Earnings Call Transcript - ARAY Q3 2020

Operator, Operator

Good day, and welcome to the Accuray Reports Fiscal 2020 Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz with Lytham Partners. Please go ahead.

Joseph Diaz, Investor Relations

Thank you, Alyssa, and good afternoon to everyone. Welcome to Accuray's conference call to review financial results for the third quarter of fiscal year 2020, which ended March 31, 2020. During our call this afternoon, management will review recent corporate developments. Joining us today are Josh Levine, Accuray's President and Chief Executive Officer; and Shig Hamamatsu, Accuray's Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are set forth in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. The forward-looking statements on this call are based on information available to us as of today's date, and we assume no obligation to update any forward-looking statements as a result of new information or future events, except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. Two housekeeping items for today's call. First, during the Q&A session, we request that participants limit themselves to two questions and then re-queue with any follow-ups. Second, all references we make to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our third quarter refer to our fiscal third quarter ended March 31, 2020. Now, I'd like to turn the call over to Accuray's President and Chief Executive Officer, Josh Levine. Josh?

Joshua Levine, CEO

Thanks, Joe, and thank you to everyone joining us today. I also want to thank Suzanne Winter, our Chief Commercial Officer and Head of R&D, and Mike Hoge, our Senior Vice President of Global Operations and Supply Chain, for joining our third quarter earnings release webcast. Given their leadership roles in specific areas of responsibility as we mobilize our efforts and resources across the company to address COVID-19, I thought it would be helpful to have both of them available to answer potential questions that are related to critical information in their respective areas. Clearly, because COVID-19 is at the forefront of everyone's mind, my prepared remarks this afternoon will focus on three primary topics. First, the impact that the pandemic is having on our customers' clinical practices and workflow. Second, what we are doing to support them while keeping our employees safe. And lastly, our key areas of focus related to business continuity, both operational and financial. Although fighting the Coronavirus has taxed the healthcare industry worldwide, the reality is that radiotherapy treatments are continuing around the world, and although based on direct feedback from customers, treatment delivery is being managed with modified clinical practice protocols and workflow. For example, lower risk and non-urgent cases and treatment starts are being pushed out, and scheduled treatment times have been extended to allow for disinfection of treatment bunkers and equipment between patients. This has resulted in overall decreased patient treatment volumes. There has also been an increase in the use of hyper fractionation and ultra-hyper fractionation to limit the risk of COVID-19 exposure for both patients and department staff, which we believe Accuray is uniquely positioned to support with our CyberKnife and Radixact Systems. One of the other areas of paramount importance, given COVID-19 impacts to the overall hospital environment and radiotherapy department clinical practice protocols, is the health and safety of our frontline employees. Almost a third of our entire employee population are global service team personnel who are responsible for installation, preventative maintenance, and break-fix activities that support our installed base customers. During moments like these, our ability to provide service and critical application support to ensure that our customers can continue treating patients safely and effectively is critical. I'm incredibly inspired by these frontline heroes and their tireless dedication to supporting customers and patients, and I want to thank them publicly. Our service teams around the world are following customer and institution-specific defined safety protocols when they are on-site at customer locations, and we are helping to ensure their safety by providing personal protective equipment. I'm extremely proud of the collective efforts of the Accuray team involved in the day-to-day support of our customers. Despite all of these efforts, we should not underestimate the magnitude of the challenges that our customers currently face. As hospitals have been forced to focus the majority of their clinical resources and intensive and critical care medicine areas to support COVID-19 patients, many have been proactively pulling back from all clinical service lines and procedures deemed non-essential or elective in nature. For many hospitals, the resulting impact has been an extremely rapid loss of profitability and associated cash flows, and a growing number of facilities are finding themselves under significant financial stress. The re-prioritization of clinical resources and the associated customer challenges that have emerged, along with restricted travel and facility access issues, created delays in bunker modification projects and installations in our fiscal third quarter. We believe that these factors suggest that we should expect lower revenue conversion timelines in the near term. In terms of our internal business management focus, we've been taking actions across an array of both operational and financial areas to help ensure the continuity of our business. On the operational side, we've been working aggressively with our critical supply chain and logistics partners to help ensure that we have adequate supply to support both our production and service activities globally, while maintaining maximum flexibility related to flexing up or down in terms of product build schedule changes. On the financial side of our business continuity efforts, we are focused on cash flow management, and we are taking aggressive actions designed to preserve cash and maximize liquidity through operating expense reductions, without compromising commercial activities and future innovation. These actions include, but are not limited to, reducing manufacturing raw materials purchases, aggressive accounts payable management, reducing CapEx spending, freezing all discretionary hiring activity, and reductions in travel spend across all functions, except for our global service personnel. We are essentially evaluating all potential options that can contribute to cash preservation. Additionally, Accuray's executive team, consisting of my seven direct reports and myself, have agreed to take a temporary reduction to our base salaries and waive any discretionary annual bonus payment that might otherwise have been paid out in the fiscal '20 year. We believe the actions that we have taken will help Accuray effectively navigate through the course of this pandemic. Despite the challenging environment caused by COVID-19 from an operational standpoint, Accuray had a reasonably solid third fiscal quarter. Gross orders for the quarter increased 27% to $106 million, compared to $84 million in the prior year third quarter. On the revenue side, we reported Q3 revenue of $99.5 million, which was below our expectations, as we saw timing impact due to COVID-19 deeper into the month of March when travel restrictions and lockdowns in certain markets went into effect, which as mentioned before, affected logistics and bunker construction schedules at both our distributor and end-user levels. Although our revenue conversion timing for systems and upgrades has been impacted by the pandemic, we expect our service contract revenue, which has an annualized recurring run rate in excess of $200 million, to remain stable, as our installed base customers continue to rely on Accuray equipment to treat patients. From a product mix perspective, CyberKnife contributed approximately 40% of the total gross orders in Q3, while the TomoTherapy platform led by Radixact accounted for approximately 60% of the gross orders during the quarter. From a regional order performance perspective, the Americas region delivered its third consecutive quarter of double-digit year-over-year order growth. Our focus on improving the consistency of commercial execution in the AMS region has been a work in progress, and we are very pleased with the continued momentum our Americas commercial team has made in growing our sales pipeline throughout that region. Gross orders in EMEA grew 16% on a year-over-year basis. In Japan, Q3 gross orders actually declined year-over-year. But based on overachievement in the first half of the fiscal year, the region is still ahead of our internal expectations on a year-to-date basis. Transitioning to China, gross orders from China remain strong, with 11 new orders received during the quarter, six of which were Type A and five of which were Type B. Roughly 70% of these orders came through our joint venture sub-dealer network, and the remaining 30% came through our legacy distributor, Tomo Knife. We are still waiting for completion of the tender process for the first batch of 50 China Type A licenses awarded for our systems in October of 2019 and now believe that the beginning of revenue conversion will most likely begin in the first quarter of fiscal 2021. You might also be aware that we've been expanding the depth of our management team with the recent additions of highly experienced executives, including Suzanne Winter, our Chief Commercial Officer, who joined us from Medtronic, and Mike Hoge, Senior Vice President of Global Operations and Supply Chain, who joined us from GE Healthcare. The extensive experience and the success that these executives have achieved at their previous companies provide Accuray with impressive bench strength as we navigate through this challenging operating environment. And lastly, an update regarding financial guidance. Given the unprecedented nature of the Coronavirus pandemic and the significant economic uncertainty it introduces, we have made the decision to withdraw our fiscal 2020 guidance. Once we believe that we have sufficient visibility to reinstate guidance, we will do so. In closing, while the current market conditions limit our near-term visibility, we are aggressively focused on those activities and actions that we can control, ensuring the health and safety of our employees, ensuring continued support for our customers and their patients, and focusing on those elements, both operationally and financially, that will drive Accuray's business continuity. With that, let me turn the call over to Shig for his review of the financial details. Shig?

Shigeyuki Hamamatsu, CFO

Thank you, Josh, and good afternoon, everyone. I will begin with some additional details on our order performance for the third quarter, and then focus on certain highlights for the period. Gross orders for the third quarter were $106 million, which was up 27% from the prior year. On a year-to-date basis, gross orders increased approximately 15% over the same period, prior year. Net age-outs for the quarter were $20 million, which was in line with our prior expectations. We did have approximately $4 million of age-in activities during the quarter. During the third quarter, we had cancellations and other adjustments of approximately $9 million. As a result, on a net basis, we generated $77 million for orders in the third quarter, which represented a 20% increase over the prior year. We ended the quarter with backlog of $570 million, representing an increase of 15% from March 31, 2019. As Josh discussed earlier, we anticipate the COVID-19 disruption will adversely impact the pace of our backlog to revenue conversion in the near term. Although the depth and the extent to which COVID-19 will impact individual markets could vary based on a number of factors, we could see a higher than normal level of age-outs in the coming quarters due to this disruption. As for the China orders already aged out, we continue to believe that a meaningful number of them will eventually convert to revenue. The 50 Type A licenses already awarded for Accuray systems included several systems that were previously aged out. Turning now to our income statement. Total revenue for the third quarter was $99.5 million, down from $103.2 million in the prior year. On a year-to-date basis, revenue was down 4% from the prior year. Our product revenue of $45.5 million during the quarter declined 2% compared to the prior year. Service revenue in the third quarter was $54 million, down 5% from the prior year. The decline in service revenue was primarily due to lower upgrades purchased through our service contracts. From a product mix perspective, CyberKnife accounted for approximately 20% of the quarter's revenue unit volume, while the TomoTherapy platform accounted for the remaining 80%, most of which was driven by Radixact. Turning now at the gross margin. Our product gross margin was 39.4% compared to 41.5% in the prior year. Service gross margin in the quarter was 39.2% compared to 37.3% in the prior year. Service margin for the quarter included an impact of fiscal 2020 bonus accrual reversal, which, as Josh described earlier, related to waiver of executive bonus payout, as well as adjustments to general employee bonus pool to reflect the current business environment. Excluding the impact of this bonus accrual adjustment, our service gross margin for the quarter was 37%, which was in line with our historical norm. Overall gross margin for the third quarter was 39.3% compared to 39.2% in the prior year. Excluding the impact of the bonus accrual adjustment I just described, our overall gross margin for the quarter was 38%. Moving down the income statement, operating expenses for the quarter were $31.2 million, a decrease of $6.4 million or 17% from the prior year. The year-over-year decline in operating expenses was primarily driven by the bonus accrual reversal of approximately $4.5 million. The remaining decrease was driven by reductions in discretionary spend, such as travel, given that certain employee activities were restricted by COVID-19. GAAP operating income for the quarter was $8 million compared to $2.9 million in the prior year. Excluding the impact of the bonus accrual adjustments, our GAAP operating income was $2.3 million for the quarter. We began reporting our operating impact of the China JV in the third quarter, and it was an income of $0.2 million. This item is being reported on our income statement as a single line item called gain on equity investment. While we reported a small income from the China JV this quarter, we expect to see a small loss in the next few quarters as the JV continues to ramp on its operational and commercial startup activities. Adjusted EBITDA for the quarter was $11.3 million compared to $6.7 million in the prior year. Excluding the impact of bonus accrual adjustment, adjusted EBITDA for the quarter was $5.6 million. Now, a word about our balance sheet and liquidity position. We ended the quarter with $92 million of cash and short-term restricted cash. We carried approximately $200 million of debt in aggregate at the end of the quarter, which consisted of $85 million convertible notes due July 2022, as well as a term loan of $85 million and an asset-backed revolver of $30 million from one lender, both of which mature in 2024. In summary, none of our outstanding debt today is scheduled to mature in the next two years. From a working capital liquidity perspective, in addition to the asset-backed revolving facility, we maintain access to accounts receivable factoring facilities of over $20 million in Japan. Beyond the access to these credit facilities, as Josh mentioned earlier, we are taking focused cash spend control actions to preserve our liquidity position. In addition, our supply chain team is working very closely with our suppliers to adjust our inventory position to appropriate levels, as we closely monitor business conditions in the current environment. And with that, I'd like to hand the call back to Josh.

Joshua Levine, CEO

Thank you, Shig. I want to thank all of Accuray's employees throughout the world for the tremendous energy they are bringing to their work and supporting our customers and their patients during this challenging time. And with that, operator, we're ready to open the call up for questions.

Operator, Operator

We will now begin the question-and-answer session. The first question today comes from Brooks O'Neil of Lake Street. Please go ahead.

Brooks O'Neil, Analyst

Good afternoon, guys. Can you hear me okay?

Joshua Levine, CEO

Yes. Doing good, Brooks.

Brooks O'Neil, Analyst

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

Joshua Levine, CEO

Yes. I recently had a conversation with the Chairman and Vice Chairman of China Isotope and Radiation Corp a little over a week ago to gain insights into their situation. They confirmed that there are signs of activity in the China market, particularly in their radioisotope business. While they are not heavily involved in large capital equipment yet, they are seeing an uptick in orders on the radioisotope side, with hospitals starting to return to a new normal. However, they believe that the recovery on the equipment side might take longer. Progress is being made in the tendering process, but we do not control the timing of its completion. When we last reported, we had hoped for tendering to be finished by our fiscal fourth quarter with potential revenue before the year ended. Now, I think it’s more realistic to expect this in Q1. We are also waiting for an announcement from the National Health Commission regarding the second round of Type A licenses. All applications have been submitted and reviewed, but no announcement has been made yet. We anticipate that towards the end of this fiscal cycle, we may hear about that second tranche of licenses.

Brooks O'Neil, Analyst

That's great, that's great. Let me ask you just one more question and I'll jump back. I hear anecdotally from people in the industry that there's a high likelihood we see positive movement with regard to the new reimbursement codes, most likely for implementation beginning January 1. Can you just tell us what you hear out there and what your expectations are at this point?

Joshua Levine, CEO

Yes. Prior to the peak of the pandemic, we anticipated a July 1 implementation. However, both ASTRO and AdvaMed have informed CMS that the current focus on COVID-19 has affected the market's readiness for this implementation from a clinical provider standpoint. They are urging CMS to delay the implementation until January 1. This recommendation has been communicated within the last three weeks.

Brooks O'Neil, Analyst

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

Joshua Levine, CEO

Thanks, Brooks.

Shigeyuki Hamamatsu, CFO

Thanks, Brooks.

Operator, Operator

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

Joshua Jennings, Analyst

Hi, good afternoon, and congratulations on navigating the initial phase of the COVID challenges with a solid quarter. I wanted to inquire about any trends you're observing in April across different regions. We just got some insights from China; could you elaborate on what's happening in Western Europe, the Middle East, and possibly the Americas as well?

Joshua Levine, CEO

The general answer is that, as we mentioned earlier, we experienced the most significant slowdown as we moved further into March. The first two months of the quarter were progressing as we had anticipated. However, we noted a clear timing impact in the last couple of weeks of March that affected some deals, delaying revenue recognition into the fourth quarter. The situation varies significantly across different regions, and I am fairly certain that the recovery will not be consistent everywhere. Two main factors are influencing this. First, hospitals are facing financial challenges due to the cessation of elective and non-essential procedures, which is affecting cash flow. We are adjusting our expectations regarding days sales outstanding and accounts receivable collection. On the service revenue side, we feel more secure since patients continue to receive treatments with our devices, which should ensure payment. However, we anticipate that the collectability of service system revenue might be delayed due to the financial stress on hospitals. Additionally, there's uncertainty regarding hospitals' confidence to reinvest in capital expenditures, which complicates demand visibility and timing. Overall, the situation will differ across regions, and we will need to observe how it unfolds.

Joshua Jennings, Analyst

Understood. A lot of unknowns out there. Just leads into next question. Based on your long-term guidance prior to COVID really kicking in Europe and in the U.S. earlier this year, you talked about 8% to 12% revenue growth into the out years. I assume that we should be just thinking about our own projections in the fiscal fourth quarter and then the time period of duration of this crisis and impact on some of the CapEx spending and the different geographies. Would you advise us to disregard that guidance for fiscal 2021 and then the long-term outlook still being similar in fiscal 2022 and beyond? Thanks for taking the questions.

Joshua Levine, CEO

I think the straightforward response to that is that there aren't many simple answers in the current situation. When I consider the demand characteristics in our business right now, I believe China remains a significant growth catalyst for us moving forward. They were the first to enter and exit the pandemic, and as the market begins to recover in China, the underlying demand related to the under-capacity in radiotherapy continues to be a major growth driver for us. As for other regions, the situation varies, but our Q3 results indicate strong interest and demand for our products. We have yet to fully introduce some key innovations related to enhanced imaging on the Radixact platform and the overall impact of Synchrony on Radixact. There is a lot to be excited about. While we are adjusting expectations from the earlier 8% to 12% range we had at the beginning of the year to a slightly lower figure in the intermediate term, I believe that range is a reasonable target for the long term. Nevertheless, the key issue is the timing of recovery and its effect on our momentum, which is why we have suspended guidance. We are actively engaging with customers and focusing on aspects we can control, while managing our company's liquidity. I am confident that Shig and I have the right strategy and focus to navigate through this and succeed afterward.

Operator, Operator

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

Anthony Petrone, Analyst

Thanks. I hope everyone is staying healthy and good to see at least some encouraging signs out there in the print here today. Let me dig in on a few specific housekeeping questions and then I have a couple of follow-ups on how you see the Coronavirus cycle playing out. Just in terms of overall gross orders in the quarter, can you quantify how much of that was actually previously aged out orders returning to the backlog and what specifically triggered those coming back in and regionally with those U.S. orders with China orders or European orders? Then I'll have a follow-up.

Shigeyuki Hamamatsu, CFO

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

Anthony Petrone, Analyst

Rather backlog I was talking. Apologies for that.

Shigeyuki Hamamatsu, CFO

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

Anthony Petrone, Analyst

Okay, so $4 million came back in.

Shigeyuki Hamamatsu, CFO

Correct. Anthony, just to be very clear, I know this can get confusing, but when I say $4 million aged out, I mean aged back in; what it means is it didn't really go into backlog per se. It just went straight to revenue out of age-out pool. Net aged out item had a net-zero impact on the reported backlog just so you know.

Anthony Petrone, Analyst

That's helpful. Maybe the follow-ups would be a little bit more in terms of the trends in March and April, but maybe more on the U.S. installation and order side of things. In terms of just hospital regulations, our understanding is that even installations to an extent have been pushed out beginning mid-March. Then specific, I guess Josh, to your comments on CapEx, how order specifically I guess late in the quarter and early this quarter are trending in the U.S. specifically. Then I'll have one last one on China. Thanks.

Joshua Levine, CEO

Anthony, I think the situation is specific to the U.S. or the Americas region. The reality is that fundamental aspects of this discussion, such as access to facilities and travel restrictions between markets and countries, have certainly impacted installation timing and customer acceptance timing, without a doubt. This is not just a phenomenon occurring in the U.S. As we moved further into the third quarter, these factors had a greater impact. Looking ahead, it is difficult to predict where and how capital expenditure activity will begin to recover and how it aligns with our prioritization. At the very least, we anticipate several quarters of reduced or moderated capital expenditure spending. A lot of this depends on how long hospitals remain in a shutdown or lockdown mode concerning what they deem non-essential or elective procedures. These two factors are interconnected and influence each other in terms of the drivers for estimating a recovery timeline.

Anthony Petrone, Analyst

Fair enough. Regarding therapy volumes, you mentioned that radiation therapy is crucial. Is there an observable trend in demand or any pent-up situations? Are there noticeable delays in radiation therapy procedures at hospitals as the backlog increases? How does this influence capital decisions? Could this potentially provide a small advantage despite the pressure on CapEx budgets? Furthermore, about China, I’d like to clarify the orders this quarter. How many of these orders were driven by tenders compared to the underlying demand for the China orders you reported? Thank you again.

Joshua Levine, CEO

I want to mention treatment volumes. We have good visibility regarding our Tomo product line and its treatment activity. Overall, we haven't experienced any significant decline in treatment volumes related to our installed base. It’s around 95 percent of what it used to be, which I find noteworthy. This indicates that cancer treatment hasn’t been significantly affected by the Coronavirus. Patients may be experiencing delays, but only in situations where radiation oncologists feel confident that these delays won't impact long-term outcomes, such as local control or survivability. Generally, we expect to see our installed devices maintain a high level of utilization for treating patients. I previously discussed some of the changes in protocols and workflows customers have implemented, including longer turnaround times between treatments to adhere to proper disinfecting protocols. However, the data available to us does not indicate any significant drop in treatment volumes. Regarding CapEx, it's challenging to predict right now, but we are monitoring the situation closely and will update you as we gain more clarity. Concerning your question about activity in China, the tendering process for the Type A licenses awarded to us last October is still ongoing. Most of the orders we've received were likely placed in anticipation of the completion of that tendering process.

Anthony Petrone, Analyst

Okay. Thank you.

Operator, Operator

The next question comes from Tycho Peterson of J.P. Morgan. Please go ahead.

Tycho Peterson, Analyst

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

Joshua Levine, CEO

Let me begin with the APM discussion. Before the pandemic, the general expectation was that we would likely be on track for a July 1 rollout. From my perspective, a January 1 timeline doesn't appear to be excessively delayed, and I don't anticipate it affecting orders and bookings moving forward. For facilities that are aligning with the treatment direction encouraged by the APM, and that may not be fully equipped in terms of SBRT or hyperfractionation capabilities, there will be important technological decisions to make in order to safeguard and optimize their business model under the new guidelines next January. Thus, I don't foresee any significant negative impact. Regarding the CapEx situation, it's challenging to apply a uniform outlook to the entire market, as the circumstances can vary widely. For institutions where radiation oncology is a critical revenue and profit source, and where the equipment is aging and less efficient in terms of treatment speed and throughput, prioritizing upgrades of that older equipment is likely necessary. Conversely, if an institution has relatively new equipment and can manage treatment volumes similar to pre-pandemic levels, there may not be a strong incentive for trade-ins or upgrades. Therefore, the outlook will differ by location and region. This business is not one that people will abandon; it's among the few departments in hospitals that are still actively treating patients. Alongside intensive care and labor and delivery, radiation oncology is a department that remains operational. If this is a key component of your overall business strategy, it makes sense to consider technology upgrades and the introduction of new equipment, tailored to your specific situation. However, variations will exist across different regions and facilities.

Shigeyuki Hamamatsu, CFO

In response to your last question, Tycho, regarding the age-out, as mentioned in our prepared remarks, we believe the age-out could increase in the short term, particularly considering the revenue conversion cycle we discussed. We expect this cycle to lengthen in the near term for obvious global reasons. It's important to note that our 30-month age-out policy starts from the date of order receipt, and about 75% to 80% of our current orders originate from distribution channels outside of the United States. Prior to the pandemic, we were experiencing revenue conversion timelines in those areas ranging from 18 to 24 months. We think that the extended revenue conversion cycle in the near term could negatively influence the trend on age-out during this period. However, I want to clarify that being aged out does not automatically mean that orders are canceled. We evaluate these aged out opportunities quarterly for potential revenue conversion. As we move beyond the pandemic situation, which we cannot predict, we are optimistic that we can convert those orders back into revenue as soon as possible.

Tycho Peterson, Analyst

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

Joshua Levine, CEO

Yes, the first part of your question is still on track as we had planned, and we were expecting to start commercialization by the end of this calendar year. I'm not sure if there will be an ASTRO meeting this fall, but if there is, we are likely to present that capability there. We'll know more about the timing of the ASTRO meeting as we get further into the fall. I apologize for missing the other part of your question.

Tycho Peterson, Analyst

The Type B product you're developing through the China joint venture is still on track, and we were aiming for commercialization by the end of this calendar year. I'm uncertain if we will have an ASTRO meeting this fall, but if there is one, we are likely to introduce that capability there. We'll have to see how things progress as we get further into the fall regarding the timing for the ASTRO meeting. I apologize for missing your other question.

Joshua Levine, CEO

We are still on the timeline that we expected. I think the manufacturing facility that we are involved in build-out with CIRC, it probably lost about 90 days of time, maybe 100 days of timeframe when China was shut down. But they've got construction continuing, restarted now, continuing. And our expectation is by probably mid-July, the facility will be up and running in terms of not necessarily producing product. We've got essentially the training facility and training bunkers there, and those will start to be utilized, and the timelines for production of Type B in Tianjin are still on that roughly 18 month, 20 month kind of timeline from now, from the time the plant is up and open, if you will.

Tycho Peterson, Analyst

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

Shigeyuki Hamamatsu, CFO

Yes, Tycho. Given our recent guidance withdrawal, I'm not going to get into specific numbers. However, I can share that the $15 million in year-over-year savings is already included as we move through Q3, which we just reported.

Operator, Operator

At this time, I do not see any further questions. This concludes our question-and-answer session. I will now turn the conference back over to Mr. Josh Levine for any closing remarks.

Joshua Levine, CEO

I'd like to thank everyone that joined the call this afternoon. We look forward to speaking with you again in August when we report full-year 2020 financial results. Thanks very much for your participation today. And everyone, please stay healthy and safe.

Operator, Operator

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