Accuray (ARAY) Q2 2022 Earnings Call Transcript

Accuray (ARAY 1.84%)
Q2 2022 Earnings Call
Jan 26, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Accuray second quarter fiscal 2022 financial results conference call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Ken Mobeck, vice president of finance. Please go ahead. 

Ken Mobeck -- Vice President of Finance

Thank you, Gary, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the second quarter of fiscal year 2022, which ended December 31, 2021. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Josh Levine, Accuray's chief executive officer; Suzanne Winter, Accuray's president; and Brandy Green, Accuray's interim chief financial officer.

Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are set forth in the press release we issued just after the market closed this afternoon as well as in our filings with the Securities and Exchange Commission. The forward-looking statements on this call are based on information available to us as of today's date, and we assume no obligation to update any forward-looking statements as a result of new information or future events except to the extent required by applicable securities law.

Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. First, during the Q&A session, we request that participants limit themselves to two questions and then requeue 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 second quarter refer to our fiscal second quarter ended December 31, 2021. Additionally, there will be a supplemental slide deck to accompany this call, which can be accessed by going directly to Accuray's Investor page at investors.accuray.com. With that, let me turn the call over to Accuray's chief executive officer, Josh Levine. Josh?

Josh Levine -- Chief Executive Officer

Thanks, Ken, and thanks to everyone joining us on today's call. I'm joined today by Suzanne Winter, our President; and Brandy Green, our Interim CFO. Accuray's fiscal 2022 second quarter performance continues to reflect the strong revenue momentum our business is generating, but also highlighted the operational headwinds and associated costs created by the COVID environment. Driving our accelerated revenue growth is the continued adoption of our new technology upgrades on the Radixact platform, which are having a positive impact across all regions.

Revenue in fiscal Q2 was $116.3 million, which represented 19.3% year-over-year growth. Gross order volume for the quarter was $85.4 million, which represented 13.3% year-over-year growth. Suzanne will provide more specifics regarding the regional performance details during her prepared remarks. On the operational end of our business, like many companies across a broad range of industries, in Q2, we saw increasing pressures related to global supply chain headwinds and logistics constraints and collectively, these challenges had a negative impact on cost inputs to our income statement.

Despite these impacts, our sourcing and production teams successfully mitigated many risks in these areas that allowed us to overachieve our production forecast, which resulted in product revenue growth for the quarter of 45% over prior year. Following our guiding principle of prioritizing patient continuity of care above all else, we also executed successfully in support of our commitments to maintaining availability and delivery of critical service parts for our installed base customers to ensure device uptime and patient treatment continuity. Brandy will be providing greater detail in her prepared remarks about the collective impact of service margins for the quarter, which is where these impacts were most strongly felt. While service margins were impacted, the overall support and cross-functional teamwork that took place in the quarter was extraordinary, and I'm extremely proud of our team and what they accomplished.

We believe Q3 and Q4 will remain challenging in terms of the intensity of part shortages, and we will continue to see pressure on our service margins. With that said, our teams are working cross-functionally to preserve production capacity and identify and mitigate risks to stay ahead of supply gaps that could impact production. And at present, we are maintaining line of sight to be able to fulfill our latest revenue forecast requirements. We will continue to prioritize and focus on our installed base customer needs to ensure that we have service parts of the necessary stocking levels and in the right locations globally to maintain existing devices and minimize the risk of treatment disruption for patients.

And now I'll turn the call over to Suzanne Winter for more details on commercial highlights during the quarter.

Suzanne Winter -- President

Thank you, Josh. Despite the macroeconomic challenges, we have seen very strong demand within the quarter and are very pleased with our top line performance for the quarter and the first half. It represents our fifth consecutive quarter of delivering above expectations in both orders and revenue. These results demonstrate the strength of customer demand for both CyberKnife S7 and Radixact TomoTherapy platform and the growing recognition by customers that our new product innovations provide a new standard of accuracy and precision needed for the growing trend of SBRT treatments.

As we have discussed, the growing use of ultra hypofractionated treatments deliver a higher dose of radiotherapy over only one to five treatment sessions, representing a paradigm change, offering significant benefits for patients, providers and healthcare costs. As we discussed, delivering SBRT treatments can vary substantially across all commercially available linac platforms. Any error in the precision or accuracy of the treatment plan or delivery can have significant impact on long-term patient outcomes and quality of life, especially given the higher dose over fewer fraction treatment paradigm. Our customers are telling us that ClearRT and Synchrony on Radixact and our latest product introduction, VOLO Ultra treatment planning are becoming the standard of care and a critical requirement to deliver the highest quality assurance standards required for SRS and SBRT treatment planning and delivery.

These new product introductions are driving our win rates, strengthening our average selling price, and accelerating installations. In our developed markets, where it is largely a replacement market, we have been successful in unseating the incumbent linac manufacturers' installed base with approximately 25% of our global system orders replacing a competitive system. We have also been strategically focused on assuring that we secure our own installed base and upgrade them to our latest performance platforms. In Q2, 56% of orders in developed markets represented a trade in and trade up to our latest CyberKnife S7 or Radixact performance platform.

In the emerging markets, where radiation therapy is underpenetrated, the majority of system orders were sold to new customers, allowing us to further our vision of expanding patient access to advanced radiotherapy care where it was previously unavailable. Looking at our regional performance, we had balanced execution across our 4 regions with standout performance in the Americas region, which delivered the highest quarterly revenue for that region in our company's history. The region finishes the first half with 27% year-over-year order growth. Americas region orders at the half were split evenly between CyberKnife S7 and Radixact TomoTherapy platform.

Additionally, 100% of Radixact orders included ClearRT and Synchrony capabilities in the configuration. In the Japan region, Japan continued its strong orders performance with 23% year-over-year growth in Q2. Japan's installed base grew by 5.6% in Q2 and has achieved the No. 2 market share position.

40% of Q2 orders in Japan were a replacement of a competitive linac system demonstrating that ClearRT Synchrony and VOLO Ultra are creating a compelling value proposition for providers to switch manufacturers. The EIMEA region is our largest order region and in Q2, delivered 3% growth, with strong emphasis on backlog revenue conversion growing revenue 47% for the quarter. And finally, our APAC region posted solid results with China driving 83% Q2 year-over-year growth in orders and finishes the first half with 107% year-over-year growth in orders and 71% year-over-year revenue growth. At the ASTRO meeting, we successfully introduced VOLO ULTRA treatment planning for the Radixact system.

Since introduction, we've received 510(k) and CE Mark clearance and won 15 new orders for VOLO Ultra in Q2 and completed the first two global installations. Reception of Clear RT at ASTRO was excellent. And during the quarter, we added 21 new orders for ClearRT, bringing our total orders to 68 from only one year ago when we received 510(k) clearance. Additionally, we showed our online adaptive capability as it works in progress on the Radixact in conjunction with RaySearch as well as the integration of RayStation with CyberKnife.

In partnership with Brainlab, we demonstrated the Brainlab elements contouring capability with the CyberKnife, a combined solution that provides a powerful tool for neurosurgeons. Our innovation strategy is strengthened by our commitment to best-in-class solutions through strategic partnerships. In summary, we are very pleased with the strong first half top line performance. We are executing our vision of expanding the curative power of radiation therapy to improve patient outcomes and quality of life through investment in R&D and continued cadence of meaningful innovation and new product introductions that will allow us to play offense, gain share, and strengthen the value of our solutions.

Now I'd like to turn the call over to Brandy for her review of the financial details.

Brandy Green -- Interim Chief Financial Officer

Thank you, Suzanne, and good afternoon, everyone. Accuray has delivered another strong quarter while navigating notable supply chain and logistics challenges. We are pleased with our ability to scale the company in this demanding environment. Gross orders for the second quarter were $85.4 million, an increase of $10 million or 13% over the prior year period from strong innovation-driven order momentum.

Looking ahead to the second half of this fiscal year, we anticipate smaller year-over-year gross orders expansion. From a product mix perspective, the TomoTherapy platform accounted for approximately 66% of gross orders for the quarter and CyberKnife accounted for the remaining 34%. During the second quarter, we had approximately $4 million of net cancellations, and we ended our second quarter with backlog of $581.3 million, a decrease of 3% from December 31, 2020, driven by increased order to revenue conversion. Now turning to the income statement.

The total revenue for the second quarter was $116.3 million, representing a 19% increase over prior year. Americas and EMEA were the primary drivers of our revenue growth. For the first half of fiscal 2022, revenue was $223.7 million, up 22% over prior year, representing strong customer demand. Product revenue for the quarter was $60.7 million, an increase of 45% compared to the prior year.

From a product mix perspective, CyberKnife accounted for approximately 21% of the revenue unit volume in the quarter, while TomoTherapy platform accounted for the remaining 79%. As a reminder, the mix between CyberKnife and TomoTherapy varies from quarter to quarter. Historically, on an annual basis, our product revenue mix has remained at approximately 30% CyberKnife and 70% TomoTherapy for the past several fiscal years. Service revenue for the quarter was $55.6 million, flat as compared to the prior year.

Now turning to gross margin. Overall, gross margin for the second quarter was 36.7% compared to 41.9% in the prior year. Product gross margin for the quarter was 41.5% compared to 44.7% in the prior year. During the quarter, for our JV accounting requirements, we recognized deferred product gross margin on one system sold from a prior quarter to our China joint venture that has now been transacted to end customers.

We have two remaining systems deferred from prior quarters that we expect will transact through the end customers in quarter 3. Including the timing difference on two deferred systems, our product gross margin for the quarter would have been 44.2%. Service gross margin for the quarter was 31.4% compared to 39.8% in the prior year. Supply chain constraints we discussed earlier has resulted in port shortages and elevated costs within freight, logistics and service parts of $3.7 million compared to prior year and continues to be a big headwind.

Additionally, consumption and operational costs were higher than planned, primarily related to increased system installation and related travel associated with top line product growth. Excluding the impact of the supply chain additional costs, we estimate that our service gross margin for the second quarter would have been approximately 38%. Moving down the income. Operating expense for the quarter were $38.6 million, an increase of $6 million or 18% from the prior year.

The year-over-year increase in operating expenses was primarily related to travel, marketing events and compensation costs from certain cash preservation actions taken in response to the pandemic. In addition, top line revenue resulted in increased commission costs for the period. Operating income for the quarter was $4 million compared to $8.2 million in the prior year. The operating impact of the China JV for the quarter was a loss of $0.8 million reported in our income statement as a single line item called gain loss on equity investment right below our operating income line.

As our China joint venture continues to ramp its operational and commercial activities, we expect that our share of design of JV's quarterly income or loss will continue to fluctuate in the near term. Adjusted EBITDA for the quarter was $6.8 million, up $1.4 million sequentially and compares to $13.5 million in the prior year period. The reconciliation between GAAP net income and adjusted EBITDA are described in our earnings release issued today. Turning to the balance sheet.

Total cash, cash equivalents, and short-term restricted cash amounted to $123 million, up $18 million from strong collections compared to $105 million at the end of last quarter. Net accounts receivable was $82 million, down $8 million sequentially and up $17 million from the same period last year due to 19% revenue growth. Our net inventory balance was $124 million, down $3 million sequentially and $15 million from Q2 of last year due to an increase in inventory turns and product demand. With strong cash generation from improved balance sheet metrics, we paid $16 million on our term loan and bank revolver during the quarter.

And with that, I'd like to hand the call back to Josh for an update on our fiscal 2022 financial outlook. Josh?

Josh Levine -- Chief Executive Officer

Thank you, Brandy. While we continue to see strong customer demand for our products, and we believe we will continue to grow in excess of our addressable market rates with the global radiotherapy equipment and treatment planning market, given the imperfect visibility in terms of the current supply chain and logistics environment, we will be revising our full year financial guidance. Total revenue is being increased to an expected range of $420 million to $430 million compared to the prior range of $420 million to $427 million, which represents year-over-year growth at the midpoint of the range of 7% and reflects strong customer demand for our product. Adjusted EBITDA is now expected to range between $15 million to $20 million compared to the prior range of $33 million to $35 million.

Near-term supply chain outcomes could impact the revenue and/or EBITDA range estimates to the upside or downside. And with that, operator, we're ready to open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Brooks O'Neil with Lake Street Capital Markets. Please go ahead.

Michael Haug -- Lake Street Capital Markets -- Analyst

This is Michael Haug calling in for Brooks O'Neil. Congrats on the quarter. Can you provide some details regarding the go-to-market strategy of the China Type B product with its safe market introduction in the summer of calendar year '22? Are you still on track with that deadline?

Suzanne Winter -- President

Thanks for the question. Yes. We continue to be on track with the market introduction starting in August at the Hospac and going through the fall. While we have seen COVID lockdowns in China, and we continue to do our testing prior to submission for regulatory, we are on track for our introduction to the market.

And we remain very optimistic about the ability to win market share Type B segment, which is growing, and of course, the largest part of the China market when we introduced that jointly developed product. 

Michael Haug -- Lake Street Capital Markets -- Analyst

OK. That's very helpful. And then can you touch upon more with the supply chain, what have you been doing and able to do to resolve it? How long do you think that this issue will persist? And we are also in a tight labor market, are you being impacted in any way with this or the hospitals or outpatient centers being impacted in any way by this worker shortage.

Josh Levine -- Chief Executive Officer

So I'll take the second part of that question first. Just again, the COVID environment right now continues or remains very site by site or region to region variable in its kind of the current status. I think that the omicron variant has created some labor tightening and labor shortages in hospitals, but we have not seen any real significant headwind here as it relates to lack of access to institutions, our ability to get equipment installed on customer timing requirements. And so again, we're monitoring the situation closely.

But I'd say on balance, we're still feeling pretty good about, again, access to facilities and maintaining reasonably tight time schedule and on-time schedules relative to equipment installation. Your first question around supply chain and kind of current situation. I would say that it's not a stretch that every company in our space, and of course, a range of industries are dealing with the same macroeconomic set of current impact. Our sourcing and manufacturing teams are working hard at in making sure that areas that we're feeling pressure in, we have good line of sight to.

We're being proactive in terms of trying to manage supply gaps. And at this point, again, they help us at least in the quarter from a product revenue growth standpoint, we actually overachieved the build plan for the quarter and the revenue plan we had internally. For Q3 and Q4, I think we believe that intensity of part shortages will continue to be a factor. But again, we're looking to preserve production capacity.

And as I talked about, the teams are identifying and mitigating risks to try and stay ahead of the shortages. We're working at tightening the interaction from a supplier standpoint, looking for hard purchase order coverage on all critical parts, stretching those out to 12 months, where we can do it, supporting key suppliers by helping them to source raw components. And lastly, early identification of parts and critical components where it looks like we're going to be short and taking advantage of being able to escalate those early in terms of visibility to be able to try to get ahead of them. So I'd say, on balance, those are the primary levers we're operating to.

Again, we've got a heavy bias as it stands for the business overall to make sure we're taking care of installed base customers. So the bias prioritization really is toward fulfillment, making sure that service parts are available and being delivered and trying to manage the costs related to that as tightly as we can without impacting customers.

Michael Haug -- Lake Street Capital Markets -- Analyst

Got it. Thank you very much. Congrats on the quarter. 

Operator

The next question is from Marie Thibault with BTIG. Please go ahead. 

Marie Thibault -- BTIG -- Analyst

I thank you for taking the questions and congrats on a really strong revenue and order book this quarter. I wanted to ask a follow-up here on the supply chain. The macro has certainly been a concern for a while, as I recall last quarter, it sounded like the team is working very hard, but things have remained on track. Just curious what sort of change in the last couple of months.

Do you have anything to do with a record revenue and a very strong order book and kind of working through some of your inventory. Does that lead to some of it? And are there things you can do outside of some of these supply chain costs to kind of offset some of the headwinds there? Thanks. 

Josh Levine -- Chief Executive Officer

Yes, Marie. So again, to your point, we had a strong quarter from a revenue standpoint. And I'd say shipments, not unlike many capital equipment companies, shipments aren't usually linear throughout the quarter, and we typically see more heavily weighted shipments of product going to revenue toward the latter part of the quarter. We saw an increase in intensity of shortages and supply chain shortages s we got deeper into the quarter in Q2.

It actually accelerated, I think, in December, especially at a level and at a rate that I'm not sure anybody could have been prepared for. With that said, we have line of sight right now. I talked a little bit about in my answer to the previous question, some of the things and the levers we're operating to with regards to providing more predictability for the production side of the house, so that they know what -- and have line of sight to being able to close gaps that are being escalated and visible sooner than later in the quarter. So I'd say we're doing -- for a company our size, we're doing a lot, and we're being pretty effective at it, and we're trying to get ahead of this.

And -- the -- again, I don't know that it's possible for anybody to predict what will happen with regards to when this release. We're assuming that we're going to continue to see strain and pressure on the supply chain side of this, probably through the end of this fiscal year, so Q3, Q4, and that right now, we're maintaining a line of sight to be able to fulfill and do everything we can to fulfill our latest revenue forecast requirements. So I mean that's really kind of the story at this point.

Marie Thibault -- BTIG -- Analyst

Yes. That's all understood, Josh. And I want to reflect the challenges your team is working through. I guess I'll ask my follow-up here on the revenue guidance increase.

Nice to see it go upwards, but certainly, you beat expectations by great handling, I think, by more than $10 million or so about, $13 million or so versus consensus. It looks like you're ready more than halfway to that revenue for the fiscal year? Curious how you're thinking about cadence and perhaps if it's if there's any conservatism building for COVID or other headwinds. 

Suzanne Winter -- President

You're right. The demand has been very strong in the first half. It probably was front loaded in terms of the momentum that we are seeing. I think we're being cautious driving through the uncertainty of the supply chain challenges here in the back half of the year.

But I can tell you, demand is very strong, and that hasn't been the issue. We also have a sizable backlog with customer orders and installation readiness and a desire to complete installation, which is why we raised the guidance on the high end. But it is a wider range just because of the uncertainty around supply. So assuming we're able to navigate like we have in the first two quarters at the higher end of that range.

Marie Thibault -- BTIG -- Analyst

Thank you, Suzanne. 

Operator

The next question is from Josh Jennings with Cowen. Please go ahead.

Josh Jennings -- Cowen and Company -- Analyst

Hi. Good afternoon. Thanks for taking the questions. First one is just on the new order growth pace in the first half of fiscal '22.

It significantly outpaced the market rate and seemingly gained share. I just wanted to ask about the sustainability of share gain trajectory. And I guess specifically, clearly, the new technology launches like ClearRT and Synchrony and Radixact are still in very early innings in VOLO. Are you seeing a nice ASP lift that's helping on the new order growth results, one? And then two, are you seeing any benefit from any disruption in the Varian and Siemens merger.

But from -- any details you can share just around the share gains you've enjoyed in the first half and the sustainability, and maybe any color on those two elements that I pointed out? Thanks. 

Suzanne Winter -- President

There's no question that the new product innovation is driving our win rates and driving our order momentum, and we are also seeing a price lift on those products that include the latest innovations like ClearRT, like Synchrony, like VOLO Ultra. And so we do expect that as we continue to innovate across both platforms, that we'll be able to see some price gain on the configurations. And that really just reinforces our strategy of increasing our spend in R&D and meaningful product innovation to help continue to differentiate Accuray technology from competition. In terms of the Siemens Varian, I think that we haven't seen a big change from previous earnings calls.

We do believe that that merger probably has a stronger benefit for the Siemens DI business versus really pulling any business over to Varian. However, I think their platform is based on conventional linear accelerator technology. And I think as the trends toward SBRT and the need for better imaging, better motion tracking and adaptive delivery like Synchrony, they're going to be challenged in terms of the runway for that platform. And we see that as an opportunity for Accurate technology.

We're positioned very nicely to gain share.

Josh Jennings -- Cowen and Company -- Analyst

Thanks. OK. 

Operator

The next question is from Frank Pinal with Jefferies. Please go ahead. And Mr. Pinal is disconnected.

The next question is from Jason Wittes with Loop Capital. Please go ahead.

Jason Wittes -- Loop Capital Markets -- Analyst

Hi. Thanks for taking the questions. So if I look at your EBITDA guidance, it looks like it's -- the reduction is entirely due to the shortages? And I guess if I'm teasing it out, it looks like specifically to service gross margin, not necessarily the product gross margin. Am I thinking about that correctly?

Josh Levine -- Chief Executive Officer

Yes. Yes. It's -- the impacts from a cost input standpoint, Jason, we're very definitely more strongly felt on the service margin side. A combination of inflationary costs related to higher price either prices related to inventory, we're purchasing to support production, early buys, commitments to longer purchase order, hard purchase order requirements, but also higher logistics costs, higher freight for sure.

And especially in the area of service, the replaceable parts network and our service organization, we supply our existing installed base through a network of regional stocking locations. There are 37 of them around the world. So at any given point in time, we've got a lot of parts inventory in a lot of different locations around the world and making sure that we have what we need at the stocking levels that we need it, and where they need to be from a geographic orientation perspective. Created certainly incremental freight costs for us from an expediting standpoint in the quarter.

Jason Wittes -- Loop Capital Markets -- Analyst

OK. Got it. So I mean with those comments, it sounds like on the product side, at least, the margins have been a little more stable and more closely aligned with historic ranges. Is there a catch-up there? Or is that just logistic -- no, I was going to ask, is that probably going to be sustainable? Or is there a catch-up to be had there in terms of is there some risk there on those gross margins as well over time?

Josh Levine -- Chief Executive Officer

I think if you go back to the prepared remarks that Brandy walked through, one of the things that, from an impact standpoint that we're seeing some quarter-to-quarter variability with is the accounting treatment related to the China JV. And we are -- we aren't -- depending on when in the quarter, the devices shipped and when they're installed or sold through, if you will, to the end user at the time of shipment, we basically take the revenue and the costs and the deferred -- the margin is deferred until the China JV sells through to the end user. And so it isn't always a 100% guarantee that we'll have in the same quarter, those activities taking place. So there is going to be some quarter-to-quarter variability, Jason, with regards to product margin based on some of those impacts.

But I don't think that we're looking at and we're not expecting dramatic falloffs here or headwinds on the product margin side.

Suzanne Winter -- President

That is exactly right.

Jason Wittes -- Loop Capital Markets -- Analyst

That's very helpful. And then my last question related to all this. In terms of, if I heard correctly, I think you did say that you did raise top line guidance, which is great. I mean, obviously, you had a very strong quarter in the second half doesn't look -- doesn't initially carry the entire upside through, did I hear you correctly when you said there is also potentially some supply constraints and just placing units for the rest of the year and i.e.

potentially on revenue?

Josh Levine -- Chief Executive Officer

No. I mean the supply chain, the supply chain variable here is really the one key element to how high up is going to be, if you want to call it that for us. Again, we -- right now, we believe we've got line of sight from a production capacity standpoint in terms of the game plan to be able to get to our forecasted revenue. And so that's tied to the revised guidance.

So as we stand right now, I think, again, it's not without a lot of effort on a lot of people's parts from a product sourcing and production standpoint. But Again, we feel pretty good about where we sit right now on the revenue side.

Jason Wittes -- Loop Capital Markets -- Analyst

Great. Thank you. I'll jump back in queue. 

Operator

The next question is from Frank Pinal with Jefferies. Please go ahead.

Frank Pinal -- Jefferies -- Analyst

Can I -- can you hear me?

Josh Levine -- Chief Executive Officer

Yes.

Frank Pinal -- Jefferies -- Analyst

Great. Sorry about that, guys. So a quick one for me. I guess, first, congrats on a really nice quarter.

Strong beat on the top line. I'm just sort of wondering, I guess, number one, on the CMS RO bundle, I know it's a little bit early in implementation of that. But I'm wondering what you're seeing at this point are reimbursement sort of in line with what you're expecting? Or -- and do you expect any sort of ASP pressures just kind of looking ahead, I guess, more broadly across the industry? I guess that's my first question. I just have a follow-up to that.

Suzanne Winter -- President

Thanks for the question, Frank. Yeah. We were disappointed that it was further delayed in implementation and got wrapped into some infrastructure initiatives that in December. That being said, it probably provided some additional breathing room for providers, a little bit more time to prepare for the changes.

The reality is, though, what we are seeing is the key trends are still the same. There's an emphasis on value and outcomes over volume regardless of the timing of the CMS decision. There are other drivers in the marketplace. For example, the commercial private payers are really already there.

The biggest payers with two-thirds of covered life -- lives have already changed toward a reimbursement that favors the hypofractionation. Additionally, just the aged equipment of the installed base in the U.S. and the need to upgrade to the older technology to newer performance technology to be able to provide ultra hypofractionated treatments is still a growth catalyst. So we're nicely positioned to capitalize on these trends.

We're working very closely with ASTRO and AdvaMed to ensure that when the reimbursement rolls out that is optimized to support SBRT.

Frank Pinal -- Jefferies -- Analyst

Great. And what -- just really quickly, just to follow up to that, I have another one. On ASPs, you sort of expect your competitors to start working down pricing? Or do you expect that to more or less stay the same based on that reimbursement change.

Suzanne Winter -- President

I think it's too early to tell at this time, Frank. We're certainly very sensitive to what competitive move may happen in the marketplace. We are just going to focus on differentiating our technology and the value it brings and price appropriately.

Frank Pinal -- Jefferies -- Analyst

Great. Thank you. And just one last one. On tumor -- on essential tremor and epilepsy, you guys touched on that during analyst day, that's obviously a potentially expensive market.

I'm just wondering if you put any bracket around the potential market size, entry, milestones, etc., at this point.

Suzanne Winter -- President

We have not, but we will be introducing -- formally introducing our partnership with Brainlab at the Radio Surgery Society meeting in March, so that will be the first time I think that we come to market together in that partnership. And again, that provides treatment planning that is more familiar to the neurosurgeon. But I think as we move forward, we'll be able to speak more about the market potential in those areas.

Frank Pinal -- Jefferies -- Analyst

Great. Thank you very much. 

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Josh Levine for any closing remarks.

Josh Levine -- Chief Executive Officer

Thank you, operator. I'd like to thank the entire Accuray team for their continued focus and commitment to great commercial and operational execution in the face of the challenging environment we find ourselves in. Despite the headwinds we highlighted this afternoon, the clinical impact related to our most recent product innovations have resulted in vastly improved strategic positioning for our technology. And customer demand, as you heard from Suzanne, remains very, very high.

While we're not pleased with the impacts to margins and profitability right now, we believe we are making the right actions and taking the right actions to ensure that we're improving and hardening critical internal processes that will make Accuray a stronger company on the other side of the current supply chain challenges, which will drive positive cost productivity improvements over time. And we look forward to speaking with you all again in April for our fiscal third quarter earnings release. Thank you very much.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Ken Mobeck -- Vice President of Finance

Josh Levine -- Chief Executive Officer

Suzanne Winter -- President

Brandy Green -- Interim Chief Financial Officer

Michael Haug -- Lake Street Capital Markets -- Analyst

Marie Thibault -- BTIG -- Analyst

Josh Jennings -- Cowen and Company -- Analyst

Jason Wittes -- Loop Capital Markets -- Analyst

Frank Pinal -- Jefferies -- Analyst

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