Accuray Incorporated

Good day and welcome to the Accuray Reports Fiscal 2020 Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Litham Partners. Please go ahead.

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?

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. 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 Radizak 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 clinical 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 onsite 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 Accura 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 in 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 nonessential 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 reprioritization of clinical resources and the associated customer challenges that have emerged, along with restricted travel and or 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 longer 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 account payables 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, Accurate's executive team consisting of my seven direct reports and myself have agreed to take a temporary reduction to our base salaries and waived 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 recorded 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-based 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 Radizak 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. 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 subdealer network, and the remaining 30% came through our legacy distributor, Tomonife. 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 Winner, 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?