Accuray Incorporated

Good afternoon. Welcome to AccuRay Report, fourth quarter and fiscal year 2020 financial results conference call. Our 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 that this event is being recorded. I would now like to turn the conference over to Joe Diaz from Litham Partners. Please go ahead.

Thank you, Kate, and good afternoon, everyone. Welcome to AccuRay's conference call to review financial results for the fourth quarter of fiscal year 2020, which ended on June 30, 2020. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Josh Levine, , and Shig Hamamatsu . 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 just issued after the closed 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. There will be a slide presentation accompanying today's call, which can be accessed on the link provided in today's earnings release or by going directly to the company's investor page at accuraid.com. Also, during the Q&A session, we request that participants limit themselves to two questions and then re-queue with any follow-ups. Finally, all references we make to a specific quarter in the prepared remarks are to our fiscal year. For example, statements regarding our fourth quarter refer to our fiscal fourth quarter ended June 30, 2020. With that, let me turn the call over to ACCURA's President and Chief Executive Officer, Josh Levine. Josh?

Thanks, Joe. And thank you to everyone joining us today. Joining Shig and I on today's call is also Suzanne Winter, our Chief Commercial Officer and Head of R&D, who will be joining us during the Q&A session. Despite the challenging environment caused by COVID-19, we concluded the fiscal year on a strong note and feel good about our full year fiscal 2020 performance. We generated 10% year-on-year order growth, aggressively managed expenses and working capital, and positioned the business for future growth. With that said, It's clear that the macro environment is requiring our team to find new and creative ways to engage customers and manage the business. The intensity of the COVID-19 situation is highly variable by region and local markets. Continuing travel and customer access restrictions in certain markets and the resulting logistics and bunker construction schedules related to installation project timelines have been impacted at both our distributor and end user levels. As a result, We expect continued uncertainty of revenue conversion timing for at least the first half of fiscal 2021. Despite these headwinds, we're demonstrating a high degree of adaptability. Our commercial team continues to successfully respond to customer specific conditions and requirements. Sales, clinical application support, and even some service related diagnostics and troubleshooting interactions are being conducted through video conference platforms that enable customer communication and support in real time. On balance, we believe we are operating very effectively within the constraints of the COVID environment, and I'm proud of our commercial team's ability to adapt and the dedication of our entire organization during these challenging times. From an internal focus perspective, we've been taking actions across an array of operational and financial areas to help ensure the continuity of our business. Operationally, We are continuing to work aggressively with critical supply chain and logistics partners to ensure that we can support our production and service activities globally while maintaining maximum flexibility related to production schedule changes tied to revenue conversion timing. We exercised great financial discipline in fiscal 2020 and maintained our focus on cash flow management with minimal compromise to commercial activities and advancing future innovation. While Shig will discuss our balance sheet position in greater detail in his prepared remarks, these actions allowed us to finish fiscal 2020 with a stronger cash position than our initial internal forecast anticipated. As we exited the fourth quarter, we were able to prepay $10 million of our term loan and renegotiate the covenants related to the remaining debt with the lender in the first week of the fiscal 2021 first quarter. Thinking about our strategic growth opportunities, We are still awaiting final completion of the tender process for the China Type A licenses awarded to end-user facilities for AccuRay devices. While the timing of Type A shipments remains uncertain, our belief is that we will begin to see initial revenue impact sometime in the first half of fiscal 21. Turning to the Type B segment of the China market, we continue to advance our plan to produce a made-in-China product for the Type B segment. Operationally, we have made significant progress in readying our production capability in Tangent. The JB manufacturing facility there is now complete with manufacturing qualification and in-country required testing finishing sometime in the first calendar quarter of 2021. Based on estimates of the product registration process timelines, we expect that we will begin shipping the Tangent produced version of Radizak in the fourth quarter of calendar 21 or roughly 15 months from now. Additionally, the Tangent Training Center is also now complete and devices and equipment to support training are scheduled to be installed and in place by the end of this month in order to support a grand opening of that facility by mid-September. Turning to one of our more important R&D development projects, during the fourth quarter of fiscal 20, we achieved full commercial release of the Synchrony Motion Management upgrade on RADIS Act. and we are very encouraged by the strong interest in Synchrony from existing Radizak customers who are treating complex SBRT cases. During fiscal Q4, we shipped a total of nine Synchrony upgrades and installed three of these upgrades in the Japan market alone. We now have five customer locations that are actively treating patients with Synchrony equipped Radizaks and our expectation is that we will have an additional 10 customer sites going live by the end of our current quarter. We believe the added clinical value that Synchrony can bring to Radizak will be a strong driver of trade-in, trade-up opportunities for existing TOMO installed base replacement sales. The importance of the Synchrony introduction on Radizak cannot be overstated in terms of clinical impact. In order to share with you how truly unique Synchrony's motion management capability is and the significance of the clinical impact it will have on the Radizak platform, we have some visuals to share with you as I walk through my prepared remarks. As background, Synchrony uses artificial intelligence employing predictive algorithms to automatically adapt to the known position of treatment targets as they move during the rhythmic motion associated with the patient's respiratory cycle and adjust when necessary if the patient's breathing pattern changes. Synchrony also has the ability to adjust to targets that move intermittently as can often occur during treatment of prostate cases. This unique ability to adapt the treatment delivery beam in real time to a moving target enables clinicians to reduce margins, resulting in significantly less radiation dose to healthy tissue, which can lead to better outcomes when treating lesions in the lung, liver, and other anatomical sites that move with respiration. It also allows for improved clinical confidence in utilizing hyper fractionated treatment plans to deliver SBRT cases. Going to our first slide. We have provided a comparative example of a lung case with and without synchrony. Prior to synchrony, the two conventional approaches of treating tumors or lesions that are affected by target motion are gating and the ITV or internal target volume method, both of which require clinicians to utilize larger treatment margins. In gating, the radiation beam is turned off except when the target moves into a narrowly defined target window. Because beam off time associated with gating results in less efficiency in overall treatment time, typically during gating, the target window is widened, but in doing so that means that more healthy tissue is exposed to unwanted dose. With the ITV method, the beam targets the entire envelope or range of target motion, delivering a large amount of dose to healthy tissue. While this approach is more time efficient than gating, This method creates significantly greater radiation exposure to healthy tissue. Looking at the highlighted treatment locations in the side-by-side comparison in the slide, it's striking to see how much smaller the treatment margins are on the left side of the slide utilizing synchrony versus the gating or ITV approach. Because synchrony enables clinicians to deliver larger doses with smaller treatment margins and faster treatment times, Clinicians experienced with synchrony report greater clinical confidence in using hyper-fractionated treatment plans for their more challenging SBRT cases. Turning to our second slide, we have provided a case study for a recent case performed at Frederick Medical Center in the Medical College of Wisconsin of a 45-year-old male patient with lung metastases. This is a great example of how small changes in margins can have an overly large impact on the amount of healthy tissue receiving radiation. This patient was treated fiducial free utilizing SBRT in three fractions with 30% less treatment volume. Beam on time for this case was only nine minutes. Because the beam synchronization takes place automatically and in real time, treatment delivery remains highly efficient from a timing and workflow standpoint with no need to ever pause the treatment beam mechanically restrain the patient to ensure proper positioning or requiring the patient to hold their breath for uncomfortably long periods to interrupt the respiration cycle. Customer sites in Japan, Italy, and the U.S. have successfully delivered fiducial-free SBRT treatments for lung patients using hyperfractionated SBRT treatment plans with beam-on time of less than 10 minutes. Synchrony on the RADISAC platform is driving clinical confidence and expanding the universe of patients who historically might not have been treated with hypofraction at SBRT because of already compromised pulmonary or respiratory function. Looking forward in fiscal 21, we believe the COVID environment will continue to be a catalyst for radiotherapy treatments utilizing high dose, shorter duration treatment timelines. Both of AccuRay's treatment platforms are uniquely capable of supporting these requirements. Going forward, we expect the accelerated use of hyper fractionated treatments driven first by changes in US based reimbursement with the proposed alternative payment model. Second, the growing body of clinical data that demonstrates clinical safety and efficacy of hyper fractionation versus conventional treatment. And lastly, the benefit of shorter treatment regimens for both the patient and the provider in terms of user experience. Covering both short and longer term horizons, We believe Accurate's portfolio is very well positioned to meet the clinical needs of our customers and their patients. In closing, while the COVID-19 environment continues to be challenging, we are focused on managing the activities 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 Accurate's business continuity. Now I'd like to turn the call over to Shib for his review of the financial details.