ARAY - Earnings call transcript Q4 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Accuray Incorporated Fourth Quarter and Fiscal Year 2019 Earnings Conference Call.

As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference Michael Polyviou. Sir, you may begin.

Michael Polyviou

Thank you, Daniel, and good afternoon everyone. call full financial ended fiscal XXXX. conference fourth for June Accuray's and quarter year to to results review the XX, Welcome XXXX, which

addition, will afternoon, In call corporate recent developments. management our during review this

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

XXXX that uncertainties Before I to like today affect would we regarding including expectations conditions call involve statements statements regarding factors product and forward-looking in related that remind future includes guidance, our such guidance, China, strategies. fiscal begin, business plans could to risks you and including releases, that market our new expectations

to issuance company's number order macroeconomic and of materially China the venture adoption risks take results of a and advantage and could license that user of to the company's factors are CyberKnife, overall from issuances cause Systems, the the including differ expectations, such operationalizing strategy China in TomoTherapy ability commercial execution; growth; control. and actual to of limited associated There the future our revenue timing Radixact joint of licenses; with the outside factors not China; of growth; future but

more information changes assume assumptions except date forward-looking required we actual today's as on issued no to this other are results, in to available to call are closed statements risks laws. applicable of in securities other on release with described extent and the factors the we or filings our and These forward-looking afternoon as in news Commission. Exchange and reflect by just update forward-looking The the market obligation the us as after fully this performance well to or Securities information and based changes affecting any statements

two First, items: session, request limit during requeue to any follow-ups. participant themselves and housekeeping then with the we questions Two the Q&A

specific references are year fiscal the quarter to prepared all in Second, quarters. remarks make a we our to

ended June fourth XX, refer our example, to XXXX. fourth regarding our quarter statements quarter fiscal For

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

Josh Levine

Michael. momentum, on today's call. has and our our Good you execute in Thank talked for April, afternoon thank team advance costs commercial operating you, recent everyone on build XXXX Since and progress. year This operating and last our we in you full fiscal this results with fourth continued China, full reduce we have joining to opportunities our us overall quarter profitability. achieve reported for our afternoon, and highlighting year

grew full orders in the We Year-on-year, year. generated orders $XXX fiscal $XX XXXX. and fiscal in quarter million XX% fourth for orders during system over the million system

orders as that increased the company's the recorded to last For tough fourth quarter, history year's year's X% we prior the against fiscal comparison multi-system U.S. order but largest as last the compared QX. in in was period,

placed the while the continued in China. strength fourth during multi-system by bundled grew growth was during had Asia-Pacific fourth and RaySearch mid-single driven order increased Medical offerings and Japan system both XX% growth digits quarter. approximately rate Lab's the in Accuray highlighted the multi-clinic receipt This at the the In orders order XX%, of approximately first the that highest region Regionally, quarter software by by the EMEA, Swiss Network. the

highest the our driven Americas fourth region. quarterly by from during Americas in on period achieved orders level the and fourth fiscal America. the previously our U.S. were any quarter down prior fourth quarter comparison mentioned in for XXXX Nevertheless, based Orders Latin the to quarter. to region Turning their contributions year

a growth by order year the XX% the year-over-year nearly XXXX, Asia-Pacific driven in China where was in For pent-up region orders demand our on full license total resulted fiscal basis. doubling

terms although were off year of contributing X%. be the total orders largest region to the EMEA in for dollars, absolute continued

Japan region make last given was XX% the while solid our representing for of total X% contributions year's orders. order Our continues company down year to full Americas impact, region approximately multi-system

were the composition XX% were mix approximately our On an XX% XX% perspective, competitive replacements, and has well older quarter orders a bunkers. by system significant XX CyberKnife of both Accuray year-over-year. to fourth platforms of were grew systems milestone Radixact double-digits trade-ins perform product new basis, revenue the TomoTherapy in continues and to From very order reached and approximately months. especially the a past recording XXXth

increasing Our $XXX backlog to continues year-over-year to X% million. grow

China. I'd like recent progress our turn now in to to

$XX approximately were Recently, the quarter, for orders A the During radiotherapy Type review for primarily orders A update Ministry the China on distributor from we the Chinese of and fourth our booked million. timing eight overall provided Type license an totaling products. The process. Health approval

customers, end-user that facilities. Radixact covering have applications growing number and have substantial been by both from received Systems of a hospital X represent our Type feedback to products CyberKnife Ministry Health the a the Accuray sense Tied from of we A Tier that

suggest no we issued. first optimistic that that fiscal A guarantee capture these to the lines, our positioned inventory highly and be be projected is customer of half allow that are there XXXX responsive the we systems devices. on shipment the and would license, us While for Based of will Type Type time to second occur of to once definitive licenses Accuray's continue cautiously the all understanding be sometime position of applications in A are will process does current competitively feedback approved

reflected his in timing be our how in will guidance. reviewing prepared is updated XXXX remarks, fiscal this Shig

potential the beyond. about of and We are during very to second excited Type fiscal revenue system XXXX build half A our

this we in is China maximize As Radiation been best through is participation opportunity B a TomoH the in venture our device for to actively and China venture segment, with segment joint products B joint believe B our Type as our our currently defined sales Type product. The strongly the Isotope system Type and selling has Corporation. dealer organization

venture business the JV been the the made a XXX has regulatory granted past and important forming three been most with the business license reaching milestones: company operating July, Since sell company license is joint days progress in to and device permit, license new meaningful medical the safety January company from Over the has recently radiation service China. radiotherapy the certification, required in perspective systems in the final which

and rapid approval a straightforward has to that expediting China these approvals Corporation our rising of a resource Radiation U.S. during our view JV licenses these The reaffirms significant partner in in review related relationship. been China and Isotope and and period process helpful tensions the

turn of JV received orders the quarter its has XXXX. the Second during first in which will two Accuray first recorded backlog as fiscal be

and in Type And B training our produced. July manufacturing its the ultimately will lastly, ceremony, in Tianjin groundbreaking located be had China-branded where facility new system

will and approximately to avoid two lines product cycle our production ramps China, of in short-term locally our in years. to plan time the continue revenue readiness orders manufactured while current based distributor in disruptions current is full with To up, facility to convert on regulatory approval Our JV work TomoKnife to with conversion revenue. the we be

their next believe in our over current We to continuing allows distributor sales two-phased the near responsibility with parallel best opportunities. Accuray maximize both year strategy this and longer-term

exceeded company. milestones we overall a all the process of of JV and the Overall, phase for the as major the China strategy growth our excited future ramp-up China integration or first have catalyst impact and JV for about very of met the we're

are development roadmap Radixact to momentum accelerated portfolio, commercial our going platforms critical and forward. the for both to that product now CyberKnife growth our our believe Turning product we and

To projects. development that related end, we have roadmap some exciting to news

Synchrony were platform. Synchrony the compensation motion treated our site for and Hospital Accuray's the is technology first underway Radixact patient They technology which is first their Radixact proprietary Milwaukee, teaching in impressive. their evaluation successfully customer have utilizing details The College of our the affiliate We case for Wisconsin. site primary System of Froedtert Suburban Medical have the on

The motion of Froedtert a by radiation tumors on clinical to target fraction synchronizing continuous the three team enables utilizing fiducial-free tumor being while the basis technology treatment delivery the of beam in a a the real-time Synchrony. SBRT lung during delivered case delivery This the continuous fraction. to treatment

a today's patient of out that on press more on it putting milestone second The joint but gives call. half successful year was share next be treatment on proprietary to containing XXXX. this us this will early this are track capability detail release exciting the fiscal for commercialization felt full we Froedtert with technical we week, appropriate of in confidence We

unique for catalyst replacement our Systems strategic Synchrony for radiotherapy Accuray positioning offer improving is as this situations. in competitive we well the and only TomoTherapy as system will a expect be solution older of Radixact to provider selling

reimbursement tissue. higher-dose that precision can and minimize CMS' payment Additionally, in Synchrony more changes alternative performed future in be to benefit through captured Accuray's toxicity the are healthy treatment help SBRT we which believe regimens. an from that with radiotherapy exposure applications and margins with the improved fractions will tighter proposed technology model, treatments will obtainable hypofractionated These

was which XX benefit treatment minutes on up to significant our CyberKnife site. introduced upgrade proposed fall platform, allowing reimbursement to last changes view software ASTRO performed XX% a to be CMS. Optimizer times disease our CyberKnife by XX VOLO the in Switching VOLO considering the treatments at by to depending reduces we as

Additionally, reduction XX%. cases treatment VOLO improvement some in creates of planning approaching significant an times in

proposition improvements hypofractionated like will As changes to SBRT VOLO catalyst with the functionality VOLO drive and to CyberKnife new at the Accuray upgrades allow platforms, across form availability both are and efficiency reimbursement Synchrony same product to in and we speed time attract the likely CyberKnife cycle offer and for of Synchrony be and strengthening replacement material the portfolio. Radixact the that in the CyberKnife on value installed precision, Radixact, customers the of of upgrade the more Technology treatments, believe our the platform. base for us

growth, summary, guidance XXXX, material X% XXXX our revenue EBITDA from XX% China the year. progress our during were contribution are fiscal all excited despite growth not growth, order about and which having of In a XX% within we revenue estimates fiscal in

profit Shig operating cost achieved expense discuss since the year acquisition TomoTherapy first savings that through has occurred will million in $XX full for greater and and a annualized topic management, time detail. the initiated an we that the is in which operating Additionally,

Synchrony regions. CyberKnife, mid-single have developments growth the States, opportunity to future Japan progress China pending commercialization the joint of XXXX and Type the in our potential. the globally venture during latest the and software expect we same for our United reflects the enthusiastic Radixact, reimbursement guidance year-over-year for time, China the fiscal information and of coming in A from fiscal terms EMEA in of we about on upgrade recognition. digit are direction Overall, we from Americas, VOLO order XXXX growth increases gross with timing our the At generate strong revenue potential with Our

to now, call like to I'd the And Shig. turn over

Shig Hamamatsu

and good afternoon Josh you, Thank everyone.

$XXX.X the representing U.S. gross highlighted, multisystem Josh comparison. million, full year. We orders order the million had a As largest a were quarter, gross prior Last tough over in presented year's an therefore X% QX of in for orders XX% history and increase of the over the increase year, year. prior the $XX.X the included fourth company's year-over-year

through purchased fourth on upgrades service include orders contracts. quarter gross $X.X upgrade XXXX, and our year basis. fiscal million $X.X totaled year full the These for in Starting orders million a

Excluding upgrades, a gross basis. orders these year on grew full XX%

CyberKnife year. $XX.X Net age-outs Net From digits up for orders XX% both QX the TomoTherapy quarter a double year. total by offset product platform of the million in million, CyberKnife year. full on age-outs in orders from gross gross year perspective, of full of for $XX.X and consisted accounted $XX.X of for XX% led age-outs of basis. prior orders the a approximately both were Radixact million million by grew approximately $X.X age-ins. QX the the represented and full mix the

local the Approximately U.S. with has in revenue our a for in distributor the quarter over relates delay dollar to the net of few the where orders one-third Turkey, long-time the the conversion. past against years caused age-outs strengthening currency of

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

we a fourth As result, the in orders basis a million $XX.X generated quarter. on net of

a of discussed On the can year. over quarter basis, $XXX.X with with prior prior fluctuate As totaled a of of prior from million calls, our We quarter-to-quarter. total which cancellations order backlog order is ended full increase approximately year. in X% million, $XX an backlog cancellations the X% or volume of consistent fourth year

also a grew representing decline our was X% growth income with $XXX.X XXXX and a basis, fiscal Turning fourth regional Growth full respectively. basis, healthy -- revenue Total revenue year-over-year. increase Americas in million, X%. $XXX.X X%. was On EMEA, On growing Japan in million now a a delivered statement. Japan XXX XX% year quarter year-over-year APAC to by in by and for the revenue the regions and these a was XX% EMEA and offset

we Systems. million, increase Product $XX.X XXXX, was year, three Systems. X%, strength basis, over revenue June and introduction, the was almost strong driven for revenue an full years Radixact prior recognized than Radixact XX, both Since the its up XX%. for by with by XXX year demand Radixact full grew have of $XXX.X System year through driven quarter ago, million in a for revenue, more revenue and XX% product CyberKnife On

or from the the $XX.X Service prior down million was quarter revenue for year. X%

year service As a normal level iDMS releases new connectivity. prior by included the contracts related and upgrades than software revenue precision was reminder, our which a to of higher service driven treatment purchased through planning

mentioned from vary our reasons As revenue X% year X% growth calls, in quarter-to-quarter. we with lower installed prior of On base service service basis, service earlier. grew contract is consistent of full by contracts which driven can a upgrade for revenue on timing upgrades offset by revenue stated the I growth

prior our due gross in gross gross gross the for in On our year was prior year. down to XX% product margin the a quarter full the overall margin Turning our XX% was overall to margin. decline XX% basis, now to margin, XX%, year in a from fourth compared

the and primarily were from of was the prior revenue is fourth full year in From XX% CyberKnife year. from fiscal gross approximately margin XX% Full accounted down systems. margin mix Product to a perspective, of XX% XX%. XXXX prior year XX%, CyberKnife the gross which for quarter revenue of a product down in lower year due mix

however revenue in growth double-digit fiscal XXXX believe we will in future. which encouraged order the CyberKnife by drive CyberKnife We are the growth

margin or to basis, full service a prior XX.X% in the gross flat On in quarter year. year-over-year. year gross was increased XX.X% XX.X% margin to compared the Service fourth

The and benefit quarter $X.X decrease a down or these first by fourth the fourth from and Operating the earlier year from period the the the year. taken income actions. full -- in realized expenses the decrease statement. the driven for prior for Moving of which actions were was quarter $XX.X we X% to cost-reduction million, reported million represented during

year down a million $XXX.X On full X% operating year-over-year. basis, expenses or were

operating the decreased termination receivable first million lease related $X credit in expenses X% prior severance and Excluding one-time year from to the charges or impairment the accounts quarter, full year.

was million $XX.X in prior was million to fourth EBITDA EBITDA in quarter I for of operating would achieved $X.X million year GAAP $X.X year. in Adjusted fiscal compared since the of increase to adjusted the acquisition an compared million, the first for Full fiscal TomoTherapy in the the $XX.X XXXX. note the prior year. past profit year, year that we like to XX%

profit we during focused Operating remain structure cash. have as on ended million in the was strategic our fourth the initiatives direct profitability of we execute right undertook a short-term of will $XXX,XXX year. We result believe cost and cash drive of to achieved the growth. that now cost we on operating metrics improve continuing revenue initiatives as restricted the We $XX quarter with place and

our Turning now for XXXX. fiscal guidance to

timing During A he China. revenues mentioned Josh's comments, revised for in Type system the

the of to $XXX result a currently revenue to XXXX fiscal of $XXX system push-out second are range the of million. fiscal in half of revenues to anticipating As these year, the be we our million

XXXX by and revenue or the Japan includes fiscal full to guidance now growth related topline of reduced are distribution revenue the and This lead guidance of which China, below both I our we flat year anticipating in in slightly project tariffs in X.X%. impact planning which to EMEA levels, be approximately revenues overall China fiscal current for to channel largest slowdowns vault two if delays conversion you regions. modification the Outside

our distributor of projects intermediary highlighted construction planning and the the we organization site in customer. are further complexities challenged role a efforts prior in have As our an playing when end-user vault readiness periods coordination is between

subject lumpiness put the with and While are to effective overall these additional in time some planning lines. have project resources we place to we have in inherent activities been assist still activities

XXXX XXXX. issues in mentioned two a at revenues Japan year-over-year XXXX. XXXX healthy fiscal earlier tough resume in a revenue EMEA In will grew rate these regions growth we regions into therefore, present resolving see fiscal these from going and successfully as double-digit comparison We addition expect I fiscal and fiscal these as added and in

distributors building we in we backlog order challenges XXXX rebuilding Americas. in these continue Despite are work As fiscal near-term revenue for growth the modest the through momentum we our the as focus our on to continuing and to anticipate conversion pipeline. in on Americas regions, our

We half in excited and the Synchrony launch installations Radixact expected our are the for back of year. fiscal with also motion start tracking correction commercial about to

and expect certain in Given levels imposed other revenue delays A we year. the of customers just our XXXX on growth resuming revenue regions the fiscal the by half timing half to in second year-over-year the below project be slightly Type described, first end before I in XXXX of fiscal

the mentioned leading with we and XXXX range Josh we the earlier, do As EMEA will in order single-digit fiscal Japan way. gross Americas, believe generate during mid growth

year expect our between of joint and of we EBITDA $XX million. EBITDA guidance our XXXX expected outlook, operations. venture revenue of million Given China full $X million adjusted The the loss range $XX approximately fiscal the for to share includes

calls, As interest of on joint accounting, expect XXXX. method any a in mentioned quarterly venture pickup report did basis. for joint from are venture record income in accounting equity we of a and the or prior to loss XX% joint loss We fiscal share our accordingly using venture not the

fiscal of P&L net reporting a income share item called we joint and venture, start the in equity a single-line statement. XXXX, joint From on above income which our or will reporting loss venture right perspective income the appear line will our from income of on

expect fiscal XXXX In terms overall to of levels our we flat gross gross be XX%. margin of approximately margin outlook, to our

Tariffs work by gross lower negatively XXXX goods basis cost to the outlook of points. margin China cost fiscal to continue in initiatives We expand margins. on and impact XXX approximately

to XXXX the the cost-reduction be full X% XX% margin impact, year. as With tariff the expect expenses, the took in we will see benefit in prior be represent fiscal actions which healthy down to improvement. we regards year-over-year XXXX, fiscal year-over-year, expectations of over gross we Excluding operating approximately

QX We QX to mid coming be age-outs our China. age-out anticipate net $XX forecast. with to net over XX% million range in the from Turning

we license Type earlier, clarity will distributor age-out and China, gain mentioned in revenue. As to orders issuance we more continue as the end of to these on timing with converting China our customers on A work

I'd like with to And that, Josh. back hand call the to

Josh Levine

Shig. Thanks

unveiled Before be half in details to implemented July, Q&A, a moving the with reimbursement. sometime period oncology five-year spend into currently alternative that I'd developments XXXX. few some to first model U.S. radiation a recent will of CMS over the related In to like tested anticipated on payment moments is of calendar and be a

XX% model, to which be oncology treatment to of national freestanding-cancer apply and subsequent the increased will radiation hospitals believe required result participate payment proposed, We in providers all and the rates will likely in centers. will utilization treatments. SBRT hypofractionation As proposed both and that of adjustments

As we'll our of providing benefit held well will be pioneer benefiting reimbursement likely September be upcoming from Accuray's practice we from to these XX in to is expanded and changes analyst event upgrades latest areas ASTRO, of and how the an that we APM. result in from of an SBRT, at clinical technology positioned implementation on original see hypofractionation potentially Accuray believe the At the overview trends. advancements

like call difference I'd open supporting thank important for their the the improved patients' we up a to the Before commitment, team increased making questions, execution that's entire lives. in Accuray in work for focus,

questions. we're ready line to And now operator, for the open

Operator

Jefferies. Our Petrone from Instructions] with question [Operator first Anthony comes

Your is now line open.

Anthony Petrone

tariffs. here. Shig. you through the to just basis XXX Josh. with moving parts point Thanks, XX% mentioned and impact tariffs of I'm Thanks, to Shig fiscal begin Maybe kind moving XXXX going guidance from

if XX X.X% you're you where math around that is off correctly, out, X.X%. down up fiscal did and doing XXXX implied underlying the guidance coming points back to I'm if we So basis the something

spread just hospitals implemented? the and excluding we're that I'm outlook And in is licenses. APM U.S. the as underlying hesitate sort a how A between And have a XXXX, delay the of is maybe then XXXX Class of there little anything where tariffs wondering I in the baked perhaps bit as Thanks. is for for follow-up. finalized purely so the exiting And much and

Shig Hamamatsu

Anthony for question. thanks Yeah.

the about You're math. right

about tariff million the the If that's so impact X.X% roughly million $X say do tariff. dollar the is on you impact let's that $XXX on

million can over we for say if you what our plus that, that of XXXX-XXXX remove you and end million $X range so $XXX is top million, XXXX. there had FY $XXX And

fiscal the revenue. license as muted outside license and our be of FY which -- that so the remarks, the we're second due by, more news So prepared news, clarity as control. of the that Josh a Type timing, We that's XXXX the unfortunately slipped. the a the growth it’s getting is I to goes on year lot timing and all is A China by is impacted the half now to in day just in the a expect said Good good is lot issuance timing of

Japan we one-year I flat these about what And I double installation and said, other the think speak is them they particular, fiscal end-user as to we're terms in grew EMEA expecting down hiccup timing. regions the -- managing you think for in the of But regions heard XXXX. slightly due a I in digits

revenue think they So for a these pipeline mode couple revenue XXXX, the going has installation And XXXX we resolve FY the finish schedule. growth on we revenue. XXXX management in we regions, as the issues going AMS these got in effective into modest time temporary expected growth into two very be the might been the by conversion But of -- we years. clearly we of FY last again

you something? Josh to add want

Josh Levine

part to guidance much question, direction. related just got CMS' around on some to on purchasing which you was of tag perhaps on decisions of a into how anything based Shig's you the if assumptions Anthony your ended with really in Yeah. slowdown piece, baked we've

the to first what in competitors that happen moving is the calendar we There reimbursement. reality fiscal next is what The very, the cycle, very CMS it's virtually I right But year. proposed practice, any pieces don't timing implementation more answer benefit the we've with terms our going piece predict complex what timing on are and are half you look a of in impact, will the the lot I nothing. can understanding probably next obviously, got, believe result happening from of from that strongly to about sometime direction think probably now implementation of of it. than model. is a anybody to when at clinical last

It's in people arguably the and direction the moving to related treatments with continuous against. we that SBRT compete have experience we bulk more of a hypofractionation than people

benefit think think think our it happen whether have was down it's CMS or which there's not I we'll on the guidance going decisions. there's freeze But higher into treated I to early rapidly time is or and with call be that to too baked And, to that from to portfolio therefore, really a would So over if see patients we well-positioned definitive no on I slow there, impact to question that capitalize more purchasing what or like anything will related you component. doses. didn't

Anthony Petrone

I'll I'll A mean, to contribution? back Thanks. as Class do mean now And is second for add of war I the there target continues queue. China. And back think going and Great. the license then forth, risk follow-up, I back get you half to trade just the in any

Josh Levine

Yeah.

heard think be a tweet I been and last forth me and another wake war in morning terrific say tariffs headline up to have not again taking in and So or the related it the back would or place. you it's to trade quarter's call,

degree these said, to that going still high licenses confidence we of a With issue. have are that

XXX that we've if think at practical you on approvals the prepared needed permitting of did China-U.S. to experienced of been the business regulatory or look and flow what's three related remarks that China we've going has that about and reasons wins is the last put that and what with then receiving JV you structure operation. Isotope we decisions the in days, the permitting discussion to place that today's relations we on terms Radiation and licenses of over in structure between Corp. in start licensing the had One

things It's And was President that directly. have that. think effective was And indicative went so large inside the it's is view very of it and a what helping tent frankly I'm partner we've we're very, an because that quite Chinese the not are Washington, entity. reason and with Trump, owned think rapidly not the dealing I advance dealing they and of seen these capability they some thoroughly with us it's our I of convinced so state government and

if right helpful. and just continue think over our again that So seeing got in be minds help we're ways in we've reaffirms interject partner time themselves will that else and nothing it to the them I

again, based in I we and a reasonably for what on Type on hospitals that product number the early remarks, heard in review Radixact Tier a prepared CyberKnife And are the now, or are with license have that. indications approval related you positioned system say product. us substantial either to applications that Right of based A well that we think X feel

good point going not in A. we that of products of we're going terms get total or going of Again, not see momentum or directionally we representation to at to win all of the the to but not what approval probably applications all feel win -- about in this to those, Type related on of those, our pool are I that think

Anthony Petrone

again. Thanks Okay.

Operator

Josh Jennings And our you. with from Thank next question Cowen. comes

Your open. line is now

Josh Jennings

on China. questions. evening. for Good follow I to taking up wanted Hi. just Thanks the

later upon Class we're think you wildcard unpredictable, A get all the out and control when back and timing, revenue so granting the recognizing revenue the half, licenses if the be the of here. to you guidance to granted fiscal half to licenses think TomoKnife this about year trying you'll being benefit the able relative versus are -- I'm earlier, -- in clear it's I know, your a of just or guys the you'll with and and I in recognize you to in license Just do your recognized first will terms of just recognize risk there. license of revenue them ship but of

Shig Hamamatsu

add Yes. to ship question. revenue you're general, granted -- In to When little license go tender step this that through just once recognition us. the there the is the end-user for take And TomoKnife, Josh, is that's a Shig. clarity timing of additional the more correct. I'll we process. to there's to hospital,

process the tender and licenses occurs to public that, is a China just to want shipment through beyond TomoKnife for additional revenue. go it there's that's bidding take clear make and the I after And the how of complete, grant when bidding. So hospitals in step to

Josh Levine

-- want on Josh, just just the process the a end-user lock for receiving I -- an define said, a between we're relative would to is tendering the down customer and to license. does what terms product it's will purposes sure being that's just that to essentially a Shig license clarification. contractual of It that result that not on something make in this, the distributor different end-user process open and situation be clear that awarded facility that open-bidding situation, precise in customer the not

has identified for going we be once And us us once revenue are to being a is -- ready to recognize TomoKnife. to in on install when to But TomoKnife is rapidly Shig take able not terms respond is ship product. availability problem right in to of ready what we'll and hospitals inventory to

Josh Jennings

Great. on just follow-up a And China, again then it's question a hot topic.

being of stronger terms order the about we impact mid-single-digit flow licenses how and out pent-up Class to in Just and maybe should that thinking of I the China? A demand guidance your granted mean, gross range. order be potential even in

Class off play just overhang questions. into number. you A and to or of to JV, remind through taking shift fully will the want be of Thanks for make flow from those that to backlog order can falling just the the sales I there's over is orders us JV terms orders any A number? in your in order not TomoKnife your And responsibility sure there Type how And also, once Type A still gross going or Accuray's

Josh Levine

Yes. Sure.

Shig well, and tag-team I this. So just -- will

wanted what were make in China your TomoKnife a have answer ourselves, the the to negotiated that last partner TomoKnife the between to any we of reasons between asking sure not our the transition standpoint to agreement directly, and we exactly put CIRC Isotope. question conversion you JV that place the weren't going of happen, structure about did the we to your in details, way disruption from one we was cycle Just and going revenue part is, and

able be accounts next defined to flowing a TomoKnife so, do of that for protective take revenue end all be revenue JV a you number period the for frankly, time. going of and quite period, they the are through on a will, -- at And will so, has to the defined if of And structure. will that window, for

this for a mean, today have point. it covering us. products, a going selling that's you will, window for dealers, majority of we manufacture we we've for But that at B are Type available the the of time, if obviously, And distributors is before vast sale. or a network available be of and The have got activity provinces to TomoH product I local

Accuray are they commercial out they're are he's -- people sell discussion They're least in other to former actively our them. at the and region strong are companies, that that in at there, They worked GM for our so or APAC trying lives got and Siemens CEO experience product. a they the with TomoH prior under who's with place, trained on positioning board, already B that he Type

in protections no the overhang we right use or have to to your no place that that disruption and in So, ensure, mechanisms transition. terminology we think

Shig Hamamatsu

of to or And of we TomoKnife clear. words, hit there's $XXX-plus In make Type that to TomoKnife. they'll the of backlog you In those next to heard revenue in opportunity front, lost other with no the you Yes. process. JV backlog number transitioning, convert And backlog that A loss from couple in to to the over A be are that million in backlogs years of there on activities that. has some Josh transition we want Type on TomoKnife focus and orders have raising. lost have, I points will kind order to no

top one we right A. have A. they and ago are on JV the we And received press Type was we about was orders on had what said, sourcing JV orders of as on a the now, or release additional our already TomoKnife one JV -- also progress, two And Type received month

A they already are and B orders. generating both So, Type Type

hope So question. answers your that

about think the And orders I mid-single order in embedded how the are digit we growth assumption think the the expecting to guidance And XXXX. China, digit fiscal -- other one in obviously is our guidance. flow to mid-single China was additional in

However, had of comp you in I we orders pointed China QX, because on a year-over-year do as QX. expect out, bolus top

comp see China the want on side to particular in order top we year So, fiscal XXXX. in some

Josh Jennings

orders been digit you on be could that we're in And order to and just Type accounted from and for recognized flow and Type clear that guys disruption just that order the the through you've is those just, A Accuray? the When will transition you selling or be any B, to order JV on a gross recognize Type gross JV mid-single guidance TomoKnife so follow-up have for the or Great orders year. Type the gross for through growth as provided? A will there orders B

Shig Hamamatsu

Yes.

the logistically, order And place Accuray product. works will becomes it the place at joint venture users Josh way local venture that, because and with end around joint is backlog. of the the turn is the point obviously with obviously it So the distributor joint our our will which order venture an

you the So, it the logistics receipt. order makes hopefully for of that clear

Josh Jennings

for And A that's Type Type Perfect. Shig? and B

Shig Hamamatsu

Correct.

Josh Jennings

you. Thank Great.

Shig Hamamatsu

Yep.

Operator

from our And Brooks comes next O'Neil Capital you. Thank Street question with Markets. Lake

is line now open. Your

Brooks O'Neil

X, couple going afternoon. had August Officer. you're you able to of good of Commercial guys what that the color relates you is on there? an you a there? X-K Well, What as to just questions. it employment On offer Chief any filed have that give going indicating us was terminated on your Could I

Josh Levine

me ensures an Yeah. environment. of which on mind – so. GMs the topic in disruption Commercial we'll Commercial Brooks, departure. with. minimize basis. and to business-as-usual comfortable a we report each have reporting underway of directly the in result are that got as do regional line new I are interim news can very any or much sight a business Josh. leader. for It's commercial has We've region. direct And an – to our Officer's trends my search organization active to this on Officer business this a as very they we'll that And updates Chief Former given me confirm our and It's Chief left the I'm is the The additional

Brooks O'Neil

I great, that. sounds appreciate That

your management was I as bit remarks layman's little a Second your the motion had just capabilities of question, give marketplace. in you prepared guys introducing the in about talked excitement us a management to terms quite Can feel a how about you're you relates well capabilities out see as there what sense the the you environment from in motion in it position for now those seeing you competition? you're competitively your marketplace as you you bring specifically right to bit

Josh Levine

be that and higher living from So a will XD we shift will IMRT much be going and to fractions more in in much conformal of forward cases fewer cases mix the all will see Brooks dosing living in case world us fractions.

So cases fractionation as to opposed of in terms think more driven and cases SBRT more mix – historical conventional moving those SBRT treatment to hypofractionated regimens by approach.

account talking CMS so quality the their you – is they into about and look about at taking they're because – start – that proposed going talking is to measures, about movement measures. And when patient, they APM, when safety this patient are

much a work or likely of historically need be, So come from are kind to I'm been here transition are curve. SBRT or providers and doing the there familiar clinical some some going as and with going through certainly learning is practice to that not people that to haven't will guessing that a standpoint as actually hypofractionated work

confidence, can about and being and ensuring curve you learning hypofractionation. fewer increase the fractions from precisely view the that, have clinically be. is as the confidence pioneered you we knowing are dose use -- what is possibly we where going able of to over to And have want is And it it the clinical confidence the as that as drives beam -- deliver focused they've And that it in our been. target really on

management that we dose do XX the voice marketplace were ensure accommodate to synchronizing you synchronization allowed that for -- Increase from the CyberKnife years to to a that motion talking this back in And If motion able motion was of you this through needed was the safely. and breathing taken require was the other motion for because, the about a be XX and go or only would years by either the ago, account patient ago, SBRT. it beam. respiratory unique any technology positional changes Synchrony that patient, compensating and changes into

CMS in different And we levels very, that That's but what a or go and the require. -- product real-time. than the at automated be when you backdrop have that none way clinically feeling portfolio, to APM. are what Gating our happen what in using. that's SBRT the higher-fraction kind And you dosing our to benefit proposition think can related looks levels backdrop very do real-time. this wants about the provide them cases I why operating that we're restraints, on value about down peace going those of competitors are mechanism new of to think the basis the do are mind list, of future confidence in to We an we like with patient dosing

Brooks O'Neil

excited. a like very am environment positive Sounds you you for much. and I very Thank

Josh Levine

Thanks, Brooks.

Operator

next our from question JPMorgan. Tycho And comes you. Thank Peterson with

is now open. line Your

Tycho Peterson

just little the better would before comments think, from is odd. of might may CapEx of pause the mean, bundle highlighted of Hey, because a I freeze curious thanks. a customers you here. you we customers, kind not about go see qualitatively visibility are I'm moving and on talk that some wanted pieces. there's idea bit complex Josh, what it's hearing back lot I to a I you the model if to made could you until

Josh Levine

Yes.

haven't trepidation delays, any mean, that overt I -- give I long -- concern So, or me or about inputs are Tycho. had I'm pause

I implemented get the reality hoping to is and to is CMS as think that, do is what again, try they rapidly can. as this

You in public right we're now. know comment that a period

able information present putting their to typical the you led As all outcome that to have a here, might CMS. by assembling are ASTRO imagine, in and together constituents being to be the information fashion, in stake

saying they've rate, communicated is, payment -- view when census the think there communicated it's gathering is think, big what the and was that, the far, that what what I'm so I far, that CMS least so ASTRO has generally are national low. what topics, the you about from -- at is

series payment are also withholds are to a part that through. of be of worked model will the whole adjustments a be that going and to need There

rolled negotiation And something music there's on that definitively and going be those stops out. playing movement gets and think, so, I before some to the some

get to on wants this CMS moving rapidly. that know I But

that in the that will should an approach of environment some purchasing there that to, So, people I right midst probably along. now think, take moves try will a I general this create mean, and it they I definitively. that think where in are if decisions wait-and-see be

this I going wants to the with the case CMS that, and hypofractionated understanding use confusion world what And, have operating like mix takes where if it to that you're think for to happen it regards to able again, to they confusion what supports movement the But that potential how to or decisions equipment it here of, have be clinically, do think rapid -- you people I out and the what are from a is SBRT going delivery, context make being directionally, about look to need directional more treatment a land. of of people I should think, out lot to an standpoint.

Tycho Peterson

has a-third you of going you That's And the the I replacement Can you already think, and the -- on the adoption on replacement here, about little around VOLO VOLO compatible forward? talked customer then Okay. kind curve about cycle past a and just base think talk helpful. bit adopted. of the cycle in how about CyberKnife

Josh Levine

Yeah.

in or installed integratable XXX backward about are are device the standpoint, a CyberKnifes in part as of roughly leads or base of essentially another you in the installed the numbers latest-generation device We have that's about that MX. third XX% from pointed pre-MX And devices. compatibility those the out round base. of compatible installed installed which base XX% again base an that's the And

a for our related in Western right really and focus upgrade primary is say VOLO. with EMEA that introduction. the the I'd heaviest concentration U.S. concentration now And to geographically that's selling is a in the software target -- Europe. And EMEA VOLO the that's And

Tycho Peterson

on question guidance, then a margin. And on

You're to guiding gross flat margins.

profitability we income think which any about orders double-digit maybe XXXX CyberKnife margins? Can you as had good net a to give-and-take on guys guys. is about is? for And higher you talk then comments margin you that respect You for with just Yeah. gross

Shig Hamamatsu

Yeah.

So And that you gross X.X% to impact flat heard I that the we're tariffs. XX% year-over-year. margin, guiding includes Tycho, from say

something remove if So showing tariff impact, would that year-over-year. we XX.X% improvement have been like you XX%,

improve we that on pointed of you higher mix as has out coming think certainly can year. margin. CyberKnife The We into this a

some benefit unfortunately of actions went fiscal took but tariff our of the XXXX. is of for impact We cost last the to also down it really kind we a year, COGS line, the that pressing see

flat in XXXX we profitability that it then very going operating the relatively on though are guiding paying even the operating but turned XXXX. into here. again cutting acquisition And to we obviously And about we're revenue $XXX,XXX profit small metric is cost amount, the that first we And TomoTherapy line happy can fiscal fee since off. is time expand here, the

Tycho Peterson

order Can Okay. you I And great what's In a kind if in had you Japan just of number, just could some you're one. delays about ask but there. Japanese one talking market? the on last exactly clarify going

Josh Levine

we've frankly in -- area the a kind in is about there you've added -- -- to infrastructure basically competing of got the projects mean in planning regards the around quite support as buildup. play now construction distributors. with Japan technically we've there construction-related of complex specifically Olympic in past type in resources heard resources are especially time But in It's I talk moments different site in us Shig as Yes. indicated

and on last a several delays the see much -- We we we've as that seen based cycle. I XXXX end-user on probably And the this biggest -- steps contributor to that's down some will since think revenue cycle seen revenue took continuing improved conversion years trend. saw of slow single I back the have end implemented you probably then. the or in don't if of activity conversion actually the

regions are think that in going situation Tycho, for see remarks, the those Japan transitory. these regards this don't I more context to in to it's but things or of revenue generation and XXXX. a transitional I Shig's long-term capability definitely EMEA slow with down And two being fiscal

Tycho Peterson

Thank Okay. you.

Operator

like any now turn Ladies over call to the our Levine back closing remarks. this you. and gentlemen, question-and-answer would for Josh session. Thank concludes I to

Josh Levine

to this much everyone quarter. you first afternoon. we with the participating. joining report call again speaking in our thank fiscal to forward for when look XXXX want we I October And for Thanks very

Operator

and Everyone, program day. wonderful you participating a have disconnect. today's today's in thank This you conclude gentlemen, and does all conference. Ladies for may

Accuray (ARAY) 15 Aug 192019 Q4 Earnings call transcript