on orders, We between push about in on into cold of lag significant not quotas so feel manufacturing to speak, take was really took user licenses, the good this. excited cetera make queue could to out that early left obviously

end with On the was of activity. a rebounding order sequentially it -- a we good was CyberKnife, for had the It quarter, in CyberKnife.

and for at I what exceeded potential treatment the expectations in more reset from customer reactions and the preparation in inputs they're the got a actually about expecting. And treatment we've prepared delivery. improvement used mentioned perspective engagement really of our is don't base about know or to improvement MX I but vast not can't speed last treatment roughly It's want and -- this want got dozen with kind a would which upgrade CyberKnife. plant from we feedback regards say it's got I imagine question, roughly handle vast, VOLO -- that round devices upgrade least Optimizer. second right the we imagine of time, upgrade. is a expectations exceeded to be devices, installed were -- VOLO. of to backward locations in it's would market them, remarks, I want To has dialogue treatment time think going with all Feedback to majority, been on on specific clear, what customers catalyst the the I It's to clearly the to over be incremental the vast such overall think terms throughput. to your that customer continue on now. XXX in platform, in efficiency, the to -- a of where majority to about can't I those numbers, to part installed scenario installed integration to a of those in throughput. market MXs would And is treatment It's scenario in the XXX would speed, of

So close of be it to them. all should

Anthony Petrone

Thanks. Yes. into upgrade one Radixact, I'll that? is And And is queue. get the with those want we so how the then, opportunity Synchrony to orders, upgrades there be, in forward, as should a just get clarify look back an just of that. would recorded gross just much second follow-up algorithm now

Josh Levine

is solution take unique I'm market quite Synchrony some first. one mean, time. in I management unique. second has going been motion It the for our motion the to the --

is motion capability bring platform upgrade ability that a to management significant that path. think having the very like I very, to a Radixact

TrueBeam relative a having synchrony against and very And about to has functionality the that in a the and Radixact on that base customers performance have improved dramatically like the well the in frankly capabilities in considering it throughput system tissue to and with capabilities Radixact performance as very, management Radixact products purchasing those talking You're or quite backlog comparative waiting the motion were that and jump product both Versa. jolt speed in competes precision the sparing. have and be already products and should margins order characteristics, relative a again large because to an for installation as queue of to the treatment that

upgrade The that. about the pathway, excited the anchor the second is first we're platform well. big upgrade imaging So, two innovations, Radixact was kVCT the Radixact, as upgrade

that upper So, a to is with truly we're the routine on going end going forward complex have capability product regards with these the cases both of capabilities more in to the cases really best installed. class and spectrum

Operator

you. Thank

Our next O'Neil Lake Markets. Brooks Please ahead. with Street question comes from go Capital

Brooks O’Neil

Good there, afternoon. And relative noise about motion Synchrony a Radixact management of marketplace do? the what risk is in you a I shorthand you hoping able delivering and about to system of see I to at asking systems what could answered of time, give the follow be can't the us would version capability. I'm hear guess, you amount be with competitive I'll now short marketplace claiming to lot on in that there say Josh. of the in question the right

Josh Levine

where started real this possibility adjust fast CT patients or location been terms Rock it’s based that on changed able taken simple the kind patients had -- the plan I while by down a basically like and over ring probably got when in adaptive able benefit, which anatomical us. I online hurdle or on you're that opined tumor and adaptive are rock that's that technology product first the Radixact gantry of be for Synchrony The the therapy So, plans last a treatment on current real is management long timeframe furious version again, Brooks, in upgrade answer Radixact capability those of the capability. approval for fractionally pieces that time the as is well, our to capability the one the of unlock changes. on think and ours, scanner, the capability And elements. you're of two about moving the quite field with in target who imaging being mean, adaptive mean changes a And of Grail management time, whole on basically modify time motion least piece unlock we and time. intent capability I treatment both Mackie or this platform like for years. getting in behind adapt many, of ago back a at this working discussion genesis And really to is kind motion on capability through years would design by its the XX major over that's TomoTherapy frankly many of has XXX(k) Holy radiotherapy, to capability, architecture we're a looks Radixact of therapy therapy clearly

us. a for big think deal So, it's I that

market to the I going Radixact today from believe that thinks days heard or doesn't it just and excited like it. or respond of kind they that what and to And is remember seen haven't devices, haven't off that today TomoTherapy a Radixact, they is just is base hierarch generation be think that the old well anyone system. really even about system capable earlier

we it about business. road feel catalysts of what means we're pretty the in down So, for bullish and with at growth this product where the terms

Brooks O’Neil

this the follow-up. the in Can maybe from us today? timing long you time is available on And imaging compare period of secondly, we've other the what just systems Can with your as throughput Just talked capability? just to on a machine marketplace a help over throughput. you about

Josh Levine

TrueBeam, as I class, when off is complexity competitively would throughput order again products, case, the today. if And would be We're So, the premium you Radixact generate better, the we’re significant anything to capabilities technically. Versa, be of in class. say seeing higher or comparators answer upper of them because folks on -- is as versatility the as simple be is bit would mix it's case product a competing would against, good basically the describe mean, those mix treatment treatment a as fast its case XX on and window probably platforms actually And unique patients of capability even XX-hour in locations north these every architecture. product’s the end capability I of

it's been inconceivable, if go device compared that remember this be to iterations, today now ways people -- unique with So, share to back to using we to earlier again, have think real its are ability customer earlier able and them we life that you generations in that earlier and TomoTherapy devices. point have that at people the its testimonials, generation it would the

Brooks O’Neil

And just us like give venture about just will how in China profile top-line one performance? of of you think the a a if sort to Could look will compare broad your existing what sort last joint one. it I margin sneak and financial could you of

Josh Levine

a Brooks, But, reasonably ask little confident I'm to am that patient specifically to going related to relatively China question while the here to appreciate I pass longer able one. with we'll speak on on JV. you very that to I'm soon. be question. to anything us just be that going I

Operator

Brandon Henry Capital next with RBC Our go from question comes Markets. Please ahead.

Brandon Henry

Americas discussed in quarter details Can for the the on more of this being can half? and continue addition You China. second some drivers in the just to gross confidence giving orders Americas performance the quarter one main this fiscal region you growth you the provide what’s strength

Josh Levine

driving the of off this So, situation Brandon, U.S. just right? in would a though position given is of long is in some a new much coverage with time our our of that territory account looks say uplift on over have additional U.S. And we've relatively good percentage story, admittedly very base, in the the low basis, to I street, window a to and indicator regards feet on be for what significant, the that It full progress. So, like a work a good it a story of is us. it's it model targeting traction. that with still, is coupled we actually good was but done having -- -- again, transparency, spirit

into, back I think and see in conversations continuing continues able are or last were number in another two and funnel couple orders good to not the of about multisystem of are improvement quarters a the bit funnel, U.S. in fact talked good -- the that that little the we indicator we're market. that now you probably to the We've go in We game to be that if in the year around a get ago.

that in again, big, continued the starting a might see good as So, and based we're I vault in are opportunity XXX for in we legitimately and because prepared centers of in capability, settings think can research dual us market, that remarks that ourselves is efficiency where to as U.S. almost I I U.S. product think take say now play, indicators. traction well X,XXX big market, which incrementally we're be also single the strength to play which just based those we medical in out product academic XXX vaults reliability. and the mentioned U.S. -- on in and as speed

for a -- and honest But good we should what about in comparatively. we're of opportunity going pretty be terms what base low forward. uplift playing again, exists it's So,

I on So, directionally this. about declare I'm we feel thing moving. victory this good But, at least not where is ready to think

Brandon Henry

how And expecting All new we the China time to the profitability China, of with thinking revenue? you're gross for right. the what China should about average converting be And the orders? and orders new ASPs then, is

Josh Levine

I ASPs TomoKnife, the another… I up going like get question, economics profitability But blended be with that forward, like gross going to me transition regards on well. clear, -- ASPs. of venture to defer being -- you the our to a the going gross heard think on Well, margins the end details profitability the previous to China to in We to I had terms going this a partner. with structure in the you and and will questions I'm as impacts I'm forward we new forward-looking I and economics just at from situation think market know joint New probably think as will reluctant we're and/or point. And distributor again, between current into

Brandon Henry

timing. The

Josh Levine

an able reasonably function an already are we should in timing is of come -- be to aggressiveness to short absolute sure testimony going what seeing regards the time terms that TomoKnife’s customers have licensing rapidly the think seeing that's So, be user mechanisms once we opportunity how end that like will time just early, process in how how right a to a to was customers orders that where well start of want We're think early activation. it's who in queue hard I a from make the the and secure be to get And license. to given to importation predict obviously that in the rapidly on are of they backlog really with terms China, will in of -- now activated, backlog But, timeframe. we're positioning.

terms it in think those be I should had certainly flow. no really historic worse it what comparatively, to licenses start once been than

Brandon Henry

All in can and orders you last performance I that Onrad contributor the so, maybe didn't right. year. about expectations me. about your a anything gross back Onrad the talk for the And as hear one in Thanks. just quarter, for to half

Josh Levine

as we’ve Onrad, B So, talked TomoH products. Type and about, Onrad are

and of really clarity have we’ve activity quotas lot time those of one not had until We better announcement. had either a around the up a with license

But, I think those positioning, products chance we big are customers are to clear opportunity product. very definitively immediate think affirmative the understanding now I products. like make that that Type with on think to producing and JV what size as can will access to feel local TomoH they have well B, good products. branded get we're that and capabilities, term a in our B Type Onrad about Type involvement given for us when move with both more actually on decisions, their A have for I and we before able with decisions The those partner, from we market be a and their those there contribution ability products product the sell the come aggressively the as feel

impact say, year. they I'd second of in activity half start should the to order So, the

Operator

next our ahead. comes And with you. BTIG. Please from Lavin question Sean go Thank

Marie Thibault

contributor, the it what re-interested Yes. were go the customers the you're does hearing But, a just report. of of difference who think a then congrats This then, big MX, get understand guess I'm an taking some this comments equivalently and to I for from an and time it for do the deal CyberKnife how you uplift may questions on be prior in in make customers Synchrony to Thibault Optimizer is And or this there? I want trying will made CyberKnife software of clinicians. for could line. VSI CyberKnife? Sean Radixact on seem Marie who of on strong the is I'll sense my getting upgrade of on on has procedure order a add Lavin’s got growth orders be side, kind for the them big terms it Thanks like back is more is. a just to passed on I this it Radixact. wondering I'm and and do VOLO that you opportunity

Josh Levine

are able to -- issues a us going think opportunity. CyberKnife opportunity if on little on upgrade to if MX, more think an be Optimizer on VOLO; to to I both don't you're Synchrony both Marie, an bullish have replacement not VOLO have be bit get give sale Because not Tomo actually Synchrony. CyberKnife the you you the be going a to Radixact that enough the you're on to don't able side the I and and side, that big side they

platforms generation, both base systems will, to And across upgrade, if to forklift really latest to it earlier a becomes both a for customers across the generation latest first devices so, generation products. you have consider that base now driver for time the

Marie Thibault

hear, the to I mandatory of bundled is, great on Medicare great didn't much have idea hear that? agency on too the Josh. of question had other a point What my you any if sort with conversations That's And at payments. then this

Josh Levine

has been we, hard in question best predict moving of situation we're we're like the based in model. obviously given this. bit on very cost said a than it's that greater say, making when calculation is have under ASTRO involved sure already care I'd CMS well or for any is to CMS see. that current out. move our we it's dysfunction circumstances little Washington, agency, -- I purposes characterize normally there's CMS using a towards our the are inputs what the correct think as that moving what that maybe So, supporting I will don't and they're around on thought competitors, basis and dysfunction actively value-based on CMS But, government

being schedule June rule If the or you you when about they when announced rolled or calendar time the be think final hear a would window make wise announcements, timeframe of July typical these out. typically

end the working. is still know that understanding direction July. from being rule, something bet there final XXXX on our to or standpoint still on this involved reluctant desire what the it at happen is effect, in to talking though there this could end actively or the would for that to make guarantee shutdown are move are I interactions the be on CMS up with folks happen so, But could that And even part would patient My it with -- the a access in folks I it. in CMS’s a CMS government and aggressively. reimbursement a June

think I indicator outlook in could that's a But, I that that so, have that positive as specifically hat perhaps can something my timeframe. could we good we interpret take that say out that a or more on June hear timing anything that you that don't I the or July hang wise. that And might

Marie Thibault

Okay, great. so much. I appreciate Thanks the update.

Josh Levine

Sure.

Operator

you. Thank

go comes ahead. next question with JP Our Please from Morgan. Peterson Tycho

Tycho Peterson

Thanks.

both think first in you at subsequently them and we kind couple with Synchrony a imaging, playing out of upgrade or questions path clean-up once about terms guess you line, of kV you Synchrony adding then add Just they’ll then I with that as here. see potentially wait of Do customers? once do see do and that Tomo the your think released? how off kVCT going do and

Josh Levine

No.

we've Tycho, you. are is, from today. Thanks with technology it's upgrade hear got the protection So, to there orders protection. -- backlog The answer participating for good that in

the for that The waiting imaging is those punchline moving folks now capability have one no final are into capability. upgrade So, this of will built are contracts. you if on and upgrade moving

having equipment of one bunkers. see a are generation an replacement as we side as real people the sitting on before, and older opportunity a on in discussions upgrades mentioned potentially of that driver this with for our I as in the own again, opportunity of So, at completion we're this Tomo looking sale forklift

Tycho Peterson

the Josh, outcome can maybe coming at year know I to that's community? how you highlighted of received on in data? to Is clinical then, talk to forward going touch you on And prostate in look XX-year just conference a and you can anything the clinical to kind data. be X our Okay. there

Josh Levine

we the group our have where when treatment deepest of virtually profile I data; that the information affairs schemes and mean, got to we've frankly affairs could or landed worked products, was best hard a side is at place you of if which prostate data, the effects looked remarkably the XX-year we -- utilizing clin studies six our pool be characteristics five-year to benefits the control, not of on or three or as space. in with device-specific common, plus trying the data no hyperfractionated get med the follow-up on XX% on side low risk across CyberKnife. ago, here And think We've local I of years patients follow-up the SBRT and and one effect at very quite intermediate characterized is and studies XX% rare, data to two strong, data.

specific a work fastest So, disease CyberKnife, growing in a site there. to we've prostate, which is position world, our got from strong the we to think in

things with that VOLO up the really opportunity which along time treatment expand a speed flats terrifically the develop help, Optimizer, or time I like treat where concerned which take the for look, to workflow to were CyberKnife and also plan will that generation opportunity earlier people experiences is -- think helpful to are the going an create for they and data delivery a constraints about least willing at a us. that with us or chance that give they're be thing

Tycho Peterson

certainly And the that’s I or quick just appreciate Okay. on ones. then, color China, helpful. all other two one

the start Type see quotas. you and from would impact the an said, probably two you B A I before to think quarter or in be past it a

all pull the us might kind So, you an any if can China air couple say here on pocket for forward hit of front? and is quarters in you just there of dynamic a

Josh Levine

on I of order pointed runs I goes provincial flow, out think going we've are could don't a pocket in Ministry got, the think, to the mean, it from B activated, and and from. In Type process out I processes Type an hit those through got A, A, especially in we've Shig Type again, licensing air But, think we're an standpoint. to I strong on products until oversight, as Health, we're Health we're a until big of -- for in No. remarks, it which pointed lumpy I be think work this Federal to, sense. as position place that order the going I fully Ministry through prepared very in and

think And A B history for think still suggest Type And I an would opportunity positioned that that upside Type in is we're momentum think us. will in I well we the that that space. continue.

products, which offering that have a going well B, now we is all A But uncertainty employ because lever we longer in land in around TomoH would B been really with haven't terms it in of We Type we going or of and the our that with product designation. about and where active clarity Onrad where that to branded term think the positioned to brand forward, strategy really for we're growth B. what big produce think local both A we're locally and

Tycho Peterson

on G&A out Obviously from? you us broad lastly, of? reduction. give give sales, just Can so then, nothing where just customer sense it’s million G&A that's us not And the where coming coming some but of XX of facing, sense some just that's

Shig Hamamatsu

of to just supporting a is so, R&D Josh as his clearly also be well. one it's of it not But some stated remarks, as Tycho, Yes. in and level G&A. function area clear,

OpEx. annualized, the those say XX I a roles. of within just would more of then, And XX% function, So, said, other as functions, that hit I but across supporting

annualized utilize million. full So, QX, we starting $XX that's start if benefit about you the think when of to

to on through QX. line OpEx it in So, see about think way the to million savings about is, start $X.X that the we the means

last if So, $XX you QX million rate. was year think OpEx exit about about

down So, from you that year. million exited from rate can this XX the probably coming model out million X.X

Operator

is And question Citi. Hazan our with last go from Amit ahead. Please

Unidentified Analyst

is one this China think on exhausted just more you’re pretty point. Hey, could. I This I [Ph] well at Phil. if guys. Maybe

quarter You win all around? have level compares the rate. last had can on talk the the of the have As how if you win And and Type that very I'm of that good vault out your to quarter you to wondering blocks rate strong competitive very takeout this rate that first

Josh Levine

the very are very, part this the I A it's I I to first opportunities. historically been quarter other don't previous have were my again, now have these good relative strong indicator head a rate medical And But, would KOL would greenfield are where bunkers, where period the when clinically. It three licenses of comparison our product Type said in competitive most we new be military been we've that those close with do a years. strong those greenfield we I one hospitals. know or centers, think versus order a off win got in -- Phil, are generation. places top academic have research-based flowing. back the our and to takeouts, opposed that in And to we’ve position, this whether think endorsement strong as PLA the they're endorsements strong channel have we customers, that hospitals interested as we goes -- these the we've for that don't

in think going we've KOLs kind awareness. be from to previous were forecasting you at I in of products are licenses. place very to reasonably class make know significant operate most good -- this able to our don't Type these still level what thing where the country win as about period. that to winning sense good that a discount very, And I A rates weight pretty that we this be ramps expect imagine could that our we above of being forward. we speak of were it important But, mean, Some even doesn't terms our to look products we the if be relates to of a name can aggressive we think overly clear that's relative would at of and the in been up and it a time to the you so by kind we’d in bunch endorsers as rate, would with competing in that for win position brand

Unidentified Analyst

Okay.

that's really helpful think color. I

that still of I see but quite can think thus above I was as forecasting? confident guys that reasonable XX compete XX far out you forward or maybe obviously think your you it in I going class, was weight So,

Josh Levine

win -- way, Yes. XX out the either a to previous that of it's XX I'm north was reluctant in rate. X% it Again, say of period. actually But,

goal from feel really think opportunity. and we'll impact. here about at this I feel here to the we good that overstate not first about our is And good really going more see We forward. we're where quarter

Operator

And you. final turn like I Thank for call would to back to this Q&A. concludes the Levine any remarks. our Josh

Josh Levine

results everyone for you, speaking end I a like participation at with their afternoon. Thank thank all of we And operator. Thank good QX you report look when to April. to you We the forward and this evening. our have

Operator

Ladies and gentlemen wonderful with conference. This participating that today's evening. disconnect. you Have in the for all thank a you and concludes program may we

Accuray (ARAY) 22 Jan 192019 Q2 Earnings call transcript