Good day, and welcome to the Accuray Third Quarter Fiscal 2023 Financial Results Conference Call. All participants will be in listen-only mode for the duration of the call. After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded today. I would now like to turn the conference over to Chief Legal Officer, Jesse Chew. Please go ahead.

Thank you, operator and good afternoon, everyone. Welcome to Accuray’s conference call to review financial results for the third quarter of fiscal year 2023, which ended March 31, 2023. During our call this afternoon management will review recent corporate developments. Joining us on today’s call are Suzanne Winter, Accuray’s President and Chief Executive Officer; and Ali Pervaiz, Accuray’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 close this afternoon, as well as in our filings with the Securities and Exchange Commission. We base the forward-looking statements on this call on 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 31, 2023. 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, Jesse. Good afternoon and thank you for joining the call. Let me start by saying that I’m very pleased with our third quarter results, which demonstrate meaningful progress in achieving the long-term agenda that I set forth when assuming the role of CEO just under a year ago. I am enormously proud of the Accuray team who are laser-focused on our main priorities: driving above-market revenue growth, expanding profitability through operational efficiencies and pricing discipline, and leveraging strategic partnerships to more effectively compete in the global radiation therapy market. During this quarter, we grew global revenue by 23% year-over-year. We also achieved a new milestone in systems manufactured and shipped within the quarter, representing a 67% unit growth compared to the prior year period. Although we continue to face headwinds from the supply chain, which had a negative impact on our margins, customer demand for the installation of CyberKnife, Radixact, and TomoTherapy Systems is robust. Our operations and regional teams are consistently performing at the highest levels, collaborating closely with our supplier partners to minimize supply chain disruptions and working with our customers to ensure timely delivery and installation. The organization is rallied around converting our backlog of orders into customer installations so that more institutions have access to Accuray products to deliver advanced care to their patients. We are experiencing strong demand for Accuray products fueled by our new product innovations, including Clear RT and Synchrony on Radixact, as well as the CyberKnife S7. Our commercial priority is on converting the aging installed base of systems to the most recent performance capabilities, so our customers have the latest generation of high precision, robotic and helical radiation therapy tools to provide advanced care and help our customers achieve strong, competitive positioning in their market. In the quarter, global product revenue grew 45% year-over-year, driven by the developed markets. America’s product revenue more than doubled, EIMEA delivered 66% product revenue growth and we achieved almost 150% product revenue growth in Japan, where we are number two in market share. Expanding our service revenue is a critical pillar in our revenue growth. And in Q3, Global Service revenue grew by 4%. Emerging markets like APAC played a significant role in driving growth, particularly in China where our JV team, CNNC Accuray, increased the number of executed service contracts for their expanding base of installed systems, resulting in a strong 28% growth in service revenue. Orders were solid with 34 new system orders, representing a 3% growth in units year-over-year and consistent with our target of 1.2 book-to-bill performance. Although we saw some orders in the U.S. region push out of Q3 to future quarters due to delays in purchasing cycles, U.S. order backlog grew 8% within the quarter compared to the same period a year ago, indicating continued growing demand from U.S. customers. Our next strategic priority is driving profitability expansion. In Q3 adjusted EBITDA grew 54% year-over-year despite foreign exchange, which had a $4.1 million negative impact on our top line versus last year and inflation, which impacted our margins by $2.2 million. While we are still in the early stages of our margin expansion initiatives, we are already seeing the results of our strategic pricing actions being reflected in higher average sales prices for new orders, which we expect will impact our revenue and gross margin in future quarters. Additionally, Ali and I are driving operational rigor and review of every area of our business, spotlighting areas where we can build efficiencies, reduce waste, and improve our return on capital. All these actions are helping us in the short term to navigate the foreign exchange and inflation headwinds and reduce volatility from the current environment, while positioning us to accelerate profitability in the long term when these macro conditions improve. Expanding patient access to Accuray technologies worldwide is a fundamental part of Accuray’s vision, particularly in regions where technology penetration is currently low. In Q3, our global installed base of customers grew by over 4% driven in large part by installations in the APAC region. China grew its install base by 29 systems compared to the number of systems at the end of Q3 last year. Our CNNC Accuray commercial team has been executing targeted pre-launch market activities for our Tomo C Type B product with a 'Made in China' designation. Regulatory approval by the National Medical Products Administration in China for the Tomo C product is expected at the end of the calendar year and the response from key opinion leaders to the feature set has been strong. In South Korea, we conducted our first users meeting with over 100 participants attending since transitioning our commercial service operations from indirect to direct. The decision to go direct in service in South Korea aligns with our commitment to get closer to our customers in target markets where we believe we can improve the local technical and clinical support of our installed base. In Japan, we were very busy this quarter installing 10 new systems in Q3 and growing the installed base by 9% year-over-year to 143 systems. Six out of these 10 systems were competitive replacements and will help to build up our reference base. Although Japan is considered a developed and highly penetrated market, it is still in the early adoption phase of using shorter course SBRT treatments for prostate cancer compared with the U.S. or Western Europe. In March, Accuray held a dedicated SBRT course for prostate cancer in Tokyo, led by world-class faculty from NYU and the Royal Marsden, along with our Chief Medical Officer, Dr. Seth Blacksburg. This interactive hands-on course received a tremendous response, which we expect will generate additional demand for Accuray technology in the Japanese market. We are committed to driving advanced education to support clinicians worldwide on the use of SBRT treatments to advance care, and we plan to take the course on the road with China as the next stop. EIMEA continues to be our largest customer base, growing 5% year-over-year and achieving the 350 installed base milestones. As mentioned earlier, in the U.S., product revenue doubled compared to a year ago with solid customer demand for our differentiated platforms. In fact, CyberKnife was recently featured in the Journal of the Society of Mechanical Engineering as one of seven robots that can save your life. Our final strategic priority is leveraging our commercial partnerships with a goal of increasing our commercial scale and improving solution value for our customers. Our partnership with GE Healthcare continues to advance on multiple commercial fronts. In the quarter, we held a joint oncology innovation workshop in our EIMEA region and our commercial teams in the U.S. are working together, building joint customer strategies. We are seeing growth in commercial momentum and are building a sales funnel from our combined activities. Additionally, we are in the early phases of expanding beyond the U.S. to other target regions as well. And finally, at the European Society of Radiation Oncology, ESTRO in Vienna, taking place in May, we will align marketing themes to promote our commitment to interoperability within the radiation therapy department with a goal of ensuring open access to the best technologies available for each unique patient treatment. I am excited to see our partnership is progressing and the expanding areas of collaboration between our companies. I will now turn it over to Ali, who will speak more about our financial performance.

Thank you, Suzanne and good afternoon everyone. I want to begin by thanking our global cross-functional teams who executed with an unwavering dedication to deliver a robust third quarter of fiscal 2023, despite ongoing macroeconomic challenges, including supply chain shortages, global inflationary pressure, and FX headwinds in our non-U.S. markets. Net revenue for the third quarter was $118 million, which was up 23% compared to the prior fiscal year and the highest reported revenue quarter in the company’s history, exhibiting strong demand for our innovations. Net revenue on a constant currency basis was $122 million, which represents a 27% increase versus the same period in the prior fiscal year. Product revenue for the third quarter was $63 million, up 45% from the prior year and up 50% on a constant currency basis. As Suzanne mentioned, this product revenue included 30 systems, which is the new record number of system shipments in the company’s history, breaking last quarter’s system shipments of 29 units. Like last quarter, it’s important to note that we achieved this while continuing to navigate ongoing supply chain issues, which speaks to the hard work and commitment of our cross-functional teams. Service revenue for the quarter was $55 million, up 4% from the prior year and up 8% once adjusted for the negative impact of foreign exchange, which had a $2.2 million impact on the top line in Q3. Gross orders for the third quarter were approximately $74 million, which represented a book-to-bill ratio of 1.2 consistent with our target. As a reminder, our book-to-bill ratio is defined as gross orders for the period divided by product revenue for the period. We continue to monitor the book-to-bill ratio as a right metric to ensure healthy growth of our backlog and to focus our teams to book profitable orders that will convert to revenue within 30 months. Gross orders on a constant currency basis were approximately $77 million. Moving to the backlog, we ended the third quarter with a backlog of approximately $507 million, which is 13% lower than prior year due to nine orders representing $26 million that aged beyond 30 months within the quarter. In Q3, we had five orders aged back into revenue within the quarter, representing approximately $12 million of orders. Finally, we continue to see low order cancellations with two quarter cancellations within the quarter for approximately $5 million. Our overall gross margin for the quarter was 32.8% compared to 36.2% in the prior year with the year-over-year decline mainly driven by FX headwinds, which had a $4.1 million impact to top line, which translates to roughly 3.5 points of gross margin pressure and continued inflationary pressure of approximately $2.2 million, which translates to 1.8 points of gross margin pressure. Adjusting for the impact of FX and inflation, our gross margin rates are in line with prior year and prior quarter. Operating expenses in the third quarter were $36.4 million, which included non-recurring charges of $0.8 million for restructuring charges and $1.1 million of ERP-related expenditures, compared to $35.1 million in the third quarter of the prior fiscal year. Excluding non-recurring charges, total operating expenses were down 2% compared to the same period of the previous year. Showcasing focused cost control as we continue to push our teams to prioritize return on investment. Operating income for the quarter was $2.3 million compared to negative $0.3 million from the prior year. Adjusted EBITDA for the quarter was $8.3 million compared to $5.4 million for the prior year period, representing 54% growth year-over-year despite the FX headwinds, which impacted our top line by $4.1 million in Q3. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet, total cash, cash equivalents, and short-term restricted cash amounted to $89 million compared to $68 million at the end of last quarter, which is an increase of $21 million reflecting substantial collections and focus on optimizing working capital. Net accounts receivable were approximately $77 million, down $12 million from last quarter as we focused our regional teams on timely collections. Our net inventory balance was $151 million, down $5 million from the prior quarter as we drive actions to bring our inventory back to healthier levels to improve our cash position. While we deliver strong results in Q3 and continue to navigate supply chain constraints, the headwinds associated with foreign exchange have had a $16 million impact on our top line year-to-date in fiscal 2023, most of which would’ve flowed down to adjusted EBITDA. We are reiterating our full year guidance with revenue in the range of $447 million to $455 million in an adjusted EBITDA range of $26 million to $30 million. The lower end of the range assumes that FX and supply chain headwinds do not materially improve over Q3. We will continue to monitor key currencies as we close out Q4 and FY 2023. Those are our key financial highlights and with that, I’d like to hand the call back to Suzanne.

Thank you, Ali. This quarter represents another strong period of execution and demand for our highly innovative solutions. I am extremely proud of the Accuray teams and while we are still in the early innings of our journey, the teams remain laser focused on execution, making steady and meaningful progress against our long-term goals. We strongly believe that the investments we are making to serve our customers more effectively while focusing on improving operational and financial discipline, all matched with a best-in-class team will put Accuray in the strongest position to transform radiotherapy for patients and healthcare providers worldwide. I will now turn it back over to the operator for Q&A.

We’ll take our first question from Brooks O’Neil with Lake Street Capital Markets. Please go ahead with your question.

Good afternoon and congratulations on a terrific quarter. I would first like to drill down a little bit in China and I’m hoping you could give us just a little overview of sort of the macro environment that you see there. Talk a little bit about what you expect in the Type A market and then just help us to understand a little bit more about the sort of the time schedule for your growth in the Type B market with your joint venture partner.

Thank you, Brooks for the question. Yes, in China, so we have continued to see China open up, get back to normal from the COVID lockdowns that we saw at the end of the calendar year. And I would say we’re starting to get back to normal in terms of the commercial efforts that our joint venture is doing on the ground. Things we’re looking at now are major milestones. One, of course, is the Tomo C approval, that’s our joint venture developed Type B product. We’re still expecting approval at the end of the calendar year and really impact to our P&L in the back half of FY 2024 as a result. I will say though that the teams are out and doing targeted sort of pre-launch activities. They did a launch or a very targeted marketing presentation to key opinion leaders in February, and we’re expecting our first major show to be the China Medical Equipment Meeting in May and where we will have the Tomo C on the show floor. And so we’re very excited about the response, at least initially from KOLs on our feature set. So that’ll be an important part of our business. The other thing that we’re looking at is for the formal announcement of the new 14th five-year plan, that’s where they officially tell us what the quotas are for Type A and Type B. I think we’re getting a little bit more information on what the definitions of the products for Type A and Type B, but we want to participate in both. As you know, we have a very strong historical market share in Type A, we want to continue that. It’s greater than 75% market share. That is really the high-end branding, which we think will not only help us to get more Type A business, but also a halo effect on Type B when we come to market with the Tomo C product. And again, the only other thing, the Tomo C product, because it is a joint venture developed product, will be considered made in China designation, which will be important for our ability to compete. So, we’re excited about the prospects in China and again, those are the two milestones that we’re looking at for greater acceleration.

Perfect. And then if I could just ask Ali, maybe in terms of things under your control, I understand the FX impact, but what are the two or three biggest areas of opportunity for margin expansion that you see going forward?

Yes, Brooks, thanks for the question. I mean our focus continues to be in expanding our margins, and we’ve sort of laid this out in the past in which, we’re really focused on pricing, we’re really focused on our service business and getting our service margins back up to pre-COVID levels. And then from a product standpoint, we’re really tackling product cost of goods sold and then obviously taking a look at operating expenses. And so the combination of all that’s really going to help us on our margin expansion journey, I think what I will tell you is that we are starting to see some really positive indications on the pricing front in which we are seeing accretion on orders that we’re putting into our backlog, which will reflect in our P&L once those orders go to revenue.

Great. Thank you very much. And again, congratulations. You guys are doing an amazing job.

Thanks, Brook.

Our next question will come from Neil Chatterji with B Riley. Please go ahead with your question.

Good afternoon and thanks for taking our questions and congrats on the strong quarter. Maybe just on Japan, so obviously strong growth there. You had the competitive wins and it sounded like a successful interactive course. So, while it might be still early kind of in that shift to SBRT, could you just maybe just elaborate on the competitive dynamics there and what’s helping to drive that strength?

Yes, we have a tremendous team in Japan, and I think they have employed the exact right strategy for that market. It is a developed market. It is fairly penetrated in terms of radiation therapy. Most of the work that they are doing now, especially in getting these competitive wins, is making sure that the key opinion leaders within Japan are our technology and clinical advocacy associated with bringing advanced radiation therapy to the Japanese patients. So that is why they were incredibly interested in advanced education on SBRT. We think SBRT and that’s the shorter duration, higher powered radiation therapy treatment is the future of radiation therapy. We think it’s good for patients. The clinical data is supporting that and it’s obviously reduced sessions, reduced cost to the healthcare system, but it does require training. It does require confidence to be able to perform SBRT. And so we do think the U.S. is a little more advanced in terms of the application of SBRT and prostate cancer. And so what we did is we have – we support a fantastic SBRT course by NYU Winthrop that’s held every year here in the U.S. and we basically worked with them to package a specific course for Japan to have that hands-on training, have that practical discussion, and we brought over a lot of the faculty from our U.S. course. It was so well received. We think that’s going to be incredibly important to the adoption of SBRT, which really favors Accuray technology. And again, I think it was so successful that we’re going to take it on the road in some form or fashion for other markets like China where there has been a high demand for it as well.

Great. Thanks for that color. Maybe just one quick follow up. So just in terms of potential impact that you’re seeing or might expect from the positive PACE Trial Data, just curious what you’re expecting there?

Yes. I think it’s again more and more long-term clinical data is starting to come out from the use of SBRT in prostate cancer. And again long-term data is important because not only is it on making sure that there’s tumor control but it also has an impact on, what are the long-term side effects to patients. And every time we get this long-term clinical data specifically, on patients treated on Accuray technology, the CyberKnife we are seeing reduced impact in quality of life compared to other technologies. This particular trial, the PACE A trial was SBRT compared to prostatectomy, so removal of the prostate. So surgery and I think it just illuminates more choices for patients if they are diagnosed with prostate cancer to really understand what their options are and have that discussion with their clinical partner.

Great. That’s it for me. I’ll jump back in the queue.

And our next question will come from Marie Thibault with BTIG. Please go ahead with your question.

Hi, good evening, Suzanne and Ali. Thank you for taking the questions. Congrats on a great quarter and especially good work on the progress on the working capital; nice to see. I wanted to start here and ask a little bit about, I think, I heard a mention of some purchase delays, pushing out some orders here in the quarter. And I wanted to hear a little bit more about that, if that was anything sort of a one-time situation or if that was a wider trend, what you’re seeing there on the ground?

Thanks for the question, Marie. Yes, no, I think we’re watching it to see whether it is a temporary dynamic in the U.S. or if this is something that proceeds for more orders. But we did see some delays in the U.S. I think that in Q3 we saw some of the orders pushed to Q3, not lots, we’re still the vendor of choice but customers taking a little bit longer in their sales process to get it approved. And so that was unique to the U.S. We aren’t seeing that in other parts of the world really in general. And so we are taking a look at it, but I think there are a couple of different – couple of different areas that are causing the delay. One, I think there’s more approvals required. Two, I think there’s more interaction with the IT department and making sure that cybersecurity approvals are in place before they sign off. And then third, I do think the cost of capital, obviously, is more expensive for a lot of these healthcare systems. And so just making sure that – that all of that is in place has put a longer timeframe. I think I’m getting some of these across the finish line.

Yes, absolutely. All makes sense and good to hear you’re watching it. And then I wanted to ask, given such a strong revenue result in the quarter. Just curious why you decided to maintain the revenue outlook for the year; certainly, it sounds like a lot of this is sustainable and you’ve been pushing and making progress on the installation side. So help us understand a little bit about how you came to that guidance, maintenance and thanks for taking the questions?

Yes. No, I think first of all, I think we’re enormously proud of where we are and what we’ve already sort of absorbed. As Ali had pointed out, we’ve had a $16 million impact to the top line as a result of foreign exchange just year-to-date. That has been significant and we have held our guidance. I think that if foreign exchange continues to be an issue in Q4 or supply chain is the same as it was in Q3, then I think we’re heading more toward the lower end of the guidance. If things improve, then obviously we’re more to the mid- and high-end of the guidance. So we’re cautiously optimistic that things will improve, but we’ll continue to watch that.

All right. Thank you, Suzanne.

And our next question will come from Josh Jennings with Cowen. Please go ahead with your question.

Hi, good afternoon. Thanks for taking the questions. Wanted to ask about ASTRO next month, and I believe the plan was to showcase ARTemis at that meeting. Just wanted to know if that – what we should be expecting coming out of that meeting. And is the online adaptive platform going to be introduced and will it be commercialized in the back half of the calendar year internationally?

Yes. So you will see – you will see ARTemis on our show floor at ASTRO, Josh. Our big introductions really at ASTRO are a full launch of the VitalHold for the European market. So our collaboration with CRAD for the deep inspiration breath hold, so that’ll be on major display. ARTemis will also be in the booth. We’ll be showing our collaboration with research on the online adaptive. In terms of that timing, the full launch really will be more in the ASTRO timeframe, probably a clearance CE marked being first by the end of the calendar year. And so I expect that we will probably not see impact from that product launch until the back half of FY 2024. But we certainly will be featuring that as that’s an area of tremendous interest, I think for our customers. And then the other thing that you’ll see at the show is we’re going to be having a symposium that will be specific to the use of ultra hyper-fractionation for breast and prostate where we’ll be having a key opinion leader panel that’ll be discussing that and we’ll be highlighting a lot of the clinical research like PACE-A, like PACE-B that demonstrates the clinical efficacy of not only our technology, but SBRT in general.

Great. Well, thanks for that. And then, just wanted to ask about this sales funnel. With your competitor ViewRay, kind of making their announcement earlier in the quarter, do you see any opportunity there? They represent a small percentage of the market, but any disruption from a competitor could represent opportunity, how you’re viewing that? And then, and just from a higher level, just, I mean do, should we expect the business to grow orders on a concurrency basis for the full year fiscal 2023? Thanks for taking all the questions.

Great, thank you. So, of course, we always look for opportunities, I would say in general ViewRay is a little different than we are in that they serve in a premium specialty in a more of an academic segment. And but certainly, I mean, I think we’re taking a look at anyone who may be evaluating either technology, either CyberKnife or an MR-linac to see if there’s an opportunity there. And of course, we’re going to be opportunistic as we move forward. Just in terms of the orders, I think we are from an overall standpoint, we are expecting that from at least a unit standpoint, we are going to see growth compared to last year. And we continue to look at the book-to-bill ratio as an important metric for us so that we are booking at least 1.2 of what we ship out the door. So that we’ve got a strong backlog to pull from moving forward.

Great. Thank you.

Our next question will come from Jason Wittes with Loop Capital. Please go ahead with your question.

Thanks for taking the questions. And solid quarter, congrats on that. So that’s one I’ve seen in a while from you guys. So great execution, especially with the headwinds. And on that topic, you kind of covered the FX piece on the guidance, because it does look conservative given this performance thus far. But you also mentioned supply issues. I mean already you’ve kind of navigated that quite well. What do you need to see to – what are the headwinds still there that are hurting you? And do you, is there any chance for improvement there as the year progresses?

Thanks for the question, Jason. And so yes, let me just put Q3 a little bit in perspective. Ordinarily, historically we have usually seen our Q4 be one of the strongest quarters of our fiscal year. And Q3 being a weaker sort of beginning of the year. We actually had a very strong Q3. Some of that was due to several shipments that we had planned for Q4 that we brought into Q3 really based on customers needing to spend their money. And so given that I think the historical sort of hockey stick in the back half of the year, we expected actually to be sort of similar from a quarter standpoint, which is our expectation, overall last Q4 we shipped 23 units, we do think we’re going to show significant growth in units over FY 2022. But, we’re watching. And from a supply chain standpoint, I think we have navigated tremendously actually. Supply chain, but it continues to be a challenge. It continues to be a headwind, it continues to be something that we need to micromanage, a handful of suppliers as we move forward. And so given that sort of the what’s influenced our guidance.

Okay. That’s helpful. Thank you. And then on the topic of ViewRay, they basically have announced that they’re basically looking to sell the company and potentially even merge. Does it make sense for a merger between Accuray and ViewRay? Is that something you’d look at and, what kind of things would you look at and how do you think that kind of business would operate?

Yes, no, I appreciate the question and, of course, we can’t really comment. And it’s always, we’re going to do what’s in the best interest of our stakeholders. I’ll tell you, we are very focused on our business and making sure that we are executing and driving to the strategic areas of focus that we laid out for the fiscal year.

Okay. And then if I could just sneak in one last one, Tomo C is pretty much been, is out there. I wonder if you could just kind of give us kind of, the kind of discuss the feature set that that’s being offered with it and how it’s going to be positioned versus the more premium offerings, especially in China.

Yes. I mean, I think they’re fine-tuning still the way they’re positioning the product, but I will say that the helical aspect of the system is very appealing for the Type B market. So that is a major differentiator.

And this concludes our question-and-answer session. I would like to turn the conference back over to Suzanne Winter for any closing remarks.

Great. And I just want to thank everyone for attending. This concludes our earnings call and we look forward to speaking with all of you again in August for our final fiscal year 2023 earnings release.

The conference has now concluded. Thank you very much for attending today’s presentation. You may now disconnect your lines.