Accuray Incorporated

Good day and welcome to the Accuray second quarter fiscal 2024 financial results. 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 Jesse Chiu, Senior Vice President, Chief Legal Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Accurate's conference call to review financial results for the second quarter of fiscal year 2024, which ended December 31st, 2023. 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 outlined 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. 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. If you have keeping 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 and the prepared remarks are to our fiscal year quarters. For example, statements regarding our second quarter refer to our fiscal second quarter ended December 31st, 2023. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accurate's investor relations 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 all for joining the call. Accuray delivered another strong quarter with outstanding order growth driven by our new product introductions and both top and bottom line performance consistent with our expectations for the first half. Before I get into the details of the quarter, I want to highlight a few key points from the three-year outlook we introduced at our Astro Investor Day in October. These include driving revenue growth through innovation to advance care, broadening our product portfolio to compete in the global value segment, accelerating growth in our recurring service solutions business, and improving profitability while strengthening our balance sheet. I'm proud to say that in the first half of FY24, we have made good progress on each of these strategic pillars and advanced significant growth catalysts that will be realized in the coming quarters. We believe new product launches like Vital Hold for the Radix Act, Tomosi in China, Helix, our helical value segment product, and CNOS, online adaptive capability, will be growth catalysts and begin to accelerate revenue and profitability growth in Q4 and into FY25 and beyond. Reflecting on Q2, I am extremely pleased with order performance, which at 94 million represents 19% year-over-year growth and a very strong book-to-bill ratio of 1.8. We believe 1.2 book-to-bill ratio is a healthy target, so at 1.8, we are very pleased with these results, which were driven by customer adoption of our new product innovation and high-impact commercial strategies. We received shown in market clearance for Vital Hold in Japan with a full introduction at the Japanese Society for Radiation Oncology Conference where we received seven orders at the close of the conference. Vital Hold enhances breast cancer treatments by enabling surface guided therapy designed to protect the heart and lungs and is a result of our joint development with C-RAD. We believe this will further strengthen our number two market share position in Japan. Additionally, we are advancing progress on gaining market clearance for CINO's online adaptive capabilities on our precision treatment planning solution. This clearance is expected in the second half of the fiscal year for the U.S. market, and we believe it will enhance our competitive win rate and allow us to build our order backlog for trade-in, trade-up replacements and upgrades for our installed base of RADxAC systems. CNOS leverages AI technology and is a result of our partnership with Limbus AI, and we are encouraged by continued customer interest since Astro. We believe it will help drive higher competitive win rates and install-based growth for the RADxact platform. Now, turning to our Tomosi system in China. Q2 was our first quarter since regulatory approval to market the system in China and was an important indicator of customer response. We saw overall 44% year-over-year order growth in the China region within the quarter. And while this partially represents some pent-up demand for Tomosi, we expect order activity to continue to be strong towards fiscal year-end with revenue and margin growth beginning in Q4 and into FY25 pending customer installation timing. As a reminder, Tomosi expands our portfolio in China with a domestic-made product and enhances our access into the Type B market, which represents approximately $600 million annually over the next five years. Additionally, our Q2 performance in service was outstanding, with 8% revenue growth year over year. As we have discussed, the service business is a strategic area of focus for the company, and each service contract represents a recurring revenue stream over the 10 to 12 year life of the system after the warranty period. Although we remain in the early innings of our service transformation, I am very pleased to see impact from the strategic actions we put in place to improve commercial performance and enhance our offerings. Finally, Q2 global demand for installation was strong, and we ended the quarter with 6% growth year over year in our global installed base of systems. This was led by the APAC region, which celebrated the milestone of 250 systems installed and remains one of our fastest growing installed base regions at 13% year-over-year growth. As we look at our business model going forward, we see installed base growth as a leading performance indicator and the primary driver behind future service contract revenue. As service revenue grows, we expect to benefit from scale and see a significant bottom line impact from improving margins. From a region perspective, the EIMEA region continues its outstanding performance in both orders and revenue with 30% and 11% growth year-over-year respectively. The APAC region had 42% order growth year-over-year with China delivering 44% growth, reflecting strong demand. Revenue in APAC was impacted in Q2 primarily due to customer tender timing in Australia and Taiwan, which resulted in APAC revenues being down 8% year over year. We expect this to resolve by our fiscal year end, along with backlog conversion of new Tomosi orders in China to accelerate revenue recovery starting in late Q4. Japan delivered positive order growth and on a constant currency basis was up 8% year over year. However, the negative impact of FX versus last year reduced actual order growth to 2.4%. Service revenue in the region grew by 10% on a constant currency basis, but total revenue was down 29% due to lower product shipments, which we expect will offset with higher volume in the second half. On the positive side, the region continues to lead with key competitive wins at 50% of new orders coming from competitive replacements. The Americas region showed a strong sequential order growth of 72% from the prior quarter, This is the direct result of focused commercial strategies to help customers with value-added solutions to retain and grow the installed base. In Q2, we saw longer customer installation timelines in the Americas region, with revenues down 15% year-over-year, but we are encouraged by the strong 17% sequential quarterly revenue growth and are cautiously optimistic that conditions will improve over the coming quarters. Operationally, we are executing on our margin expansion plan. Ali will discuss our progress in greater detail as we're seeing strong progress in the financial initiatives we laid out at the beginning of the year and at our investor day. Specifically, we're seeing positive trends in pricing initiatives across our product and service solutions, a reduction in operating costs, and lower service costs due to improved parts consumption. This has had a direct impact on service margin which has improved by 160 basis points in the first half of the year compared to the same period last year and gives us a higher degree of confidence in our longer term margin expansion plan. Margin expansion remains a cultural transformation and over the last 18 months, we have implemented new organizational structures with P&L accountability new operating mechanisms to ensure we gain incremental price for our differentiated solutions, ensuring a faster and more predictable revenue cycle, and continuing to drive cost efficiencies while increasing customer satisfaction and value. I will now turn it over to Ali, who will speak more about our financial performance.