Q4 2021 Accuray Inc Earnings Call
[music].
Good afternoon, and welcome to the Accuray reports fourth quarter fiscal 2021 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Please note this event is being recorded.
I would now like to turn the conference over to Ken <unk>, VP Finance and Investor Relations. Please go ahead.
Thank you Chad and good afternoon, everyone. Welcome to Accuray's Conference call to review financial results for the fourth quarter and fiscal year 2021, which ended June 32021. During our call. This afternoon management will review recent corporate developments joining us on.
Today's call are Josh Levine, Accuray's, Chief Executive Officer, Suzanne Winter, Accuray's, President and Shake Hamamatsu, Accuray's, Senior Vice President and Chief Financial Officer.
Before we begin I would like to remind you that our call today includes forward looking statements.
Actual results may differ materially from those contemplated or implied by these forward looking statements factors that could cause these results to differ materially are set forth in the press release, we issued just after the market closed this afternoon as well as in our filings with the Securities and exchange.
<unk>.
The forward looking statements on this call are based on information available to US as of today's date and we assume no obligation to update any forward looking statements as a result of.
New information or future events, except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward looking statements.
A few housekeeping items for today's call first during the Q&A session. We request that participants limit themselves to two questions and then re queue with any follow ups SEC.
All references we make to a specific quarter in the prepared remarks are to our fiscal year quarters. For example statements regarding our fourth quarter refer to our fiscal fourth quarter ended June 32021.
Finally, there will be a supplemental slide deck to accompany this call, which can be accessed by going directly to accuray's investor page at Accuray Dot com.
With that let me turn the call over to <unk>, Chief Executive Officer, Josh Levine, Josh Thanks, Ken and thank you to everyone joining us today.
'twenty, one highlights and our outlook for this coming year.
I'm pleased to report that despite the challenging environment caused by COVID-19, we finished the fiscal year 2021 on a strong note with 17% year over year revenue growth in the fourth quarter, along with 19% year over year gross order growth both of which were ahead of our expectations.
Given the external environment, we are encouraged with our fiscal full fiscal year 2021 performance that resulted in positive three 5% year over year revenue growth.
In addition to the positive revenue growth, we aggressively managed expenses and working capital refinanced our debt with favorable terms.
And believe that we've positioned the business for future growth through the successful commercial launch of high impact technology upgrades.
Other fiscal 'twenty. One highlights include the beginning of pipe based system revenue recognition in China, which totaled $54 million for the full year as well as construction completion of our China JV manufacturing facility and training center, which will support the market launch of our China type B platform in the second half.
Our fiscal year 2022.
Additionally, during the fourth quarter, we improved our capital structure through successful refinancing of both our convertible notes and bank debt for an additional five years to 2026.
With respect to the new bank debt, we reduced interest cost significantly over the old facility and expect to save more than $2 million in cash interest cost in fiscal year 2022.
In summary, despite the challenging operating environment, we executed well, both operationally and financially and showed resiliency in our business model, while continuing the cadence of meaningful technology innovation to help drive future growth.
Revenue for the quarter came in at $110.9 million, which was an increase of 17% from the prior year fourth quarter.
Overall fiscal Q4 revenue included strong contribution from all of our regions, especially EMEA and APAC with approximately $16 million of China related system revenue consisting of five type a and two type systems.
Gross order volume for the quarter was $112.7 million, which is the highest quarterly order volume in our history, consisting of 51 systems and represented 29% sequential quarter to quarter growth from our fiscal third quarter.
Driving Q4 order growth was strong system demand across both of our platforms and strong performance from our Americas region, which grew 8% year over year.
During the quarter, we received additional market clearance for our clear art imaging upgrade with CE, Mark certification, which allowed us to expand our broader global commercial launch.
We continued to see early order momentum from clear our T. During the fourth quarter and we have received a total of 44 orders for clear our T as an option or upgrade to existing installed base systems in the short period of time since its introduction.
We believe the strong uptake of clear our T shows that it's improved imaging capability, which allows clinicians to deliver the highest quality treatment plans with confidence and precision is resonating with our customers.
As for Synchrony on <unk>, approximately 62% of new <unk> orders during the quarter included synchrony as an option.
Which is a significant increase from the prior year and we believe demonstrates the growing clinical value of synchrony as proprietary real time motion tracking and delivery adaptation capability.
With respect to the cyber knife platform, approximately 70% of the quarter cyber knife orders and 73% for the full year consists of our latest generation at seven platform, indicating continued strong customer uptake related to this latest generation product.
Additionally, we continue to see solid performance in trade in trade up orders, representing 27% of global orders in Q4 with a strong percentage of the order mix in our developed markets like the Americas and EMEA regions, where we are targeting our older systems for upgrade to our latest generation cyber knife and Rob.
Exact platforms with that I'll turn the call over to Suzanne winter, our newly appointed President who will cover additional commercial and innovation highlights Suzanne. Thanks, Josh we are very pleased with the Q4 performance and our momentum heading into fiscal year 'twenty two.
As we enter the new year, it's worthwhile to reflect on this past year FY 'twenty, one was a foundational year for the company and we are exiting the year in many ways as a transformed accuray one that we believe is in a stronger competitive position able to drive consistent topline growth and gain market.
Sure, although we like all companies were challenged by the Covid pandemic the team executed well against the things that were within our control and delivered improved quarterly performance throughout the year.
In addition, we focused our resources and investments in new product development to deliver on high impact innovations like clear Rte helical imaging on that exact which with synchrony real time motion detection and adapted delivery has proven to be a powerful combination of tools that provide position.
And with the confidence to deliver ultra hypo fractionated SPR T treatments with greater precision.
<unk> dose to healthy tissue and expanding treatments to a wider range of patients.
Since our broader market introduction in Q4, the market has shown strong enthusiasm for clear our tea and we believe this will differentiate rat exact from conventional linac platforms and drive market share gains moving forward.
As a company we strengthened our leadership team invested in people development business process improvements and built a strong foundation to support future growth, we refined our vision and focus the organization on our mission of expanding the power of radiation therapy with a goal of extending life.
And improving the quality of those lives the entire organization is focused on pushing the boundaries of our capabilities. So that we will be recognized as best in class in delivering therapies with greater precision improved patient experience and targeted treatments that we believe will change the competitive landscape.
And radiotherapy.
Expanding on our strategy in FY 'twenty, two we believe our addressable market for new global radiotherapy systems represents a $2.6 billion market opportunity that will grow at approximately 3% to 4% in FY 'twenty, two we expect to grow faster than the overall market with a focus on driving.
Adoption of our new product innovations that enable ultra hypo fractionated treatments and advanced clinical protocols that provide more personalized treatments greater efficiency and expanding technology capabilities further to provide more therapeutic options to patients.
This year, we will increase our investment in R&D, because we recognize that a continued cadence of meaningful innovation will drive market share accelerate upgrades within our installed base and allow us to penetrate new and emerging markets all of which we expect will drive faster revenue growth and we have seen in <unk>.
Decade, and significant margin expansion.
And our developed markets, we will focus on driving trade in trade up opportunities in our older installed base in emerging markets, we will expand our product portfolio and invest in high impact commercial strategies designed to penetrate new market segments like the type B segment in China as well as other underpenetrated.
Traded markets like India, and Latin America.
We will have a continued focus on leveraging strong partnerships that will allow us to enhance our solutions and radiation oncology with research treatment planning and in neurosurgery with brain labs, neuro surgical planning both of which can positively impact the positioning of our product platforms.
Finally, we will continue to invest in our people and operational infrastructure to create a solid scalable foundation to support growth in both the near term and beyond.
I want to speak a little bit about how we will measure ourselves in FY 'twenty to the key performance indicators that we will use to measure our success include the following.
Orders growth compared to the market as you heard from Josh We ended FY 'twenty, one with 19% year over year Q4 orders growth all regions executed extremely well and we are very pleased with the performance of the Americas region in Q4 and in our full year performance in Japan and <unk>.
Which grew 7% and 3% respectively.
The second metric will be revenue growth and customer installations, while orders and backlog are important leading indicators of a sustainable growth model. We have also made significant improvements in partnering with our customers to improve visibility and drive customer installations the number of <unk>.
Systems put into active clinical use is our primary performance indicator. We are focused on because this metric is the catalyst that drives the growth of our installed base future upgrades and recurring service revenue in fiscal year 'twenty. One we installed 76, new systems at customer site.
<unk>, which exceeded our expectations, especially in the context of the pandemic when compared to other radiation therapy technologies for example, the MRI Linac SEC.
The relative comparison of our FY 'twenty, one installations referenced represents a performance indicator that we believe reflects market excitement for accuray technology provides us with a strong reference base of customer advocates and as a predictive indicator of sustained growth and market penetration.
Next is how effectively we are upgrading our aged installed base or IV. We have discussed our focus on upgrading our older IV systems in developed market regions to our latest generation devices. So that customers can benefit from new technologies that will allow them to offer advanced treatment protocols.
Ultra hyper fractionation and push it and position them to compete under new reimbursement models like Ro APM in the U S. The percent of new orders coming from our aged IV to trade in trade up orders will be an important metric to gauge our success.
In Q4, our global trade in trade up activity represented 27% of orders, but was even stronger in our developed markets in the U S trade in trade up activity represented over 50% of our Q4 orders.
And in Europe, 43% of our Q4 system orders were trade in trade up of systems greater than 10 years or older.
Finally, the attachment rate of new product innovations defined as the percent of new systems sold that includes synchrony and clear our T. As an option and the number of upgrades ordered from our existing Rad exact installed base, both will be strong performance indicators demonstrating market.
Adoption of our clinical value proposition and providing advanced patient care.
In Q4, the market has shown very high enthusiasm for clear our T. Q4 results showed a greater than 75% attachment on new systems sold in Japan and U S. For example, beating our internal expectations.
Clear our T is helping to build interest in rat exact and is opening doors to places that didn't consider accuray previously.
Feedback from one of our installed sites Hong Kong Sanatorium indicated that clear our T provided enhanced image quality and better soft tissue tissue visualization. They indicated a 77% reduction in scanning and image registration time, which drove enhanced patient throughput and an overall reduction.
And treatment time.
Other installed sites have indicated the superior image quality they are seeing from clear our key provides.
It's imaging performance comparable to their planning C. T systems, we believe the resulting improvement in soft tissue resolution will drive an expansion of patients treated and strongly position customers for new reimbursement models, such as the Ro APM in the U S.
In summary, we exit Q4, with one of our strongest quarterly performances ever and meaningful momentum driven by a strengthened product portfolio, a robust product pipeline and very energized regional commercial teams, who are focused on supporting our customers and delivering advanced patient care.
<unk>, which we believe provides a solid foundation to drive our strategic growth agenda. Moving forward, we are optimistic about our ability to win against the competition grow faster than the market and gain share with momentum that we believe will extend to FY 'twenty three and 'twenty four.
Now I'd like to turn the call over to <unk> for his review of the financial details.
Thank you Suzanne and good afternoon, everyone I'll begin with some additional details on our financial performance for the fourth quarter as well as our fiscal year 2021, and then focus on certain highlights for those periods.
Gross orders for the fourth quarter or $112.7 million, which was up 19% from the prior year.
For the fiscal year of 2021 gross orders totaled $326 million, which was down 14% from the prior year, primarily due to the impact of the pandemic.
And normalization of China type base system orders.
Despite facing this challenging backdrop, we are pleased with our order performance that improved sequentially every quarter during fiscal year 2021 highlighted by a very strong finish in Q4.
From a product mix perspective, the tomo therapy platform accounted for approximately 65% of gross orders for the fourth quarter.
<unk> accounted for the remaining 35%.
For the full year tomo therapy platform accounted for approximately 60% gross orders in the segment accounted for 40%, which was consistent with the prior year.
Net age outs for the quarter were $46 million and included $2 million of aging activities.
During the fourth quarter, we had approximately $5 million of cancellations and FX and other adjustments of $1 million.
As a result on a net basis, we generated $63 million of orders in the fourth quarter.
While the amount of age outs remained higher than normal throughout fiscal 2021 due to the pandemic, we had $27 million of age ins for the year, which was the highest we ever reported.
We ended the fourth quarter with backlog of $616 million, which.
Which is also the highest we ever reported.
Turning now to our income statement.
Total revenue for the fourth quarter was $110.9 million up 17% compared to the prior year led by strong year over year growth in <unk>.
EMEA, Japan and China.
On a full year basis total revenue was $396.3 million up three 5% from the prior year as the growth in China, and EMEA offset the impact of the pandemic and the other regions.
Product revenue for the quarter was $56.1 million, an increase of 38, 9% compared to the prior year.
On a full year basis product revenue was $176.6 million, an increase of five 6% from the prior year.
From a product mix perspective, <unk> accounted for approximately 25% over the quarters revenue unit volume, while the tomo therapy platform accounted for the remaining 75%.
For the full year segment accounted for approximately 25% of total product revenue in tomo therapy platform accounted for 75%, which was consistent with the prior year.
Service revenue for the quarter was $54.8 million, which was relatively stable compared to prior year.
On a full year basis service revenue was $219.6 million.
An increase of one 9% from the prior year.
Turning now to gross margin our overall gross margin for the quarter was 39, 4% compared to 42% in the prior year.
As a reminder, the prior year fourth quarter gross margin meaningfully benefited from the cash preservation actions. We took in response to the pandemic.
On a full year basis.
While our gross margin was 43% compared to 39, 1% in the prior year.
Product gross margin for the quarter was 41, 5% compared to 45% in the prior year.
Full year product gross margin was 42, 2% compared to 42, 7% in the prior year.
Service gross margin for the quarter was 37, 3% compared to 39, 5% in the prior year.
On a full year basis service gross margin was 38, 7% compared to 36, 3% in the prior year.
Moving down the income statement.
Operating expenses for the quarter were $39.6 million, an increase of $5.1 million or 14, 8% from the prior year.
Year over year increase in operating expenses was mainly due to the fact that the prior year operating expenses were lower than normal due to the cash preservation actions. We took in response to the pandemic. In addition.
Higher opex level in the fourth quarter is consistent with the seasonality we saw in the past fiscal cycles and included some catch up spend as we started to see increase in business activities.
On a full year basis operating expenses were $137.3 million.
Which was relatively consistent compared to that to the prior year.
Operating income for the quarter was $4.1 million compared to $5.2 million in the prior year.
On a full year basis operating income was $22.2 million compared.
Compared to $12.5 million in the prior year.
I'll bet on the impact of the China JV for the quarter was a loss of <unk> 1 million.
This item is being reported on our income statement as a single line item called income or loss on equity investment right below operating income line.
On a full year basis, the operating impact of the JV was an income of <unk> $9 million.
Adjusted EBITDA for the quarter was $6.7 million as.
Compared to $10 million in the prior year.
The prior year fourth quarter adjusted EBITDA benefited meaningfully from the cash preservation actions, we took in response to the pandemic.
On a full year basis, adjusted EBITDA was $38 million compared to $27.4 million in the prior year.
The adjustments between GAAP net income and adjusted EBITDA outlined and quantified in our press release issued today.
We ended the quarter with $117 million in cash and short term restricted cash which increased from $108 million as of June 32020.
For the full fiscal year, we generated $36 million of free cash flow.
The team did a great job in managing working capital, while implementing cash preservation actions earlier in the fiscal year.
In terms of our debt as Josh mentioned earlier, we successfully refinanced both the convertible notes and bank debt for an additional five years to 2000.22026 in the fourth quarter.
In addition to extending the maturity for substantially all of the convertible notes previously outstanding we also reduced or delayed it underlying share exposure through a combination of a higher conversion price and share repurchase.
As for our new bank debt, we believe the new terms, which include significantly lower interest cost and less restricted financial covenants will benefit us both financially and operationally going forward.
And with that I'd like to hand, the call back to Josh for our fiscal 2022 financial outlook Josh.
Relative to financial guidance in fiscal year 'twenty, two we believe our addressable market for global radiotherapy equipment and treatment planning will grow at approximately 3% to 4% in fiscal year 2022.
While some washout remains with uncertainty related to the Covid recovery, we believe that we can and will exceed market growth rates and are setting our expected revenue growth in the $410 million to $420 million range with the midpoint of that range, representing 5% year on year growth versus fiscal year 'twenty one.
For fiscal year 'twenty to adjusted EBITDA, we are setting our expected range at 32 million to $35 million.
While that might seem low relative to our 38 million finish in fiscal 'twenty. One we believe that our fiscal 19 adjusted EBITDA finish of $23.7 million is the best comparison to our forward guidance as it represents the last full pre COVID-19 year end adjusted EBITDA reference point is.
As you are aware we've had the last two fiscal cycles impacted by Covid related spending cuts and aggressive quick cash preservation actions that made comparability against fiscal 2021, unusually challenging especially related to adjusted EBITDA.
Our fiscal year 'twenty two midpoint for the adjusted EBITDA range of $33.5 million represents a 40% increase at similar revenue levels versus fiscal year, 19, which demonstrate the material improvements in operating leverage created over the past two fiscal cycles.
These efficiencies have been realized primarily in the SG&A functions, where we expect to spend approximately $17 million to $18 million less in aggregate in fiscal year 'twenty two compared to the run rate we had for those functions in fiscal year 19. Additionally.
Additionally, improved operating leverage in SG&A has allowed us to increase our planned R&D spend materially in fiscal year 'twenty two by reallocating a significant portion of opex into innovation related investments focused on accelerating top line revenue growth like those that Suzanne highlighted in our earlier remark.
<unk>.
Before we open the call to questions I'd like to address the CFO leadership transition that was included in our press release share.
<unk> Hamamatsu Accuray's, Chief Financial Officer has accepted a CFO role with a public company outside of the health care space <unk>.
<unk> last day with Accuray will be September 3rd 2021.
On behalf of our board and leadership team I want to thank <unk> for his service dedication and contributions to accuray over the past several years and wish him continued success in his new opportunity.
The company has appointed Brandy Green Accuray's, Vice President and corporate controller as interim Chief Financial Officer effective September <unk> 2021, and has initiated a national search to identify a permanent replacement.
And with that operator, we're ready to open the line for questions. Thank.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two we please ask that you limit yourself to one question and one follow up.
If you have additional questions you may reenter the question queue.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Josh Jennings with Cowen. Please go ahead.
Hi, good evening, Thanks for taking my questions and congratulations on the strong order growth performance.
Good luck.
Sure.
New seat.
Josh I wanted to I know you guys don't provide guidance on new orders, but.
I was just hoping.
Understand.
Any type of qualitative commentary you can provide just in terms of the sales funnel.
And then on the new order outlook for fiscal 'twenty two.
So Josh this is Shane I am going to start and maybe she doesn't want to add some color to it but for.
Novelis perspective, you're right, we're not providing forward guidance right now.
We believe that order will grow to a similar rate as we set up with revenue, which was mid 0.5%. So I think thats a good.
Kind of a target that we're thinking about for next year and I think our additional color that I can give you that is that historically.
40% of annual orders fell into first half and then the remaining 60% fell into.
The second half, but I think we're going to continue to see that kind of a more second half heavy trend to continue into FY 'twenty two.
And also last call I can give you a financially is that.
We continue to anticipate Q1, Q2, Q3 Q4, the sequential order.
Improvement within the color that I gave you. So maybe you want to add anything no I think you're exactly right.
Customers are busy right now I would say that we're starting to see them re engaging with us and again many patients that were delayed.
Or are starting to get treatment now and so what we're seeing is theres movement and we believe that the market still is going to be in recovery mode and certainly there is still a lot of moving pieces.
But I think that to the 3% to 4% is what we're expecting from an order standpoint, as well and we believe we will grow faster than the market.
Great Thanks for that.
Incremental color.
It was great to see.
The.
Return of the Americas growth.
In terms of new orders.
If you could help us better understand the replacement opportunity in the U S. And then just how much success.
Having are in the sales funnel, even in the single and dual vault centers Center segment of it.
The U S market I'm, just trying to figure out this momentum is sustainable as we move into fiscal 2022 in the Americas. Yes, Yes. We are very pleased with how we landed in Q4 and we see the momentum going into FY 'twenty two in the U S market much of it due to the innovation the clear arty.
With synchrony and sort of the market forces moving toward ultra hyper fractionation as well as a new reimbursement environment and so approximately.
40% to 50% of the installed base in the U S is eight years or older. So there is absolutely an opportunity to bring those customers up to the latest performance enhancements and so we're very focused in both the U S and our developed markets in Europe.
On on bringing those those customers and upgrading them to the latest.
Performance.
So I think it's sustainable for a while I would say overall as we look at the market.
In general the global radiation therapy market, 80% is replacement at 20% is new we're participating obviously in both.
With what we're doing in China, as well as emerging markets and focusing on the replacement markets and the developed.
Regions.
Great.
One last question just on the China JV I apologize if you already reviewed this but just.
Any updated timing for type a system approval and launch in China through the JV.
And then just how should we be thinking about the timing of the China JV turning profitable in Europe.
The loss that came through the income statement.
With minimal this quarter.
Any any help there would be fantastic thanks for taking the questions.
Josh.
The answer to the first part of your question is that we.
We don't see any from where we are right now we don't see any change in what we've been communicating over the last several quarters relative to type b.
Market launch, we still believe it will be towards the second half.
Sure.
The end of the second half of the fiscal 'twenty two year or so.
We're inside of the 12 month window at this point.
Or will be soon and.
The all of the manufacturing facility qualification and validation testing is continuing I think there probably was some.
Delay in.
In the in the <unk> testing, which is part of that qualification process that was related to COVID-19.
Earlier this calendar year, but I think we believe these things are back on track at this point for that so I think we're still in a good place relative to the type B launch.
On the China, JV situation I'm going to pass it back to should thanks, Josh.
Yes.
Way, we are thinking about right now in a JV financial impact.
Looking forward to FY 'twenty two as that.
We will likely likely see that contribution to be neutral, meaning they are likely to remain around the breakeven point in the near term as they continue to invest into.
The anticipated ramp for the type b that Josh talked about et cetera.
So I think it's more of a some required investment in preceding that revenue ramp that we are anticipating and.
I think we've been saying that this is a third year of operation.
Going in from JV perspective.
We always thought that 30 year.
Should be starting to see some.
Breakeven point and looking forward from that point on that be profitable. So again. This this year or the third year, we anticipate them to be.
Close to a breakeven point, which is similar to what we reported this past year.
Thank you and the next question will come from Brooks O'neil from Lake Street Capital markets. Please go ahead.
Good afternoon.
First I'm going to Miss you I wish you well I have always enjoyed working with you and I appreciate everything you've done to help me understand the company and the business.
Thank you Brooks so.
Sure two questions.
First you all did a great job of articulating all the positives.
The things going on in the marketplace. The things you've done with your product lineup your organization your financial structure et cetera.
So what im trying to understand is.
The negative.
What is holding you back I personally have to just say I'm disappointed with 5% growth guidance.
And I just trying to understand why you can't do better.
So Brooks I'll take the first the first.
Attempted that the Bottomline is this I think that it's very possible, we can do better than that I think one of the things that we believe is still relevant in the current context current environment as <unk>.
Some unknowns, obviously related to the Covid environment, Although again as you heard Suzanne talk about earlier.
We.
Through the last fiscal cycle.
We put 76 devices in the ground that ended up going into clinical active clinical use.
For a company of our size I'd kind of stack that up quite frankly against any of our competitors for us on a size adjusted basis and I think we're trying to be we're trying to be.
Thoughtful about the fact that there are still some elements here that we don't control and can't impact I mean risk.
Resurgence in Covid in different strains and what have you are things that are I'd say there. They are out there. We don't we were going to continue on the path that we have been in fiscal 'twenty. One with regards to focus on the things that we think are the right drivers of the business I think though that.
That midpoint.
Uh huh.
In the range of 5% is is a is a starting point.
We hope that and believe that we're going to continue to grow faster than the market and may be able to outperform that but we want to make sure that doesn't happen coming out of this is that where we're too far out over our skis. If you want to call it that way.
Still some unknowns out there.
And so I'd say, that's probably the best way to be thinking about this we are we have never been more bullish on this business on every aspect product portfolio.
Quality of the team.
And.
Again, the external environment to the degree that we don't control. It we will we will adapt to it and we will flex as we need to but.
I think that we have.
Very visible momentum coming out of fiscal 'twenty, one and.
We are being cautiously optimistic I'll call it that.
The things that Youre seeing from this business right now are very likely going to continue.
Great.
Big believer in under promise over deliver and hopefully will end up the end of next year feeling like that's what you did.
Agreed.
So second question and.
I know, it's a public call there's a lot of people on here, but.
As you know Josh I'd now gone through to <unk>.
<unk> I think we're very capable people so just share with us your perspective on why Cfo's keep believing in.
We're not quite at the property and yet and it feels like we're close but.
Here goes another one yes, what do you think is going on there Brooks.
Harris.
We've been pretty transparent with.
With the fact that <unk> is pursuing an opportunity outside of healthcare outside of our space.
<unk>.
We live obviously in a world, especially here in the Bay area Silicon Valley, where.
It's a very very robust job market free agency prevails and.
But <unk>.
As we said in his own words and I can confirm this again, there's nothing here that <unk> is this is an opportunity external to the company that <unk> is pursuing.
This decision is his and his alone and.
There is nothing related to the business per se. That's that's the catalytic catalyst in any way for this decision for him and I should let them talk about this in his and his own words in that regard if if you'd like to yes, thanks, Josh and Bruce it's purely a personal decision and I was just happened to be present.
With the opportunity to be part of the industry that I was previously interested in then there's nothing more that I think I can say with confidence that.
If I think about three years ago, when I took over as CFO compared to that situation to here now that we accomplished as a team a lot of things I think we're in a better position from a balance sheet perspective.
We are more profitable than ever before.
We've got a new team there.
Third thoroughly enjoyed working with and so.
There's a lot of exciting things ahead for accuray so.
Independent of the independent of that I, just made a personal choice to pursue another industry and it just simple as that.
Absolutely I appreciate the color. Thank you very much.
And the next question comes from Anthony Petrone with Jefferies. Please go ahead.
Yeah.
Thank you very much and hope everyone's doing well sure I want to extend my congratulations as well very much enjoyed working together and hope we cross paths in the future. So good luck on the next <unk>.
Shift here in your career.
Got it.
The installation cycles, maybe we can shift over.
To just an update on installs and the installation cycles at hospitals, we had the announcement out of Texas earlier this week.
On a potential slowdown in elective procedures, obviously that that could suggest access to hospitals.
And the state of Texas could be compromised a bit. So when you think of installation cycles for radiation therapy, and when ask where are we on.
Install cycles and how do you think it's going to trend into the second half and I'll have a few follow up questions. Thanks.
Yes Anthony.
I would say what we're seeing is customers are re engaging with us actually so we have a number of projects.
We're working on and so we have as an organization learn to be incredibly resilient in sort of understanding where the hotspots are in who and customer readiness.
And so I would say we're in a better position than we were a year ago and we do expect it to slowly improve and part of the reason why we expect it to improve is our customers are very very busy I mean in many places they're at capacity they've got older technology, So theres catalysts.
To upgrading the equipment and so we are seeing customers eager.
Two two to accept installed and so again as things change and there's a lot of moving parts. We are going to pivot to those customers that are ready to go and be in a position to be able to deliver.
Anthony one other one other point too.
What's <unk> comments.
Alluded to.
In the current environment, especially in those really really busy locations throughput and workflow are absolutely critical.
And I think the functionality of.
Our workhorse product in the form of <unk> right now is making a big difference.
In terms of treatment speed throughput efficiency.
Setup patient setup time, we are we're kind of firing on all cylinders at this point would that device setup time.
Overall overall efficiency is really making a difference and in the context of what the.
The busy locations are dealing with relative to patient volume, that's a difference maker, especially if they're dealing with constraints from older generation equipment.
Okay. That's helpful. And then a couple of thoughts would be one just on the Aro radiation oncology bundle CMS proposals came out.
It looks like Theres, some minor tweaks, there, but maybe updated views as we approach <unk>.
<unk> on the Aro bundle in the U S side.
And then lastly on.
On China, JV manufacturing just to follow up there a bit.
Specifically on the manufacturing side.
Maybe just to sort of clean up the timelines are we were under the impression.
We still believe it's intact that you'll be able to manufacture out of the JV type b system specifically.
Entering 2023, I just wanted to see if we get those timeline street. Thanks.
Sure. So let me take the take them in the order that you posed them.
<unk> you guys probably saw we did cms's announcement in roughly mid July about the.
The release of the proposed.
PPS rule.
There there is no reason at this point unless there is some.
Again, some really really significant mack.
Macro level impact.
And again I'm not naive I think the pandemic.
Resurgence.
What that looks like and the impact that it could have.
<unk> changed the timelines, but at this point it feels like CMS is trying to get this thing rolled out once and for all on.
January one of 2022.
They are they still believe that there is about a third of all the radiation oncology activity or episodes that are being treated.
Currently paid under more traditional fee for service Medicare reimbursement that will fall under the model.
There were some minor modifications to the number of disease sites.
<unk>, if you will in one or two from where they had been in the original.
Thought process and rollout or the announcement initially.
And perhaps some minor tweaks too.
Site point of care side of delivery. If you will on the freestanding center side, but I think Anthony our view is that.
This is this is not a matter of if it's only a matter of when I think that if the world kind of holds together relative to the pandemic and we're not we're not going to see major major lockdowns again and major disruption.
In that context, I think that we should expect that and we do expect that this will rollout in January of 2022, and again, our just to remind the listeners. Our view is that we are really really uniquely positioned here given the the emphasis and the likely influenced that the rollout of our APM will have on.
Driving hypo fractionated and ultra hyper fractionated procedures, it kind of swings the pendulum exactly in the way that our portfolio lines up to help help customers treat patients more efficiently. So that's kind of the update on the <unk> on the China JV.
Again, I think that from a timing standpoint, there really isn't any change in timing.
The thing that probably was a little bit of a longer term a longer time.
<unk> for US was the engagement for <unk> to do in there.
<unk> in country testing arm that does the qualification and manufacturing validation testing in the Tianjin plant.
They are actually engaged today and doing things in some areas of their work on a virtual basis.
But our view of the ultimate.
Market launch timing for type B Hasnt Hasnt changed at this point.
And then just one last housekeeping one if I could squeeze it in just on.
They're trying to backlog as it sits I think if I'm getting the math right there.
Exiting last quarter, there was still 74 type day.
And the backlog licenses it was valued at around $150 million. It sounds like now to date, you have realized $54 million.
And that balanced let's call it a little bit less than $100 million now, 90%, 95% or so.
We'll expect it to be realized over the next <unk>.
<unk> 20 months as that.
This number is still.
Accurate and intact. Thanks again, yes, you got the math right.
74 licenses as with last quarter that we had one had 150 million system revenue.
Which.
Uh huh.
Anthony as we just announced a $54 million of which.
Has been recognized so remaining would be.
90% 90, 695 million round number leftover, which will be recognized over the next several quarters.
Thanks again.
The next question will be from Marie Thibault with BTG. Please go ahead.
Hi, Thank you for taking the questions and let me add my congrats to you, but we are going to Miss you and I. Appreciate the hard work you put in over the last few years.
I wanted to ask a two part question here on China first just as a follow on to Anthonys question.
I wanted to try to figure out if we should continue to expect kind of variability and some of that revenue recognition by my math it looks like.
So about $13 million of type a licenses in revenue this quarter. So just wanted to check that math and whether we can expect variability and secondly, we'd seen a press release on the China isotopes Investor Relations site.
Days ago seemed to announce a third tranche of licenses I wondered if you if that was accurate or what you could tell us about that.
Murray.
Thanks for your comment.
I will miss working with you as well so thanks for the earlier comment.
So I'm going to answer the first part.
So you got the math right on that we had a $13 million of Taipei revenue system revenue recognized in the fourth quarter that is correct and we do anticipate quarterly variability in FY 'twenty one.
Again, it's mostly driven by customer installation requirement on a timing so it's mostly related to that.
We're trying to I guess I'll, let suzanne speak to it in the press release with corrective and again, we're working very closely with our customers in China on applications and the third tranche, Yes, we got 26 out of the 28.
Ray radiation therapy lines.
Licenses and so obviously, we're very pleased with that it was expected, but it's great to see it come through because it provides greater clarity and to what we had planned.
Go into the next couple of years, but again overall when we look at the the.
<unk>.
The five year plan.
78% share of the type a licenses that were very pleased with the brand recognition in the China market and we only think its going to be translated when we get into the type B segment as well.
Alright, very good it looks like a high win rate there again.
Follow up here then on net orders looked like approximately $60 million below kind of the gross order number where theyre more age outs unusual or what was kind of explain that dynamic and I. Appreciate the questions. Mike Yeah. We did so I think what I said.
Earlier remark.
We had a 40.
<unk>.
$6 million net Asia Marine so that was a driver for sure.
And if I think about that more than half of that 46 net Asia was China.
And so again I think.
While we wait for the remainder of the license wins.
To be recognized into revenue over the next several quarters as I said earlier.
We're going to see some of those age out of occur, particularly in China, but again that we had a $27 million with Asia and for the year, which was the highest.
In FY 'twenty one so.
Despite having the.
Age outs higher than normal in near term, we are confident that we will get a good chunk of that back looking forward.
Got it.
And the interesting thing about the age outs, especially when they are there China dependent or China influenced if you will is that those customers are still holding a license which is the important aspect of this it really kind of makes it more of a a matter of not not if but when.
<unk>.
From a timing perspective so.
While you might see again quarter to quarter variability as chip talked about relative to age out activity.
Those that are.
From a dependency standpoint, those that are that are China related or a much higher level of likelihood or confidence factor that they're going to age different agent, they're going to go to revenue just a just a matter of timing.
Got it thank you Bob.
Thank you.
And the next question will come from Jason Wittes with Northland. Please go ahead.
Hi, Thanks, taking my questions and I'll Echo the sentiments earlier about the quarter and year end and also obviously.
As Youre working with Shag and best of luck in your new endeavor.
But with that just a couple of questions here, one I guess, Josh you made you've made it pretty clear that the guidance is somewhat conservative at least that's my read on on one of the earlier questions, but I guess you've.
<unk> got clear RT and synchrony actually starting to also.
And a greater as a greater percentage of sales.
How does that incorporate into the guidance you gave I mean shouldnt is there a boost from those those two product cycles.
Sure.
Is that offset by Covid.
So the answer is that there is no question that the the market reception to clear our tea and synchrony.
Half half.
Looking at the performance in the second half and especially in the fourth quarter of fiscal 'twenty one.
They've been a catalyst Jason relative to order activity and momentum and we expect that to continue.
These are probably the two most meaningful product and technology upgrades, we've made to our core platform in <unk>.
<unk>, probably my time here, maybe except for the MLC initially back on cyber knife back in.
No.
2013, 2014, but these are really because this is on our workhorse platform. These are really meaningful.
Upgrades.
I don't expect that the tailwind if you want to describe it that way that they are creating where that they've created in the last quarter or two I don't think thats going to going to go away anytime soon.
The Covid situation is it is what it is I think you heard Suzanne say and I agree completely with our we are showing a high degree of adaptability and flexibility on continuing to do what we need to do to get equipment installed get equipment in the ground and get it ATP and get it into us clinical use.
<unk>.
No one no one can predict for sure one way or the other but I think.
Unless we end up back in a kind of situation that resembles where we were a year ago with really really end to end lockdown in hospitals, where.
Their sole focus is in ICU and critical care medicine really focused solely in dedicated to treating COVID-19 patients, which.
Again I.
I don't think Thats, where were headed but again.
Jim.
No no better qualified than you are or any of the other listeners or to answer that question.
Unless we end up there I think that our momentum in the tailwind that you see is very likely to continue.
So related to that.
What's your sort of turnaround rate of turnover rate for order to installation.
As possible if you've got a strong first quarter, we see some of that in the fourth quarter.
Or is that really going to be a 2023 fiscal 'twenty 'twenty three event.
Given installation times.
And I think the variability there is the last part of that is.
Customer customer readiness.
Again, I think as you heard in prior conversation from Suzanne customers are really busy right now.
Many of them are at are at.
<unk>, we're at capacity kind of levels.
Relative to patient flow, which is why device capacity improved throughput and workflow efficiencies are having big pop.
Positive impacts on <unk>.
Catalyst in customer decision, making on how rapidly they want to be able to get new equipment installed.
Again, I hope and believe that Thats likely to continue again, there were a lot of patients during the lockdown that we're.
That could be deferred that debt.
We are deferred and.
I think that the catch up mode that people are in right now from a radiation oncology standpoint is it's not isolated to just you know.
One one city one one facility one region.
There are examples of it I can point that.
In all of our developed markets quite frankly at this point and so again I would say at a macro level of kind of assessment.
The indicators would tell it would tell me that again.
Again that need is going to continue to be there for people who can.
Our need to trade up to more efficient.
Faster faster equipment more capacity, that's created through better efficiency and throughput.
That's a tailwind.
Could continue.
Great very helpful I'll jump back in queue. Thanks, guys.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Josh Levine for any closing remarks.
I'd like to thank everyone for joining us on the call. This afternoon I want to take this opportunity to thank all of our accuray teammates around the world for their perseverance in the face of the challenges related to the Covid pandemic and for their collective contributions in support of how we performed as a company in fiscal year 'twenty, one I'm extremely proud of the way we are.
Executed and believe were strongly positioned this business for an exciting future. We look forward to speaking with you again in October when we host.
Our annual Astro Investor event and report our fiscal 2022 first quarter results.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
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