Q1 2022 Accuray Inc Earnings Call
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Yeah.
Good afternoon, and welcome to the Accuray reports first quarter fiscal 2022 financial results Conference call.
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Today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded all made.
Like to turn the conference over to <unk>, Vice President of Finance and Investor Relations. Please go ahead.
Thank you Anthony and good afternoon, everyone. Welcome to Accuray's Conference call to review financial results for the first quarter of fiscal year 2022, which ended September 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 Brandy Green accurate interim 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.
This afternoon as well as in our filings with the Securities and Exchange Commission.
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 law. Accordingly, you should not put undue reliance on <unk>.
Any forward looking statements.
If you 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.
All references we made to a specific quarter in the prepared remarks are to our fiscal year quarters. For example statements regarding our first quarter refer to our fiscal first quarter ended September 32021. Additionally, there will be a supplement.
A slide deck to accompany this call, which can be accessed by going directly to accuray's investor page at investors Dot accurate dot com.
With that let me turn the call over to Accuray's, Chief Executive Officer, Josh Levine Josh.
Thanks, Ken and thank you to everyone joining us on today's call I'm joined today by Suzanne Winter, our president and Brandy Green our interim CFO.
By any measure Accuray had a very strong fiscal first quarter. Our performance reflects the visible impact of the investments in innovation, we have made to our product portfolio. How those two technologies are being received by customers around the world and a laser like focus on commercial execution, all of which are driving accelerated revenue growth in our business.
Revenue for the quarter came in at $107 $4 million, which translates to 26% year on year growth and represents the largest fiscal first quarter revenue number the company has ever reported.
Gross order volume for the quarter was $70 million, which translated to 39% year on year growth.
While Suzanne will provide more details regarding regional contributions during her prepared remarks, I can confirm that the strength in orders and revenue results were reflected across all of accuray's operating regions.
<unk>. This strength is the impact of our latest <unk> technology upgrades clear our T. R. Helical KBC imaging platform and synchrony, our real time motion tracking and beam delivery adaptation capability.
We have seen significant customer interest in both of these technology additions and very strong attachment rates for both with new <unk> orders as well as upgrade activity for installed base systems.
The cadence of our new technology innovations is continuing to drive both current and we believe future growth in our business.
We continued to see strong contribution from our China JV Ing during Q1.
China gross order volume for fiscal year, Q1 was $16 3 million, representing a 139% growth versus prior year, and we generated revenue of $25 5 million, which represented year on year growth of 732%.
Additionally, we continue to make good progress on our Tianjin produce type product and are on track to launch a phase market introduction in the summer of calendar year 2022, with subsequent shipments expected pending regulatory clearance by the end of that year.
Last week, we participated in the Astro conference in Chicago.
This was the first in person opportunity to interact with the U S radiation oncology community in 24 months Acura.
Accuray had strong customer interest at the meeting as well as strong interest and participation at our investor event.
As we shared in our Astro Investor Day presentation, we're excited about the momentum and progress we see occurring with our business today as well as the long term growth opportunities. We have in front of US we are launching important technology upgrades across both of our platforms that are designed to further enhance current treatment capabilities and delivering hypo and <unk>.
Altra Hypo fractionated.
Dario tactic radiosurgery and stereotactic body radiotherapy more effectively safely and efficiently and now I'll turn the call over to Suzanne winter for some more details on commercial highlights during the quarter.
Thank you Josh we are very pleased with our first quarter performance with 32, new system orders and with all four regions executing extremely well.
The Americas region led the growth with greater than 200% growth in order volume driven by strong customer demand for clear, our tea and synchrony as differentiated technologies that will allow them to provide ultra hypo fractionated SPR T N I M. A R T treatments for their patients and allow them to come.
Pete more effectively within the new Aro APM reimbursement environment.
It also gives us confidence of two things one that we are beginning to see market recovery and capital equipment budget spend with some pent up demand from U S reflected in Q1 results and to the positive impact of commercial initiatives. We are driving in this important region.
In the EMEA region highlights include a seven system Rad exact win win from our distribution partner in Turkey, which is building an oncology network, which will strengthen our market position in this sub region and expand access to new markets leveraging that exact helical delivery platform as a differentiator.
The capability compared to conventional C arm radiation therapy systems.
The Japan region continued to deliver orders growth with 28% year over year growth within the quarter with key competitive wins that Shin <unk> and Nagoya University.
Finally, our APAC region orders grew 67% year over year, driven primarily by outstanding commercial execution in China with eight new systems, including three type a and five type b.
Inside of China, We want a second trade in trade up to Rad exact at the Royal Brisbane Women's Hospital, which will become a strong reference site in our ANZ sub region.
We expect Q1 order growth to significantly outpace global market growth and will result in market share gain, especially in the U S market.
Our new product introductions drove the momentum with 15, new clear RP orders, bringing the cumulative orders to 59 since we began market launch less than a year ago, approximately 50% of new Rad exact system orders purchased clear our key as an option.
Additionally, our commercial focus on upgrading our aged installed base to the latest performance capability is showing results with 54% of developed market orders and 60% of U S orders being comprised of trade in trade up orders out of our existing installed base.
As you heard from Josh revenue growth for the quarter with outstanding with strong performances from the U S and China, reflecting some pent up demand, which demonstrates that our customers are prioritizing radiation therapy equipment installations shipments to China included nine type a systems, including our cyber knife.
For Peking Union Medical College, and another at Beijing Hospital, both Premier institutions highly connected to the China Ministry of health in serving the senior government. We believe these strategic type a customer installations will help accuray to continue to drive our solid brand and technology.
Awareness in the China market.
Other key highlights for the quarter included a very successful activation of both U S and European radiation oncology conferences, where we highlighted our latest product innovation.
In addition to clear our tea and synchrony for Rad exact we received five 10-K approval for Bolo ultra the latest accurate product enhancement for Rad exact precision treatment planning system.
Altra translates volatile technology introduced for the cyber knife platform to read exact and increases the speed ease of use and quality of treatment planning format exact allowing for treatment times of less than 15 minutes and positioning it as a superior workforce solution within a department.
For the cyber knife and partnership with research we introduced the raise station for the cyber knife Radiosurgery platform, allowing seamless integration within the radiation oncology department and full connectivity across multiple vendor radiation therapy and OIS systems.
Also breaking clinical news from the Astro scientific sessions with the two year follow up data from the pace B trial pace B as a large multi center international trial of patients who have localized prostate cancer at Astro Dr. Alison tree from Royal Marsden Hospital in London reported on the long.
Term outcome of patients treated after two years, a timeframe or side effects may occur Dr.
Dr. <unk> reported that patients treated on cyber knife experienced more than two times less urinary side effects than those treated on a conventional linac system.
This important randomized control study supports the differentiation of accuray's technology from competitive radiation therapy platforms, and underscores the clinical value of proprietary accurate capabilities like synchrony for <unk> tumor tracking and adaptive delivery. This accurate only technology provides.
The precision that is critical to provide ultra hypo fractionated SBR T treatments, so that patients have the best potential for improved outcomes and quality of life.
As we discussed during our Investor day presentation, the clinical use of ultra hypo fractionated treatments is expected to rapidly grow and randomized studies like pace be demonstrate demonstrate that accuray's unique high precision technology is differentiated from conventional radiation radiation therapy platforms and.
<unk> us to benefit greatly from this growing clinical trend.
In summary, an outstanding start for the organization in Q1, as we execute on our long term growth strategy combined with positive signs of improved global capital equipment recovery and an outstanding reception to our new product introductions, which are driving customer interest and accuray technology and now I would like to turn the.
Call over to Brandy for her review of the financial details.
Thank you Suzanne and good afternoon, everyone. We started off FY 'twenty, two with a strong financial quarter today I will focus on some of those highlights as noted gross orders for the first quarter was $70 million up 39% over the prior year period from a product mix perspective, the tomo therapy platform accounted for approximately.
64% of gross orders for the quarter and cyber knife accounted for the remaining 36% as compared to historical averages of approximately 60% tomo therapy, and 40% cyber knife during the quarter, we had approximately $2 9 million of net cancellations and we ended up.
Our first quarter with backlog of $602 9 million, an increase of 1% from September 32020, now turning to our income statement total revenue for the first quarter was 107 4 million up 26% compared to the prior year led by strong <unk>.
Year over year growth in Americas, and China product revenue for the quarter was $52 8 million an increase of 69%.
Compared to the prior year from a product mix perspective, cyber knife accounted for approximately 47% of revenue unit volume in the quarter, while tomo therapy platform accounted for the remaining 53% as a reminder, the mix between cyber knife in tomo therapy varies from quarter to quarter. However.
<unk> historically on an annual basis, our product revenue mix has been approximately 30% cyber knife and 70% tomo therapy for the past several fiscal years.
Service revenue for the quarter was $54 $7 million up 1% compared to prior year now turning to gross margins overall gross margin for the quarter was 36, 8% compared to 41, 5% in the prior year product gross margin for the quarter was 40.
3% compared to 41, 1% in the prior year at the end of the quarter.
Per our JV accounting requirements, we deferred product gross margin on two systems sold to our China joint venture that have not yet been transacted through to the end customers. Excluding the timing difference on these two systems our product gross margin for the quarter would have been 43, 5%.
Service gross margin for the quarter was 33, 4% compared to 41, 7% in the prior year. There are two primary drivers for the lower than planned service margin for the quarter.
First parts consumption and operational costs were higher than normal primarily related to increased system upgrades and travel and increased interest in our latest products second we have experienced increased parts cost and logistical delays with our aftermarket supply chain due to the effects of the Panther.
Excluding the impact of these challenges we estimate that our service gross margin for the first quarter would've been approximately 36, 5%, which is consistent with pre pandemic levels.
Moving down the income statement.
Operating expenses for the quarter were $37 $1 million, an increase of $7 2 million or.
Our 24% from the prior year the year over year increase in operating expenses was primarily due to the reinstatement of certain actions that were taken to preserve cash in response to the pandemic, including travel marketing events and compensation costs, which were reinstated back to near historical levels.
We also experienced an increase in commission costs associated with increased revenue.
Operating income for the quarter was $2 4 million compared to $5 5 million in the prior year.
The operating impact of the China JV for the quarter was a loss of <unk> $3 million as a reminder.
Under this item is recorded in our income statement as a single line item called gain loss on equity investment right below our operating income.
Adjusted EBITDA for the quarter was $5 $4 million as compared to $9 million in the prior year period on a trailing 12 month basis, we generated $34 3 million in adjusted EBITDA. The reconciliation between GAAP net income and adjusted EBITDA are described in our earnings release issued today.
We ended the quarter with $105 million of cash and short term restricted cash the decrease in cash from the prior quarter was primarily driven by the payout of employee bonuses earned in the prior fiscal year plus procurement of inventory in anticipation of fulfilling customer orders for the remainder of this fiscal year.
<unk>, both of which are seasonal in nature. Additionally, we paid $1 million on our term loan.
Thank you for we early adopted ASU 2026 dealt with conversion and other options reclassifying the cash conversion option of our convertible notes issued in Q4, FY 'twenty one of $24 8 million from equity to long term debt the underlying value of the convertible notes.
Has remained unchanged from Q4 FY 'twenty one when we exchanged most of our convertible notes due 2022 for convertible notes due 2026.
Early adoption of accounting standards update we will reduce the accretion of debt discount on our convertible notes.
Into our net income and with that I'd like to hand, the call back to Josh for an update on our fiscal 2022 financial outlook, Josh Thanks, Brandi relative to financial guidance in FY 'twenty. Two we continue to believe our addressable market for global radiotherapy equipment and treatment planning will grow at approximately.
4%.
While some uncertainty related to the Covid recovery remains we believe that we can and will exceed those market growth rates.
<unk>, we are expecting revenue to be more balanced between our fiscal halves with increasing contributions from both China and the U S. Due to stronger end of calendar year performance as such as we previously announced in our preliminary results for the first quarter of fiscal 2022, we are updating our expected revenue guidance.
To the $420 million to $427 million range with the midpoint of that range, representing 7% year on year growth versus FY 'twenty one.
For FY 'twenty to adjusted EBITDA are expected range is $33 million to $35 million.
We continue to believe that our FY 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.
As you are aware we've had the last two fiscal cycles impacted by Covid and Covid related spending cuts and aggressive cash preservation actions that made comparability against fiscal 2021, unusually challenging, especially related to adjusted EBITDA. We continue to demonstrate material improvements in operating leverage created over.
The last two fiscal cycles, mainly within SG&A, allowing us to increase our planned R&D spend in FY 'twenty two focusing on accelerating top line revenue growth and with that operator, we're ready to open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Sure.
Our first question comes from comes from Brooks O'neil with Lake Street Capital markets. You May go ahead.
Hi, This is Michael Bowen for Brooks O'neill. My first question I'm, hoping that you can provide some details on where you think hospital systems are in terms of preparedness for the new auto.
Reimbursement model.
Mike can I can I ask you to restate that please.
Here the whole question.
Yes, I'm, hoping that you can provide some details on where you think hospital systems are in terms of preparedness for the new reimbursement model.
I think I think quite frankly, it varies across the board I think that there are some.
Institutions that have.
<unk> been more rapid and embracing.
<unk> and ultra hyper fractionation, they're larger utilize there's from a product technology and mix case mix standpoint of SPR team General I think they buy by nature or by kind of there. There are more proactive approach are probably better prepared.
In the current environment for what's coming in January.
Of 2022.
There are others that are probably not as prepared and as you might imagine those represent really ideal targets for us to be telling our story about why the accuray product lineup is really really uniquely position to be able to assist in this transition to the Ro APM.
Perfect. Thank you.
An additional question is with the current labor market has.
<unk> been impacted with any worker shortages little.
No not not from an operational standpoint again.
The headwinds that people see now related to labor challenges.
Supply chain et cetera.
We're cognizant of that we have not really had significant problems in those areas, we continue to execute well.
Both Suzanne and I have terrific faith, and our operations team and so no. We really haven't seen anything like that that gives us pause or concern at this point.
Okay. That's helpful. And then last question for me is are you seeing any disruptions due to the supply chain and.
Do you have any plans on how to combat. These disruptions if there are any.
Again, I mean, there is there is.
Really no company that you can you can see or look at today that isn't feeling some impact of these macro level kind of trends, but again, we are working diligently our ops team is working diligently our sourcing team is working diligently to make sure that we can continue to.
<unk> continued to install equipment and be ready to install equipment and recognize revenue.
We're really proud and excited about the work that they're doing and keeping pace with.
These.
Kind of the macro level headwinds that people are seeing.
Perfect. Thank you for taking my questions and congratulations on the great quarter.
Thank you.
Our next question comes from Josh Jennings with Cowen You May go ahead.
Hi, good afternoon.
Congratulations on the strong start to fiscal 'twenty two.
Just two questions follow up from the past true Investor day.
The first is it's great to hear about the progress in the plans.
And year journey towards a true online adaptive solution and you talked about two parallel.
Paths of development, an internal one with you with you right.
Precision arc.
Adding system and also the collaboration with research and just wondering as we think about this development path in the next 12 to 18 months, how should we be thinking about.
<unk> two to the investment community on the progress there and are there any key milestones we should have on our radar.
Yes, I don't know that there are any key milestones that you need to have on your radar, but I mean, it is our goal, especially based on the very positive feedback of what we did show to cut.
Customers at the Astro that we're on the right track we are pursuing again a solution for our customers that have research treatment planning as well as customers that have our precision treatment planning, we think that at the basis of our advantage will be the use of clear our tea and <unk>.
Ernie as the inputs into the online adaptive and that's something that's unique to the industry.
And also we got great feedback in terms of what within the market is.
Now the $300 million that we talked about it Investor day were really was the annual opportunity in two locations, India and also Brazil, what we think that both of those.
Both of those segments.
There is a larger market opportunity that we just haven't been able to participate in and so while we are on track with our type of product for China. We do think that that same sort of a future set will do very well in other value segment market. So the $300 million, we talked about really I think a tip of the iceberg in terms of emerging <unk>.
Get opportunity, but those are two places that will focus on.
Thanks to the answers.
Again, if you have a question please.
Please press Star then one.
Our next question comes from Anthony Patrol Wood Jeffries you May go ahead.
Oh, great and thanks for giving us a Q here, maybe maybe a follow up to Josh just questions on neurosurgery, specifically and when we think about that opportunity to just wondering with the investment behind neurosurgery will be just as you referenced it analyst day that would be my first question and then the second.
Question.
Would be on just auto bundle any details from last night's announcement that we're surprised or is everything sort of as planned. Thanks.
Oh, yes.
Susan and I are going to divide and conquer I'll pick the the second question, which is.
Rowe APM update so I think the big the big cake.
Takeaway was they did confirm that they are going forward on January 1st that one there.
I think there might have been some continued spec.
Speculation out there about given COVID-19 environment et cetera was that going to happen and the answer is they are going to push the start button come January 1st.
There were some elements that were also part of the.
Information will release.
That gave them some latitude in certain data collection activities.
You will remember that one of the components of the ROI PM was a quality system Ah quality metrics measurement that was going to be.
Self reported.
They have.
Invoked a.
Kind of this moment in time again, I think because of more more than anything else, probably the COVID-19 environment.
And.
And that that they're considering that or kind of defining that as a public health emergency that they've relaxed the requirements for.
The collection of submission of those quality measures and so they have given given kind of this first year of the.
The model they've given it.
Relax the requirements on that piece.
The 2%.
Payment fee withhold again that was tied to quality measures was also.
Relaxed so there's been a little bit of a I'll call. It a reprieve if you will on that piece of the fee schedule.
Again.
Those were probably I think the last piece of the three was.
The requirement around the conducting of peer review.
Ordered Oregon feedback on treatment plans specifically they have also made that optional in this first year of the model. So you've got those those kind.
Kind of provisions that they've made allowances for again, given kind of probably most related to the COVID-19 environment, but.
The program is going to start up on January 1st and we think that that's that's important for a variety of reasons and we like how we are positioned given where our product lineup is and and what's what's going to be we think is going to be important to customers from a clinical practice standpoint under this new model.
Thank you and then the follow up is just on neurosurgery the investment there yet Anthony and see what we talked about it investor day, again and incremental market opportunity in perjury, we talked about.
A total potential market of 600 million and really that represents a replacement market opportunity for aging gammaknife that we think through 2026 there'll be approximately 180 systems that are going to get two greater than 10 years, and we will be looking for trade.
Trade out.
The Cyberknife F. Seven now with what we showed with brain lab, having a treatment planning and contour <unk> interface that is familiar to neurosurgeons. We believe will be a competitive advantage. The fact that the cyberknife treat both brain and spine and gamin Gammaknife only does brain.
And also we think and improve patient experience without the use of ahead frame will be preferred and we'll put us in a strong competitive position to be able to penetrate some of these replacement opportunities.
Tailwind or the.
But.
This concludes our question and answer session I would like to turn the conference back over to Josh Levine for any closing remarks.
Thanks, operator, I would like to thank the entire accurate team for their continued focus and commitment to great operational and commercial execution beyond the tremendous contribution by our team the clinical and portfolio impact related to our most recent innovations have resulted in improved competitive positioning for accurate products as a result.
These factors I believe the businesses positioned to grow at the fastest rate we have an over a decade and I've never been more excited about the future of accurate as FY twenty-two unfolds. We look forward to speaking with you again in January associated with our fiscal second quarter earnings release. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may not disconnect.