Earnings Call: Q4 2019

Aug 15, 2019

Good day, ladies and gentlemen, and welcome to the Acura Incorporated Fourth Quarter And Fiscal Year 2019 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Michael Polyvio. Sir, you may begin. Thank you, Daniel, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the fourth quarter full fiscal year 2019, which ended June 30, 2019. In addition, during our call this afternoon, management will review recent corporate developments. Joining us today are Josh Levine, Accuray's President and Chief Executive Officer and sheikh Hamamoto, Accuray's Senior Vice President And Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward looking statements that involve risks and uncertainties, including statements regarding our fiscal 2020 guidance, including factors that could affect such guided expectations regarding market conditions in China, expectations related to new product and strategies. There are a number of factors that could cause actual results to differ materially from our expectations, including, but not limited to risks associated with the adoption of the CyberKnife, Temo Therapy And Radixact Systems, commercial execution, operationalizing the China joint venture and overall strategy in China, timing of China user license issuances and the company's ability to take advantage of the issuance of such licenses, future order growth, future revenue growth and macroeconomic factors close this afternoon, as well as in our filings with the Securities And Exchange Commission. The forward looking statements on this call are based on information available to us as of today's date, and we assume no obligation to update any forward looking statements to reflect actual performance or results, changes in assumptions or changes in other factors affecting forward looking information, except to the extent required by applicable securities laws. 2 housekeeping items: 1st, during the Q and A session, request that participants limit themselves to questions and then re queue with any follow ups. 2nd, all references we make to specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our 4th quarter reflect to refer to our fiscal fourth quarter ended June 30, 2019. Now, I would like to turn the call over to Accuray's President and Chief Executive Officer, Josh Levine. Josh, please go ahead. Thank you, Michael. Good afternoon, everyone, and thank you for joining us on today's call. Since we last talked with you in April, our team has continued to execute and build on our recent commercial momentum, advance our opportunities in China, reduce our overall operating costs and achieve full year operating profitability. This afternoon, we've reported results for our fourth quarter full fiscal year 2019, highlighting this progress. Generated $97,000,000 in system orders during the fourth quarter and $342,000,000 in system orders for the full fiscal year. Year on year, orders grew 12% over fiscal 2018. For the fourth quarter, orders increased 1% as compared to last year's period, that was against a tough prior year comparison as we recorded the largest U. S. Multisystem order in the company's history in last year's fiscal Q4. Regionally, Japan had the highest order growth rate during the fourth quarter at approximately 20% while the Asia Pacific region increased approximately 15% driven by the continued strength in China. In EMEA, orders grew in the mid single digits during the fourth quarter. This growth was highlighted by the receipt of the 1st multi system multi clinic order that bundled both Accuray and Research Labs system and software offerings placed by the Swiss medical network. Turning to our Americas region, orders were down in the 4th quarter based on the previously mentioned comparison to the prior year fourth quarter. Nevertheless, 4th quarter orders in our Americas region achieved their highest level for any quarterly period during fiscal 2019, driven by contributions from the U S and Latin America. For the full fiscal year 2019, the 12% total order growth was driven by our Asia Pacific region where pent up license demand in China resulted in orders nearly doubling on a year over year basis. EMEA continued to be the largest contributing region in terms of absolute dollars, although total orders for the year were off 2%. Our Americas region was down 9% contributions, representing approximately 20% of total company orders. On an order composition basis, approximately 20% of our 4th quarter orders were competitive replacements, 30% were trade ins of older Accuray systems and approximately 50% were new bunkers. From a product mix perspective, both the CyberKnife and tomotherapy platforms grew double digits year over year. Radixact continues to perform especially well and has reached a very significant milestone by recording and 4% year over year to $496,000,000. I'd like to turn now to our recent progress in China. During the fourth quarter, we booked 8 orders from our China distributor, totaling approximately $19,000,000. The orders were primarily for Type A products. Recently, the Chinese Ministry of Health provided an update on the overall timing for the Type A radiotherapy license review and approval process. Tied to feedback from end user customers, we have a growing sense that Accurate Type A products covering both our CyberKnife and Radixact systems represent a substantial number of the applications that have been received by the Ministry of Health from Tier 1 Hospital Facilities. While there's no definitive guarantee, that all of these applications will be approved for a license. Customer feedback does suggest that we continue to be competitively positioned to capture Type A devices. Based on the current understanding of the process and the projected timelines, we are cautiously optimistic that Accuray's first shipment of Type A systems would occur sometime in the second half of fiscal twenty twenty, and our inventory position will allow us to be highly responsive once licenses are issued. Shit will be reviewing in his prepared remarks how this updated timing is reflected in our fiscal 2020 guidance. We are very excited about our potential to build Type A system revenue during the second half of fiscal twenty twenty and beyond. As for the Type B segment, currently, our Tomo H system has been defined as a Type B product. The joint venture dealer sales organization is actively selling this device and we strongly believe our best opportunity with China Isotope And Radiation Corporation. Since forming the joint venture company in January, meaningful progress has been made with the new company reaching 3 important milestones. Over the past 120 days, the JV company has been granted the business license certification the medical device operating permit, and most recently in July, the radiation safety license, which is the final business life the rapid and straightforward review and approval process related to these licenses reaffirms our view that our JV partner, China Isotope And Radiation Corp, has been a significant and helpful resource in expediting these approvals during a period of rising tensions in the U S. China relationship. 2nd, the JV has received its first two orders, which will in turn be reported as accurate backlog during the first quarter of fiscal 2020. And lastly, in July, the new manufacturing and training facility located in Tangen had its groundbreaking ceremony where our China branded Type B system is to be in full production with a locally manufactured product in approximately 2 years to avoid short term disruptions of our revenue conversion cycle in China While the JV ramps up, we will continue to work with our current distributor TomoKnife to convert orders to revenue. We believe this 2 phase strategy in parallel with our current distributor continuing their sales responsibility over the next year allows Accurate to best maximize both near and longer term opportunities. Overall, we have met or exceeded all of the milestones for the 1st phase of the China JV integration and ramp up process. And we're very excited about the future impact of our overall China JV strategy as a major growth catalyst for the company. Turning now to our product portfolio, we believe that the product development roadmap for both our CyberKnife and Radixact platforms are critical to our commercial momentum and accelerated growth going forward. To that end, we have some exciting news related to roadmap development projects. We have our first customer evaluation site underway for Accuray's proprietary Synchrony motion compensation technology for our Radixact platform. The site is Frader Hospital suburban Milwaukee, which is the primary teaching affiliate of the medical college of Wisconsin. They have successfully treated their first patient utilizing the Synchrony technology on their Radixact system and the case details were impressive. The freighter clinical team delivered a 3 fraction, fiducial free SBRT lung case utilizing Synchrony. This technology enables continuous delivery a radiation treatment beam to the tumor, while, the tumors in motion by synchronizing the beam to the target on a continuous real time basis during the delivery of a treatment fraction. We will be putting out a joint press release with Frodo containing more detail on this next week but we felt it was appropriate to share this exciting milestone on today's call. The successful patient treatment gives us confidence that we are on track for full commercialization of this proprietary technical capability Acura is the only radiotherapy system provider to offer this unique solution, and we expect Synchrony for Radixact will be a catalyst for replacement of older tomo as well as improving our strategic positioning with the proposed changes in future reimbursement captured in CMS's alternative payment model, we believe that more radiotherapy treatment will be performed with SBRT applications and hypofractionated treatment regimens. These higher dose fractions will benefit from the improved precision and tighter margins that are attainable through Accuray Synchrony technology, which can help minimize toxicity and exposure to healthy tissue. Switching to our CyberKnife platform, we view our VOLO Optimizer software upgrade as a significant benefit considering the proposed reimbursement changes by CMS. Volo, which was introduced at ASTRO last fall, reduces treatment times by up to 50% allowing CyberKnife treatments to be performed in 15 to 20 minutes depending on the disease site. Additionally, VOLA creates significant reduction in treatment planning times in some cases approaching an improvement of 90%. As with Synchrony for Radixact, we believe the availability of the VOLO upgrade on CyberKnife will be both a catalyst to our installed base replacement cycle and allow us to attract new customers to the CyberKnife platform. Technology upgrades like Synchrony and VOLO offer material improvements in functionality in the form of precision, speed and efficiency across the Radixact and CyberKnife platforms at the same time that reimbursement changes are likely to drive more SBRT and hyperfractionated treatment strengthening the value proposition of the Accurate product portfolio. In summary, we are excited about our progress in fiscal 2019 12% order growth, 3 estimates, despite not having a material revenue contribution from China during the 2019 fiscal year. Additionally, through operating expense management, we initiated $15,000,000 in annualized cost savings and achieved an operating profit for the full year, which is the first time that has occurred since the Tomotherapy acquisition and a topic that Sid will discuss in greater detail. Our fiscal 2020 guidance reflects the latest information we have from We expect to generate mid single digit gross order growth globally during fiscal 2020, with strong year over year increases coming from the Americas, EMEA and Japan regions. Overall, with the pending commercialization of Synchrony for Radixact, the Voto software upgrade opportunity on CyberKnife The progress of our joint venture in And I would like to turn the call over to Chip. Thank you, Josh, and good afternoon, everyone. As Josh highlighted, for the full year, gross orders were $342,300,000, an increase of 12% over the prior year. We had $97,200,000 of gross orders in the fourth quarter, representing a 1% increase over the prior year. Last year's Q4 included the largest U. S. Monthly system order in the company's history, and therefore, presented a tough year over year comparison. Starting in fiscal year 2019, gross orders include upgrades purchased through our service contracts. These upgrade orders totaled $1,900,000 for the 4th quarter, and $5,500,000 on a full year basis. Excluding these upgrades, gross orders grew 10% on a full year basis. From a product mix perspective, the tomotherapy platform led by Radixact accounted for approximately 60% of gross orders for both cyberknife represented approximately 40% of total gross orders in both Q4 and the full year. Cyberknife orders grew double digits on a full year basis. Net ADAS for the quarter were $24,100,000, up from $17,100,000 set by $4,100,000 of age ins. Approximately a third of the net Asia for the quarter relates to the orders with a long time distributor in Turkey, where strengthening of the U. S. Dollar against the local currency over the past few years has caused a delay revenue conversion. We also recorded $8,700,000 of cancellations and other adjustments, As a result, on a net basis, we generated $64,400,000 for orders in the 4th quarter. As discussed in prior calls, the volume of auto cancellations can fluctuate from quarter to quarter. On a full year basis, auto cancellations totaled $25,000,000 or approximately 5% over our total backlog, which is consistent with prior year. We ended a fourth quarter with a backlog of $495,600,000, an increase of 4% over prior year. Turning now to our income statement. Total revenue for the fourth quarter was $117,400,000, representing a 3 $418,800,000 and also grew 3%. On a regional basis, EMEA, Japan and APAC delivered a healthy year over year revenue growth in fiscal 2019, with EMEA and Japan growing 11% and 13% respectively. Growth in these regions was offset by decline in the Americas by 9%. Product revenue for the quarter was driven by strength in both CyberKnife and Radix systems. On a full year basis, product revenue was $196,700,000 and grew 7% driven by strong demand for the Radixact system, with full year revenue up more than 40%. Since its introduction, almost 3 years ago, through June 30, 2019, we have recognized revenue for 100 Radidax Systems. Service revenue for the quarter was $56,800,000 or down 4% from the prior year. As a reminder, the prior year service revenue included a higher than normal level of upgrades purchased through service contracts, which was driven by new software releases related to our precision treatment planning and IDMS connectivity. As we mentioned in prior calls, timing of upgrades can vary from quarter to quarter. On a full year basis, service revenue grew 1%, driven by service contract revenue growth, which is consistent with our installed base growth of 3%, offset by lower upgrade revenue on service contracts for the reasons I stated earlier. Turning now to gross margin. Our overall gross margin for the 4th quarter was 39% compared to 42% in the prior year. On a full year basis, our overall gross margin was 39% down from 40% in the prior Product gross margin in the 4th quarter and for the year were 41%. Full year product gross margin of 41% was down from the prior year of 44%, primarily due to a lower mix of CyberKnife Systems. From a revenue mix perspective, CyberKnife accounted for approximately 35% of fiscal 2019 revenue, which is down from 50% in the prior year. We are, however, encouraged by the double digit CyberKnife order growth in fiscal 2019, which we believe will drive CyberKnife revenue growth in the future. Service gross margin in the 4th quarter was 37.4% or flat year over year. On a full year basis, service gross margin increased to 37.2% compared to 36.6 percent in the prior year. Moving down to income statement. All burn expenses for the fourth quarter were $42,700,000, a decrease of $2,200,000 or 5% from the prior year. The decrease was driven by the cost reduction actions taken earlier in the year and for in the 4th quarter represented the first reporting period during which we realized the full benefit from these actions. On a full year basis, operating expenses were $162,100,000 or down 2% year over year. Excluding one time charges related to the accounts receivable impairment in the first quarter, severance and lease termination credit, full year operating expenses decreased $7,000,000 or 4% from the prior year. Adjusted EBITDA for the 4th quarter was $8,900,000 compared to $7,800,000 in the prior year. Full year adjusted EBITDA was $23,700,000, an increase of 39% compared to $17,100,000 in the prior GAAP operating profit for the 1st fiscal year since the acquisition of Tomo Therapy in 2011. Operating profit of $600,000 was achieved as a direct result of the cost initiatives we undertook during the year. We believe we now have the right operating cost structure in place and remain focused on continuing to improve our profitability metrics as we execute on strategic initiatives that would drive revenue growth. We ended the fourth quarter with $87,000,000 of cash and short term restricted cash. Turning now to our guidance for fiscal 2020. During Josh's comments, he mentioned the revised timing for Taipei system revenues in China. As a result of the push out of these system revenues to the second half of our fiscal year, we are currently anticipating fiscal 2020 revenue to be in the range of $410,000,000 to $420,000,000. This top line guidance includes the impact of current tariffs in China for the full fiscal year, which reduced revenue growth guidance by approximately revenues in both EMEA and Japan to be flat or slightly below the fiscal 2019 levels, which is primarily due to revenue conversion delays. Related to valve modification and overall project planning slowdowns in our 2 largest distribution channel regions. As we have highlighted in prior periods, the complexities of our vault readiness construction projects are further challenged when a distributor organization is playing an intermediary role in between our site planning coordination efforts and the end user customer. While additional resources we have put in place to assist with project planning activities have been effective We are still subject to some inherent lumpiness in these activities and the overall timelines. In addition, as I mentioned earlier, revenues from these two regions grew at a healthy double digit rate in fiscal 2019 and therefore present a tough year over year comparison going into fiscal 2020. We see these issues in Japan and EMEA successfully resolving as we exit fiscal 2020 and expect These regions will resume revenue growth in fiscal 2021. As for the Americas, we anticipate modest revenue growth in fiscal 2020 as we continue to focus on rebuilding our auto pipeline. Despite the near term challenges in these regions, we are continuing to work on a backlog conversion through our distributors and building momentum in the Americas. We are also excited about our Synchrony motion tracking and a correction launch for RESOC. With commercial installations expected to start in the back half of fiscal year. Given the timing on Type A revenue and project delays imposed by certain end customers in other regions I just described, we expect our revenue in the first half of fiscal twenty twenty to be slightly below fiscal twenty nineteen levels before resuming year over year growth in we will generate gross order growth in the mid single digit range during fiscal 2020 with Americas, EMEA and Japan leading the way. Given our revenue outlook, we expect adjusted EBITDA for the full year to range between $19,000,000 $24,000,000, The fiscal 2020 EBITDA guidance includes approximately $2,000,000 of our share of expected of the China joint venture operations. As mentioned in prior calls, we are accounting for a 49% joint venture interest using the equity method of accounting and accordingly expect to report our share of income or loss from the joint venture on a quarterly basis. We did not record any joint venture loss pick up in fiscal 2019. From a P and L reporting perspective, in fiscal 2020, we will start reporting our share of income or loss from the joint venture on a single line item called equity and income of joint venture, which will appear right above the net income line on our income statement. In terms of our gross margin outlook, we expect overall gross margin to be approximately flat to our fiscal 2019 levels of 39% We continue to work on cost down initiatives to lower cost of goods and expand margins. Tariffs in China negatively impact the fiscal 2020 gross margin outlook by approximately 150 basis points. Excluding the tariff impact, gross margin expectation would be over 40% in fiscal 2020, which represents healthy year over year improvement. With regards to operating expenses, we expect fiscal 2020 to be down approximately 3% year over year as we see the full benefit of the cost reduction actions we took in the prior year. Turning to our Q1 net ASR forecast. We anticipate Q1 net ASR to be in the mid $30,000,000 range, with over 40% coming from China. As mentioned earlier, as we gain more clarity on the timing of Type A license issues in China, we will continue to work with our distributor and end customers on converting these ASR China orders to revenue. And with that, I'd like to hand the developments with U S reimbursement. In July, CMS unveiled the radiation oncology alternative payment model that will be tested over a 5 year period and is currently anticipated to be implemented sometime in the first half of calendar 2020. As proposed, 40% of all radiation oncology providers will be required to participate in the model, which will apply to both hospitals and freestanding cancer treatment centers. We believe that the proposed national payment rates and subsequent adjustments will likely result in increased utilization of hyperfractionation and SBRT treatments. As an original pioneer in the areas of hyperfractionation, and SBRT, we believe Accuray is well positioned to benefit from the likely changes in clinical practice that will result from implementation of the APM. At our upcoming analyst event to be held on September 16th at ASCO, we'll be providing an expanded overview of Accuray's latest technology upgrades how we see these advancements potentially benefiting from reimbursement trends. Before we open the call up for questions, I'd like to thank the entire Accuray team for their commitment increased focus, improved execution and supporting the important work that's making a difference in patients' lives. And now, operator, we're ready to open the line for questions. You. Our first question comes from Anthony Petrone with Jefferies. Your line is now open. Thanks, Josh. Thanks, Shig. Maybe I'm going to begin with guidance fiscal 2020 and just kind of moving through the moving parts here, Shig, you mentioned 150 basis point impact from tariffs to 25% tariffs. So if I'm doing the math correctly, if we back that out, the implied underlying guidance is something around down 60 basis points to up 1.8% and you're coming off fiscal 2019 where you did 3.4% And so I'm just wondering the spread between where we're exiting 'nineteen and the underlying outlook excluding tariffs for 2020. How much of that is purely the delay in Class A licenses and is anything baked in there for the U. S. As perhaps maybe hospitals hesitate a little bit as the APM is sort of finalized and implemented and then I'll have a follow-up. Thanks. Yes, Anthony, thanks for the question. You're right about the math. If you did a 1.5 send tariff impact, let's say roughly $400,000,000, that's about $6,000,000. So that is the dollar impact of the tariff. And so if you sort of remove that, the, you can say that top in our range is for 4.20 plus 6 or 4.26 over what we had there for 'eighteen, 'nineteen and FY 'nineteen. So as Josh and I said in prepared remarks, a lot of them kind of a muted growth, unfortunately, in the FY 2020s impacted by the China type area revenue, we now expect to be the second half of the fiscal year. And all of that is due to the license timing, which outside of control, good news is that we're getting a lot more clarity on the licensations timing as the day goes by. So that's good news. It's just the timing slipped. And I think you heard I speak about the other regions, Japan and EMEA in particular, we're expecting flat slightly down for them, these regions due to what we think is sort of a 1 year hiccup in terms of managing the end user installation timing. But they, as I said, they grew double digits in the fiscal 2019. So clearly, the management of the revenue conversion pipeline has been very effective last couple of years. But again, these two regions, we think we by the time we finish that by 'twenty, going into FY 'twenty one, there will be in the growth mode going into 'twenty one as we resolve these temporary issues on installation schedule. And we got the modest growth in revenue expected for AMS revenue. Josh, do you want to add something? Yes, Anthony, just to tag on Shub's piece you. The other part of your question, which you ended with, was really around how much, if anything, we've baked into some of the assumptions on guidance related to, slowdown perhaps in purchasing decisions based on CMS's direction The answer on that last piece is virtually nothing. I don't think anybody right now can predict what the, the implementation timing. We've got obviously an understanding about implementation timing from CMS, probably sometime in the first half of the next fiscal cycle or the next calendar year. But the reality is, It's a complex proposed model. There are a lot of moving pieces to it. I happen to believe very, very strongly that when you look at what will result in terms of clinical practice direction and impact, we are probably going to benefit more than any of our competitors from what is happening with the reimbursement. It's moving people in a direction that we have more, more continuous experience with related to hyperfractionation and SBRT treatments than arguably the bulk of the people we compete against. So I think over time, there's no question that, that will benefit from it. And I think that our portfolio is well positioned to capitalize on what CMS would like to see happen there, which is patients treated more rapidly with higher doses. But I think it's too early to call whether or not there's going to be a, a definitive impact or slowdown or freeze, if you will, on purchasing decisions And therefore, we didn't really have anything baked into the guidance related to that component. Great. And then I'll just add the follow-up, go back to China. I mean, do you think as sort of trade war continues back and forth, I mean, is there any risk to the target now of the second half for Class A license contribution? I'll get back in queue. Thanks. So again, I think you heard me say in last quarter's call, it would be terrific to wake up in the morning and not a tweet or another headline related to trade war or tariffs and the back and forth that's been taking place With that said, we still have a high degree of confidence that these licenses are going to issue. One of the reasons that we put the prepared remarks in place that we did in today's discussion, related to China Isotope and radiation Corp, is that if you think about what's going on between China U. S. Relations and then you look at what we've experienced with the practical flow of regulatory decisions or licensing and permitting that, the JV structure has been, receiving approvals on. Over the last 120 days, we've had 3 wins in terms of the permitting and license is that that business structure needed to start operation. And I'm thoroughly convinced that the reason it went so rapidly and was so effective was because we're dealing quite frankly with the Chinese government directly. It's not Washington. It's not President Trump. It's us dealing with our partner and they are a very, very large state owned entity. And they have, kind of an inside the tent view, I think, and capability of helping advance some of these things. And I think that what we've seen is kind of indicative of that. So Again, if nothing else, it just reaffirms in our mind that we've got the right partner and we're seeing them help and interject themselves in ways that I think over time will continue to be helpful. Right now, again, based on what you heard us say in prepared remarks, the early indications are that we have a reasonably substantial number of tier 1 hospitals with applications in the system for Type A license review and approval that are related to either a Radixact product or CyberKnife product. And I think that we feel, well positioned based on that Again, we're not going to win probably not going to win all of those, or not going to get approval on all of those, but I think that we feel good about what we see at this point directionally in terms of momentum or the representation of our products in the total pool of applications that are related to Thank you. And our next question comes from Josh Jennings with Cowen. Your line is now open. Hi good evening. Thanks for taking the questions. I just wanted to follow-up on the, on China. Just with the Class A license timing, I know it's a wild card and out of your control and unpredictable, But just so I think we're all clear, when you do get the licenses in terms of recognizing revenue in the back half, you guys will recognize revenue upon the license granting and you'll ship to TomoKnife and be able to recognize revenue there. I'm just trying to think about the risk of, if licenses are granted later in the first half of this fiscal year. Versus or the benefit of them being recognized earlier, to relative to your guidance here? Yes, Josh. This is Shay. I'll take that question. In general, you're correct. When we shift to 12 a night, that's the timing of revenue recognition for us. And just to add a little more clarity there, the once the license is granted to end user hospital, there's additional step to go through the tender process. So I just want to make it clear that beyond the license grant, there's additional step up, the tender process for public hospitals in China to go through the bidding. And after the bidding is complete, the, that's when our shipment occurs to Tom and Iitec revenue. Josh, just to be clear on what should said, I want to make sure we're, precise on this. The tendering process is essentially a process that will define and lock down the contractual terms between the distributor and the end user facility that's receiving the license. It does not open it's not an open bidding situation, relative to something that would result in a different product being, awarded a license in that customer, that end user customer situation, just for purposes of clarification. But your what Chig is identified is right on in terms of, we'll recognize revenue when we ship to TomoKnife And inventory availability for us is not going to be a problem in us being able to respond rapidly to once once hospitals are ready to install and once TomoKnife is ready to take product. Great. And then, and just a follow-up question, again, on China, it's a hot topic. Just in terms of your gross order guidance in the mid single digit range, I mean, how should we be thinking about Class A licenses being granted and the impact to potential that pent up demand and maybe even stronger order flow out of China? And also, can you just remind us how once the JV is fully in play and sales responsibilities shipped over from TomoKnife to the JV. Those Type A or Class A orders will still flow through Accuray's order number. And I just want to make sure that there's not going to be any any overhang there in terms of type A orders falling off of your backlog or into your gross order number? Thanks for taking the questions. Yes, sure. So just Shig and I will tag team this. Just to answer your last the last part of your question directly, One of the reasons we put the structure in place and negotiated the agreement details, the way we did between ourselves our JV partner, C IRC and TomaKnife is, we wanted to make sure that exactly what you were asking about was not going to happen that we weren't going to have any disruption from a revenue conversion cycle standpoint in the transition between Tom and I and China isotope. And so, TomoKnife has a protected window, if you will, for a defined number of accounts that they're going to be able to take revenue on and will do so, quite frankly, for the next for the fine period of time, And, the at the end of that period, all revenue will be flowing through the JV structure, the selling activity for type B products, I mean, we have TomoH today, that's available for sale. And we've got a window of time obviously before a local product is going to be available and manufactured for us. But we have a network of distributors or dealers, if you will, that are covering the vast majority of the provinces at this point. They're in place they've, there are people that our CEO there, who's our former GM for the APAC, Accuray APAC region, he worked with in prior lives at Siemens and other companies. So he's got a strong commercial experience with them they're on board. They're already trained. And, they're actively out, trying to sell tomoh under the Type B discussion or at least, positioning that product. So we think that we have the right mechanisms and protections in place to ensure, no disruption or no overhang to use your terminology in that transition and Josh to, kind of hit some of the points you are raising in transitioning type activities from, Tom and I to a JV on the order front. There will be no loss to backlog in that process. In other words, we have, you heard number 100 plus 1,000,000 of backlog in Type A we have with Tawai Knight. Tawai Knight has opportunity to convert those backlogs to revenue over the next a couple of years and they'll focus on that. And there's no orders of loss. So backlog lost in that transition. I want to make that clear. And, as we said, right now JV and TomoKnife are also sourcing additional orders on top of what we already have on Type A. And one of the press release we had about a month ago on the JV progress One of the 2 orders they received was JV received was Type A. So they're already generating both Type A and Type B orders. So Hope that answered your question. And I think the other one was, I'll admit single digit order growth guidance in how to think about China, we are expecting additional China orders to follow in fiscal 2020. And obviously the assumptions is embedded in that mid single digit guidance. However, I do expect a tough comp year over year on China because as you pointed out, we had a bolus of orders in Q2, Q3 we're going to see some top comp on the order side in China in particular in FY 2020. Great. And just to follow-up just so we're clear on just on the gross order flow through the year, when you have that transition from TomoKnife to the JV for selling Type A and Type B, will the Type A and tape be orders be recognized through the JV or will will you guys recognize those orders as gross orders for Acura? And could there be any disruption to order growth? And or has that been accounted for in that mid single digit gross order guidance you provided? Yes. So logistically, the way it works, Josh, is that obviously the end users will place an order with joint venture because obviously the joint venture is a local distributor of our product. And the joint venture will turn around and place the order with Accurate, at which point it becomes our backlog. So hopefully that makes it clear for you that the logistics of the order we see. Perfect. And then for type A and type B shoot? Correct. Great. And our next question comes from O'Neil with Lake Street Capital Markets. Your line is now open. Good afternoon. I have a couple questions on August 2, you guys filed an 8 K indicating that you had terminated the employment of your Chief Commercial Officer. Can you just give us any color that you're able to offer as it relates to what was going on there? What is going on there? Yes, Brooks, this is Josh. I can confirm that the our former Chief Commercial Officer has left the organization. On an interim basis, the regional GMs are reporting to meet directly. Which I'm, and they are very comfortable with. It's given me direct line of sight to the business and the trends in each region. And, in my mind, ensures that we will minimize any business disruption, as a result of, our Chief Commercial Officer's departure. It's very much a business as usual environment. We've got an search underway for a new commercial leader. And, as we have additional updates or news to report on this topic, we'll do so. That sounds great. I appreciate that. 2nd question I had was, you guys talked quite a bit in your prepared about your excitement about the motion management capabilities you're introducing to the marketplace. Can you just in layman's terms give us a little bit of a sense for how you feel those position you competitively in the environment you see out there in the marketplace right now as it relates specifically to motion management capabilities. You bring as well as what you're seeing from your competition. So, the world that the world that we will be living in, all of us will be living in Brooks going forward. We'll see a shift in case mix from IMRT cases and 3 d conformal cases to, much more, much higher dosing fractions and fewer fractions. So think in terms of those historical mix moving more to SBR cases and SBRT cases driven by hyperfractionated, treatment regimens as opposed to, more conventional fractionation approach. And so that movement is going to and CMS is taking this into account when they start when you look at their proposed APM, because they're talking about patient about quality measures. They're talking about patient safety measures. So there is likely going to be, and certainly will be, I'm guessing, some transition here a clinical practice standpoint, the people that and the providers that are not as familiar with or haven't historically been doing as much SBRT work or hyper fractionated work are actually going to need to come through some kind of a learning curve. And the learning curve is really about confidence, clinical confidence in being able to increase the dose and deliver it over fewer fractions from where they've been and ensuring and what drives that confidence clinically is knowing that you are going to have the beam focused on the target as you want it as precisely as it can possibly be. And, our view is that we have we pioneered the use of fiber fractionation. If you go back 15 years ago, 18 years ago, we were the only voice in the marketplace talking about this. SPRT. And it was because, CyberKnife was a unique technology that allowed you to do this safely, increase the dose and ensure that motion management through Synchrony was able to accommodate for either positional changes by the patient motion of respiratory motion from a patient, breathing or any other changes that needed to be taken into account that would require synchronization compensating for the motion and synchronizing the beam. And we do that in real time. We do that on an automated basis in real time. That's a very, very different mechanism than our competitors are using, gating, patient restraints, you can go down the list, but none of them none of them provide the peace of mind and the confidence clinically to be operating at dosing levels those higher fraction dosing levels that SBRT cases are going to require. And that's why I think we're feeling the way we are about what benefit what the value proposition looks like in our, in our product portfolio when you think about this kind of new backdrop or future backdrop related to what CMS wants to have happened with the APM. It sounds like a very positive environment for you and I'm excited. Thank you very much. Thanks, Brooks. Thank you. And our next question comes from Tycho Peterson with JP Morgan. Your line is now open. Thanks. Josh, I want to go back to some of the comments you made before on the bundle. And as you highlighted, it's a complex model, a lot of moving pieces. I'm just curious if you could talk qualitatively about what you are hearing from customers, because the idea that we might not see a CapEx freeze is is a little bit odd. I mean, I would think customers may pause until there's better kind of visibility here. Yes. So, I mean, I I haven't had any, any, overt inputs that are that I'm give me pause or trepidation or concern about long delays. Tycho, I think the reality is that Again, what CMS is hoping to do is to try and get this, implemented as rapidly as they can as you know that we're in a public comment period right now, as you might imagine, in typical fashion, all the constituents that have a stake in the outcome here, being led by Astro, our assembling information and putting their, putting their information together to be able to present to CMS. I think when you think about what they've communicated so far, what CMS has communicated so far, there are the big topics at least from what Astro was saying and what, what, you know, what I'm gathering is that the national payment rate the view generally is that it the sense is that it's low. There are also a whole series of withholds and adjustments that will be a part of the payment model that are going to need to be worked through. And so I think that there's going to be some negotiation and some movement on those before the music stops playing and something gets definitively rolled out. But I know that CMS wants to get moving on this rapidly. And, So I think that that in general should try and create an environment where it moves this along. I mean, I think that there will be there will be some people that will probably take a wait and see approach to, to, if they're in the midst right now of purchasing decisions, definitively. But I think directionally, people that are understanding what CMS wants to have happened here with regards to the movement to, SBRT case mix and hyperfractionated treatment delivery, I think that if you use that directional context for what the world is going to look like and how you're going to have to be able to operate in it clinically. I think it takes it takes a lot of the confusion out of or the potential confusion out of where, where this should land. And it, again, it supports a more rapid people being able to make quest decisions about what they need to do from an equipment standpoint. Okay, that's helpful. And then on Volo, and kind of the replacement cycle here, I think you've talked in the past about a third of the compatible Sabronite customer base has already adopted. Can you just talk a little bit about how you think about the adoption curve and the replacement cycle around Volo going forward? Yes. We have, again, in round numbers, about 350 cybernights in, in the installed base. And roughly, as you pointed out, about a third of those are, in, in the latest generation device M6, and that's the part of the installed base that's device compatible or backward, backward, integratable from a, an installed base compatibility standpoint. Which essentially leads another, 65% or 70% of the installed base that are pre M6 devices And that is a primary target, for our Volo, Volo software upgrade introduction. And that's, I'd say the heaviest concentration geographically, is the U. S. And EMEA with a concentration in EMEA, really in Western Europe. And that's the selling focus right now, related to VOLO. And then on guidance, a question on margins. You're guiding to flat gross margins. You had a good double digit CyberKnife orders, which is higher margin for you guys. Can you maybe just talk about the give and take on gross margins and then any profitability comments as we think about 2020 for you guys? Or forget net income that is? Yes. Yes. So, gross margin, you know, it's likely hurt. I say that we'll guide into flat, 39% year over year. And that includes the 1.5% impact on tariffs. So if you remove that tariff impact, we would have been something like 40%, 48.5% showing improvement year over year. We certainly think that we can improve on coming into this year, the mix of CyberKnife, as you pointed out, has a higher margin. We also see the benefit of the cost actions we took last year. Some of that went to a cause line, but the tariff impact to really kind of pressing it down, unfortunately, for fiscal 2020. And then the profitability metric Again, we are very happy about 600,000 small feet amount, but it is an operating profit that we turned first time since the tomotherapy acquisition in 2011. And the cost cutting options paying off. And even though that we'll guide into relatively flat revenue here, we can expand on the operating income line going into fiscal 2020 year. Okay. And if I could just ask one last one. On Japan, you had a great order number, but you're talking some kind of delays there. Can you just clarify what's exactly going on in the Japanese market? Yes, it's basically, I mean, as you've heard us kind of at different moments in time talk about in the past. We've got, we've added resources as she indicated in the site planning area in support of distributors. But quite frankly, in Japan, specifically, There is a, especially around technically complex, construction related type projects, There are competing resources now in play with regards to the Olympic construction infrastructure buildup. And, I think that that's probably the single biggest, contributor to end user, end user, delays or slowdown, if you will, on revenue conversion cycle. I don't see this as a continuing trend. We actually have seen, since the, probably the end of 2016, we've seen in the last several years, much improved revenue conversion cycle activity based on some of the steps we took and implemented back then. And I think that these are more transitional or transitory Japan and EMEA, in the context of Shig's remarks. I don't see this being a long term situation, Tycho, but it's definitely going to slow things down with regards to revenue, revenue generation capability in those 2 regions for fiscal 2020. Okay. Thank you. Thank you. Ladies and gentlemen this concludes our question and answer session. Would now like to turn the call back over to Josh Levine for any closing remarks. I want to thank everyone for joining the call this afternoon and we look forward speaking with you again in October when we report our fiscal 2021st quarter. Thanks very much for participating. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.