Earnings Call: Q1 2021

Oct 29, 2020

Good day, and welcome to the Accuray First Quarter Fiscal 2020 Financial Results Conference Call. All participants After today's presentation, there will be an opportunity Please also note today's event is being recorded. Would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead. Thank you, Rocco. And good afternoon to everyone. Welcome to Accuray's conference call to review financial results for the first quarter of fiscal year 2021. Which ended on September 30, 2020. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Josh Levine, Accuray's President and Chief Executive Officer and Shig Hamamoto, Acurais, Senior Vice President And Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward looking statements. Actual results may differ materially from those contemplated or implied by these forward looking statements. Factors that could cause these results to differ materially are set forth in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities And Exchange Commission. Forward looking statements on this call are based on information available to us as of today's date, and we assume no obligation to update any forward looking statements as a result of new information or future results, except to the extent required by applicable securities law. Accordingly, you should not put undue reliance on any forward looking statements. Two housekeeping items for today's call. 1st, during the Q And A session, we request that participants limit themselves to questions and then re queue with any follow ups. 2nd, all references we make to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our first quarter, refer to our fiscal first quarter ended September 30, 2020. With that, let me turn the call over to accuray's President and Chief Executive Officer, Josh Levine. Josh? Thanks Joe. And thank you everyone for joining us on today's call. I'm joined today by Shik Amamatsu, our Chief Financial Officer and Suzanne Winter, our Chief Commercial Officer, and Head of R&D. Accurate's fiscal 2021 first quarter performance continues to reflect the positive momentum our business is making despite the headwinds created by the COVID-nineteen environment. Our commercial team around the world continues to adapt and make the necessary adjustments to successfully compete at a high level, even in the face of a number of key markets continuing to be impacted by traveling customer access restrictions as well as bunker construction and related installation delays. Validating our ability to execute in these challenging times, revenue for the quarter came in at $85,300,000, and we generated positive operating income of $5,500,000. This represents the 4th consecutive quarter that the company has generated positive operating profit as we continue to demonstrate operating leverage that we expect to position us well in a post COVID environment. Gross order volume for the quarter was 51,000,000 which was substantially down globally versus Q1 of the prior fiscal year. Although at the regional level, our EMEA and Japan regions both showed solid order growth during the quarter. The overall order fy2020 earnings call in August, we highlighted the tough comparisons to the prior year, driven by the realization of the 1st phase of Type A orders in China, in the first half and meeting our customers' needs to ensure that we maintain our overall customer responsiveness. I want to thank the entire Accurate team for their individual and collective dedication to supporting our customers and their patients under continuously evolving conditions. Their efforts are making a difference as we focus on Our continued focus on aggressive working capital management and cash preservation will help ensure we successfully navigate through the current global economic conditions. We finished fiscal Q1 with $95,000,000 in cash and illustrated our commitment to reducing overall debt by prepaying $10,000,000 Shig will provide you with greater detail on the quarterly financial results later in the call. On the operational front, Our joint venture with China Isotope And Radiation Corp continues to make significant progress with the Tang Jin China Training Center opening in September, and in person class instruction for customers, which started earlier this month. This will be an important hub to enable medical professionals throughout China to learn about our products and how to successfully incorporate them into their practices. As far as establishing our local manufacturing presence, we are still on schedule to have the Tangen produced Type B product within the next 18 months. As we look to revenue generation catalysts in the near term, We believe that revenue conversion related to the 1st of the China Type A licenses awarded for Accuray devices in October of 2019 will begin in this current fiscal quarter and will continue over the course of the next 18 to 24 months. Additionally, on October 27, 2020, the China National Health Commission announced the 2nd tranche of Type A Radio Therapy license awards, and we are pleased to report that Accurate systems were named in 24 of the additional 32 Type A licenses awarded to end user hospitals. Given the late timing of this announcement from the National Health Commission, we are still evaluating the impact of this announcement on our future order activity. Earlier this week, While it was conducted on a virtual basis for the first time given the COVID environment, this was a great opportunity for us to launch several important strategic product innovations from our R and D pipeline. During ASTRO, we had high quality interactions with clinicians and leading institutions who showed great interest in our Radixact and CyberKnife platforms, particularly with the technology enhancements that we've recently introduced, both preceding and during Astro on both product platforms. These include the new CyberKnife S7 with VOLO treatment planning, our Synchrony motion synchronization, and real time delivery adaptation on the Radixact platform and our new helical KBC imaging capability for the Radixact platform called ClearRT. We expect that these technology innovations will help to further advance our radiation therapy planning and delivery capabilities and will have a meaningful impact to our overall product functionality and strategic positioning. We see growing clinical experience and adoption of Synchrony and the introduction of the Synchrony technology on the Radixact platform in combination with our clear RT imaging upgrade creates a uniquely versatile and powerful treatment platform. Additionally, and most importantly, we believe that the advanced ultra precise treatment capabilities of both of our product platforms are well aligned with the new alternative payment model and reimbursement fee schedule recently announced by the Centers for Medicare And Medicaid Services, which is now planned to go into effect in July 2021. Acura has been a pioneer in high precision technologies that enable hypo and ultra hyperfractionation, and we believe that the innovations we are bringing to the market will be a catalyst for long term growth and ensure that our delivery platforms maintain their position as the gold standard choice for hyperfractionated SBRT treatments. At this week's Astro Conference, 44 clinical abstracts shared by Accuray users reinforce the clinical value of tomotherapy and CyberKnife for delivering moderately or ultra hyperfractionated treatments. The experience of global healthcare providers during the COVID pandemic has highlighted and reinforced the need for expeditious and effective treatment options and Accuray's position as a pioneer in precise image guided platforms that safely deliver hypo fractionated treatments with excellent long term results is driving clinical confidence in the radiotherapy community and creating a broader market opportunity We are launching important technology upgrades across both of our platforms that are designed to further enhance their current treatment capabilities in delivering hypo and ultra hyperfractionated SRS and SBRT more effectively, safely and efficiently. As discussed during our Astro Investor Day presentation earlier this week, we are excited about the momentum and progress we see occurring with our business today as well as the long term growth opportunities we have in front of us. One of the opportunities that we are most excited about is the neuroradius surgery market. Yesterday, we announced a collaboration with BRAINLab, who is the market leader in treatment planning, surgical navigation, and an innovator in radio surgery solutions that will focus on expanding CyberKnife treatment capabilities for the neuro radio surgery market. Our BRAINLab collaboration will create a development path that addresses 3 distinct areas of focus. First, to provide the neuroridio surgery community with access to optimized dose contouring capabilities to improve the accuracy of dose delivery. 2nd, to provide improved interoperability between BrandLab's Element Software and the Accurate Precision Treatment Planning Software to ensure optimized neuroradiotherapy workflows and last, through BRAINLabs' Quentry patient registry platform, to provide accurate customers with the ability to add CyberKnife treatment data to neurosurgery registries to help clinicians improve patient outcomes. We believe this collaboration will be And with that, I'll turn the call over to Shig to review our Q1 financial results. Shig? Thank you, Josh. And good afternoon, everyone. I'll begin with some additional details on our financial performance for the first quarter and then focus on certain highlights for the period. Gross orders for the first quarter were $51,000,000 as compared to $78,000,000 in the prior year. That year over year decline in gross totals can be attributed to 3 factors. First, as we had anticipated, we saw a decline in China Taipei orders due to challenging comparables to Q1 last year. I'd like to remind you that Taipei orders received in the prior year reflected significant pent up demand from our end users and legacy distributor, TomoKnife, which was triggered by the announcement of Taipei quota back in 2018. As most of the orders related to the 1st phase of 50 title licenses awarded to Acurate Systems, had been already received prior to the start of this fiscal year, we anticipated a decline in Taipei order activity. Looking ahead to the 2nd quarter, our prior year's 2nd quarter gross orders included $28,000,000 of Type S system orders, which were not expected to recur in the second quarter of this fiscal year for the reasons I just stated. In addition to China, the first quarter presented a tough year over year comparison from a gross orders perspective for the Americas region as the prior year included a $8,000,000 multisystem order from South America. Lastly, we did see some which has affected the timing of order placement. Despite the challenging year over year comparison for China and the Americas regions, we did see strong order growth From a product mix perspective, tomotherapy platform accounted for approximately 55% of auto unit volume for the quarter and CyberKnife accounted for the remaining 45%. Net ADAS for the quarter were $25,000,000, and included $3,000,000 of aging activities during the quarter. During the first quarter, we had cancellations of approximately $2,000,000 which was offset by $1,000,000 benefit from FX impact and other adjustments. As a result, on a net basis, we generated $24,000,000 of orders in the first quarter. We ended the 1st quarter with backlog of $597,000,000, which is an increase of 21%. From September 30, 2019. We continue to anticipate that COVID 19 disruption will slow revenue conversion timing in the near term, although the depth and extent to which COVID 19 will impact individual markets could vary based on a number of factors, we also expect to see higher than normal level of age outs in the coming quarters due to this disruption. Turning now to our income statement. Total revenue for the first quarter was $85,300,000, down 5% compared to the prior year. On a regional basis, we saw year over year revenue decline in all regions, except for the APAC region, excluding China, primarily due to the impact of the pandemic, although the degree of decline varied across the regions. Product revenue for the quarter was $31,300,000 a decrease of 17% compared to the prior year. From a product mix perspective, CyberKnife accounted for approximately 15% of the quarter's revenue unit volume, while the tomotherapy platform accounted for the remaining 85%. One reminder about our product revenue mix, The mix between CyberKnife and tomotherapy varies from quarter to quarter. However, on an annual basis, of product revenue mix has been approximately 30 percent CyberKnife and 70% promo therapy for the past 2 fiscal years. Also, the mix within the 50 China Type A licenses granted to act and cyberknife and 60% thermal therapy. With revenue recognition related to the China Type A license is expected in the second quarter of fiscal 2021, along with our product portfolio being well positioned for the value based care environment, we believe we can maintain a healthy product mix between the two platforms on an annual basis going forward. Service revenue for the quarter was $54,100,000, an increase of 4% from the prior year as we saw healthy demand for upgrades as well as increased installation and training activities during the quarter. Turning now to gross margin. Our overall gross margin for the quarter was 41.5% compared to 36.8% in the prior year. Product gross margin for the quarter was 41.1% compared to 42.6% in the prior year. The lower gross margin for the first quarter was primarily due to that product mix, which, as I mentioned earlier, can fluctuate from quarter to quarter. Service gross margin for the quarter was 41.7% compared to 32.5% in the prior year. I'd like to remind you that prior year Q1 service margin included the impact of higher than normal level of service parts consumption. The team has done a great job of normalizing parts consumption in the past 3 quarters, which contributed to a material year over year improvement in service gross margin. Additionally, Q1 service margin benefited from Ohio upgrade revenue as well as continued benefit from reductions in travel and other operating costs due to the pandemic. Moving down the income statement. Operating expenses for the quarter were $29,900,000, a decrease of $7,300,000 percent from the prior year. The year over year decline in operating expenses was primarily driven by the actions We implemented in response to the pandemic, which included physician eliminations, as well as curtailment of costs associated with the impact of COVID 19, particularly travel, marketing events and related expenses. The prior year first quarter operating expenses also included costs associated with the annual escrow trade show is accounted for in the second quarter of this fiscal year. Operating income for the quarter was $5,500,000 compared to a loss of constructive quarter of GAAP operating income generation, and we have generated $22,000,000 of operating income for the trailing 12 month period measured from September 30, 2020, which is a significant improvement from the $1,000,000 of operating income generated in the previous trailing 12 months period measured from September 30, 2019. While our operating income benefited partially from the actions taken in response to the pandemic, our consistency in generating operating income demonstrates improvement, offering leverage that is expected to position us well in the post COVID environment. The operating impact of the China JV for the quarter was a loss of $28,000. This item is being reported on our income statement as a single line item called, gain or loss on equity investment, right below our operating income line. Adjusted EBITDA for the quarter was $9,000,000 compared to a loss of $1,000,000 in the prior year On a trailing 12 months basis, we have generated $37,000,000 of adjusted EBITDA. The adjustments between GAAP net income and adjusted EBITDA are aligned and outlined and quantified in our earnings release issued today. We ended a quarter with $95,000,000 of cash and short term restricted cash. Q1 ending cash reflects the impact of a voluntary $10,000,000 term loan prepayments in connection with the amendment to our debt facility completed at the beginning of the quarter. Looking ahead to the second quarter, we continue to expect an uncertain near to mid term demand environment for future system orders as COVID 19 continues to put constraints on capital expenditures at hospitals. In addition, as I mentioned earlier, our prior year second quarter gross orders included $28,000,000 of Taipei system orders, which are not expected to recur in the second quarter of this fiscal year. As for revenue, although we are gaining more confidence that revenue recognition related to the China type data licenses will start this fiscal year, we anticipate revenue in the second quarter will remain below prior year level due to the COVID headwinds experienced in other regions. As we manage our near term headwinds in revenue conversion, we continue to focus on operational efficiency, margin expansion and working capital and management. We are also focused on inventory and supply chain management as we execute on the Type A revenue conversion while maintaining our corporate levels of inventory. And with that, I'd like to hand the call back to Josh. Thank you, Shig. Even with the uncertainties created by the COVID situation, we are encouraged by our Q1 operating results. We are demonstrating daily that we have the ability to successfully adapt to this new external environment and we are excited about our future. I want to thank all of our employees across the globe for their energy and the contributions they're making to support our customers and their patients during these unprecedented times. And with that, Thank you. And once again, ladies and gentlemen, we do ask you please limit yourself to 2 questions. Today's first question comes from Josh Jennings with Cowen. Please go ahead. Hi guys. This is Neil on for Josh. Thanks for taking our questions. First question, just on Clear RT, just wondering, how does this technology advance your efforts from not in clinicians an adaptive radiation therapy solution. Anything you can share there in terms of what steps remain to get to a complete adaptive offering and how big of a step, clear RT is in that direction? Neil, I'm going to let Suzanne winter take this question. Hi, Neil. Thanks for the question. Yes, no, the clear RT Helical KV introduction that we done here at ASTRO. We think it's a significant step forward, especially in the round of imaging. And imaging is at the heart of, you know, adaptive therapy. You know, we have the advantage at the core, our Tomo Radixact platform, is basically a CT system with a slip ring design. That allows us to be able to do full 360 degree helical imaging. And so what we're bringing to the table here compared to what is available in the market from cone beam CT is much better visualization of low contrast images very low noise, low scatter compared to cone beam, cone beam CT, you know, the best imaging is really at the center of the image. Once you move beyond the center, you start to lose your image quality. There is the largest field of view at 50 centimeters from an axial standpoint and from a longitudinal standpoint, 1.35 meters, again, significantly longer than what is available in the market. And so our competitors have to stitch together their images. And so there's interpolation of data. So ultimately, what we're bringing to the market is not only uniform, imaging, but fundamentally, the images and the, the image data is higher fidelity, which ultimately goes into dose calculations, which ultimately translates into accuracy. And ultimately, that's what you want, especially when you are doing ultra hypo fractionated treatments. You want the highest session possible. So we do believe what we are bringing to the table is much better than cone beam CT and we are on the path to providing, imaging from a soft tissue contrast closer to diagnostic CT. And we're continuing the investment again, to even get as high as competing with MR type resolution. Great. Thank you for that. And then I just had one follow-up. Just wondering if you could share with us on your views on the tailwinds and also the headwinds, I guess, associated with the Siemens and variant combination and how that could impact accuracy subs? So we've been public in these comments and these thoughts in previous quarter. But, in the near term, Neil, I think the answer is that there's likely to be some short, intermediate term disruption in, as the 2 businesses on that income together. I actually think that we might have benefited from some of that in the two regions that, we've highlighted in the prepared remarks today specifically APAC and, I'm sorry, EMEA and, and Japan, which were strong performers for us order generation wise I think Varian reported that the, down, down comparisons in those regions. And I think that that might reflect some, some of the early disruption, if you will, or distraction factor, call it, the coming together, those 2 businesses. Longer term, I think the jury is still out. I mean, the bottom line is that, a combined company is going to have to create a value proposition that makes sense for customers without really asking customers to do dramatically different things from a workflow standpoint. And I'm not sure that that's going to be easily obtained or achieved. So, again, we're closely watching this and following it, but I think it's too early to say we are excited about the things we're doing from a technology standpoint. I think if you fast forward, you know, a year from now, 2 years from now, I think that the products and the upgrades that we're launching innovation wise right now are going to be game changers for our product and portfolio positioning capabilities. And I think the feedback we're getting from customers concurrent with this week's feedback from the Astro Meeting, it gives us gives us a significant confidence to what I just described. And our next question today comes from Brooks O'Neil with Lake Street Capital Markets. Please go ahead. Good afternoon, everyone. Congratulations on the new I pay orders in China and the solid quarter overall. I thought it was, very good in light of COVID. So I have a couple of questions. The first one is, what is it exactly that triggers the revenue recognition on the Class A licenses in China and maybe why is it you're confident you'll get to be, recognizing revenue in Q2 And then also on China, I was hoping you could say something about what you're hearing on the Type B opportunity and the status thereof. Yes. Hey, Brooks, this is Shig. I'm going to take first question on the process and timing of rev rec and maybe I can pass the type B to Josh, maybe. So the as we talked about in the past, the the first step of the Type A revenue recognition that our end user had to get the license, which, as you know, has happened a year ago with the 50 license wins. And in addition, Josh talked about the recent 24 addition to that. And the next step, after the end user receives a license, is they have to go through a tender process, which we've been talking about both good part of last 1 year. So the reason that we are gaining confidence in terms of starting the first other Wabulin recognition coming out of the 1st 50 in Q2 is because of the progress that we had seen out of China that, the end user with the license can start to purchase. So that's why. So we've seen that news out of China. And before I pass the question back to Josh on type E1 clarification, the 23 I'm sorry, 24, new Type A license is granted to, to Accurate systems in the recent news that Josh mentioned in his prepared remarks, those and add orders were just letting, you know, that there was an announcement from a Chinese government that additional 24 licenses have been granted to Accurate systems. So those latter orders in Q1, although, as I said in my prepared remarks, we're not expecting to receive orders for those in Q2 either. So I just wanted to make that clarification. Thank you. I appreciate that. I'll give it to Josh for type B. Brooks, the type B, as you've heard us say in the past, the type B product opportunity in China really truly represents, while there are different segments inside of type B, Overall, we believe it represents about 80% of the market opportunity in the country, which, as you know, by any benchmark or comparison, is a big, big number. And, we think that the opportunity here for us, as we've talked about in the past, is unique because of the go to market strategy that we've deployed, which is having a manufacturing partner on the ground there in the form of Chinaized stope and radiation corp that is able to operate at scale They have the advantages of being a state owned entity and quite frankly give us market visibility to things that we might likely not have had visibility to if we were a standalone trying to go it alone. They have a significant position in the, radioisotope business, like 70% market share in their core business, and active selling relationships in somewhere between 8000 and 9000 hospitals throughout the country. So their market access, what they help deliver for us or create for us in terms of market access is not insignificant. And, last but not least, the fact that we're going to be producing a product in Tianjin that is going to be essentially an ethnic Chinese brand. It's a local branded product built locally which is really, aligning with 2025. It basically, this is a high technology product area that the government wants and is certainly supporting local, local domestic capability, in market access for. And again, we think that that the relationship we have with CIRC positions us well for this. We're, we're going through BIMT testing right now, which is in country testing and validation for, the product that we're going to be producing in Tangen. And we think we're still on schedule for, a product, a product release produced in Tangen sometime roughly in the 18 month timeline or window from right now. Great. That's good. I'm just going to sneak in one more. I'm curious if you could help us to understand if you believe you're better positioned than competitors to benefit from the RO APM. And maybe you could just elaborate on why or why not. Thank you very much. And again, keep up all the good work. Thanks, Brooks. The RO APM is a model that essentially puts a premium on, value and value being defined by speed and, and overall efficiency of treatment. As opposed to where the market has been in terms of prior reimbursement methodology, which paid people based on the number of treatment sessions or fractions that were being employed to treat a patient over an entire regimen, Going forward, the 16 most frequently performed in terms of procedure volume, disease sites with radiotherapy, are being, grouped into this model in a form that will encourage, the use of shorter treatment regimens, both hyperfractionated treatment regimens and ultra hyperfractionated treatment regimens utilizing much more of a heavy mix towards, stereotactic body radiotherapy or SBRT. Than previously. And when you think about our product offering and portfolio, we are in the sweet spot across both CyberKnife and the Radixact platform of the heart of what the ROAPM is encouraging. It's encouraging, higher dose, over fewer treatment fractions with a minimum of side effects and things that would be detrimental from a patient, overall efficacy standpoint and safety standpoint, our both our platforms are ultra precise, ultra accurate and have the benefit of Synchrony, which in our view is kind of a fails to something we have a fail safe with regards to providing clinical confidence around being able to increase dose and do it safely. And so, we think we're as well positioned as anybody, if not more so, given the direction that the reimbursement environment's moving in. And the only thing I would add to that is, you know, at the recent Astro, we had 44 different clinical presentations, posters, oral presentations, on, with the focus on the use of hypo fractionation ultra hypofractionation. Because we were the pioneer too, we have the longest follow-up data that's been reported on safety and efficacy. So, we do think we're well positioned. Great, Suzanne. Thank you very much. And our next question today comes from Marie Tivo with BTIG. Please go ahead. Hi, good afternoon. Thank you for taking the questions. I want to start here on China. Wanted to see if, quantitatively you could size up the revenue opportunity. My notes have you Having said, this is the first tranche of type A orders would be about $115,000,000 in terms of revenue recognition. So I wanted to double check that that was still true? And then secondly, I know it's early given the recent announcement of the second tranche, but wondered if you could size up what that would mean in eventual, revenue amounts, how many millions that those or worse? Yes. So, Marie, thanks for the question. I'll take the first part. Yes. So your recollection on 115 is correct in that, that were that number represented the system revenue for the first fifty type of licenses we won back in, I guess, about a year ago now. And so, that is still correct in terms of the estimated system revenue value. Again, to Josh, as Josh described in his script, we're expecting, 1st wave out of that 115 to start in the second quarter we're in right now. And then we believe that that 115 gets recognized over following 18 to 24 months. So hopefully that gives you the sense of the pace and cadence of that amount. And I'm going to pass the second part of the question to Josh here. Maria, just some additional color on this. We recognize that, that it's a hard and at times confusing, kind of backdrop to piece together what is first tranche second tranche, where does the first tranche end and the second tranche pick up? I think that the important takeaways here are pretty simple and straightforward. And they are 1st and foremost that we're continuing to win, our devices are continuing to win, at a very, very high level of the Type A licenses that the, MOH And National Health Commission are distributing to end user hospitals. That's point 1. Point 2 is that the visibility that Shig talked about before with regards to the tendering process being being, complete, we have been waiting, as Steve just pointed out, it's almost the better part of a year no one is more frustrated by the delay here than we are, maybe other than you guys. But quite frankly, that tendering process and the bidding process related to the tender is complete, at least in that first wave, the first fifty licenses that we've talked about. And what that means is customers are basically now in a point where they can execute paperwork, execute contracts, and schedule installation of equipment. And so that's the kind of the trigger here in, in activation, if you will, that gives us the confidence around revenue conversion starting to become visible in the current quarter. We really are trying to focus more now on, on, given what I just described on just execution of the revenue conversion. Basically, the Type A license unlocks our revenue conversion process, given the fact that the tendering and bidding process is now complete, And, we, we're pretty, pretty excited about the fact that we're continuing to see a win rate that's consistent in the second tranche, that's consistent, you know, in the second tranche with the level that we've been generating in the first, in the initial tranche. And so, you know, we will be able to provide perhaps some more detail, with regard to impact order activity down the road. But at this point, given the fact that this is news that's really not even forty hours old at this point, with regards to the 2nd round, win rate, we're kind of digesting it and trying to try to understand the impact on the order end. Understood. Okay. We will wait for that update. Great. I want to skip over here to the neurosurgery opportunity. Glad to see that announcement. Yes, today and then the discussion at Astra earlier this week. I wondered if you could size up for us what that market means actually in terms of opportunity, kind of a addressable market and possibly timelines on when we might start to see some of this start to hit the business. Thank you so much. Hi, Marie. It's Suzanne. Yes, so I think we think of the neuro, radio surgery market 2 different opportunity actually in 2 different parts. First, there's an immediate replacement opportunity. Again, there's an aged installed base of Gamma Knife as well as still some Novales systems that are out there. I would say in total, that's probably about 500 units globally. And even at a conservative way of looking at it, assuming 10% of these would move toward more of a shared system between radiation oncology and dedicated neurosurgery. I think that translates to about $150,000,000 to $200,000,000, at least in the short term. I think the longer term opportunity and you heard a little bit about this at Investor Day is the opportunity to take radiation therapy in to, you know, treatment of movement disorders and you heard Doctor. Chris Loydzel from Swedish Medical Center talk a little bit about the use an essential tremor. And again, that opportunity right now, if it's, refractory to pharma, therapy, they go for deep brain stimulation. And there's still a number of issues associated with that. I think and the prevalence is 5% of the adult population and it gets more severe as you age So we think there's a real opportunity here in therapy penetration and we haven't put market potential on that at this point. But we will continue to work with clinicians to see what the potential is in terms of translation into system purchases. Moving forward. Our next question comes from Anthony Petrone with Jefferies. Please go ahead. And staying healthy. Maybe Josh and Shig a couple of questions. One would be, and we're just hopping around calls here. So I apologize if if you sort of touched on these. But one would be just with the COVID resurgence and sort of when you think of hospital preparedness and how they may be thinking about the next few months. Has that changed in the conversation around capital equipment adoption and specifically radiation therapy? Have you noticed any of those trends in any of the key geographies? And then maybe just to get your views, again, on a push out of the radiation bundle in the U. S. Obviously, there's a debate as to whether that's a headwind or tailwind. It's now pushed into the middle of next year. So related thoughts there on the push out of the radiation and bundle and whether or not that's a tailwind for capital adoption. Yes. Thanks, Anthony. COVID 19, there's no question that the intensity of the COVID situation is it continues to be pretty variable by region. That's not necessarily changing. It is quite frankly, it is ramping up in terms of intensity. You've heard, both Shig and I talked in prepared remarks about, you know, COVID headwinds in certainly the U. S. The U. S. Market. And I think that that's, that, that's very visible at this point. I think also, Western Europe maybe not every one of the Eurozone countries or markets, but certainly, France, Germany, Italy, in Spain, remain, you know, I would say at risk as well. Interestingly, with all of that said, we saw good order generation in EMEA in the quarter, which again, maybe we're We're splitting hairs here on timing. You know, certainly France and Germany have announced in the last day or so that there going to more restrictive, you know, kind of environmental precautions. But we're not we're not seeing orders cancel out of the backlog related to COVID. I don't think there's any question though that in, again, the selected markets that I just talked about, U. S. Being one markets in Western Europe, the other, we would anticipate that there would be some slowdown and some some impact from an order ramp standpoint. We're not hearing directly from any hospitals that they're going back to where they were back in late spring or early summer with absolute lockdowns and and other procedures essentially being turned off. So I would say that, that there's no visibility to those severe kind of decisions being made again at this point, which I think is a good thing. But again, this is it's a day by day situation. I wish I could give you a high degree of confidence or predictability around where we'll land 6 months, 12 months from now, but I think, we're going to be taking this, day by day and seeing what customers and what the marketplace is, is going to allow for. With regard to your question on CMS, we are, we were actually supportive of the idea that this, the push for implementation would move until July There was a significant amount of dialogue between ASTRO and, and CMS. There was discussion with, through the ADVIMID, channels with CMS. And primarily the messaging was that given the pandemic, the practitioners felt like they weren't going to be completely ready in the ways they needed to be, Anthony, in order to to fulfill their obligations under the requirements. And so, as a provider to or as a vendor to the provider community, we had to respect that and we do. And so we were aligned. We gave our input into those discussions. And, it's interesting whether you, whether you saw implementation begin in January, the coming January or or you see it occur in July as it's now scheduled to, is almost in our view, it's somewhat irrelevant because the train on this topic has left the station. If you look at the commercial payer side of the world, most of the commercial payers that we see, involved in reimbursement with our products are already, either already have moved or are rapidly moving to, more, more, focus on, hyperfractionated SBRT delivery. And so, I don't think the difference between a January implementation or July is really going to change the broader trends macrotrends on this topic in the market. And our next question today comes from Ren Gissing with Luegardo. Please go ahead. On the EBITDA, lots of puts and takes in the first quarter, things that were sort of absent. Can you give us, but can you give us any sense for, I know you don't want to really guide, but any sense at all around how atypical that $9,000,000 is? Any sense maybe for if we have a similar level of revenue in 2Q, what the EBITDA puts and takes might be? Yes, yes. Ran, appreciate the question. And, you know, I'm not going to be at this be specific about that, but let me try to give you some color to help you think about this. So, first quarter historically has been a lowest quarterly OpEx quarter. So part of it is that. And also as I said in my remarks that the, this year, the Astro expense shifted from this past quarter, Q1 to Q2. So you're right, there's some puts and takes. But I think if I think about I know you're asking about EBITDA, but from OpEx perspective, the, coming out of Q4 last year, I said, $33,000,000 quarterly run rate on OpEx is something that I'm comfortable with looking forward. So I would still say the same thing, even though Q1 was more like a $30,000,000. I think on an average basis, $33,000,000 of OpEx is a good place to be from my perspective. On top of that, I think we're hovering around 40% gross margin for, the last few quarters. I see that being somewhat of a consistent area that we can probably produce. So Hopefully, those gross margin, OpEx run rate, give you enough sort of Hint to kind of sort of help you model a little bit, without, you know, am I giving you guidance in any way here and you just need to layer on the revenue, so to speak. No, no, I. Thank you. I was just going to close out the question and answer session and turn the conference back over to Mr. Levine for any final remarks. Thank you, operator. Thanks everyone for joining us this afternoon. We look forward to speaking with you again in January. When we present at JP Morgan's annual health care conference. And later on, in January, when we report our fiscal 2021 second quarter results. Thanks very much. And thank you ladies and gentlemen. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.