Q3 2024 Accuray Incorporated Earnings Call
Operator: Good afternoon, and welcome to the Accuray conference call to review financial results for the third quarter of fiscal year 2024, which ended March 31st, 2024. All participants will be in a listen-only mode.
Good afternoon, and welcome to the Accuray Conference call to review financial results for the third quarter of fiscal year 2024, which ended March 31st of 2024, all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Jesse Chew. Please go ahead.
Your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your telephone keypad and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Jesse to please go ahead.
Jesse Chew: Thank you, Operator, and good afternoon, everyone. Welcome to Accuray's Conference Calls Financial Results for the third quarter of fiscal year 2024, which ended March 31st, 2025. 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 Pervaiz, Accuray's Chief Financial Officer.
Jesse: Operator, and good afternoon, everyone welcome to Accuray's Conference call to review financial results for the third quarter of fiscal year 'twenty 'twenty four which ended March 31, 2020 for joining our call. This afternoon National will review recent corporate developments joining us on today's call are Suzanne Winter Edwards, President and Chief Executive Officer, and I'll leave her base accuray's cheap.
Speaker Change: Financial Officer before.
Jesse Chew: Before we begin, I would like to remind you that our call today includes four 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 outlined 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.
Speaker Change: Before we begin I would like to remind you that our call today includes forward looking statements.
Speaker Change: 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 outlined in the press release, we issued just after the market close this afternoon as well as in our filings with the Securities Exchange Commission.
Jesse Chew: We base the forward-looking statements in this call on the 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 statement. 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-cue with any follow-up.
Speaker Change: These forward looking statements on this call and the information available to us as of today's date.
Speaker Change: Assume no obligation to update any forward looking statements as a result of new information or future events.
Speaker Change: To the extent required by applicable securities laws.
Speaker Change: You should not put undue reliance on any forward looking statements.
Speaker Change: A few housekeeping items for today's call first during the Q&A session.
Speaker Change: There's limit themselves to two questions and then re queue with any follow ups second.
Jesse Chew: Second, all references to a specific quarter and the prepared remarks refer to our fiscal year quarters. For example, statements regarding our third quarter refer to our fiscal third quarter ended March 31st, 2024. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accuray's investor relations page at investors.accuray.com. And with that, I will turn the call over to Accuray's Chief Executive Officer, Suzanne Winter. Suzanne?
Speaker Change: Second all references to specific quarter in the prepared remarks are to our fiscal year quarters. For example statements regarding our third quarter refer to our fiscal third quarter ended March 31, 2024. Additionally, there'll be a supplemental slides that accompany this call, which he could ask since by going directly to Edwards Investor Relations page at investors the accurate dot com.
Speaker Change: With that let me turn the call over to Accuray's, Chief Executive Officer, Dan Winter Susanne.
Suzanne Winter: Thank you, Jesse. Good afternoon, and thank you all for joining the call. Let me start by saying that we are disappointed with our quarterly results and have faced near-term challenges here in the second half of our fiscal year that were greater than anticipated and have impacted our near-term results and outlook. However, we are confident that we remain on track to achieve the goals that we laid out at our fall 2023 Investor Day, which included 4 to 6% revenue CAGR and doubling our adjusted EBITDA by the end of fiscal year 26.
Speaker Change: Thank you Jessie good afternoon, and thank you all for joining the call let.
Speaker Change: Let me start by saying that we are disappointed with our quarterly results in our face near term challenges here in the second half of our fiscal year that were greater than anticipated and have impacted our near term results and outlook.
Speaker Change: We are confident that we remain on track to achieve the goals that we laid out at our fall 2023, Investor day, which includes 4% to 6% revenue CAGR and doubling our adjusted EBITDA by the end of fiscal year 'twenty six.
Suzanne Winter: Fiscal 2024 remains an important year for our company as we're making a substantial entrance into some of the fastest growing markets in radiation ecology, introducing advanced capabilities, and investing in a sustainable infrastructure to grow our service business, all of which we believe will contribute to revenue and adjusted EBITDA growth over the next few years. However, the quarter did not play out as expected due to a few key factors.
Speaker Change: Fiscal 2024 remains an important year for our company is we're making a substantial entrance into some of the fastest growing markets in radiation oncology, introducing advanced capabilities and investing in a sustainable infrastructure to grow our service business all of which we believe.
Speaker Change: We will contribute to revenue and adjusted EBITDA growth over the next few years.
Suzanne Winter: First, we had expected to ship three additional systems this quarter, which was pushed to Q4, which would have had a meaningful impact on both our top line and adjusted EBITDA. Additionally, in the U.S., which is one of our largest and highest-margin markets, we saw a substantial slowdown due to longer capital equipment budget cycles. We had expected the region to ramp up in the second half of the fiscal year, but it is becoming much more evident that there is a broader weakness in capital equipment budgets for 2024.
Speaker Change: The quarter did not play out as expected due to a few key factors first we had expected to ship three additional systems this quarter, which pushed into Q4, which would have had a meaningful impact on both our top line and adjusted EBITDA.
Speaker Change: Additionally, in the U S, which is one of our largest and highest margin markets. We saw a substantial slowdown due to longer capital equipment budget cycles, we had expected the region to a ramp in the second half of the fiscal year, but it is becoming much more evident that there is a broader weakness in capital equipment budgets in 2024.
Suzanne Winter: We believe these reduced budgets and lower capital deployment priority for radiotherapy equipment have both contributed to slow demand in the near term. Finally, while pleased to have received regulatory approval to market the TomoSea equipment in China, we still await approval for the Precision Treatment Planning System that is used with the TomoSea. As previously discussed, the regulatory submission for the Tomos-T system was a separate submission from the Precision Treatment Planning System.
Speaker Change: We believe these reduced budgets and lower capital deployment priority for radiotherapy equipment have both contributed to slow demand in the near term.
Speaker Change: Finally, we're pleased to have received regulatory approval to market the tomo equipment into China, we still await approval for the precision treatment planning system that is used with the tomo C.
Speaker Change: As previously discussed the regulatory submission for the tomo system with a separate submission from the precision treatment planning system.
Suzanne Winter: This was done by design to provide the quickest go-to-market strategy for the system, allowing us to take orders and build our order backlog. Furthermore, we strategically separated the regulatory submissions so we could gain a separate Accuray-owned license approval for the precision treatment planning system, which gives us greater optionality within the Chinese market into the future. As a reminder, we cannot report our full margins on the TOMO-C shipments until we receive this approval, which allows our joint venture to ship systems to the end-user customer. This represents the final step to execute our full market launch, including installation at customer sites.
Speaker Change: This was done by design to provide the quickest go to market strategy for this system, allowing us to take orders and build our order backlog.
Speaker Change: Furthermore, we strategically separated the regulatory submissions. So we could gain a separate accurate owned license approval for the precision treatment planning system, which gives us greater optionality within the China market into the future.
Speaker Change: As a reminder, we cannot report a phone margins on the tomo seed shipments until we received this approval, which allows our joint venture to ship systems to the end user customers. This represents the final steps to execute our full market launch, including installation at customer sites.
Suzanne Winter: Despite these headwinds, we expect to recover these revenues and associated adjusted EBITDA in the coming quarters, which will set us up for a return to growth above the overall addressable market in FY25 and on track with the three-year plan we communicated at our Investor Day. Going deeper into our U.S. business, we believe this is mainly a timing issue and not a reflection of underlying demand. We expect the potential for strong replacement of the aged installed base will continue to drive demand. The age of many units has exceeded recommended guidelines and is nearing the end of parts availability for service and support.
Speaker Change: Despite these headwinds we expect to retrieve these revenues and associated adjusted EBITDA in the coming quarters, which will set us up for a return to growth above the overall addressable market in FY 'twenty five and on track with a three year plan, we communicated at our Investor day.
Speaker Change: Going deeper into our U S business. We believe this is mainly a timing issue and not a reflection of underlying demand.
We expect the potential for strong replacement of the aged installed base will continue to drive demand.
Speaker Change: Age of many units have exceeded recommended guidelines and are nearing the end of parts availability for service and support.
Suzanne Winter: As we mentioned in the last earnings call, we saw longer customer installation timelines in the U.S. during Q2, and this has continued in Q3, where we saw installation cycles and backlog conversion continuing to take longer to materialize than originally anticipated. This impacted both product and, to a lesser extent, service revenue in the U.S. To understand this in greater depth, we surveyed our U.S. customers to validate the slowdown in installation and capital equipment purchasing activity.
Speaker Change: As we mentioned in our last earnings call, we saw longer customer installation timelines in the U S. During Q2 and this has continued in Q3, where we saw the installation cycles and backlog conversion continuing to take longer to materialize than originally anticipated.
Speaker Change: This impacted both product and to a lesser extent service revenue in the U S.
Speaker Change: To understand this in greater depth, we survey to our U S customers to validate the slowdown in installation and capital equipment purchasing activity.
Suzanne Winter: Further, a leading Wall Street analyst published a research report in March, which surveyed U.S. hospital administrators on capital equipment priorities, which also supports our observations. Some of these include spending for radiotherapy being rated lower on the priority list in calendar year 2023, with gradual improvement expected in 2024.
Speaker Change: Further a leading wall Street analyst published a research report in March which surveyed U S hospital administrators on capital equipment priorities, which also supports our observations.
Speaker Change: Some of these include spending for radiotherapy was rated lower on the priority list in calendar year 2023, with gradual improvement expected in 2024.
Speaker Change: Many customers that were allocated capital budgets were required to resubmit for additional capital due to higher costs.
Suzanne Winter: Many customers that were allocated capital budgets were required to resubmit for additional capital due to higher costs. Finally, this market dynamic is expected to improve with gradual recovery entering fiscal year 25 through fiscal year 26, when capital equipment budgets are expected to increase, and radiotherapy is reprioritized. Despite these challenges, we believe that we will deliver the best fourth quarter in the company's history from a revenue perspective. And given that we are in a long cycle capital equipment business where a shift in product volume from one quarter to the next can have a sizable impact on our results, we think it makes sense to look at our business, both for the quarter and on a trailing 12 month basis to showcase our longer-term performance, which Ali and I will start to share moving forward.
Finally, this market dynamic is expected to improve with gradual recovery entering our fiscal year 'twenty five to fiscal year 'twenty six when capital equipment budgets are expected to increase and radiotherapy is re prioritized.
Speaker Change: Despite these challenges we believe that we will deliver the best fourth quarter in the company's history from a revenue perspective, and given that we are in a long cycle capital equipment business, where a shift in product volume from one quarter to the next it can have a sizable impact on our results. We think it makes sense to look at our business both for the quarter and.
Speaker Change: On a trailing 12 month basis to showcase the longer term performance, which Ali and I will start to share moving forward.
Suzanne Winter: I am very encouraged by the 21% global order growth in Q3, which is 8% growth on a trailing 12-month basis, as well as the book-to-bill ratio of 1.8 for the quarter, both of which are strong leading indicators for the future growth of our business. Orders represent a strong signal that customers are adopting our product innovations and growing at a rate that is faster than the market, which we expect will ultimately translate into share gains and a positive impact on revenue, margin, and adjusted EBITDA in the future.
Speaker Change: I am very encouraged by the 21% global order growth in Q3, which is 8% growth on a trailing 12 month basis as well as the book to Bill ratio of one eight for the quarter, both of which are strong leading indicators for the future growth of our business.
Speaker Change: Orders represent a strong signal that customers are adopting our product innovations and growing at a rate that is faster than the market, which we expect will ultimately translate into share gain and positive impact of revenue margin and adjusted EBITDA into the future.
Suzanne Winter: Another key performance metric is the growth of our global installed base. Our installed base grew 4% year-over-year, and service contract revenue grew 2% year-over-year and 4% on a trailing 12-month basis. Install base growth means that, in addition to upgrading our existing install base, we are adding 4% net new customers to the Accuray base, which we expect will further drive growth and service contract revenue over a 10 to 12 year period following the one year warranty period.
Speaker Change: Another key performance metric is the growth of our global installed base, our install base grew 4% year over year and service contract revenue grew 2% year over year and 4% on a trailing 12 month basis instead.
Installed base growth means that in addition to upgrading our existing installed base, we're adding 4% net new customers into the accurate base, which we expect will further drive growth in service contract revenue over a 10 to 12 year period. Following the one year warranty period.
Suzanne Winter: Reflecting on our regional performance, I'm very pleased with the strength of the EIMEA region, which is our largest region and a strategic focus for the company with growth driven from fast growing emerging markets, which is a key part of our strategy to drive patient access. The EIMEA Group achieved 5% in revenue and 29% in orders on a trailing 12-month basis.
Speaker Change: Reflecting on our regional performance I'm very pleased with the strength of the EMEA region, which is our largest region and a strategic focus for the company with growth driven from fast growing emerging markets, which is a key part of our strategy to drive patient access.
Speaker Change: EMEA grew 5% in revenue and 20, and 29% and orders on a trailing 12 month basis, we expect the EMEA region to end the fiscal year with double digit revenue and order growth year over year and gained market share in key sub region.
Suzanne Winter: We expect the EIMEA region to end the fiscal year with double-digit revenue and order growth year over year and gain market share in key sub-regions. APAC is fast becoming our second largest region, with 7% revenue growth and 14% order growth on a trailing 12-month basis. Once we obtain the final step in regulatory approval for the Precision Treatment Planning System for the Tonelic Sea, which we expect to obtain by our fiscal year-end, we will unlock deferred revenue and margin and unleash our China team to deliver pent-up installation demand and drive market traction.
Speaker Change: APAC is fast, becoming our second largest region with 7% revenue growth and 14% order growth on a trailing 12 month basis. Once we obtain the final step in regulatory approval for the precision treatment planning system for the terminal C, which we expect to obtain by our fiscal year end.
We will unlock differed revenue and margin and unleash our China team to deliver pent up installation demand and drive market traction.
Suzanne Winter: In the Japan region, where we are number two in market share, 60% of our Q3 total orders were from replacing competitive systems. The region was down 11% on revenue and 8% on orders on a trailing 12 month basis, primarily due to the impact of unfavorable FX.
Speaker Change: The Japan region, where we're number two in market share 60% of our Q3 total orders are from replacing competitive systems. The region was down 11% on revenue and 8% on orders on a trailing 12 month basis, primarily due to the impact of unfavorable FX, Japan continues to be at.
Suzanne Winter: Japan continues to be a highly profitable region for Accuray, but we are taking additional commercial actions here, including increased pricing and enhanced offerings to help offset the negative impact of FX, which is expected to be realized over time. Finally, as I mentioned in my opening comments, the U.S. performed at a slower pace than we expected in Q3. The America's Region Q3 revenue was down 38% year-over-year and down 15% on a trailing 12-month basis.
Speaker Change: <unk> profitable region for Accuray, but we are taking additional commercial actions here, including increased pricing and enhanced offerings to help offset the negative impact of FX, which is expected to be realized over time.
Speaker Change: Finally, as I mentioned in my opening comments the U S performed at a slower pace than we expected in Q3.
Speaker Change: The Americas region, Q3 revenue was down 38% year over year and down 15% on a trailing 12 month basis, and we expect the region to gradually recover but will be down in Q4 and for the full fiscal year.
Speaker Change: Orders were up 7% for the quarter, but down 19% on a trailing 12 month basis.
Suzanne Winter: And we expect the region to gradually recover but be down in Q4 and for the full fiscal year. Orders were up 7% for the quarter but down 19% on a trailing 12 month basis. Our strategy in the U.S. during this time, when it is extremely challenging for our customers, is not to retreat, as we expect from other industry players, but instead, to get even closer to our U.S. customers, offering enhanced solutions, including flexible financing, increased user engagement activities to improve satisfaction, expanding our commercial partnerships, and increasing our field support.
Our strategy in the U S. During this time, where it is extremely challenging for our customers is not to retreat as we expect from other industry players, but instead get even closer to our U S customers offering enhanced solutions, including flexible financing increased user engagement activities to improve satisfaction.
Speaker Change: Flexing, our commercial partnerships and increasing our field support.
Suzanne Winter: Cancer care continues to be a top profit driver for hospitals, and while capital allocation is tight and shifting forward, we remain committed to being a valued radiotherapy partner now and in the future. Our focus will be on building our backlog of orders, so that when capital equipment conditions improve, we will be well-positioned to take share within this important region. Other key highlights for the company include the inauguration of our new training center, the Accuray Innovation and Partnership Hub, located in Genoye, Switzerland.
Speaker Change: Cancer care continues to be a top profit driver for hospitals and while capital allocation is tight and shifting forward, we remain committed to being the valued radiotherapy partner now and into the future.
Speaker Change: Our focus will be on building our backlog of orders so that when capital equipment conditions improve we will be well positioned to take share within this important region.
Speaker Change: Other key highlights for the company include the inauguration of our New training Center, the Accuray innovation and partnership hub located in General Yes, Switzerland. This new facility is the most recent addition to the accurate network of training centers with other locations in the U S and Japan as well as China through our joint venture.
Suzanne Winter: This new facility is the most recent addition to the Accuray network of training centers with other locations in the U.S. and Japan, as well as China, through our joint venture. These sites are located strategically around the world to make it easier for medical care teams to obtain state-of-the-art clinical education. We expect our investment in these global training centers will generate new training revenue that will contribute to growth and service in the coming quarters.
Speaker Change: Sites are located strategically around the world to make it easier for medical care teams to obtain state of the art clinical education, we expect our investment in these global training centers will generate new training revenue that will contribute to growth in service in the coming quarters.
Suzanne Winter: In addition, furthering our strategic pillar of advancing patient access into underpenetrated high-growth countries, the full introduction of the Tomo-C in the China Type B market is an important milestone for the company. We recently showcased both the Tomo-C and the CyberKnife systems at the China Medical Equipment Fair meeting, the largest medical equipment expo held in Shanghai, China, with over 300,000 participating. We also continue early market launch efforts for Helix, our non-China access product, first in India, where we are awaiting regulatory approval for the full market launch, which is expected by the calendar year-end 2024.
Speaker Change: In addition, furthering our strategic pillar of advancing patient access into Underpenetrated high growth countries.
Speaker Change: Full introduction of the tunnel of seeing the China type B market is an important milestone for the company. We recently showcased the tunnel at sea and the cyber knife systems at the China Medical equipment Fair meeting the largest medical equipment Expo held in Shanghai, China with over 300000 participating.
Speaker Change: We also continue early market launch efforts for helix, our non China access product first in India, where we are waiting regulatory approval for the full market launch, which is expected by the calendar year end 2024.
Suzanne Winter: As part of our Margin Expansion Strategy, we also announced today that we are entering into a collaboration agreement with IUCT-ENCOPOL in Toulouse, France, and Airbus, a leader in the aerospace industry, to develop an artificial intelligence (AI)-driven solution for predicting radiotherapy system performance. We will collaborate to develop a failure prediction methodology, which will allow us to monitor component-level performance to predict and proactively address system issues. We expect that this will translate into a better patient experience and reduced operating costs and further strengthen service margins by reducing parts consumption.
Speaker Change: As part of our margin expansion strategy. We also announced today that we are entering into a collaboration agreement with I use C. T uncle pool into lose France, and Airbus a leader in aerospace industry to develop an artificial intelligence AI driven solution for predicting radiotherapy.
Speaker Change: These system performance.
Speaker Change: Will collaborate to develop a failure prediction methodology, which will allow us to monitor component level performance to predict and proactively address system issues.
Speaker Change: We expect that this will translate into a better patient experience and reduced operating costs and further strengthen service margins by reducing parts consumption.
Suzanne Winter: Finally, at the end of this week, we will head to ESTRO, the European Society of Radiation Oncology's annual meeting. This year's ESTRO meeting is particularly meaningful as we recognize and celebrate 30 years of collaborating with healthcare professionals and industry partners to develop groundbreaking technologies that expand the application of radiation therapy and access to patients who may benefit from care. Highlights from ESTRO will include CyberComm, a new physics service solutions offering intended to substantially reduce the CyberKnife S7 system's commissioning time and enable customers to begin treating patients significantly faster.
Speaker Change: Finally at the end of this week, we will have the Astro the European Society of radiation oncology annual meeting this year's Astro meeting is particularly meaningful as we recognize and celebrate 30 years of collaborating with health care professionals and industry partners to develop groundbreaking technologies that expand the application of radiation.
Speaker Change: <unk> therapy and access to patients who may benefit from care highlights from Astral will include cyber com, a new physics service solutions offering intended to substantially reduce the cyber knife S. Seven systems commissioning time and enable customers to begin treating patients significantly faster.
Suzanne Winter: CNOS, a work in progress designed to provide customers with the ability to perform online adaptation of their treatment plan to account for changes that may occur between treatment sessions. In addition to demonstrating product innovation, we also believe that driving clinical innovation is an important pillar in our strategy to advance care. At this year's ESTRO, we will drive thought leadership with a symposium led by an elite panel of key opinion leaders on the use of stereotactic radiosurgery and SBRT treatments, where Accuray Precision Technology is well positioned to deliver. In summary, while we are disappointed with the Q3 results, we understand the current challenges.
Speaker Change: He knows a works in progress designed to provide customers with the ability to perform online adaptation of their treatment plan to account for changes that may occur between treatment sessions.
Speaker Change: In addition to demonstrating product innovation. We also believe that driving clinical innovation is an important pillar in our strategy to advance care at this year's Astro, We will drive thought leadership with the symposium led by an elite panel of key opinion leaders on the use of stereotactic Radiosurgery surgery and S. P. R.
Speaker Change: T treatments, where accuray precision technology is well positioned to deliver.
Speaker Change: In summary, while we are disappointed with the Q3 results we understand the current challenges.
Ali Pervaiz: I remain confident in our long-term strategy and the value of our differentiated solutions. In the near term, we expect to fuel the success of our strongest growing regions, where we will continue to grow and increase share as we look to see signals for improvement in U.S. conditions. We have meaningful growth drivers in both product and services, and we believe the strength of our innovation pipeline, investment in new service solutions, expected near-term regulatory clearances, and the continued focus on margin expansion and improving our balance sheet will position us well for substantial growth and increasing profitability. I will now hand it over to Ali to discuss the financials.
Speaker Change: I remain confident in our long term strategy and the value of our differentiated solution in the near term, we expect to fuel the success of our strongest growing regions, where we will continue to grow and increase share as we look to see signals for improvement in U S conditions, we have meaningful growth drivers in both product and services we bill.
Speaker Change: Leave the strength of our innovation pipeline investment in New service solutions expected near term regulatory clearances and the continued focus on margin expansion and improving our balance sheet will position us well for substantial growth and increasing profitability I will now hand, it over to Alan to discuss the finance.
Ali Pervaiz: Thank you, Suzanne, and good afternoon, everyone. While the third quarter posed some macro challenges, most notably the slowdown in the U.S. market and foreign exchange headwinds with the yen, we remain confident in the long-term strategy we laid out during our investor day last fall. We are proud of our global cross-functional teams who continue to execute on our strategy despite these headwinds and are grateful for their commitment and dedication to our mission.
Speaker Change: Oh.
Alan: Thank you Suzanne and good afternoon, everyone, while the third quarter post the macro challenges, most notably with the slowdown in the U S market and foreign exchange headwinds with the yen. We remain confident of the long term strategy, we laid out during our Investor day last fall.
Alan: Yes.
Alan: We are proud of our global cross functional teams, who continue to execute our strategy. Despite these headwinds and are grateful for their commitment and dedication to our mission.
Ali Pervaiz: Turning to the financials, product growth orders for the third quarter were approximately $89 million, which is a 21% increase versus the prior year and 23% when adjusted for the impact of foreign exchange, and represents a book-to-bill ratio of 1.8. This strong orders performance was driven by our EIMEA region, which had 76% growth, and our non-China APAC region, which had growth of 123% versus the prior year. On a trailing 12-month basis, gross orders grew by 8%, which represents a book-to-bill ratio of 1.5, illustrating our customers' confidence in our innovations and NPIs, which continues to enhance our product backlog. Moving to the backlog.
Speaker Change: Turning to the financials product gross orders for the third quarter were approximately $89 million, which is a 21% increase versus the prior year.
Speaker Change: <unk> 23 per cent and once adjusted for the impact of foreign exchange and represents a book to Bill ratio of 1.8. This strong orders performance was driven by our EMEA region, which had a 76% growth in our non China, APAC region, which had growth of 123% versus prior year on a trailing 12 month basis gross orders grew by 8%, which.
Speaker Change: The book to Bill ratio of 1.5, illustrating our customers' confidence in our innovations in N P eyes, which continues to enhance our product backlog.
Ali Pervaiz: We ended the third quarter with a product order backlog of approximately $503 million. This reported backlog is up 2% sequentially and down 1% versus the prior year. We had no order cancellations in the quarter.
Speaker Change: Moving to the backlog we ended the third quarter with a product order backlog of approximately $503 million. This reported backlog is up 2% sequentially.
Speaker Change: Down 1% versus the prior year.
Speaker Change: We had no order cancellations in the quarter.
Ali Pervaiz: Net revenue for the third quarter was $101 million, which was down 14% versus the prior year and down 13% on a constant currency basis, primarily due to eight fewer revenue shipments within the quarter. Product revenue for the third quarter was $50 million, down 21% from the prior year, driven by eight fewer unit shipments, as previously mentioned. While Q3 product revenue did not play out as we expected due to three system shipments being pushed out related to customer process delays, it is important to highlight that our China business had a 17% product revenue growth on a trailing 12-month basis, and the EIMEA region had 7% product revenue growth on a trailing 12-month basis, which showcases the strong growth of these regions, which are vital to the long-term strategy for our company.
Speaker Change: Net revenue for the third quarter was $101 million, which was down 14% versus the prior year and down 13% on a constant currency basis, primarily due to eight fewer revenue shipments within the quarter.
Product revenue for the third quarter was $50 million down 21% from the prior year driven by eight fewer unit shipments as previously mentioned, while Q3 product revenue did not play out as we expected.
Speaker Change: <unk> system shipments being pushed out related to customer process delays.
Speaker Change: To highlight that our China business had a 17% product revenue growth on a trailing 12 month basis and the EMEA region had a 7% product revenue growth on a trailing 12 month basis, which showcases the strong growth of these regions, which are vital to the long term strategy for our company.
Ali Pervaiz: Service revenue for the quarter was $52 million, down 7% from the prior year and down 6% on a constant currency basis, primarily driven by $3 million of lower revenue related to installation and training, primarily tied to lower new U.S. installations and lower spare parts volume. Although non-contract service revenue was lower in Q3, we expected it to pick back up in Q4 with an increase in global customer installations. Notably, the service contract revenue portion was up 2% versus the prior year and up 4% on a trailing 12-month basis, which showcases growth in the annuity part of the service business, as our installed base continues to expand globally at 4% in Q3, versus the same period in the prior year.
Speaker Change: Service revenue for the quarter was $52 million down 7% from the prior year and down 6% on a constant currency basis, primarily driven by $3 million of lower revenue related to installation and training primarily tied to lower new U S installations, and lower spare parts volume, although non contract service revenue was lower in Q3, we expect it to pick back up in.
Speaker Change: Q4, with an increase in global customer installations, notably the service contract revenue portion was up 2% versus the prior year and up 4% on a trailing 12 month basis, which showcases growth in the annuity part of the service business as our installed base continues to expand globally at 4% in Q3 versus the same period in the prior year or <unk>.
Ali Pervaiz: Our overall gross margin for the quarter was 28.7% compared to 32.8% in the prior year. The key factors here were related to increased China margin deferral of 3.2 million, or 3.2 points, and an unfavorable impact of foreign exchange on revenue of approximately 1.3 million, or 1.3 points. As a reminder, due to joint venture accounting rules, we defer 49% of the margin related to shipments to our JV partner, and that margin is deferred until our partner sells through. This margin impact is purely timing-related and is not an indication of the future profitability of our business.
Speaker Change: Overall gross margin for the quarter was 28, 7% compared to 32, 8% in the prior year. The key factors here were related to increased China margin deferral of $3 2 million or three two points and an unfavorable impact of foreign exchange on revenue of approximately $1 3 million or one three points as a reminder.
Speaker Change: Joint venture accounting rules, we defer 49% of the margin related to shipments to our JV partner and that margin is deferred until our partner sells through to their end customer.
Speaker Change: The margin impact is purely timing related and is not an indication of the future profitability of our business, China deferral and foreign exchange together had an approximately $4 five point downward impact to our Q3 margins.
Ali Pervaiz: China deferral and foreign exchange together had an approximately 4.5 point downward impact on our Q3 margin. Margin expansion continues to be a focal point and part of our cultural transformation, and we are confident this will be reflected more positively in our P&L in the coming quarters. We're seeing the impact of our pricing efforts in our service business with better contract pricing of approximately $2 million in Q3 versus the prior year. Additionally, with our focus on reducing our cost of goods sold, we're seeing a lower impact of inflation as we work with our suppliers and internal teams to drive product costs down further.
Speaker Change: Margin expansion continues to be a focal point and part of our cultural transformation and we are confident this will be reflected more positively in our P&L in the coming quarters.
Speaker Change: We're seeing the impact of our pricing efforts and our service business with better contract pricing of approximately $2 million in Q3 versus the prior year. Additionally, with our focus on reducing our cost of goods sold we're seeing lower impact of inflation as we work with our suppliers and internal teams to drive product Cogs down further.
Ali Pervaiz: Operating expenses in the third quarter were $33.6 million compared to $36.4 million in the prior year, down 8% as we realize the full benefit of our restructuring actions and as we drive cost discipline within the company with a strong focus on return on investment. Operating losses for the quarter were $4.6 million compared to an operating income of $2.3 million in the third quarter of the prior year. Adjusted EBITDA for the quarter was $1.1 million compared to $8.3 million from the prior year, primarily driven by $17 million of lower revenue compared to the prior year.
Speaker Change: Operating expenses in the third quarter were $33 $6 million compared to $36 $4 million in the prior year down 8% as we realize the full benefit of our restructuring actions and as we drive cost discipline within the company with a strong focus on return on investment.
Speaker Change: Operating loss for the quarter was $4 $6 million compared to an operating income of $2 $3 million in the third quarter of the prior year.
Speaker Change: Adjusted EBITDA for the quarter was $1 1 million compared to $8 $3 million from the prior year, primarily driven by $17 million of lower revenue compared to the prior year.
Ali Pervaiz: We described the reconciliation between gap net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet, total cash, cash equivalents, and short-term restricted cash amounted to $61 million compared to $73 million at the end of last quarter, with a decrease driven by lower product shipments and the timing of those shipments. Net accounts receivable was approximately $73 million, which is $4 million lower than the prior quarter. We continue to have a strong focus on collections, which resulted in a DSO of 66 days.
Speaker Change: We described a reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today.
Speaker Change: Turning to the balance sheet total cash cash equivalents and short term restricted cash amounted to $61 million compared to $73 million at the end of last quarter with the decrease driven by lower product shipments and the timing of those shipments.
Speaker Change: Net accounts receivable was approximately $73 million, which is $4 million lower than the prior quarter. We continue to have a strong focus on collections, which resulted in a DSO of 66 days, our net inventory balance was $160 million up $4 million from the prior quarter due to the delay in system shipments.
Ali Pervaiz: Our net inventory balance was $160 million, up $4 million from the prior quarter due to the delay in system shipping. In summary, our third quarter results were negatively impacted by a slowdown in the US market, the timing of three revenue shipments, and further deterioration of the Japanese yen. All of the timing of the three revenue shipments is a temporary phenomenon that we expect to recover from in Q4. As Suzanne mentioned, we believe the U.S. market slowdown will persist for at least the near term.
Speaker Change: In summary, our third quarter results were negatively impacted by a slowdown in the U S market.
Speaker Change: <unk> of three revenue shipments and further deterioration of the Japanese yen.
Speaker Change: All of the timing of the three revenue shipments as a temporary phenomenon that we expect will recover from in Q4 as Suzanne mentioned, we believe the U S market slowdown will persist for at least the near term. Additionally, the Japanese yen continues to be a had been greater than we expected, especially as we have considerable amount of system shipments in that region in Q4 and a <unk>.
Ali Pervaiz: Additionally, the Japanese yen continues to be a headwind greater than we expected, especially as we have a considerable amount of system shipments for that region in Q4 and a significant installed base that contributes to contract service revenue. Taking all these factors into consideration, we are adjusting our fiscal year 24 financial guidance. We now expect revenue in the range of $432 to $437 million and $19 to $22 million of adjusted EBITDA. Those are our key financial highlights, and with that, I'd like to hand the call back to Suzanne.
Speaker Change: The installed base that contribute to the contract service revenue.
Speaker Change: Taking all these factors into consideration we are adjusting our fiscal year 'twenty four financial guidance.
Speaker Change: Now expect revenue in the range of $432 million to $437 million and $19 million to $22 million of adjusted EBITDA.
Speaker Change: Our key financial highlights and with that I'd like to hand, the call back to Suzanne.
Suzanne Winter: Thank you, Ali. In summary, while some business has shifted into FY25 due to U.S. market dynamics, we continue to make major advances in long-term growth and profitability drivers. We remain focused on executing our plan to advance care and access with our innovative solutions that make a difference every day in the lives of people diagnosed with cancer. Finally, I'd like to thank everyone on our global teams who work tirelessly to provide the highest level of service and support to our customers. I am grateful for their commitment and dedication to our mission. I will now turn it back over to the operator for Q&A. Thank you. We will now begin the question and answer session.
Suzanne: Thank you Ali.
In summary, well some business has shifted into FY 'twenty five due to the U S market dynamics, we continue to make major advances in long term growth and profitability drivers. We remain focused on executing our plan to advance care and access with our innovative solutions that make a difference every day and the.
Suzanne: Lots of people diagnosed with cancer.
Speaker Change: Finally, I'd like to thank everyone and our global teams that worked tirelessly to provide the highest level of service and support to our customers I am grateful for their commitment and dedication to our mission I will now turn it back over to the operator for Q&A.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Marie Thibault, with BTIG. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched home phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: Yeah.
Sam Wong: Hey, good afternoon, Suzanne and Ali. This is Sam Wong from Marie. Thanks for taking the questions here. Maybe I can start on the commentary on the Americas region. And I'm just wondering any more color you have on maybe some of the bottlenecks specifically that you're seeing that's causing these delayed installations here.
Speaker Change: And the first question will come from Marie Thibault with BTG. Please go ahead.
Suzanne Winter: Yes, thanks Sam for the question. Yes, I mean the major headwind, you know, for the quarter and really going into Q4 has been, you know, an expected slowdown larger than we thought in the US market and primarily it's due to reduced capital equipment spending, tighter budgets, you know, we've seen the customers holding onto their systems longer, you know, as they wait for capital equipment funds to be available to them, you know, overall I think it's validated very much by the research, you know, that was done.
Marie Yoko Thibault: Hey, good afternoon, Suzanne and Ali this is Sam on for Marty Thanks for taking the questions here.
Sam: Maybe I can start on the.
Marie Yoko Thibault: The commentary on the Americas region, and I'm, just wondering any more color you have on them.
Sam: Maybe some of the bottlenecks, specifically that you're seeing that's.
Sam: Causing these are delayed installations here.
Yes, Thanks, Dan for the question.
Speaker Change: Yes, I mean, the major headwind for the quarter and and really going into Q4 has.
Speaker Change: He has been an unexpected slowdown are larger than we thought in the U S market and primarily it's due to reduced capital equipment spending tighter budgets.
Speaker Change: You know we've seen the customers holding on to their systems longer you know as they wait for capital equipment.
Speaker Change: Funds to be available to them you know overall I think it's validated very much by the research that was done.
Suzanne Winter: As well as, you know, what we're hearing from our customers. So we've talked to them. They have said that their overall budgets are down and that there was a complete reallocation and reprioritization of their capital equipment funds. And so, as a result, you know, we started to see it slow a little bit at the end of Q2, but really, in Q3, it was significant. And, you know, as we got more to the drivers, we see it shifting over into FY25 and certainly affecting Q4. And that's really what drove our revised guidance.
Speaker Change: As well as what we're hearing from our customers and so we've talked to them they have.
Speaker Change: Said that their overall budgets are down and that there is a complete re private pre allocation and re prioritization of.
Their cap equipment funds and so as a result, we started to see it.
Speaker Change: So a little bit at the end of Q2, but really in Q3. It was significant and you know as we got more to the drivers we see it shifting over into FY 'twenty five.
Speaker Change: Certainly affecting Q4, and that's really what drove our revised guidance.
Suzanne Winter: Got it. Yep, that's super helpful, Suzanne.
Speaker Change: Got it that's super helpful Suzanne and.
Speaker Change: I I heard both of you.
Speaker Change: Reiterate the long term target that you set out last fall.
Suzanne Winter: And I heard both of you, you know, reiterate the long-term target that you set out last fall and certainly understand some of the near-term dynamics here, but international trade still seems to be holding up pretty strong, with new catalysts coming with China and Helix. So, I guess, just help me frame the long-term opportunity that's still here for Accuray and maybe some of the puts and takes between some of these near-term headwinds with some of the longer-term tailwinds that are coming.
Speaker Change: Certainly understand some of the near term dynamics here, but international still seems to be holding up pretty strong.
Speaker Change: New catalysts coming with China, and heal like so I guess just help me frame the long term opportunity that that's still here for accuray and.
Speaker Change: Maybe some of the puts and takes between them.
Speaker Change: These near term.
Speaker Change: With some of the longer term tail ones that are coming.
Suzanne Winter: So you're exactly right. I mean, again, aside from the U.S. business shifting forward, you know, we've got some major catalysts that we're on the cusp of getting regulatory approval for the Precision Treatment Planning for the Tomo C. Again, that's going to unlock deferred margin and revenue, and it's the final step here, you know, to allowing our China team to really take that to market and start shipping We have just had some very strong business growth in EIMEA. We look forward to the introduction of the Helix, which we think will do very well in India.
Speaker Change: No you're exactly right I mean again aside from the U S business shifting forward, we've got some major major catalysts that we're on the cusp of getting the regulatory approval on the precision treatment planning for the Thomas C. Again, that's going to unlock deferred margin and revenue and it's the final step here to allowing our chi.
Speaker Change: A team to really take that to market and start ship.
Speaker Change: Shipping to customers.
Speaker Change: We have just some very strong business growth in EMEA, we look forward to the introduction of the helix, which we think will will do very well in India.
Operator: The Japan backlog is very strong, and the focus on revenue conversion, I think, going into FY25 will also be a catalyst. You know, we're seeing our service contract revenue grow, and that's tied to our growing installed base. You know, we see that as a catalyst. And then, with our innovation pipeline, we feel really strongly about what we're doing to advance care. We're going into Estro this next week, and we've got some service solution offerings, as well as C-NOS, that will add to what we've introduced already with Vital Hold and Cleaner RP, all of which we believe are driving the strong order performance that we're seeing across the board.
Speaker Change: The Japan backlog is very strong and our focus on revenue conversion I think going into FY 'twenty five will also be a catalyst you know we're seeing our service contract revenue grow and that's tied to our growing installed base, we see that as a catalyst and then our innovation pipeline, we feel really strongly.
Speaker Change: But what we're doing to advance care, we're going into Astro. This next week and we've got some service solution offerings as well as see now that will add to what we've introduced already with vital whole, it's clear our T. All of which we believe is driving the strong order performance.
Speaker Change: That we are seeing across the board.
Speaker Change: Thanks, so much.
Xuyang Li: The next question will come from Xuyang Li with Jeffries. Please go ahead.
Xuyang Li: The next question will come from young Li with Jefferies. Please go ahead.
Suzanne Winter: Alright, great. Thanks for taking our questions. I guess to start, maybe just on China, Tomosy, with the treatment planning approval, is that still expected in May? What's the latest on timing there?
Alright, great. Thanks for taking our questions.
Xuyang Li: I guess to start maybe it's a strong China tomassi with the treatment planning approval.
Xuyang Li: Is that still expected in may.
Xuyang Li: What's the latest on timing there.
Suzanne Winter: Transcribed by https://otter.ai Our best expectation at this point is that it'll be done before the end of our fiscal year. And I can tell you that we have people with our China JV in China right now to get a feel for timing. We, you know, we are relatively confident that we are at the final step here. It's taken a little bit longer than we expected and a little bit more of a gap between the total T clearance and the treatment planning.
Xuyang Li: Yeah.
Xuyang Li: <unk>.
Speaker Change: Our best expectation at this point it'll be done before the end of our fiscal year and I can tell you that we have folks you know with our China JV in China right now to get a feel on timing. We you know we are relatively confident that we are at the final step here.
It's taken a little bit longer than we expected at a little bit more of a gap between the two of them are key clearance and the treatment planning, but again I think our strategy was.
Suzanne Winter: But again, I think our strategy was to get to market as quickly as possible on the system so that we could go out there and start to get orders for the system. But again, shipments and the margin are tied to treatment planning clearance, but we're at the very end.
Speaker Change: To get to market as quickly as possible on the system. So that we can do.
Speaker Change: Go out there and start to.
Speaker Change: Get orders for this system, but again the shipments and the margin are.
Tied to the treatment planning clearance.
Speaker Change: But we're at the very end.
Speaker Change: We believe.
Xuyang Li: Okay, great. That's helpful. I guess, maybe just to follow up there. You know, following approval, and you have strong interest and strong orders there. Can you maybe kind of help us frame how that could potentially impact growth, revenue, and margin for fiscal 25?
Speaker Change: Okay, Great that's very helpful.
Speaker Change: I guess, maybe just.
Speaker Change: The just a follow up there.
Speaker Change: Fallen approval and you know you have strong interest and strong orders there.
Speaker Change: Can you maybe kind of help us frame, how that can potentially impact road revenue and margin for our fiscal 'twenty five.
Speaker Change: Yeah.
Ali Pervaiz: Sure, I'll let Ali chime in here. Yeah, no, thanks for the question, Xuyang. You know, I mean, I think right now we're still very much
Speaker Change: Sure Yeah, I'll, let I'll, let you chime in yeah.
Speaker Change: Yeah no. Thanks for the question Yeah, I mean, I think right now we're still very much in the midst of doing our planning for fiscal 'twenty. Five so we will certainly share that outlook with you.
Ali Pervaiz: You know, I think right now we're still very much in the midst of doing our planning for Fiscal Year 25, so we'll certainly share that outlook with you in our earnings call for Q4. But, you know, I think it's important to reiterate what Suzanne had mentioned, that we continue to be laser-focused on the growth horizon that we shared with you during our investor day last fall. You know, we sort of shared that our expectation is fully continuing to grow revenue somewhere between 4% to 6% and that we are going to continue to be really focused on margin expansion, which we think is going to really end up doubling our adjusted EBITDA as a percentage of revenue by the end of Fiscal Year 26, right?
Speaker Change: Our earnings call for Q4.
Speaker Change: But I think it's important to reiterate what she's added mentioned.
Speaker Change: We continue to be laser focused.
Speaker Change: The growth horizon that we'd shared with you during our Investor day last fall.
Speaker Change: We sort of shared that our expectation is fully continuing to grow revenue somewhere between 4% to 6%.
Speaker Change: We are going to continue to be really focused on margin expansion, which we think is going to.
Speaker Change: And doubling our adjusted EBITDA as a percentage of revenue by the end of fiscal year 'twenty six right. So that plan has not changed.
Ali Pervaiz: So that plan has not changed. You know, we had a little bit of a speed bump as it pertains to the U.S. market in the back half of Fiscal Year 24, but like Suzanne mentioned, we fully expect this to be timing-related. But, you know, as indicated, there are other regions that are very much coming online and contributing to some really good backlog growth, which is converting it to revenue.
It's been a little bit of a speed bump as it pertains to the U S market and the <unk>.
Speaker Change: Back half of fiscal year, 'twenty, four but like Suzanne mentioned, we fully expect this to be timing related.
Speaker Change: As indicated there are other regions that are very much coming online and contributing to some really good backlog growth, which is converting into revenue.
Speaker Change: Yeah.
Speaker Change: Thank you very much.
Operator: The next question will come from Brooks O'Neill with Lake Street. Please go ahead.
Speaker Change: The next question will come from Brooks O'neil with Lake Street. Please go ahead.
Brooks O'Neill: Good afternoon everybody. So as I listen to the comments both in the prepared remarks and the Q&A, it sounds like you're attributing the shortfall to environmental issues, the first. I think about it, I guess. I'm curious as you do a deep dive into your own performances that accompany Suzanne and Ali. How would you grade yourself on execution this quarter, and are there any areas where you would specifically call out, okay, we dropped the ball here, we missed a turn, whatever? Help me to understand how you think you're doing in this admittedly weak environment.
Unknown Attendee: Good afternoon, everybody so.
Unknown Attendee: They listen to the comments both in the prepared remarks and the Q&A.
Unknown Attendee: It sounds like.
Unknown Attendee: Youre attributing the shortfall to environmental issues the first.
Unknown Attendee: Yeah, I think about I guess I'm curious as you do a deep dive into your own performance as a company Suzanne and Ali.
Unknown Attendee: How would you grade yourself on execution this quarter and are there any areas, where you would specifically call out okay. We dropped the ball here, we missed the Miss.
Unknown Attendee: Mr turn whatever.
Unknown Attendee: Help me to understand how you think you're doing in this admittedly weak environment.
Suzanne Winter: Thanks for the question, Brooks. Clearly, we're focusing on the areas where we can improve from an execution standpoint and all the areas that are within our control. We missed three system shipments, and some of that was due to some delays in customer processing. But again, we are looking back at everything within the quarter to see what we could have done better. What can we do better in the future? How do we plan for these kinds of headwinds?
Suzanne: Thanks for the question Brooks.
Speaker Change: Clearly, we're focusing on the areas, where we can improve from an execution standpoint, and all the areas that are within our control I mean, we missed three system shipments and you know some of that was due to some delays in in customer processing them, but again, we are looking back at.
Suzanne: Everything within the quarter to see what could we have done better.
Suzanne: We execute better in the future how do we plan.
Suzanne: For these kind of headwinds.
Suzanne: And you know and at the same time, there's a lot that we're very proud of we've made some significant progress against.
Suzanne Winter: And at the same time, there's a lot that we're very proud of. We've made some significant progress on key priorities in the long-term plan. And I think that has been shown by delivering strong order growth, continuing to build our healthy backlog, growing our installed base, certainly seeing some good positive growth in service contract revenue, again, all parts of our long-term strategy. We're starting to see improved margins in service. And again, some of these take time to be able to show up in the P&L.
Suzanne: Key priorities and our long term plan and.
Suzanne: I think that that has been shown by delivering our strong orders growth.
Suzanne: <unk> to build a healthy backlog growing our installed base certainly seeing some good positive growth in the service contract revenue again, all parts of our long term strategy, we're starting to see improved margins in service and you know again some of these take time to be able to come through the Pea.
Suzanne: You know him you know.
Suzanne Winter: I think if there are areas we know we need to continue to laser focus on is bringing down product COGS. And we have a path to do that, and we'll continue to look for areas where we can improve overall margins even in this difficult environment. Because even though we see goodness, there are still external headwinds that overshadow the goodness, which hopefully we're able to show you where the parts of the business that are long-term improved.
Suzanne: I think if there are areas. We know we need to continue the laser focus is bringing down product Cogs and we have a path to do that and we'll continue to look for areas, where we can improve overall margins even in this difficult environment because.
Suzanne: Even though we see goodness, they're still external headwinds that overshadow the goodness [laughter], which hopefully we're able to show you where are the parts of the business that.
Suzanne: Long term R.
Suzanne: Our improved.
Suzanne Winter: So that we're building a better balanced business, you know, I think I look at the US and, you know, again, part of our strategy to go to high-growth emerging markets, where access has been limited, is partly because we see low growth in developed markets; it's largely a replacement market. So while we didn't expect the US to slow down so much, you know, I think that it reinforces the strategy that we have, which is how do we balance going into high-growth markets where we can grow our installed base, which will ultimately grow our service revenue.
Suzanne: And so that we're building a better balanced business you know I think I look at the U S. And you know again part of our strategy to go to high growth emerging markets, where T. Access has been limited is partly because we see low growth in the developed markets, it's largely a replacement mark.
Suzanne: So while we didn't expect the U S to slow down so much.
Suzanne: That it reinforces the strategy that we have which is how do we balance going into high growth markets, where we can grow our installed base, which ultimately will grow our service revenue.
Brooks O'Neill: Yep, all that makes sense. I understand it.
Speaker Change: No all that makes sense I get it I appreciate your commentary or color there.
Suzanne Winter: I appreciate your commentary and your color there. Could you say, obviously, you've had tremendous success in Japan with competitive wins? And I recognize the environment is challenging in the US right now, but are there any indications that you might have opportunities to win some competitive bunkers in the U.S. despite the slowdown that's been occurring?
Speaker Change: Would you say, obviously you've had tremendous success.
Speaker Change: In Japan with competitive wins and I recognize that the environment is challenging in the U S.
Speaker Change: Right now but.
Speaker Change: Are there any.
Speaker Change: Indications that you might have opportunities to win some competitive bunkers.
Speaker Change: In the U S. Despite the slowdown that's been occurring.
Suzanne Winter: Definitely, definitely. So if we look at what we are going to do in the US and what we have learned from Japan and how we did well there, they have gotten very close to their customers and, you know, building relationships and being there with solutions. And so, you know, just isn't the case; it's the same in the US, where, again, it's largely a replacement market; we're obviously very focused on replacing our own systems and upgrading them.
Speaker Change: Definitely definitely.
Speaker Change: Look at what are we going to do in the U S and and what do we learn from Japan, and how we we've done well there they have gotten very close to their customers and building relationships and being there with solutions and so you know just.
Speaker Change: It just is it's the same in the U S where again, it's largely a replacement market. We're obviously very focused on replacing our own systems and upgrading them, but it is an opportunity to also look at vulnerable competitive sites and so we are going to we're going to get closer to our customers, we're going to bring in solution.
Suzanne Winter: But it is an opportunity to also look at vulnerable competitive sites. And so we are going to get closer to our customers, we're going to bring in solutions that will help them through this difficult period of time, we're going to focus on the IP and make sure that everyone is satisfied with their equipment. And again, leverage our commercial partnerships that we have, so that when conditions improve, you know, we're there, and we'll be able to capitalize on it.
Brooks O'Neill: Absolutely. It makes sense. I'm sorry; I didn't mean to interrupt.
Speaker Change: That will help them through this difficult period of time, we're going to focus on the IV and make sure that everyone is satisfied with their equipment.
Speaker Change: And again leverage our commercial partnerships that we have so that when conditions improve.
Speaker Change: You know, we're there and we will be able to capitalize on it.
Speaker Change: That's what I think makes sense.
Speaker Change: I'm, sorry, I didn't mean to us.
Suzanne Winter: Yeah, no, I was just going to say, and I think that's something that our Japan team has done just an incredible job of, and as a result, they're there when customers are ready.
Speaker Change: No I was just going to say and I think that's something that our Japan team has done just an incredible job and and and as a result, they are there win win customers already.
Brooks O'Neill: Sure, I assume in the U.S., you might benefit some from your commercial partnership with GE Healthcare?
Speaker Change: Sure.
Speaker Change: So in the U S you might benefit some from your commercial partnership with GE healthcare.
Suzanne Winter: I think GE, as well as all of our commercial partners. You know, we're obviously all in a challenging space, especially as it relates to radiotherapy priority, but we absolutely will leverage all of our commercial relationships, including GE.
Speaker Change: I think the G as well as all of our commercial partners.
Speaker Change: Obviously, all in a challenging space, especially as it relates to radiotherapy priority, but we absolutely will leverage all of our commercial relationships, including GE.
Brooks O'Neill: Cool. Thank you very much for taking my questions.
Speaker Change: Cool. Thank you very much for taking my questions.
Speaker Change: Yeah.
Operator: The next question will come from Jason Weitz with the Roth MKM. Please go ahead.
Speaker Change: The next question will come from Jason White with Ralph M. Kim. Please go ahead.
Jason Weitz: Hi, thanks for taking the questions. Just a couple on the Outlook. Specifically, first off, the three systems that didn't occur this quarter, is that really more of a 2025 event that you expect to be filled, or is that something that's going to hit the fourth quarter?
Jason White: Hi, Thanks for taking my questions just a couple on the outlook.
Jason White: Specifically first off the three systems that.
Jason White: Didn't occur this quarter or is that really more of a 2025 of that that you expected to be filled or is that something that's going to hit the fourth quarter.
Ali Pervaiz: It'll be in Q4 revenue.
Speaker Change: It'll be in Q4 revenue.
Ali Pervaiz: It'll be in Q4 revenue. Okay, and then in terms of the precision treatment approval, it's now, I guess, late June or sometime in June. How does that impact, you know, the outlook in terms of what were you anticipating earlier for China? And does this move that out into 2025?
Speaker Change: You've heard me, Okay, and then in terms of.
Speaker Change: The issues in treatment approval it is now.
Speaker Change: I guess late June or sometime in June.
Jason White: How does that.
Jason White: You know the outlook in terms of what were you anticipating earlier for China and does this move that out into 2025.
Jason White: So.
Ali Pervaiz: [inaudible] Jason, I guess what I would say is, number one, we're continuing to ship systems to our Chinese JV partner because they need to continue to manufacture a certain number of these systems just to get ready. So as soon as the approval is there, they can start to cater to their customers.
Jason White: Jayson I guess, what I would tell you is number one we're continuing to ship systems to our China JV partner, because they need to continue to manufacture a certain number of these systems just to get ready so as soon as the approvals there. They can start to cater to their customers. So I would say, we're continuing to ship.
Ali Pervaiz: So I would say, you know, we're continuing to ship systems; from a revenue standpoint, they contribute to revenue. Where it has an impact is this whole deferral of 50% of the margin related to JV accounting rules. And so, you know, just to clarify, when we sell to our JV partner, we defer 50% of our margin up till our JV partner sells through to their end customer. That's just part of the JV accounting rules.
Jason White: From a revenue standpoint, do they contribute to revenue.
Jason White: Where it has an impact as this whole.
Jason White: Deferral of 50% of the margin related to JV accounting rules and so just to clarify.
Jason White: When we sell for JV partner, we defer 50% of our margin.
Jason White: Up till our JV partner sell through to their end customer. That's just part of JV accounting rules and so said another way, we have 50% of the margin associated with those shipments.
Ali Pervaiz: And so, said another way, we have 50% of the margin associated with those shipments that is deferred and sitting in our balance sheet, right? So once we're actually able to get this precision NMPA approval, and once our JV partner starts to ship systems to their end customers, and at that point, will we be able to recognize half of that margin? Right now, all of that margin...
Jason White: Deferred and sitting on our balance sheet right. So once we're actually able to get.
Jason White: This precision <unk> approval and once their JV partner starts to.
Jason White: Ship systems to their end customers.
Jason White: And that point will we be able to recognize half of that margin right now all of that margin as deferred related to the Thomas the shipments that we've made.
Jason Weitz: Okay, so revenue, there's really, that's not impacted, it's really a margin in terms of whatever, depending on when the approval happens. Okay, so if I think about the change in the outlook, that's mostly U.S. driven, can we assume that? Or are there other regions that are? We're calculating into your thinking when you when you're looking at the fourth quarter.
Jason White: So so revenue there's really.
Jason White: That's not impact is really margin really in terms of whatever depending somewhat dependent on what the approval happens.
Speaker Change: Okay, and then so if I think about the change it out in the outlook, that's mostly the U S driven and can we assume that or is there other regions.
Jason White: That are.
Jason White: We're calculating into your thinking when you when you're looking at the fourth quarter.
Jason White: Predominantly the U S dollar U S. Okay and.
Ali Pervaiz: We're done with the U.S. Okay, and I guess we've asked enough questions, but I mean...
Ali Pervaiz: Unknown Speaker We're done with the U.S. Okay, and
Jason White: We've asked it up but I mean the <unk>.
Jason Weitz: The order rates were actually healthy. Also, I think you mentioned that a lot of that was EMA and Japan. In terms of what the customers are telling you in terms of the orders or the discussions you're having, is it really just that they said it's been thrown into the 2025 budgets or it's just another, you know, just for the delays or how I know you talked about this earlier, but how did it, how are they characterizing it?
Jason White: Is it is it the order rates were actually healthier and also I think you mentioned that a lot of that was EMEA and Japan I think.
Jason White:
Jason White: In terms of.
Jason White: What the customers are telling you in terms of the orders or the discussions you're having.
Jason White: Or is it really just they said it's been thrown at it in 2025 budgets or just another you know just further delays or I know you talked about this earlier, but how does it how are they characterize.
Speaker Change: Yeah, Yeah, Yeah, Yeah, I would say I would say it differs by customer of everyone's process is slightly different I think the expectation is that there'll be some improvement.
Ali Pervaiz: Yeah, I would say it differs by customer. Everyone's process is slightly different.
Jason Weitz: I think the expectation is that there'll be some improvement in the back half of our fiscal year 25. And, you know, we've heard some customers saying, Listen, it's going to take us until calendar year 2026 to get back to pre-COVID levels of budget. So I think it's going to be gradual. And you know, we're going to be monitoring it. We don't have a crystal ball. But certainly, we're going to be watching it very closely. And, and again, doubling down here so that we're ready when things start to improve. Got it. Thanks a lot.
Speaker Change: And.
Jason Weitz: Got it. Thanks a lot. I'll jump back in the queue.
Speaker Change: You know the back half of our fiscal year 'twenty five and you know we've heard from customers, saying listen it's going to take us until calendar year 2026 to get back to pre COVID-19 levels of budget. So I think it's going to be gradual and you know we're gonna be monitoring. It you know we don't have a crystal ball.
Speaker Change: But certainly we're going to be watching it very closely and and again double down here. So that we're ready when things start to improve.
Speaker Change: Got it thanks, a lot I'll jump back in queue.
Speaker Change: Yeah.
Suzanne Winter: This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Suzanne Winter for any closing remarks. Please go ahead.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to MS. Suzanne Winter for any closing remarks. Please go ahead.
Operator: I want to thank everyone for joining the call. This concludes our earnings call, and we look forward to speaking with you again in the summer for our fiscal 2024 fourth quarter earnings report. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Suzanne Winter: I want to thank everyone for joining the call. This concludes our earnings call and we look forward to speaking with you again in the summer for our fiscal 2020 for fourth quarter earnings release.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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