Accuray Inc (ARAY) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Accuray Incorporated earnings conference call. My name is Stacy and I'll be conference moderator for today. (Operator instructions.) As a reminder, this conference call is being recorded for replay purposes.

I would now like to hand the presentation over to your host for today's call, to Mr. Tom Rathjen, Vice President of Investor Relations. Please proceed.

Thank you. Hello and thanks for joining us this afternoon for Accuray's conference call for the third quarter of fiscal 2010. Joining us today is Dr. Euan Thomson, Accuray's President and Chief Executive Officer, as well as Derek Bertocci, Accuray's Senior Vice President and Chief Financial Officer.

As we have done in past quarters, we will again be referring to revenue and backlog data which are found in PDF files on the Investor Relations page of the Accuray website at accuray.com. Please log on to the site to view this information.

Before we begin, I need to remind you that except for the historical information, the information that follows contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include matters described in the risk factors section of our annual report on Form 10-K as well as updated from time to time by our quarterly reports on Form 10-Q and other filings with the SEC.

And now, I'd like to turn the call over to our President and CEO, Dr. Euan Thompson. Euan?

Thank you, Tom. And thanks to everyone for joining us in our third quarter of fiscal 2010 conference call.

Today we're reporting another quarter of solid orders and backlog expansion, in addition to a quarter of sound profitability. During the third quarter, we added 14 orders to backlog, increasing total backlog by 8%. Six CyberKnife systems were installed and eight were shipped during the quarter.

For the first nine months of fiscal 2010, Accuray has added 41 CyberKnife systems into backlog and shipped 26 units to customers worldwide. We believe that this positive ratio is a continued indicator of future growth.

I'll now provide a brief review of the business highlights of the third quarter of our fiscal year 2010, and I'll then turn the call over to Derek for a detailed financial review.

During the quarter, Accuray's total revenue was $51.9 million. Revenue from sources excluding previously deferred Platinum revenue was $48.8 million, which represents a 10% increase from Q3 in fiscal year 2009. During the third quarter, despite the year-on-year decline in deferred Platinum revenue, we recorded net income of $2.3 million, or $0.04 per diluted share. This was driven largely by improving gross margin and continued operating expense control. As validation of our improving financials, we increased year-over-year net income by $1 million on lower total revenue.

As I mentioned, 14 orders for CyberKnife systems were added into backlog in the third quarter, which, along with service renewal contracts and other ancillary product purchases, contributed a total of $76.6 million. Of the 14 orders, six were from customers within the Americas region, with an additional six orders from the European sales region, and one from Korea. One CyberKnife system was sold in Japan during the third quarter, continuing the renewed sales momentum in the region.

Five of the 14 systems sold were VSI, demonstrating continued traction for this product. In addition, two customers with a contract already in backlog converted their required system to a VSI.

During the third quarter, six CyberKnife systems were installed. The worldwide installed base as of March 31st, 2010, was 196 systems. Of the six CyberKnife systems installed in the third quarter, one was in the Americas and five in the European region. On a worldwide scale, the demand for the CyberKnife remains strong.

During the third quarter, our Americas sales team reported that customer interest in the CyberKnife remains high, and the sales pipeline remains active. Our Americas sales team is seeing some thawing of budgets and an increase in available capital, and they remain cautiously optimistic.

The European sales region continues to show strength, with six CyberKnife orders in the third quarter as well as five installations. The European sales team reported increased traction across the region including sales in two large academic centers. We believe that the introduction of the CyberKnife VSI system, together with this year's regionalization initiative, have contributed significantly to our increased worldwide sales momentum.

Moving to a clinical update, the capabilities and mainstream acceptance of the CyberKnife were highlighted in more than 60 clinical and 25 technical presentations at this year's CyberKnife Society Scientific Meeting held in Dallas, Texas in March. The presentations included 20 lung and five prostate presentations, including a description of the five-year outcomes of CyberKnife prostate radiosurgery.

The benefits of CyberKnife prostate radiosurgery were also further highlighted this quarter in a study by Winthrop University of 304 prostate cancer patients treated with the CyberKnife. The study found 87% of patients preserved their erectile function at a median follow up of 18 months. Other treatments such as surgery and radiation therapy have ranges of erectile function preservation from 50% to 70% at two years.

Total CyberKnife procedures for the first nine months of fiscal 2010 show a 13% increase over the same period last year.

There has been good recent progress with patient access to CyberKnife treatments. In the United States, CMS convened a Medicare advisory panel known as MEDCAC on April 21st to examine the evidence for radiation treatments for prostate cancer. There were 19 speakers present who spoke in support of CyberKnife treatments. These speakers included clinicians, patients, and a patient advocacy group, all of whom put forward the case for CyberKnife treatments.

The conclusion of the panel was that none of the radiation treatments including IMRT and brachytherapy have particularly good data, but it did not conclude that the CyberKnife radiosurgery for prostate cancer treatment was experimental. We believe this was a successful outcome for CyberKnife patients, as it should not impact the coverage that patients and physicians have worked so hard to achieve in recent years.

Looking to the future, we believe that the maturing clinical and economic data for prostate radiosurgery using the CyberKnife will be a positive differentiator when compared to other treatment options.

Elsewhere, as we recently announced, France has now introduced CyberKnife radiosurgery reimbursement for its public hospitals, recognizing the critical role that CyberKnife plays in the treatment of patients with inoperable or complex tumors. And in Italy, Lombardy, which is a large and important region, has confirmed reimbursement for CyberKnife patients.

There has recently been renewed focus on the competitive landscape for the CyberKnife. I can confirm that recent product launches by providers of radiation therapy equipment have not changed the competitive landscape for the CyberKnife. We have lost no orders from backlog or from our sales pipeline as a result of recent product launches.

The fact remains that the CyberKnife is still the only system specifically designed to perform full body radiosurgery. In addition, the CyberKnife remains the only system capable of tracking tumor movement in real-time while automatically correcting and compensating for motion. Unlike hybrid radiation therapy systems, the CyberKnife is not limited to a fixed gantry which limits beam positions, nor does the CyberKnife rely upon gating to manage motion.

It appears that the introduction of the latest hybrid product was known to many customers prior to its launch, and we have seen no disruption of the sales process.

Looking to the future, Accuray believes that every radiation oncology department will want the ability to perform radiosurgery. CyberKnife is the clear answer for those customers who want to build a dedicated full body radiosurgery practice. Customers using so-called hybrid systems for occasional radiosurgical treatments are strong future sales candidates for the CyberKnife. As these part time radiosurgical practices become larger and see more complex cases, the demand is expected to increase the superior capability of the CyberKnife.

Before turning the called over to Derek, I want to mention some important corporate news that was announced during the third quarter. Lou Lavigne was appointed Chairperson of Accuray's Board of Directors in April, succeeding Wayne Wu who has stepped down as Chairperson. I'd like to take this opportunity to thank Wayne for his contribution as Board Chair.

Lou Lavigne brings over 25 years of experience in public healthcare company management, and is in a tremendous position to help us extend Accuray's lead in the radiosurgery market. Lou has been a Accuray Board member since September 2009, having been Genentech's Chief Financial Officer for 17 years. We're delighted to have Lou lead our Board of Directors as Chairperson, and know that he will serve both the Company and our shareholders well.

With that, I'll now turn the call over to Derek for the financial review. Derek?

Thank you, Euan. I'd like to start with a brief overview of the third quarter's results and then provide details for perspective.

During the third quarter of fiscal 2010, total revenue was $51.9 million compared to $61.3 million for the third quarter of the prior year. Excluding revenue previously deferred for systems sold with Platinum service agreements, revenue was $48.8 million, up 10% from the comparable $44.2 million in the third quarter of the prior year.

Gross profit margin of 48.9% was a sequential increase from the prior quarter and comparable to the gross profit margin during the third quarter of last year.

We continued to control operating expenses, holding them to $22.6 million for the quarter, which is approximately 23% below the prior year's level. The overall result was net income of $2.3 million, or earnings of $0.04 per diluted share, for the third quarter, compared to net income of $1.2 million, or $0.02 per share, for the third quarter of the prior year.

Orders added to backlog totaled $76.6 million in the third quarter and $227.5 million for the first nine months of fiscal 2010, representing book-to-bill ratios of 1.5 and 1.4 respectively. The increases in backlog generated by these orders validate ongoing customer demand for the CyberKnife and will help support our continued growth in the future.

We added 14 orders for CyberKnife systems to backlog with a value of $64.3 million, plus $12.3 million on renewal of service contracts and other ancillary accessory orders. Six of the orders for CyberKnife systems were from customers within the Americas region, six from Europe, one from Japan, and one from the Asia-Pacific region. One of the CyberKnife orders booked to backlog this quarter was shipped and converted to revenue within the quarter.

At the end of the third quarter, backlog was $350 million, an 8% increase from last quarter's ending backlog of $325 million. Ending backlog was comprised of $125 million of contracts for CyberKnife systems, $18 million for CyberKnife shared ownership programs, and $207 million associated with long-term service agreements.

We anticipate that order backlog for CyberKnife systems will generally convert to revenue over a 12-month period. CyberKnife shared ownership entails a five-year usage program. Therefore, backlog for these orders are expected to convert to revenue over up to five years unless the systems are bought out early.

Service orders cover from one to five years of service. Therefore, service backlog is expected to convert to revenue over a period of up to five years. Charts reflecting our backlog have been placed on the Investor Relations page of the Accuray website.

CyberKnife product and shared ownership revenue of $34.3 million was down from $41 million in the third quarter of the prior year. Service and other revenue of $17.7 million was down from $19 million in the third quarter of the prior year. These declines were due to reductions in the amount of previously deferred Platinum revenue that became recognizable in fiscal 2010 compared to fiscal 2009. Excluding recognition of Platinum revenue that had been previously deferred, product and shared ownership revenue, as well as service and other revenue, were 4% and 26% higher respectively in the third quarter of fiscal 2010 than the comparable revenues generated in the third quarter of the prior year.

Average product revenue recognized per system in the third quarter of the current year was up slightly compared to the prior year period. The increase in service revenue was due to the increase in systems installed and covered by service agreements compared to the third quarter of the prior year.

We installed six CyberKnife systems in the third quarter of the current fiscal year, one in the Americas region and five in the European region. This brings the worldwide CyberKnife installed base to 196 units at the end of the third quarter with 125 systems in the Americas, 23 in Asia, 27 in Europe, and 21 in Japan.

Prior to fiscal 2006, we sold CyberKnife systems in the US with Platinum service agreements which entitled customers to specified upgrades over the term of their Platinum service agreements. All revenue and cost of sales were deferred when such systems were sold. After all required upgrades were installed, we began to recognize revenue and cost of sales evenly over the period of service coverage that remained under the original Platinum service agreement.

Final upgrades under Platinum agreements were usually requested by customers and installed several years after the installation of the system. As a result, revenue and cost of sales for systems and service have usually been recognized over the last one to two years of a normal five-year Platinum service term.

All upgrades had been installed by the end of the first quarter of fiscal 2010 on each of the 30 systems sold with Platinum service agreements. We have fully recognized revenue on 23 of these arrangements and are recognizing revenue over the remaining service term on the final seven systems.

In fiscal 2009, we recognized $60 million of revenue for systems sold with Platinum service agreements. We have recognized approximately $24 million of Platinum revenue year to date through the third quarter of fiscal 2010, and anticipate recognizing a further approximately $4 million in the fourth quarter of fiscal 2010, with the remainder of approximately $4 million to be recognized in fiscal 2011.

During the third quarter, we recognized approximately $4.5 million of revenue for systems still covered by Platinum service agreements, of which $2.1 million was systems revenue. Platinum service revenue recognized during the third quarter totaled $2.4 million and was comprised of $1.4 million for service work provided during the quarter and $1 million for service work provided in prior quarters.

Gross profit margin was 48.9% in the third quarter, up 3.6 percentage points from the second quarter, and comparable to the 49.5% gross profit margin in the third quarter of the prior year. The improvement from the second quarter was due mainly to improved pricing and product mix in systems revenue. Service gross profit margin was down from the prior quarter, but approximately the same as the third quarter of the prior year. This is our second consecutive quarter of an improving overall gross profit margin.

Operating expenses totaled $22.6 million, down $5.6 million from the second quarter and down $6.9 million from $29.5 million in the third quarter of the prior year. The reductions in operating expenses in this year's third quarter reflect reductions in staffing levels and our ongoing efforts to prudently manage operating expenses.

In addition, due to an increase in our estimate of forfeitures, stock compensation expense in the third quarter was reduced by approximately $800,000 to reflect the cumulative effect of the change in estimate. We do not anticipate an adjustment of this level in the next quarters.

Managing operating costs is currently, and will remain, a key corporate objective. However, as we make investments to provide for continued growth in revenue and profits for the future, we may see operating costs increase at various times.

Three factors represent the keys to success in driving Accuray towards sustained growth in revenue and profits -- increasing customer orders, solid gross profit margins, and prudent management of operating activities and expenses. Over the last nine months, we have delivered improved results in each of these three areas. Orders to backlog have been solid and are essential to future revenue growth. Gross profit margins have improved significantly in the last two quarters. Operating expenses have been reduced significantly.

All these factors indicate that we are making good progress toward sustained profitability. Accuray's balance sheet remains strong with cash and investments, ending the quarter at $148.5 million. We have experienced solid addition of orders to the backlog in fiscal 2010.

Due to some delay in one expected shipment and differences in service products elected by customers, we now anticipate that total revenue will be toward the lower end of our guidance range of $220 million to $230 million. The legacy Platinum revenue was $60 million in fiscal 2009 and is expected to decline to $28 million in fiscal 2010 and end with $4 million in fiscal 2011.

Total revenue, excluding the amounts related to legacy Platinum contracts, is expected to in the range of $192 million to $202 million in fiscal 2010, up from $174 million in fiscal 2009. This represents an increase in revenue related to current product sales in the range of 10% to 16% in fiscal 2010.

Now, I'd like to turn the call back to Euan.

Thank you, Derek.

We had a strong third quarter in fiscal 2010 in terms of orders, expanding backlog, improving gross margin, and profitability. Importantly, we saw a continued acceptance of CyberKnife radiosurgery, growth in our core revenue, and sound profitability despite the expected tail off of our deferred Platinum revenue.

With that, we'll now be happy to take your questions.

(Operator instructions.) Your first question comes from the line of Mark Arnold with Piper Jaffray.

Good afternoon, guys.

Hi, Mark.

Hi, Mark.

I guess two questions here. Were there any VSI shipments in the quarter? And then secondly, the product revenue per system kind of per system installed was really high in the quarter. Can you just explain that a little bit?

We didn't any VSI shipments in the quarter. We have had one VSI shipment so far in the fourth quarter.

As far as the system revenues improving, as I indicated, that's a significant factor as to why the gross margins improved. It is a reflection of a difference in mix of products and improvement in the pricing in general in our products.

Okay. And then, just on the Platinum side, the $4 million that's likely to be recognized in fiscal '11, is that likely to be recognized for the most part in Q1?

It will spread over the year, but it will be more heavily weighted towards the beginning of the year. So, it will tail off across the year just as it has tailed off across this year.

Great. Thank you.

Your next question comes from the line of Josh Jennings with Jefferies & Company.

Good afternoon. Thanks for taking the questions here. So, I've been looking at your order numbers of $76.6 million, and I come up with a $92 million number in fiscal Q2. Can you just comment on what you think is driving that? Is it outside of the demand that you're seeing for the CyberKnife and SRS capabilities? Are you also seeing some loosening of some of these hospital budgetary constraints in the US? And if you can comment on the purchasing environment in Europe and Asia as well compared to the first half of the fiscal year that you saw in Q3.

Sure. So, I think generally we're seeing an improvement in the sales environment throughout the world. In the US, it's slow, as I said. I used the words cautiously optimistic just now. I think that's reasonable. Our sales force is definitely seeing some loosening of capital budgets, which helps.

I think the impact of VSI has been very positive. It's been very well received. It's a faster machine with enhanced capabilities, and that certainly has encouraged people to buy.

And I think also the other impact on sales has been our regionalization efforts. It's given a great sense of focus, a good team environment in blending kind of sales and marketing skills in all the different regions, and allowing people to be very versatile and adaptive to local market requirements. And I think that -- in an environment where the market is relatively fast changing as we come out of a recession, that's been an important key factor.

And just in terms of the competitive environment that you mentioned in terms of your competitor launching the TrueBeam STx system, I know you haven't lost any orders and nothing's fallen out of your pipeline. How do you see that going forward in terms of -- and how do you feel the CyberKnife is competitively positioned outside of the sort of real-time tracking? I mean, what really drives the improved -- or the technological benefit that you see in SRS treatments with the CyberKnife? Thanks.

Well, there are a number of factors that make the CyberKnife distinctly different from any gantry-based product, and I think our customers see that. And we really didn't skip a beat when the competitive launch took place.

I think there's no question that a machine rotating in a gantry around a fixed isocenter is unlikely to have the same capabilities as one -- as a robotic system such as the CyberKnife, which can automatically move to 100 to 200 beam positions for a single patient treatment, and move the radiation beam as the target moves due to either patient motion or respiratory motion of the patient. It's just not something that can be matched.

And I think that our customers saw that. And consequently, there was really no significant change in the sales environment.

Your next question comes from the line of Tycho Peterson of JPMC.

Hi, this is actually Abigail Darby sitting in for Tycho today. Just wanted to dig a little bit more into some of the gross margin trends this quarter. Could you help tease out some of the underlying factors there again, maybe more information on what's driving up your product gross margin back to 2008, 2007 levels? And then, also on the service gross margin side, I think you had expected that to increase slightly in the back half of the year. And just any more color you can provide on what was going on there in the quarter and the outlook. Thank you.

Sure. On the systems side, the margins increased in part because of improvements in pricing of the product. And that was across our markets.

As far as the other factors that affected systems, we did have a slightly different mix of systems in terms of configurations that people -- that customers were choosing this quarter, some of them being slightly lower cost configurations for us. Plus, we have continued to work on improving the cost basis of the system in our manufacturing. All of those factors together pushed us to the higher margins for systems.

As far as the service margins go, the slight decline, which we do have some variability of quarters, so it's -- I don't want to draw too much from any one quarter, was driven in part by some costs related to certain products that were chosen as upgrades under our Diamond service program as well as some increases in cost in the service group as we prepare for additional customers and systems to come online for service in the future.

Great. Thanks. And then, also within the US market, wonder if you could provide some additional color on what you're seeing in the hospital market versus the freestanding facilities. I think last quarter you didn't have any new orders out of freestanding centers. Are you seeing the dynamics being to change there, or --?

We're still, generally in the US, focused on the hospital market as opposed to the freestanding center market. There's been no significant shift from our stance in that. It's really a question of the certainty of the reimbursement being much higher in a freestanding center.

There's definitely -- in some regions, there's definitively interest from freestanding centers, from entrepreneurial groups and established providers of freestanding services. But, there's been no overall shift in their purchasing pattern.

Great. Thanks very much.

(Operator instructions.) Your next question comes from the line of Robert Manning with Janney Montgomery Scott.

Euan, I know you don't like to be too specific in guidance. But, it seems to me that we might be at a point where the growth rate might pick up a little bit, and I'd just be interested in any color you could offer there. I mean, there's clearly a lot more anecdotes. Word of mouth is spreading about CyberKnife. We're getting close, or I guess we actually have now patients with five years of history, which they've all been clamoring for, and hospital budgets loosening up. Order rate for the first six months annualizes to 54 or 55 units. Why would it be too much to hope for that we could see the installation rate get up to something like that level maybe in fiscal 2011?

Well, you said at the beginning, Bob, we don't like to give too much detail on some of these aspects.

No, I want color.

So, on the basic sales environment, just going back and reinforcing what we said, I think that it's definitely an environment where we feel that we've got more momentum, we're making more headway that we were, say, a year ago. And generally, people are very positive and upbeat. And the positive book-to-bill ratios that Derek talked about are certainly a firm indicator of future growth, in our eyes. And that's why we've been fairly positive, I think, in the description of the Company's growth during this call.

Beyond that, I wouldn't want to be too specific. I think that the physician environment is good for us in terms of our customers recognizing that CyberKnife is uniquely different from other systems. Clinical data continues to grow and mature. And that really does help us not just in the US but particularly in the international markets where they're very, very data driven.

And I think our own internal structures, as I said, and regionalization in particular help us significantly.

So, I think we are certainly fairly positive about our future growth. And there's no doubt that having the kind of book-to-bill ratios that we've achieved over the last few quarters, it certainly is, we believe, a good indicator of solid future growth.

Are there any capacity restraints that would prevent you from getting installation rate up to the order rate?

Well, let's see. We hope that we'll always grow the order rate faster than we grow the installation rate. But, there are no capacity issues, no. We can manufacture certainly within these the range of systems that we'd expect to ship.

The gating item is generally the hospitals being ready to receive the CyberKnife system. It's not on our ability to provide the equipment. They all have manufacturing programs they need to go through, to a lesser or greater extent. You build new rooms or sometimes whole new buildings and whole new units.

As far as that time to install, I mean, a few years ago we were looking for 12 to 18 months, and then that kind of stretched out to 18 to 24. Do you see signs that that might be coming back in, the certificates of need easier to get, or anything like that?

Bob, it's not exactly a change probably in the certificates of need. It's more that when we look at our backlog and the orders that we are recording in backlog, these are orders that we believe have the characteristics that indicate that they're more consistent and more reliable in terms of transitioning to shipments of revenue. So, that's why we are expecting -- it's our expectation that the orders in backlog would transition to revenue over a 12-month period.

Right. Thanks very much.

Your next question comes from the line of Bob Labick with CJS Securities.

Good afternoon.

Hi, Bob.

Hi, Bob.

Hi. You spoke earlier in the call about the April Medicare meeting as it relates to across the radiation treatment. Could you just give us a little more color around that and some update on the progress of reimbursement throughout the US for you with prostate surgery?

Yes. It was a special panel established by CMS to evaluate all prostate radiation treatment. And they looked at -- with the view to giving CMS some guidance on where reimbursement should head. There were various groups represented. And as I indicated, we had -- well, we. The CyberKnife had 19 or so speakers who were there to specifically support CyberKnife prostate radiosurgery. And they put a very good case forward, I think.

In the end, the conclusion of the panel really was that the data that was available for any radiation treatment wasn't particularly strong. The key thing from our perspective was that they did not kind of call out prostate radiosurgery with the CyberKnife as being in a different category from any of the others, which, to us, is an indicator of a move towards the mainstream.

And there was certainly question of them saying that it was an experimental treatment and therefore uniquely different from the others and should be treated differently. So, we can away feeling fairly positive that the efforts of our physicians and customers over recent years have been very positive.

So, generally things are moving in the right direction. And I think there's -- data only matures one way. As the studies that have been done and are ongoing with CyberKnife for prostate radiosurgery mature, they continue to show generally good results and high levels of local control, low levels of toxicity. And the older they get, the more value they have in the academic community. We're seeing things move generally in the right direction.

Internationally, again similarly, reimbursement trends are overall good. And you would expect, again, as the general data matures for all categories of radiosurgery on the CyberKnife, that there's more and more evidence and therefore reimbursement should generally go in one direction. And that's to improve and become more solid.

Okay, great. That's very helpful. Thank you. As it relates to your, I guess, sales and marketing realignment and your move to regionalize that, could you give us an update on where you stand with regional GMs and what goals you have from that overall shift?

Yes. We have three -- I can't give you specifics, but I can tell you that we have teams in each region now. They are -- we're building up more of a local presence, particularly in field marketing areas to support the field sales teams. And we've seen that close link between those two groups is very successful in the regions where it's been better established. And that's really our objective at this stage.

And the point is that these regions can respond very differently to local market pressures. And I think the evidence that the markets are different is there in the different performance levels for the different regions that we have. In Japan, we've definitely seen a renewed sales activity. The Americas is certainly responding well now in terms of sales. And Europe remains a strong performer. It's been a strong performer for us for some time. So, we're very pleased with the way things are headed there.

Okay, great. Thanks. And my last one, with your strong cash balance and then with the end, essentially, of the deferred revenue or essentially getting close to that, we should see this cash balance growing on a go forward basis. So, if you could just update us on your latest thoughts on the uses of cash for the Company?

So, the cash balance will grow as we continue to improve our progress towards sustained profitability. The deferred revenue that we have does -- and deferred cost does rollout as we ship units, so that that has been, in the past, relative to the rollout of the deferred Platinum revenue and costs, has actually probably served to lessen the cash that we have.

As far as our goals for the cash, it is, one, to ensure that as customers consider buying a long-term asset from the Company, we want to make sure that the customers are confident that we have the stability to support them over a 10-year horizon. Secondly, we have used our cash at times to invest in technology related extensions or acquisitions for the Company. And thirdly, we view the long-term growth of the Company as something that keeps us on the lookout for opportunities that would be complementary to our product line and allow us to further support our customers and patients.

Great. Thank you very much.

Your next question comes from the line of Josh Jennings with Jefferies & Company.

I just had some follow ups here. Thanks. Wondered if you could give us some updates on the MD Anderson trial on inoperable lung tumors with the CyberKnife versus open surgery. And secondarily, the University of Pittsburgh trial on inoperable tumors. And then lastly, do you still expect installations to grow year-over-year here in fiscal '10 over fiscal '09? Thanks a lot, guys.

Okay, so the MD Anderson study, many of the sites have now completed our credentialing process. And it's early days, but we are seeing more of a steady flow of patients going into that now.

Sorry, could you just repeat the --?

Oh, just an update on the University of Pittsburgh trial as well for inoperable lung tumors.

Okay. Yes, for the -- for peripheral tumors, that's now completed. And we're still accruing patients for the medial tumors, the ones that are more central.

And in terms of -- the third question was the installation rates?

Yes. If the installations for fiscal '10 versus '09, do you still expect that to be up year-over-year?

Josh, the installations, at this point it is not completely clear exactly which customers will end up installing. As we have increased our sales in areas outside the US, many of those -- some of the -- a significant portion of those sales are through distributors, and we're not in control of the installation points. So, it is not clear to us at this point whether the installs will increase over the prior year because we don't know exactly when those distributors will completing their installs.

Okay, great. Thanks a lot.

And at this time, I'd like to turn the presentation back over to Dr. Euan Thomson for closing remarks.

Thank you.

So, the third quarter of fiscal 2010 was one of solid orders, backlog expansion, and profitability. Accuray remains dedicated to expanding the use of CyberKnife radiosurgery as we change the way in which cancer is treated around the world.

As always, I want to take a moment to acknowledge Accuray employees and the tremendous contribution they make every day.

Thank you for joining us today and we look forward to speaking to you on our next call.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect, and have a great day.