Accuray Incorporated (ARAY) Q3 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Accuray Reports Fiscal 2020 Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. [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.

Thank you, Alyssa, 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 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 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?

Thanks, Joe, and thank you to everyone joining us today. I also want to thank 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 that 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 decreased patient treatment volumes. There has also been an increase in the use of hyper fractionation and ultra-hyper fractionation 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 frontline employees. Almost a third of our entire employee population are global service team personnel who are 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 ad 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 and 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 critical supply chain and logistics partners to help ensure that we have adequate supply to support both our production 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, Tomo Knife. 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 that 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?

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 age-in activities during the quarter. During the third quarter, we had cancellations and other adjustments of approximately $9 million. As a result, on a net basis, we generated $77 million for orders in the third quarter, which represented a 20% increase over the prior year. We ended the quarter with backlog of $570 million, representing an increase of 15% from March 31, 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-to-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 at the 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 impact 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, 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 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 of 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.

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.

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.

Good afternoon, guys. Can you hear me okay?

Yes. Doing good, Brooks.

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

Yes. So a couple of data points. I actually had a call with the Chairman and Vice Chairman of China Isotope and Radiation Corp about a 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 are 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're seeing order activity on the radioisotope 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's progress being made and advanced on the tendering process as well. So, I mean, again, I think that we've been pretty straightforward about 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 I think if you go back to where we were at the time we last reported, we were thinking and feeling that with a little bit of luck, we might have seen tendering complete earlier in our fiscal fourth quarter, 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 to our understanding. But there has been no announcement attached to that tranche yet, and we expect that as we get perhaps deeper into the quarter. Towards the end of this fiscal cycle, we might hear something on that second tranche of Type A licenses as well.

That's great, that's great. Let me ask you just one more question and I'll jump back. I hear anecdotally from people in the industry that there's a high likelihood we see positive movement with regard to the new reimbursement codes, 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?

Yes. So I think that the general wisdom and our belief was that -- up until 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're hoping and pushing, suggesting CMS hold that off until January 1. And that's kind of hot off the press. I mean, the communication between AdvaMed, and ASTRO, and CMS has taken place inside of that -- with that recommendation within the last probably three weeks or so.

Great. I mean, to me that doesn't seem terrible. So I say keep up all the great work, and I'm excited for you. Thank you very much. Thanks, Brooks.

Thanks, Brooks.

Thanks, Brooks.

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

Hi, good afternoon, and congrats on solid quarter navigating the initial piece of this COVID storm. I wanted to just see if -- I know it's 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, we just heard a little bit from China; maybe you could expand on Western Europe, Middle East and maybe the Americas as well.

Josh, the general answer there is and as we said in prepared remarks we saw probably the biggest 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 where we're proceeding as we hoped and expected. As we talked about again earlier that there was definitive timing impact towards the end of the last couple of weeks of March on delays that 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 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 are 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 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. Then the discussion around where and when, is there a confidence on the part of hospitals to reinvest from a CapEx standpoint? That's the piece that has a much more difficult aspect to it with regards to demand visibility around that and timing certainty. Again, I think it's going to look different in different parts of the world and we're just going to have to see how it plays out.

Understood. A lot of unknowns out there. Just leads into next question. Based on your long-term guidance prior to COVID really kicking in Europe and in the U.S. 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 and the different geographies and try and -- would you advise us to disregard that guidance for fiscal 2021 and then the long-term outlook still being similar in fiscal 2002 and beyond? Thanks for taking the questions.

I think the simple answer to that and I would caveat by saying that there aren't a lot of simple answers in the current environment. 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. I think that if they were the first into the pandemic and 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 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 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've been talking about with regards to upgraded imaging capability on the Radixact platform, the full commercial impact of Synchrony on Radixact. 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 ranges is a reasonable landing spot but again, the question is the timelines to recovery and where and how that impacts the momentum. I think it's the reason we've suspended guidance. 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. Again, we're doing the things that we can control. We think it's prudent to be managing the liquidity aspects of our company at this point. 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.

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

Thanks. I hope everyone is staying healthy and good to see at least some encouraging signs out there in the print here today. 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. 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 what specifically triggered those coming back in and regionally with those U.S. orders with China orders or European orders? Then I'll have a follow-up.

Anthony, to answer your first question there; just to be clear, the gross orders that we reported which was $106 million this quarter, those are new orders. They have nothing to do with the previous aged out orders so I just want to make that clear for you.

Rather backlog I was talking. Apologies for that.

No problem. So backlog as I said we had $77 million of net order added to the backlog so $106 million gross orders and we had a net aged out of $20 million. The other adjustments and cancellations about $9 million. Also the $4 million of aged back in the revenue previously aged out items so that's a roll-forward of the backlog. That's helpful.

Okay, so $4 million came back in.

Correct. Anthony, just to be very clear, I know this can get confusing but 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 age out pool. Net aged out item had a net-zero impact on the reported backlog just so you know.

That's helpful. Maybe the follow-ups would be a little bit more in terms of the trends in March and April but maybe more on the U.S. 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. 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 U.S. specifically. Then I'll have one last one on China. Thanks.

Anthony, I think the -- and I don't know. This is specific to the U.S. situation or the Americas region. I think that the reality is that basic elements of this discussion such as facility access, lockdown travel access between markets and countries, this absolutely has impacted installation timing and customer acceptance timing, no question. It's not a U.S.-only phenomenon. 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 again, difficult to predict where and how CapEx activity starts to come back into, where it falls from our prioritization standpoint. I think our view is that at a minimum we're looking at several quarters of reduced or moderated CapEx spending. I think a lot of this depends on how long hospital stay in a shutdown or lockdown mode relative to what they're considering as not essential or elective procedures. Those two are linked; they are cause and effect on one another in terms of the drivers of a recovery timeline estimate.

Fair enough. In terms of them -- we want quick follow-up there. Just on therapy volumes, you commented obviously radiation therapy is essential. Is there anything noticeable there just in terms of demand, pent-up scenarios? Are you seeing at least some delays in radiation therapy procedures at hospitals the longer that gets backed up? 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? Then just specifically on China, just a follow-up there. To clarify just in terms of the orders this quarter, how many of those orders were tender-driven versus just underlying demand of the China orders that you put up? Thanks again.

Just a note or a word on treatment volumes. We have a line of sight on our Tomo family of products to online visibility relative to treatment activity. I would tell you that we're 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 percent what it had been. I think that's an interesting indicator. Again, what it says to me is cancer is not taking a vacation based on the Coronavirus. These patients where they are being slowed down or stats are being slowed down, they're being slowed down in cases where radiation oncologists can make a comfortable decision that this doesn't change longer-term outcomes in terms of local control survivability et cetera. I think that for the most part we'll continue to see installed base 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 et cetera are being followed but we don't see at this point in the data that we have visibility to big drop-offs in treatment volume. The CapEx discussion again, 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 award 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 actual completion of tendering across that activity.

Okay. Thank you.

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

Okay, thanks. Just a couple of follow-ups here. I guess on the CapEx theme, Josh, are you sensing any change in priorities around CapEx as we think about your budgets eventually starting to free up? And does delaying the APM until January help or hurt the order book, in your view? And then you also alluded to age-outs going up. I'm just curious if you can talk a little more about that dynamic.

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 1, in my view, doesn't seem like it's an extraordinarily extended timeframe, 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 SBRT or hyper fractionation capability standpoint, I think 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 at extended ages and not as efficient as it could be based on treatment speed, throughput, et cetera, I think that you would still be in a mode where prioritizing upgrade of that older equipment is probably something that you'll 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 a number of locations, labor and delivery. And 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 to -- based on your individual circumstances, to continue to think about 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.

And on your last question, Tycho, on the age-out, as we said in 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-month age-out policy clocks in on 30 months from the order receipt, and to the extent that we -- I would say probably 75%, 80% of orders we take today is a distribution channel outside of the United States. And before the pandemic, we were probably looking at anywhere from 18 months, to 20 months, 24 months' timeframe for revenue conversion in those regions. And we do think that your lengthening 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 being aged out every quarter for revenue conversion opportunity. So as we come out of this pandemic situation, again, we don't know when that is, but we are hopeful that we can age those back in as soon as possible.

And then on pipeline, Josh, you alluded kV imaging on Radixact. Is that still on deck for this fall? And then also any comments on the progress with the Type B product you're developing through the JV in China?

Yes. 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 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 the other part of your…

The Type B product you're developing through the China JV. Just curious if -- yes.

We are still on the timeline that we expected. I think the manufacturing facility that we are involved in build out of with CIRC, it probably lost about 90 days of time, maybe 100 days of timeframe when China was shut down. But 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 month, 20 month kind of a timeline from now, from the time the plant is up and open, if you will.

And then last one, just on the cost side. You've previously flagged $15 million in cost saves. Can you just give us some context on some of the incremental actions you're taking, how material that could be on top of the $15 million you previously discussed?

Yes, Tycho. So the -- obviously given the no guidance -- the guidance withdrawal that we announced, I'm not going to get specific to the numbers. But what I can tell you that coming through Q3, which we just reported, that $15 million year-over-year saving, is already baked in.

Okay, thank you.

[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.

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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.