Accuray Incorporated

Good afternoon, and welcome to the Accuray Third Quarter Fiscal 2022 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Ken Mobeck, Vice President, Finance. Please go ahead.

Thank you, Gary, and good afternoon, everyone. Welcome to Accurate's conference call to review financial results for the third quarter of fiscal year 2022, which ended March 31, 2022. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Josh Levine, Accurate's Chief Executive Officer, Suzanne Winter, Accurate's President, and Brandy Green, Accurate's Interim CFO and Controller. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are set forth in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. The forward-looking statements on this call are based on information available to us as of today's date, and we assume no obligation to update any forward-looking statements as a result of new information or future events, except to the extent required by applicable securities law. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. First, during the Q&A session, we request our participants limit themselves to two questions and then re-queue with any follow-ups. Second, all references we make to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, Statements regarding our third quarter refer to our fiscal third quarter ended March 31st, 2022. Additionally, there will be a supplemental slide deck to accompany this call, which can be accessed by going directly to Accurate's investor page at investors.accurate.com. With that, let me turn the call over to Accurate's Chief Executive Officer, Josh Levine. Josh?

Thanks, Ken, and thanks to everyone joining us on today's call. I'm joined today by Suzanne Winter, our President, and Brainy Green, our Interim CFO. AccuRay's fiscal 2022 third quarter performance continues to reflect the healthy demand environment we are seeing globally, which has been primarily driven by strong interest in the most recent innovation upgrades on our RataZak platform, like ClearRT, our helical KVCT imaging system, and Synchrony, our motion compensation and automated target tracking technology. These unique innovations and the resulting functionality improvements that they represent have made Rata's Act a true workhorse product with leading edge clinical case mix versatility. These functionality improvements have had strong year-over-year revenue growth impact for Accuray in fiscal 2022. For the quarter, like many of our capital equipment peers, our operational results reflect the continuation of operational headwinds and associated costs from macro market factors, including global supply chain and logistics issues. Brandi will be providing greater detail in her prepared remarks about the collective impact of these factors on the quarter's results. We believe Q4 will remain challenging in terms of the intensity of parts shortages and logistics headwinds, and we will continue to see pressure on service margins. With that said, our teams are working cross-functionally to preserve production capacity and identify and mitigate risks to stay ahead of supply gaps that could impact production. And now I'll turn the call over to Suzanne for some more details on commercial highlights during the quarter.

Thank you, Josh. We delivered solid top-line performance for the quarter, and our Q3 results represent our sixth consecutive quarter of delivering above expectations in both orders and revenue. Looking at our first nine months of FY22, we have delivered 14% growth in orders and 12% growth in revenue versus last year. We continue to see the strength of customer demand for both CyberKnife S7 and RADxACT tomotherapy platforms, and the growing recognition by customers that Accurate Technology provides a new standard of accuracy and precision compared with conventional C-arm LINAC systems. The market is adopting the use of ultrahypofractionated stereotactic body radiation and stereotactic radiosurgery or SBRT SRS treatments. We estimate that currently less than 20% of worldwide radiation therapy procedures are using ultrahypofractionated treatments, but that number is expected to grow significantly over the next several years. These treatments are changing the way radiation therapy is delivered to patients as it delivers a more powerful dose of radiotherapy in only one to five treatment sessions versus 35 to 40 treatment sessions with conventional radiation therapy. This represents a paradigm change offering significant patient benefits and additional treatment options for providers and reduces overall healthcare costs with a focus on value over volume. As discussed in previous earnings calls, the ability to deliver ultra-precise SBRT treatments varies substantially across commercially available radiation therapy platforms. Any error in the precision or accuracy of the treatment plan or delivery can have a significant impact on long-term patient outcomes and their quality of life, especially given the higher dose delivered over fewer treatments. The ability to see more, to distinguish tumor from healthy tissue, enabled through superior ClearRT helical CT imaging, in addition to the ability to adjust the treatment beam to the tumor or patient motion continuously and in real time, is only accomplished with synchrony technology. These are two capabilities that differentiate Accurate technology from the rest of competitive radiation therapy platforms. And in combination with our latest product introduction to the RADxACT platform, Volo Ultra Treatment Planning, we are being recognized with these tools as critical to providing clinicians with the ability to deliver the highest precision and accuracy required for SBRT and SRS treatment planning and delivery. The growing body of clinical evidence shows that accurate technology is making a difference in long-term patient outcomes. As we have seen in the results, PACE-B trial for prostate cancer, which showed 50% less bladder side effects for men treated with the CyberKnife. The TomoBest breast trial also demonstrated a reduction in secondary effect on lung and cardiac function for women treated on the Tomotherapy platform for breast cancer versus those treated with conventional treatments. And most recently, the results of 10-year follow-up data from the CyberKnife Center in Milan, Professor Romanelli et al., showed durable pain relief after 10 years post-treatment for patients suffering from trigeminal neuralgia. With over 20 years of clinical evidence, a growing body of studies now show the impact of AccuRay's ultra-precision technology and what it has on patient outcomes years after treatment. And we continue to execute on our innovation roadmap that provides additional tools for clinicians to provide safe and effective therapy. During the quarter, we introduced the neuro package at the Radiosurgery Society meeting in March. The new neuro package for the CyberKnife S7 platform provides enhanced treatment planning capabilities for both the precision treatment planning as well provides access to the Brain Lab Element software, further expanding the capabilities for neuro-oncology customers. A key performance metric we are using to gauge our performance in the market is our ability to win competitive bunkers. In the developed markets, including U.S., Europe, and Japan, which is a replacement market and highly competitive, we continue to be successful unseating the incumbent LINAC manufacturer's installed base. While this may vary from quarter to quarter, in Q3, 21% of our unit orders were replacing a competitive system. Year to date, our competitive replacement performance for the first three quarters of FY22 has improved by six percentage points year over year for the same time period, demonstrating that winning in competitive bunkers is a growing contributor to our order performance. In emerging markets like China and in Kenya, where we sold our first CyberKnife S7 system, the majority of system orders were to new radiation therapy customers, allowing us to further our vision of expanding patient access to advanced radiotherapy care where it was previously unavailable. Looking at our regional order performance, the Americas region delivered 239% orders year-over-year growths, And the APAC region delivered 30% year-over-year order growth, with China the major contributor, offset by the EIMEA region, which decreased 27% year-over-year, mostly due to market uncertainty, which lengthened the sales cycle. In regional revenue performance, demand for customer installation remains very strong, with the expected supply chain constraints tempering our ability to fulfill demand. However, I could not be more proud of our operations and sourcing team and their ability to navigate the challenges and execute a strong quarter and fulfill balanced regional revenue performance across our major regions with year-over-year growth in both the Americas region and non-China APAC region. China, again, delivered solid results with $26 million in orders and $21 million in revenue despite the zero COVID policy which is driving challenges for this region. We expect the stringent central government policies that restrict travel will slow our regulatory submission of our JV-developed Type B product. However, we remain on track for market introduction at the main conferences in the fall and are optimistic about the market reaction to the product features and the ability to gain share in the Type B segment pending regulatory clearance. In summary, we are advancing each of our strategic initiatives forward, and our business fundamentals are strong. Our teams are executing despite the extremely challenging supply chain conditions in Q3, and while we cannot predict with full visibility when macroeconomic trends will improve, we are mitigating the impact of inflation headwinds with increased pricing on our high-value new product introductions like ClearRT on RADxACT, and increasing service contract pricing to partially mitigate the impact of increased inflation and logistics costs. We have been very effective at expediting product supply, pivoting to alternate sources of supply, and designing in alternate components to ensure availability. On the logistics activity with the assistance of our strategic partner, DHL, we have instated process controls to ensure better impact on shipment costs while maintaining quality and responsiveness to customer needs. We believe early visibility to component shortages and proactively mitigating risk associated with long lead time parts or key sub-assemblies is a key success factor. As a result, I am confident that the actions we are taking to successfully navigate these supply chain and logistics headwinds will provide operational productivity once the macroeconomic environment improves. In summary, we are advancing our innovation driven growth plan forward in all areas and expect continued customer demand for installations. Product revenue is growing from an increased investment in R&D growth initiatives with increased customer adoption of our unique platforms that provide providers with the mission critical tools that are needed to provide ultra-precise SRS and SBRT and advanced patient care. Looking into the remainder of the year, we are maintaining our guidance for the full year at the revenue range of $420 to $430 million and adjusted EBITDA of $15 to $20 million, with a range defined by our ability to fulfill customer demand impacted by the ongoing macroeconomic and supply chain environment. And now I'd like to turn the call over to Brandy for her review of the financial details. Brandy.

Thank you, Suzanne, and good afternoon, everyone. Accurate has delivered a good quarter while continuing to navigate notable supply chain and logistics challenges. We are pleased with our ability to stay nimble during this changing environment. Growth orders for the third quarter were $88.6 million, a 4% sequential increase, and a 1% increase over the prior year period from innovation-driven order momentum. As mentioned last quarter, we anticipated smaller year-over-year gross orders expansion for the second half of the fiscal year. From a product mix perspective, we saw stronger demand for our CyberKnife platform, accounting for 57% of gross orders dollars for the quarter, with the Tomo Therapy platform accounting for the remaining 43%. During the third quarter, we had approximately $2 million of net cancellations, which represents 2% of total new orders for the quarter as compared to $8 million in the same period a year ago. We ended our third quarter with backlog of $580.4 million, representing a decrease of 5% from March 31st, 2021. Now turning to the income statement. Total revenue for the third quarter was $96.2 million, representing a 6% decrease over prior year. For the first three quarters of 2022, revenue was $319.9 million, up 12% over prior year, representing strong customer demand for product innovation. Product revenue for the quarter was $43.2 million, a decrease of 9% compared to the prior year. For the first three quarters of 2022, product revenue was up 30% as compared to the same period a year ago. Product demand remains strong. However, supply chain constraints on key components drove delays in finished goods shipments for the quarter. From a product mix perspective, CyberKnife accounted for approximately 22% of revenue unit volume in the quarter, while the Tomotherapy platform accounted for the remaining 78%. As a reminder, the mix between CyberKnife and Tomotherapy varies from quarter to quarter. Historically, on an annual basis, our product revenue mix has remained at approximately 30% CyberKnife and 70% Tomotherapy for the past several fiscal years, related to product introductions on our Tomotherapy platform. Service revenue for the quarter was $53 million, a decrease of 4% compared to the prior year, primarily related to 1.5 million unfavorable foreign exchange impact. Turning now to gross margin. Overall gross margin for the third quarter was 36.2% compared to 38.6% in the prior year. Product gross margin for the quarter was 34.3% compared to 41.6% in the prior year. During the quarter, per our JV accounting requirements, we deferred product gross margin on six systems sold during the quarter to our China joint venture that have not yet been transacted through to the end customer. We have two remaining systems deferred from prior quarters that we expect will transact through over the next two quarters. Additionally, this quarter we've experienced product cost inflation of approximately 1% contributing to margin headwinds. Excluding the gross margin deferral on these six deferred systems, our product gross margin for the quarter would have been 40.6%, a slight decline from the same period a year ago. Service gross margin for the quarter was 37.7% compared to 35.9% in the prior year. Service parts stocking levels improved during the quarter even though outbound freight and logistics have remained a headwind. Net parts consumption related to service contracts varies quarter to quarter and was lower by $3.1 million sequentially and approximately flat as compared to the same period a year ago. Additionally, service operational costs remained flat and stable sequentially over the past three quarters. Moving down the income statement, operating expenses for the quarter were $35.1 million, which was flat from the prior year. We've continued to monitor program costs, travel, marketing events, and compensation costs in response to the pandemic. Operating loss for the quarter was $0.3 million compared to operating income of $4.4 million in the prior year. The operating impact of the China JV for the quarter was a gain of $1.9 million reported in our income statement as a single line item called gain loss on equity investment right below our operating income line. As our China joint venture continues to ramp its operational and commercial activities, we expect that our share of the China JV's quarterly income or loss will continue to fluctuate in the near term. Adjusted EBITDA for the quarter was $5.4 million compared to $8.7 million in the prior year period. The decrease in adjusted EBITDA was primarily related to lower revenue, fixed China system product growth margin deferral, offset by the positive operating impact of $1.9 million from the China JV equity investment. The reconciliation between GAAP net income and adjusted EBITDA is described in our earnings release issued today. Turning to the balance sheet. Total cash, cash equivalents, and short-term restricted cash amounted to $98 million compared to $123 million at the end of last quarter. Net accounts receivable was $89 million, up 9% sequentially, and $19 million from the same period last year due to back-end loaded shipments. Our net inventory balance was $138 million, up 11% sequentially, and 1% sequentially. from the same period last year due to accelerated purchases of certain critical, hard-to-source parts and increased semi-finished goods awaiting key components for final shipment. And with that, I'd like to hand the call back to Josh and Suzanne.

Thanks, Brandi. Concurrent with our fiscal Q3 earnings press release, we also put out a press release highlighting two important leadership transitions, one at the CEO level and the other at the CFO level. In that press release, we announced that I will be retiring as CEO and resigning as a director of the Accra board, effective at the end of this fiscal year, ending June 30th, 2022. Suzanne Winter, Accura's president, will lead the company as the new CEO, effective July 1, 2022. This transition is the culmination of a well-planned and thoughtful succession plan that began at the start of this fiscal year with Suzanne's promotion to president. I have come to know Suzanne as a strong strategic partner and a high-impact results-oriented business leader over the past two and a half years, and I know the company will be in good hands under her leadership. At this time, I also want to thank Brandy Green for the significant contribution she made during the period of time that she was in the interim CFO role, essentially doing two jobs on a full-time basis. Her commitments to the company and the personal sacrifices she made during this period deserve the highest recognition and thanks. On a personal level, It's been a true privilege over the past nine and a half years to lead this organization. I've had the opportunity to work with great people at all levels within Accurate and collectively focus our efforts on ensuring that patients get the best radiation therapy treatments available. I am proud of the impact we've had on the lives of so many cancer patients around the world. And now I'd like to turn this back over to Suzanne to discuss the CFO transition.

Thanks, Josh. Before I make my final comments, I also wanted to announce today our incoming CFO, Ali Purvesh. Ali came to Accurate two years ago after having spent 15 years at GE and GE Healthcare in the finance organization, including as Chief Financial Officer for GE's Diagnostic Imaging and Life Support Solutions businesses in the U.S. He brings strong operational experience in large capital equipment, healthcare technology, and has driven bold margin expansion and operational excellence initiatives during his tenure at GE. Finally, I am deeply honored to have the opportunity to succeed Josh and lead Accuray into the next chapter and build on our vision of building a better future for patients that have been diagnosed with cancer or certain neurological disorders. I'd like to thank the entire global and passionate Accurate team for their continued focus and commitment, providing the highest level of service to customers and the patients we serve. We are executing our growth strategy and continuing to build a foundation for long-term sustainable revenue growth, margin expansion with increased value creation for all of our stakeholders. With that, We'll hand it over for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.

Good afternoon, everyone. I think the best way to say this is congratulations to you all. I think this opens the door for everyone having a great in the future and I couldn't be more excited for the company and for each of you. Thank you, Brooks. Sure, sure. My first question and my biggest question is Suzanne, I don't know if you've thought a lot about it, maybe you have, but what would you say are the two or three biggest priorities you have as you assume the CEO job at Accurate?

Thanks for the question, Brooks, and thank you. Yeah, my priorities over the next 60 days are to ensure that we have a very smooth transition between Josh and myself. Then my priority is really building on the foundation that we have started to build and continue to strengthen our fundamentals. We absolutely have to execute on the important milestones that we have, not only on our innovation pipeline, but all of our growth initiatives so that we finally deliver on our financial performance in preparation for going into FY23 and And as we get further on and at our next earnings call, I will be laying out more of our growth plan and areas of focus for FY23 and beyond.

Great. That's very helpful. And then I guess the second question, obviously, you know, concerns about the environment in China, given the lockdowns and the recent COVID experience there. Do you perceive any fundamental change in the overall demand picture for accurate equipment over the next few years, or do you see the current situation as likely temporary or transitory, and we'll get through this and move on with the program?

We think it's temporary. And we're very close communication with our team on the ground. And despite the, I think, stringent policy going on in Shanghai and potentially moving on to Beijing, I think the feeling on the ground is that it is temporary. Business is still being transacted. And we're certainly seeing that. We saw it this quarter with our orders and revenue performance. There may be some slowing in China expected in Q4. But in general, we're on track for significant growth out of this sub-region for the year. You know, we have customers also that have Type A licenses in hand that have already gone through the bidding process, and the team feels confident these are going to go to revenue once some of the restrictions lift. You know, that being said, I mean, there are some headwinds that we are feeling as a result of the shutdowns. You know, one of them is is, you know, some of our orders that are aging out, that are in our backlog, but, you know, again, are underscored by licenses from the central government, but, you know, aging out of the backlog. You know, we do have an impact on the NMPA regulatory submission for our Type B product, so that's slightly delayed just because we, you know, we're waiting to get an inspector on site to complete the report so that we can, you know, we can submit to NMPA. But again, we see these as being temporary overall. And, you know, I think that's a good thing.

Hey, Brooks, I agree. I concur with everything Susanna said. You know, if there's one thing we've learned over the last several years, we don't control the, you know, the cadence and the timing of things in China, right? I mean, it's just, it is what it is. I will tell you that I don't think there's been any change in the overall demand for our products. And I think that while these things are, they're frustrating from a delay and a timing standpoint, I would encourage our investors to realize that through three quarters of this year, we've got $60 million in incremental revenue in China that we didn't have, quite frankly, before we implemented the strategy, put the JV in place, and started down the path strategically to be a bigger company in China. Obviously, not rely on that alone, but even with the delays and even with the frustrations, it is contributing in a meaningful way to the company's growth trajectory. The timing is the timing. We can't control what we can't control, but I don't think that we're in any different level of opportunity overall than we've been from the outset. And I think the future there for us is very, very bright.

That's great. Thank you very much. And again, congratulations to you all.

Thanks, Brooks. Thank you.

The next question is from Marie Thibault with BTIG. Please go ahead.

Hi, good afternoon. Josh, congrats on your retirement and thanks for the years of discussion and help to us over the years. And Suzanne, congrats on the new role. We're looking forward to working with you.

Thank you, Marie.

Yeah, I wanted to start here maybe on the demand environment. You mentioned a healthy demand environment globally and then broke it out sort of by geography. Sounds like Americas and APAC have been very strong, but a little bit of uncertainty in EMEA. I wonder if you could dig into each of those a little bit more. I know you just gave us a lot of detail on China, but some of those other geographies as well.

Yeah, I mean, I think, again, we're seeing the strength in the Americas partly due to the investment that we've made in our commercial infrastructure in the U.S. You know, we are seeing very strong pipelines for demand and customer demand for some of the new products that we've introduced. So, you know, we're encouraged by that. Again, China has been very, very strong for us, and we continue to see strength there. Japan has been strong for us year-to-date. They're up 10 percent from an order standpoint. I think the EMEA, the European area, has been a little tempered in their growth. I think it's not because there is a lack of activity, but I think the sales cycles have been increasing and partially due, I think, to some of the unstable environment as a result of Russia-Ukraine and just some conservatism in making capital equipment purchases.

Okay, that's helpful. And then maybe my follow-up here on supply chain headwinds. You certainly talked to us about this last quarter, and it sounds like, indeed, the constraints are impacting some ability to meet demand. Do you have a way to size the sort of impact from that constraint here in the fiscal third, what you imagine it might be in the fiscal fourth, and whether your visibility is allows you to look beyond kind of mid-year and how long some of these headwinds might last. I understand that's very difficult, but I appreciate any insights there. Thank you again.

Yeah, I'll start and then I'll hand it over to Brandy. But, you know, I think that we, you know, obviously we saw some challenges in Q3. We expect they'll be similar in Q4. And we think we're going to see them through the end of the calendar year, at which time we think that the supply chain will start to catch up. And, you know, just in terms of mitigating inflation, you know, there are obviously things that we are doing to mitigate inflation, but we actually think that we'll start to see relief in the second half of our fiscal year as we will start phasing in new material from new lower-cost suppliers, and we also think we'll get some sourcing productivity in the second half of the year. So that's at least the timeframe of what we're expecting, and then, you know, I'll have Brandy give a little bit more color.

Yeah, I think, Suzanne, you said it very well. You know, we've seen between 1% and 2% inflation. If you look at a year-over-year, 5% inflation on some of our parts costs. But as far as supply challenges, I think Suzanne is absolutely right that, you know, we do expect this to release and relieve in the back half of FY23. Thank you.

The next question is from Josh Jennings with Cowan. Please go ahead.

Hi, thanks for taking the questions and I have to pitch in my congratulations, Josh, to your retirement and good luck with the next chapter. And Suzanne and Ali, congratulations on your new positions. It's great news and we're looking forward to tracking the progress of Accuray under your leadership. I wanted to ask two follow-ups on China and the first one just being on agents, right? I think you talked a little bit about some agent dynamics. I apologize. I just didn't catch them fully. If you could review those and then just help us understand how we should be thinking about agents, particularly the China market over the next 12 to 24 months. You know, that may be a little bit murky with everything that's going on with COVID in the near term, but it'd be great to get an update there. And then also, I think just to review I just wanted to get clarification on how Type B systems manufactured by the China JV, how orders and revenues flow through the A&L reporting, the P&L, but also the new order reporting. I just want to be clear in terms of because we're getting closer to the finish line here. I know it's pushed out a little bit, but that would be great. And it's one follow-up after the other.

Okay, so Josh, let me take your second question first, which is more on the timing on the Type B product and just from what we can sort of see at this point. You know, it takes between 10 to 12 months to get an MPA approval once we submit. Again, we need the COVID lockdown to lift before we can get that final registration. So at this point, we are thinking that Orders and revenue will start to show probably Q4 of fiscal year 23, a year from now. Now, that being said, we are still proceeding and on track to do a market introduction in the fall of this year, so late August, calendar year 2022, at the major shows in China so that at least the system will be introduced to the marketplace. People can start budgeting and putting it in their sales process. but we can't take an order or ship for revenue until we get NMP approval. So we're expecting the contribution Q4 of next year.

That's great. You might try to interrupt, but just to refresh us on just some of the ASP metrics we should be baking into our models because one of the things we're trying to do is just give accurate credit in our forecast for this China JV officially and just wanted to make sure we were doing it appropriately and and having the right numbers in our models, but particularly ASP assumptions and just making sure that Accurate would capture that full ASP in the order update as well, new order update as well as on the revenue line when those orders are converted, installed and converted to revenue.

Hey, Josh, you know what? We really haven't been, for a variety of reasons, mostly competitive reasons, we haven't been very forthcoming with, you know, target price point, target ASP information. I think we would feel comfortable in getting a little further downstream, closer to, you know, better clarity around the understanding of NMP approval timelines. You know, we will be, once we have approval, we will be ready to start producing product very, very quickly. And so there's no lag there. But I think for competitive reasons, it would be our opportunity or our best approach to kind of keep that close to the vest so that competitors are not having a chance to, you know, do something with regards to a preemptive kind of discussion in any way. And so, you know, as soon as we're there, you'll have the best information to be able to build out your models, I promise.

Understood. Thank you for that. Thanks, Josh.

And then, Josh, for the first part of your question, which was timing on the age ends, I think that's a bit murky at this point, you know. But, again, you know, the good news is we know, you know, of our customers that have their licenses in hand. We know who has gone through the bidding process. And so once things open up, I think we'll get an idea of quarterly phasing and be able to help more with your models.

Great. And just in terms of thinking about age ends, I mean, those – Agents will convert right to revenue, correct? Correct. And they will not impact the backlog, right? Thank you.

That's correct.

That's right.

That's right.

And then lastly, just, you know, as we – I can't believe we're going to be in May next week, but ASTRO is then right around the corner in just a few months. But just wanted to level set our team's expectations. And we're, you know, getting more and more excited about, you know, online adaptive and all the work that you're doing with research and internally. Okay. But just any level studies in terms of expectations on the update for progress on adaptive at ASTRO this year? Thanks for taking all the questions.

Yeah, thanks for that question. You know, actually, we're within weeks of going to ASTRO in Copenhagen, so that's the European meeting, and then ASTRO in the fall. And at ASTRO, we're excited because we are going to be showing in partnership with Raysearch a sneak preview of our online adaptive using the ClearRT as input. So we're already booked out for that meeting as well. So we're excited about the response. So we'll be talking about our online adaptive. At the same time, we also have a very full agenda of clinical abstracts that are going to be shown. We have over 79 abstracts that are using accurate technology that are going to be presented at this European meeting. So excited about that. It's And then in preparation for ASTRO, where we'll be doing another product introduction at that point of our partnership with CRAD in our breast package, which we think is going to put us in a very, very strong position to have the most comprehensive breast package in the marketplace, as well as, again, discussing more about our online adaptive. So two important shows coming up. Thanks for the question.

Thanks, Suzanne. And Josh, we'll miss you at ASTRO this year.

Thanks, Josh.

The next question is from Frank Pinell with Jefferies. Please go ahead.

Hi, everyone. First, Josh, congrats on retiring. You'll be missed. Best of luck on the next endeavor. And Suzanne, congrats. Look forward to working together. I guess two for me, just picking up on the China opportunities. How would you size the financial impact of the push out in Type B for the fiscal year? And is there an opportunity to sort of catch up there in the future, just given what the demand landscape looks like? And I have a follow up on a macro question after that.

Yeah, I think that's a great question. I think there is opportunity to catch up, and I say that because we're going to do a market launch, and we're still on track to do the market launch, so hopefully we'll be driving some pent-up demand and influencing customers' purchase decisions so that when we get the approval, we'll be able to fulfill and book the orders. You know, the market opportunity for Type B, as you know, is very attractive. And over the next five years, we think there'll be, you know, over 1,500 systems that are going to go into the Type B market. And the growth rate within that segment alone, we think, is 12% to 15%. So we're really excited about the potential for this product within the marketplace. And, again, we just can't get through the regulatory process fast enough.

Great. Thank you for that. And then we're hearing a bunch of companies at this point, most recently this morning with Integra, comment on FX headwinds that they're higher than expected even a few weeks ago. And we are seeing changes in expectations around guidance. And I'm curious what you are seeing at this point, how it's impacting the company and and how you expect that to play into guidance for the balance of the year. Thanks.

Yep. Well, let me start. Yeah. So on the FX front, I mean, overall, we're not seeing a lot of FX headwinds. We are definitely seeing some in our revenue, but not to material impact. You know, we have a hedging program in place, so that hedges our balance sheet pretty effectively. So at this point, we feel fairly covered. Now, that's not to say that Currency is changing out there, and we're monitoring it and looking at ways to mitigate.

But we're not changing our guidance. We are not maintaining our guidance from a top line and an EBITDA perspective.

Great. Thank you.

Appreciate it.

Again, if you have a question, please press star, then 1. The next question is from Jason Wittes with Loop Capital. Please go ahead.

Thanks for your questions. And yes, Josh, congratulations on your retirement. Job well done. I think you're leaving the company at a really interesting point. And Suzanne, look forward to continuing working for you. And Ali as well, or Aziz as well. So with that said, I just did want to ask a couple questions. First, if I could just review what you mentioned about China. Specifically, what was the contribution from China this quarter and roughly how much is left in the backlog related to China orders?

I'll start with the contribution. We did $26 million in revenue and $20 million in orders and just from a backlog perspective.

We have about $70 million remaining in our Type A for China in our backlog.

Great. Very helpful. You noted you commented that Class B is probably, you know, at the current timeline, I think Q4 fiscal 23 is the outlook in terms of when you anticipate approval. Is that a change from your thinking prior last quarter? And it sounds like that's been impacted by the COVID lockdowns.

It's definitely been impacted by the COVID lockdown. We've got one more step to go through before we can submit for NMPA approval, and that is really to get our notified body on site to finalize the report. And really since before the Olympics, you know, before the shutdown really for the Olympics, we had been waiting for that final report. So, yes, it is pushed out about a quarter in terms of, you know, when we expect to be able to submit for NMPA approval. However, as we said, we remain on track in terms of when we're going to introduce this to the marketplace. That has not changed.

Okay. That's helpful to understand. And then you mentioned, you know, it's still a little clouding in terms of some of the cost inputs. You've made some changes, but based on your guidance on EBITDA, at least, it sounds like the outlook hasn't, you know, you have made some adjustments, otherwise the outlook is kind of in line with what you were thinking last quarter. Is that the right way to think about it?

Yes, that's right. That is exactly right. And then that is why we're maintaining our guidance at $15 to $20 million.

All right, great, wonderful. I'll jump back in queue. Thank you very much.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Suzanne Winter for any closing remarks.

Thank you. Well, in closing, as I look to become CEO in the next 60 days, I am excited by the momentum we see from global customer demand and expect to finish our fiscal year growing materially faster than the market, despite the headwinds caused by supply chain. Together with the Accuray management team and all of our colleagues and partners, I look forward to building on the strong foundation we have put in place that will drive further benefits as macroeconomic conditions improve. I believe that we are extremely well positioned to grow our top line, expand margins, and to create value for the shareholders as well as the patients and customers we serve. And I'm looking forward to speaking with you again in August for our fiscal fourth quarter and full year earnings release. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.