Accuray Inc (ARAY) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and year end fiscal year 2010 Accuray Incorporated earnings conference call. My name is Caitlin, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, to Mr. Thomas Rathjen, Vice President of Investor Relations. Please proceed.

Thank you, Caitlin. Hello, and thank you for joining us this afternoon for Accuray's conference call for the fourth quarter and fiscal year end 2010. Joining us today are Dr. Euan Thompson, Accuray's President and Chief Executive Officer, and 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 onto this 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 but are not limited to revenue guidance, installations, gross margins, operating expenses, profitability, and clinical acceptance. These and other risks are more fully described in the risk factors section of our annual report on form 10K, as updated from time to time by our quarterly reports on form 10Q and other filing with the Securities and Exchange Commission.

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

Thank you, Tom. And thanks to everyone for joining us for our fourth quarter and fiscal 2010 year end conference call. Today I'm pleased to announce a strong fourth quarter of solid orders and backlog expansion. During the fourth quarter we added 16 orders to backlog, increasing total backlog by nearly 7% from the third quarter. We received one cancellation of a 2009 order from Europe, our only cancellation from backlog for the 2010 fiscal year. Ten CyberKnife systems were installed, and 12 were shipped during the quarter. For the full year of fiscal 2010, Accuray has added a net of 56 CyberKnife systems into backlog, and shipped 38 units worldwide. We believe that this positive book to bill ratio is a continued indicator of future growth.

I will now provide a brief review of the business highlights of the fourth quarter and our fiscal year 2010, an overview of how we see our business growing, and I'll then turn the call over to Derek for a detailed financial review and guidance update. During the quarter, Accuray's total revenue was $61.8 million. Revenue from sources excluding previously deferred Platinum revenue was $58.2 million, representing an increase of 21% from Q4 in fiscal 2009. During the fourth quarter, despite the year-on-year decline in deferred Platinum revenue, we recorded net income of $5 million, or $0.08 per diluted share. This is driven largely by growth in our core revenue, continued improvement in gross margin, and operating expense control.

For the full year fiscal 2010, total revenue was $221.6 million, in line with our annual guidance. We recorded net income for the year of $2.8 million, or $0.05 per diluted share. During the fourth quarter, 16 CyberKnife systems were added to backlog, contributing a total value of $74 million. In addition, service and ancillary orders with a value of $18 million were also signed. Of the 16 orders added to backlog, seven were from the Americas region, with an additional five orders from the European region, two from Asia Pacific, and two from Japan. Ten of these were for the latest CyberKnife VSI system. Derek will provide a more detailed analysis of backlog in a few minutes.

During the fourth-quarter, 10 CyberKnife systems were installed, of which seven were in the Americas region, two in the European region, and one in Asia-Pacific. The worldwide install base as of June 30, 2010, was 206 systems.

I would now like to briefly discuss clinical development. It's important to remember that in order for the CyberKnife to be successful, Accuray needs to build clinical acceptance of full body radiosurgery. Our business plan requires that we work to expand the level of clinical knowledge about this new way to treat cancer. So we track clinical utilization of the CyberKnife, as a way to judge the core growth that will drive system demand.

With that in mind, I'm pleased to report that during fiscal 2010, there was a 15% year-on-year increase in the number of patients receiving CyberKnife treatments worldwide. Lung, prostate and intracranial procedures led the field in growth. Approximately 25% of all CyberKnife patients ever treated, were treated during fiscal 2010, demonstrating continued acceptance by the worldwide medical community.

As I said, expanding clinical demand is a key driver for sales results. And I can also report that on a worldwide scale, the demand for the CyberKnife remains strong. During the fourth quarter, our Americas sales team reported there was improving access to financing and renewed budget availability. Five of the 16 orders came from the European region, which also continues to see strong sales growth.

Japan continued its renewed sales momentum, adding two orders to backlog. This is the third consecutive quarter of orders coming from Japanese customers. Recent shonen approval for the CyberKnife G4 system includes the Xsight lung tracking system, the RF collimator, RoboCouch, and a higher output linear accelerator designed to reduce treatment times. This enhanced technology is expected to expand CyberKnife's extracranial treatments throughout Japan, especially among the significant lung cancer patient population.

Overall, our book to bill ratio was approximately 1.5 for fiscal year 2010, with a net of 56 systems added to backlog, and 38 systems shipped. We saw no observed impact on Accuray's business from recent competitive product launches. It is still the case that when a customer has decided to buy a dedicated radiosurgery tool, they invariably select the CyberKnife. The CyberKnife competitive differentiation, combined with the clinical expansion of radiosurgery, is a positive indication of future growth. We believe that if the field develops, access to a dedicated radiosurgery tool will be an essential component of every radiation oncology center.

During the fourth quarter, we announced a strategic alliance with Siemens. As a brief review, the agreement has three primary elements. The first gives Siemens the right to sell CyberKnife systems globally, as part of multi-system deals. In addition, on a country by country basis, Siemens could be given CyberKnife distributorship in selected regions where Accuray is either under or unrepresented.

The second element is an R&D agreement, whereby Accuray will create components to enhance the capability of Siemens linear accelerator products, making them more competitive in the radiation therapy market. Once developed, Accuray will sell the components to Siemens in a supply agreement.

The third element in the agreement is an R&D collaboration between the two companies to explore next-generation product possibilities. Our primary sales emphasis will remain on our direct sales force, and our distributor network. We're excited about the Siemens deal, as it expands the footprint for CyberKnife, creating incremental sales opportunities that would otherwise be unavailable to us. We are not anticipating any impact on revenue from activities with Siemens during fiscal year 2011.

Turning now to our strategic goals for fiscal year 2011. We believe we have opportunities to further enhance the lead role of the CyberKnife through continued investment in R&D. We also believe that we have opportunities to increase market awareness of radiosurgery with the CyberKnife. To accomplish these strategic goals, we plan to make staged investments over the next year. As a result, we anticipate disciplined and controlled increases in operating expenses during the year. Our intended goal is to enhance Accuray's future growth as we expand our market. Derek will discuss the financial implications of this on fiscal year 2011.

Finally, before turning the call over to Derek, I want to mention some important corporate news that was announced during the quarter, and the year. To help meet the needs of an involving and maturity public company, Accuray recently added two new members to its Board of Directors. Jack Goldstein, who most recently served as President and Chief Operating Officer of Chiron Corporation, brings over 20 years of experience in the medical device and pharmaceutical industries. Peter Fine, President and Chief Executive Officer of Banner Health, one of the nations largest non-profit healthcare organizations, brings considerable healthcare experience, including hands-on knowledge of hospital administration and family clinics. Both new Directors will be significant additions.

Also in fiscal 2010, Lou Lavigne assumed the role of Board Chair. Lou is a former Genentech executive, and experienced corporate Director.

As a result of these recent changes, our Board is now being transformed into one populated and lead by experienced healthcare executives, a transformation that will provide Accuray management with valuable guidance and strategic counsel as the Company continues to grow and expand into its next stage of development. Lou will be discussing the Board and corporate development in the Chairman's letter to shareholders that will form part of our annual report.

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

Thank you, Euan. I would like to start with a review of our financial operating results for the fourth quarter and fiscal year 2010, and then provide details for perspective.

As Euan mentioned, during the fourth quarter of fiscal 2010, total revenue was $61.8 million compared to $58.8 million for the fourth quarter of the prior year. Excluding revenue previously deferred for systems sold with Platinum service agreements, revenue was $58.2 million, up nearly 21% from the comparable $48.1 million in the fourth quarter of the prior year. The gross profit margin for the fourth quarter was 50.3%, a sequential increase from the prior quarter, and an improvement of 4.2 percentage points over the gross profit margin from the fourth quarter of last year.

We continue to control operating expenses, holding them to $25.1 million for the quarter, which is approximately 6% below the prior year's level. The overall result with net income of $5 million, or earnings of $0.08 per diluted share for the fourth quarter, compared to net income of $1.2 million or $0.02 per share for the fourth quarter of the prior year.

For the full fiscal year, total revenue was $221.6 million, a decrease of 5% from last year. Net income for fiscal 2010 was $2.8 million, or $0.05 per diluted share. This compares favorably to fiscal 2009 net income of $609,000, or $0.01 per diluted share.

Net orders added to backlog totaled $85.9 million in the fourth quarter, and $313.5 million for the full year of fiscal 2010, representing book to bill ratios of 1.4 in the quarter, and fiscal year from a dollar standpoint. We had a book to bill ratio of approximately 1.5 when comparing CyberKnife system unit orders to shipments. The decreases in backlog generated by these orders validate ongoing customer demand for the CyberKnife, and will help support our continued growth in the future.

During the fourth quarter, 16 new orders for CyberKnife systems were added to backlog. We received one cancellation during the quarter, the only CyberKnife system order canceled during fiscal 2010, resulting from the dissolution of the eastern European entity that placed this CyberKnife order in fiscal 2009. Including this order cancellation, net orders to backlog totaled 15 systems in the fourth quarter. Of the 16 orders to backlog for CyberKnife systems in the fourth quarter, seven were from customers within the Americas region, five from the European region, two from the Asia-Pacific region, and two from Japan. Three of the CyberKnife orders booked to backlog this quarter were shipped, and converted to revenue within the quarter.

At the end of the fourth quarter, backlog was $374 million, a 7% increase from the last quarter's ending backlog of $350 million. Ending backlog was comprised of $132 million of contracts for CyberKnife systems, $16 million for CyberKnife shared ownership programs, and $226 million associated with long-term service agreements.

To assist in financial modeling efforts, we anticipate that order backlog for CyberKnife systems will generally convert to revenue over a 12-month period. Though this period can range from as little as one quarter to well beyond four quarters due to customers' schedules.

CyberKnife shared ownership programs entail a five-year usage period, therefore backlog for these orders are expected to convert to revenue over a five-year period, 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 revenue of $41.5 million was up 5% from $39.5 million in the fourth quarter of the prior year. Service and other revenue of $19.6 million was up 5% from $18.6 million in the fourth quarter of the prior year, and shared ownership revenue remained relatively consistent at $470,000 in the fourth quarter of fiscal 2010 versus $455,000 in the fourth quarter of the prior year.

Excluding recognition of Platinum revenue that had been previously deferred, product and shared ownership revenue increased 22.6%, and service and other revenue increased 17.7% in the fourth quarter of fiscal 2010, from the comparable revenues generated in the fourth quarter of the prior year. Increase in service revenue was due to the increase in systems installed, and covered by service agreements compared to the fourth quarter of the prior year.

We installed 10 CyberKnife systems in the fourth quarter, seven in the Americas, two in the European region, and one in the Asia-Pacific region. This brings the worldwide CyberKnife install base to 206 units at the end of the fourth quarter, with 132 systems in the Americas region, 29 in the European region, 24 in the Asia-Pacific region, 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 in 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 25 of these arrangements, and are recognizing revenue over the remaining service terms on the final five systems.

In fiscal 2009, we recognized $60 million of revenue system sold with Platinum service agreements, and in fiscal 2010, we recognized approximately $29 million in Platinum revenue. With only a small portion of this deferred revenue remaining, we expect to recognize approximately $5 million of revenue for systems still covered by Platinum service agreements in fiscal 2011, which will fully complete all Platinum revenue recognition.

During the fourth quarter of fiscal 2010, we recognized approximately $5 million of revenue for systems still covered by Platinum service agreements, of which $1.7 million was systems revenue. Platinum service revenues recognized during the fourth quarter totaled $3.3 million, and was comprised of $1.4 million for service work provided during the fourth quarter, and $1.9 million for service work differed from prior quarters.

Our gross profit margin was 50.3% in the fourth quarter, up 1.4 percentage points sequentially from the third quarter, and up 4.2 percentage points when compared to the fourth quarter of the prior year. The improvement in gross margin was due mainly to higher gross margin on service revenue. Service gross profit margin increased nearly 6.8 percentage points from the prior quarter, and approximately 5.9 percentage points over the fourth quarter of the prior year. The improvement in service margins is due mainly to the increase in service revenue, as our installed base continues to grow. This is our third consecutive quarter of an improving overall gross profit margin.

During the fourth quarter, operating expenses totaled approximately $25.1 million, up $2.4 million from the third quarter, but down $1.7 million from $26.8 million in the fourth quarter of the prior year. The overall reductions in operating expenses reflect our ongoing efforts to prudently manage these costs. While managing operating costs will remain a key corporate objective, we plan to make investments to provide for continued growth in revenue for the future. As a result, investors should anticipate an increase in operating costs in fiscal 2011.

As we have explained previously, three factors represent the keys to success in driving Accuray towards sustained growth in revenue and profits, increase in customer orders, solid gross profit margins, and prudent management of operating activities and expenses. Over the past fiscal year, 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 sequentially in the last three quarters, and operating expenses have been reduced from prior year levels. All of these trends indicate that we are making good progress toward sustained growth.

Accuray's balance sheet remains strong with cash and investments ending the quarter at $145.3 million. Not reflected in our ending cash and investments balance, the net amount of $5.9 million for transactions related to our short-term investments, and auction rate securities that had not settled by June 30, 2010. The remaining balance of our auction rate securities, totaling $9.9 million, was sold on June 30, 2010. In addition, on that date we purchased $4 million of short-term investments.

The proceeds from the $9 million sale of auction rate securities were in transit at our year end, and therefore were reflected as other current assets on our balance sheet. The purchase of $4 million of short-term investments on June 30, 2010, were not yet settled at year end, and therefore were reflected in both short-term investments and accrued liabilities on our balance sheet. Both of these transactions settled within the first week of July, adding a net of $5.9 million to our cash.

Turning to guidance for fiscal 2011, we expect total annual revenue to be in the range of $210 million to $225 million. Legacy Platinum revenue was $29 million in fiscal 2010, and is expected to decline to $5 million in fiscal 2011, completing the recognition of this deferred revenue stream. Total revenue excluding the amounts related to legacy Platinum contracts is expected to be in the range of $205 million to $220 million for fiscal 2011, up from $193 million in fiscal 2010. Revenue quarter-to-quarter is inherently lumpy, since we are dependent upon our customers' construction schedules as they build or renovate facilities to house their CyberKnife system.

Installations forecast for the first quarter of fiscal 2011 are low based upon customers' schedules. This is similar to the pattern in the first quarter of the past three years. Since most Platinum revenue has already been recognized through fiscal 2010, the amount to be recognized in the first quarter of fiscal 2011 will be much lower than in the first quarter of the prior year. Accordingly, we believe it is important to inform you that we expect revenue in the first quarter of fiscal 2011 to be in the range of $35 million to $40 million. Based upon the number of orders placed into backlog in fiscal 2010, we expect quarterly installations in revenue in the second half of fiscal 2011 to be considerably stronger than in the first half.

We anticipate that our gross profit margin will be in the range of 48% to 51% for fiscal 2011, up from 46.9% in fiscal 2010, due mainly to improved margins on system revenue. Our gross profit margin is expected to be relatively low in the first quarter of fiscal 2011, due to the low expected system shipments and revenue. We believe that we have opportunities to further advance the role of the CyberKnife in radiosurgery with continued investment in R&D. We also believe that we have opportunities to increase market awareness of the benefits to treating cancer patients with CyberKnife radiosurgery.

We believe that progress towards these goals will be critical to maximizing the long-term growth in revenue and profitability of Accuray for our shareholders. Accordingly, as Euan commented earlier, we plan to increase our efforts in R&D, including development of next-generation CyberKnife technology. In addition, we plan to pursue sales and marketing activities to increase awareness of CyberKnife for radiosurgery. To support these programs, we plan increases in spending in fiscal 2011, principally on R&D, and also on sales and marketing.

With continued careful management, and control of operations, we anticipate a modest reduction in general and administrative expenses in fiscal 2011. We anticipate that we will operate at approximately break-even for the full year of fiscal 2011, with the second half of the fiscal year being significantly stronger than the first half.

Based on the strong order flow we achieved in fiscal 2010, plus the developments in R&D and market awareness that we plan to pursue in fiscal 2011, our longer-term goals are to grow annual revenues while maintaining solid gross profit margins, and prudent management of operating expenses. We believe these are the essential elements to generate free cash profits of 10% or possibly more.

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

Thank you, Derek. We had a strong fourth quarter in fiscal 2010 in terms of orders, expanding backlog, improving gross margin, and effective management of operating expenses. Importantly, we saw continued acceptance of CyberKnife radiosurgery with a 15% increase in the number of patients treated, and a steadily increasing CyberKnife installation base.

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

(Operator Instructions). Your first question comes from the line up Bob Labick of CJS Securities.

Good afternoon, thanks for taking my question. I wanted to start with guidance and I know you just touched on it, I appreciate all the color you gave us. It seems to imply absolutely no non-backlog system revenue but in the past you've talked about anywhere from zero and four or zero and three per quarter. Am I missing something or is there a lower ASP per system or what else could be causing it to be just the product backlog order that you have at this time plus implied systems -- the implied services revenue?

So, Bob, the revenue that we're forecasting is based on the backlog we have and our expectations for business in fiscal 2011. It's probably worth noting that the order flow that we had in fiscal 2010 picked up particularly as we got towards the middle of the year in the second half of the year. As a result, the first half of fiscal 2011 is based on order rates that were not as strong in fiscal 2009 and the first half of fiscal 2010 and the second quarter of fiscal 2010, the orders were very much bunched up towards the end of the quarter and we are trying to be realistic about when our customer sites will be ready to accept those. We are not though seeing any change in ASP in terms of the degradation and that in our products, so it's really based on customer schedules for installation of products.

Okay, and then my follow-up I'll just ask, I appreciate that answer, I'll just ask slightly differently. You discussed a book to bill of 1.5 times but your guidance is for 10% core growth, down from 20% in the current quarter is that all because it's being deferred into fiscal 2012. I mean 1.5 times book to bill and 10% growth are not necessarily -- are a little confusing.

Well, again, it's really based on the time period in which we got the orders and the expectation from a customer standpoint of when their facilities will be ready to accept those orders. We did indicate that we expect the second half of fiscal 2011 to be significantly stronger than the first half so the first half is really a reflection of the weaker order picture that we had towards the end of fiscal 2009 and the first -- most of the first half of fiscal 2010.

Okay I will let other people ask and I'll get back in the queue. Thank you.

Your next question comes from the line of Tycho Peterson of JPMorgan. Please proceed.

Good afternoon, thanks for taking the questions. Maybe just sticking with the outlook, can you elaborate a little bit more on your comments on spending for 2011. You talked about R&D picking up a little bit, can you elaborate maybe directionally on where you're putting those dollars and then, I think you may have said G&A down but I wasn't sure if it was SG&A down, I'm just wondering if you could talk a little bit about sales, how you are thinking about that for next year?

We can't give details exactly what we're spending money on in those areas, but the two generic areas, as Derek indicated, we feel that it's considerable scope for accelerating the difference between CyberKnife and other technologies and we want to take advantage of that fact and make some investment in R&D. Obviously we can't be specific about the timing that that will roll out in or any details of the product itself but we certainly feel it's worth making that investment. Similarly with market awareness we think there's opportunity to step up the pace and actually invest in programs and people really to raise awareness of the CyberKnife and the benefits which are materializing from the critical data.

Also Tycho, in terms of the decline that I mentioned in G&A, that is actually just general and administrative, not selling, general and administrative. We expect that there would be some increases in our sales and marketing costs as we work to improve the awareness of the CyberKnife and radiosurgery with the CyberKnife.

Okay. Then Euan, can you talk a little bit about how you think about the market opportunity in Japan in terms of potential system placements over the next couple of years?

Without being specific on numbers, I think it's clear that Japan is the second largest single country based market in the world. And I think with the new [Shonin] in place we're much more compatible now in terms of technology we offer than we have been in the past during we had approval for a body Shonin, but it was based on technology to treat the whole body which was based on technology which was not necessarily optimized for the whole body. The G4 is a system platform that you may remember was definitively designed for whole body applications. So we're seeing acceleration of clinical work in Japan, clinical adoption in Japan, and that should drive adoption rates and sales faster than they have been in recent years.

But you can't quantify the number of tier one, two, three hospitals you think you can target?

No, I don't want to go into details with the market size in Japan.

One last one, I know you said you're not going to recognize revenues from Siemens in 2011, can you just remind us why, given the potential sales synergies there it seemed like that would be something that could come sooner.

Obviously we're not getting a new distribution channel whether it's a distributor or a new sales person, they take some time to get up to speed and we're really talking about market segments that are not currently CyberKnife market segments. So the first thing we have to do is to engage and to train the sales team to look for appropriate deals and then to work appropriate deals. After that, revenue, of course, wouldn't flow until he had actually got to the point of installation or close to. So there will naturally be a time lag. So we're working right now primarily on getting their sales force up to speed in the relevant areas. After that we'd expect sales activity to kick in, after that we would expect revenue to flow.

Okay, thank you.

Your next question comes from the line up Mark Arnold of Piper Jaffray. Please proceed.

Good afternoon, guys. I want to just go back to the outlook question as well. The question about the book and ships and the fact that historically even in this last quarter I think you had three of them and when we think about your backlog number here at the end of the quarter being a $132 million of the system side I guess I'm just still a little confused terms of how you're thinking about additional book and ships on top of that and kind of the -- are you expecting that that may be a little bit more difficult over the next 12 months? Or are you just not including any revenue expectation from that at this time. How should we think about the system sales component of your outlook?

One of the things, Mark, just to make sure that you and the other analysts and investors are remembering is that this fiscal 2011 is another year when we will drop approximately $24 million worth of revenue out of the picture from the standpoint of the ending of the platinum deferred revenue rollout. So that has to be picked up by additional sales of systems just to break even with this year. In addition to that we are -- we do expect that there will be some number of systems that would be ordered and shipped within the year. The expectation if you look at our backlog today is that we would expect some units would also get ordered and shipped within fiscal 2011.

Derek, can you just give us the breakdown of the $29 million in platinum revenue that you recognized in fiscal 2010? What amount was in the systems revenues line and what amount was in the service revenue line?

$12.6 million of it was in the system line and then in the service line it's $16.3 million.

Okay. And then just one last clarification question. The other -- the interest income and other expense line, can you just tell us what's in that in the fourth quarter why is that number -- why are you recording other expense there and should we expect to see some interest income given your strong cash and investment balance in 2011?

This quarter was a quarter where we were affected significantly by the rapid decline in the euro from March 31, to June 30. We do have a fair number of sales that are in -- denominated in euros and the translation or the FX losses on those is what hits our other income and expense line in the fourth quarter. Looking forward as we look at fiscal 2011 with the cash balance that we have we certainly do expect interest income. The exact amount is really going to be dependent obviously on what the markets bare, but I think given that we are trying to take a reasonably conservative posture with our cash I wouldn't suggest that you assume we're getting a very high interest rate today on essentially one year or less investments.

Okay, thank you.

Your next question comes from the line up Josh Jennings of Jefferies & Company. Please proceed.

Hi, good evening, gentlemen, thanks for taking the questions. Just a quick one. Just on -- in terms of again tge outlook, which obviously the Street had gotten ahead of itself, as I did in terms of fiscal '11 expectations. But if you take a look at your 38 units shipped in fiscal 2010, how many units did you actually ship just not install but ship in fiscal 2009 and are you expecting that number to grow in fiscal 2010, I'm sorry fiscal 2011.

In terms of fiscal 2009, we shipped 36 units so we shipped 38 in fiscal 2010. We do expect that that will increase from fiscal ten to fiscal 2010 to fiscal 2011 and that's a significant reason why we expect revenue to go up. Again, remember we have to replace $24 million worth of platinum revenues just to break even. So we have to ship additional units, significant additional units in order to just reach break even in terms of revenue.

Just a touch on that in terms of the $24 million that you need to -- that market is to break even in terms of thinking about your increased installed base and the increasing service components in the backlog and what's a -- if you increase your installed base by about 15% or so over the course of the year is that a bogey for service revenue growth for fiscal 2011? Is that an appropriate level to expect?

No, again the thing that is a little bit deceiving is the platinum service which in service alone was $16.3 million of revenue in fiscal 2010 and that will go down to just a few million in fiscal 2011. So again just to hold even you have to have a significant increase in service revenue from the growth in the installed base just to break even. So that $16.5 million or so represents about 23% of total service revenue. So you have to have a pretty significant increase in installed base just again to break even.

So in terms of reported service level it's going to be tough to break even on the service side in fiscal 2011, do you think that's where the disconnect is?

Probably, I think that may be what's confusing folks because that $16.5 million comes out and if we grow the installed base it is a tall order to break even given that.

Great and then lastly on the competitive front I know you spoke that you haven't sort of seen competition impact your business at this point, is any of your guidance baking in some elevated level up competition next year with Varian launching their TrueBeam earlier this year -- your next fiscal year, I mean? Thanks a lot, guys.

I think we've had some room in the timing throughout the two quarters now of sales since the -- or bookings rather, since the TrueBeam launch so I think we're on one complete quarter and I think we've said on both quarters so far taht we haven't seen any impact from that launch.

(Operator Instructions). Your next question comes from Junaid Husain from Soleil Securities. Please proceed.

Good afternoon, everyone.

Good afternoon.

Derek, so excluding the legacy stuff, the platinums and the balance sheet and just giving your 2011 guidance, how should we be thinking about the organic rate of sales growth? Shouldn't you call it mid to low single digits?

Well, the guidance that we're providing compared to the $221 million of revenue is -- that our guidance spans that both above and below. If you look at the results excluding the deferred portion of platinum as we indicated it's a range of potentially 6% to 14% organic growth in terms of the ongoing activity of the business excluding the previously deferred platinum piece of our business.

All right. Thanks so much guys.

There are no further questions in queue at this time. Pardon the interruption. You have a question from the line. Please proceed.

Okay, after a solid quarter of fiscal -- fourth quarter of fiscal 2010, Accuray remains dedicated to expanding the use of CyberKnife radiosurgery as we change the way cancer is treated around the world. As always I want to take a moment to acknowledge Accuray employees and the tremendous contribution they make everyday. Thank you for joining us today and we look forward to speaking with you on our next call.

Ladies and gentlemen, thatnk you for your participation on today's conference. This concludes the presentation. You may now disconnect. Have a great day.