Earnings Call: Q3 2019

Apr 23, 2019

Good afternoon. Ladies and gentlemen, and welcome to the Accurate Fiscal Third Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Michael Polyvio, with EVC Group. Sir, you may begin. Thank you, Carmen, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the third quarter of fiscal year 2019, which ended March 31, 2019, as well as recent corporate developments. Joining us today on the call are Josh Levine, Accuray's President and Chief Executive Officer and Shig Hamamatsu, 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 2019 guidance, including factors that could affect such guidance, expectations regarding market conditions in China, expectations related to new product releases and future business plans 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, tomotherapy, and Radixact systems commercial execution, operationalizing the China joint venture and overall strategy in China. Timing of China user license issuances and company's ability take advantage of the issuance of such licenses, future order growth, future revenue growth and macroeconomic factors outside of the company's controls. These and other risks are more described more fully described in the news release we issued just after the market closed this afternoon. Well as in our filings with the SEC. 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 other factors affecting forward looking information, except to the extent required by applicable securities laws. Two housekeeping items. 1st, during the Q and A session, we request a participant to limit themselves to two questions and then re queue with any follow ups. 2nd, All references we make for the specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our 3rd quarter refer to our fiscal 3rd quarter ended March 31, 2019. Now, I'd like to turn the call over to Accurate's AZin and CEO, Josh Levine. Josh, please go ahead. Thanks, Michael. Good afternoon, everyone, and thank you for joining us on today's call. Accuray's 3rd quarter performance was highlighted by 12% year over year gross order growth. The quarter was driven by strength in China and continued momentum for both of our delivery systems and software offerings. We also saw strength in competitive bunker takeouts which for a 5th straight quarter represented over 20% of our gross orders. On a year to date basis, gross orders grew 18%. Also during the quarter, we substantially completed the $15,000,000 cost savings initiative announced in the 2nd quarter and should realize the full benefit in fiscal year 2020. Our third quarter highlights also included the execution of our joint venture agreement in China, which we believe will uniquely position us to succeed in that market, which We made progress during the third quarter in operationalizing the joint venture with our partner China isotope and radiation Corp, and I'll be providing some more color in detail on this later market opportunity as a whole and then conclude with an update on our latest product innovations. I'll then turn the call over to Shig for a more detailed review of our financial performance. Gross orders of $83,600,000 in the third quarter increased 12% year over year, due to strong performance in our APAC region, specifically China, where we continue to see demand for our Type A products. As you're aware, end user customers are still awaiting the issuance of licenses, which we believe will begin by late May or early June. During the third quarter, we took 10 orders from our China distributor and the composition of the orders were primarily for Type A products. In our Americas region, gross orders were down slightly in Q3 compared to the prior year, but have grown 13% on a year to date basis. While the growth in the Americas during 1st 9 months is encouraging, it's still a bit early to characterize this trend as a sustained momentum. In our EMEA and Japan regions, gross orders declined on a year over year basis due to tough prior year comparisons. With that said, Both EMEA and Japan continued to be strong contributors to our overall gross order number and each contributed over 20% of the total gross orders in the 3rd quarter. By order type, approximately 25% of overall orders in the 3rd quarter were competitive takeouts, 60% were for new vaults, and 15% were replacements in our own installed base. All three of these metrics are consistent with our historical ranges. Turning now to China, when we look at the overall level of linac market penetration compared to mature markets around the world, it is clear that China is currently operating at significant deficit in terms of clinical treatment capacity. To put this in comparative perspective, in the U. S, we have roughly 12.4 linacs installed per million people. Western Europe has roughly 6 to 7 linacs per 1,000,000, and China is estimated currently to be at 1.4 linacs per 1,000,000 When China's disease incidence forecasts are taken into account, the current level of radiotherapy treatment capacity represents both a significant concern as well as an opportunity. While the near term addressable market today is defined by the roughly 1400 radiotherapy license quota outlined by China's Ministry of Health last October, To keep pace with future patient treatment needs, China will likely need a total of 5000 plus linacs over the next decade. Given Accuray's current installed base of 900 devices, you can see why we are so excited about China as an overall growth catalyst for our business. We continue to make operational progress on executing Having this license certification means we can now begin to apply for the Medical Device Radiation Safety license as well as hire employees to staff the JV from a basic infrastructure perspective, which in commercial terms moves us closer to order generation. We expect the JV to have the radiation safety life to sell and take orders sometime during this summer. During the early stages of ramping the JV, we will continue to work with our current distributor TomoKnife to take and convert orders to revenue to ensure there will be no disruption to our near term opportunities. Once licenses begin to issue This initial transition phase will allow us to maximize orders and revenue, while we operationalize the JV to support our longer term strategy for the China market. In the 1st phase of this transition, we anticipate that JV will begin selling Type A and our current Type B Accurate therapy Accurate radiotherapy devices much like a distributor. In the 2nd phase of the strategy, the JV will manufacture and sell a locally branded made in China Type B radiotherapy device. This locally produced product would replace our current Type B TomoH offering. We believe this 2 phase strategy in parallel with our current distributor TomoKnife continuing their sales responsibility over the next year will allow Accuray to best maximize both near and longer term opportunities. To enable longer term market penetration, our manufacturing partner, China isotope, has active selling relationships in almost 10,000 China hospitals across more than 30 provinces. China Isotope's customer relationships are also diverse by hospital type, including many institutions beyond the Tier 1 academic and research based hospitals, which have been accurate strength historically. As a result, we believe that the customer base that China Isotope currently serves will provide Accuray with improved strategic market access that should help diversify and expand our overall market opportunity. In the near term, Acura's order and revenue activity in China will be will continue to be partially governed by 2 processes. The license application and issuance process and the tender process. Based on the latest information, the China Ministry of Health is nearing completion of its implementation of license application infrastructure, and it is expected that the initial batch of Type A licenses should start to flow soon most likely in late May or early June. We then anticipate it will take approximately 6 to 8 additional weeks for the tenders to be awarded and the first units to go to revenue. We therefore continue to expect our order activity in China will benefit fiscal 2019 with the bulk of the revenue We do anticipate some quarter to quarter variability in order flow as this licensing and tender process becomes fully activated which Shig will cover in more detail shortly. Turning to our product development roadmap, our current upgrade strategy is focused on further increasing the speed and utility of our devices and continuing to extend Accuray's historical strength in the overall precision of our treatments. The VOLO Optimizer software upgrade for CyberKnife, which was introduced at Astrolast fall, is now on approximately 30% of compatible CyberKnife Systems in our installed base. The VOLO Optimizer reduces treatment times by up to 50% allowing CyberKnife treatments to be performed in 15 to 30 minutes, depending on Z site. The reduction in treatment planning times is even greater at approximately 90%. 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. Currently, approximately 100 systems in our CyberKnife installed base are the latest generation M6 platform that is MLC compatible and capable of realizing the full benefits of enhanced treatment times of the VOLO Optimizer. This means a reasonable number of the roughly 250 CyberKnife systems in our installed base are high value trade in trade up targets for our latest generation CyberKnife platform. For Radixact, Accuray is bringing the motion synchronization capability currently found on CyberKnife to our extremely versatile Radixact IGRT system. We expect to have our first shipment of this important feature, which we call Synchrony, for Radixact by the end of our current fiscal year. Broader commercial launch will be towards the end of the calendar year. Synchrony corrects for target motion during treatment delivery in real time without the need for gated treatments or uncomfortable patient positioning devices designed to restrict patient movement. The result is efficient treatment deliveries that enable tighter dosing margins improved sparing of healthy tissues and greater patient comfort. As the original innovator of motion tracking and synchronization with our CyberKnife system, accurate fully intends to extend our leadership in this important area by transitioning this capability to our Radixact platform. In addition to Synchrony, we are in active development on enhanced imaging upgrades for both our Radixact and CyberKnife systems that will improve soft tissue resolution and contrast. We believe these upgrades will expand the market opportunity for both of our treatment delivery platforms. We anticipate an enthusiastic customer reception for both our Synchrony Motion tracking and synchronization upgrade for Radixact and the Volo Optimizer for CyberKnife at the upcoming ASTRO Conference in Milan later this week. And now I'd like to turn the call over to Shig for a deeper dive into our financial performance in the third quarter and our outlook. Thank you, Josh, and good afternoon, everyone. As Josh highlighted, we had $83,600,000 of gross orders in the 3rd quarter, representing an increase of 12% over prior year. On a year to date basis, gross orders have increased 18% fiscal 2018. Starting in fiscal year 2019, we included upgrades purchased through our service contracts in our gross orders and these types of orders totaled $900,000 for the 3rd quarter $3,600,000 on a year to date basis. Excluding these upgrades on service contracts, gross orders increased 10% in the third quarter and 16% on a year to date basis. From a product mix perspective, CyberKnife contributed approximately 45% of total gross orders compared with 35% a year ago, primarily driven by the strong demand in China. The increased contribution from CyberKnife should possibly impact product gross margin as these orders convert to revenue in the future. Our Radixact and tomotherapy platform continue to perform well and accounted for approximately 55% of the Q3 total gross orders. Net AGAS for the quarter was $15,200,000, down from $25,900,000 in the prior year. Net age outs consisted of $20,800,000 of age outs, offset by $5,600,000 of age ins. We also recorded $7,300,000 of cancellations and $1,300,000 of currency related adjustments. As a result, on a net basis, we generated $59,800,000 As discussed in prior calls, the volume of auto cancellations can fluctuate from quarter to quarter. On a year to date basis, auto cancellations totaled $16,000,000 or approximately 3% of our total backlog, which is consistent with our historical trend. China Type A systems represented about 30% of the total age outs for the quarter. We continue to believe we will start converting these aged out China orders to revenue, most likely starting in fiscal year 2020 as Type A licenses start to be issued. We ended our 3rd quarter with backlog of $493,900,000, representing an increase of 5% over prior year. Turning now to our income statement. Total revenue for the third quarter was $103,200,000, representing a 3% increase over prior year. EMEA, APAC and Japan drove the revenue growth in the quarter On a year to $500,000, an increase of 7% over prior year. The product revenue increase was driven by strong demand Since its introduction 2.5 years ago, we have recognized revenue for approximately 90 Resac systems. Service revenue for the quarter was $56,800,000, which was relatively flat year over year. I would like to remind you that 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. Sequentially, Service revenue was up 5% from the previous quarter, driven by continued installed base growth, training and spare parts revenue. On a year to date basis, service revenue grew 2%. Turning now to gross margin. Our overall gross margin for the 3rd quarter was 39.2% compared to 36.3% in the prior year. Year to date, our overall gross margin was 38.7 percent or approximately flat year over year. Product gross margin was 41.5% in the 3rd quarter compared to 41.4% in the prior year. On a year to date basis, product gross margin was 40.6%, down from 42.5% in the prior year, due to the lower mix of CyberKnife system revenue. Service gross margin in the 3rd quarter was 37.3%, compared to 32.4% in the prior year. The lower gross margin in the prior year included the impact of higher than normal service parts consumption in that quarter, which was an isolated incident. On a year to date basis, Service gross margin was 37.2% compared to 36.3% in the prior year as we continue to expand our overall service gross margin We believe our continued investment in service efficiency and parts reliability will continue to improve of service margin service gross margin over time. Moving down the income statement. Operating expenses for the quarter were $37,600,000, a decrease of 6% from the prior year. Contributing to the decrease was an $800,000 non cash one time credit related to a lease termination for Wildwell Office Buildings. Excluding this one time credit, our 3rd quarter operating expenses were $38,400,000, a decrease of 4% from the prior year. On a year to $119,000,000 or down 1% year over year. Excluding one time charges related to the accounts receivable impairment, severance and lease termination credit, year to date operating expenses decreased $5,000,000 or 4% from the prior year. Adjusted EBITDA for the 3rd quarter was $6,700,000 compared to $1,400,000 in the prior year. The 3rd quarter adjusted EBITDA excludes the impact of one time non cash credit related to the lease termination I mentioned earlier. Adjusted EBITDA on a year to date basis was $14,800,000 compared to $9,300,000 in the prior year. We ended our 3rd quarter with $65,000,000 of cash and short term restricted cash which remained flat from quarter to from 5 quarter as we continue to invest in our working capital to prepare for converting China orders to revenue fiscal 2020. Before I move on to discuss our fiscal 2019 guidance, I would like to update status of the cost reduction initiatives we discussed in our previous calls. With the execution of the initiatives substantially completed, we continue to expect the total savings from this action to be approximately $15,000,000 on an annualized basis and start realizing the full benefit of this action in the fourth quarter of this fiscal year. All the expected savings approximately 30% will benefit gross margin, while the remainder will reduce operating expenses across all functions. A large benefit of the cost reduction initiatives was realized in our 3rd quarter, resulting in $6,700,000 of adjusted EBITDA or $23,000,000 on a trailing 12 months basis. This number compares to $17,000,000 or EBITDA we generated in fiscal year 2018. We believe we now have the right operating cost structure in place to expand our EBITDA generation capability as we grow Turning now to our dollars, which would represent growth of approximately 3% to 5% over fiscal year 2018. The revenue range provided is reflective of the timing of China license issuances, which, as Josh explained earlier, will not likely benefit us in the 4th quarter. More specifically, if our end customers have not completed the tender process, the next 30 to 45 days, we don't believe we will be recognizing any China auto revenue in the fourth quarter, which will likely result in achieving the lower end of the Regardless of the amount of channel revenue we realized in the fourth quarter, we continue to believe that channel revenue conversion will accelerate during the first half us. As EBITDA most closely follows revenue, if there is a delay in China licenses and revenue conversion, we would finish the year in the lower end of this EBITDA range. In terms of gross orders during fiscal 2019, we have refrained from providing specific guidance on this metric. However, in light of our exceptional 18% year over year growth, for the 1st 9 months of fiscal year, driven primarily by pent up demand from China and the reporting of the large US Multi System order in the company's history during the fourth quarter of fiscal 2018. We felt we should share with you our expectations for full $4,000,000, which as I previously mentioned, included the largest U. S. Order in the company's history. Therefore, our gross order growth rate for fiscal 2019 would be in the low teens. Turning to our net Asia forecast, we anticipate 4th quarter net Asia to be in the mid-twenty $1,000,000 range, although As we experienced in the third quarter, we are and will actively work on PromodianDol's orders to revenue. In terms of our gross margin outlook, we continue to expect overall gross margin to be flat to slightly down to our fiscal 2018 levels. This is a result of the tomotherapy Radixact platform contributing to a higher percentage of the total revenue. We now expect operating expenses for the full fiscal year to be down approximately 2% year over excluding the impact of one time items of impairment, severance and the lease termination credit, operating expenses are forecasted to be down 5% year over year. And with that, I'd like to hand the call back to Josh. Thanks, Shig. Before we open the call for your questions, I'd like to thank the entire Accuray team for their increased focus, commitment improving execution supporting the important work that's making a difference for our customers and patients. Additionally, we would like our shareholders and analysts to note that on Monday, September 16th, from 3:30 pm to 5:30 pm Central Time, Actory will host an analyst and investor information session at the Astro Conference in Chicago. I wanted to make note of this event today, because it's the first time in many years, our company has hosted an investor event at ASTRO, and we wanted to give investors and analysts as much advance notice on this date as possible. And operator, we're now ready to open the line for you. And our first question is from Josh Jennings with Cowen. Your line is open. Hi, good afternoon, Josh and Shaikh. Thanks for taking the questions and congratulations on the strong order growth and the progress in the China JV. I was hoping to start with just the China market. I know that there's a lot of administrative things that need to happen with the China Ministry of Health is still completing the license application infrastructure as you mentioned in your prepared remarks. It sounds like the last 2 quarters most of the China orders have been Type A. And I was just hoping to understand better the dynamic about why you haven't seen more type B orders coming out of China and when you think that that could be opening up and when that could turn into a tailwind because of the 1400 I guess, class A and B licenses and the quota there, I think the vast majority are 90% or so are type B. Yes, you're absolutely right Josh on that. The mix is much heavier, overall to the Type B side. The simple answer is that the, we have been building, kind of building out the additional dealer network on, or sales agent network on the Type B side, as we talked about in prepared remarks, the JV will end up well, 1st of all, the transition between TomoKnife and the JV that our distributor TomoKnife kind of the historical distributor has a 12 month tail to continue to sell And, we want that activity to continue for reasons related to continued momentum. And, But the type B products are really probably going to be more of a joint venture focus, and the the work that's taking place right now on that front is to line up sales agents across, the bulk of the provinces to assist in that effort. And I don't think, quite frankly, it's going to be too much longer before we start to see some type B activity start to flow. I mean, again, as you pointed out, the 1st 2 quarters of or the last two quarters of activity have really been Type A Centric and more focused on that side That's because TomoKnife has continued to be the essentially the kind of the, the sales force of record, a historical record, if you will, But, the JV is going to be starting to ramp and start to contribute to the type B side of this, I would predict in the next quarter or 2. And it should flow pretty, pretty good from there. So, really more just startup infrastructure and startup related ramp than anything else. Understood. Thanks for that. This is my second question, a follow-up question is just on the Americas business. I think you guys anniversary the U. S. Sales restructuring effort this quarter, and then that bore a lot of fruit over the last four quarters. But Can you just talk about, I guess, how we should think about the Americas franchise and the comps over the next couple of quarters and whether that that region can return to growth in the coming quarters? Thanks for taking the questions. Sure. The simple answer is yes. I have an expectation that the Americas and the U. S. Geography predominantly are going to contribute to a greater extent than they have. The numbers right now, the percentage growth in order of volume looks pretty frothy, but that's against obviously, I'd say fairly modest baselines from prior year. They've been they've been moving in the right direction though for the last 2 or 3 quarters. So I'd say there's some consistency there in what we're seeing I think the funnel in general is improving. There are, as we've talked about in the last quarter or 2, there are some multi system orders in the U. S. Funnel, in the Americas funnel that I think, again, are making progress in, I think that we'll finish this year at a reasonably strong percentage growth from the U. S. Over prior. But again, I think we're just being realistic and transparent about the prior year numbers. I mean, we're just those really aren't necessarily the kind of benchmark that I would like to hold the U. S. Team accountable to. But based on the funnel that I see developing and I think the quality of the people that we've added and the leadership that's in place, Josh, I feel good about where the U. S. Should end up over the course of certainly the next, I'd say four to six quarters. So, more to come there. We need to execute, but I feel good about where we're headed. Thanks again. And our next question is from Anthony Petrone with Jefferies. Your line is open. Well, thanks and good afternoon. Congratulations also on a strong quarter and obviously the development in China. I'm going to start with a couple of I have questions on China and then I'll just shift over to Radixact and some of the clearances and new solutions on that system. But on China, Maybe you understood Josh just on how the rest of the fiscal year is going to play out But maybe just to piggyback on Josh's question, as we look into really over through 2021, what is the company's on the number of licenses that ultimately will convert to orders and revenue out of that estimated 1400 total between Class A and Class B through the soft deadline of 2021. And then I'll have a follow-up on the JV. I mean, Anthony, at any level of analysis, that's obviously it's a lot of devices. The number aggregate number of licenses in the quota is a big number. With that said, the market has gone, at least 2 years with essentially being in park at least the public, the public facilities market. Obviously, the private facilities have had a little bit more leeway, but but the vast majority of the market in terms of existing served market institutions have really not been able to acquire the equipment that they need based on lack of clarity, at least in our situation, lack of clarity around type A versus type B. It's impossible to predict in absolute terms what the Ministry of Health will issue. But as an internal metric, we're making assumptions around 75 percent, 80% of that 1400 license universe across both A and B. That's kind of an internal set of assumptions we're making relative to, a number of aspects of our business planning process. As you might imagine, we've got a ramp production from a revenue support standpoint, to meet that, that kind of accelerated or expanded forecast going forward in the next 24 months, a number of other internal systems and requirements to support the business So we've had to make certain assumptions about what it looks like. And the internal take or benchmark, if you will, is probably somewhere in that 75% to 80% kind of range. It could be higher than that. I mean, again, there's a lot of work to do to get Once the licenses start to flow, there's still a lot of work required to get equipment in the ground from an installation and a training standpoint, but I think that, that, our aspects or our estimates, if you will, of what's what's actionable or what will be actionable in the next 2 years is probably somewhere in that 75% range. That's helpful. And just on the JV structure and as it relates specifically to type B, out of the gate here, you have Onrad and Tomo H, But you had mentioned on the last call that the 2nd phase of the JV will really be centered around the locally manufactured product that will be focused in Type B regions. Just how is that going to work out between the two transitions? In other words, do you think the market within type B freezes a bit as it waits for the local product? Or do you expect that you'll see some early traction with Tomoh and Onrad? I think we'll see some early traction with Tomoheich and Onrad. I think, I mean, the degree of pent up demand is pretty significant and that, obviously, the bigger upside here, the bigger the bigger, the bigger volume requirements are coming from smaller and medium sized facilities, which are facilities that are hospitals that are kind of outside of the major population centers in the provinces. And that's where, China isotope and radiation corpse, market presence is they have a presence of a sales presence in something like 30 different provinces that represent the bulk of the geography. And, there are active, there are active resources of theirs in place, active customer ships and we hope to leverage, we hope to leverage a lot of that or at least more than our fair share, call it, in the ramp with just the products that we'll have in the near term. Going forward, the manufacturing facility that's going to produce our Type B product, the China made Type B product, that facility is already in, they're building that facility out as we speak. So this is not something that we're that they're sitting on or we're sitting on waiting for licenses to issue. There's a ramp here that's required, and we needed to start, quite frankly, as soon as we could following the execution of the JV agreement, and we've done that. So they're moving as expeditiously as they can, and we're in full support of that want to have a product registration package that we can get in front of CFDA as soon as possible for review and all of that, all of that should help to, as soon as they're ready to start start producing. And as soon as we've got a regulatory approval process obtained we should be in business on the Type B side with the locally manufactured product. Our next question comes from Brooks O'Neil with Lake Street Capital Markets. Your line is open. Good afternoon. I hope to ask and sneak in a couple of quickies here. First, Josh, you mentioned competitive wins. I didn't hear you say a lot about replacement cycle, progress in the U. S. Could you just give us a quick update on that? Yes. Replacement cycle in the U. S. Again, it's not just the U. S. Discussion. It's a U. S. And Western Europe opportunity. But, again, it's been relatively stable at roughly 15% to 20% of the total gross order volume. So it's consistent with where it's been. Brooks, And, again, I think that our view is that with the things that we're launching, or have launched in the last quarter and the the going forward quarter, on the upgrade side with, Volo and, soon to be, Synchrony on Radixact, we think these are catalysts for replacement sale opportunity for in trade up of older generation devices in both geographies, both U. S. And Western Europe. Perfect. That's great. Secondly, you mentioned soft tissue visualization with synchrony Can you just give us a feel or your perspective on how that will match up with the offerings of competitors we're hearing so much about? I would characterize what we're doing on imaging, from a relative capability standpoint, I would encourage you to or characterize you to think of it in terms of diagnostic quality CT capability, which we think is going to provide with really terrific contrast. We think that's going to be quite frankly, very, very competitive. With, any of the cone beam capability that's out there right now from competitors. Again, press that MRI capability will, but, Radixact will run circles around from a workflow standpoint and a throughput and efficiency standpoint, it'll be able to do things from a workflow perspective and a throughput perspective that you can't do with an MRI linac. So again, I don't think a head to head comparison there can be made, nor would I say that, again, we're not you've heard us say this in the past, we're not seeing devices of ours decommissioned to make room for MRI linacs, either the Meridian device or the Unity device. So I don't believe that in the primary customer base that our history has we've been the strongest historically in terms of academic or research based medical centers, we're not in a a 0 sum game from a bunker competition standpoint without the MRI linac devices. I think when we get our imaging solutions to market, they will be very, very competitive. If not, even more capable than cone beam, KB cone beam, which is kind of that's kind of been the industry standard, if you will, prior to at least for the more, the more workhorse product offerings, if you will. Sure. And if I could sneak in one last one, could you just comment on your balance sheet and any strategy you're currently contemplating with regard to, I think, remaining converts? Yes. Brooks, thanks for the question. I think a bit about, 3 more years to go. I think, for time being, we're focusing on generating cash and and trying to pay down the non convert debt in the near term. I think that we need to talk about the, convert sometime soon, but that will probably also depend on a stock price as well, in a couple of years to see what a stock price is and how to approach the either, what do we convert on in terms of refinancing that piece of it. So I would just leave it as that for now. Okay. Thank you so much. Thank you. And our next question is from Sean Levine with BTIG. Your line is open. Hi, it's Marie Thibault on for Sean Lavin tonight. Thanks for taking the questions. You know, hi. I appreciate all the level of you've given us kind of on the China JV and the tender process. I wanted to ask just one follow-up on that. And when you said usually takes about 30 to 45 days for a tender, for the tender process to start up. Is that sort of an average, is that do we see kind of a bulk of tenders be issued around then, or do we could we see some kind of jump out in front and come in quicker? I'm trying to get my hands around, the likelihood of seeing anything in the, in this current fiscal year? Yes, I mean, I guess, I guess it is possible, Marie, that there could be stuff, things that come sooner. But I think as far as our view, and we've kind of been I think we've been growing in our view on this that or strengthening our view on this from an internal perspective that it's just been so difficult to with any degree of precision, imagine or predict, forward looking how these processes get fully activated, that it becomes, if the if the tenders are that, that process isn't completed by, you know, really legitimately by the end of this month or the the 1st week or 2 of the month of May, the window of time, or if the licenses aren't issued by in that timeframe, the tender processes, we think probably less likely to occur on a timeframe that would give us the chance to take revenue in this fourth quarter, in the current quarter. So we've been I mean, maybe we've been conservative in that, but just given what we believe what we've seen historically, what we believe is happening, we think that's probably the right approach, the conservative approach. I think it's interesting that the application process, we had heard a lot about the application process. And the Ministry of Health has developed what's been happening behind the scenes is they've been developing an online application process to assist the thousands of institutions that have an active application that they want to submit and have in the active queue for the tender process that's forthcoming. And that online, the build out of that online infrastructure, the validation of it, our understanding from our people on the ground there is that's what's taken the added time here. So again, we just think it probably makes the most sense to be, for us. Okay. Appreciate it. What it says to me is that the first quarter of fiscal 2020 and the first half of fiscal 2020 are going to be big, big ramps in terms of revenue. Okay. Appreciate that insight, Josh. Thank you for that. And I guess my second question, I'd like to turn back kind of domestic market. I know that, a few quarters back, there's a lot of focus on the potential for multi system orders. Were there any multisystem in the orders in the quarter or what sort of that funnel look like to you at this point? There was nothing of note in the quarter that we're reporting today, but I will tell you that there are in the funnel, going forward. A number of multi system orders that we've been progressing or advancing over the course of the last few quarters. And I think Some of them could hit this quarter. Some of them are likely if they're not this quarter, then they're they're in probably the first half of fiscal twenty twenty. And so, again, I think that they've made that the U. S. Team has made pretty good progress in, in teen goes up and advancing them. But again, nothing to report or to forecast definitively, in the current quarter, that we're reporting. Okay, perfect. Thanks so much. Thank you. And our last question is from Tycho Peterson with JP Morgan. Your line is open. Hey, thanks. Josh, maybe I'll start with reimbursement. CMS obviously leaked kind of the bundling. They didn't put the rates out, but we know it's coming. Just curious what you're hearing in the field from customers. Obviously, it didn't seem like it impacted the order book, but as we think about bundling going forward, how do you think the response will be from the customer base? Yes, it's good to hear from you, Tycho. So if CMS if CMS sticks to historical timing, we would expect to hear something in probably the month of July. I mean, they've been If you go back the last 5 or 6 years, they've been as early as July 4th weekend sometime a couple of years they've been later. But but July would probably be a good expectation if they stay to historical precedent. The general I'd say set of assumptions, from everybody close to this is that it will be, it will be the final rule will capture some kind of alternative payment model, something around value based care, something that would be, really encouraging more, at least in specific radiotherapy terms, things that would move, customers and hospitals essentially more to a, hyperfractionated or SBRT kind of a treatment model and away from the what I'll call the fraction preservationist kind of approach, which has been the IMRT model or the 3 d conformal model of, of kind of long standing history. So you're talking about for the patient, you're talking about faster, shorter, shorter treatment regimens for sure and for payers, you're talking about a more accelerated timeline and one that is probably more cost efficient in construct than what's been in place over a long period of time. We think we're positioned and you've heard us say this in the past, we think we're positioned pretty strongly with our portfolio. We think on both platforms, we really have solutions technically and treatment wise that fit that model going forward. So But again, nothing definitive as of now. If a final rule comes out, on typical timelines from CMS. It'll probably be some time this summer. Okay. And then on the software side, I think you guys announced during the quarter, you'd had your first treatments, you know, partnering up with RayStation with RaySearch. I'm just curious, talk about how that relationship has evolved? And should we see kind of more joint sales with Ray Station going forward on the Anderson deal? Yes. I think we will. We have our view is that they they are becoming, when you look at where, where, where their installation is taking place, the growth in their installed base, they continue to be the fastest growing standalone treatment system provider in the market. They have become at the academic level a research based medical center level, they've become in many, many locations kind of the system of choice across a wide variety of equipment. So they plan for multiple devices, multiple types of products And they've made it easier for customers to say anything that falls outside of our ability to plan on race station really is kind of an outlier situation for us that we'd rather not deal with. So we think strategically it still makes a lot of sense for us to be working with them. They help, they help expand and leverage our reach and they help position us in a way that is we can avoid being the outlier, quite frankly, I. E. The one product line on the system side that has to have its own workstation for treatment planning purposes outside of RayStation, which they have that's planning for everything else they own. So, it just makes a lot of sense strategically. We've got, I think the right, the right mindset and incentives place between the organizations at the field level to encourage joint selling activity and joint account targeting in So I still think what we're doing there from the outset strategically, it still makes sense. And I would predict that it'll have a bigger impact going forward. Okay. And then last one, I appreciate all the color on China. As we think about China isotope kind of ramping up on on the locally made device. Should we assume this is accretive to margins or how should we think about margin impact? Yes, thanks for the question, Tycho. We do think it should help on our margin. We certainly have and negotiate a pretty good transfer price with a joint venture from our perspective. So, we did that to be a gross margin accretive. I also think that on that topic, we'll get better efficiency over time from them. I think that the, a bigger impact than they certainly are at the outset. We will be the supply chain source for them with parts and key componentry out of Madison, out of our manufacturing facility in Madison, at least to begin with. But there's already, thoughts and conversations taking place between the 2 organizations Tycho around forward looking thoughts and how we leverage that up in ways that can help both organizations. So I think that it should be that should be another impact, positive impact to margin over time or reduction in, reduction in COGS. Okay. Thank you. Thank you. And our next question is from Philip Cooper with Citi. Your line is open. Hi guys. Thanks for the question. I was hoping on the heels of the CT imaging kind of come in the market, Could you provide an update on your thoughts on Adaptive therapy, maybe timing or your outlook for producing product on that front? So again, we we're probably in the 18 month timeline on imaging, commercialization Phil. And so that's got to be that's clearly the primary gating item on this, From a from an adaptive therapy standpoint, I mean, I think that our ability to And the work we've done to improve treatment planning speed with VOLO, improve optimization around plan, plan comparisons, all of these things should assist, pretty substantially in making adaptive truly adaptive therapy a reality and a more efficient process than it is today. So, I think the views that the only way Adaptive therapy takes place is off an MRI linac I think those are those are, those views are I would describe them as constrained. Sure. Okay. All right. That was helpful context and an expanding question a bit. I appreciate it. A bit more technical second one, if I could. A little bit of the agent age out dynamic. Can you talk about how China is sort of impacting that and any impact that it's having on cancellations at this point? Maybe a question shed there? Yes, Phil. So the age out, as I said in my prepared for the quarter was a total of $21,000,000. And 30% of that was China, just to kind of give you a sense. The, so China continued to have some age out, but as I said also in the remarks that, we'll continue to work on those. Those are still good orders, as you know, It's just more than 30 months old Pro. Our policy gets days out. But again, we're going to continue to work on those to from both them into revenue, starting FY 2020. And then now the cancellation was from China, by the way. Okay. None of the cancellations from China. And as we age back in, or are we going to see sort of like a book to bill conversion where we age back in and then convert to revenue same corner on the China front or is there going to be some lead time? Yes, exactly. Mechanically speaking, you got it right. I mean, when something edge backs in, just like we did this quarter, we had a couple of deals there. It goes back to backlog, but it comes out immediately because Tony's got book and bill in that quarter mathematically speaking. Okay, all right. That's super helpful. Thanks. Yes. Thank you. And I'm not showing any further questions in the queue. I would like to turn the call to Josh Levine for any final remarks. Thanks, operator, and thank you, everyone, for your participation this afternoon. We look forward to talking to you on our Q4 and full year full year update. Thanks very much. And with that, ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.