Accuray Incorporated

Good day and welcome to the Accurate Third Quarter Fiscal 2025 Financial Results Conference Call. All participants will be in a 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 1 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, Chief Legal Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to ACRI's conference call to review financial results for the third quarter of fiscal year 2025, which ended March 31st, 2025. 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. 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 third quarter refer to our fiscal third quarter ended March 31st, 2025. 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, everyone, and thank you for joining us today. Today, I want to explain four key points to help our stakeholders understand Accuray even better. First, similar to every U.S.-based company with significant international markets, the visibility on our very near-term growth in revenues and earnings is lower than just one month ago. However, our teams are identifying and executing on opportunities to operate more efficiently to become more and more resilient, while our commercial partnerships with customers are focused on placing our important products as quickly as possible. Second, recent results and orders outlook suggest strong demand for our technologies and improving execution by our teams. This gives us increasing confidence that we can emerge from the current environment as a stronger, more resilient organization. Third, we continue to benefit from approximately $215 million of recurring annual services revenue, within which we see several potential growth avenues. Demand for our products is strong, and our services revenue provides a stable, predictable base of growing revenues. Fourth, our investments in ERP and talent is expanding our adaptability and improving our capabilities to operate in a rapidly changing, highly fluid global market. Regardless of the global trade circumstances that will likely remain volatile, we want to be the most reliable and trusted global partner of choice in radiation therapy treatment technology. and we are staying close with our customers and prospects to help them get the equipment they need to provide vital care to their patients. Today, we reported strong third quarter results which exceeded our expectations, and we are encouraged by the overall progress we have made operationally through the first three quarters of fiscal 2025. Revenue for the quarter was solid, growing at 12% year-over-year, This growth was driven by strong performances in both developed and emerging markets. We also saw a strong performance in our service business, which this quarter represented approximately 49% of our revenue and 59% of our gross margin. I was also pleased with our adjusted EBITDA performance at $6 million compared to $1.1 million a year ago. The year-over-year increase was driven primarily by volume, pricing, and operational improvements. We managed our working capital extremely well this quarter with $16 million of free cash flow generation and reduced overall inventory levels, which Ali will speak about in greater detail. Turning to orders, our book to bill was over 1.2 this quarter, representing healthy customer demand for solutions across both developed and emerging markets. Within these markets, order growth was driven largely by new customer expansion from customers adding new radiation therapy capacity to their facilities, and approximately 35% coming from the replacement of aged equipment. Product revenues were up 16% versus last year, growing faster than the market, and was driven by strong demand for our solutions across our expanded portfolio. Moving on to our service business, our Q3 service revenue grew by 9% year over year. We expect the service business to be a growth engine and primary catalyst for expanding margins as we benefit from higher pricing, increased scale, and operating leverage, and as we develop subscription software as a service offerings in the coming years. Finally, I'll briefly touch on the recently announced tariff policies and the impact to our business. As a global company with life-changing technologies and key markets, 70% of our raw materials and product components are sourced within the U.S., and finished products are assembled and manufactured within the U.S., with over 80% exported throughout the world. I'm incredibly confident in our supply chain flexibility, and we have multiple mitigation actions underway to help offset the impact of the tariffs. including establishing a foreign trade zone in Madison, Wisconsin, two, duty drawback on qualifying parts and subcomponents, three, development of secondary domestic sources of raw material and components, and four, working closely with our China JV to obtain a tariff exemption in China for our life-saving products. While there is significant uncertainty, assuming the existing tariffs remain in place we are expecting minimal shipments to China, despite customer demand, which has averaged over $25 to $30 million per quarter in product shipments over the first three quarters of FY25. Our teams are confident that we can offset a significant portion of this revenue impact in Q4 with greater contributions from the other regions. We estimate that there is a potential negative impact of $10 to $15 million in Q4 revenue as a direct result. Note that this impact is primarily isolated to product sales in China. In general, our service business is much more insulated from the tariff dynamics with exposure limited to parts consumption. For adjusted EBITDA, although we expect headwinds due to reduced China volume and associated increased tariff costs, our teams have been laser focused on what we can control and are taking every action possible to mitigate the impact in Q4 and are confident that we can remain within full-year adjusted EBITDA guidance range. Further, we expect to see much greater positive impact to the mitigation efforts as we enter the second half of FY26. This situation is subject to change at any point and we're monitoring it very closely. Overall, we believe that despite the volatility and the uncertainty of these new challenges, we are well-positioned to implement both long and short-term mitigations to offset the tariff policy impact. I will now turn it over to Ali, who will cover our financial performance for the quarter.