Accuray Incorporated

Good day and welcome to the Accurate Fourth Quarter 2022 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. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Ken Moback, Vice President, Finance. Please go ahead.

Ken Moback Thank you, Operator, and good afternoon, everyone. Welcome to Accurate's conference call to review financial results for the fourth quarter of fiscal year 2022, which ended June 30th, 2022. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Suzanne Winter, Accurate's President and Chief Executive Officer, and Ali Pervez, Accurate's 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. A few housekeeping items for today's call. First, during the Q&A session, we request that participants limit themselves to two questions and then 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 fourth quarter refer to our fiscal fourth quarter ended June 30th, 2022. Additionally, there will be a supplemental slide deck to accompany this call, which can be accessed by going directly to Accuray's investor page at investors.accuray.com. With that, Let me turn the call over to Accuray's Chief Executive Officer, Suzanne Winter. Suzanne?

Thank you, Ken. Good afternoon, everyone, and thank you for joining. Since this marks my first opportunity to address you since I became CEO, I want to share with you my goals and vision as I embark on this great opportunity. As we move into fiscal year 23, we are laser-focused on, first, growing materially faster than the market, second, delivering differentiated solutions to greatly improve care and outcomes for all of our stakeholders. Third, growing and improving our service business offerings. And finally, enhancing margins and free cash flow. I will touch on each of these in my remarks, but this is my focus and the focus of my team as we enter fiscal year 23. I want to start out by thanking the Accurate team for their steadfast dedication to serving global customers this quarter and this year. Our teams demonstrated incredible resilience, navigating the supply chain and logistics challenges to fulfill demand and deliver outstanding support to our customers and their patients. Today, we reported strong fourth quarter results on both revenue and EBITDA despite this challenging macro environment. In the fourth quarter, We added 37 new system orders, which is up 12% growth in units sequentially. We see growing demand for the CyberKnife S7 system for sites that are building dedicated stereotactic radio surgery and SBRT programs, as well as rapid adoption of our new product introductions like ClearRT imaging on RADxACT, where to date we have 115 orders for ClearRT with 73 shipped to customers. since our introduction 18 months ago. Reflecting on the full year, we achieved significant company and product milestones. We finished our fiscal year with $430 million in revenue, representing 8% year-over-year growth. This is the highest revenue performance in the company's history and a year-over-year growth rate that is more than twice the estimated worldwide radiotherapy market growth. Annual product revenue was outstanding with 16% unit growth and 22% revenue growth. Our innovation-driven growth strategy is working. This year, we strengthened the product portfolio by establishing RADxACT as the industry's only CT LINAC platform available in the market. The introduction of ClearRT provides superior image quality compared to conventional external beam radiation therapy systems and matched with AccuRay's proprietary Synchrony technology is the only system that can continuously track tumor movement and adjust treatment delivery to the tumor's location in real time without the use of gating, which stops treatment when the tumor is out of range. As a result of this new standard of imaging performance, this year, ClearRT was awarded the 2022 MedTech Breakthrough Award for the Best New Technology Solution for Oncology. ClearRT provides better visualization to guide therapy compared to conventional external beam radiation therapy systems that use cone beam imaging and at approximately half the cost of MR-LinAC and with greater versatility and speed. This year, we also introduced VoloUltra to enhance RADxACT treatment planning speed and quality. Customers have told us that VoloUltra is a significant enhancement, reducing treatment planning time from 45 to 90% depending on the plan. Customers have reported that departments that normally treat an average of 40 patients per day can now treat an additional eight patients per day due to the increased operational efficiency from VoloUltra. Additionally, this year the CyberKnife gained additional momentum, capitalizing on the rapidly growing use of five fractions or less ultra-hyperfractionated treatments for providers building world-class stereotactic radiosurgery and FBRT programs. CyberKnife's unique, open, robotic design delivers thousands of non-coplanar beam angles to the tumor, moving around the patient, delivering the highest precision therapies while reducing anxiety that can be caused from other radiation therapy systems that require the patient to move into a small bore tunnel for treatment. Additionally, the use of Synchrony 4D continuous tumor tracking and correction also eliminates the need for restrictive breathing devices that are required with other radiation therapy systems, making it the gold standard SRS-SBRT system with the best experience for the patient. In FY22, CyberKnife showed significant revenue growth due to the growing demand for installations that provide the capability to deliver five fractions or less treatment for key indications like prostate, lung, breast, and metastases. These clinical indications represent approximately 70% of all patient cases worldwide. However, to date, only approximately 20% of treatments are estimated to use ultrahypersractionation, Accurate technology is strongly positioned to capitalize on the expected demand for ultra-hyperfractionated treatments, which we believe will be a market catalyst to drive over 2,200 technology replacements aged 10 years or older over the next five years and representing a $5 billion total market potential in the U.S. and Western Europe alone. Additionally, this clinical trend is reinforced by as we saw greater patient awareness for accurate technology and more patients driving decisions for their own course of therapy. We reported incredible patient stories like retired Rear Admiral Gary Hall, former National Security Director to the White House, who was featured in the June 30th USA Today insert regarding his experiences being treated on the CyberKnife system after being diagnosed with prostate cancer. After his wife's diligent research exploring treatment options, he advocated for the CyberKnife treatment due to its non-invasive, non-surgical, highest precision five-fraction treatment. Also, Al Gold, a retired businessman whose positive experience being treated for prostate cancer with the CyberKnife system, drove his decision to name his Kentucky Derby racehorse CyberKnife. We continue to be inspired by patients who have been treated with our technology and are working with patient advocacy groups to educate patients on treatment options. Turning to our full-year regional performance, we are seeing the return on investments we are making in the Americas region commercial infrastructure. In FY22, the Americas region delivered 31% year-over-year growth in orders and 17.5% growth in revenue. In the fourth quarter, consistent with our goal of expanding patient access, we installed the first RADxAC system with ClearRT and Synchrony at the VA in Los Angeles, where the latest radiation therapy will now be available to the greater LA community. In the EIMEA region, while orders declined 10.6% year-over-year largely due to geopolitical tensions given the war in Ukraine, Revenue increased 10.7%, driven by year-over-year growth in India and southern Europe subregions. In the fourth quarter, we won two new orders in Spain, following a large public tender for systems in the premium high-performance segment. In the APAC region, the extended China COVID lockdown tempered order demand, but we still increased orders by 8% year-over-year. However, backlog conversion was also very strong with revenue growing 9% year over year. In Q4, we installed the second RADxX system with ClearRT and Synchrony at the prestigious Royal Brisbane and Women's Hospital in Australia. And finally, in Japan, region orders were flat and revenue declined 15% year over year and was disproportionately impacted by FX headwinds with the strengthening of the U.S. dollar. On the positive side, Japan continues to lead in competitive conversions, with four of five orders in the fourth quarter being replacements of older, competitive installed base. This past year, we've really turned up the volume with our strategic partnerships with the goal of creating best-in-class solutions and reducing the time to deliver them to the market. Our partnership with Raysearch continues to strengthen with treatment planning, OIS solutions, and development of online adaptive solution. Our partnership seeks to leverage Accurate's ClearRT imaging and research powerful AI and contouring algorithms to provide an optimized solution for online adaptation of a treatment plan while the patient is still on the treatment table. BrainLab, a leader in surgical navigation, provides connectivity of their element software and Quentry registries for CyberKnife customers doing brain and spine procedures. Our partnership leverages BrainLab's expertise and access to their installed base of over 5,000 neurosurgical customers globally. Finally, our partnership with C-RAD enhances our breast cancer treatment capabilities on RADxACT, and expands the versatility of the system to single bunker sites, providing the most comprehensive breast solution in the market. This year, 163 new clinical and physics abstracts were presented at the major conferences worldwide, demonstrating how Accuray's unique technology is improving clinical outcomes compared to conventional LINACs. In FY22, the multicenter PACE-B trial demonstrated the difference the CyberKnife robotic non-coplanar delivery with synchrony made in the quality of life for prostate cancer patients treated with ultrahyprofractionated therapy. PACE-B demonstrated 50% less bladder complications compared to patients treated with conventional systems. The TOMO breast trial showed that Accuray's precise delivery of hypofractionated therapy was associated with 8.9% improvement in the secondary negative impact to heart and lung function compared to hypofractionated treatments delivered on a conventional external being system. And at the Radiosurgical Society meeting, a study abstract highlighting the use of the CyberKnife system for trigeminal neuralgia was recognized as the best clinical abstract of the conference. Study results show that pain relief lasted for 10 years after receiving treatment in greater than 70% of patients treated. Turning to our growth agenda for fiscal year 23, our strategy of innovation-driven growth is working and we are committed to build upon these fundamentals and strengthen new areas that position us to win more customers and gain shares. The first pillar of our strategy, disruptive innovation. I will remind everyone of our ultimate objective at Accuray, building a better future for patients diagnosed with cancer or certain neurological diseases. We are committed to being recognized by the industry as a true innovation leader where we attract the best talent and create an environment that envisions a better way forward. Typical med tech companies invest between 5% to 10% of revenue back into R&D. Accura expects to invest approximately 14% of revenue back into R&D and FY23 to help ensure we are at the forefront of radiation therapy innovation and provide the maximum ROI for our shareholders. We do this in an effort to provide new and effective ways to treat patients and expand options for care, which we believe will translate into long-term value for our shareholders. We have four main product development programs that are the top priorities for the company. Additionally, we are embarking on a multi-year global transformation of our service business, which has been flat for the last several years, evaluating all segments of our service offerings in an effort to deliver and capture greater value for our support solutions and strengthen and grow this annuity by helping our customers become more efficient and advance their operations. For example, many customers dealing with labor shortages and turnover are seeking solutions that provide advanced system training tailored more specifically to their needs. We will also leverage system data to provide operational insights that can be a powerful tool to help radiation therapy departments optimize workflow, capacity, and efficiency. Further, we have restructured our service and commercial organizations to ensure that we become closer to our customers and will continue to evaluate the effectiveness and profitability of direct versus indirect operations in our target geographies. The second pillar focuses on expanding financial margins. As we enter the new year, fiscal year 23, We expect continued macroeconomic challenges and new potential headwinds to emerge. We will be laser focused on margin expansion and plan to increase our operating rigor and accountability, capture greater value on our products and solutions, and look for ways to further optimize our supply chain through supplier optimization, flexible sourcing, and ensuring that we operate with efficiency and sustainability. We will invest in the right areas that we expect to drive value for our customers and at the same time attacking areas where we see margin leakage. The third pillar is simplifying and building a more durable business. We need to make work easier and be nimbler in the way we make decisions and operate. As a result, we are making significant investments back into the company foundation. Approximately $12 million investment in ERP and cybersecurity are main areas of focus to protect the company and our customers. The return on these investments is expected to solidify our fundamentals, provide better business data and analytics so we can make faster and more effective decision-making, and ultimately simplify our work. Our final pillar is transformational corporate strategies. We just celebrated the three-year anniversary of the creation of CNNC Accurate in China. The China JV now has an organization that will be 200 people strong in China, a state-of-the-art manufacturing facility, an incredible training center that will be able to serve global customers, a greater than 75% win rate in the Type A premium market over the past three years, and strong backlog for revenue conversion. Additionally, we will continue to compete in the Type B segment with our current product portfolio, accessing the largest segment of the China market, where 1,800 systems in the next five years are expected to be sold, representing market potential of approximately $600 million annually. While the COVID lockdown has delayed our jointly developed Type B product, We are on track for MMPA submission in Q2 of FY23 and are confident that it will be a winning solution for the growing Type B market and expect it to make a meaningful impact on Accuray in FY24. Additionally, the translation of the value product to access the global market segments beyond China will allow Accurate to compete in a broader global market where conventional external beam radiation therapy systems currently compete. This represents an incremental 45% of the global radiation therapy market access where we currently do not compete with our premium high-performance products. I will now hand it over to Ali to review the financials.