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ViewRay, Inc.  (NASDAQ:VRAY)
Q1 2019 Earnings Call
May 02, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2019 ViewRay, Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.(Operator Instructions)

I would now like to turn this conference call. Ms. Michaella Gallina, you may begin. Ma'am.

Michaella Gallina -- Senior Director, Investor Relations and Communications

Thank you, operator. Good afternoon, everyone and welcome to ViewRay's First Quarter 2019 Financial Results Conference Call. Joining me today from the Company are Scott Drake, President and Chief Executive Officer; and Ajay Bansal, Chief Financial Officer. Earlier today, ViewRay issued a press release announcing its first quarter 2019 financial results.

A copy of the release is available on the Investor Relations portion of the ViewRay website at www.viewray.com. We encourage you to review that document. This call is also being broadcast live over the Internet at www.viewray.com, and a replay of the call will be available on the website for 14 days.

Before we begin, I would like to caution listeners that comments made by management during this call may include forward-looking statements within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties and actual results could differ from those projected in any forward-looking statements due to numerous factors including those discussed in the Risk Factor section in ViewRay's Form 10-K for the year ended December 31st, 2018. And any subsequent reports filed with the Securities and Exchange Commission.

Furthermore, the content of this conference call contains time-sensitive information and is accurate only as of today May 2nd, 2019, ViewRay undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call.

I will now turn the call over to Scott.

Scott Drake -- Chief Executive Officer

Thank you, Michaella. Good afternoon, everyone. We appreciate you being with us. On today's call, I'll begin with Q1 financial highlights, share progress we're making on the commercial, operational, clinical and innovation fronts, provide an update on the competitive landscape. Ajay will go deeper into the financials and we look forward to answering your questions.

I'll begin with Q1 financial highlights.This was our second full quarter with the Company. I would describe it as solid and another meaningful step in the right direction. We are progressing through the operational improvements of the business and closing out historical commitments, while concurrently building our commercial engine, our sales pipeline is growing as anticipated, and resulted in seven orders this quarter.

The orders spanned academic institutions, community hospitals and free standing centers. We are sharing our economic, clinical and strategic value propositions and customers of all types are responding favorably. Our backlog grew to approximately $238 million and there were no orders removed. Revenue in the quarter was $20.3 million which included three installations and one upgrade. Our gross margin in the quarter was negative. We now have completed three Cobalt to Linac upgrades and as such, have clarity on associated costs. We have six more upgrades in 2019 and 2020 and are taking a charge of $7 million that encompasses all of the remaining commitments. We are standing behind these historical commitments despite the negative margin associated with them, as we believe this is the right approach for our customers and for our Company to move forward.

Our cash burn was approximately $22 million in the quarter. This burn rate was what we anticipated and we expect to reduce the amount of working capital used in the quarters ahead. We are well positioned with our current cash balance of approximately $146 million and we are reaffirming our previously given cash and revenue guidance for the year. Let's turn to an update on the commercial front. Our US team is fully in place and ramping up productivity. Similarly, we are strategically building out our international direct footprint and our target account list has grown in proportion to both our larger team and enhanced sales process.

We have recently secured partnerships with key distributors in Australia and Canada. They each have a track record of success launching breakthrough capital technologies in their respective markets. We have strong relationships with these distributors and are confident in their ability to execute on our comprehensive MRIdian sales program. Operationally, we continue to drive significant progress on both readiness and installations. We are making methodical improvements on purchase order to Rev Rec cycles while concurrently delivering excellent customer service.

We just returned from a successful ASTRO conference in Milan. Over two dozen clinical presentations and posters representing over 115 MRIdian patients were showcased across a variety of clinical indications. There were physics presentations highlighting Organ Motion, plan quality and quality assurance. There were impressive clinical outcomes and research reported on patients with abdominal lymphomas, adrenal and ovarian liver metastasis, peripheral and central lung tumors and breast, liver, pancreas and rectal cancers.

A few clear takeaways from the conference. First, customers are moving toward SBRT, this movement is pronounced and it spans cancer types in global regions. Second, interest in MR Linacs generally and MRIdian specifically is growing. The market is moving in our direction and MR presentations were center stage and pervasive at the Conference. Third, customers more fully appreciate how truly differentiated MRIdian is. How uniquely suited we are to drive the desired trend SBRT and how clearly we stand out from the competition. While others are talking about what they may be able to do in the future, we are actively selling a clinically groundbreaking solution. MRIdian is the only system that contract tumors and soft tissues in real time and therefore, shape a precise and accurate dose.

It is the only system that strikes automatically when the tumor is in plan target and also stops automatically when a vital organ is at risk. It concurrently delivers an ablative dose and preserves healthy tissue. Our top customers are utilizing SBRT in 75% to 100% of patients versus about 15% unconventional Linacs.

We now have a commercial team worthy of the opportunity and they are armed with expansive clinical data. We have treated about 5,000 patients, delivered approximately 5,000 on table adaptive treatments and have been the subject of hundreds of peer-reviewed publications, posters, and abstracts, knowing exactly what patients, physicians, providers and payers seek, superior outcomes, shorter treatment times, favorable economics, higher patient throughput and greater access to excellent care.

Patients are taking notice, we recently learned about a cancer patient that drove his RV, 11 hours from the Greater New York-New Jersey area to Henry Ford Hospital to be treated on MRIdian. He slept in his vehicle in the hospital parking lot at night between his SBRT treatments and safely made the drive back home right after his fifth and final fraction.

Think of the great cancer centers near his home and between his home in Detroit. This is the power of MRIidian, and our team is working hard to bring our system close to every patients' home. Future innovation will further separate us in the market. We are laser focused on extending our leadership position and commercializing future capabilities that customers describe is groundbreaking.

Customers that have embedded our pipeline believe that we are, and we'll be delivering what the space is always sought, precise, accurate and personalized medicine that will get faster, smarter and more elegant over time. In summary, the market is moving toward SBRT and we are uniquely positioned to drive this trend. Customers from academic centers to freestanding clinics are responding favorably to our value proposition. Our commercial, clinical and innovation pipelines are growing. MRIdian is in process or already installed in about 20% of NCI designated comprehensive cancer centers and that share is rising. Patients are traveling to MRIdian accounts, validating the strategic and economic value of our system. It is early in the year, but we're excited about the foundation we are building to capitalize on the opportunity ahead of us.

With that, I'll turn the call over to Ajay.

Ajay Bansal -- Chief Financial Officer.

Thank you, Scott, and good afternoon, everyone. For the fiscal quarter ended March 31st, 2019 total revenue primarily from three revenue units and one system upgrades was $20.3 million. In comparison, revenue in the first quarter of 2018 was $26.2 million, cost of revenue was $25.7 million compared to $20.6 million for the same period last year. Total gross profit was negative $5.4 million compared to $5.6 million for the same period last year. Let me provide some additional color on our cost of revenue. In the first quarter of this year, we completed upgrading out third MRIdian Cobalt system. With the completion of this upgrade, we now have more clarity on the associated costs, which are more than the historical price commitments made to early MRIdian customers.

As a result, as Scott mentioned, in the first quarter of this year, we took a one-time charge relating to historical upgrade commitments. This charge in addition to the expense of the upgrade that we completed in the first quarter totals approximately $7 million. Excluding the $7 million impact, our overall gross margin in the first quarter was approximately 8%. Total operating expenses in the quarter were $25 million compared to $16.9 million for the same period last year. Net loss for the quarter was $33.4 million or $0.34 per share compared to $7.5 million or $0.11 per share for the same period last year.

Turning now to orders and backlog. In the first quarter of 2019, we received seven new orders for MRIdian Systems totaling approximately $43 million compared to three orders, totaling approximately $21 million for the same period last year.As of March 31st, 2019, our backlog stood at approximately $238 million compared to approximately $212 million at year-end 2018. There were no orders removed from the backlog this quarter. In the first quarter, our cash usage was approximately $22 million. We ended the quarter with total cash and cash equivalents of approximately $146 million.

Moving now to guidance, we are reaffirming our previous guidance for 2019. We expect total revenue driven primarily by 17 revenue units to 19 revenue units and 3 upgrades in the range of $111 million to $124 million. For the year, we are projecting a cash burn of $65 million to $75 million.

With that, we would now like to open up the call for Q&A.

Questions and Answers:

 

Operator

(Operator Instructions) Our first question comes from Chris Pasquale with Guggenheim.

Christopher Pasquale -- Guggenheim -- Analyst

Thanks. And congrats on the quarter, guys. Scott, wondering you just give us an update on the areas of focus that you identified when you came over to the Company a few quarters ago and now which areas still have the most work outstanding, which areas you feel like you're furthest to long in.

Scott Drake -- Chief Executive Officer

Yeah. Thanks, Chris. If you think about kind of chronologically how a customer engages with the Company. Let me talk you through there and give you some context on the areas that they have done the most work and those that we probably have the most to go. I would say, at the very front end of the funnel from a commercial standpoint, the US team is fully built as you're aware, the international team, I would say were in progress, maybe 50% of the way complete with the work that we anticipate doing here in the short run, on that front.

From a vault readiness perspective, again, just to be clear for those newer to the story, the Company historically was passive as it related to that critical period of time. Upon signing a purchased order and now we are proactively engaging with our customers to help them prepare the vault, and get ready for installation.

I would say, Chris. That team is probably give or take 80% built, very pleased with the work that they're doing and customer reaction is positive on that front. The installation team is fully in place but we have to scale that team as we're doing more and more installations concurrently. The team that we are probably growing most rapidly right now is the clinical sales team that's driving therapy adoption. We have a number of them in place, but we have a number of them to hire out into the future and I would say also probably about a 100% of the way there in terms of our field service engineers. And again customer feedback and the service that we are providing is excellent. So a lot of the work in terms of hiring the team has done. The area that we're most excited to get at that we're, that we're currently not prioritizing is gross margin expansion. There is a lot of opportunity on that front. But we're prioritizing, some other things at the moment. I would anticipate later in this calendar year and early in '20, we'll be getting at gross margin expansion more aggressively than we are now.

Christopher Pasquale -- Guggenheim -- Analyst

Thanks. It's very helpful color and then another area that you mentioned, you want to prioritize that didn't get as much air time on this call is clinical data generation. I know you've started with the pancreatic cancer study. Can you just give us an update on what else we should be looking for you guys to do over the course of this year and with pancreatic cancer in particular. Now, you had a chance to get that study going and you had maybe some feedback from physicians, what's your goal for that dataset? Is that dataset going to be sufficient to really change practice assuming it replicates what you saw in the earlier experience or is this a stepping stone to something larger. Thank you.

Scott Drake -- Chief Executive Officer

Yeah, Chris, I think there's -- there is a couple of big points that I would make there. Number one, the things that we're excited about in 2019. I think the AUMC prostate data will be coming out. We saw high-level data at the ASTRO Conference. That was very impressive. The -- it was the full room that it was presented to, and a lot of dialog, both with the panel and afterward. In terms of the excitement around the precision of care, the toxicity levels and I think that one is very interesting to people.

As it relates to the SMART study, I think very good progress is being made there, to your point. We are building a clinical team that's capable of doing much larger studies than what the Company has done in the past, and frankly maybe much larger than the space has seen previously and we're preparing for work on that front. We anticipate that the SMART study will help us change practice. We think it will validate what we saw in the high dose, low dose study, where you saw mean survival about double. You saw us deliver a very high dose of radiation therapy in Grade 3 or higher toxicity not only went down, it vanished (ph). So we think the continuation of that clinical work will indeed help us as we aspire to change the standard of care in the space.

Operator

Thank you. Our next question comes from Anthony Petrone with Jefferies.

Anthony Petrone -- Jefferies -- Analyst

Thanks and good afternoon and congrats on a good quarter. Maybe a couple on the installations in the period, which came in ahead of our expectation. Scott, can you give us an update on just where the average installation cycle is today versus, say, last quarter and a year ago. And where ultimately you think the installation cycle can go and then I will have a couple of follow-ups.

Scott Drake -- Chief Executive Officer

Yeah, absolutely. First. Thank you, Anthony. I think the, as you guys are aware, the installations that we're working on are more or less baked about a year ahead of time. So we're still executing on what I would call kind of the legacy pipeline that the new management team inherited and I feel like that work is being done in an outstanding way by the team. We have capabilities to do more installations in parallel now than we did previously, and the work is being done in a very systematic fashion, and I think, we'll continue to make steady improvements throughout 2019.

We are seeing a little more high level, Anthony, as you're aware, than what the previous team shared in terms of installation timeframes. But I would tell you that we have made very steady progress on a quarterly even monthly basis and that will continue throughout 2019 and probably in to early 2020, when we'll get to the stated goal that the Company has which is, generally speaking, 80% or so of our orders will be able to translate into revenue in a 12-month period of time versus 18 months previously.

So I feel very good about the work that the team is doing both on vault readiness and installation at this point.

Anthony Petrone -- Jefferies -- Analyst

Very helpful. My follow-up question would be really a repeat from last quarter, we are now 180 days or so into an environment where at least in the US, there is two offerings out there, has that sort of changed anything from ViewRay's perspective in terms of the dialog, does it open more discussions, how competitive are those discussions? Any update there would be helpful. Thank you.

Scott Drake -- Chief Executive Officer

Yeah, Anthony, I think it's fair to say that having two companies really touting the merits, MR Linacs is helpful in terms of the awareness in the overall marketplace and I think what we saw at ASTRO frankly is probably a credit to both companies. Really touting how different the visualization capability is with MR versus cone-based CT.

So I think that there is a little bit of a kind of a group effect, if you will, in terms of the awareness in the marketplace. As it relates to the competitive dynamic in the US market, I would say generally speaking, we just bring a very different approach to the market than how others are choosing to go to market . We lead with clinical data, we lead with innovation. We very appropriately have the highest value and have the highest price product in the marketplace and we don't focus on discounting ASPs or bundling and others really kind of see the market a little bit more through that paradigm. So there is some positive effect. There's probably a little bit of competitive effect in there as well. But we feel with customers across the landscape from academic centers to community hospitals and freestanding clinics responding favorably to our value proposition. We very much like the opportunity that lies ahead.

Anthony Petrone -- Jefferies -- Analyst

Thanks, again.

Scott Drake -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Suraj Kalia with Northland Securities.

Suraj Kalia -- Northland Securities -- Analyst

Good afternoon, gentlemen. Can you hear me all right?

Scott Drake -- Chief Executive Officer

We can, Suraj.

Suraj Kalia -- Northland Securities -- Analyst

So first of all, Scott and Ajay, congrats on a good quarter. Let me start out, Scott. You've been telegraphing for some time in terms of how you all are implementing changes on the sales process, buttoning up loose ends . And I respect you're being very careful about how you -- how you, what you're suggesting. I guess, if I look at, since the time you've come on board . Can you give us some color on what is the average? How is the average time to close the deal changed? What you saw before in terms of the sales guys doing to now, if I can choose a metric of average time to close the deal. How is -- how has that changed? And also, you guys seem to be stepping up the unit order quantity on a quarterly basis and the cash burn that's gone down . Can you tie all of this together and you give us some color. Suraj, this is what we did to the sales force. This was what was lacking . This is how we are managing cash. And this is where the time to close the deal is changing.

Scott Drake -- Chief Executive Officer

First, Suraj. Thank you so much. I appreciate the compliment and the question. I will, I'll touch on the answer. And maybe invite Jim Alecxih to add some color if you would like to hear in a minute. I do believe that we are in the process still of changing the selling process and I have to give Jim and the team a lot of credit for that. I think in fairness and in candor that US team has just been ceded as of February of this year. So while some people have been around for a longer period of time and we've got a number of very talented ViewRay teammates that predated Shar and I and the management team, I would say the overall team now is in a new territory and ceded just as of February.

So I don't want to make too much of any of these data points. Again, as you're aware, we want our performance to speak much louder than our words. I would tell you anecdotally there's reason for optimism. We have some customers that we have brought through the sales process, very rapidly. We have had customers respond inside of one or two quarters from being new to the MRIdian story to closing on a one or even in one case, I think maybe a two system deal. So I do think there are some signs of speeding up that introduction to purchase order process and I have to give Jim, a lot of credit for what he is doing on that front, before I welcome him to make a comment, I would say, I do think the team has done good work in Q4 and here in Q1, as it relates to orders. I think it's fair to give that team some time to settle in to their territories and we can expect them to become more effective over time and I would also remind us to not make too much of one or two quarters. We want to prove our worth over a longer period of time.

But we very much like the value proposition and where we're taking the business out into the future. Jim Alecxih, you want to make a comment.

James Alecxih -- Chief Commercial Officer

Sure. I think we're encouraged by the number of customers that we're engaging that are actively evaluating our technology and as we build more clinical data and get more market momentum, I think that we will start to make strides in really consolidating condensing the timeframe of the purchasing process. But as Scott mentioned, we're a new team and so we're just in the process of bringing our teammates up the learning curve and really articulating the value proposition to all our customers, so we're pleased with where we are at. But obviously, lot of room to make improvements moving forward.

Suraj Kalia -- Northland Securities -- Analyst

Got it and Scott, last two questions, I'll just lump them together. The first part is that you guys are obviously putting a lot of emphasis on R&D. I know you probably are not going to be too specific, but will the next innovation or change from your side, will it be on hardware or software side? So that's one question and the second question is, you guys mentioned 5,000 on table adaptive treatments. I understand the on table part. Do we have an idea based on you guys' internal analysis. Hey these many treatments required a change in the dosage versus conventional Linacs or for that matter because we use MRIdian, we were able to reduce the number of treatments or the fractions, is it too early or do you think 5,000 is the bogie, 10,000 -- at what point of critical mass do we start getting an idea, you know what, this is how a trend line is developing either in terms of the dose strength or in terms of the number of fractions. Thank you for taking my questions and congrats, again.

Scott Drake -- Chief Executive Officer

Thank you, Suraj. I -- we closed out on the commercial piece, but we didn't mention cash, you asked about cash, I think you'll continue to see throughout 2019 that we're going to be reducing the working capital needs of the Company. We have a team in place that's being very smart about that. I can assure you that nothing we're doing will get in the way of the growth of the business. But we want to be very prudent in terms of working capital utilization. So I feel very good about that, Suraj, I wanted to close off that loose end with you. As it relates to future innovation, there will be probably about 20% hardware improvement maybe slightly less than that. There are some things that we'll be doing in the not too distant future from a hardware perspective to help speed up -- speed us up in the future. And from a software perspective, where we're going is just pretty extraordinary in my estimation and perhaps more importantly, customers that have embedded our innovation pipeline, call that pipeline groundbreaking.

There will indeed be some kind of derivative improvements, but there are some, some real breakthroughs that we'll be introducing in the timeframe to come -- heavily, heavily weighted toward software. I would say. As it relates to the fractions that we've treated. I said 5,000 adaptive treatments, we've done something like over 100,000 fractions that we completed (ph) with the system and it was interesting at ASTRO one of the presentations that I saw with the customer that use -- that uses our adaptive capability on the vast majority of their patients. Interesting to compare the original treatment plan would have missed the target something like 75% to 85% of the time, which really underlines the value of being able to do on table adaptive treatment. You can imagine what it would be like for that patient using that same treatment plan for weeks at a time. It's just so profoundly different and we're excited to be bringing this capability to the marketplace. Hopefully, that answers your question.

Suraj Kalia -- Northland Securities -- Analyst

Thank you.

Operator

Our next question comes from Difei Yang with Mizuho Securities.

Difei Yang -- Mizuho Securities -- Analyst

Hi, good afternoon and thanks for taking my question. Just a couple, Scott, you at this point, do you have maybe color to share with regards to the orders coming from the typical teaching hospital, or research hospital versus community centers?

Scott Drake -- Chief Executive Officer

Yeah, you know what, I would just. I would tell you that we're very pleased that the orders that we booked here in the quarter that we're announcing and I would even say the pipeline that we have to follow is a much more diversified group of orders and pipeline moving forward. I think, there were a lot of questions kind of historically as to whether or not MRIdian would get beyond the academic centers. I think, the answer to that is a -- is a pronounced, yes at this point that is current state and future state of the business. We don't care to break it down any more granularly but I would tell you that we're pleased with the balance of that pipeline in terms of the kinds of customers that we're approaching and the response to the value proposition that we're putting in front of them.

Difei Yang -- Mizuho Securities -- Analyst

Yes, thank you for sharing that level of details. And then with regards to reimbursement to the hospitals or centers, their services to the patients, do you hear much pushback on the economic side and how do you foresee that workout for the centers? Because I think that clinical benefit is or at least the consensus view is that MR Linac it is a better technology. The question is how do we get that paid for?

Scott Drake -- Chief Executive Officer

Yeah, I think from a reimbursement perspective, a couple of things I would say there. I think in the current reimbursement scheme in the US market, the current scheme takes into account the value of adaptive treatment. The work and time requirement. The patient impact, the quality check and we are reimbursed, I would say appropriately for that work that we do. And if we eventually go to a bundled payment, which is possible and we are engaging with CMS and AdvaMed and Astral on that front. It's possible that we go in that direction. I would say, that we're probably in an even more advantageous position, because what we hear from customers is that they will be moving probably even more aggressively toward SBRT, and I think you've heard thought leaders say that MRIdian is kind of the ultimate SBRT machine. So I think we're in a good position regardless of what happens on the reimbursement front.

And I think, we're doing a better and better job of telling our economic story in the marketplace. If you just look at the throughput of the system, a MRIdian system as it's being used today at one of our centers treats about 400 patients per year, an average Linac treats about 250 patients and if you were to do on table adaptive treatment, you're talking about a return on invested capital of 2 times or greater on our system. So I feel like we're in a very good position there, but we are just now starting to tell that economic story in a better way to our customers.

Difei Yang -- Mizuho Securities -- Analyst

Thank you, Scott. And my final question is actually a financial one. So with regards to the one-time write-off of the $7 million, is it mostly labor-related or is it mostly material-related, trying to understand the nature of the write-off and I assume, it's a one-time event, it won't happen in the future.

Scott Drake -- Chief Executive Officer

Yeah, I'd tell you, what. I'm going to have Shar, help me with the breakdown there. But I -- let me just take the macro question, it is very much our goal, we have waited to do a few of these upgrades to really understand what we think the costs are to do the cobalt to Linac upgrades. As we shared in our prepared remarks, we have a total of six more upgrades to do, that we anticipate doing between now and roughly at the end of the 2020 timeframe. And we've taken that $7 million charge in aggregate or the upgrades that the Company has committed to.

We believe that we're doing this once and we're doing it right, that is our goal and Shar, can you help breakdown maybe roughly the difference between labor and materials.

Shahriar Matin -- Chief Operating Officer

Sure happy to, from the excess cost, I'd say, a majority of it is material-related. There is a small portion that I'll say was a little bit more labor to do the upgrades. But I'd say, most of it was material compared to what was assumed well say a couple of years back around when some of these offers were initially made to customers.

Difei Yang -- Mizuho Securities -- Analyst

Okay, thank you, Shar for the additional color. Thank you for taking my questions.

Scott Drake -- Chief Executive Officer

Thank you, Difei.

Operator

Our next question comes from Jason Bednar with Baird.

Jason Bednar -- Baird -- Analyst

Good afternoon, guys and congrats on a nice start to the year here. Scott, your commercial sales investments in the second half of '18 were more focused on the domestic side of the organization. So just wondering, maybe can you speak generally to whether this is what's driving the momentum we see here in 1Q just because if I remember correctly, most of your 2018 order demand was international base. So just curious, if we're starting to see this order distribution start to flip more domestic.

Scott Drake -- Chief Executive Officer

Yes, Jason, first, thank you. And second, I do think the pipeline in the overall market globally is growing, but I do think we're starting to feel little bit more of that, given the investments to your point, in the US market. I will share with you though that the international interest is growing. I think the distribution relationships that we have augmented by the direct footprint that we're putting in place is also generating some excitement in the market, but I do believe those investments we made in '18 are beginning to pay off in the US pipeline.

Jason Bednar -- Baird -- Analyst

Okay, that's helpful and then correct me if I'm wrong, Scott, but I think this is the first time you booked an order in a freestanding center, so just curious, how you see this part of the market developing as you cast a wider net and have your sales team target, what's really a much broader customer base and the approach taken by the prior leadership team.

Scott Drake -- Chief Executive Officer

Yes, Jason. I'd tell you, I'm very gratified by the response from freestanding clinics and -- and their ability to make very smart decisions strategically, clinically, economically and they respond thus far pretty favorable to what we are sharing with them. I do think the mindset of the previous team generally speaking was that MRIdian is a little bit more of a third ball kind of system and we're allowing customers to make that choice for themselves, including those centers or even hospitals with a single vault, and we're having success there and we very intentionally are building a team that can compete for every system that's out there.

Our aspiration as you well know is to change the standard of care. And the only way, we're going to do that is it by being ubiquitous in the marketplace and we feel pretty good about the steps that we're taking here.

Jason Bednar -- Baird -- Analyst

All right, thanks for taking the questions.

Scott Drake -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Andrew D'Silva with B Riley FBR.

Geoffrey Kwan -- B. Riley FBR, Inc. -- Analyst

Good afternoon, guys. Thanks for taking my questions. This is Geoffrey Kwan on for Andy. Just wanted to follow up with a couple of questions to previously mentioned points. First, just as it relates to China, I know it's not a focus and there is a substantial management change, but can you clarify if the two systems that were shipped to China are revenue generating units. If not, how do they get accounted for or are they in the backlog? Is there any color in that that is useful as we examine backlog and historical data?

Scott Drake -- Chief Executive Officer

Yeah, Geoffrey. I would say, just to reinforce your point, we are not active in China today. We understand very clearly what that opportunity is. If possible in the future that we will change our mind, and we will keep you apprised of that. But currently, China is not a focus for us despite the fact that it's a very attractive marketplace. Shar, can I have you help comment on Geoffrey's question in terms of those two systems?

Shahriar Matin -- Chief Operating Officer

Sure. Those two systems, our distributor partner has acquired those and is in process of having -- will say the customer get prepared for those to be installed. So again, I'd say, not a priority, but as far as the clinical study, which is what's required to commercialize in China, they are a component of that process that we're moving forward with our current distribution partner.

Scott Drake -- Chief Executive Officer

And Geoffrey that -- both system's revenue has been recognized previously on that.

Geoffrey Kwan -- B. Riley FBR, Inc. -- Analyst

Great. And then another question, as it relates to episode-based in alternative payer models, can you please give us updated thoughts on how you see that evolving? I bring this up, so we can better understand how you think, you compared to traditional Linac in a value-based payment setting.

Scott Drake -- Chief Executive Officer

Yeah, I think we, I think we compare very favorably in that environment. Geoffrey, I think today, as I mentioned, from a previous question that we treat something like 400 patients a day or excuse me, a year with our system. I believe future innovation is going to drive that number lower and a traditional Linac treats, give or take, about 250 patients. If we were to go to some kind of bundled payment environment, I believe the marketplace would be moving even more rapidly toward SBRT and you probably heard our customers call MRIdian the ultimate SBRT machine. If you think about what's required safely and effectively deliver hypo-fractionated treatment. It is precisely what we bring to the marketplace. So in that environment, I think we're in an even more advantaged position than we are today and I think today, we're in a very good position because of our unique capability of doing on-table adaptive treatment.

Geoffrey Kwan -- B. Riley FBR, Inc. -- Analyst

Okay and one final question related to Varian Elekta, Varian announced its adaptive radiotherapy suite, which I believe is being claimed as an artificial intelligence-driven option, being designed to deliver treatments that would incorporate MRI, PET and CT and then there is also the Accuray, they've launched their Synchrony motion tracking for its Radixact System, it seems like these are a way for them to compete in a more stringent precision radiation oncology environment and we're curious on your thoughts on what that does to the competitive landscape and if there are partnering opportunities here as it relates to Varian's comments on incorporating MRIs.

Scott Drake -- Chief Executive Officer

Yeah. Interesting. I -- I'll stop short of commenting on anything about a competitor. I'll let them kind of answer questions on their own system. I would tell you there is a lot of work being done this generically in the space. I don't want to call out any individual competitor, but there's a lot of attempt at trying to do better what they're doing. But when you think about being able to track soft tissues and tumors in real-time with excellent visualization capability and the ability to shape a very precise dose and strike the tumor automatically only with -- when it's in target and stop when any vital organ or healthy tissues are in place.

That is an extraordinary set capabilities that we bring to the market. We recognize that people are trying to get closer to where we are, which is why, we're investing so heavily in our innovation pipeline going forward, but there is no substitute to be able to see in real-time, notwithstanding what others are tempting for.

Geoffrey Kwan -- B. Riley FBR, Inc. -- Analyst

All right, thank you for the color and good luck for the rest of the year.

Scott Drake -- Chief Executive Officer

Thanks, Geoffery.

Operator

Our next question comes from Jonathan Demchick with Morgan Stanley.

Jonathan Demchick -- Morgan Stanley -- Analyst

Hello. Thanks for taking the question. Just two quick ones, I guess, one for, I guess either Scott or Jim. But wanted to follow up on some of those commentary earlier on, the stronger orders and the diversity of the pipeline. Obviously, the more built out sales team is helping but also wanted to kind of see what other factors are really kind of driving this? Is this more a function of some of the data that you guys have put out recently or is it more of kind of a change of strategy on your end really on targeting different types of centers. Just trying to figure out if this is something that happen more naturally or if this is something that is more really being driven by the commercial strategy moving forward, just any broader color would be helpful.

Scott Drake -- Chief Executive Officer

Yeah, I think it's multi-factorial. I think, it's difficult to kind of ascribe a precise percentage as to how much of it is this versus that. But I do think there is an aggregate effect of number one, the clinical data that we have in the marketplace and how that library of data is growing and growing literally before our eyes. I think, it's a function of a much larger commercial team. I think that commercial team is telling a better value proposition story, clinically, economically and strategically to our customers and I think, overall awareness per one of the earlier questions regarding MR Linacs generally, there's clearly interest that's growing in MR Linacs as a class. And I think there is pronounced interest in MRIdian and the unique capabilities that we represent. So I kind of think it's an aggregate effect of those things, and again I just want to say that this, this sales team that we have in place is very newly in place and we ought to give them some time and have a little bit of patience to see the effectiveness of that team over a longer period of time.

Jonathan Demchick -- Morgan Stanley -- Analyst

That sounds -- sounds good. And then just kind of following up on that. I mean is the pitch different based on, if you're talking to a freestanding center, a community hospital, academic center and do you run against your competition with Elekta there more often at a certain type of center versus I guess versus all of them.

Scott Drake -- Chief Executive Officer

Yeah, I would say, the first thing you do as a salesperson, as you listen to your customers' needs. And then you tailor your story through their needs. So it would change a little bit from one customer to another doing research might be more interesting to an academic center versus the economics associated with a one vault clinic. So you're probably going to go deeper into those three areas that I mentioned. But I would tell you and I spend a lot of my time out in the field. You're always having a level of conversation across the strategic implications of MRIdian, across the economic value proposition and certainly the clinical capability of the system. So I would say, it varies a little bit from customer to customer, but those three areas tend to be important to every customer that we meet with.

Jonathan Demchick -- Morgan Stanley -- Analyst

Understood, very, very helpful. And then just one last quick one on the financial side of things. I think, I was pretty clear that cash burn should improve driven largely by working capital, but on the margin side, wanted to understand expectations for the balance of the year. I mean, I know that the one-time costs of revenue should go away, but it also sounded like gross margin expansion maybe is less of a focus in the early part of the year and there is still hiring to do on the clinical side. So I was just curious, how we should be thinking about spending throughout the year?

Scott Drake -- Chief Executive Officer

Yeah, I think you kind of captured it pretty succinctly there. The one-timers, we very much hope and intend for it to be a one-timer. We've been very thoughtful about how we executed against that and the charge that we've taken. I would tell you, opportunity abounds to drive gross margin up in the business if you, if you even today look at the one-timers and you put those aside, the gross margin from a system is just slightly north of 20%. We know we can do significantly better than that. To the point that you made that's not our top priority today, but we're kind of licking our chops waiting for the opportunity to prioritize that in a more pronounced way. Roughly speaking, I anticipate we'll be getting at that late '19 early '20. We are not guiding to a gross margin number as you know, this year, but we're awfully -- awfully looking forward to getting after that in the not-too-distant future.

Jonathan Demchick -- Morgan Stanley -- Analyst

Very helpful, thank you very much again.

Operator

(Operator Instructions) And I'm not showing any further questions at this time. I turn the call back over to Scott Drake for closing.

Scott Drake -- Chief Executive Officer

Thank you, Kevin. We appreciate everybody being with us here this afternoon. Thanks for your interest in our Company. We are working hard on your behalf and look forward to reporting out on our Q2 quarter in another 90 days or so. Thanks, everyone.

Operator

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Duration: 49 minutes

Call participants:

Michaella Gallina -- Senior Director, Investor Relations and Communications

Scott Drake -- Chief Executive Officer

Ajay Bansal -- Chief Financial Officer.

Christopher Pasquale -- Guggenheim -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Suraj Kalia -- Northland Securities -- Analyst

James Alecxih -- Chief Commercial Officer

Difei Yang -- Mizuho Securities -- Analyst

Shahriar Matin -- Chief Operating Officer

Jason Bednar -- Baird -- Analyst

Geoffrey Kwan -- B. Riley FBR, Inc. -- Analyst

Jonathan Demchick -- Morgan Stanley -- Analyst

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