Accuray Incorporated

Good afternoon and welcome to the Accuray's first quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Jesse Chu, Senior Vice President and Chief Legal Officer. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to ACRA's conference call to review financial results for the first quarter of fiscal year 2024, which ended September 30th, 2023. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Suzanne Winter, ACRA's President and Chief Executive Officer, and Ali Pervez, ACRA'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 first quarter refer to our fiscal first quarter ended September 30, 2023. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accurate's investor relation page at investors.accurate.com. With that, let me turn the call over to Accurate's Chief Executive Officer, Suzanne Winter. Suzanne?

Thank you, Jesse. Good afternoon, and thank you for joining the call. The Accurate team had a strong start to the fiscal year, delivering on both revenue and EBITDA in the quarter. We are making great progress toward our fiscal year 24 priorities, which include achieving above-market revenue growth through new product innovation and commercial execution, expanding margins and profitability through enhanced pricing and operating efficiencies, and competing more effectively by leveraging strategic partnerships in new product development and market access. In the quarter, we saw continued customer adoption of AccuRay CyberKnife, RADxACT, and Tomotherapy platforms to enable advanced radiotherapy treatments like stereotactic radiosurgery and SBRT for patients around the world, This was driven by growth in demand for these treatment regimens, which require an extremely high degree of precision. Accurate systems are capable of delivering stereotactic radiotherapy treatments to targets anywhere in the body. During the quarter, we grew global revenue by 8% year over year, with product revenue growing 17% year over year, demonstrating better than expected customer demand in our first quarter versus the same period last year. As a reminder, revenue in radiation oncology, particularly in capital equipment, can vary from quarter to quarter, but we are encouraged by the strong start in Q1. Order backlog at $489 million is robust, representing greater than two times fiscal year 23 product revenue. This gives us confidence in our ability to deliver on our strategic goals of faster growth in the market and gaining share this fiscal year and beyond. We also expanded our installed base of customers within the quarter to 1,040 systems, representing 5% year-over-year growth. As we've discussed in the past, installed base growth is a critical key performance indicator for this long cycle business because it's directly linked to service contract revenue, which is initiated at the 13 months following an average warranty period. This service contract revenue continues annually for the subsequent 10 to 12 years and provides a long tail of recurring revenue. Additionally, installed customers also represent market opportunity for new feature upgrades as well as incremental services and support like advanced training, which will further expand our service business. Finally, new order growth was also solid, outpacing product revenue shipments. While we don't guide on orders, we are very pleased to deliver to our 1.2 book-to-bill target. We see this as a strong metric to gauge future growth and grow our backlog. In October, we participated in the American Society of Radiation Oncology Conference, or ASTRO, where attendance was at historic highs with over 9,000 attendees from the radiation oncology community. We were able to drive tremendous interest in our new product innovations designed to advance care in the premium segment of the market. We showcased our new Vital Hold product, which strengthens our product portfolio for the treatment of breast cancer, adding surface-guided breast treatment capabilities to our current RADxact platform. This product comes from a successful development partnership with C-RAD. Additionally, we introduced Alliance Plus value-added service and support solutions to help ensure customers maximize the clinical and operational potential of their equipment. Further, we announced Accurate Financial Services, which provides a full range of flexible financing options to customers for capital equipment acquisition. Finally, and most exciting, we unveiled our latest introduction for the RADx Act, the CNOS Online Adaptive Capability. CNOS leverages artificial intelligence, or AI, to provide automatic contouring algorithms and remote clinical collaboration capabilities for the specific patient cases where there is an immediate need for a change in a treatment plan. AccuRase CNOS is designed to provide a faster and more practical approach to refining treatment plans compared with other industry offerings. CNOS was developed with our partnership with Limbus AI. a leading healthcare technology company that specializes in the creation of AI-based algorithms to advance cancer care. With the addition of CNOS, we believe that the RADxAC system can help ensure that treatments change as patients change to minimize dose to healthy tissue and personalized treatments. First, with Synchrony, which is designed to track, detect, and correct treatment delivery due to motion that occurs during treatment. Second, with precise art offline tools to manage changes to treatment plans needed between treatment sessions. And now with the addition of CNOS online adaptive, clinicians have the ability to modify a treatment plan on the day of treatment based on patient changes detected on the daily imaging scan. We believe that our comprehensive adaptive tool set, including CNOS, will be a key differentiator for Accuray RADxACT versus competitive products. and expect it to further increase our win rates and momentum for upgrading the aged tomotherapy install base. CNOS is 510K pending, and we expect to have this product available for customer order in the spring of 2024. Overall, in speaking and surveying the U.S. radiation oncology community, it was clear there was a positive outlook, backed by technology developments, and emerging clinical data that demonstrate the curative impact of high-precision personalized radiation therapy. This gives us confidence that the long-term future for radiation oncology is very strong despite some short-term headwinds due to the higher installation costs and longer cycles that have delayed some projects in the U.S. During the quarter, We also made significant progress on our second growth pillar of improving patient access in global segments where radiation therapy is under-penetrated and where workflow and patient throughput is a critical priority to manage the large patient backlog. In early October, we gained regulatory clearance for our domestic-manufactured TOMOC platform focused on the Type B segment in China. This represents a key milestone for Accuray. This approval unlocks the ability for our China team to drive orders and build backlog in the Type B market segment, which represents approximately $600 million in annual market opportunity. Shipments to customers are expected to occur in fiscal Q4 pending availability of the precision treatment planning system. We believe Tomosi will become a major contributor to our China business as we now have access to the Type B markets. The Type B market is the largest and fastest growing segment compared to the Type A segment where we have dominant market share today. Tomo C is differentiated as the only CT product with helical delivery available in China, and we expect strong commercial execution from our China team. You may have also heard that we announced at our Investor Day at Astro the preliminary introduction of Helix, our global value segment product at the Indian Cancer Congress meeting that was held last week in Mumbai, India. The introduction of Helix, which is designed and manufactured in Madison, Wisconsin, is another strong addition to our product portfolio to target this high potential underserved market. With Tomlacy and Helix, we can now compete in the growing global value market segment and double the addressable market potential with tailored product solutions that are designed for the unique needs of high potential emerging markets. Within the quarter, we were also proud to announce a strategic win at the Royal Marsden in the UK, which we believe will further strengthen our brand. In our business, brand reputation is extremely important as customers make investments in technology and long-term partnerships that last for many years. The Royal Marsden is a global thought leader in radiation medicine and also the principal investigator site for the PACE trials for prostate cancer. At ASTRO, the Royal Marsden team presented groundbreaking five-year follow-up data from the PACE-B trial that compared prostate cancer outcomes for five-session SBRT treatment with conventional radiation therapy delivered in 20 sessions. These results are expected to have a significant clinical impact and drive adoption of SBRT as the new standard of care for low and intermediate risk prostate cancer based on its benefit to patients. This study essentially eliminates the burden of time and cost for 15 additional treatment sessions. The Royal Marsden just completed the purchase of their second RADxAC system this year, adding to the two CyberKnife systems currently in their equipment fleet. This represents just one of the wins which we believe are significant for Accuray because they demonstrate that clinical innovation powered by high precision technology is becoming essential to providing advanced care. Accurate technology is uniquely positioned to deliver stereotactic radiosurgery and SBRT and is driving preference at top cancer centers around the world. During the quarter, I was also very pleased with our operational performance. We continue to drive margin improvement through commercial execution, by gaining price for our innovations, and by reducing costs through operational rigor and greater efficiencies across every area of our business. Last quarter and at our Investor Day in October, we discussed cost optimization as a pillar in our profitability expansion plan. Last week, we announced a restructuring which included a 6% reduction of our workforce across the organization. While these decisions are always difficult, We are confident that these actions to simplify our organization in combination with improved processes from our investment in a new ERP system which went live during the quarter will strengthen our position for the future and is in line with the plan we laid out last year when Ali and I took over. Additionally, we will focus investments in areas that are critical to our growth strategy like commercial and customer support resources. to maximize our latest product innovations and to further drive our market position and customer adoption. These actions will put Accuray in the strongest position to navigate the macro environment, invest in strategic areas of revenue and margin growth, and create long-term shareholder value. Finally, in Q1, we further enhanced our executive team with the hiring of new leadership in R&D, global service and support, and IT and cybersecurity. These executives come with significant operating experience from such leading companies in our sector as Varian, GE Healthcare, and ABB. We will be leveraging their leadership experience to further position the company to win and gain share through innovation and unparalleled service and support. I will now turn it over to Ali, who will speak more about our financial performance.