Accuray Inc (ARAY) 2013 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2013 Accuray Incorporated earnings conference call. My name is Regina, and l will be your conference operator for today. At this time all participants are in a listen-only mode. Later we will be conducting a question and answer session. (Operator Instructions).

As a reminder, today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Tom Rathjen, Vice President of Investor Relations. Please go ahead, Tom.

Thank you. Hello and thank you for joining us today on our conference call as we review Accuray's second quarter of fiscal 2013. Joining us today is Josh Levine, Accuray's President and Chief Executive Officer, and Derek Bertocci, Accuray's Senior Vice President and Chief Financial Officer. Please note that today we will be referring to information which can be found on a summary slide deck on the Investor Relations page of the Accuray website at accuray.com/Investors.

Before we begin, I need to remind you that our call today includes forward-looking statements that involve risks and uncertainties, there are a number of factors that could cause actual results to differ materially from our expectations, including risks associated to the effects of the introduction of a new CyberKnife and TomoTherapy system, commercial execution, future order growth, future revenue growth, future profitability and guidance for fiscal 2013. These and other risks are more fully described in the press release we issued earlier this afternoon, as well as in our filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements.

Now I would like to turn the call over to our President and Chief Executive Officer, Josh Levine. Josh.

Thank you, Tom. Thanks to everyone for joining us today as we review our second quarter of fiscal 2013. I will begin with a brief overview of the second quarter, with Derek providing a more detailed financial review later in the call. I will then summarize the actions we are taking to position Accuray for commercial success, and provide leading elements of our plan for sustainable revenue growth and profitability. I will be using non-GAAP numbers as we believe they are a better reflection of the ongoing results of our operations.

We announced our preliminary expectations for the quarter on January 3rd. Our actual results met or slightly exceeded those preliminary expectations. During the second quarter our new orders for systems and our product revenue both fell. Product revenue declined to $33.2 million, and net product orders added to backlog totalled $17.9 million, with new orders for the TomoTherapy system stronger than for the CyberKnife.

The primary challenges we faced in the quarter were manufacturing of supply related issues, which delayed the contribution from the new products we announced at ASTRO, and were further complicated by previously initiated structural changes in our commercial organization. During Derek's financial review he will provide our ending backlog by product line, which should provide increased visibility to assist in your financial modeling.

At $44.6 million our Service revenue continued its steady upward progress, contributing more than half of our total revenue for the quarter of $77.7 million. Our Service gross margin improved to nearly 27%. Since our acquisition of TomoTherapy, we have improved system up time, reduced the needs for part replacements, and as a result have seen a reduction in service calls per system. This has allowed us to turn TomoTherapy Service from an activity that generated gross margin losses close to 50% in the year preceding our acquisition, to a service business that is starting to generate a positive gross profit.

The reliability of our CyberKnife systems continues to be excellent, while we expect the underlying positive trend in our service gross margin to continue, we expect it to experience quarterly fluctuations. Given the decline in product revenue and orders, it was clear to me that we need to reset the Company's cost structure in a way that would still allow us to capitalize on the significantly increased capabilities of our new products. That is why we announced on January 3rd, that we would reduce our operating expense by $40 million a year, with the new lower run rate taking effect as of the exit of the fourth quarter of fiscal 2013. The goal is to return the Company to sustained revenue growth and profitability.

I will expand on this after Derek provides you with a more detailed review of our financials. Derek.

Thank you, Josh. In reviewing the quarter I will discuss our non-GAAP results. We believe they are the best indicator of progress in our ongoing operations and trends that may influence future results. Our press release provides details of the adjustments between GAAP and non-GAAP results. I will specifically make mention if I refer to GAAP results.

Our results for our second quarter ended December 31, 2012 were down from the same quarter of the prior year, though slightly better than the preliminary results we announced on the 3rd of January. The principal cause for the decline in revenue an increase from loss of operations was a drop in product revenue from $64.5 million in the prior year second quarter, to $33.2 million in this year's second quarter. We believe that product revenue was down primarily due to the lack of availability of the new CyberKnife model that we announced at the ASTRO meeting in late October 2012, combined with delays in expected shipments from backlog.

The gross profit margin on product revenue of 50% in the second quarter of fiscal 2013 is approximately unchanged from 50.1% in the first quarter, but down from 55.9% in the second quarter of the prior fiscal year. This year-over-year decline was due mainly to the level lower of production, resulted in higher overhead per unit.

By contrast revenue and gross profits from our Service business continued to improve. Compared to the second quarter of the prior year Service revenue increased 16% to $44.6 million from $38.4 million, and the Service gross profit margin more than doubled to 26.9% from 12.3%.

Most of our new systems are sold to new customers or to replace competitor's systems. Each of these new customer sites generates a new stream of service revenue, which increase our total Service revenue. On average annual service revenue from each new system equals approximately 10% of the product revenues from the sale of the system, or approximately 2.5% for the quarter.

In addition, many TomoTherapy customers have switched to new service plans that provide higher uptime commitments, and are priced at higher levels. This also added to the increase in total service revenue. The improvement in service gross profit margin was due to improvements in the reliability of the TomoTherapy Systems already installed in the field, plus the sale and installation of new systems which contain newly-designed components which improve system reliability. Both of which reduce the need for service calls and use of replacement parts,combined with TomoTherapy customers switching to their new service plans.

Operating expenses were $4.3 million higher than in the prior year's second quarter, due principally to approximately $4 million of restructuring expenses incurred in the second quarter of this year for severance charges related to the departure of senior executives, and the costs of vacating an office facility at our TomoTherapy campus in Madison, Wisconsin. Marketing expenses increased over the prior year's second quarter to support the introduction of two new models at the ASTRO meeting in late October 2012. This increase was approximately offset by a reduction in R&D, Sales, and G&A expenses.

The net loss to Accuray was $22 million in the second quarter of this year, compared to a loss of $7.1 million in the prior year. Cash including restricted cash declined $27.1 million during the quarter, due principally to a net loss and a $7.1 million increase in inventory, due to the unexpected shortfall in product shipments.

We introduced new models of both our CyberKnife and TomoTherapy products at the end of October 2012 at the ASTRO meeting. We are optimistic about the sales prospects for these new products based on the reaction of customers and significant advances in capabilities contained in the new models. However, there is a significant gap between the time of introduction of these new models, and when they will be ready for shipment and installation at customer sites. We believe this gap in time to availability of the new models. plus the resultant delay in availability for the first reference sites for potential customers contributed to the low level of $17.9 million of net orders during the second quarter of fiscal 2013, which represented a marked slowdown compared to prior periods.

In addition, we have experienced changes and transitions in our sales teams in the US, Europe, and Asia-Pacific ex-Japan regions over the past year. We believe that the ramp to full effectiveness of these sales teams will take some time. We expect the new TomoTherapy E Series to begin shipment in the current quarter, and the first units to be installed in the next quarter. The first CyberKnife M6 system was installed in January. We expect to ship and install the first MLC in the summer of 2013. Combined with the progress in the orientation and effectiveness of the sales teams, we believe this will support gradual improvement in the level of new orders in future quarters.

As of the end of December 2012, our backlog of new orders and product sales totalled $279 million, of which $170.2 million related to CyberKnife orders, and $108.8 million related to TomoTherapy orders.

Looking forward to the third and fourth quarters of fiscal 2013 we anticipate that gross profit margins will be in the range of 47% to 50%. In terms of revenue and gross profit margin, our Service business had been on a generally upward trajectory since the start of fiscal 2012. We expect this trend to generally continue due to ongoing improvements in the reliability of TomoTherapy Systems in the field, due to shipments of new TomoTherapy H Series systems, that incorporate all of our new reliability improvements. And adoption of the new TomoTherapy service plans, that provide higher uptime commitments and are priced at higher levels.

While we have seen a general pattern of improvement in service revenue and gross profit margins, there has also been variability about this trend. We should anticipate that variability in the trend will persist in the future. With some quarters yielding better than expected results, while others produce lower than expected results while we roll out reliability improvements to the installed base. In addition, the improvements in the gross profit margins for service will likely grow more slowly in the future, since we have already accomplished the gains most readily available in the TomoTherapy product line.

Our January 3rd we announced a plan to restructure the Company. One of the steps involved a reduction in operating expenses to right-size the cost structure to align with our expected revenue generating ability. The purpose is to enable the Company to be able to generate sustainable profits and revenue growth in the future. We indicated a targeted reduction of approximately $40 million in non-GAAP operating expenses. From the $191 million in non-GAAP operating expenses that we originally reported for our fiscal 2012. We indicated that the cost reductions would impact R&D and G&A about equally, with sales and marketing remaining at approximately the same level of spending as in fiscal 2012.

The first step in this transition has been the sale of our interest in CPAC, the research stage company in which TomoTherapy had invested. As a result of this sale, we no longer consolidate CPAC in our results. Instead, the results for CPAC will now be reflected on a separate line as a discontinued operation in our statement of operations,for the current and all prior periods presented.

In addition, we have revised other programs included in R&D to focus our resources on those product development programs that will be most impactful to our future commercial success. We remain committed to continuing to develop and bring innovative new products to market that will provide added value to customers, and improve patient's treatments. Cash flow in the future should be driven principally by our results of operations. Two other factors will impact our cash flow, we expect capital expenditures to decline to approximately $5 million in the second half of fiscal 2013, from approximately $9 million in the first half of fiscal 2013. Noncash expenses principally for stock-based compensation and depreciation could continue and enable the Company to reach positive cash flow before reaching operating profitability.

We currently anticipate that revenue will be in the range of $320 million to $330 million for our full fiscal year ending June 30, 2013, and will be in the range of $70 million to $75 million for the third quarter ending March 31, 2013. Today we announced our intent to engage in a financing complying with the legal requirements of Rule 144-A, and will not comment further.

Now I would like to turn the call back to Josh.

Thanks, Derek. Before taking your questions, I want to spend a few minutes and discuss the transformation that has taken place at Accuray. My strategic and operational review of the business since joining the Company in mid-October has given me many reasons to be confident about our future. However, to generate sustainable profitability and revenue growth, we need to change our strategy and culture from a focus on technology, to a focus on strengthening our commercial capabilities, and better meeting customer needs.

In cutting our operating expenses by an average of $10 million a quarter, we are realigning our resources to focus on customers and on driving commercial execution, while maintaining our core ability to innovate. We will be investing in the downstream marketing resources that directly support the success of our field sales teams, and on optimizing the business processes that support our commercial sales activities. The greatly expanded capabilities of our new products, allow us to compete for many more customer opportunities than the previous generation equipment. We need to drive the marketing activities that allow for the most aggressive competitive positioning of our new products and the importance of their feature sets and capable. This expanded feature set and functionality we believe will translate into enhanced economic value to our customers. To improve cross-functional alignment, all market facing functions and activities that either directly or indirectly support customers, now report directly to Kelly Londy, our Chief Commercial Officer.

As you know, we are currently transitioning the new products introduced at ASTRO, from the development stage into full commercial manufacturing. The first patients have been treated with the CyberKnife M6 in Munich, Germany, and we expect to start shipping the Multileaf Collimator, or MLC, starting this summer. The new CyberKnife M6 is ideally positioned for the trend toward hypofractionation, and is the product of choice for radiosurgeries throughout the whole body. With the MLC option, it offers greater patient through-put and overall treatment speed, and can treat a significantly expanded patient universe, which improves the economics for our customers.

We expect the first TomoTherapy H product to be shipped in the current quarter, and installed in the following quarter of fiscal 2013. We expect this to be a significant milestone in the history of our Company. Prior to ASTRO the TomoTherapy system was seen as a niche product, because it tended to be used mainly for complex IMRT cases, such as head and neck cancers.

The TomoTherapy H fundamentally changes the product's functionality, allowing clinicians to treat the entire spectrum of radiation therapy patients, from 3-D conformal to SBRT, from breast cancer to prostate cancer, without compromise. It is a true single-vault solution for institutional radiation oncology departments and free standing centers, able to deliver treatments in conventional time slots.

Before we turn to Q&A let me describe the financial elements that will help you track our return to profitability. First, operating expenses. By the end of the fourth quarter of this fiscal year, we expect to establish a quarterly operating expense run rate of approximately $38 million, with some expected quarterly fluctuation. Second, service gross profit. Given the steady growth in service revenue and profitability, we expect to be able to achieve approximately $11 million to $13 million of gross profit per quarter. Third, product revenue,which is clearly the key to our future success. The breakeven before taxes we would need an approximately $25 million to $29 million contribution in gross profit from product-related revenue.

We have already executed well on two of the three financial elements we have just reviewed. We have successfully implemented the actions driving the upward trend in service revenue and service gross margin since the acquisition of TomoTherapy. As we announced on January 3rd, we have taken action with the goal of reducing our operating expenses to a run rate of approximately $38 million exiting the fourth quarter. Short-term, our backlog will drive product revenue. Longer-term, product revenue will be determined by the level of new orders for systems.

We are optimistic about new order prospects based on the reaction of customers to the significant advances and capabilities contained into the new models that we announced at ASTRO in October, and based on our resource shift and improved focus on activities supporting our commercial strategy. By driving an improved order momentum we should see growth in product revenue and gross profit, and we are now ready to turn the call over for questions.

(Operator Instructions). Your first question today is from the line of Anthony Petrone with Jefferies Group.

Thanks. Josh, I will begin with M6 if I am hearing you correctly, the launch date is a little bit pushed up, is that right? I believe that you were talking about the beginning of fiscal 2014, which does somewhat coincide with the summer, but I am wondering if that is at all pushed up from what you had announced on the call in January?

Anthony, it is really not. The timeframe is still in that window of Q1 fiscal 2014. We did obviously install the first M6 in Munich. It has been installed with fixed and iris collimators, and they are actively treating patients. I think they actually put a press release out, as did we, on first patient treatments commencing, so we are excited that system is in place. Obviously, we want the MLC component installed, because we think that is obviously it will generate real-time data and experience, and help validate the, essentially the different set of economics that we expect to be able to drive with the system, in terms of increased, improved patient treatment time, as well as through-put.

So to be clear the system in Munich does not have the multileaf collimator, and to date there hasn't been any feedback on treatment times there?

No. No, it does not.

Okay. Then moving over to the January call, you also announced sales issues on the TomoTherapy side, but we do have the new system being rolled out here. I am wondering if you can share with us, the outlook for new sales hires for that business specifically, and what we should expect going forward there?

When you say, I am sorry. Can you repeat the last part of that questionyou said?

Sure. New sales hires for the TomoTherapy business. That was an issue you had spoken about in January, being a little bit light there. I am wondering if there is any update?

Alright. So what we announced in January is in essence where we are at right now. We did not change the headcount, or the manpower investment that we had in field selling resources. What we said Anthony, and it has taken place is we were creating a dedicated selling responsibility for each individual product platform. So essentially CyberKnife has a dedicated group, and the TomoTherapy has a dedicated group, and we aligned those selling resources in a way that we think represents the market opportunity and the near-term opportunity that exists for those two pieces of the product platform, and we will begin the first commercial shipments of TomoTherapy H this quarter.

Okay. And last one for me. I will get back in. Josh, just some comments on use of cash here. There was with the convert announcement after the close, it sounds like TomoTherapy service margins are improving perhaps even in profitability at this point, and you have spoken about the $40 million in operating expenses coming out, so by our math you are certainly going to be cash flow positive some time in fiscal 2014, so just getting a sense for why the need now for excess cash, and sort of uses of cash going forward? That would be helpful. Thanks. Yes.

So I mean in a general sense, I think we shared on the January 3rd announcement, Anthony, obviously we are cognizant of the balance sheet situation, and the cash position, and we are monitoring it on a regular basis. And while I think today we have sufficient cash to sustain operations as we see them. We are seeing an opportunity at this critical juncture, given the launch of these two new products, we think it is prudent to strengthen the balance sheet in order to capitalize on the opportunity attached to the new products. The sales cycles for this product line are very long. There is obviously a service component, an ongoing service component, that customers have a need to know that the companies they are buying company from are strong, well capitalized, they are going to be around going forward, and we think that it is prudent, and the right thing to do for our business, to take advantage of strengthening that position. Okay. Thanks.

Your next question comes from the like of Charles Croson with Sidoti & Company.

Hi, guys. Thanks for taking my questions. I just have a quick couple here. On the preliminary call you mentioned, Josh, you mentioned a need to focus a little bit more on the free standing centers. Can you add a little bit more color on what your plan is to approach that, and what has changed, if anything, since that prelim announcement?

Yes. So that is an opportunity for us. We have not had a really well-defined mechanism or infrastructure capability, to get to strategic account or national account kind of customers, and as part of the restructuring, and essentially the refocusing or reallocation of resources to the sales and marketing effort, we have put infrastructure in place to drive national contracts, strategic account management and selling capabilities, and one of the targets for that group is going to be the freestanding centers.

Okay. Okay. That is helpful. And, Derek, I might have missed this a little bit when you were giving your presentation there. How many legacy Tomo systems are pretty much left that need to be replaced, or the components replaced I guess as percent of the total, and what is the timing on that?

It is not a black and white line, we have approximately 370 Tomo systems installed around the world, and over the last roughly year we have shipped 50 units with increasing levels of new componentry. As far as the other sort of slightly over 300 that are in the field, we have been making targeted improvements to them. There is not though, a pattern of going in and taking a system, if you will, and completely renovating it, if you will, and replacing all of the components. So there is not that kind of a situation as you look at it. We still have a significant opportunity for parts that we have designed for the new H Series product, that over time to the extent customers were to upgrade their older systems, that they would see improvements in both reliability as well as through-put and speed.

I see. Okay. That is helpful. So just to be clear on that, it sounds like there is not really a systematic way that you go in and try and retrofit any of these, but it might be somewhat at the customer request, and then moreso probably just trying to replace these, is that, do I have that right?

We are replacing parts as they fail, so if you have a part that we have a newly-designed component for, we would be using the newly-designed component, but we are not actively necessarily going out and replacing parts that are still working well in the field.

Okay. Alright. That is helpful. One last question for you, Josh. Just kind of tailing off on that the capital raise here that you are proposing. Is this a response from customers that are getting potentially worried at the restructurings and such, and would like to see, to have more cash on the balance sheet, or is this kind of you doing it in anticipation to squash any of those fears that might emerge?

I am not going to comment on that. I mean again, I think that we have been pretty clear, we monitor the cash position and the balance sheet situation, as Derek has alluded to, we expect to use less cash in Q3 than we did in Q2. In Q4 we will probably expect to see the benefit of some of the OpEx, a significant benefit for the OpEx reductions, and the beginning of a ramp in revenue further decreasing the cash burn. So I think we are continuing to monitor the situation, but the opportunity to take advantage of--

Unfortunately, we really can't talk about the convert. We announced it under the Reg 144-A rules, we really can't talk about it any further.

Okay. Alright. No. That is helpful. Thanks, guys.

(Operator Instructions). Your next question is from the line of Jason Wittes with Brean Capital.

Hi. Can you hear me?

Yes.

Okay. Great Thanks. So I just wanted to follow-up on just the sales force makeup. You mentioned that it is going to take some time to sort of gestate, but if you could just review for us where you stand in the US? I think you have mentioned you have 25 sales people. I think you have also mentioned that they have on average been on the job about six months. How long do you generally expect it to A, how long do you generally expect it be before they are really fully up and running, and B, with this cash infusion do you expect to increase those numbers?

Yes I am not going to speak about the cash discussion and what we are going to be doing with it. I think in general terms, if you said 25 to 30 people in the US, in general you would be in the right range in terms of the headcount and the manpower allocation. We basically have said that we, I think you said or asked about average tenure in the role?

Yes.

In the role. I am not sure about the six month piece. The last restructuring that was done in the field, the US field organization took place last spring, and so if you looked at today, where people are, we probably had some people being hired on during the summer, but at this point they are probably nine months on average in the role, and in general I would say that we have been pleased with what we see in terms of their ramp, their learning curve. Again we are talking about a very long cycle sales process, but I think we are well-positioned in terms of the allocation of people to the selling effort, given where we are at right now, and we would evaluate any need to increase that group, or adjust the size of the footprint based on future conditions.

How long, and in terms of gestation for that sales force, what is your assumption in terms of how long it really takes them to be up and fully functional?I know there is always a delay with a sales person when you bring them on.

Again because of the nature, I think that what you would see is some gradual improvement, in terms of momentum from an opportunity and an order standpoint, but it is probably somewhere in that 9 to 12-month range is probably a reasonable window.

Okay. And I just want to ask also about I think Tomo, the new Tomos will be out at the end of this quarter. I guess that is important for generating sales. What kind of timeframe do you think about once you put these up, in terms of when they actually start to generate I guess actual orders? And the same goes for the CyberKnife?

So just to be clear on the Tomo H series, the first commercial shipments will take place by the end of this quarter, the current quarter, and as we indicated on January 3rd, those shipments will go into reference sites. They won't install though, the ones that ship this quarter probably won't install until I would guess maybe April sometime. So in our fourth quarter, you would actually have installation, and from there I would think you would probably need 90 days, a quarter's worth of real-time patient experience and patient treatment experience, to see the real experience with treatment times, treatment planning times, and all of the enhanced functionality that the equipment should drive.

Okay. And I assume it is the same for CyberKnife, although potentially a little longer given it is an even longer sales cycle than Tomo, but with that in mind, I think in terms of when you actually see sort of a nice increase in order rates, that is not something we should expect until probably the end of the summer given this timeline, at least for Tomo given the timeline you presented here?

I think that is probably right. Again I think you will see a gradual improvement, we basically are still thinking about this the way we were when we described this in our January 3rd announcement. It is going to take several quarters to start to see some of thetraction, and some of the improved momentum in this area, but I think that timeline is reasonably accurate.

Okay. Last question, and I will jump back in the queue. And that is within your pipeline itself, I assume in terms of people deciding whether or not they want to upgrade to those systems, are they also going to want to see the reference sites, or have you seen some positive movement there?

I think it is maybe a little bit different discussion by product line. I think that the Tomo H series is probably more of a natural replacement market opportunity, and a little bit more straightforward. I think because the M6, a fully MLC equipped M6, really has the expectations about improvement in treatment time, and improvement in patient through-put have been modeled in a formula, but there hasn't been actual treatment of patients in that one. I think that one is a little bit longer developing timeline, and the primary reason for that, is that customers are going to want to see real-time data and feedback from reference accounts.

Okay. Great. Thank you.

Your next question is from the line of Steve Beuchaw with Morgan Stanley.

Good afternoon. Thanks for taking the questions.

Hey Steve.

I wanted to first to just give you a chance to more directly give us an update on what you are seeing as you move through the quarter, in terms of customer response to the systems? You again, in your prepared remarks tonight, you referenced the positive response from ASTRO, but frankly ASTRO was pretty late in the year. We had Sandy and then before you know it we are in the holidays, so now that we are here in January, and potential customers, I am sorry February, potential customers have their budgets up and running for the new year, is there anything you would say different than you might have said five, six weeks ago about what you are seeing in the field, in terms of response to the new systems, and does that translate to any change to your perspective that we discussed on the last call, that over the course of the year, let's say by the end of the calendar year, you can get that order level back up to something materially north of $50 million, maybe closer to $100 million?

I mean one of the things to be clear, we were very clear about it I think in the January 3rd announcement, Steve, and I will reiterate it again. I mean in a perfect world we would not have had the kind of time lag that we have had between standing up at ASTRO in October of last year and announcing the introduction of these two new platforms, and the time lag that we have incurred with regards to first commercial shipments. When you think about commercial launch excellence, I am used to a scenario where if you are going to introduce products with this kind of really fundamental shift and capabilities and functionality, you really want to be able to start placing equipment in reference sites relatively quickly. And I think we were very honest and transparent about some of this in our January 3rd announcement.

We were dealing with quite frankly very large, largely aggressive development and commercial release timelines, that put a lot of strain on the Company, and just to be candid we fell short. Our best case scenario is in terms of availability of product fell short. I am not happy about it. None of our commercial organization is happy about it, but it has absolutely been more of an impediment in terms of again, until you have equipment in reference sites, it really especially on the CyberKnife side with the MLC, it becomes a little bit more challenging selling process, to move customers in terms of thought process.

In a general sense though, the question focusing on any change or shift in customer reaction, the answer is no. I mean customers are again, on a practical level they are seeing in terms of feature set, functionality, capability-wise they are seeing these products as they should, as fundamentally different for us in terms of their capabilities from the previous generation devices, especially on the TomoTherapy side. I mean it really has a capability from a positioning perspective, to be a true mainstream workhorse product.

Okay. So no change to your perspective in terms of the order ramp then?

No.

And then just one other comment on the broader environment. I think we were all, certainly we were a little surprised by the calendar fourth quarter order number, but since that time, since the January 3rd announcement, we have seen one of your larger competitors print a result for the fourth quarter order number that was a little tougher than we might have expected as well, so I wonder given that could you give us your perspective on broader demand trends in radiation oncology, and to the extent you can give us a sense for the extent to which that might have been an issue, in terms of the fiscal second quarter order result? Thanks.

Yes. I mean on a macro level I mean we are not seeing anything that would suggest a significant shift in demand characteristics in the marketplace. We are not seeing anything that really represents very significant pressure in terms of price. Our ASPs essentially have been stable, so I don't see on a macro level or an environmental level, I don't see any of those things that you would call, watch outs in terms of what we see down the road.

We have a unique opportunity in terms of being able to position our business and our Company in a very different way than we were historically, based on these new product platforms, and our focus right now really is having all hands on deck, and all of our resources aligned around ensuring that we can execute as well as possible on commercial launch of these devices, and again those steps, the steps required for that launch excellence start with first commercial shipments, getting equipment placed in reference sites, and starting that data accumulation process, but my view of and expectations haven't changed, in terms of order ramp or order momentum, and how that comes online, based on anything from a macro level or environmental level standpoint.

Perfect. Thanks so much, Josh.

Ladies and gentlemen, this concludes the question and answer portion of today's event. I would like to turn the call back over to management for any closing remarks they would like to make.

Thank you, operator. While we recognize we have got work ahead, we are encouraged about the progress we have made in fundamentally transforming the business. You have seen for yourselves the upward trend in service revenue and service gross margins since the acquisition of TomoTherapy. And as we announced on January 3rd we have taken action to reduce our operating expenses. Finally, with the enhanced capabilities of our new products, combined with aggressive focus on commercial execution, we expect renewed growth in new orders for systems. These are the factors that make us confident about our path to profitability. Thanks for joining us on this afternoon's call, we look toward to speaking to you on the Q3 call.

Ladies and gentlemen, thank you so much for your participation today. This does conclude the presentation, and you may now disconnect. Have a great day.