Q4 2022 Accuray Inc Earnings Call
Yeah.
Good day and welcome to the actually were in fourth quarter 2022 financial results Conference call.
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Thank you operator, and good afternoon, everyone. Welcome to Accuray's Conference call to review financial results for the fourth quarter of fiscal year 2022, which ended June 30th 2022.
During our call. This afternoon management will review recent corporate developments.
Joining us on today's call are Suzanne Winter, Accuray's, President and Chief Executive Officer, and Ali Pervades Accuray's, 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.
Actors 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 Commission.
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.
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 30th 2022. Additionally, there will be a supplemental slide.
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, Suzanne Winter Suzanne. Thank you Ken Good afternoon, everyone and thank you for joining.
Cause this marks my first opportunity to address you since I became CEO I want to share with you my goal of envision as I embark on this great opportunity as we move into fiscal year 'twenty. Three we are laser focused on first growing materially faster than the market second delivering differentiated.
Solutions to greatly improve care and outcomes for all of our stakeholders.
Third growing and improving our service business offerings, and finally, enhancing margins and free cash flow I will touch on each of these in my remarks, but this is my focus and the focus of my team as we enter fiscal year 'twenty three.
I want to start out by thanking the accuray team for their steadfast dedication to serving global customers. This quarter and this year. Our teams demonstrated incredible resilience navigating the supply chain and logistics challenges to fulfill demand and deliver outstanding support to our customers and their patients.
Today, we reported strong fourth quarter results in both revenue and EBITDA. Despite this challenging macro environment.
In the fourth quarter, we added 37, new system orders, which is up 12% growth in units sequentially, we see growing demand for the cyber knife S. Seven system for sites that are building dedicated stereotactic radio surgery and F. B R. T programs as well as rapid adoption of our new product introductions.
They clear our T imaging on that exact where to date, we have 115 orders to clear our T with 73 ship to customers since our introduction 18 months ago.
Reflecting on the full year, we achieved significant company and product milestones. We finished our fiscal year with $430 million in revenue, representing 8% year over year growth.
This is the highest revenue performance in the company's history and a year over year growth rate that is more than twice the estimated worldwide radiotherapy market growth.
Annual product revenue was outstanding with 16% unit growth and 22% revenue growth.
Our innovation driven growth strategy is working this year, we strengthened our product portfolio by establishing rat exact is the industry's only C. T linac platform available in the market the.
The introduction of clarity provides superior image quality compared to conventional external beam radiation therapy systems and matched with accuray's proprietary synchrony technology is the only system that can continuously track tumor movement and adjust treatment delivery to the tumor is location in real time.
<unk> without these are gating, which stops treatment when the tumor is out of range.
As a result of this new standard of the imaging performance. This year clear our team was awarded the 2022.
Med Tech breakthrough award for best New Technology solution for oncology clear our T provide better visualization to guide therapy compared to conventional external beam radiation therapy systems that use cone beam imaging and at approximately half the cost of MRI linac and the greater.
Versatility and speed.
This year, we also introduced <unk> I'll try to enhance that exact treatment planning speed and quality customers have told us the blue Altra is a significant enhancement reducing treatment planning time from 45% to 90% depending on the plan.
Mers have reported the departments that normally trade at an average of 40 patients per day can now treat an additional eight patients per day due to the increased operational efficiency from Volvo Alta. Additionally.
Additionally, this year the cyber knife gained additional momentum capitalizing on the rapidly growing use of five fractions or less ultra hyper fractionated treatment for <unk>.
<unk> building World Class Stereotactic radio surgery and S. T R T programs.
Cyber knife unique open robotic design deliver thousands of non coplanar beam angles to the tumor moving around the patient delivering the highest precision therapy, while reducing anxiety that can be caused from other radiation therapy system that require the patients to move into a small bore.
Turn off the treatment. Additionally.
Additionally, they used to synchrony for the continuous tumor tracking and correction also eliminates the need for restricted breathing devices that are required with other radiation therapy system, making it the gold standard Srs S. P. R. T system with the best experience for the patient.
In FY 'twenty to cyber knife showed significant revenue growth due to the growing demand for installations that provide the capability to deliver five fractions or less treatment for key indications like prostate lung breast and metastases. These clinical indications represent approximately 70% of all.
Patient cases worldwide. However to date only approximately 20% improvements are estimated to use ultra hyper fractionation accuray technology is strongly positioned to capitalize on the expected demand for ultra hypo fractionated treatment, which we believe will be a market catalyst to drive.
Over 2200 technology replacement is 10 years or older over the next five years and representing a 5 billion dollar total market potential in the U S and Western Europe alone.
Additionally, this clinical trend is reinforced as we saw greater patient awareness for accuray technology and more patients driving decisions for their own course of therapy.
We reported incredible patient stories like retired rear Admiral Gerry Hall, former National Security Director to the White House, who was featured in the June 30th USA today answer regarding his experiences being treated on the cyber knife system after being diagnosed with prostate cancer.
After his wife's diligent research exploring treatment options. He advocated for the cyber knife treatment due to its noninvasive nonsurgical highest precision five fraction treatment.
Also our gold a retired businessman who's positive experience being treated for prostate cancer, where the cyber knife system drove his decision to name his Kentucky Derby race horse cyber knife.
We continue to be inspired by patients who have been treated with our technology and are working with patient advocacy groups to educate patients on treatment options.
Turning to our full year regional performance, we are seeing the return on investments we are making in the Americas region commercial infrastructure in FY 'twenty to the Americas region delivered 31% year over year growth in orders and 17, 5% growth in revenue.
In the fourth quarter consistent with our goal of expanding patient access we installed the first rat exact system with clear our tea and synchrony at the VA in Los Angeles with the latest radiation therapy will now be available to the greater L. A community.
In the EMEA region, while orders declined 10, 6% year over year, largely due to geopolitical tension given the war in Ukraine revenue increased 10, 7% driven by year over year growth in India, and Southern Europe Subregions.
In the fourth quarter, we won two new orders in Spain. Following a large public tender persistence in the premium high performance segment.
In the APAC region, the extended China, Covid Lockdown tempered order demand, but we still increased orders by 8% year over year. However, backlog conversion was also very strong with revenue growing 9% year over year.
In Q4, we installed the second rat exact system with clear, our tea and synchrony at the prestigious Royal Brisbane and Women's Hospital in Australia.
And finally in Japan region orders were flat in revenue declined 15% year over year and was disproportionately impacted by FX headwinds with the strengthening of the U S dollar and.
On the positive side, Japan continues to lead in competitive conversions with four or five orders in the fourth quarter being replacement of older competitive installed base.
This past year, we really turned up the volume with our strategic partnerships with the goal of creating best in class solutions, and reducing the time to deliver them to the market.
Our partnership with research continues to strengthen with treatment planning O I S solutions and development of online adaptive solution. Our partnership seeks to leverage accuray's clear our T imaging and research powerful AI and contour ring algorithms to provide an optimized solution.
For online adaptation of a treatment plan, while the patient is still on the treatment table.
Bringing lab a leader in surgical navigation provides connectivity are there elements software and country registries for cyber knife customers doing brain and spine procedures.
Our partnership Leverages brain lab's expertise and access to their installed base of over 5000 neurosurgical customers globally.
Finally, our partnership with C red enhances our breast cancer treatment capabilities on rat exact and expands the versatility of the system to single bunker sites, providing the most comprehensive breast solution in the market.
This year 163, new clinical and physics abstracts were presented at the major conferences worldwide, demonstrating how accuray's unique technology is improving clinical outcomes compare to conventional linac and FY 'twenty two the multicenter pace B trial demonstrated the difference the cyber knife.
Biotic non coplanar delivery with synchrony made in the quality of life for prostate cancer patients treated with ultra hypo fractionated therapy pace be demonstrated 50% less bladder complications compared to patients treated with conventional systems.
The tomo breast trial showed that accuray's precise delivery of hypo fractionated therapy was associated with eight 9% improvement in the secondary negative impact of heart and lung function compared to hypo fractionated treatments delivered unconventional external beam system.
And at the radio surgical Society meeting Ah study abstract highlighting the use of the cyber knife system for trigeminal Neuralgia was recognized as the best clinical abstract at the conference study result show that pain relief lasted for 10 years, after receiving treatment and greater than 70% of patients treated.
Turning to our growth agenda for fiscal year 'twenty three our strategy of innovation driven growth is working and we are committed to build upon these fundamentals and strength in new areas that position us to win more customers and gain share.
The first pillar of our strategy disruptive innovation I will remind everyone of our ultimate objective at Accuray building, a better future for patients diagnosed with cancer or certain neurological diseases. We are committed to being recognized by the industry as a true innovation leader, where we attract the best talent.
And create an environment that envisions a better way forward.
Typical med tech companies invest between 5% to 10% of revenue back into R&D.
Accuray expects to invest approximately 14% of revenue back into R&D in FY 'twenty three to help ensure we are at the poor front of radiation therapy innovation and provide the maximum ROI for our shareholders.
We do this in an effort to provide new and effective ways to treat patients and expand options for care, which we believe will translate into long term value for our shareholders. We have four main product development programs that are the top priorities for the company.
Additionally, we are embarking on a multiyear global transformation of our service business, which has been flat for the last several years evaluating all segments of our service offerings in an effort to deliver and capture greater value for our support solutions and strengthen and grow this annuity.
By helping our customers become more efficient and advance their operations for.
For example, many customers dealing with labor shortages.
And turnover are seeking solutions that provide advanced system training tailored specifically to their needs.
We will also leverage system data to provide operational insights that can be a powerful tool to help radiation therapy departments optimize workflow capacity and efficiency.
Further we have restructured our service and commercial organizations to ensure that we become closer to our customers and we'll continue to evaluate the effectiveness and profitability of direct versus indirect operation in our target geographies.
The second pillar focuses on expanding financial margins as we entered the new year fiscal year 'twenty. Three we expect continued macroeconomic challenges and new potential headwinds to emerge we will be laser focused on margin expansion and plan to increase our operating rig.
And accountability captured greater value on our products and solutions and look for ways to further optimize our supply chain.
Supplier optimization flexible sourcing and ensuring that we operate with efficiency and sustainability.
We'll invest in the right areas that we expect to drive value for our customers and at the same time attacking areas, where we see margin leakage.
The third pillar is simplifying and building a more durable business we.
We need to make work easier and be Nimbler and the way, we make decisions and operate as a result, we are making significant investments back into the company Foundation, approximately $12 million investment in ERP and cyber security our main areas of focus to protect the company and our customers.
The return on these investments is expected to solidify our fundamentals provide better business data and analytics. So we can make faster and more effective decision, making and ultimately simplify our work.
Our final pillar is transformational corporate strategies, we just celebrated the three year anniversary of the creation of C. N N C accuray in China.
The China JV now has an organization that will be 200 people strong in China.
State of the art manufacturing facility and incredible training center that will be able to serve global customers agree.
A greater than 75% win rate in the type a premium market over the past three years and strong backlog for revenue conversion.
Additionally, we will continue to compete in the type B segment with our current product portfolio accessing the largest segment of the China market, where 1800 systems in the next five years are expected to be sold representing market potential of approximately $600 million annually.
While the Covid Lockdown has delayed our jointly developed type B product. We are on track for N. M. P. A submission in Q2 of FY 'twenty three and are confident that it will be a winning solution for the growing type b market and expect it to make a meaningful impact on accuray in FY 'twenty four.
Additionally, the translation of the value product to access the global market segments beyond China will allow accuray to compete in a broader global market, where conventional external beam radiation therapy systems. Currently compete this represents an incremental 45% of the global radiation therapy.
Market access where we currently do not compete with our premium high performance products.
I will now hand, it over to Ali to review the financials.
Thank you Suzanne and good afternoon, everyone. We are pleased with our team's dedicated execution and as a result accurate has delivered a strong quarter and close to fiscal 2022, despite ongoing global challenges that Suzanne had referenced earlier.
Total revenue for the quarter was $110 million, which was down 1% compared to the prior year on a full year basis total revenue was $430 million, which was up eight 5% from prior year and a record revenue number for the company driven by strong execution from our cross functional teams. Despite all the macroeconomic headwinds.
Product revenue for the fourth quarter was $58 million, an increase of three 4% from prior year on a full year basis product revenue was $214 $7 million, an increase of 21, 5% year over year, representing strong customer demand for our key innovations.
From a product mix perspective, the tomo therapy platform accounted for approximately 65% of the quarter's revenue unit volume, while the cyber knife platform accounted for the remaining 35%.
For the full year tomo therapy accounted for approximately 69% of unit volume, whereas the cyber knife platform accounted for the remaining 31%.
Service revenue for the quarter was $52 million, which was down 5% from prior year, primarily due to FX headwinds in our non U S markets on a full year basis service revenue was $215 million a decrease of 2% from the prior year again, mainly impacted by FX headwinds.
Gross orders played out as expected with fourth quarter orders at $88 million, which was down 22% from the fourth quarter of the prior year, which are challenging comps.
For the fiscal 2022 gross orders totaled $332 million, which was up 2% from the prior year from a product mix perspective, the tomo therapy platform accounted for approximately 65% of gross orders unit volume for the quarter and the cyber knife platform accounted for the remaining 35% for the full year of tomo therapy accounted for approximate.
67% of gross orders unit volume and cyber knife accounted for the remaining 33%.
Our book to Bill ratio, which is defined as gross orders divided by product revenue was 1.5 in the fourth quarter and for the full year, which is higher than the industry standard of one two to one three.
Moving forward, we will use the book to bill ratio versus the industry to measure the strength of our order performance. Additionally, we will focus our teams and booking orders that are expected to convert to revenue in a more time efficient manner. Prior to 30 months. We think is a good predictor of short and midterm revenue trends.
Moving to backlog I will remind everyone that we report product order backlog, which is 30 months or younger we ended the fourth quarter with backlog of approximately $564 million, which was 9% lower than prior year.
This was due to net age outs for the quarter, which were approximately $40 million, mainly driven by slower installations in China due to Covid lockdown and delays in our EMEA region due to the war in Ukraine, and we expect to convert the majority of Easter revenue in the quarters ahead.
Total agents for the quarter were $9 $8 million, we had only one unit cancellation that was $2 $3 million and there were $3 million of FX and other adjustments.
For the year cancellations totaled $11 million, which is which is the lowest cancellation amount over the last five years, our focus for fiscal year 'twenty, three and beyond will be on reducing overall age out activity levels. This year of approximately $35 million of orders aged back in during fiscal 2022, which is the highest agent activity, we have reported over the life.
Five five years validating our views that are 30 months either policy does not translate into an order loss as our teams remained focused on revenue conversion, including from deals that have aged out.
Our overall gross margin for the quarter was 39, 1% compared to 39, 4% in the prior year, despite macroeconomic challenges referenced earlier.
On a full year basis, our overall gross margin was 37, 2% compared to 43% from prior year, mainly due to the inflation and FX headwinds, which I will further expand on as I provide context on our product and service gross margins.
Product gross margin for the quarter was 45, 1% compared to 41, 5% from the prior year, primarily driven by favorable product mix, including upgrades with higher margins, reflecting our innovations.
Full year product gross margin was 47% compared to 42, 2% from the prior year, primarily driven by increased material and freight costs, which were partially offset by proactive margin preservation actions focused on price and cost discipline.
Service gross margin for the quarter was 32, 5% compared to 37, 3% from the prior year, primarily due to lower contract revenue in our non U S markets driven by recent FX headwinds.
On a full year basis service gross margin was 33, 7% compared to 38, 7% from the prior year due to higher parts and freight costs increased travel expenses and FX headwinds.
Operating expenses for the quarter were $41 million compared to $40 million in the prior year on a full year basis operating expenses were $151 $8 million compared to $137 $3 million from the prior year driven by strategic investments in R&D and incremental sales and marketing expenses as business returns to a more normalized run <unk>.
In the post COVID-19 environment.
Operating income for the quarter was $2 million compared to $4 $1 million from prior year, whereas in a full year basis operating income was $8 $1 million compared to $22 $2 million.
Adjusted EBITDA for the quarter was $5 $2 million compared to $6 7 million in the prior year.
On a full year basis, adjusted EBITDA was $22 $8 million, which exceeded the higher end of our revised guidance. The reconciliation between GAAP net income and adjusted EBITDA as described in our earnings release issued today.
Turning to the balance sheet total cash cash equivalents and short term restricted cash amounted to $89 million compared to $98 million at the end of last quarter net.
Net accounts receivable was $94 million up $9 million from prior year due to backend loaded shipments our net inventory balance was $142 million up $16 million from prior year as we have built up our inventory to navigate through the ongoing supply chain challenges to fulfill our customer demand, while ensuring healthy service stocking levels.
Those are our key financial highlights and with that I'd like to hand, the call back to Suzanne for our fiscal 2023 outlook Susanne.
Thank you Ali.
Looking forward to FY 'twenty three our revenue guidance takes into account continued uncertainty and impact on the macro environment and Covid lockdown in China to persist through the first half of the fiscal year.
Additionally, we have assumed the incremental foreign exchange headwinds we saw in Q4 to continue in the first half as well.
For FY 'twenty three we expect revenue in the range of 447 million to $455 million with a midpoint of approximately 5% growth year over year, which would outpace the market.
Similar to prior years, we expect our revenue to be 45% in the first half with the remainder in the second half of FY 'twenty three.
For adjusted EBITDA, we are targeting a range of 26 million to $30 million with a midpoint of approximately 23% year over year growth.
And I expect to have greater visibility to macro conditions and the impact on our performance as we move through the fiscal year.
Improvements in supply chain factors, an accelerated recovery in China will allow us to drive performance higher than guidance.
In closing we remain confident in our long term strategy and pipeline of innovative solutions and are committed to investing in technology and clinical innovation that differentiates accuray technology. It makes a meaningful difference in patient outcomes, we have exciting growth catalysts in our pipeline that we believe will.
Our long term growth profile and will allow us to deliver above market growth.
Operationally, we remain laser focused on capital deployment, improving margins and profitability, while strengthening our balance sheet, so that we maximize financial flexibility and create shareholder value.
Once again I would like to thank our entire accuray team for their dedication and passion, we know that the work we do makes a major difference in the lives of the patients. We serve this is why I came to this company and I believe it is our greatest competitive advantage.
I am honored to be taking over the role as president and CEO of this amazing company and team together, we will move the organization forward and fulfill our company mission of creating a better future for patients with cancer and neurological disease.
I will now turn it over to the operator for Q&A.
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 you're using a speaker phone we ask you. Please pick up your handset before pressing the keys.
Your question. Please press Star then two.
First question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Hi, good afternoon.
Yes, I have to say.
Congratulations on a terrific start to book Suzanne Lee.
I think this is very encouraging so I'm quite excited.
I actually cant believe you got any orders in the quarter and to get 88 million visits.
But what I want to ask about is.
I know this is a delicate topic, but if you could talk a little bit about your competitive assessment.
Sure.
Systems and machine stack up relative to your specific competitors.
That would be a big help to us and again congratulations on a terrific start.
Thank you Brett and thank you for the question Yeah in terms of how we stack up versus our competition I think.
Very strong position, especially in the premium end and high performance segments and those customers that are looking to do ultra hyper fractionated treatment, which is again the growing clinical trend what that means.
Need for the highest precision impossible, because it's higher radiation dose.
And fewer fractions and so with all of the work that has been done on our technology development to be able to provide that level of precision is now coming to bear.
And and we are doing very very well and again the biggest differentiators from us for us are certainly the clear our teeth.
Amortization again, we're the only seat.
On the market, which can provide diagnostic level C. T imaging, so that they can see where they treat them synchrony continues to be a differentiator for accuray in our ability to follow tumor motion, which happens during the procedure and adjust the beam.
All time and now we're seeing the clinical data to show that it makes a difference in the long term outcome of the patient as well as the short term. So that that's been tremendous and I think we see that from our product revenue at 22% revenue growth for the year, we're starting to see really the fruit.
So that kind of technology differentiation.
Great and then just can you give us a sense in real time about the situation in China, and what you're seeing there do you expect.
I guess could be able to advance your ball in China yet.
In 2023 or do you think.
You're gonna be locked down so to speak to.
So our guidance the assumption in our guidance is that we're going to see similar conditions in the first half of the year due to the Covid lockdown in the second half or the second half of FY 'twenty two we did see a softening of.
Demand just because they were locked down.
They had to remain on site, but I do think there.
There is definitely some movement happening, especially on the bidding processes, but you know again from a guidance perspective, we are assuming that it's going to be similar to the second half.
See in the first half of the year.
But again it is a demand that's going away. It's really you know when does it start back up again.
In China, we had a very strong year overall at 11% growth in revenue 12% growth in orders.
Over the 100 installed base in China installs are up so we're very we're very excited about where we stand with China, We got a very healthy backlog from which to convert.
And you know, while we're competing the type B products now you know, we're really excited about the future with the JV product and you know we're back on track with getting a process.
For that product so.
It remains to be seen but but we're being cautiously optimistic based on some of the signs that we're seeing.
Great. Thank you very much.
I don't know if it's Washington today comes from Neil Chatterji with B Riley.
Hi, guys hear me.
Yes.
Okay.
Thanks for taking my questions.
Congratulations Susan.
For.
First call as CEO and CFO .
<unk>.
First question, just maybe on you mentioned or you touched on the replacement market would be 200.
Oh, you know opportunities, which just kind of curious on that.
As you kind of the new fiscal year.
Could you maybe just talk about how this would stack up versus this past fiscal year in terms of it.
The number of systems competing that typical 10 year collection.
Rich.
Is it kind of at the same level or are you expecting kind of a greater greater number just given kind of the dynamics.
The current capital spending environment in terms of extending for some systems.
Yeah. Thanks for the question Neil I think you know what we have seen especially in the developed markets, where we do have an installed base.
Our competition has an installed base that is older. You know eight years, plus 10 years, plus we actually are seeing increased activity them to upgrade those systems and certainly we saw that from our Americas revenue. They were our region of the year and over 50% of their.
Their business was trade in trade up of the older systems. You know it is a definite a focused commercial effort on our part to drive that and certainly innovation.
Strong reason to go to administration to be able to get the capital equipment funds to be able to trade up and improve the overall performance that of course is matched with the clinical trends, where you know more patients and more clinicians are starting to use all type of fractionation as we talked.
Within that high performance segment, so I expect it to continue especially in the developed markets.
You know as it is a driver.
Got it.
Thanks for that and then.
Maybe just as a follow up.
You mentioned.
Hum.
Yeah.
Ukraine, Russia.
I was just kind of curious you know more broadly.
Geopolitics situations.
Is that impacting your kind of other aspects of the business, whether it's you know just the Egypt.
Sure the supply chain.
So that's where I'm trying to.
Taiwan relations.
Also as Doug.
Local partner in China.
Yeah.
Sure.
Let me just take some of the questions in part and I'll have I'll, let you jump in here as well, but I'm.
Just the overall sort of geopolitical tensions I think it has the impact of really across the board you know not only from you know our age outs, our customers being able to install them and certainly in China. We know that there's been delays and so that has impacted our net age outs. However, those orders are not going away.
Licensing arent going away, it's really just a timing issue in terms of install.
That also those kind of events are also impacting from a supply chain standpoint. For example, you know again our supply chain team I think has done just a tremendous job in managing them you know everything that's been thrown at them to be able to fulfill and also just the variability.
Now what the issue might be you know in terms of what they need to deal with but you know for example, one of the areas, where we know we have.
For sure we knew shortage would be in the specialty gases, which is directly impacted by whats happening in Ukraine, you know these specialty gases.
Since you know the access to the specialty gases has worsened since the war in Ukraine, and you know our teams are working overtime to make sure that we've got other supplies that we mitigate that but that's an example, I think of you know there's there's always an issue that we are contending with.
That what we've put in place is early visibility early action and I, just I can't say enough about the team here and what they've been able to do to manage it but I'll, let you talk a little bit about the age outs yeah, absolutely. So Neil thanks for the question in terms of net age out as I've referenced in the script.
We had net age outs about $40 million.
And you're right. The primarily there were in China and in EMEA and like Suzanne said, we have a high level of confidence for the orders from China to age back and it's just a matter of time when sort of the situation over there loosens up.
EMEA specifically the rush orders you know, we're certainly keeping a close eye on them because of that situation is pretty dynamic. So we continue to check in with our teams to make sure that we're doing everything we can to try and convert those.
To revenue so that's.
Thats the.
Situation from that perspective, I think one thing I do want to reiterate is that we had in fiscal year 'twenty $235 million of orders that aged back end.
<unk> contributed to revenue right and so our teams are maniacally focused on ensuring that we are working the entirety of our backlog and trying to convert into revenue.
Great I'll jump back in queue.
The next question today comes from Marine people would be P. I G. Please go ahead.
Hi, congratulations on a strong reports and congrats to both Suzanne and and all in the first quarter on the call.
I wanted to start maybe with a general question on Capex environment. I know you gave us a little bit of color on China, but would love to hear just across your geographies, what a hospital appetite for capital spending is like whether you're seeing any slowdowns or delays in purchasing decisions at this point.
Thanks for the question Murray.
Say that it differs by region. It also differs by institutions.
A little bit of what we're seeing you know I think that in general I would say of course, we're seeing the slowdown in China, we probably will see some slow down from an order standpoint in Japan also just due to potential recession there.
But in general I would say, what we learned from Covid is that cancer care continues.
And so as a result, I think we have as a segment and as an industry become more resilient to the macroeconomic economy factors.
Continue to be very balanced from a regional perspective, so that we're not so exposed to one region dynamics you know what.
We see as our customers are still very busy that there's still a backlog of patients that need access to reading radiation therapy treatments and certainly as you know post COVID-19 with increased diagnostic testing and increased.
Diagnosis of cancer, and and actually more progressive.
Are sites that are in need of equipment and so we're going where the opportunity is that's part of building a big funnel them.
But but overall I think it just it varies.
Okay makes sense and certainly that's reassuring commentary.
So Dan I wanted to dig in a little bit more on the on some of your comments around improving the service business certainly some of the capabilities. You described a sound like they would be very useful for your customers are you thinking about raising prices alongside of us and how long do you expect some of these improvements to take us several quarters.
This is several years, how do you view that transformation. Thanks for taking the questions. Thank you for the question. Because this is one of our main priority, it's definitely a multi year endeavor and we know in the service business. It takes a while to see the impact just because of that.
Long cycle I'm of the sales process.
But we're absolutely committed to getting this engine growing it's our annuity and we think it has tremendous value.
Now we're looking at multiple things I think in the area of service. We're certainly looking at everything from adding higher value added offerings that we believe the customers need them and they have told us that they'd be willing to pay a premium for it and so again, it's not really just about raising prices, it's about creating more value for them.
For which they will you know if they will.
You now see the operational efficiency benefits you know, we began we talked a little bit about reorganizing our teams. So we think that that will have a better holistic approach to the solutions that we provide them. So that we understand their unique needs and we deliver tailored solutions you know from a training perspective.
Installation and project management opportunity and then I think we have other areas, where we're going to continue to look to see if there's more operational insights that we can provide them again that will create value for our customers. So with that we think we get the we get the engine running and at the same time. We are we think we'll be able to.
Get more margin as well.
Thanks, so much.
And our next question today comes from Josh Stirling aims at Cowen. Please go ahead.
Hi, Thanks for taking the questions. Congratulations on the strong end of the year and that was from start excuse me that was all he wanted to ask about.
Just synchrony and clearer T.
The way we've been thinking about those launches is driving increased demand from customer base globally.
But wanted to also just check in as we think about this next fiscal year about pricing.
Whether we should be thinking about clear, our tea and synchrony adoption.
<unk> two system orders driving asp's up and will pricing be a tailwind because of this technology innovation and maybe a higher attachment rate this year.
Thanks for the question, Josh and I'll start and then I'll hand, it to Ali but.
I think that that's the goal of all of the innovation that we are driving not only differentiation, but that we're also creating a richer configuration to the systems that are order them and.
And that driving the overall pricing.
The system, because there is greater value associated with it and you know and I think that we're starting to see for sure. The attachment rates on that exact systems are inclusive of those two functions as well as the Volvo Altra. So you know that's what that's what we're trying to drive them with product development and.
And I think we're starting to see that yeah I totally agree.
We I think.
One of the things going into fiscal year 'twenty three.
We're very focused on which is that spoke about during her prepared remarks was around margin expansion right and on margin expansion, we are very focused on pricing and making sure that.
You get the price that our innovations demand and so we're working very closely with our regional teams. We have a lot of their incentives aligned to ensuring that we get price and we get to a certain level of margin on both our orders and our revenue.
And so there is a line of incentives over there and great confidence in our ability to execute on that.
Thanks for that and wanted to ask about China, and the great revenue and order growth in China and in the last fiscal year.
I was hoping you may be able to help us think through whether you had more success in the type of return on the type B channel as you're making progress towards this type b launch in the JV.
Just how much of a tailwind in the type B channel.
Obviously, the JV going to create a big tailwind, but which is weird where the business stands today on the type b side versus Taipei in China, and then also if you could just review.
The timelines around when we should think about your forecasting where we should start thinking about revenue contributions from the JV. Thanks, a lot for taking the questions.
Okay. Thank you Josh Yeah, no I think we feel really.
Do you feel good about the mix between type a and type b actually in China. We obviously have a very strong backlog in type a we are expecting the 50 year plan to come through and we'll see how much of that will be tied day versus type b in general, though we know that the type b market is a bigger purse.
<unk> of the overall, China market and we want to play there and we want to play with our best product and so we are competing now with IP.
And I would say that you know we have sort of.
Equal representation from type a and type b in terms of orders and revenue as we look at FY 'twenty, two but moving forward, we do expect that percentage to be more type b, especially as we get our new JV product.
To market and then.
No I think you've covered it tonight.
Okay.
Alright, listen gentlemen, as a reminder to ask a question. Please first store in the mall.
So there's no question comes from Jason What do you use with loop capital. Please go.
Hi, Thanks for taking the questions and congratulations on you start to see you.
So just a couple of questions one a clarification on timing for the the China JV Crosby product I guess, you're saying was it was it second quarter, you're going to you're going to submit approval and after that after that submission how long do you anticipate it will take and I think you had also mentioned.
And related to this that you were potentially going to be showcasing that class b products.
I had a convention in China this year.
Or if you can comment all of those those issues.
Thanks for the question, Jason Yes, so what we did say in the prepared remarks was that we were on track for the submission to N M. P. A with that product in Q2, FY 'twenty three as a result of the Lockdowns that continue and we are expected to continue.
Also think that the shows we will not be a good opportunity.
To do the market introduction, so we're actually going to wait to do the market introduction until we're closer.
To the to the N M. P. A approval so those plans are still being.
Put in place as we work with the with the with our JV partners.
Okay, and then you mentioned it should have a material impact on fiscal 'twenty for.
I assume that's where the orders not necessarily revenues because it generally takes you know I guess nine to 12 months for nine to 18 months to put these in the ground.
We are expecting a material impact in FY 'twenty for both orders and revenue.
Okay. That's good to hear and then on service margins I. Appreciate your focus and your comments in terms of how you're looking to improve those margins.
Ideally, where do you think margin should be a rocky right offer service specifically.
And I'll, let Ali jumping in yeah.
So.
We obviously in the past your experienced a lot of headwinds in the form of inflation in both material and freight we have had increased travel costs and we have had FX headwinds that have been impacting our service business, which is why our margins for.
For the year around 33, 7% I think it's probably reasonable to expect that through some of the actions we're going to take in fiscal year 'twenty three we revert back to pre COVID-19 levels, no hovered somewhere between 36% to 37% for service.
And then you know what we're really excited about going into fiscal year, 'twenty, three and really transforming the service business.
And so I think through those actions, we can certainly start to expect some more margin accretion in fiscal year 'twenty four and 'twenty five.
And so.
We'll give you more details on that.
Oh, Okay. That's helpful and also in terms of just supply shortages and things like that that you know clearly impacted this year I'm I understand that there's still headwinds, but in terms of where.
Do you stand in terms of inventories you've done some build outs is that less of an issue that we should be concerned about or we should be concerned about for.
For this coming fiscal year.
Where we are constantly working and managing and balancing I think from a supply chain standpoint that we don't think that we're out of the woods, yet you know and that's part of the guidance that we have is assuming that at least through the first half we expect to see some some inventory challenges you know some things have gotten better.
You know and other things have been come into the spotlight you know the.
And in General it's just has been a significant lead times on certain critical components. So that so you know we we continue to monitor that again to get early visibility and taking action as a result of that though we have you know Duffy we've.
We've driven demand for materials for those long lead time components those kinds of things like electronic circuit boards power suppliers compute systems, you know many others, but we've also focused on improving our global stocking position for critical service parts.
You know so we've taken a look at the top 20 highest consumption service parts just to make sure that we've got those in place like magnetron that the multi leaf collimator the jaw actuators and so we feel like we're in a good position, but again, there's there are new things that come up and we just we need to be.
In a constant state of early vigilance.
Yeah.
I appreciate the color I'll jump back in queue.
Ladies and gentlemen, this concludes our question and answer session.
The conference back over to Suzanne for closing remarks.
I want to thank everyone for your continued interest in Accuray and we look forward to speaking with you again in October for our first fiscal 2023 quarter earnings release.
And I'll turn it back over to the operator.
Thank you Ma'am. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Okay.