Accuray Incorporated (ARAY) Earnings Call Transcript & Summary

My name is Eleni, and I am on the life sciences team. It is my pleasure to introduce our next company, Accuray. As a reminder, we will be hosting a breakout session in the Yorkshire Room following the presentation. And with that, let me hand it off to Josh.

Thanks, Eleni. Thank you for -- everyone for being here and having an interest in our discussion. Here is a real quick look at my agenda this morning. This is going to be a presentation quite frankly that I have been waiting probably 5 or 6 years to give because it represents a very, very different Accuray than you've seen or heard about and come to expect in the recent or intermediate past, call it. Very heavy focus on what's driving our growth and expanded revenue, momentum opportunities. We'll talk about China, talk some more about our platforms. A very big piece of catalyst, if you will, is the alternative payment model that CMS has proposed and just kind of wrap up with the 3 main anchors, which are driving our growth. I'll call your attention to our forward-looking statements or the safe harbor statement. I'm going to be making statements going forward -- looking forward that, well, results may differ from those. If you're interested in understanding more of the risks and details about our business, I would encourage you to take a look at our SEC disclosures with an emphasis on 10-Qs, 10Ks, et cetera. Again, I started out by saying this is a presentation that I've been waiting a long time to give. We -- for those of you that know us, we have been spending probably the better part of the last 6 years really trying to put a foundation in place for this business that we can grow from. The year before I joined the company, we lost in excess of $100 million. The first year I was here, we lost $75 million. We have been fixing the underlying fundamentals of our business over the course of the 5-plus, 6-plus years, if you want to look at it in that time frame. And we've made significant progress. Frustratingly, not nearly enough of it shows up in how the company is being valued. And the primary driver of that is that our business has some quarter-to-quarter variability, which is indicative or characteristic of everybody in the space. But when you're at our scale, the variability probably that the peaks and valleys are probably a little bit more volatile. And also, we've really had not a very inspiring level of top line revenue growth. It's a business that's probably been, over time, growing in the 3% to 4% kind of range over the last 4 or 5 years. We are about to take a step-up on the top line in a pretty big fashion. We estimate today with the line of sight that we have that beginning in our next fiscal cycle, which will begin in July of this year that we've got a business that has the capability to grow revenue in a range between probably 8% at the low end and low double digits at the high end, maybe 12-or-so percent that's being driven by several factors, but the primary driver of it is what's happening in China. And we're going to talk more about that part of it in the details. The interesting thing about the place that we're at right now and the impact of the revenue growth I just described is that while we've been fixing our business and the underlying fundamentals over time, we have a model now that is really dialed in, in terms of its cost structure. It's a revenue-sensitive model. And the revenue that we're talking about here in terms of growth will create an accelerated level of drop-through in terms of operating leverage. We expect that operating income, operating profit and adjusted EBITDA will grow faster than this 8% to 12% range, if you look at that fiscal '21 through fiscal '23 kind of a window. The underlying discussion in China, you've heard us spend a lot of time talking about China over time, and we're going to get into the details there. But the key elements that are underpinning the revenue growth that we're talking about now are the fact that we're sitting on and hold 50 of the first 58 Type A radiotherapy licenses that have been issued in the country. And we are sitting on, in round numbers, about $115 million in orders that are China backlog-related that are ready to go to revenue. We expect that, that will start to become visible in our fiscal Q4. And that over the next 24 months or so, that entire $115 million or $120 million will end up on the P&L. So that's the Type A discussion. We're also in the process of going through second and third waves of application process for more Type A licenses to be awarded. And we expect that that's going to be a continuing situation, maybe not at the level of win rate that we had in the first tranche. But quite frankly, I think we're really well positioned to see -- to take full advantage of more Type A licenses being issued. The fiscal '22 to fiscal '23 range really is a discussion around our joint venture in China with China Isotope & Radiation Corp because as you remember, they are the manufacturing partner on the ground that we will have build with our assistance the Type B product for the China market. And we'll get into that in a little bit more detail going forward as well. This is one of those slides that -- it gives you every aspect or element of what you'd want to know with regards to supporting the reasons to believe this discussion. From top left-hand corner, again, we talked about the 8% to 12% revenue growth or CAGR over fiscal '21 through fiscal '23. People think about our business, and it is a capital -- complex capital equipment business. One of the things that shouldn't be forgotten is that we have a recurring source of revenue in the form of service revenue. At the end of fiscal 2019, that represented 53% of our entire top line. This is recurring. It operates under extended period contracts. We run a very low vacancy rate, which is the number of customers or percentage of customers that operate without a service contract. It's like mid-single-digit kind of levels. They buy service on time and materials basis. So we don't give service away ever. And the fact that there's a healthy revenue -- recurring revenue stream with regards to the service piece, this is something that we should forget about. Trailing 12-month order growth has been pretty robust. It's been greater than 15%. And I think that we've got the very strong likelihood that, that will continue. I highlighted the discussion in China. That $115 million is system revenue that's in the backlog right now, and it's tied specifically to the 50 type A licenses that we've -- that end user hospitals have for either a Radixact or a CyberKnife device. Again, we expect those to start to become visible and go to revenue probably some time in our fourth fiscal quarter. And from there, over the next 24 months or so, we should have all of that come to the P&L. Talk a little bit about the leveragability of the -- our current income statement. Again, we've shown a very good ability and consistent ability over the last several years to be able to control expenses. It's now a very, very sustainable model in terms of its revenue sensitivity and the leveragability in the income statement. Last but not least, for both existing shareholders and prospective shareholders, if you look at how we're being valued from an enterprise value-to-sales ratio, we traded about a 75% discount to the peer group that you -- the comp peer group that you compare ourselves to. We've spent a lot of time over many, many quarters talking about China. I don't want to spend a lot of time on this. But just to set kind of understanding, for those of you that might be newer to the story, China is really an unprecedented situation as it relates to the linear accelerator business. If you look at typically how we talk about the level of penetration in the linac space, it's the number of linacs in the market per million people of population. The bottom half of this chart talks about in developed markets, mature markets, U.S., France, kind of what the comparators would be. And you take the 1.2 billion people in China and you look at their installed base capacity in the linac business, it looks like about 1.4 devices per million people of population. The World Health Organization recommended baseline level of radiotherapy capacity is actually 2.5 linear accelerators per million people of population. If you apply that factor or that multiple against the size of the population, it says conservatively that they're going to need about 5,000 additional devices in the next decade. I've seen estimates, quite frankly, as high as 8,000 to 10,000 at the high end. In either case, just be conservative, take the low end of the range, it's a big uplift. And it's a big uplift that the Chinese government has gotten very, very serious about in terms of how they're going to procure this degree of complex equipment. What they've done is, a year ago, last October, they set out quotas for 2 different categories of radiotherapy equipment: Type A, which is where our current portfolio participates, our Cyberknife and our Radixact device. And there were -- at that point in October of 2018, they issued a quota that said they would issue licenses for 188 Type A devices and 1,208 Type B devices, which is more of the value product, mainstream product that is going to be needed in really outside of the major population centers, maybe outside of the major academic hospitals, more community or provincial-based facilities and that's where the Type B segment is where that really big growth going forward is over the course of the next decade. You can see the Accuray products that fit into each of these. Our situation today is that Type A is where we're at and we have Type B products to sell, but the real uplift for Type B and opportunity for us in terms of the forward opportunity is the product that our JV partner, China Isotope, will build in the plant in Tianjin. Again, we've been the recipient of probably 85% win rate in the first tranche of Type A licenses. The application period for the second tranche just closed at the end of December. The government hasn't announced what that -- what those awards are yet, but I can tell you that we have line of sight to the fact that there are more Type A licenses coming for Accuray devices. I want to talk a little bit about the joint venture. We had -- we did not go into this lightly. We spent -- what we're doing now and seeing the benefit of now is the culmination of probably 3 years' worth of work. We recognize that a company at our size, our financial constraints and operational limitations, we couldn't do a go-it-alone strategy, building a dedicated manufacturing facility there and trying to play alone on a solo basis would not have been a good decision for us. And we wanted to take advantage of the emphasis that China had placed on Made in China and a product that would be under a local ethnic brand for the China market made in the country. And after essentially about 15 to 18 months of analysis and interviewing and research, we partnered with China Isotope & Radiation Corporation. They are the market-leading company in China in radiopharmaceuticals and radioisotopes. They've got pretty significant market share, 65%, 70% share in that core business and active selling relationships in 8,000-plus hospitals throughout the country. So they are not just a manufacturing partner for us. They are a source of strategic market access to hospital relationships and places that are going to need linear accelerators going forward. So there's multiple benefits with regards to our view of China Isotope and the value they bring. They are owned by a state-owned entity called Chinese National Nuclear Corp. I think this is the second or third largest SOE in the country. And they have been extremely helpful in terms of our accelerating the build-out of the manufacturing plant, accelerating the procurement of licensure and permitting processes. We received a radiation safety license, which the Chinese government doesn't give out to just anybody, and they don't do it quickly. We received that license in 60 days, start to finish, again, as a result of who we're partnered with. So our experience with China Isotope, which also, by the way, 25% of that business is traded on the Hong Kong Stock Exchange. So there's a degree of transparency because of their public listing requirements that we take a lot of confidence in, and we think there's value in. We're the only company in this space that is doing this on a joint venture basis with this manufacturing partner. And again, the primary focus that they're going to bring is to help us get a Type B product into the market that's really, really tailored for the Chinese customer base. Just to touch on kind of the overall market opportunity. You've seen some of these numbers. There's still opportunity for growth in this space. Lots of new cancer cases being diagnosed worldwide and still about half of them benefit -- in solid tumor diagnosis would benefit from radiation therapy in one form or another. Only about 30% of that universe actually receives therapy and radiation treatment. So there's opportunity here. If you look at this on a clockwise basis, it essentially says the 7,700 new linacs needed to meet market demand by 2035, those are a combination of the replacement -- the existing installed base, our served market installed base devices plus other growth. I want to talk for a moment or two about our products. CyberKnife, which was our first product. The technology was developed at Stanford University. It's the -- was the first and remains the only robotically-enabled linear accelerator, which by its unique architecture provides a differentiated form of treatment. We deliver noncoplanar beam delivery, which essentially says we can fire beams from any angle and space. It allows you the ability to safely increase dosing and do it with greater precision. If you're using a conventional linear accelerator that's basically in a framed architecture, if you will, the linear accelerator head has only a certain number of angles that it can work from, which means that the architecture of the device is actually constraining the number of beam angles that can be delivered. To higher dosing -- or in order to give people the confidence to go to higher dosing, we developed a motion tracking and motion management system called Synchrony, which I'm going to talk about in conjunction with Radixact, which we've had on CyberKnife now for well over a decade, and we're bringing it to the Radixact platform. So both of our systems and platforms now have this unique motion tracking and tumor-targeting capability. We pioneered the use of hypofractionation with CyberKnife, which basically was increased dose over fewer treatment fractions. Interestingly, we were alone in the marketplace and a pioneer in this discussion. And when you look at, which we'll talk about -- when you look at what CMS is doing and driving directionally with regards to their alternative payment model, it's moving people towards more SBRT treatment and hypofractionated treatment programs and treatment regimen. So it's interesting how things have come full circle. We think our products, portfolio wise, are really, really well positioned in that discussion with -- where CMS wants to go with reimbursement. We acquired or merged CyberKnife with TomoTherapy in June of 2011. The latest generation system on the Tomo side of the world is Radixact. This has probably been the single most successful product launch in either company's history as a standalone or a combined entity. We've sold 200 of these devices in the last 3 years. We've got about 100 of them running right now in locations around the world with roughly about another 100 in the backlog. It's become a remarkably capable workhorse product. It has a very, very broad case mix capability from everything from routine cases to complex cases. It's gotten dramatically more efficient and quicker in treatment delivery. We have locations that are running on 15-minute time slots in a typical treatment schedule, running 50-plus patients in a treatment day schedule through this device. And it continues to be used in more and more locations. What had been very strongly, mostly an academic medical center, academic research med center customer profile base for Tomo has now -- it still is that, but it's now expanded to more regional community hospitals, single and dual vault settings, which has really -- it's indicative of the devices, both its efficiency, its speed and its overall value as a very, very diverse product. So we've expanded the universe of where we can compete with this device as its performance characteristics have improved and gotten more efficient over time. We have an installed base of roughly 950 devices around the world. About 48% of that installed base is at 8 years of service life. And when a device starts to look at the 8- to 10-year range, you're in replacement cycle. And this in our minds, in -- primarily in the U.S. and Western Europe is also another catalyst going forward for us. We've got -- at 10 years, we would be really in full swing. This is a big focus for all of our sales organizations around the world, again, especially in the U.S. and Western Europe. And the opportunity for us to retain our vaults and upgrade customers to our latest generation equipment is the focus of our sales organizations every day. The good news is we've got product upgrade capabilities that require that you have the base -- the latest generation-based system. So those things like VOLO on CyberKnife, those things like Synchrony on Radixact, they are in and of themselves catalysts for trade-in, trade-up discussions with existing installed base customers and gives us confidence that we've got some momentum and some engine behind the replacement sale opportunity in our business. We talk a little bit about CMS and what they're doing with regards to value-based care. If you think about, again, where they've been in the U.S., primarily, the legacy form of reimbursement methodology was, you got paid by the number of treatment fractions that you delivered, which was -- maybe in some regards, at the time, it made sense. It really doesn't make sense today, and it probably hasn't made sense for the last several years. The bottom line is technologies like ours allow you to treat patients much more rapidly. If you look at a comparative example in prostate, in an IMRT case, kind of a fractionation scheme, you'd be treating a patient in 8 or 10 weeks with 39 or 45 treatment fractions. With CyberKnife, with an SBRT hypofractionation model, you'd be treating that patient in 4 or 5 treatments in a given week. So from a patient experience standpoint, from a clinical outcome standpoint, from a payer standpoint, all interests are served -- better served with this direction in terms of the shift in methodology around thinking -- this thinking. And again, we have probably more experience than any of our competitors as it relates to SBRT and hypofractionation. The safety and the confidence that comes from being able to increase dose -- that allows you to increase dose and that comes from our embedded technologies like Synchrony, where we're automatically compensating for motion, if it's respiration in the thorax, if it's changes in internal anatomical position, as the tumor shrinks through more treatment and more exposure to radiation over time and the anatomy around the tumor, filling in what had been occupied by tumor -- space occupied by tumor, all of those changes are compensated for by Synchrony, which is -- it requires no implantable fiducial markers, and it really is a unique technology from an overall capability standpoint. So our portfolio is very, very well positioned to be a very attractive opportunity and offering for customers who want to move more in the direction that the reimbursement momentum and shift is going to be pushing them in. We have probably more long-term clinical data as a company that are device-specific for our products than any other company in this space, and that's not insignificant. This is a slide that shows how dramatically in terms of the collapsing of treatment -- total treatment time you would go through in a long breast and prostate situation, if you went from a conventional fractionation scheme to a hypofractionation approach, pretty dramatic differences in time. We've talked a little bit about Synchrony. Again, it's the only true solution for true motion tracking, which really brings the beam to the tumor directly, automatically. It results in tighter dosing margins and minimizing dose to healthy tissue. Talk a little bit about long-term data. This is a really good example of the kind of data that's being produced and generated now. The PACE trial is the largest study in our space that's ever been done. It includes 874 patients from 37 centers in 3 different countries. And it's comparing the use of SBRT with CyberKnife against conventional linear accelerators in the form of prostate treatment. And essentially, what it says is that you can do hypofractionated treatment delivery in this disease state with dramatically shorter time lines, dramatically reduced risk of grade 2 or higher radiation toxicity and get tremendous clinical outcomes. And so these are the kinds of studies that we intend to continue to fund, continue to drive more of because we need to -- as far as positioning of our products and their clinical validity, we think these are important metrics and important value creators in terms of our selling process. Just to wrap-up, the 3 pillars here in terms of accelerating our company's revenue situation and revenue growth capabilities are China, the impact of the value-based care model in the U.S. and the ongoing replacement cycle opportunity that we have with our installed base customers. Thank you very much. Appreciate your time and attention. And I think we're going to be concluding in the Yorkshire Room for Q&A. Thank you.

Good morning. Thanks for being here. Let me introduce myself and my colleague. I'm Josh Levine, I'm the President and Chief Executive Officer of Accuray; and I'm here with Shig Hamamatsu, who's our Chief Financial Officer. And looking forward to taking your questions.

I was wondering if you can start on China. You mentioned $115 million in the backlog and starting with first -- fiscal fourth quarter, you're expecting some revenue to start flowing through. So I'm just wondering how much you're embedding into guidance? And then what would drive sort of the progression between 24 and 30 months, like how you're thinking about that?

So I'll start, and Shig can tag on. Just to be clear, Eleni, we -- the numbers that we talked about in the presentation with regards to revenue -- accelerated revenue activity and growth rates, those are forward-looking. That doesn't change our current guidance. We haven't -- the guidance that we've had out now since the beginning of this fiscal cycle. So we're not changing guidance for or restating guidance for anything related to fiscal '20. What we're saying is, the recognition -- the visibility of revenue recognition will start to occur in -- that China backlog in Q4. But from there, it's probably a 20- to 24-month kind of window that we have line of sight to at this point that -- where that $415 million will come -- be taken to the P&L.

Yes. Just to add what Josh just said, so there's some units for China revenue conversion out of the $115 million built into our Q4 revenue assumption. But we're not going to get into specific about how many units. But I think what we can tell you is that the -- our team in China has gone through all of the 50 accounts that won the licenses to get understanding of when they are ready to take the shipments. And based on that, again, it has given us a lot of visibility over the next 24 months starting Q4 to take those through revenue.

Other questions from others in the room or Eleni is going to dominate the question -- the question-and-answer period, which is fine.

So you mentioned that -- so you have a great win rate. You had a great win rate with the 50 systems. Just wondering if you have any idea of when the second round will hit?

From -- if you -- the only thing we have to go on at this point is kind of what the first round look like vis-à-vis timing. Based on that, we would guess -- again, the application process window for the second round closed on December 31, just at the end of last calendar year. And based on the experience in the first round, Eleni, our view is that there ought be an announcement about the second wave of Type A awards probably some time in the next 6 to 8 weeks, we would imagine, somewhere in that window.

And then how many rounds after that are you expecting?

So they -- it's all tied to the original quota number of -- in Type A of 188. Now when they announced the quota, it was October of 2018 and they said that the quota would cover the period from the time of the announcement through the end of calendar 2020. The fact that -- I would guess maybe 15 months elapsed, maybe 18 months elapsed before -- they didn't have a process in place for end-user hospitals to actually be applying for licenses. So there was some start-up hiccups here on their end -- on the government's end. But -- so it isn't clear to us whether or not the -- all of what's in Type A quota, will it be applied for and awarded by the end of this calendar year as originally intended or is it possible that, that would be extended out. I mean, I don't -- we don't have any visibility to that. I think that the thing -- the most important takeaway in my mind is that there's -- when you look at the sheer numbers that -- of devices that have to go into the ground that the Chinese government is absolutely determined to make sure that they procure and put into use as rapidly as possible. We're going to be in this -- the cycle that we're in now, we're going to be in these cycles for an extended period of time over the next several years. I mean, it's -- I think -- again, if you start looking at the absolute numbers at even the low end of the range of what is needed in China from a radiotherapy capacity standpoint. While admittedly, the bulk of it -- the bigger piece of it is going to be in unit volume context is going to be Type B. They're going to be taking applications for -- through the central government on Type A for, I would imagine, the next 3 or 4 years probably.

Yes.

I was wondering do you have a view of what are the risks in the China market that you could face and specifically to do with -- do you see any risk with product application in the local market as well for the long term?

So this is a really good question. And it was something that we were very focused on during the process through which we were evaluating. Do we pursue a go-it-alone strategy? Do we pursue something with a partner or a JV situation? And then once we made the decision on the JV and who the right partner was. So interestingly enough, we feel strongly that one of the things that's been most beneficial and most helpful for us by choosing China Isotope & Radiation Corp as the JV partner is their assistance in these types of activities that you just inquired about. If you look at the permitting processes and the business license processes, these are -- these can be very, very slowly developing and approved activities in China. Certainly, probably would have been much more tortuous path, if you will, for us doing it alone on our own. I mentioned during the presentation that we were awarded -- the JV was awarded a radiation safety license in 60 days. When we've had -- we have -- we started -- we broke ground in July of last year on the manufacturing and training facility and primary administrative offices for the JV, we -- I was there last week for several days. That building is -- except for the main production area is almost complete. The training area is complete. The offices are built out and occupied now. And they're expecting completion of the entire manufacturing facility probably by the end of April or May. And so we have benefited from China Isotope being part of a state-owned entity. Their parent is a company called Chinese National Nuclear Corp, and they are the arm of the government that builds nuclear power plants. They run the nuclear power generation grid, all primary research on anything health care-related in terms of nuclear medicine is part of their charter and domain. And we're benefiting from that in terms of the pace at which this JV is being operationalized as well as we think in terms of product approval cycle times. There's a process there for product approval and product registration that's defined as a green channel approach, which not many western companies get to participate in. And -- but I think we will benefit from having that as an option because of our partner. So it would indicate probably some kind of accelerated time line for product approval, especially for the Type B product that's going to be produced in Tianjin.

I also want to make a point that the Type B product that we intend to manufacture through joint venture, that is largely based on an existing product, which is already approved in China. So we see very little risk of not being approved in the time line that Josh stated.

Other areas, other topics?

In terms of the ATM, just wondering if you heard any indications in terms of the time line for the final policy and any feedback you heard?

It's -- yes, it's a good question. So there've been a lot of different messages coming out of CMS over time. The first wave of discussion or at least information was this was something that they thought they were going to get launched -- formalized and launched some time early this calendar year, then that date seem to have slipped maybe to July. We have actually heard rumblings that they're going to -- it's going to be delayed from there. I don't think -- so just to be clear, Eleni, simply put, they haven't updated anything to date since the last discussions when they were identifying that the open comment period, the public comment period on the proposed fee schedule was being -- was now closed, which was probably some time last fall. They -- I think the interesting thing here is this. As part of all of their discussion related to the changes they want to make or what they proposed, there is an estimate of somewhere in the neighborhood of $250 million to $300 million in savings for CMS, if -- once implemented, over the course of the 5-year period, the test period, if you will. And it seems improbable that they would want to delay that. There's a need and there's an opportunity for them to capture, certainly, some of that the sooner they get started. And I think that there's -- I would -- instinctively, I think that there's a likelihood you'll see this happen this year, 2020. When in 2020? I wouldn't -- probably wouldn't venture a guess, but I wouldn't discount the fact that it could get started this year.

And you've noted that you think you're in a competitive position to benefit from this. Can you walk us through sort of why you think that?

Yes. So it starts with the fact that we probably have more experience with hypofractionation as a consequence of our product -- unique product architecture and the way those products deliver treatment. So we've been promoting the use of and the positioning of hypofractionated treatment delivery for more than a decade today. The market has a reasonably high degree of awareness about products like CyberKnife and Tomo/Radixact. They know their devices that are both very, very capable and now very, very efficient at delivering SBRT treatments and hypofractionated and ultra-hypofractionated treatment delivery. The real question -- if you look at what CMS's proposal captures, one of the elements of it is, while they're going to encourage or incent providers to move towards hypofractionation, they realize that many of them haven't had experienced clinically with delivering high dose, shorter frequent -- shorter fractionation schemes, which, to some degree, creates some patient risks in terms of what CMS wants to measure as quality. And one of the things that gives patients -- gives both patients, but primarily clinicians, peace of mind with our devices is Synchrony. The ability to not have to utilize gating, utilize patient positioning devices to ensure that you have beam locked on target through the entire treatment cycle. And Synchrony is a unique capability to our products. We're in -- it couldn't be more timely. We're in the process of bringing Synchrony to the Radixact platform. We've had it on the CyberKnife platform for well over a decade. And we've got clinical data now that shows that we have tighter margins and much lower incidents of grade 2 and grade 3 toxicity when compared to conventional linacs and conventional fractionation schemes -- utilizing conventional fractionation schemes. So I think -- I don't think that there will be an overnight shift in equipment in the market, but you will -- if you are a radiation -- hospital outpatient radiation department, you absolutely are going to -- you're not going to be able to maintain how you're approaching treatment planning and the fractionation scheme because the days of being paid on the number of treatments that you're delivering -- I mean, you're not -- you're going to have some real, real challenges and constraints from an economic standpoint very quickly. So people that -- I mean, they're going to -- you're going to see people embracing more SBRT. You're going to see more of that SBRT delivery coming in the form of hypofractionated delivery. And I think that, that really bodes well for us. I'm not saying that it only bodes well for us. I think that our competitors have the ability to deliver SBRT as well. But I think this is -- I think we're well positioned from a portfolio standpoint, given the backdrop that CMS is trying to create. In the back?

How do you think that the change to kind of the proposal for kind of the value-based reimbursement bundle is going to kind of change the way that the customers are considering the CapEx purchase?

Yes. It's a really good question. So we had a panel presentation and a panel event at ASTRO back in Chicago this past fall. And we had a very kind of broad cross-section of department -- Chairman of radiation oncology departments in a variety of -- from a variety of different profile types of institutions. There were large academic medical centers represented. There were -- there was a number of regional hospitals and a community hospital involved. And based on their case mix, they all have -- one size doesn't fit all. I mean -- I think a lot of this becomes situationally dependent upon the nature of your institution that the -- your experience and what you're seeing with regards to case mix, case diversity, case complexity. But the common theme through the entire discussion, regardless of which one of these institutions and the people, the docs that were involved, is -- it was pretty clear that they weren't going to be able to ignore the economic realities that they were going to -- where perhaps in the past they might have left on the path that they were on, they might have just continued on with IMRT as the dominant approach to their overall treatment mix paradigm. They were all pretty convinced that SBRT was going to be a bigger part of the -- of overall treatment for their given case mix. Not surprisingly, the larger academic medical centers, by -- just by definition, they are typically seeing more complex cases. They typically have larger numbers. The footprint of their radiation oncology departments in terms of the number of devices, the number of bunkers that they've got tends to be a larger footprint. And they -- as a result, they tend to have not just routine conventional linacs and kind of workhorse devices, they tend to have 1 or 2 bunkers dedicated to specialty devices and devices that are more unique characteristically to treat certain types of cases. And again, that would be -- that's an environment where you find probably, typically, more of our devices, given kind of the specialty nature of them. But I think, generally, the momentum discussion-wise at ASTRO was, it's going to be a catalyst for people rethinking their approach around IMRT that the level of -- the mix, if you will, of IMRT versus SBRT and the use of hypofractionation going forward. Yes, in the back?

With the 50 wins in China for Type A products, can you speak to the revenue growth potential for fiscal year '21 through '23? And how that may have an impact on expanding EBITDA or the pathway to GAAP profitability?

Sure. Thanks for the question. So with the 8% to 12% growth range we talked about on the top line, so to give you a sense, we guided to midpoint $415 million this fiscal year ending June and we haven't changed that guidance. But take a midpoint, 10%, the top line for next year, I think we could be in the $455 million, $460 million range based on a growth rate at midpoint. We can deliver those China revenue we talked about at current gross margin of 39% to 40%. And we do not need to add much OpEx. Josh talked about the leverageable operating model that we have today. Because if you think about it, the $115 million that's going to drive the revenue growth we're projecting, these are already sold. We don't have to have additional feet on the ground to drive those revenues. So that's one of the main reasons why we can leverage our model, deliver the growth I just talked about. So $40 million, $45 million of extra revenue next year, 40% margin, let's say, $15 million of EBITDA added to our run rate. So this year, we'll guide into midpoint $22 million of EBITDA, add the $15 million, $16 million. You can see that we can be high 30s pretty quick just in the next year. That represents probably 50% EBITDA growth just in 1 year. We think we can sustain that level of top line growth and margin expansion especially going to year 3 and 4 and years out because of the Type B opportunity Josh talked about with the locally branded manufactured product coming online in about 18 months. That is a much bigger opportunity in China in addition to our belief that we can continue to win the A market. So that's the expansion opportunity we're looking at.

And in terms of path to profitability, what are -- where are you targeting?

Sure. Yes. We can be pretty close to GAAP breakeven next year at the rate that we talked about. As we generate more cash flow, our intention is to reduce the debt leverage in the near term and that's going to even accelerate our path to GAAP net income. So we have a real opportunity to get to GAAP net income in the next 12 to 18 months. We already had operating profit -- GAAP operating profit this past fiscal year. We're going to expand on that this year even with relatively modest revenue growth this year. And that's going to accelerate for the reason I stated in FY '21.

In the back, again?

In your presentation, you mentioned that in the China quota system, there is going to be a total of 188 Type A licenses. You got 50 out of the 58 that were out there, so that leaves another, what, 130 or thereabout.

In round numbers, yes.

When -- how do you see your ability to get more of those? And how does that impact your performance going forward?

So the process for Type A license awards is managed and administered by the Ministry of Health. It's part of the central government. The Type B licenses, the Type B process are managed in the provinces through the local -- more of the local health administration personnel. But -- so for Type A, the way -- the approach they've taken is that end user hospitals that want to apply -- that want to compete for a license for a Type A device, they have to get an application into the central government. The -- there are defined time lines and stop -- hard stop dates that they have to hit in order to be in the queue for evaluation for those licenses. Once the applications are complete and in -- so the second tranche that -- just by example, the second tranche -- the application window closed on December 31 at the end of the last calendar year. Those applications are reviewed by a committee of key opinion leaders in radiation oncology that the government has assembled to evaluate those specific hospitals that have an application in for license to determine the prioritization of where they are versus the rest of the peer universe of applicants. Who -- where are they geographically? What's the level of need in those areas and with the patient population in those areas? What is the readiness of those facilities to actually take a device and be ready to put a device in use as rapidly as possible? All of those factors are kind of criteria that this key opinion leader committee -- evaluation committee is utilizing to determine who gets a license and when they get it. And then -- so the -- in round numbers, your question around the remaining 130, if we use the time lines involved in the first tranche, we would say probably inside of the next maybe 8 weeks or so, there should be some kind of an announcement on the second round of applications that have been collected. And I think that process kind of just -- it repeats itself going forward until they've moved through the full range of the 188. I think that there will be, at the end of that, is -- these quotas were originally intended to run on the government's 5-year economic and social budgeting plan. It defines all of the federal budget requirements including the military, the health care system. And we would assume that there would be another round of quotas that would be generated on the other end -- after calendar year 2020 is complete. So again, they've got a long way to go to get to the -- even the low end of the range of what they've identified as the required incremental capacity needed to serve the market.

Thanks, Josh.

Okay. Thanks, Eleni. Thank you, guys, for your interest.

Thank you.