ViewRay’s (VRAY) CEO Scott Drake on Q2 2020 Results – Earnings Call Transcript

ViewRay, Inc. (NASDAQ:VRAY) Q2 2020 Earnings Conference Call July 30, 2020 4:30 PM ET

Company Participants

Michaella Gallina – Vice President-Chief of Staff and Head-Investor Relations

Scott Drake – President and Chief Executive Officer

Zach Stassen – Chief Financial Officer

Shahriar Matin – Chief Operating Officer

Conference Call Participants

Anthony Petrone – Jefferies

Jason Bednar – Piper Sandler

Suraj Kalia – Oppenheimer

Brandon Folkes – Cantor Fitzgerald

Marie Thibault – BTIG

Andrew D’Silva – B. Riley FBR

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter 2020 ViewRay Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Michaella Gallina. Please go ahead, ma’am.

Michaella Gallina

Thank you, operator. Good afternoon, everyone, and welcome to ViewRay’s Second Quarter 2020 Financial Results Conference Call. Joining me today are Scott Drake, our President and Chief Executive Officer; and Zach Stassen, our Chief Financial Officer.

Earlier today, ViewRay issued a press release and presentation for today’s call. The presentation can be viewed live on our webcast or downloaded from the Financial Events and Webinars portion of our website at www.investors.viewray.com. Today’s call is being broadcast and webcast live, and a replay will be available on our website for 14 days.

Before we begin, I would like to caution listeners that comments made by management during this call may include forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties, please see ViewRay’s annual report on Form 10-K for the fiscal year ended December 31, 2019 and its quarterly reports on Form 10-Q as updated periodically with the company’s other SEC filings.

Furthermore, the content of this conference call contains time-sensitive information accurate only as of today, July 30, 2020. ViewRay undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call.

I will now turn the call over to Scott.

Scott Drake

Thanks, Michaella, and welcome to our Q2 call. During our time together, we will first share the progress we’ve made over the last two years. We’ll discuss our Q2 results and highlight actions taken to elongate our cash runway in light of the COVID-19 pandemic. We will clearly define our clinical, strategic and economic value propositions that set us apart in the marketplace. We will delve more deeply into how we’re driving the trend toward greater utilization of complex SBRT, what we call MRIdian SMART, and our blueprint to become a first-line therapy in certain cancer types. Zach will go more deeply into our financial results, and then we look forward to answering your questions.

If you’re not on the webcast, I’ll be referring to slides from the presentation on our Investor Relations site. On Slide 3, our mission is to treat and prove what others can’t. We anticipate that we will treat our 10,000th patient next month, a meaningful milestone. We also currently have more than 2,200 published clinical experiences and outcomes, which represent the preponderance of patient literature on MRI-guided [ph] radiation therapy. This compelling and growing body of data is critical to our efforts to change and improve the paradigm of care.

Turning to Slide 4. Two years ago, our team set out to build a solid foundation that would drive therapy adoption, improve cancer care and capitalize on the corresponding growth. We set out to improve the lives of cancer patients. Then, we had treated about 3,000 patients; and today, we’re on the cusp of our 10,000th.

We set out to increase the number of cancers treated by our customers; then about 40; today, over 65. We set out to decrease install times. Back then, we averaged about 90 days, and our recent installations have been about half that timeframe. We strove to reduce fully adaptive treatment times for both more difficult and straightforward cancers. Pancreas treatments were in the 60- to 90-minute time frame. Today, Amsterdam UMC is treating pancreas in 35 to 40 minutes. Prostate cancer was being treated in 45 to 60 minutes. Now, several customers are treating MRIdian SMART in sub 30-minute fractions.

Two years ago, there was variability in terms of how customers were utilizing MRIdian. Today, we’re bringing customers up to speed so they can treat in fully-adapted fashion across cancer types upon commissioning. Our innovation pipeline has driven great improvements, with more to come in the future. Similarly, our clinical pipeline has borne great fruit, proving the benefits of MRIdian SMART. This is the subject of our deep dive today.

Let’s turn to Q2 results on Slide 5. We received four MRIdian orders in the quarter. We’re pleased with this result and the level of customer engagement in light of the challenging environment. We’ve adapted and created new ways to interact, such as our recent webinar series. In partnership with customers, we’ve highlighted the clinical, strategic and economic value of MRIdian. The series has already resulted in over 3,000 unique views. We believe this example of customer and prospective customer engagement is evidence of growing interest.

Turning to revenue. We recognized approximately $14 million primarily from two revenue units. Generally, installations are moving forward, albeit at differing speeds from market to market. We are seeing modest progress in the U.S. and Europe, while much of Asia remains on hold or significantly delayed due to the impact of COVID-19, including travel restrictions.

Regarding cash utilization, we are executing on our previously announced plan to reduce spend and elongate our runway. In the quarter, we used $10.7 million and believe we’re striking the right balance of investing appropriately in our business while preserving capital. Back in April, we announced that our Board and management team would take salary reductions, and we furloughed a small percentage of our team. We recently took additional action, further reducing our workforce by approximately 20%. We believe these are difficult but necessary actions to take while our customers recover financially.

Importantly, we are prioritizing and budgeting increased investment in our innovation and clinical pipeline, driving therapy adoption while preserving capital. We expect that the market and our business will recover in advance to its next phase of growth. However, it’s difficult to predict the timeline. As part of providing the company flexibility, we implemented a program with several members of the senior leadership team, including our Chief Operating Officer, Shar Matin, with the goal of retaining key talent and providing optionality through the pandemic. In summary, we believe these actions have positioned ViewRay to emerge from this period as a leaner and stronger organization.

Now, let me step through our three value propositions on Slide 6 that are resonating with customers. First and foremost, our customers are able to deliver clinically better outcomes in both difficult-to-treat cancers such as pancreas, central lung and Oligomets, and ubiquitous cancers, like breast and prostate. Often, the tough-to-treat cancers are deemed untreatable due to the lack of accuracy and precision of conventional linacs. MRIdian enables our customers to shrink margins, spare healthy tissues and organs at risk, reoptimize on table to safely escalate dose and thus reduce fractions.

Second, on the strategic front, MRIdian is helping our customers differentiate their cancer programs and lead their respective markets by establishing new programs for patients generally not treated on conventional linacs. They are benefiting from changes in referral patterns, as patients are motivated to travel for MRIdian treatment. We are driving the trend from IMRT to SBRT – I’ll call this simple SBRT – that others offer to next-generation care, MRIdian SMART, stereotactic MR-guided adaptive radiation therapy. Just as 2×2 x-rays were obsoleted by conventional linacs, our customers are driving another step function change to MRIdian SMART.

Third, on the economic front, our customers are realizing the ability to expand their total addressable market. These economic improvements flow from new patients not generally candidates for conventional linacs, new patients traveling from outside their catchment area, improvements in annual patient throughput and appropriate adaptive reimbursement. We are seeing these value propositions prompt several current customers to install or purchase additional MRIdian systems.

Moving to Slide 7. Today, we will deep dive into our clinical value proposition. Our Voice of Customer work has led to clarity on what we believe will drive this new paradigm of care.

On Slide 8, you’ll see the foundation of our clinical value proposition, the early data of our customers produced on MRIdian. This AHA data unlocked the promise of treating patients that wouldn’t be treated on conventional linacs and even in areas previously considered to be no-fly zones. For example, in central lung and ultra-central lung, MRIdian delivered ablative doses with only 8% grade three or higher toxicity, whereas clinical studies with conventional linacs have shown Grade 3 or higher toxicities up to 33%, and even grade five toxicity or death.

Let me highlight just a few of the groundbreaking cases our customers are doing to bring our clinical capabilities to light. On Slide 9, this first case is a cardiac sarcoma, a tumor located within the connective tissue surrounding the heart. Before MRIdian, the patient would typically either receive open heart surgery or undergo a heart transplant. Treatment, even on a high-end conventional linac, would not likely have been considered; but in this case, our customer was able to safely deliver an ablative dose via MRIdian SMART to shrink the tumor.

The next case, on Slide 10, is a 15-month old child with a rare and deadly primary liver tumor. The standard of care today is surgery, as prolonged courses of radiation therapy can come with a heavy complication rate and toll on quality of life. Use of MRIdian SMART contributed to the tumor shrinking by over 40%, and the patient is doing well with no signs of toxicity to date.

The last case on Slide 11 is a patient with inoperable kidney cancer. Tissue surrounding the kidney is extremely sensitive, and radiation toxicity is a primary risk factor for this cancer type. Our customer delivered curative intent radiation with MRIdian SMART via our latest technology upgrade that includes imaging at eight frames per second. Tumor control was achieved with no toxicity, and this patient was able to retain kidney function. It’s important to note that the current standard of care does not include radiation therapy for primary kidney cancer. There are dozens of these kinds of cases being done on a weekly basis at our programs around the world, representing what MRIdian SMART can deliver and achieve, noninvasive ablative doses, short courses of treatment, and no to low toxicity across tumor sites.

On Slide 13, Dr. Kelly at Orlando Health sums up his clinical experience succinctly. He says, quote, “When I first started treating patients on MRIdian, I was impressed by how the system allows you to treat patients so much more precisely and safely. As I continued to treat with MRIdian, I realized the precision and safety allows you to treat patients whom you could never have treated before. The MRIdian changes your practice. It changes who you look at as a candidate for radiation therapy,” end quote.

On Slide 14, with the backdrop of early clinical data and these inspiring cases, I’ll share our two primary clinical goals, moving forward. Our first goal is to expand the utilization of complex SBRT, or MRIdian SMART. This expansion is both within current customers utilizing our therapy in new cancer types and opening new MRIdian programs.

Second, over time, our strategy is to replace less precise, more invasive treatments and be considered a first-line therapy in targeted cancers. Our first goal is expanding the use of MRIdian SMART. Physicians require safety and efficacy data to unlock new patient treatment through cross-specialty tumor boards. This data is also used to support payer decisions. We have over 30 sites with more than 30 ongoing studies across the cancer landscape.

There are four trials in three target areas I’ll highlight to achieve our first goal. First is our SMART study for inoperable and borderline resectable pancreas patients. Our early feasibility data came in the form of the retrospective high-low dose series, where the use of MRIdian about doubled median survival while eliminating grade three toxicities. Those favorable outcomes have now been repeated in a separate series of patients treated by MRIdian SMART at Wash U. Our prospective trial aims at further validation and expansion of MRIdian SMART in this patient population.

Second is a study targeting the application of radiation therapy after prostatectomy. Currently, when radiation is recommended after prostatectomy, conventional therapy requires long courses of treatment, 36 or more fractions over a seven- to eight-week period of time. MRIdian SMART opens the door to short courses of treatment, five fractions over the course of just one week.

We have a two-pronged approach for changing this paradigm of care. Number one, a feasibility study is currently enrolling at UCLA, and we expect initial data sometime next year. Number two, a randomized controlled trial to help demonstrate that MRIdian SMART delivers equal or better results than hypofractionation on a conventional linac. Finally, we are embarking on the cutting edge of cancer care with combination therapy. Almost half of all cancer patients are candidates for immunotherapy, but only about 20% respond to this treatment.

Early data has shown that radiation therapy may be able to shift the non-responder into a responder. However, lesions may require high doses and are often located near critical organs. Thus, radiation therapy, again, may be limited with conventional means. Miami cancer Institute has opened a Phase II trial, which will seek to demonstrate that MRIdian SMART has the ability to facilitate ablative doses to immunotherapy patients in order to improve their tumor response. If successful, we expect this will create new synergy between these treatment options.

Slide 16 highlights our second goal of making MRIdian SMART a first-line therapy. Here, I’d like to point out tow important studies. The first is for pancreatic cancer. We have set out to show the benefits of preoperative MRIdian SMART for surgical candidates and convert borderline resectable patients into surgical candidates. A multi-institutional study in Europe will randomize patients to simple SBRT or MRIdian SMART to best supportive care. We view this trial as an important step toward establishing MRIdian as a first-line option for both operable and inoperable patients.

Second, in prostate, I previously discussed our efforts to open up SBRT for postoperative patients, but we are also taking aim at safer treatment for intact patients. Amsterdam UMC published their one-year data. This robust study demonstrated sustained results of zero Grade 3 or higher toxicity and little to no grade 2 at one-year follow-up. It is not only the largest prospective trial in MR-guided radiation therapy generally, but also the first prospective MR trial for prostate without the need for implanted fiducial markers, an invasive procedure with associated complications.

Tumor margins were smaller than comparable studies that used implanted markers. Also, MRIdian patients were treated in five fractions versus about 20 fractions for hypofractionation or up to 40 fractions with conventional treatment. To be clear, these impressive results were obtained in a clinical cohort with 58% high-risk patients, much tougher than other such studies.

Building on this data, UCLA has opened a head-to-head randomized controlled trial to assess MRIdian SMART versus simple SBRT on a conventional linac. These data would provide additional evidence for MRIdian as a first-line therapy for intact prostate.

Now to Slide 17. By fundamentally changing the treatment offering, MRIdian has the potential to add hundreds of thousands of new addressable patients in the next several years. This work has the potential to greatly expand the use of radiation therapy and provide needed benefits to patients.

To recap the value of MRIdian, our customers are delivering better patient outcomes, adding net new patients to their practice, adding additional patients from outside their catchment area and distinguishing their program within their competitive market. Patients are benefiting with shorter courses of treatment, fewer side effects, and improved quality of life.

In summary, Slide 18. We’ve come a long way. We’ve improved our customer service and training. We’ve shortened treatment and installation times. We’ve driven our innovation in clinical pipelines. We believe exciting things lie ahead. We’ve capitalized the company and positioned ourselves to come out of this pandemic stronger and leaner.

And with that, I’ll now turn it over to Zach to review our Q2 financials in more detail. Zach?

Zach Stassen

Thank you, Scott. For the quarter ended June 30, 2020, total revenue was $14.2 million, primarily from two revenue units as compared to $30.2 million. primarily from five revenue units in the same period last year. Total gross profit was a loss of approximately $1 million compared to a profit of $3.2 million over the same period last year. The decrease was attributable primarily to lower system revenue in 2020 versus prior year, which led to lower absorption of our installation infrastructure.

Total operating expenses were $24.5 million as compared to $29.5 million for the same period last year. The decrease in operating expenses reflects the full-quarter impact of the cash savings program we implemented at the beginning of the quarter. The overall decrease in expenses was partially offset by an increase in stock compensation expenses. Finally, net loss for the quarter was $26.2 million, or $0.18 per share compared to $30.8 million, or $0.32 per share for the same period last year.

Turning now to orders and backlog. As Scott mentioned earlier, in the second quarter of 2020, we received four new orders for MRIdian systems totaling approximately $24.6 million compared to three new orders totaling approximately $18.1 million in the same period last year. As of June 30, 2020, our backlog stood at approximately $232 million as compared to approximately $219 million as of June 30, 2019.

Two systems were removed from backlog in Q2. We have not removed any orders from backlog due to COVID-19.

Regarding cash flows, we used approximately $10.7 million in the second quarter. We made important progress on our cash savings program. The lower cash burn in the quarter reflects work being done on reducing operating expenses and working capital. The recent reduction in the size of our team was in line with our $30 million cash savings goal for the year. In addition, as these personnel costs annualize, they represent savings in future years.

We finished the quarter with $179.5 million of cash on hand. Our investment priorities remain the same. Importantly, we are prioritizing and budgeting an increased investment in our clinical and innovation pipeline and advancing our commercial efforts during these challenging times. Our proactive cash conservation steps are intended to enhance our liquidity position over the near- and medium-term while prioritizing our key initiatives as we navigate the current environment.

We will now open the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from Anthony Petrone with Jefferies. Your line is open.

Anthony Petrone

Thank you. Good afternoon. And I hope everyone is doing well and staying healthy.

Scott Drake

Thanks, Anthony. You guys too.

Anthony Petrone

Absolutely, absolutely. Maybe just to begin, first, with treatment cycles. Scott, you mentioned that, certainly in some prostate cases, that treatment cycles are coming down. I’m wondering if you have the average MRIdian treatment cycle on the systems that are currently using SmartVISION, and how much of a benefit are they getting from SmartVISION? And where do you think the treatment cycles can go, say, over the next 12 months? And then, I’ll have a couple of follow-ups.

Scott Drake

I’ll take a cut here, and maybe ask Shar to chime in as well. I would start at a macro level by sharing that I think Dr. Dempsey made some incredibly smart choices early on developing this technology from the ground up as a therapy machine. I think it’s going to prove to be prescient even more so over time because there’s virtually no ceiling that we face in terms of our ability to progress this technology forward.

I don’t have a great average for you, Anthony. I don’t think the N is quite high enough to give you a great average with our SmartVISION technology. Some of those customers have also gone to a high-speed MLC. Some have just taken the software upgrade without hardware. But what I would tell you is the aggregate effect of SmartVISION, high-speed MLC and best practices is having a pretty significant effect on both difficult-to-treat cancers, such as pancreas. I highlighted what Amsterdam UMC is doing there, 35- to 40-minute pancreas cases, and we have multiple customers down below 30 minutes on prostate.

So it’s very significant progress in the last couple of years, and I believe there’s more progress that’s going to happen over time with our innovation pipeline that we have in front of us. Why don’t I pause there and invite Shar to share any thoughts that he might have?

Shahriar Matin

Yes. I think, Scott, to your point, the ranges that you gave and the example of AUMC is what we’re seeing elsewhere, as well.

I’d say, over the next 12 months, Anthony, a lot of the hardware we’re going to put in for a variety of customers, and then we’re going to learn from best practices. So we think the hardware-software is one component, and then the other component is best practice sharing between sites. So I think, over the next 12 months, you’ll see those activities help improve the number and get it better prior to our next software upgrade, as well.

So I think it’s a journey there, but I think you’ll see this downward movement as we become smarter, and our customers become smarter.

Anthony Petrone

And then the follow-up. So maybe both here, and I’m just going back to our interaction at our conference a few weeks ago, Scott. And so the supply shift for us is certainly that there were installations in the quarter, as well as the four orders. And going back to our discussion, the sales force didn’t pivot to a virtual sort of setting. There seemed to be a lot of activity there, and it seems there was follow-through. So maybe just high-level on how you’re feeling about the installation cycle, going forward, and sort of the make and shape of the funnel as it stands today.

Scott Drake

So I’ll touch on both of those topics, installations and kind of the commercial pipeline. And let me provide context going back to the last quarterly call, as you mentioned, Anthony. Last quarter, we shared that we had five installs in process, three of which at that time were delayed with various stages of bulk prep for the others.

Contrast that to today. We currently have nine installations in process. I would follow that up very quickly with five of them have already been rev rec’d, and the four that remain to be rev rec’d are also in various stages and moving at different speeds from market to market, given the dynamics with COVID, in particular our inability to travel, or challenges traveling to certain markets. So I would anticipate that, of those four remaining rev rec units, we have a solid opportunity at three of them in the back half of the year.

But the situation is highly dynamic, and I would put an asterisks next to that. We have an opportunity for those three. But the situation is such that it’s difficult to project that with certainty, but we’re doing our best to give investors a deep level of transparency during this time.

From an orders perspective, I think there’s a few things that are clearly apparent. Number one, our customers are delivering extraordinary clinical outcomes, reference the cases that I shared with you here today. And interest in MRIdian is increasing. The webinars, the six or seven webinars and 3,000 unique views, I think, is a good example of that.

Second, our customers are pleased not only with the clinical, but also the economic outcomes and the fact that MRIdian is helping them stand out in their respective marketplaces. Not sure if you had the opportunity to hear the webinar that Dana-Farber/Brigham and Women’s put on here recently, but just a world-renowned cancer program talking about how MRIdian is helping them stand out on a local, national and international level, a humbling compliment coming from an institution of that level of prestige. And those benefits that we’re highlighting are why multiple current customers are in various stages of either installing or purchasing another system. And if we were just kind of a shiny object, I don’t think you would see repeat orders from customers.

Finally, I would share that we have clarity from customers and prospective customers on what will drive faster therapy adoption, going forward, in the market. And that’s exactly where our innovation and clinical pipeline is targeted.

So all of that said, I want to counterbalance it and walk down the center of the fairway. Our customers have their hands full with COVID-19, and the impact to their P&L is nontrivial. So I want to give you both the positive news and the things that are happening that are readily apparent and balance that with the fact that our customers, in many instances, are struggling financially due to the pandemic. Hopefully that’s responsive, Anthony.

Anthony Petrone

Thanks again. I’ll get back in queue. Thank you.

Operator

Thank you. Our next question comes from Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar

Good afternoon all. Thanks for taking the questions here. Scott, I appreciate all the updates you gave here. I wanted to start maybe on the hospital CapEx side. I know probably may be a hard question to really answer here, just looking today versus three months ago. But just wondering how you maybe characterize the conversations you’ve been having with the pipeline of customer leads here you’ve had just the past few months. Any sense in a change in the tone or visibility on CapEx budgets versus just a few months ago? And then, I got a couple of follow-ups.

Scott Drake

I think you’re right. I think it’s difficult because the answer isn’t a one size fits all. We have certain customers that clearly are hurting, and it wouldn’t surprise me if they were going to push out capital decisions and significant purchases. We have others on the for-profit side that may be able to continue to deploy capital, and then customers everywhere in between.

I would reiterate really what I shared with Anthony, and that is to really compliment the team that the customer engagement, even in this challenged environment is very pleasing to me. But I think we need to be equally candid on the other side of it, that there is a challenge here that you point out with our customers’ P&L and capital budgets. And as you can see, from a capital preservation standpoint and the $10.7 million that we utilized in Q2, we’re very serious about that balance of driving our business forward and concurrently preserving capital.

Jason Bednar

And then, maybe on the trial side, all the updates here, new studies you highlighted are really helpful in thinking about the clinical development pathway. But sorry if I missed it, is there anything you’re willing to discuss here on maybe when investors should expect updates on these studies? Are you planning to give regular updates? Or should we expect the virtual industry conferences that might be coming up? Just what’s the best way to think about when those updates might be coming?

Scott Drake

Yes. I think we have – some of the information I would anticipate from an outcome standpoint, early outcome standpoint as quickly as sometime in 2021, and other studies will follow and take a longer period of time. I do want to be a little bit careful here, because I would say predicting enrollment generally is challenging enough. Predicting enrollment in this environment is incrementally more challenging. But I do feel pretty good that we’ll have some of the data that we’ve talked about today in the 2021 timeframe.

Jason Bednar

Okay, perfect. And then, maybe if I could just squeeze in one more and build on one of Anthony’s questions there. Lack of in-person conference efforts here, just with ASTRO and ESTRO both being virtual, I mean, these tend to be probably important events for you in priming the order count for the company, really planting the early seeds for the business that is really harvested in years down the line.

But with those events virtual, I mean, what’s the approach here in making sure those early leads stay plentiful?

Scott Drake

Yes. It’s really a lot of what I’ve highlighted. I think the webinars that we have, the Zoom meetings, which can be one-off or smaller group meetings with customers, I think are very important to us. We have had here recently some live interaction with customers, and I anticipate that we’ll see a little bit more of that as we go forward, but it may be in fits and starts as we see hotspots pop up from market to market. So it’s unfortunate that these events have to be virtual for this period of time. But I give our team a lot of credit, Jason. They’re keeping customer engagement very high. They’re plugging our executive team in, and we’re having a lot of activity and a lot of interest. But I want to be very sober here in terms of expectation setting in this environment. I think forward visibility is poor.

Jason Bednar

Very helpful. Thanks, Scott. I’ll jump back in queue here.

Scott Drake

Thanks, Jason.

Operator

Thank you. Our next question comes from Suraj Kalia with Oppenheimer. Your line is open.

Suraj Kalia

Good afternoon, everyone. Thank you for taking my questions. You guys all right?

Scott Drake

Thank you, Suraj. We sure, can.

Suraj Kalia

Perfect. So first of all most congrats on the quarter. And appreciate your commentary about the lack of visibility and just the overall uncertainty. Scott, let me address this from a different perspective. You and I talked offline about this at least briefly a few weeks ago. Love to get your color on the state of the market right now, especially given ongoing changes at one of your key competitors. Is that changing any of the competitive dynamics, any of the competitive noise, any of the static that you guys were fighting earlier, and now it’s settling down? Or is it too early to say?

Scott Drake

Well, on that front, Suraj, and thanks for the question, I would say what feels good is having two players in the market stating full-throat that they both believe that MR-guided radiation therapy is the future of the space. I believe that fervently, and I think our customers are really showing the way. And in many instances now, they’re leading us. And it’s gone from feeling like a push to starting to feel like a little bit of a pull in the marketplace. And it’s also good to have a collaboration on identifying the right reimbursement in markets all around the world, given the time it takes and the amount of work and effort to do MR-guided radiation therapy.

That said, we are very stiff competitors out there in the marketplace, so it’s very much a balance. But within that, Suraj, I would say, with due humility, I think the differences between the two systems is becoming more and better understood. And there are now – there’s at least one customer that has both a competitive system and a MRIdian system, and I think they’ll be able to see firsthand the puts and takes of each technology and what they represent in the marketplace. So hopefully, that is responsive to your question.

Suraj Kalia

Scott, have the credit terms changed U.S. versus OUS, obviously due to COVID? And is that a lever that you guys can pull?

Scott Drake

Zach, how about if I ask you to touch on that one?

Zach Stassen

Yes. I think, Suraj, we’re looking at all kinds of different options. I think credit is generally still available. And we haven’t historically used a lot of third-party type financing vehicles. And I think that’s a push for us as we look at new acquisition vehicles, and definitely an attractive rate environment to do so. So I think just trying to look at all options to make sure we make forward progress on the commercial side.

Suraj Kalia

And forgive me if you expanded on this, just been hopping in between calls so I might have missed your commentary. When you all say “temporarily retain select senior management professionals,” can you expand that and tell me what that means specifically? I understand the desire to conserve costs in this environment and be prudent, totally understand that; but in terms of temporarily retain, how that fits within the whole jigsaw puzzle? If you can kindly help us out, that would be great.

Scott Drake

Would be happy to answer that one, Suraj. I think this represents another step in what we began doing right when the pandemic struck and we immediately went into scenario planning role. I think we were pretty quick to take salary reductions from a Board and management team perspective, and then we’ve taken this incremental step of reducing the size of our workforce by about 20%. And as it relates to the senior leadership, there’s a number of folks at the VP or higher level, Shar included, where we’ve put a program in place that has nice incentive for them to stick around for at least a 12-month period of time; but if the pandemic goes longer than we anticipate, that there’s some built-in flexibility there, too, if we had to take any further action.

We very much hope that we don’t have to do that, but we want to build in all of the flexibility that reflects all of the scenario planning that we have done. And I give Shar a lot of credit in that, because he was one of the primary architects of it and just did a beautiful job helping lead us through what is a challenging environment.

Operator

Thank you. [Operator Instructions] Our next question comes from Brandon Folkes with Cantor Fitzgerald. Your line is open.

Brandon Folkes

Hi, thanks for taking my questions. Congratulations on the quarter [Technical Difficulty].

Scott Drake

I’m having a hard time hearing you there, my apologies.

Brandon Folkes

Sorry. Can you hear me?

Scott Drake

I can.

Brandon Folkes

So, I’ll just be brief. Can you just talk a little bit about the potential that the pandemic has created for you to go into accounts that maybe were historically not high users and really drive that service revenue, and whether you saw any of this during the quarter?

Scott Drake

Yes, happy to. Hopefully, I understand the question. Michaella, you’re welcome to redirect me here. I think what we’ve seen during the pandemic from multiple customers is moving patients toward what we call MRIdian SMART high-dose SBRT, five or fewer fractions, even single fraction treatment on the MRIdian system. And we heard from Dana-Farber/Brigham and Women’s on their webcast that, during the pandemic, they had patients that were very reticent to come into contact with the healthcare system, say, for 20 to 40 fractions, but were very happy to do so, come be treated in MRIdian in five or fewer.

So I think there has been a positive impact in that specific way as it relates to the pandemic and the economic value that the system has proven in this very challenging period of time. Michaella, did I get that right?

Michaella Gallina

Yes. And I think, Brandon, you had also mentioned maybe how we’re driving service margins throughout the pandemic. Is that correct?

Brandon Folkes

That’s correct.

Scott Drake

Shar, do you want to take that one?

Shahriar Matin

Sure. From a, I’ll say, service and service margin, all the customers that have a system generally have a service contract with us, so none of that has changed, per se. I think what we have done is, as our install base has improved, and as we – as you know, we’ve got about 38 systems installed. As we’ve become better at both training our field service team, and also the support staff that supports them in-house, we’ve just become more efficient. And as you can see, we’re getting leverage, and our service margins are trending up, and they were positive this quarter. So again, it’s a combination of both scale as well as our ability to service our customers more effectively and supporting our field team internally without having to travel as much as we did historically.

Operator

Thank you. And our next question comes from Marie Thibault with BTIG. Your line is open.

Marie Thibault

Just a big-picture one to start off with here. I recall, Scott, when you took the helm at ViewRay, you had one focus on training and helping new centers kind of get up to speed with the MRIdian system. Listening to the Dana-Farber webinar the other day, it was impressive the amount of coordination and planning they put into their investment, and it’s clearly paid off for them and their patients.

I’m curious whether you think there’s anything additional ViewRay should be doing in terms of making that process, the ramp process for new centers a little easier.

Scott Drake

Yes. I’m happy to touch on that, and I can invite Shar to maybe make some comments as well.

To your point, I think we have made significant strides over that period of time putting a team in place that is dedicated to training new customer starts very rapidly and getting them to treat multiple forms of cancer very quickly upon commissioning in fully adaptive ways. Do I think we can do better? I do. I think the answer lies in not only how we’re training customers, but also our innovation pipeline that I think will help us make the utilization of the system from a workflow perspective easier and treatment times faster.

And the other thing that I think we’re doing a reasonable job of that we can always improve upon is having our customers interact with one another. We have people that are specializing in one or two kinds of cancer in one account and maybe two or three kinds of cancer in another account. And having them speak with one another and share with one another their clinical experiences is proving very interesting and beneficial, both from a clinical outcome standpoint, but I think from an economic outcome standpoint, as well. Shar, is there anything you’d want to add to that question?

Shahriar Matin

Sure. Just to add to what Scott stated, the other thing that we’re doing, and we’re in the early days of it, is for all the different treatment modalities, we’re learning from each one of our customers and figuring out best practices and starting to transfer that from site to site. So doing that earlier in the process, having that be part of the kickoff of a new center with best practice guys for the different tumors and indications, I think that’s something that we think will help accelerate the process and perhaps simplify it from what you saw.

I would say we did a little bit of that with Dana-Farber. They did a lot of that on their own as they shared that they visited multiple sites before they got going. We think we can package that up and really get a sight to get to that same level without having to do all of that work on their own by traveling to other sites. So that is one key element that we’re working on moving forward.

Marie Thibault

Perfect. That’s really helpful. My follow-up is really just a clarification. I think you’d said earlier there are now nine installs in process, five of which have already been revenue recognized. Were those all prior quarters? Or were there any revenue recognitions already in the third quarter?

Scott Drake

Zach, do you want to touch on that, please?

Zach Stassen

I think without getting into too much of the current quarter, most of – all those systems were recognized in prior quarters.

Marie Thibault

Perfect. Very helpful. Thank you.

Zach Stassen

Thank you.

Operator

Our next question comes from Andrew D’Silva with B. Riley FBR. Your line is open.

Andrew D’Silva

Hey, good afternoon. Thanks for taking my questions. And sorry if you answered any of that it was happened between calls. As it relates to new orders, I believe on your Q1 call, at that time during the second quarter, you didn’t receive any orders. Can you help me understand what changed in the back half of the quarter, from your point of view? And then, just not to beat on the subject, but what pressure in hospital CapEx spend? Are you looking at any different models that better align with health system OpEx spend? What other options can you leverage in the current landscape?

Scott Drake

I think, as it relates to your first question, I think our team is just doing a really good job of articulating our three value propositions – clinical, strategic and economic. And it’s very difficult to predict whether something is going to come at one point in a quarter or another. And there tends to be a relatively long sales cycle to a MRIdian program.

So I think it would be false precision for me to tell you that something changed inside of the quarter. The sales cycle tends to be very long, but I would share with you that I think our team is doing a better and better job over time sharing the value propositions. And frankly, some of our best salespeople happen to be our current customers, evidenced by the webinar series and the level of interest associated with it. So that would be my first answer to your first part of your question.

And as it relates to the second part of your question, we are and continue to pilot various acquisition models with our customers without going into too much detail here. I do feel like some of those models are keeping customers engaged even during this difficult time. And so we’ll see what transpires as we move forward. But I do think our customers are interested, per the comment that Zack made earlier, in some kind of optionality from us. We’re offering that to them, and we’ll keep you apprised how that goes, moving forward.

Andrew D’Silva

And just my follow-up, just related to the APM. Is it still in the OMB process? I recall you were optimistic that we should be able to hear something this year. Just curious where you stand right now.

Scott Drake

Sure. Shar, do you want to touch on that one?

Shahriar Matin

Sure, happy to. I think, at this point in time, we’re still anticipating, I’ll say, a January effective date. So the announcement of the rules would occur some point this year for implementation in that first quarter next year. We haven’t heard anything otherwise. But again, we do know that the OMB is backed up with pandemic and other priorities. So that’s the best thinking we’ve gotten from the various industry groups, so I’d say that’s our latest information.

Andrew D’Silva

Great. Thank you very much. Best of luck for the back half of the year.

Scott Drake

Thanks, Andy.

Operator

Thank you. And I’m showing no further questions at this time. I’d like to turn the call back to Mr. Scott Drake for any closing remarks.

Scott Drake

Well, thank you, everybody, for attending the call here. Thanks for your interest in ViewRay. We look forward to our Q3 call in a few months. Hope you all stay safe and healthy. Take care.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day.

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