Accuray Incorporated

Hello and welcome to the Accuray fourth quarter and fiscal 2023 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 your touch tone phone. Please note this event is being recorded. I would like now to turn the conference over to Jesse Chiu, Senior Vice President and Chief Legal Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to ACRE's conference call to review financial results for the fourth quarter of fiscal year 2023, which ended June 30th, 2023. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Suzanne Winter, ACRE's President and Chief Executive Officer, and Ali Pervez, ACRE'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 outlined in the press release we issued just after the market closed this afternoon, as well as in our files with the Securities and Exchange Commission. We base the forward-looking statements on this call on the information available to us as of today's date. 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 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 30, 2023. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to ACRA's investor relations page at investors.acra.com. With that, let me turn the call over to ACRA's Chief Executive Officer, Suzanne Winter. Suzanne?

Thank you, Jesse, and thank you all for joining the call. Today, I will provide highlights from our fourth quarter and then reflect on my first year as CEO, both on our accomplishments and the areas of focus for FY24 and beyond. Our fourth quarter performance was strong, with total company revenue growing 8% year over year. Notably, both product and services revenue contributed materially to the growth within the quarter of 8% and 7% year over year, respectively. As we mentioned on last year's call, we believe that our service business is a huge long-term opportunity for both revenue and margin growth, and we are encouraged by what we have seen in the early stages of our plan. From a region review, fourth quarter revenue growth was led by the Americas region with 28% year-over-year growth, and the APAC region growing 9% year-over-year. EIMEA revenue grew 1%, And Japan declined 7%, but was flat, excluding the impact of foreign exchange. Foreign exchange has significantly impacted our Q4 revenue, especially in Japan. In this quarter alone, foreign exchange had an overall negative $1.8 million impact to revenue. From a product view, in Q4, demand for the delivery of the RADxACT platform was strong, with 40% growth in RADxACT Tomo system shipments compared to one year ago. Customer reception continues to be strong for our latest innovations on the RADxact platform, including ClearRT CT imaging, Synchrony real-time motion correction, and VoloUltra treatment planning. Q4 order performance was solid, with a book-to-bill ratio at 1.4. We are very pleased with these results as it means that we have booked more orders than we have shipped during the quarter and that we are building our backlog. Orders growth in Q4 was led by APAC and EIMEA. APAC ended the year with 53% growth in orders booked, followed by EIMEA with 12% growth year-over-year. Within the quarter, we also booked several strategic and multi-system orders from key institutions globally. The MedStar Health System stereotactic radiosurgery and FBRT patient care. Our fleet within the NYU health system has significantly expanded with the purchase of two RADxAC systems that will be placed in their Winthrop University Hospital campus. The Bologna-Bellaria Hospital in Italy is a highly influential academic center and recognized as one of the top neuro hospitals worldwide. They chose the CyberKnife S7 for their SRS FBRT system over competitive systems. In India, Gangaram Hospital, a well-respected hospital in Delhi, purchased a RADxAC system with ClearRT and Synchrony. And finally, we won a two-system order at Macau Central Hospital for both a CyberKnife and RADxAC system. The success in these highly competitive sales situations gives us further confidence that our innovative solutions are winning against competitive offerings. Further, these sites have the potential to become powerful references for new customers evaluating our innovative technology. Ali will discuss more of the Q4 financials, but we saw product margins temporarily challenged this quarter, driven by deal mix and direct material inflation versus the prior year. Service margins also declined, driven mainly by FX. However, we were encouraged to see the improved pricing actions we have put in place in FY23 are starting to demonstrate impact as customers appreciate the value of our solutions. Adjusted EBITDA grew 1% year over year. However, it's very important to note that these results included a one-time unplanned Q4 bad debt reserve of $2 million resulting from the Genesis Care bankruptcy announcement. Without this reserve, Q4 adjusted EBITDA grew 40% year-over-year and put us well within our full-year adjusted EBITDA guidance. Finally, I was very pleased with the strong management of our balance sheet this quarter as we grew our cash position year-over-year and saw the second consecutive quarter of positive free cash flow generation free cash flow generation and strengthening our capital position remain a priority for our team. Moving on to our full year performance and reflecting on my first year as CEO, I remain incredibly proud of what our teams accomplished and remained humbled by our mission. Throughout the year, I was able to visit with customers and employees from around the world. I was able to see firsthand the impact our solutions have on people treated with our products. I also saw the incredible talent and tireless dedication of our customer-facing teams that support our clinician partners to ensure the highest level of care. Additionally, I am enormously proud of our organization and the progress we made this year against each of our strategic growth objectives. And as an organization, I believe we showed incredible resilience and resourcefulness that is the cornerstone of Accurate's culture as we drive our vision to expand the curative power of radiotherapy solutions to extend and improve lives of those diagnosed with cancer. I believe we demonstrated the operational resilience expected from companies with much greater scale. We were able to navigate significant headwinds from supply chain, inflation, geopolitical pressures, and an $18 million foreign exchange headwind to revenue. Excluding the impact of FX alone would have put us $10 million higher than the high end of our revenue guidance range, demonstrating strong underlying growth of the business. Despite these challenges, we ended the year delivering multiple impressive accomplishments, including the highest revenue in the company's history. We surpassed the 1,000 system milestone installed globally, which grew our user base by 5% relative to FY22, driving future recurring service revenue. In FY23, we shipped from our factory in Madison, Wisconsin, 109 systems, the highest number of system shipments in the company history, representing 24% year-over-year unit growth. Finally, we drove underlying adjusted EBITDA growth of 14% year-over-year with the exclusion of the Genesis Care Reserve referred to earlier, and generated positive free cash flow for the year. Execution by our team has been almost flawless this entire year, and I believe they've done an excellent job in this high-demand environment. At the beginning of the year, I laid out four major pillars of our strategic growth plan. Our first pillar was growing revenue faster than the markets we compete in by driving innovative solutions to advance radiotherapy. In FY23, we executed several new product introductions that strengthened our portfolio and further differentiated Accuray technology. Notably, Vital Hold, surface-guided radiotherapy for breast cancer treatments, was introduced for the RADxAC system at both ASTRO and ESTRO meetings to strong customer reception. With the addition of Vital-HOLD to the RADxACT platform, we now offer the most comprehensive solution for breast treatments, which typically represents the highest volume of patients treated in the radiation oncology department. I am also pleased to announce that we have received 510 approval for full commercialization in the U.S. and the ability to take orders from Vital-HOLD and the European Union. Also, we advanced the TomoC product, which we jointly developed with our CNNC Accurate Joint Venture, which we believe will allow us to compete fully in the Type B value segment of the China market. As discussed, the Type B market represents a major opportunity for us and is the largest and fastest growing segment within China, with a potential for nearly 2,000 systems and over $3 billion in market potential over the next five years. TOMOC was successfully submitted for regulatory approval in November of last year and was followed by targeted market introductions at two major medical conferences in Q4. These events allowed us to introduce the TOMOC platform to key opinion leaders and created significant interest that we expect to capitalize on upon full commercialization during the second half of FY24. These new products, in combination with the CyberKnife S7 and strong demand for ClearRT imaging, Synchrony, and VoloUltra on the RADxAC systems, drove 9% full-year growth in product revenue and 12% growth when you exclude the impact of FX. We believe the market for radiotherapy systems grew in the low single-digit range over the course of FY23 and that we gained share across all regions. EIMEA in Japan led with highest product revenue growth with 31% and 51% year-over-year, respectively, and non-China APAC at 2% growth. The Americas region grew 3% in FY23 and ended the year with very strong growth in the second half. China product revenue declined 18% as a result of first-half COVID lockdowns. but edged with positive growth in the second half versus the second half of FY22. Our next strategic pillar was expanding and growing our service business. We set out a multi-year plan to strengthen our service business, which represents a recurring revenue stream and margin expansion opportunity. Our service revenue has essentially been flat over the last decade and currently represents 48% of our global revenue. In FY23, our overall service revenue showed underlying positive growth of 5% when excluding the impact of foreign exchange, which is very encouraging. Service contract revenue growth is largely gated by the growth of our installed base. In FY23, we saw meaningful year-over-year growth in our global installed base of users, growing 5%, driven by 7% in the EIMEA region, 10% growth in Japan and 15% growth in the APAC region with strong installation activity in China. The U.S. continues to see radiotherapy capacity consolidation across the market and was the only sub-region where we saw a decline in our installed base. Our focus in the U.S. is a long-term approach where we have focused our commercial investment with a goal of ensuring the highest level of service and customer satisfaction for our older installed systems, specifically the early generation tomotherapy systems. Our commercial strategies center on working closely with these customers to offer compelling solutions and actively upgrading these legacy systems. We expect this will generate net positive growth in the US IB in the coming years and become a tailwind to revenue growth and margin conversion. Additionally, in FY23, we captured more value for our services through improved pricing and enhanced offerings. What we're hearing from customers is that they continue to experience labor shortages and staff turnover since COVID. In FY23, we added service and support offerings to address those pain points, including remote training courses and incremental on-site training, which contributed to incremental service revenue. In Madison, Wisconsin, we're building a new state-of-the-art customer training center, and in Europe, we're investing in the Innovation Center in Genelier, Switzerland, where we will showcase both CyberKnife S7 and RAD Exact systems. Both sites will provide the ideal environment to deliver high-value education and training solutions to customers from around the world, starting in FY24. We expect growth from the installed base, and expanded value-added service and support solutions to drive top and bottom line impact over time. The third pillar was expanding margin and profitability and improving our balance sheet. Last year, Ali and I laid out a multi-year, multi-faceted plan to drive margin expansion and cost efficiencies with the goal of leaving no stone unturned. We made good progress against our goals with actions that helped us to navigate the impact of inflation, logistics costs, and foreign exchange. In our service business, we improved full-year service margins by 1% year over year, driven by improved service contract pricing, incremental service offerings, and reducing full-year parts consumption. Product margins for the year declined 660 basis points versus last year, primarily driven by deal mix, direct material inflation, and FX. However, we're encouraged to see an improvement in average system sales price associated with the inclusion of new product innovations like ClearRT, Synchrony, and VoloUltra, allowing us to increase price and capture more of the value chain. Additionally, despite year-over-year revenue and unit increase, we held operating expenses flat and removed many operating costs by driving process efficiencies and through restructuring actions. Additionally, we began the process of consolidating our facilities by reducing our footprint in higher cost geographic areas while fueling investment in Madison, which as of July 31st has become the new headquarter location for Accurate. We're in the early innings of where we want to go, but we've made solid progress in our confidence that our continued execution of these margin and profitability expansion initiatives will take further shape and provide greater contribution over the coming years. Strengthening our balance sheet and driving the highest return on capital remains just as big of a priority. In FY23, we invested in key strategic priorities while improving our cash position and generating positive free cash flow for the full year. One major area of investment that aligns with our goal of simplifying and building a more durable business was transitioning the company to a new ERP system. This replaces our legacy system that was largely manual and old, dating back to Accura's 2011 acquisition of the tomotherapy business. The organizational effort has been a shining example of a focused, all-hands-on-deck endeavor. I'm proud to say that we remained on schedule on budget, and went live on August 1st. This investment will empower our teams with better data and analytics to support more effective decision-making that is integral to building a mature and durable foundation for future growth. Finally, in FY23, we entered into several strategic partnerships to help us bring best-in-class solutions to the market faster, improve our sales funnel, and enhance our win rate. We continued our strong partnerships with research and treatment planning, oncology information, and adaptive planning systems. We executed on our partnership with C-RAD for surface-guided radiation therapies for breast treatments. Brain Lab continues to be an important partner for neurosurgical solutions and data registries for the CyberKnife. And finally, our development partnership with Limbus AI will provide innovative online adaptive capabilities for our precision treatment planning systems. We're also proud and excited to have entered into a commercial collaboration agreement with GE Healthcare to complement their precision oncology solutions. Our partnership with GE Healthcare has been strong, with regional teams actively driving customer strategies and positioning oncology solutions to the market. We set out to measure our success of this partnership with increased sales funnel and improved win rates. To date, the GE Healthcare Partnership has driven an increase in our near-term FY24 sales funnel and nearly $40 million of total short and long-term opportunity pipeline. Additionally, the partnership has positively influenced the win rate in several of the key Q4 wins mentioned earlier by more strongly positioning Accuray within the C-suite of health systems. The GE Partnership continues to evolve, and we expect the contribution to grow and impact. In summary, we're proud of our FY23 performance and the foundation we have set for future growth. We achieved strategic customer wins in the marketplace and forged key partnerships that improved our competitiveness. While we are early in our transformation, we end the year positioned to drive further growth, margin and profitability expansion, and gain share over the coming years. I will now turn it over to Ali, who will cover our financials.