Accuray Inc (ARAY) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Accuray Fourth Quarter and Full Year 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Doug Sherk. Sir, you may begin.

Thank you, operator. Good afternoon, everyone. Welcome to Accuray's Conference Call to review financial results for the fourth quarter of the fiscal year 2017, which ended June 30, 2017, as well as recent corporate developments.

Joining us today are Josh Levine, Accuray's President and Chief Executive Officer; as well as Kevin Waters, Accuray's Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to remind you that our call today includes forward-looking statements that involve risks and uncertainties, including statements regarding our future business plans and strategies. There are a number of factors that could cause actual results to differ materially from our expectations, including, but not limited to, risks associated with the adoption of the CyberKnife, TomoTherapy, Radixact and Onrad Systems' commercial execution; future order growth; future revenue growth; and macroeconomic factors outside of the company's control.

These and other risks are more fully described in the press release we issued after the market closed this afternoon as well as in our filings with the Securities and Exchange Commission. The forward-looking statements on this call are based on information available to us as of today's date, and we assume no obligation to update any forward-looking statements.

(Operator Instructions) And now, I'd like to turn the call over to Accuray's President and Chief Executive Officer, Josh Levine.

Thank you, Doug. Good afternoon, everyone, and thank you for joining us on today's call. I'll begin with a brief overview of our fourth quarter and full year financial results, which were consistent with the preliminary results we issued last month. Then I'd like to highlight some of the specifics regarding the improvements we're making to strengthen our market positioning in terms of both product capabilities and commercial processes.

Gross orders were $85.7 million for the fourth quarter and $298.3 million for the full fiscal year. On an annual basis, our gross orders grew 5% year-over-year and our backlog grew 12% to a record $453 million at June 30, 2017.

Our fiscal fourth quarter order results were primarily driven by momentum of our new Radixact System that was launched commercially in the fiscal third quarter. Radixact represented 2/3 of our TomoTherapy order mix in the fourth quarter, up significantly on a sequential basis from 25% during the third quarter. We also had strong orders for our CyberKnife System, particularly in Europe. These results speak to the improving functionality and the growing body of data regarding the clinical effectiveness of our latest generation products.

While revenue for the quarter was $112 million and represented year-over-year growth of 18%, our full year revenue of $383 million represented a disappointing year-over-year decline of 4%. As we highlighted in our third quarter earnings release, we are taking significant steps to improve the revenue conversion process related to the growing backlog of distributor-associated orders. While we're still relatively early in the implementation of these new processes, I think it's important to share some of the steps we're taking to drive improvement in this area. The organizational changes we announced on our last earnings call to drive order and revenue growth began with the appointment of a new Chief Commercial Officer and also reflected the creation of a new executive level role and additional resources focused on revenue management. We announced in May that we filled the Vice President of Revenue Management position that reports directly to Kevin Waters. This position is responsible for both the direct and distributor revenue conversion process and realigns our customer operations and revenue management teams in a single reporting channel.

Additionally, we're adding incremental resources to manage project site management in both our EIMEA and APAC regions to improve support for our distributors' installation planning and coordination activities with end-user facilities. Our VP of Revenue Management will directly manage and support the activities involving site project managers and distributor installation planning to accelerate the timing of our revenue recognition process. Another area where we're strategically increasing our investments and commercial focus is our U.S. business. As we've highlighted in great detail, the U.S. represents almost half of our replacement sales opportunity over the next 3 years.

Additionally, in the U.S., we are focused on positioning the Radixact platform as a true mainstream device, capable of broad clinical utility in community and regional hospitals, which represent the majority of single and dual bunkers in the domestic market. To fully exploit these 2 areas of opportunity, we've taken several actions. First, we completed a U.S. commercial model optimization project. This analysis involves both extensive customer segmentation and targeting work as well as sales resource deployment analysis, focused on optimizing our sales infrastructure and improving the performance of our U.S. commercial organization. To ensure successful implementation and execution of this plan, we have recruited a VP General Manager for our Americas region, who is an experienced operating executive with significant domain expertise in oncology and radiotherapy.

Now turning to updates on our improved product offering, product development road map and things to expect in FY '18. Starting with the current product offering, we are receiving positive customer input about the improved portfolio and capabilities of our latest generation CyberKnife and Radixact products. As I mentioned earlier, our Radixact System is continuing to generate significant customer interest and was a major contributor to fourth quarter orders. While some of this is attributable to our commercial team's work related to new product launch excellence, broader customer feedback suggests that meaningful improvements in the functionality, efficiency and reliability of our latest generation TomoTherapy device is having a positive effect on customer interest. Even in the face of substantial competitive noise from products like Varian's Halcyon device, Radixact's advantages are becoming clear to customers. Based on customer feedback, here are the 5 most important features and capabilities of Radixact that customers are excited about: First, Radixact's dimensional footprint is a full 15% to 20% smaller than competing systems, such as Varian's Halcyon product. Radixact can easily be installed in a minimum room size under 300 square feet. Second, the typical installation time line for Radixact is a short 10 to 14-day process. Third, Radixact uses Accuray's helical IMRT delivery, which we believe is superior to alternate technologies that typically take several sequential arcs to achieve acceptable dose quality and add significant time to the treatment process. The superiority of our helical dose delivery capability was reinforced in a study recently published in the peer-reviewed International journal of Radiation Oncology, Biology and Physics in late June. This prospective study at 14 French cancer centers highlighted the outstanding clinical outcomes in head and neck cancer patients using our TomoTherapy System. Outcomes were superior to RapidArc therapy at 18 months in terms of local control rate, cancer-specific survival rate and acute salivary function. The lead author of this study, Dr. (inaudible) has agreed to speak at the study -- about the study at our ASTRO 2017 Symposium next month.

Fourth, Radixact accommodates a simple and logical 5-step clinical workflow regardless of the type of delivery mode or complexity of clinical case. Radixact is a very intuitive, easy-to-use and easy device to be trained on that enables even first-time novice users to quickly and proficiently use our system. The streamlined workflow of Radixact translates into increased efficiency and throughput. By example, one of our earliest installation sites, a cancer center in South Florida, which we referenced on last quarter's call, is now routinely treating 30-plus patients within a standard daily treatment schedule. Last but not least, Radixact's technology upgrade pathway represents meaningful functionality and capabilities that will continue to create further downstream clinical value for users and should continue to drive future order momentum. In aggregate, the areas I've highlighted are helping to improve our competitive positioning and ensuring that we are successful at winning competitive evaluations and retaining our installed base accounts.

Turning to Onrad, Accuray's product for the value segment for the market, order uptake for this product has been somewhat moderated by lack of regulatory movement in China. We are continuing our focus on advancing the provincial level tender processes and building our sales funnel for this important segment of the market. Although this quarter was difficult from an orders perspective in China due to continued Class A license delay, we were able to take several units to revenue in China, mainly in military hospitals and private sector facilities. Our assessment of a longer-term market opportunity in China is not diminished. We're also evaluating several other potential options that would allow Accuray to participate in the broader market opportunity in China. Some of these options include joint venture and other partnership structures with a domestic Chinese collaboration partner.

Moving to CyberKnife. We saw continued market interest and order momentum during the quarter, particularly in Europe. CyberKnife orders represented almost 40% of our gross order dollars in the quarter. We've seen strong CyberKnife order activity for the past several quarters and believe the increased interest and awareness is the result of 2 perspective multicenter clinical studies, which have been published in the past 12 months, focused on the use of CyberKnife SBRT treatment for low and intermediate-risk prostate patients. When taken together, the clinical findings of these studies represent device-specific data with long-term patient follow-up that validate the unique capabilities and clinical value of Accuray's CyberKnife System. At ASTRO 2016, data from a 21-center prospective study showed 97% of low and intermediate-risk prostate cancer patients had excellent local control 5 years after receiving SBRT administered with the CyberKnife System.

In February of this year, at the ASCO Genitourinary Cancers Symposium, data was presented from a prospective 17-center study that showed that treatment with the CyberKnife System for low and intermediate-risk prostate cancer provides excellent long-term results. At 5 years, the disease-free survival rate was 100% for low-risk prostate cancer patients and almost 89% of the intermediate-risk patient cohort.

In addition to our improved product portfolio and compelling clinical data, we've also made significant strides in our software capabilities and believe the rollout of system software upgrades planned for fiscal 2018 will further streamline customer workflow and improve functionality and connectivity between our existing platforms. With the launch of Radixact, we also announced our new Precision Treatment Planning System, a powerful, efficient and comprehensive solution designed to create high-quality treatment plans, leveraging the unique capabilities of Radixact and CyberKnife Systems. The precision system provides advanced features, including auto-segmentation, a proprietary deformable image registration algorithm, PreciseART Adaptive Radiation Therapy option, and PreciseRTX Retreatment Option. We plan to build on this technology with our Precision 2.0 upgrade coming in later in fiscal '18, which will provide significant improvements in treatment speed and overall throughput of our CyberKnife System.

In addition, earlier this month, we announced 510(k) clearance for our new iDMS Data Management System for TomoTherapy. The iDMS system is a centralized database that shares and makes data accessible between multiple Accuray systems, adding flexibility and improving workflow efficiency in the radiation therapy department. It provides an integrated platform for storing and managing all patient and treatment plan data, allowing clinicians to securely and easily access the data they need to drive efficient, effective radiation treatments.

And with that, I'd like to turn the call over to Kevin.

Thank you, Josh, and good afternoon, everyone. For the fourth quarter, gross orders were $85.7 million and $298 million for the full year, representing 5% growth year-over-year. This is consistent with the guidance provided at the beginning of the year. For the full year, our Europe, APAC and Japan regions all experienced between 10% to 15% order growth in 2017, which was offset by subpar order performance in the Americas region.

Regarding the Americas region, today we highlighted the additional focus we're applying to capitalize on our replacement opportunities, which included a recently completed realignment of commercial resources in the U.S. While our gross order volume in the U.S. was less than anticipated, I do want to point out that we did not have a significant number of competitor takeaways. In fact, that number was 2 systems in the U.S. for the full year.

Additionally, the majority of our orders in the U.S. for fiscal 2017 represented sales to our own installed base, which is encouraging for future growth, given Radixact's full commercial launch did not occur until the back half of fiscal 2017.

As previously noted, Europe, APAC and Japan all experienced double-digit order growth. European orders were led by CyberKnife System sales, which were broad-based in nature across both direct and distributor markets. APAC and Japan had both strong Radixact and TomoTherapy orders. Radixact orders in Japan have been extremely positive since receiving Shonin approval in January. Our APAC strength was driven by several Radixact orders in Korea and Hong Kong in the second half of 2017.

Regarding full year order mix. Global replacement orders represented approximately 20% of total full year orders, which is an improvement from the prior year where replacement orders represented 15% of our total orders. Orders for our TomoTherapy systems at site for single or dual vaults represented well over 50% of the order mix for the full year, demonstrating the workforce capability and improved reliability of our systems. Lastly, approximately 30% of our full year orders were competitive system replacements, demonstrating our ability to gain order market share.

Turning back to the fourth quarter. Our net orders were $63.5 million, after net age-outs of $18.6 million, which included age-ins of $2.8 million and cancellations of $4 million. Net age-outs in the quarter were in line with the $15 million to $20 million range we provided on our last call. We ended June 2017 with backlog of $452.8 million, representing growth of 12% over the prior year. We are pleased with our backlog growth and look to our renewed backlog to revenue conversion focus to drive future revenue growth.

Turning now to our income statement. Total revenue for the fourth quarter was $112.1 million, representing an increase of 18% over the prior year and the highest single quarter of revenue in Accuray's history. This was driven by double-digit year-over-year growth from 3 of our regions: Americas, Asia Pacific and Japan.

In addition, as noted in our pre-announcement, we had improving performance sequentially in our European region.

Product revenue for the quarter was $60.6 million, an increase of 38% over the prior year period. Product revenue was fairly evenly mixed between our CyberKnife and TomoTherapy systems with a very meaningful contribution from Radixact. Service revenue for the quarter was $51.5 million, compared to $51.2 million in the year-ago period, which was below our installed base growth due to less service upgrades sold compared to the year-ago period.

Turning now to gross margins. Our overall gross margin for the fourth quarter was 38.5% compared with the prior year period gross margin of 39.3%. The decrease was primarily driven by reduced product gross margins, offset by improved service margins. Product gross margins decreased due to product and channel mix as well as an approximate $1 million noncash inventory obsolescence charge in the fiscal fourth quarter. Product margins would be closer to 40% include -- excluding this onetime charge. Service gross margins in the fiscal fourth quarter were 39%, a significant improvement from the 33% in the year-ago period. During the fourth quarter, we continued to see improvement with parts reliability. And we also continue our focus on service cost management.

Moving down to income statement. Operating expenses for the quarter were $40.4 million, essentially flat with $40.3 million in the year-ago period. A $1 million increase in selling, marketing and G&A expenses were mostly offset by a $900,000 decrease in research and development expenses, due primarily to lower Radixact development expenses.

Adjusted EBITDA for the fiscal fourth quarter more than doubled to $10.3 million compared to $5 million in the year-ago period. For fiscal 2017 on a full year basis, we achieved total revenue of $383.4 million. Total gross margin for the year was 36.9%. Fiscal 2017 operating expenses declined approximately 8% to $151.2 million, which demonstrates our ability to manage operating expenses consistent with growth.

Adjusted EBITDA for fiscal 2017 was $20.4 million. This was the low guidance for the year as the result of approximately $2.2 million in both noncash inventory obsolescence expenses and severance-related expenses recorded during the quarter.

Turning now to our balance sheet. We had approximately $109 million of cash, cash equivalents, short-term restricted cash and investments at June 30, 2017. This improved sequentially from March 31 by $23.6 million, reflecting working capital improvements in both accounts receivable and inventory. At the same time, we also reduced our debt by $9 million and paid down our accounts payable by more than $6 million from March 31.

Regarding our capital structure. In fiscal 2017, we decreased total debt by $53 million compared to prior year, primarily as a result of using cash on hand to retire $36.6 million of the company's 3.5% convertible debt in August 2016.

In the fourth quarter of 2017, we also replaced our term loan with a smaller size asset-backed loan, where we reduced overall debt by $9 million. The new loan also reduces our interest rate by 300 basis points compared to the term loan.

Subsequent to the end of the fiscal fourth quarter in August 2017, we accomplished a significant milestone in refinancing much of our existing convertible debt. As we have previously communicated, we have been evaluating several refinancing strategies and sources to address our upcoming February 2018 convertible debt.

Our options included putting in place straight debt, issuing new convertible notes, issuing new equity, paying down the existing debt with available cash and various combinations of all of the above. We ultimately concluded the balance structure we put in place was the best option at this time for the company and our shareholders.

Our new 2022 convertible debt extends our debt maturity by over 4 years, reduces total potential dilution, minimizes cash interest expenses compared to straight debt and allows us to maintain a significant amount of cash on the balance sheet.

We now have $85 million of convertible notes due in 2022 and $40 million of the existing convertible notes due February 2018. The $85 million of debt due in 2022 has a 5.72 conversion price and the principal can be paid in cash or equity at our choosing. If the new debt was to be converted into shares of our common stock, this would equate to approximately 15 million shares.

Immediately prior to this transaction, we had $115 million of debt due in February 2018 at a 5.33 conversion price subject to 21.6 million diluted shares. We are evaluating our options to retire the remaining $40 million due in February 2018 and will focus on a strategy that minimizes dilution, while also being cost-effective. The balance sheet transaction secure a longer-term capital structure that will allow us the resources and flexibility to execute on our growth opportunities.

Turning now to our annual guidance for fiscal 2018. We anticipate revenue to be in the range of $390 million to $400 million, which would represent growth of 2% to 4% over fiscal 2017. This would represent product revenue growth of 5% to 10% and relatively flat service revenues. While we're not providing quarterly guidance on our revenues, we do expect a similar calendarization in 2018 as compared to 2017, which would represent a linear progression of revenues throughout the year.

Adjusted EBITDA is expected to be in the range of $25 million to $30 million, which would represent year-over-year growth between 23% and 47%. To achieve our adjusted EBITDA range, we expect gross margins to be approximately 40% for the full year. However, these margins are highly sensitive to revenue levels and therefore will fluctuate quarter to quarter. Operating expenses will be flat on the low end of revenues and grow approximately 3% at the upper end of revenues. We will invest in areas that provide the largest return to our customers and shareholders, which, we believe, is to focus our spending on R&D and sales and marketing efforts. R&D will grow to approximately 14% of sales, and sales and marketing will make up a healthy 14% to 15% of sales.

Turning to gross orders. We anticipate growth of approximately 5% for fiscal 2018. Regarding quarterly gross order forecast, we are currently looking at the first quarter to be in the range of $40 million to $50 million with the first quarter expected to be the low mark of the fiscal year and the fourth quarter will be the high mark. While the bottom end of the Q1 2018 range would be a year-over-year decrease, we continue to encourage investors to look at the business on a trailing 4-quarter basis and the bottom end of this Q1 range would be 7% gross order growth.

In addition, age-outs for the first quarter of 2018 are expected to be approximately $6 million to $8 million. On a full year basis, we expect to see a year-over-year improvement in net age-outs as a percentage of average backlog.

And with that, I would now like to hand the call back to Josh.

Thanks, Kevin. Before we open up the call for questions, I'd like to thank the entire Accuray team for their increased focus and commitment to the important work we are doing to achieve our mission of improving the lives of cancer patients by providing leading-edge treatment solutions. And, operator, we're now ready to open the line for questions.

(Operator Instructions) And our first question will come from the line of Josh Jennings of Cowen.

I wanted to ask just a couple of questions on guidance. Gross order and backlog growth expect to be 5% and similar to the order growth you guided to for fiscal '17 and you hit that level, the similar comp as well last year. Can you help us with any detail on how the order funnel is shaping up here as you sit in the first quarter of fiscal '18 versus last year entering fiscal 2017?

Josh, thanks for your call. This is Kevin. The first thing I'd point out in regards to kind of order growth is our APAC region, we are forecasting in our 2018 guidance a year-over-year decrease in orders due to kind of our tempered view on Class A. So that'd be the first kind of point to make there. I'd also say that from a region standpoint, we are expecting our Americas region to represent the highest rate of growth in our 2018 order guidance. This is primarily due to the replacement opportunity that we've discussed and also due to the fact that 2018 will have full Radixact launch in the U.S., where we didn't complete those full ramp and monitor sites until the end of the first quarter.

Great. And then just on the revenue guidance side. Can you help us -- I know you had some comments about some of the processes you put in place to improve order revenue conversion. But can you just talk about some of the assumptions that are in play for that 5% to 10% system revenue guide, just in terms of level of improvement you expect in fiscal '18 versus fiscal '17?

Yes. So the first thing I'd point out, Josh, is that while the revenue growth overall is in the low single digits, it does represent product revenue growth of 5% to 10% and that's off backlog growth that's up 12% year-over-year. So we're already starting off the year with a backlog number that should support product revenue growth in that range. The bottom end of our overall revenue range, I would say, allows for the continued delay in China revenue installations as well as no real significant improvement in the conversion time line. So we believe, in this guidance, we've kind of allowed for no improvement in the revenue conversion matter that you brought up. I'd also say just to help on a regional basis, we are expecting at the higher end of the range that the largest growth in product revenue would come from the European region, which we've discussed had a fairly weak 2017 due to distributor conversion issues. So lower end, not much improvement in conversion. Higher end, we start to get some traction with the initiatives that Josh went through in his prepared remarks.

Hey, Josh, this is Josh Levine. Let me just add or amplify on some of Kevin's thoughts. To the point that he highlighted just a moment ago, I'd say we are being cautious on the APAC and the China contribution in the '18 guidance. And we're also recognizing that we -- with some of the work that we've been doing and some of the investments we're going to be making in the U.S. market this year, we're going to -- we need to give some time in the U.S. market for the new commercialization efforts of Radixact and some of the things we're looking at from a commercial performance improvement standpoint and investments from an infrastructure perspective to allow some of that to take hold. But I'm going to predict that we will be a much more effective selling organization in the U.S. market in fiscal '18 than we have in the last several years. I think the product lineup and the market acceptance of both Radixact and CyberKnife in their current form -- latest generational form -- is going to translate into more momentum in that regard. So we feel good about -- again, region to region, it looks a little bit different. But we feel good in general about the strength of the portfolio and where it can take us.

Great. And just, lastly, your gross margin guidance 40% and your historic path to profitability, some of our year goals of moving north of 40% and improved operating income and EBITDA margins as well, can you just, from a high level, just talk about where you guys are on that path to profitability?

Yes. So I'll take your margin question and then I'll address kind of the profitability comment. So the total margins in our guidance are overall at 40%. To help, that does represent product gross margins in the 43% to 44% range. That would be a significant improvement off the 37% we just completed. I remind you, Josh, that we do have $8 million or approximately 400 basis points in product margins related to intangible amortization that goes away essentially at the end of fiscal '17. So that benefits product margins by 400 basis points right there. So you're looking at 200 basis points improvement in product margins due primarily to volume and cost initiatives. On service, we're forecasting essentially flat service margins to up slightly 100 basis points. And our goal in the intermediate term is to still drive that number to 40%. But that is 2018 on service, up roughly 100 basis points. In regards to profitability, I'd point out that both the low end and the high end of our fiscal '18 guidance does assume operating income. So that would be operating income really for the first time in the post combined company's history, and we would achieve that above the low and the high end of our '18 guidance.

And our next question will come from the line of Tycho Peterson of JPMorgan.

Just one quick follow-up on the revenue conversion issue. Are you at the point now where you see a clear path where the backlog growth and revenue growth should move in lockstep in Europe over the course of this year? Or are we still not there yet? Obviously, your competitor has also pointed to a 3- to 6-month lag because of the distributor issue.

This is Kevin. I think we put the right processes in place already in really communicating our expectations to the regional teams moving forward. We've had a full review of all of the deals in backlog that are in our revenue forecast for '18. We've added more resources to the regional teams. And another thing we've done is we've also changed the sales teams' variable compensation to be more weighted towards revenue in '18 as compared to '17. So I think we've made some good initial steps and we saw some good traction with Q4. With that said, I think the linear progression of revenues next year has a lot to do with that conversion process improving more in the latter half than at the beginning half. So it's nice to see some early traction. But I still think we're not all the way there yet. And ultimately, the goal, as you pointed out, is that you should see very similar product revenue growth in line with our backlog growth.

Got it. That's helpful. Just moving on to China. I know you spoke about the radiotherapy licenses issue being a little bit of a dampener on your growth and explaining the range of your guidance. As far as (inaudible) Onrad sort of like moderation in growth you spoke about is independent of the Class A radiotherapy licenses? Is that correct? And then, if so, what exactly are the factors that play there? Are there any sort of shift in competitive dynamics going on in China that's resulting in your more, I guess, modest sort of growth expectations for Onrad in '18?

So there's no question that our belief is that, based on product specifications and price point, Onrad should fall outside of the Class A licensure discussion. But until there is a definitive announcement from the Ministry of Health that clearly characterizes or defines what will and won't fall into Class A. I think the one of the things that's occurred over time is, there are -- the longer the time line, the more uncertainty that the market has about some of the product -- where product will fit. And I think that, that has absolutely kind of caught Onrad to some degree, which is why our -- I think, our order uptake for this product has been more moderated than we would have expected. At the end of the day, we believe again that, that Onrad isn't going to be a Class A device. But until there is perfect clarity on a final decision on all of the Class A characterizations and what fits in Class A, I think we'll continue to have some -- just again, more moderated uptake of Onrad. I think we have seen -- we're focusing on more local selling activity. Again, the non-class A products should -- are really more going to be controlled by a provincial or local-level selling and tender process. We've seen our distribution partners actually expand some of their presence in terms of sales and sales support personnel on a local level in the provinces to help push those opportunities along. But -- and we've got a growing funnel with our distribution partners with Onrad in some of those province opportunities. But it's -- there will be -- I don't think there is any question that the market will benefit from a clarity in signal value standpoint by a definitive Class A announcement, and that's kind of where we are at this point. I think that given our success almost, we became somewhat of a prisoner of that success with our focus on Class A, a year, maybe beyond a year ago. And we're kind of still caught in that conundrum at this point given the delay and the regulatory clarity. With that said, I think that Kevin highlighted in guidance, we are, I think, appropriately baking what I just described into our order revenue outlook and guidance for FY '18 and progress that we make in Onrad and the China situation in general, I think, would be really upside opportunity given our current outlook and forecast in the '18 guidance. So I think we've kind of appropriately calibrated how big a contributor China could be or will be in the FY '18 year.

(Operator Instructions) Our next question comes from the line of Anthony Petrone of Jefferies.

Maybe, Josh, I'll start with a couple of questions on 2018 and then couple on distributor conversion as well. Maybe just your thoughts on specifically, the general competitive dynamics heading into 2018, maybe in the U.S., North American markets, just given Halycon launch and some of the recent disruption we've seen over at Elekta. And then maybe more specifically, what percentage of, I guess, the global installed base of Accuray is up for renewal in fiscal '18? And then I have a couple of follow-ups.

So that's a pretty broad multipart question, Anthony. Let me try to take it from chronologically from where you started, competitive dynamics. There's been a lot of noise, quite frankly, about Halcyon. And I think one of the interesting -- the kind of below the surface, maybe not as visible to people is, how strong continued interest and customer feedback is for our Radixact product. And I think that, again, because we've launched full commercial launch at the end of Q3, I would say we're still in a reasonably early stage with regards to Radixact rollout. But when you look at the places where we're winning with Radixact, we're continuing to be successful in new order generation in smaller to medium-size accounts. Again those single, dual vault accounts, which I think is really the truest test of Radixact and how it positions competitively against Halcyon. It's absolutely being viewed as a workhorse product, very broad case mix capability and very simple to use. So a lot of the same thought processes that you hear or byproducts you hear from Varian's messaging, you could say the same thing about Radixact, maybe even more so. From a case mix standpoint, I think we've got a product that's got the broadest capability from a clinical standpoint of any product in the marketplace. Again, footprint product is going to fit in very competitive small bunker sizes, very short quality assurance processes and installation processes. You have the benefit of helical IMRT delivery in the context of very, very effective and efficient dose delivery and dose customization. I mean, I think that our competitors have gotten a lot of airtime for a product that is a Radixact or TomoTherapy look-like, quite frankly. But when you pull it down under -- tear it down under the covers, you don't have pound for pound, you don't have the same capabilities. So I think we are going to continue to win in competitive evaluations in places that we haven't had -- again, haven't typically had success in the past in some of those smaller to medium-size accounts.

That's helpful. And then maybe just an update on the number of -- the percentage of the installed base next year in fiscal '18. And then lastly, just on distributor conversions, you mentioned sort of in guidance that eventually we should see Onrad in China and then Radixact in Japan. I'm just wondering, on the distributor relationships in those 2 markets, do you think you will face some of the similar issues that you've seen in Europe? Or do you expect sort of a more normalized revenue conversion outcome from China and Japan?

I think to the point, the primary question, Anthony, again, the resources that we're adding right now are, just to be clear, they're in EIMEA and in APAC. And I think that we are getting ahead -- although admittedly it's early, we're getting ahead process-wise and resource-wise of improved clarity and visibility on what's in the FY '18 revenue forecast and higher levels of confidence, quite frankly, relative to predictability of that forecast. That really is the byproduct or the takeaway from the work we're doing with regards to the VP Revenue Management position that reports to Kevin, the added project management resources that are being added at the regional level in both APAC and EIMEA. And so again, I think that probably the biggest impact of all of what I've just described will come in the second half of fiscal '18. I think our visibility and confidence factor about what we are already seeing, even though it's early, is very, very high. Just another point, I guess, about kind of the distributor -- the nature of the distributor orientation of this challenge, the good news is we have the ability to participate in markets where there is significant growth through good distribution partners. And that's really what's been driving the overall shift in mix -- order mix to more distributor-generated orders. It's actually grown probably in excess of 15% in terms of overall end-to-end movement over the course of the last 2.5 years to 3 years. So that you could look at and you could say, well, our revenue conversion has lengthened. The answer is, it has. We know what we have to do at this point, and we've got the resources lined up to go fix that. But just to be clear, we're participating in those markets where those orders are coming through a distribution partner where, quite frankly, we wouldn't have the bandwidth financially to be able to be a direct player. So it's -- there is a tradeoff here. I think we've got our arms around in a really good way and a strong way, the work that we've been talking about now over the course of the last quarter or so with regards to revenue conversion, specifically related to distributor order generation. So I think it's going to be an improving situation.

I'm showing no further questions at this time. I would like to turn the conference back over to Josh Levine, President and CEO, for closing remarks.

Thank you, operator. And thank you, everyone, for your participation this afternoon. We look forward to speaking with many of you at ASTRO next month and our first fiscal quarter earnings call in October. Thank you, again, and have a good evening.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.