Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Accuray Inc (NASDAQ:ARAY)
Q1 2021 Earnings Call
Oct 29, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead, sir.

Joe Diaz -- Investor Relations

Thank you, Rocco, and good afternoon to everyone. Welcome to Accuray's conference call to review financial results for the first quarter of fiscal year 2021, which ended on September 30, 2020. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Josh Levine, Accuray's President and Chief Executive Officer; and Shig Hamamatsu, Accuray's Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements.

Factors that could cause these results to differ materially are set forth in the press release we issued just after the market close this afternoon as well as in our filings with the Securities and Exchange Commission. 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 results, except to the extent required by applicable securities law.

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 recue 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 first quarter refer to our fiscal first quarter ended September 30, 2020. With that, let me turn the call over to Accuray's President and Chief Executive Officer, Josh Levine. Josh?

Joshua H Levine -- President And Chief Executive Officer

Thanks, Joe, and thank you, everyone, for joining us on today's call. I'm joined today by Shiga Hamamatsu, our Chief Financial Officer; and Suzanne Winter, our Chief Commercial Officer and Head of R&D. Accuray's fiscal 2021 first quarter performance continues to reflect the positive momentum our business is making despite the headwinds created by the COVID-19 environment. Our commercial team around the world continues to adapt and make the necessary adjustments to successfully compete at a high level, even in the face of a number of key markets continuing to be impacted by travel and customer access restrictions as well as bunker construction and related installation delays. Validating our ability to execute in these challenging times, revenue for the quarter came in at $85.3 million, and we generated positive operating income of $5.5 million. This represents the fourth consecutive quarter that the company has generated positive operating profit as we continue to demonstrate operating leverage that we expect to position us well in a post-COVID environment.

Gross order volume for the quarter was $51 million, which was substantially down globally versus Q1 of the prior fiscal year. Although at the regional level, our EMEA and Japan regions both showed solid order growth during the quarter. The overall order result in Q1 was not unexpected. As we have communicated in our year-end FY '20 earnings call in August, we highlighted the tough comparisons to the prior year, driven by the realization of the first phase of Type A orders in China in the first half and a large multisystem order from our Latin American business.

Going forward, we are focused on ensuring the safety of our employees and meeting our customers' needs to ensure that we maintain our overall customer responsiveness. I want to thank the entire Accuray team for their individual and collective dedication to supporting our customers and their patients under continuously evolving conditions. Their efforts are making a difference as we focus on revenue conversion, growing operating income, and improving free cash flow during this fiscal year. Our continued focus on aggressive working capital management and cash preservation will help ensure we successfully navigate through the current global economic conditions. We finished fiscal Q1 with $95 million in cash and illustrated our commitment to reducing overall debt by prepaying $10 million of our term loan during the quarter. Given the current macro operating environment, we are very pleased with this outcome. Shig will provide you with greater detail on the quarterly financial results later in the call.

On the operational front, our joint venture with China Isotope radiation Corp. continues to make significant progress with the Tianjin China training center opening in September and in person class instruction for customers, which started earlier this month. This will be an important hub to enable medical professionals throughout China to learn about our products and how to successfully incorporate them into their practices. As far as establishing our local manufacturing presence, we are still on schedule to have the Tianjin produced type B product within the next 18 months. As we look to revenue generation catalysts in the near term, we believe that revenue conversion-related to the first of the China type A licenses awarded for Accuray devices in October of 2019 will begin in this current fiscal quarter and will continue over the course of the next 18 to 24 months.

Additionally, on October 27, 2020, the China National Health Commission announced the second tranche of type A radiotherapy license awards, and we are pleased to report that Accuray systems were named in 24 of the additional 32 Type A licenses awarded to end-user hospitals. Given the late timing of this announcement from the National Health Commission, we are still evaluating the impact of this announcement on our future order activity. Earlier this week, our commercial team participated in the 2020 ASTRO Annual Meeting. While it was conducted on a virtual basis for the first time given the COVID environment, this was a great opportunity for us to launch several important strategic product innovations from our R&D pipeline. During ASTRO, we had high-quality interactions with clinicians and leading institutions who showed great interest in our Radixact and CyberKnife platforms, particularly with the technology enhancements that we've recently introduced both preceding and during ASTRO on both product platforms. These include the new CyberKnife s7 with VOLO treatment planning, our Synchrony Motion synchronization, and real-time delivery adaptation on the Radixact platform, and our new helical KVCT imaging capability for the Radixact platform called Clear RT.

We expect that these technology innovations will help to further advance our radiation therapy planning and delivery capabilities and will have a meaningful impact to our overall product functionality and strategic positioning. We see growing clinical experience and adoption of Synchrony and the introduction of the Synchrony technology on the Radixact platform, in combination with our Clear RT imaging upgrade creates a uniquely versatile and powerful treatment platform. Additionally and most importantly, we believe that the advanced ultra precise treatment capabilities of both of our product platforms are well aligned with the new alternative payment model and reimbursement fee schedule recently announced by the Centers for Medicare and Medicaid Services, which is now planned to go into effect in July 2021.

Accuray has been a pioneer in high-precision technologies that enable Hypo and ultra-hypofractionation, and we believe that the innovations we are bringing to the market will be a catalyst for long-term growth and ensure that our delivery platforms maintain their position as the gold standard choice for hypofractionated SBRT treatments. At this week's ASTRO Conference, 44 clinical abstracts shared by Accuray users reinforced the clinical value of Tomotherapy and CyberKnife for delivering moderately or ultra-hypofractionated treatments. The experience of global healthcare providers during the COVID pandemic has highlighted and reinforced the need for expeditious and effective treatment options and Accuray's position as a pioneer in precise image-guided platforms that safely deliver hypofractionated treatments with excellent long-term results, is driving clinical confidence in the radiotherapy community, and creating a broader market opportunity for our products.

We are launching important technology upgrades across both of our platforms that are designed to further enhance their current treatment capabilities in delivering hypo and ultra-hypofractionated SRS and SBRT more effectively, safely and efficiently. As discussed during our ASTRO Investor Day presentation earlier this week, we are excited about the momentum and progress we see occurring with our business today as well as the long-term growth opportunities we have in front of us. One of the opportunities that we are most excited about is the neuro-radiosurgery market. Yesterday, we announced a collaboration with Brainlab, who is the market leader in treatment planning, surgical navigation, and an innovator in radiosurgery solutions that will focus on expanding CyberKnife treatment capabilities for the neuro-radiosurgery market. Our Brainlab collaboration will create a development path that addresses three distinct areas of focus: first, to provide the neuro-radiosurgery community with access to optimize dose contouring capabilities to improve the accuracy of dose delivery.

Second, to provide improved interoperability between Brainlab's Element software and the Accuray precision treatment planning software to ensure optimized neuro-radiosurgery workflows. And last, through Brainlab's [Indecipherable] patient registry platform to provide Accuray customers with the ability to add CyberKnife treatment data to neurosurgery registries to help clinicians improve patient outcomes. We believe this collaboration will be a strong catalyst for future market penetration in neuro radiosurgery.

And with that, I'll turn the call over to Shig to review our Q1 financial results. Shig?

Shig Hamamatsu -- Senior Vice President, Chief Financial Officer

Thank you, Josh, and good afternoon, everyone. I'll begin with some additional details on our financial performance for the first quarter and then focus on certain highlights for the period. Gross orders for the first quarter were $51 million as compared to $78 million in the prior year. The year-over-year decline in gross orders can be attributed to three factors. First, as we had anticipated, we saw a decline in China Type A orders due to challenging comparables to Q1 last year. I'd like to remind you that Taipei orders we received in the prior year reflected significant pent-up demand from our end users and legacy distributor, Tomoknife, which was triggered by the announcement of Taipei quota back in 2018. As most of the orders related to the first phase of 50 Type A licenses awarded to Accuray Systems have been already received prior to the start of this fiscal year, we anticipated a decline in Taipei order activity.

Looking ahead to the second quarter, our prior year second quarter gross orders included $28 million of type A system orders, which are not expected to recur in the second quarter of this fiscal year for the reasons I just stated. In addition to China, the first quarter presented a tough year-over-year comparison from a gross orders perspective for the Americas region as the prior year included an $8 million multi-system order from South America. Lastly, we did see some expected headwinds due to the pandemic, particularly in the U.S. region, which has affected the timing of order placement. Despite the challenging year-over-year comparison for China and the Americas regions, we did see strong order growth in the EMEA and Japan regions, where orders grew 4% and 14%, respectively. From a product mix perspective, tomotherapy platform accounted for approximately 55% of auto unit volume for the quarter and CyberKnife accounted for the remaining 45%.

Net age-outs for the quarter were $25 million and included $3 million of aging activities during the quarter. During the first quarter, we had cancellations of approximately $2 million, which was offset by $1 million benefit from FX impact and other adjustments. As a result, on a net basis, we generated $24 million of orders in the first quarter. We ended the first quarter with backlog of $597 million, which is an increase of 21% from September 30, 2019. We continue to anticipate that COVID-19 disruption will slow revenue conversion timing in the near term. Although the depth and extent to which COVID-19 will impact individual markets could vary based on a number of factors. We also expect to see higher than normal level of age-outs in the coming quarters due to this disruption.

Turning now to our income statement. Total revenue for the first quarter was $85.3 million, down 5% compared to the prior year. On a regional basis, we saw year-over-year revenue decline in all regions, except for the APAC region, excluding China, primarily due to the impact of the pandemic, although the degree of decline varied across the regions. Product revenue for the quarter was $31.3 million, a decrease of 17% compared to the prior year. From a product mix perspective, CyberKnife accounted for approximately 15% of the quarter's revenue unit volume, while the Tomotherapy platform accounted for the remaining 85%.

One reminder about our product revenue mix. The mix between CyberKnife and Tomotherapy varies from quarter-to-quarter. However, on an annual basis, our product revenue mix has been approximately 30% CyberKnife and 70% Tomotherapy for the past two fiscal years. Also, the mix within the 50 China type A licenses granted to Accuray Systems was approximately 40% CyberKnife and 60% Tomotherapy. With revenue recognition related to the China type A licenses expected in the second quarter of fiscal 2021, along with our product portfolio being well positioned for the value-based care environment, we believe we can maintain a healthy product mix between the two platforms on an annual basis going forward.

Service revenue for the quarter was $54.1 million, an increase of 4% from the prior year as we saw healthy demand for upgrades as well as increased installation and training activities during the quarter. Turning now to gross margin. Our overall gross margin for the quarter was 41.5% compared to 36.8% in the prior year. Product gross margin for the quarter was 41.1% compared to 42.6% in the prior year. The lower gross margin for the fourth quarter was primarily due to the product mix, which, as I mentioned earlier, can fluctuate from quarter-to-quarter.

Service gross margin for the quarter was 41.7% compared to 32.5% in the prior year. I would like to remind you that prior year Q1 service margin included the impact of higher than normal level of service parts consumption. The team has done a great job of normalizing parts consumption in the past three quarters, which contributed to a material year-over-year improvement in service gross margin. Additionally, Q1 service margin benefited from higher upgrade revenue as well as continued benefit from reductions in travel and other operating costs due to the pandemic.

Moving down the income statement. Operating expenses for the quarter were $29.9 million, a decrease of $7.3 million or 20% from the prior year. The year-over-year decline in operating expenses was primarily driven by the actions we implemented in response to the pandemic, which included physician eliminations as well as curtailment of costs associated with the impact of COVID-19, particularly travel, marketing events and related expenses. The prior year first quarter operating expenses also included costs associated with the annual ASTRO Trade Show, which is accounted for in the second quarter this fiscal year.

Operating income for the quarter was $5.5 million compared to a loss of $4.3 million in the prior year. The first quarter represented the fourth consecutive quarter of GAAP operating income generation, and we have generated $22 million of operating income for the trailing 12-month period, measured from September 30, 2020, which is a significant improvement from the $1 million of operating income generated in the previous trailing 12-month period, measured from September 30, 2019.

While our operating income benefited partially from the actions taken in response to the pandemic, our consistency in generating operating income demonstrates improvement in our operating leverage that is expected to position us well in a post-COVID environment. The operating impact of the China JV for the quarter was a loss of $28,000. This item is being reported on our income statement as a single line item called gain or loss on equity investment right below our operating income line.

Adjusted EBITDA for the quarter was $9 million compared to a loss of $1 million in the prior year. On a trailing 12-month basis, we have generated $37 million of adjusted EBITDA. The adjustments between GAAP net income and adjusted EBITDA are outlined and quantified in our earnings release issued today. We ended the quarter with $95 million of cash and short-term restricted cash. Q1 ending cash reflects the impact of a voluntary $10 million term loan prepayment in connection with the amendment to our debt facility completed at the beginning of the quarter.

Looking ahead to the second quarter, we continue to expect an uncertain near to mid-term demand environment for future system orders as COVID-19 continues to put constraints on capital expenditures at hospitals. In addition, as I mentioned earlier, our prior year second quarter gross orders included $28 million of Taipei system orders, which are not expected to recur in the second quarter of this fiscal year. As for revenue, although we are gaining more confidence that revenue recognition related to the China type A licenses will start this fiscal year, we anticipate revenue in the second quarter will remain below prior year level due to the COVID headwinds experienced in other regions.

As we manage the near-term headwinds in revenue conversion, we continue to focus on operational efficiency, margin expansion, and working capital management. We are also focused on inventory and supply chain management as we execute on the Type A revenue conversion while maintaining appropriate levels of inventory.

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

Joshua H Levine -- President And Chief Executive Officer

Thank you, Shig. Even with the uncertainties created by the COVID situation, we are encouraged by our Q1 operating results. We are demonstrating daily that we have the ability to successfully adapt to this new external environment, and we are excited about our future. I want to thank all of our employees across the globe for their energy and the contributions they are making to support our customers and their patients during these unprecedented times. And with that, we're ready to open the call up for questions.

Questions and Answers:

Operator

[Operator Instructions] Today's first question comes from Josh Jennings with Cowen.

Neil -- Cowen -- Analyst

This is Neil on for Josh. First question, just on Clear RT. Just wondering, how does this technology advance your efforts providing clinicians an adaptive radiation therapy solution? Anything you can share there in terms of what steps are made to get to a complete adaptive offering? And how big of a step Clear RT is in that direction.

Suzanne Winter -- Chief Commercial Officer And Senior Vice President, R&D

Hi, Neil, thanks for the question. The Clear RT Helical KV introduction that we've done here at ASTRO, we think is a significant step forward, especially in the realm of imaging. And imaging is at the heart of adaptive therapy. We have the advantage at the core, our Tomo Radixact platform is basically a CT system with a slip ring design. That allows us to be able to do a full 360-degree helical imaging.

And so what we're bringing to the table here compared to what is available in the market from cone beam CT is much better visualization of low contrast images, very low noise, low scatter compared to cone beam CT. The best imaging is really at the center of the image. Once you move beyond the center, you start to lose your image quality. There is the largest field of view at 50 centimeters from an axial standpoint. And from a longitudinal standpoint, 1.35 meters, again, significantly longer than what is available in the market.

And so our competitors have to stitch together their images and so there's interpolation of data. So ultimately, what we're bringing to the market is not only uniform imaging, but fundamentally the images and the image data is higher fidelity, which ultimately goes into dose calculations, which ultimately translates into accuracy. And ultimately, that's what you want -- especially when you are doing ultra-hypofractionated treatments, you want the highest precision possible. So we do believe what we are bringing to the table is much better than cone beam CT, and we are on the path to providing imaging from a soft tissue contrast closer to diagnostic CT. And we're continuing the investment, again, to even get as high as competing with MR type resolution.

Neil -- Cowen -- Analyst

Great. And then I just had one follow-up. Just wondering if you could share with us your views on the tailwinds and also the headwinds, I guess, associated with the Siemens and Varian combination and how that could impact Accuray's success?

Joshua H Levine -- President And Chief Executive Officer

So we've been public in these comments and these thoughts in the previous quarter. But in the near term, Neil, I think the answer is that there's likely to be some short to intermediate-term disruption as the two businesses on that end come together. I actually think that we might have benefited from some of that in the two regions that we've highlighted in the prepared remarks today, specifically APAC and -- I'm sorry, EMEA and Japan, which were strong performers for us, order generation wise. I think Varian reported that they're down comparisons in those regions. And I think that, that might reflect some of the early disruption, if you will, or distraction factor, call it, in the coming together of those two businesses. Longer term, I think the jury is still out. I mean the bottom line is that a combined company is going to have to create a value proposition that makes sense for customers without really asking customers to do dramatically different things from a workflow standpoint. And I'm not sure whether that's going to be easily obtained or achieved.

So again, we're closely watching this and following it, but I think it's too early to say. We are excited about the things we're doing from a technology standpoint. I think if you fast forward a year from now, two years from now, I think that the products and the upgrades that we're launching innovation wise right now are going to be game changers for our product and portfolio positioning capabilities. And I think the feedback we're getting from customers concurrent with this week's feedback from the ASTRO meeting, it gives us significant confidence to what I just described.

Operator

And our next question today comes from Brooks O'Neil with Lake Street Capital Markets.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Congratulations on the new Type A orders in China and the solid quarter overall. I thought it was very good during COVID. So I have a couple of questions. The first one is, what is it exactly that triggers the revenue recognition on the Class A licenses in China? And maybe why is it you're confident you'll get to be recognizing revenue in Q2? And then also on China, I was hoping you could say something about what you're hearing on the Type B opportunity and the status thereof?

Shig Hamamatsu -- Senior Vice President, Chief Financial Officer

Rick, this is Shig. I'm going to take first question on the process and timing of rev rec, and maybe I can pass the type B to Josh, maybe. So as we talked about in the past, the first step of the type A revenue recognition that our end-user had to get the license, which as you know has happened a year ago with the 50 license wins. And in addition, Josh talked about the recent 24 addition to that. And the next step after the end user receives license is they have to go through a tender process, which we've been talking about for a good part of the last one year. So the reason that we are gaining confidence in terms of starting the first of the revenue recognition coming out of the first 50 in Q2 is because of the progress that we have seen out of China that the end user with the license can start to purchase.

So that's why. So we've seen that news out of China. And before I pass the question back to Josh on type B1 clarification, the 23 -- I'm sorry, 24 new type A licenses granted to Accuray Systems in the recent news that Josh mentioned in his prepared remarks, those are not orders. We're just letting you know that there was an announcement from Chinese government that additional 24 licenses have been granted to Accuray Systems. So those are not orders in Q1, although as I said in my prepared remarks, we are not expecting to receive orders for those in Q2 either. So I just wanted to make that clarification. I'll give it to Josh for type B.

Joshua H Levine -- President And Chief Executive Officer

Brooks. The Type B, as you've heard us say in the past, the Type B product opportunity in China really truly represents, while there are different segments inside of type B, overall, we believe it represents about 80% of the market opportunity in the country, which, as you know, by any benchmark or comparison is a big, big number. And we think that the opportunity here for us, as we've talked about in the past, is unique because of the go-to-market strategy that we've deployed, which is having a manufacturing partner on the ground there in the form of China Isotope and Radiation Corp that is able to operate at scale. They have the advantages of being a state-owned entity and, quite frankly, give us market visibility to things that we might likely not have had visibility to if we were a stand-alone, trying to go it alone.

They have a significant position in the radioisotope business, like 70% market share in their core business and active selling relationships in somewhere between 8,000 and 9,000 hospitals throughout the country. So their market access, what they help deliver for us or create for us in terms of market access is not insignificant. And last but not least, the fact that we're going to be producing a product in Tianjin, that is going to be essentially an ethic Chinese brand. It's a local branded product, built locally, which is really aligning with what the government wants to happen around made in China 2025. It basically -- this is a high-technology product area that the government wants and is certainly supporting local domestic capability in market access for. And again, we think that the relationship we have with CIRC positions us well for this.

We're going through BMIT testing right now, which is in-country testing and validation for the product that we're going to be producing in Tianjin. And we think we're still on schedule for a product release produced in Tianjin sometime roughly in the 18-month timeline or window from right now.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

I'm just going to sneak in one more. I'm curious if you could help us understand if you believe you're better positioned than competitors to benefit from the RO-APM? And maybe you could just elaborate on why or why not? Thank you very much, and again, keep up all the good work.

Joshua H Levine -- President And Chief Executive Officer

Thanks, Brooks. The RO-APM is a model that essentially puts a premium on value and value being defined by speed and overall efficiency of treatment. As opposed to where the market has been in terms of prior reimbursement methodology, which paid people based on the number of treatment sessions or fractions that were being employed to treat a patient over an entire regimen. Going forward, the 16 most frequently performed in terms of procedure volume disease sites with radiotherapy are being grouped into this model in a form that will encourage the use of shorter treatment regimens, both hypofractionated treatment regimens and ultra-hypofractionated treatment regimens, utilizing much more of a heavy mix toward stereotactic body radiotherapy or SBRT than previously.

And when you think about our product offering and portfolio, we are in the sweet spot across both CyberKnife and the Radixact platform of the heart of what the RO-APM is encouraging. It's encouraging, higher dose over fewer treatment fractions with a minimum of side effects and things that would be detrimental from a patient overall efficacy standpoint and safety standpoint. Both our platforms are ultra precise, ultra accurate, and have the benefit of Synchrony, which, in our view, is kind of to some degree, a failsafe with regards to providing clinical confidence around being able to increase dose and do it safely. And so we think we're as well positioned as anybody, if not more so, given the direction the reimbursement environment is moving in.

Thanks, Brooks. The RO-APM is a model that essentially puts a premium on value and value being defined by speed and overall efficiency of treatment. As opposed to where the market has been in terms of prior reimbursement methodology, which paid people based on the number of treatment sessions or fractions that were being employed to treat a patient over an entire regimen. Going forward, the 16 most frequently performed in terms of procedure volume disease sites with radiotherapy are being grouped into this model in a form that will encourage the use of shorter treatment regimens, both hypofractionated treatment regimens and ultra-hypofractionated treatment regimens, utilizing much more of a heavy mix toward stereotactic body radiotherapy or SBRT than previously.

And when you think about our product offering and portfolio, we are in the sweet spot across both CyberKnife and the Radixact platform of the heart of what the RO-APM is encouraging. It's encouraging, higher dose over fewer treatment fractions with a minimum of side effects and things that would be detrimental from a patient overall efficacy standpoint and safety standpoint. Both our platforms are ultra precise, ultra accurate, and have the benefit of Synchrony, which, in our view, is kind of to some degree, a failsafe with regards to providing clinical confidence around being able to increase dose and do it safely. And so we think we're as well positioned as anybody, if not more so, given the direction the reimbursement environment is moving in.

Suzanne Winter -- Chief Commercial Officer And Senior Vice President, R&D

And the only thing I would add to that is, at the recent ASTRO, we had 44 different clinical presentations, posters, oral presentations with a focus on the use of hypofractionation and ultra-hypofractionation. Because we were the PIONEER 2, we have the longest follow-up data that's been reported on safety and efficacy. So we do think we're well positioned.

Operator

Our next question today comes from Marie Thibault with BTIG.

Marie Thibault -- BTIG -- Analyst

I want to start here on China. I wanted to see if quantitatively, you could size up the revenue opportunity. My notes have you having said this -- the first tranche of Type A orders would be about $115 million in terms of revenue recognition. So I wanted to double check that that was still true. And then secondly, I know it's early given the recent announcement of the second tranche. But I wondered if you could size up what that would mean in eventual revenue amounts, how many millions that those systems are worth.

Shig Hamamatsu -- Senior Vice President, Chief Financial Officer

Yes. So Mary, thanks for the question. I'll take the first part. So your recollection, $115 million is correct in that -- that number represented the system revenue for the first 50 type A licenses we won back in, I guess, about a year ago now. And so that is still correct in terms of the estimated system revenue value. Again, to -- as Josh described in his script, we're expecting first wave out of that $115 million to start in the second quarter we're in right now. And we believe that, that $115 million gets recognized over the following 18 to 24 months. So hopefully, that gives you the sense of the pace and cadence of that amount. And I'm going to pass the second part of the question to Josh here.

Joshua H Levine -- President And Chief Executive Officer

Just some additional color on this. We recognize that it's a hard, and at times, confusing kind of backdrop to piece together what is first tranche, second tranche, where does the first tranche end and the second tranche pickup. I think the important takeaways here are pretty simple and straightforward. And they are, first and foremost, that we're continuing to win. Our devices are continuing to win at a very, very high level of the Type A licenses that the MOH and National Health Commission are distributing to end-user hospitals. That's point one. Point two is that the visibility that Shig talked about before with regards to the tendering process being complete. We have been waiting, as he just pointed out, it's almost a better part of a year. No one is more frustrated by the delay here than we are, maybe other than you guys. But quite frankly, that tendering process and the bidding process related to the tender is complete, at least in that first wave, the first 50 licenses that we've talked about.

And what that means is customers are basically now at a point where they can execute paperwork, execute contracts, and schedule installation of equipment. And so that's the kind of the trigger here in activation, if you will, that gives us the confidence around revenue conversion starting to become visible in the current quarter. We really are trying to focus more now on -- given what I just described, on just execution of the revenue conversion. Basically, the Type A license unlocks our revenue conversion process, given the fact that the tendering and bidding process is now complete, and we're pretty excited about the fact that we're continuing to see a win rate that's consistent in the second tranche with the level that we've been generating in the first -- in the initial tranche. And so we will be able to provide perhaps some more detail with regards to impact order activity down the road. But at this point, given the fact that this is news that's really not even 48 hours old at this point. With regards to the second round win rate, we're kind of digesting it and trying to understand the impact on the order end.

Marie Thibault -- BTIG -- Analyst

Understood. Okay. We will wait for the update. Great. I want to skip over here to the neurosurgery opportunity. Glad to see that announcement yesterday and then the discussion at ASTRO earlier this week. I wondered if you could size up for us what that market means actually in terms of opportunity, kind of an addressable market, and possibly timelines on when we might start to see some of this start to hit the business.

Suzanne Winter -- Chief Commercial Officer And Senior Vice President, R&D

Maria, it's Suzanne. Yes. So I think we think of the neuro-radiosurgery market in two different opportunity -- actually in two different parts. First, there's an immediate replacement opportunity. Again, there's an aged installed base of Gamma Knife as well as still some Novalis systems that are out there. I would say, in total, that's probably about 500 units globally. And even at a conservative way of looking at it, assuming 10% of these would move toward more of a shared system between radiation oncology and dedicated neurosurgery. I think that translates to about $150 million to $200 million, at least in the short term. I think the longer-term opportunity, and you heard a little bit about this at the Investor Day, is the opportunity to take radiation therapy into treatment of movement disorders.

And you heard Dr. Chris Loiselle from Swedish Medical Center, talk a little bit about the use in essential tremor. And again, that opportunity right now refractory to pharma therapy, they go for deep brain stimulation, and there's still a number of issues associated with that. So I think, again, the prevalence is 5% of the adult population, and it gets more severe as you age. So we think there's a real opportunity here in therapy penetration. And we haven't put market potential on that at this point, but we will continue to work with clinicians to see what the potential is in terms of translation into system purchases moving forward.

Operator

[Operator Instructions] Our next question comes from Anthony Petrone with Jefferies.

Anthony Petrone -- Jefferies -- Analyst

Maybe Josh and Shig, a couple of questions. One would be, and we're just hopping around calls here, so I apologize if you sort of touched on these. But one would be just with the COVID resurgence and sort of when you think of hospital preparedness and how they may be thinking about the next few months. Is that changing the conversation around capital equipment adoption and specifically radiation therapy? Have you noticed any of those trends in any of the key geographies. And then maybe just to get your views, again, on a push out of the radiation bundle in the U.S. Obviously, this is a debate as to whether that's a headwind or a tailwind. It's now pushed into the middle of next year. So your latest thoughts there on the push out of the radiation bundle and whether or not that's a tailwind for capital adoption.

Joshua H Levine -- President And Chief Executive Officer

Yes. Thanks, Anthony. COVID-19. There's no question that the intensity of the COVID situation is -- it continues to be pretty variable by region. That's not necessarily changing. It is, quite frankly, it is ramping up in terms of intensity. You heard both Shig and I talked in prepared remarks about COVID headwinds in certainly the U.S. market. And I think that that's very visible at this point. I think also, Western Europe, maybe not every one of the Eurozone countries or markets, but certainly, France, Germany, Italy, and Spain remain, I would say, at risk as well. Interestingly, with all of that said, we saw good order generation in EMEA in the quarter, which, again, maybe we're splitting hairs here on timing. Certainly, France and Germany have announced in the last day or so that they're going to more restrictive kind of environmental precautions. But we're not seeing orders cancel out of the backlog related to COVID. I don't think there's any question, though, that again, the selected markets that I just talked about, U.S. being one, markets in Western Europe, the other. We would anticipate that there would be some slowdown and some impact from an order ramp standpoint.

We're not hearing directly from any hospitals that they're going back to where they were back in late spring or early summer with absolute lockdowns and other procedures essentially being turned off. So I would say that there's no visibility to those severe kind of decisions being made again at this point, which I think is a good thing. But again, this is -- it's a day-by-day situation. I wish I could give you a high degree of confidence or predictability around where we'll land six months, 12 months from now, but I think we're going to be taking this day-by-day and seeing what customers and what the marketplace is going to allow for.

With regards to your question on CMS, we were actually supportive of the idea that the push for implementation would move until July. There was a significant amount of dialogue between ASTRO and CMS. There was discussion with -- through the AdvaMed channels with CMS. And primarily, the messaging was that given the pandemic the practitioners felt like they weren't going to be completely ready in the ways they needed to be, Anthony, in order to fulfill their obligations under their requirements. And so as a provider -- or as a vendor to the provider community, we had to respect that, and we do. And so we were aligned. We gave our input into those discussions. And it's interesting, whether you saw implementation begin in January, the coming January or you see it occur in July as it's now scheduled to, it's almost -- in our view, it's somewhat irrelevant. Because the train on this topic has left the station.

If you look at the commercial payer side of the world, most of the commercial payers that we see involved in reimbursement with our products are either already have moved or are rapidly moving to more focus on hypofractionated SBRT delivery. And so I don't think the difference between a January implementation or July is really going to change the broader trends, macro trends on this topic in the market.

Operator

And our next question today comes from Rand Dasing with Neuberger.

Rand Dasing -- Neuberger -- Analyst

On the EBITDA, lots of puts and takes in the first quarter, things that were sort of absent. Can you give us any sense for -- I know you don't want to really guide, but any sense at all around how atypical that $9 million is? Any sense maybe for if we have a similar level of revenue in 2Q, what the EBITDA puts and takes might be?

Shig Hamamatsu -- Senior Vice President, Chief Financial Officer

Yes. Rand, I appreciate the question. And I'm not going to be able to be specific about that, but let me try to give you some color to help you think about this. So first quarter historically has been the lowest quarterly Opex quarter. So part of it is that. And also, as I said in my remarks that this year, the ASTRO expense shifted from this past quarter, Q1 to Q2. So you're right, there's some puts and takes. But I think if I think back about -- I know you're asking about EBITDA, but from Opex perspective, coming out of Q4 last year, I said $33 million quarterly run rate on Opex is something that I'm comfortable with looking forward.

So I would still say the same thing. Even though Q1 was more like $30 million, I think on an average basis, $33 million of Opex that we placed to be from my perspective. On top of that, I think we're hovering around 40% gross margin for the last few quarters. I see that being somewhat of a consistent area that we can probably produce. So hopefully, those gross margin, Opex run rate give you enough sort of hint to kind of sort of help you model a little bit without my giving you guidance in any way here, and you just need to lay into revenue, so to speak.

Operator

I was just going to close out the question-and-answer session and turn the conference back over to Mr. Levine for any final remarks.

Joshua H Levine -- President And Chief Executive Officer

Thank you, operator. Thanks, everyone, for joining us this afternoon. We look forward to speaking with you again in January when we present at JPMorgan's Annual Healthcare Conference, and later on in January when we report our fiscal 2021 second quarter results. Thanks very much.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Joe Diaz -- Investor Relations

Joshua H Levine -- President And Chief Executive Officer

Shig Hamamatsu -- Senior Vice President, Chief Financial Officer

Suzanne Winter -- Chief Commercial Officer And Senior Vice President, R&D

Neil -- Cowen -- Analyst

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Marie Thibault -- BTIG -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Rand Dasing -- Neuberger -- Analyst

More ARAY analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.