Accuray Inc  (NASDAQ: ARAY) Q3 2020 Earnings Call Transcript

Accuray Inc  (ARAY) Q3 2020 earnings call dated Apr. 28, 2020

Corporate Participants:

Joseph Diaz — Managing Partner

Joshua H. Levine — President and Chief Executive Officer

Shig Hamamatsu — Senior Vice President and Chief Financial Officer

Analysts:

Brooks O’Neil — Lake Street Capital Markets — Analyst

Joshua Jennings — Cowen and Company — Analyst

Anthony Petrone — Jefferies — Analyst

Tycho Peterson — JPMorgan — Analyst

Presentation:

Operator

Good day. And welcome to the Accuray reports Fiscal 2020 Third Quarter Financial Results Conference Call. [Operator Instructions]

After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead.

Joseph Diaz — Managing Partner

Thank you, Lisa. And good afternoon to everyone. Welcome to Accuray’s conference call to review financial results for the third quarter of fiscal year 2020, which ended March 31, 2020. During our call this afternoon, management will review recent corporate developments. Joining us today are Josh Levine, Accuray’s President and Chief Executive Officer; and Shig Hamamatsu, Accuray’s Senior Vice President and Chief Financial Officer.

Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are set forth in the press release we issued just after the market close this afternoon as well as in our filings with the Securities and Exchange Commission.

The forward-looking statements on this call are based on information available to us as of today’s date. And we assume no obligation to update any forward-looking statements as a result of new information or future events except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. Two housekeeping items for today’s call.

First, during the Q&A session, we request that participants limit themselves to two questions and then re-queue with any follow-ups. Second, all references we make to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our third quarter refer to our fiscal third quarter ended March 31, 2020.

Now I’d like to turn the call over to Accuray’s President and Chief Executive Officer, Josh Levine. Josh?

Joshua H. Levine — President and Chief Executive Officer

Thanks, Joe. And thank you to everyone joining us today. I also want to thanks Suzanne Winter, our Chief Commercial Officer and Head of R&D; and Mike Hoge, our Senior Vice President of Global Operations and Supply Chain for joining our third quarter earnings release webcast. Given their leadership roles in specific areas of responsibility as we mobilize our efforts and resources across the company to address COVID-19, I thought it would be helpful to have both of them available to answer potential questions that are related to critical information in their respective areas.

Clearly, because COVID-19 is at the forefront of everyone’s mind, my prepared remarks this afternoon will focus on three primary topics. First, the impact of the pandemic is having on our customers’ clinical practices and workflow. Second, what we are doing to support them while keeping our employees safe. And lastly, our key areas of focus related to business continuity, both operational and financial. Although fighting the coronavirus has taxed the health care industry worldwide, the reality is that radiotherapy treatments are continuing around the world. And although based on direct feedback from customers treatment delivery is being managed with modified clinical practice protocols and workflow.

For example, lower risk and non-urgent cases and treatment starts are being pushed out and scheduled treatment times have been extended to allow for disinfection of treatment bunkers and equipment between patients. This has resulted in overall decrease patient treatment volumes. There has also been an increase in the use of hypofractionation and ultra hypofractionation to limit the risk of COVID-19 exposure for both patients and department staff, which we believe Accuray is uniquely positioned to support with our CyberKnife and Radixact Systems.

One of the other areas of paramount importance given COVID-19 impacts to the overall hospital environment and radiotherapy department clinical practice protocols is the health and safety of our front-line employees, almost a third of our entire employee population are global service team personnel who were responsible for installation, preventative maintenance and break fix activities that support our installed base customers. During moments like these, our ability to provide service and critical application support to ensure that our customers can continue treating patients safely and effectively is critical.

I’m incredibly inspired by these frontline heroes and their tireless dedication to supporting customers and patients and I want to thank them publicly. Our service teams around the world are following customer and institution specific defined safety protocols when they are on-site at customer locations and we are helping to ensure their safety by providing personal protective equipment. I’m extremely proud of the collective efforts of the Accuray team involved in the day-to-day support of our customers.

Despite all of these efforts, we should not underestimate the magnitude of the challenges that our customers currently face. As hospitals have been forced to focus the majority of their clinical resources in intensive and critical care medicine areas to support COVID-19 patients many have been proactively pulling back from all clinical service lines and procedures deemed non-essential or elective in nature. For many hospitals, the resulting impact has been an extremely rapid loss of profitability and associated cash flows and a growing number of facilities are finding themselves under significant financial stress. The re-prioritization of clinical resources and the associated customer challenges that have emerged along with restricted travel and/or facility access issues created delays in bunker modification projects and installations in our fiscal third quarter.

We believe that these factors suggest that we should expect lower revenue conversion timelines in the near term. In terms of our internal business management focus, we’ve been taking actions across an array of both operational and financial areas to help ensure the continuity of our business. On the operational side, we’ve been working aggressively with our clinical supply chain and logistics partners to help ensure that we have adequate supply to support both our product and service activities globally while maintaining maximum flexibility related to flexing up or down in terms of product build schedule changes.

On the financial side of our business continuity efforts, we are focused on cash flow management and we are taking aggressive actions designed to preserve cash and maximize liquidity through operating expense reductions, without compromising commercial activities and future innovation. These actions include but are not limited to reducing manufacturing raw materials purchases, aggressive account payables management, reducing capex spending, freezing all discretionary hiring activity and reductions in travel spend across all functions except for our global service personnel.

We are essentially evaluating all potential options that can contribute to cash preservation. Additionally, Accuray’s executive team consisting of my seven direct reports and myself have agreed to take a temporary reduction to our base salaries and waived any discretionary annual bonus payment that might otherwise have been paid out in the fiscal ’20 year. We believe the actions that we have taken will help Accuray effectively navigate through the course of this pandemic. Despite the challenging environment caused by COVID-19 from an operational standpoint, Accuray had a reasonably solid third fiscal quarter.

Gross orders for the quarter increased 27% to $106 million compared to $84 million in the prior year third quarter. On the revenue side, we reported Q3 revenue of $99.5 million, which was below our expectations as we saw timing impact due to COVID-19 deeper into the month of March when travel restrictions and lock downs in certain markets went into effect, which as mentioned before affected logistics and bunker construction schedules at both our distributor and end user levels.

Although our revenue conversion timing for systems and upgrades has been impacted by the pandemic, we expect our service contract revenue, which has an annualized recurring run rate in excess of $200 million to remain stable as our installed base customers continue to rely on Accuray equipment to treat patients. From a product mix perspective CyberKnife contributed approximately 40% of the total gross orders in Q3 while the TomoTherapy platform led by Radixact accounted for approximately 60% of the gross orders during the quarter.

From a regional order performance perspective, the Americas region delivered its third consecutive quarter of double-digit year-over-year order growth. Our focus on improving the consistency of commercial execution in the AMS region has been a work in progress, and we are very pleased with the continued momentum our Americas commercial team has made in growing our sales pipeline throughout that region.

Gross orders in EMEA grew 16% on a year-over-year basis. In Japan, Q3 gross orders actually declined year-over-year but based on over achievement in the first half of the fiscal year the region is still ahead of our internal expectations on a year-to-date basis. Transitioning to China, gross orders from China remains strong with 11 new orders received during the quarter, six of which were Type A and five of which were Type B.

Roughly 70% of these orders came through our joint venture sub-dealer network, and the remaining 30% came through our legacy distributor TomoKnife. We are still waiting for completion of the tender process for the first batch of 50 China Type A licenses awarded for our systems in October of 2019, and now believe at the beginning of revenue conversion will most likely begin in the first quarter of fiscal 2021. You might also be aware that we’ve been expanding the depth of our management team with the recent additions of highly experienced executives including Suzanne Winter, our Chief Commercial Officer who joined us from Medtronic and Mike Hoge, Senior Vice President of Global Operations and Supply Chain, who joined us from GE Healthcare.

The extensive experience and the success that these executives have achieved at their previous companies provide Accuray with impressive bench strength as we navigate through this challenging operating environment. And lastly, an update regarding financial guidance. Given the unprecedented nature of the coronavirus pandemic and the significant economic uncertainty it introduces, we have made the decision to withdraw our fiscal 2020 guidance. Once we believe that we have sufficient visibility to reinstate guidance, we will do so.

In closing, while the current market conditions, limit our near-term visibility, we are aggressively focused on those activities and actions that we can control, ensuring the health and safety of our employees, ensuring continued support for our customers and their patients and focusing on those elements, both operationally and financially that will drive Accuray’s business continuity.

With that let me turn the call over to Shig for his review of the financial details. Shig?

Shig Hamamatsu — Senior Vice President and Chief Financial Officer

Thank you, Josh. And good afternoon everyone. I will begin with some additional details on our order performance for the third quarter and then focus on certain highlights for the period. Gross orders for the third quarter were $106 million, which was up 27% from the prior year. On a year-to-date basis, gross orders increased approximately 15% over the same period prior year. Net age-outs for the quarter were $20 million, which was in line with our prior expectations.

We did have approximately $4 million of ageing activities during the quarter. During the 3rd quarter, we had cancellations and other adjustments of approximately $9 million as a result, on a net basis, we generated $77 million of orders in the third quarter, which represented a 20% increase over the prior year. We ended our quarter with backlog of $570 million representing an increase of 15% from March 31st, 2019.

As Josh discussed earlier, we anticipate the COVID-19 disruption will adversely impact the pace of our backlog to revenue conversion in the near term. Although the depth and the extent to which COVID-19 will impact individual markets could vary based on a number of factors, we could see higher than normal level of age-outs in the coming quarters due to this disruption. As for the China orders already aged out, we continue to believe that a meaningful number of them will eventually convert to revenue. The 50 Type A licenses already awarded for Accuray systems included several systems that were previously aged out.

Turning now to our income statement. Total revenue for the third quarter was $99.5 million, down from $103.2 million in the prior year. On a year-on-date basis, revenue was down 4% from the prior year. Our product revenue of $45.5 million during the quarter declined 2% compared to prior year. Service revenue in the third quarter was $54 million, down 5% from the prior year. The decline in service revenue was primarily due to lower upgrades purchased through our service contracts.

From a product mix perspective, CyberKnife accounted for approximately 20% of the quarter’s revenue unit volume while the TomoTherapy platform accounted for the remaining 80%, most of which was driven by Radixact. Turning now to gross margin, our product gross margin was 39.4% compared to 41.5% in the prior year. Service gross margin in the quarter was 39.2% compared to 37.3% in the prior year. Service margin for the quarter included an impact of fiscal 2020 bonus accrual reversal which as Josh described earlier related to waiver of executive bonus payout as well as adjustments to general employee bonus pool to reflect the current business environment.

Excluding the impacts of this bonus accrual adjustment, our service gross margin for the quarter was 37% which was in line with our historical norm. Overall gross margin for the third quarter was 39.3% compared to 39.2% in the prior year. Excluding the impact of the bonus accrual adjustment I just described, our overall gross margin for the quarter was 38%.

Moving down the income statement, our operating expenses for the quarter were $31.2 million, a decrease of $6.4 million or 17% from the prior year. The year-over-year decline in our operating expenses was primarily driven by the bonus accrual reversal of approximately $4.5 million. The remaining decrease was driven by reductions in discretionary spend such as travel, given that certain employee activities were restricted by COVID-19.

GAAP operating income for the quarter was $8 million compared to $2.9 million in the prior year. Excluding the impact of the bonus accrual adjustments, our GAAP operating income was $2.3 million for the quarter. We began reporting our operating impact over the China JV in the third quarter and it was an income of $0.2 million. This item is being reported on our income statement as a single line item called gain on equity investment. While we reported a small income from the China JV this quarter, we expect to see a small loss in the next few quarters as the JV continues to ramp on its operational and commercial startup activities.

Adjusted EBITDA for the quarter was $11.3 million compared to $6.7 million in the prior year. Excluding the impact of bonus accrual adjustment, adjusted EBITDA for the quarter was $5.6 million. Now a word about our balance sheet and liquidity position. We ended the quarter with $92 million of cash and short-term restricted cash, we carried approximately $200 million of debt in aggregate at the end of the quarter, which consisted of $85 million convertible notes due July 2022 as well as a term loan of $85 million and an asset-backed revolver of $30 million from one lender. Both of which mature in 2024.

In summary, none of our outstanding debt today is scheduled to mature in the next two years. From a working capital liquidity perspective, in addition to the asset-backed revolving facility we maintain access to accounts receivable factoring facilities of over $20 million in Japan. Beyond the access to these credit facilities as Josh mentioned earlier, we are taking focused cash spend control actions to preserve our liquidity position. In addition, our supply chain team is working very closely with our suppliers to adjust our inventory position to appropriate level as we closely monitor business conditions in the current environment.

And with that, I’d like to hand the call back to Josh.

Joshua H. Levine — President and Chief Executive Officer

Thank you, Shig. I want to thank all of Accuray’s employees throughout the world for the tremendous energy they are bringing to their work and supporting our customers and their patients during this challenging time. And with that, operator, we’re ready to open the call up for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions]

The first question today comes from Brooks O’Neil of Lake Street. Please go ahead.

Brooks O’Neil — Lake Street Capital Markets — Analyst

Good afternoon, guys. Can you hear me okay?

Joshua H. Levine — President and Chief Executive Officer

Yeah. Good, Brooks.

Brooks O’Neil — Lake Street Capital Markets — Analyst

Great. I was hoping you might give us whatever color you could offer in terms of what you are hearing on the ground in China either from your joint venture partners from TomoKnife or from anyone else you think is credible there.

Joshua H. Levine — President and Chief Executive Officer

Yeah. So a couple of data points. I actually had a call with the Chairman and Vice Chairman of China Isotope and Radiation Corp about little more than a week ago in an effort to try and get some color from where they sit. There is no question, they’ve confirmed that I’ll call it the pilot light, Brooks is back on — there is signs of life in the China market. Their primary business you’ll remember is the radioisotope business today. They’re not necessarily in big capital equipment yet, but they are seeing order activity on the radioisotopes side and hospitals starting to kind of return to — I’ll call it a new normal state.

I think that their belief is that on the equipment side of the world, which would obviously cover our situation and the JV that that may be a little bit longer in ramp, in terms of starting to see that come back, but there is progress being made and advanced on the tendering process as well. So I mean again I think that we’ve been, we’ve been pretty straightforward about not obviously not having control over the timing of when the tendering process would end. But the feedback has been that progress has been made there and you know I think if you go back to where we were at the time we last reported, we were thinking and feeling that if — with a little bit of luck, we might have seen tendering complete earlier in the fourth quarter — our fiscal fourth quarter end and maybe would have had some possibility of revenue activity before the end of the fiscal year.

At this point, I’m thinking that from a conservative view, it’s probably Q1 at this stage. We’re still waiting also for an announcement from National Health Commission on the second round of Type A licenses. That activity has all the applications are in, they’ve been reviewed our understanding, but there has been no announcement attached that tranche yet and we expect that as we get perhaps deeper into the quarter towards the end of this cycle — fiscal cycle, we might hear something on that second tranche of our Type A licenses as well.

Brooks O’Neil — Lake Street Capital Markets — Analyst

That’s great. That’s great. Let me ask you just one more question, I’ll jump back. I hear anecdotally from people in the industry that there is a high likelihood we see positive movement with regard to the new reimbursement code most likely for implementation beginning January 1. Can you just tell us what you hear out there and what your expectations are at this point?

Joshua H. Levine — President and Chief Executive Officer

Yeah. So I think that the general wisdom and our belief was that up until that the height of the pandemic kind of was upon us, the general belief was that we were looking at probably a July 1 implementation. You may be aware that both ASTRO and AdvaMed have both communicated with the folks at CMS that they believe that COVID-19 focus right now has taken an impact or had an impact on the market’s readiness from a provider side standpoint clinically to be ready for a July 1 implementation. And they are hoping and pushing suggesting CMS hold that off until January 1st, and that’s kind of part of the press, I mean the, the communication between AdvaMed and ASTRO and CMS has taken place inside of that with that recommendation within the lab probably three weeks or so.

Brooks O’Neil — Lake Street Capital Markets — Analyst

Great. I mean to me that doesn’t seem terrible. So I think keep up all the great work and I’m excited for you. Thank you very much.

Joshua H. Levine — President and Chief Executive Officer

Thanks, Brooks.

Shig Hamamatsu — Senior Vice President and Chief Financial Officer

Thanks, Brooks.

Operator

The next question today comes from Josh Jennings of Cowen. Please go ahead.

Joshua Jennings — Cowen and Company — Analyst

Hi, good afternoon and congrats on solid quarter navigating the initial piece of this COVID storm. I wanted to just see if I know you’ve a lot of variables going into the pot here, but if we could just hear in terms of anything that you can disclose around the trends that you’re seeing in April on some of the different geographies. And we just heard a little bit from China. Maybe you could expand on Western Europe, Middle East, and maybe the Americas as well?

Joshua H. Levine — President and Chief Executive Officer

Josh, the general the general answer there is and as we said in prepared remarks. We saw probably the bigger piece of slowdown or impact of slowdown as we got deeper into March. I’d say the first two months of the quarter, the third quarter were proceeding as we hope and expected. And as we talked about again earlier there was timing — definitive timing impact towards the end of the last couple of weeks of March on delays that pushed — will push revenue recognition on a couple of deals that we were counting on in the quarter, push them into probably Q4.

It’s a highly variable situation across the rest of the world. I don’t know that the recovery, if you will or kind of the next phase of this is going to look the same in every region. As a matter of fact I would be reasonably certain that it probably doesn’t. There were two primary factors driving this. One is the financial impact that hospitals are now dealing with in sustaining around the elimination of the elective and non-essential procedure activity and as it relates to that cash flow is being impacted. We’re assuming, we’re pushing out expectations around DSO and AR collection.

I think we have less exposure on the service revenue side of our business. Given the fact that patients are being treated with our devices and we’ve got some leverage in ensuring that we’re going to get paid on the service side. But I think that a wise — a wise expectation would be that service system revenue collectability just given what’s happening from a financial stress standpoint at hospital end is going to probably push out. And then that the discussion around where do — where and when is there a confidence on the part of hospitals to reinvest from a capex standpoint. And that’s the piece that has a much more difficult aspect to it with regards to visibility, demand visibility around that and timing certainty. Again, I think it’s going to look different, different parts of the world. And we’re just going to have to see how it plays out.

Joshua Jennings — Cowen and Company — Analyst

Understood, understood. A lot of unknowns out there. I mean just to kind of leads into another, next question, just on your long-term guidance, I think you prior to COVID really kicking in, in Europe and in the US earlier this year you talked about 8% to 12% revenue growth into the out years. I assume that we should be just thinking about our own projections in the fiscal fourth quarter and then the time period of duration of this crisis and impact on some of the capex spending in the different geographies and trying — would you advise us to disregard that guidance for fiscal ’21 and then the long-term outlook still being similar in fiscal 2022 and beyond. Thanks for taking the questions.

Joshua H. Levine — President and Chief Executive Officer

Yeah, I think the simple answer to that and I would caveat it by saying that there aren’t a lot of simple answer in the current environment. You know, when I think about the underlying demand characteristics in our business right now. I don’t know that, I think China is still a very, very big growth catalyst for us going forward. And I think that you know if they were the first into the pandemic and the kind of the first out of the pandemic. I think that as the market starts to come back to life in China. I think that, again, the underlying demand aspects of what they’re dealing with there in terms of under capacity in radiotherapy is still a very, very big growth driver for us. I think the discussion in the other parts of the world again it’s variable by region and by area, but you know, we’ve been seeing as the results we put up in Q3, which suggest we’ve been seeing strong interest in our products and demand for our products. And we haven’t even really gotten to some of the more important innovation introductions that we are — we’ve been talking about with regards to upgraded imaging capability on the Radixact platform, the fully — full commercial impact of Synchrony on Radixact.

So we think there is a lot there to be excited about, I think tempering the expectations from the 8% to 12% where we were, let’s say, at the beginning of this calendar year to something in the intermediate term, maybe a little bit down from that. Longer-term I think that range is a — is a reasonable landing spot. But again, the question is that the timelines to recovery and where and how that impacts the momentum. And I think it’s the reason we suspended guidance and you can imagine that we’re focused on this, our ears to the ground. We are in front of customers on a very active basis at this point. And again we’re doing the things that we can control.

We think it’s prudent to be to be managing the liquidity aspects of our company at this point. And I can tell you that Shig and I have a high degree of confidence that we have the right approach and the right focus on navigating through this to be able to compete on the other side.

Operator

Our next question today comes from Anthony Petrone of Jefferies. Please go ahead.

Anthony Petrone — Jefferies — Analyst

Thanks. And I hope everyone is staying healthy and good to see at least some encouraging signs out there in the print here today. But let me dig in on a few specific like housekeeping questions and then I have a couple of follow-ups on how you see the coronavirus cycle playing out. So just in terms of overall gross orders in the quarter, can you quantify how much of that was actually previously aged out orders returning to the backlog? And I guess, what specifically triggered those coming back in and regionally with those US orders with the China orders or European orders? And then I’ll have a follow-up.

Joshua H. Levine — President and Chief Executive Officer

Yeah, Anthony. To answer your first question there, just to be clear that gross orders that we reported, which was kind of $6 million this quarter. Those are new orders. So they have nothing to do with the previous aged out orders. So I just want to make that clear for you.

Anthony Petrone — Jefferies — Analyst

Yeah. Rather the backlog, I was talking. Apologies for that.

Joshua H. Levine — President and Chief Executive Officer

Yeah, no problem. So backlog as I said, I had, that we had $77 million of net order added to the backlog, so $106 million gross orders and we had a net age-out of $20 million and the other adjustments and cancellations about $9 million. So and also the $4 million of ageing back in the revenue previously aged out items. So that’s a roll forward of the backlog, if that’s helpful.

Anthony Petrone — Jefferies — Analyst

Okay, so $4 million came back in. Okay.

Joshua H. Levine — President and Chief Executive Officer

Correct. But just to be clear though, hey Anthony, just to be very clear, I know it could just get — it can get confusing about when I say $4 million aged out, I mean aged back in, what it means is it didn’t really go into backlog per se, it just went straight to revenue out of aged-out pool. So net-net aged-out item had a net-net zero impact on the reported backlog, just so you know.

Anthony Petrone — Jefferies — Analyst

Okay. No, that’s helpful. And maybe the follow-ups would be a little bit more in terms of the trends in March and April, but maybe more on the US installation and order side of things. In terms of just hospital regulations, our understanding is that even installations to an extent have been pushed out beginning mid-March and then specific, I guess Josh to your comments on capex. How order specifically I guess late in the quarter and early this quarter are trending in the US specifically? And then I’ll have one last one on China. Thanks.

Joshua H. Levine — President and Chief Executive Officer

Yeah. Anthony, I think and I don’t know this is specific to the US situation or the Americas region. I think that the reality is that things basic elements of this discussion, such as facility access you know lockdown travel access between markets and countries. I mean this absolutely has impacted installation timing and customer acceptance timing, no question. It’s not a US-only phenomenon. And again, those guidelines relative to access in facilities it looks different in different places. But certainly as we got deeper into the third quarter, those things became bigger impacts.

Going forward, I mean again, difficult to predict where and how capex activity starts to come back into where it falls from a prioritization standpoint. But I think our view is that at a minimum, we’re looking at several quarters of reduced or moderated capex kind of spending. I think a lot of this depends on how, how long hospital stay in a shutdown or lockdown mode relative to the — what they’re considering is not essential or elective procedures and those two are linked. I mean they are cause and effect on one another in terms of kind of the drivers of a recovery timeline estimate.

Anthony Petrone — Jefferies — Analyst

No, fair enough. In terms of — maybe one quick follow-up there, just on therapy volumes, you commented obviously radiation therapy is essential. Is there anything noticeable there, just in terms of kind of demand, pent-up scenarios. Are you seeing at least some delays in Radiation Therapy procedures at hospitals, the bigger, the longer that gets backed up I mean, how does that actually drive capital decisions. In other words, could that be maybe perhaps even a small tailwind even though of course capex budgets are pressured.

And then just specifically on China, just a follow-up there. I guess to clarify just in terms of the orders this quarter, how many of those orders were I guess tender driven versus just underlying demand of the China orders that you put up. Thanks again.

Joshua H. Levine — President and Chief Executive Officer

Just a note or word on treatment volumes. We have line of sight on our Tomo family of products to online visibility relative to treatment activity and I would tell you that we still overall we haven’t seen any large drop-off in treatment volumes as it relates to the installed base. I’d say it’s probably 95% plus what it had been. And I think that’s an interesting indicator. I mean, again, what it says to me is cancer is not taking vacation, based on the coronavirus and these patients were — they are being slowed down or starts are being slowed down there being slowed down in cases where radiation oncologists can make a decision, a comfortable decision that this doesn’t change longer-term outcomes in terms of, you know, local control survivability etc.

So I think that for the most part, we’ll continue to see installed based devices in reasonably high degrees of utilization treating patients. I talked a little bit about in the prepared remarks about some of the specific protocols and workflow changes that customers have made with regards to longer turnover time, if you will of a bunker in between treatments to make sure that the appropriate disinfecting protocols etc are being followed, but I don’t see, we don’t see at this point in the data that we have visibility to big, big drop-offs in treatment volume.

The capex discussion again, it’s just a — it’s a difficult situation to predict at this point, and we will stay close to it. And when we know, we’ll let you know what that looks like. Your question Anthony, on the activity in China, how much of it was tender driven and how much of it was just orders that were being placed ahead of a cycle. The tendering process for the Type A licenses that we received awarded for our devices in October of last year that tendering process is still not complete. And so there are, I would say probably the vast majority of what we took was orders ahead of you know actual completion of tendering across that activity.

Anthony Petrone — Jefferies — Analyst

Okay. Thank you.

Operator

[Operator Instructions] The next question comes from Tycho Peterson of JPMorgan. Please go ahead.

Tycho Peterson — JPMorgan — Analyst

Thanks. Just a couple of follow-ups here. I guess on the capex, Josh, are you sensing, any change in priorities around capex as we think about your budgets that’s actually starting to free up. And just we APM until January help or hurt the order book in your view. And then you also alluded to age-outs going. I’m just curious if you can talk a little bit more about that dynamic.

Joshua H. Levine — President and Chief Executive Officer

Let me start with the APM discussion, I think, again, I think prior to kind of the explosion of the pandemic, I think that the general view, Tycho was that we’d probably be on a pathway timeline wise for a July 1 rollout. January 1st in my view, doesn’t seem like it’s an extraordinarily extended time frame and I don’t think it has an impact on orders and bookings going forward, I mean, if you’re a facility that is moving in the direction that the APM is encouraging treatment to move in and providers to move in and you’re not really as well equipped from an SPRT or hyperfractionation capability standpoint, I think you’ve got, you’ve got technology decisions that you’re going to want to make that will allow you to protect your business model and optimize your business model under the new guidelines come next January.

So I don’t see that having a big impact on the downside. On the capex situation from a prioritization standpoint, again, I think it’s difficult to take a brush and paint the entire market with the same outlook because I just don’t think it’s realistic. I think that if you are an institution today that is a — where radiation oncology is already an important element of your overall revenue and profit generation capabilities and you are seeing equipment that extended ages and not as efficient as it could be based on treatment speed throughput etc, I think that you would still be in a mode where prioritizing upgrade of that older equipment is probably something that will you want to consider.

If you have a situation on the other end of it where you’ve got relatively recent equipment or newer equipment and you’re able to keep up with the treatment volumes that you were dealing with pre-pandemic. I’m not sure that there is going to be a big catalyst for trade-in trade-up or technology upgrade. So again, it’s going to look different in different locations. I think it’s going to look different across the regions. But I think that, again this is a business that people are not going to abandon. It’s probably one of the few places inside departments inside of a hospital today that is still actually treating patients.

You’ve got intensive care, critical care medicine, you’ve got in the number of locations, labor and delivery, and the other the other department that’s alive and running is radiotherapy, radiation oncology. So if this is an important piece of your overall business model. I think it’s going to be a priority for you, based on your individual circumstances to continue to think about that the kinds of things that we just talked about technology upgrade and bringing new equipment in but again, it’s going to look different across regions and across facilities.

Shig Hamamatsu — Senior Vice President and Chief Financial Officer

And on your last question, Tycho on age-out as we said on the prepared remarks, we do think that the age-out could increase in near-term to the extent that we talked about revenue conversion cycle. We see that lengthening in the near term for the obvious reasons globally and also to the extent — so just remind you that our 30 months age-out policy clocks in at 30 months on the order receipt and to the extent that we — I would say probably 75% to 80% of orders we take today is distribution channel outside of the United States. And before the pandemic, we are probably looking at anywhere from 18 months to 20 months, 24 months timeframe for revenue conversion in those regions.

And we do think that the lengthening or the revenue conversion cycle in the near term in those regions could adversely impact the trend on the age-out in the near term. Having said that, I want to make it clear too that is being aged out doesn’t mean the orders are automatically canceled. We do look at those opportunities to be in aged out every quarter for revenue conversion opportunity. So you know as we come out of this pandemic situation, again we don’t know when that is but we are hopeful that we can ace those back in as soon as possible.

Tycho Peterson — JPMorgan — Analyst

And then on pipeline Josh, you alluded kV imaging or Radixact that’s still on deck for this fall and then also any comments on the progress with the Type B products you are developing into the JV in China.

Joshua H. Levine — President and Chief Executive Officer

Yeah, the answer on the first piece is, yes, it’s still on the path that we have identified and it was the — we were looking at commercialization by the end of this calendar year. I don’t know whether or not we will — whether there’ll be an ASTRO meeting this fall or not, but I think if there is an ASTRO meeting it’s likely we will introduce that capability there but I guess we’ll see what — where we are, when we get deeper into the fall as far as timing goes on the ASTRO meeting piece. I’m sorry I missed your — missed the other —

Tycho Peterson — JPMorgan — Analyst

The Type B product you’re developing to China JV, just curious yeah.

Joshua H. Levine — President and Chief Executive Officer

Yeah, we are still on the timeline than we expected. I think the manufacturing facility that we are involved in build out of with CRRC it probably lost about 90 days of time maybe 100 days of timeframe when China was shut down, but they — they’ve got construction continuing restarted now continuing and our expectation is by probably mid-July the facility will be up and running in terms of not necessarily producing product. We’ve got essentially the training facility and training bunkers there and those will start to be utilized. And the timelines for production of Type B in Tianjin is still on that roughly 18 months, 20 months kind of a timeline from now. From the time the plant is up and open, if you will.

Tycho Peterson — JPMorgan — Analyst

And then last one is on the cost side you’ve previously flagged $15 million as cost saves, can you just give us some context on some of the incremental actions you’re taking, how much material that’s deal type of $15 million equivalency discussed?

Shig Hamamatsu — Senior Vice President and Chief Financial Officer

Yeah, Tycho. So the obviously given the no guidance which the guidance was all of that we announced, I’m not adding specific numbers, but what I can tell you that coming through Q3, we just reported that $15 million year-over-year saving is already baked in.

Tycho Peterson — JPMorgan — Analyst

Okay, thank you.

Shig Hamamatsu — Senior Vice President and Chief Financial Officer

Yeah.

Operator

[Operator Instructions] At this time I’m not showing any additional questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Josh Levine for any closing remarks.

Joshua H. Levine — President and Chief Executive Officer

I’d like to thank everyone that joined the call this afternoon. We look forward to speaking with you again in August when we report full-year 2020 financial results. Thanks very much for your participation today. And everyone please stay healthy and safe.

Operator

[Operator Closing Remarks]