Welcome to Accuray Incorporated’s earnings conference call for the fourth quarter fiscal year 2008 ended June 28, 2008. (Operator Instructions) At this time, I would like to turn the conference over to Tom Rathjen, Vice President of Investor Relations. Please go ahead.

Thank you for joining us today for Accuray's fourth quarter of fiscal year-end 2008 conference call. Joining us this afternoon is Dr. Euan Thomson, Accuray's President and Chief Executive Officer plus Bob McNamara, our Senior Vice President and Chief Financial Officer. As we did last quarter, we will again be referring to financial data which is found on two slides and a PDF file on the Investor Relations page of the Accuray website at www.accuray.com. Please log on to this site to view this information. Before we begin, I need to remind you that except for the historical information, the information that follows contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include the matters described in the risk factors section of our report on Form 10-K for 2007 fiscal year as updated from time to time by our quarterly reports on Form 10-Q and other filings with the Securities Exchange Commission including our annual report on Form 10-K for the 2008 fiscal year which will be filed in September of 2008. And now I would like to turn the call over to our President and Chief Executive Officer, Dr. Euan Thomson.

We’ll start the call with a business overview including an update on clinical data on utilization, reimbursement, and the business environment of the CyberKnife as we look forward into fiscal 2009. Bob McNamara, our Chief Financial Officer, will then provide a detailed report of our financial results for the fiscal fourth quarter and full year 2008. We will then be happy to open the call and take questions. First let me share some of the financial highlights. Total revenue for the quarter was $50.9 million, a 16% increase over the same period last year. For the full year fiscal 2008, revenue increased 50% to $210.4 million in line with our guidance. Net income for the quarter was $191,000 contributing to our first full year of profitability, with fiscal 2008 net income of $5.4 million or $0.09 per diluted share. Our recurring services revenue grew to $11.8 million in the quarter and $38.8 million for the year. On an annual basis, this represents a 110% increase from the previous year. This growth in recurring services revenue is a very positive result, and services remain a key factor in our future growth profile. We had an extremely successful quarter with the new orders. In total 28 new contracts are added to backlog in the quarter, representing a total value of $115.5 million. At the end of fiscal 2008, our total backlog was $647 million. New orders contributed $68 million directly to non-contingent backlog, and importantly the proportion of non-contingent backlog increased to 71% of the total or $460 million. During the quarter, we installed six CyberKnife systems, three in the United States, one in Japan, and two in the rest of Asia, bringing the worldwide installed base to 140. Before I get into some specific updates for the quarter, I’d like to…

This afternoon, I will review our financial operating results for the fourth quarter and 2008 fiscal year end. Total revenue for the fiscal fourth quarter was $50.9 million, a 13% sequential decline from Q3 but a 16% increase over fourth quarter of last year. Accuray recorded net income of $191,000 for the quarter and was breakeven on a per diluted share basis, compared to net income of $502,000, or $0.01 per diluted share, in the fourth quarter of last year. During the fourth quarter, Accuray recorded a non-cash stock-based compensation charge of $4.1 million, or $0.07 per diluted share. It is impotant to keep in mind that these are non-cash charges, approximately 90% of which are the results of stock-based grants during fiscal 2007 and earlier periods. Total revenue for full fiscal year 2008 was $210.4 million, a 50% increase over fiscal 2007. While we are pleased with this growth, we recognize that this is at the low end of the revenue range we provided at the last earnings call. This illustrates various challenges we face each and every quarter. For example, one CyberKnife that was scheduled to be installed during the quarter had to be delayed when contractors discovered that the soil was not up to specifications and additional concrete needed to be poured. In another case, an international customer pushed out installation by at least 6 months because of permit and personnel issues not foreseen earlier. Net income for the year 2008 was $5.4 million, or $0.09 per diluted per share. This compares favorably to last year’s loss of $5.6 million, or a loss of $0.18 per diluted share. For the year, Accuray recorded non-cash stock-based compensation charges of $16.9 million, or $0.28 per diluted share. Taking a closer look at revenue for the fourth quarter, CyberKnife product…

We’ll now open the call for questions.

(Operator Instructions) Our first question comes from the line of Tom Gunderson with Piper Jaffray. Tom Gunderson – Piper Jaffray : For my two questions, one would be, Euan, six units shipped, we’ve got a tough economy out there, these are profit centers for hospitals. Our eyeball on this would have been that there was somewhere in the neighborhood of 15 or 16 units that were aged long enough that could have been activated. What do you think is going on in the market out there that only six in a quarter are being activated, when the need seems so great?

I think it was 8 units shipped, as I recall, and six completed installation. I think that generally demand is high. The trouble is that we only have relatively small numbers involved right now, and I think what you’re seeing there will still be quarterly fluctuations. The overall trend as we’ve gone through the year is we had to build out the non-contingent element of our backlog. In our original installations at times during the year, we’ve been fairly open about. We certainly had more systems, and because of the environmental changes that took place, we had to remove those from our installation program, but I think we’re coming through that now. We’re seeing some light at the end of the tunnel. It will obviously take a while for those systems that we brought into backlog in Q4 to push their way all the way to revenue, but these quarterly fluctuations will really always be there. They are just dependent on so many factors as Bob indicated, things changing on the permitting line for a particular site, delays in construction, changes in personnel…there’re just so many factors out of our control. What we will be doing, though, as I mentioned in my script is we are definitively investing in this area, both to speed up the installation process and to give ourselves a better handle on exactly when these systems will go in, and the people that I talked about bringing into the Accuray team are really people who will take over after the sale is completed, start to build a relationship not just with the doctor who is interested in buying but with the facilities team at a hospital that is responsible for completing the construction program, and I think in that way, we’ll definitely be able to have better visibility, and I hope and believe that we’ll also be able to decrease the time that our systems sit in non-contingent backlog. Tom Gunderson – Piper Jaffray : For the second quarter, Japan, can you help us a little bit to understand what the reimbursement picture is there? Traditionally with other medical devices, you get regulatory approval, but then there’s a log of where there is a reimbursement. As you go from intracranial to extracranial, are there any other hoops that you have to jump through to get reimbursement for that?

We have cranial reimbursement already, systems that have been around there for some time. We do have a process to go through now as it relates to extracranial reimbursement. We haven’t started that process off. We’re working with our distributor on that to get things moving along. I think on the good side we do have a very strong clinical knowledge. A lot of the existing uses, in particular the CyberKnife, have been aware that it has been pending, and I think the next phase of that market is ready to get some of the existing sites up and running with extracranial treatment, get some local experience, and then they can help us with the reimbursement enquiries and the reimbursement applications as they come through.

Our next question comes from Tycho Peterson with J.P. Morgan. Thijs Spoor – JPMorgan: This is Thijs Spoor sitting in for Tycho. Thanks for taking the question. Just a question about the new CyberKnife system that you have coming out. Is that a technical upgrade, is that a software upgrade? Can you give us some color around how that will impact the current customers in backlog or current customers and sort of a margin relation to that, if it’s more of a physical versus software component?

Well, it’s actually a combination of both. These are the upgrades that we talked about and described at the last ASTRO show, which was about 11 or so months ago, I think, or maybe 10 or so months ago. We launched several new upgrades. They were high-output linear accelerator just producing radiation at a faster rate. We had a new variable type collimation system which equaled the IRIS collimator which can actually change the size of the radiation field during the treatment, and also software optimization for planning and optimization for treatment delivery, so the overall package is a combination of hardware and software, and it is those things together, getting one site that had all of these installed together that really only happened during the last quarter. To be honest, we were somewhat surprised ourselves at the combined impact when we looked at those first couple of treatments, and of course, it’s relatively a small number of data points right now. We’re still in the early phases of evaluating what the impact would be across the board, but we were quite frankly amazed that when you combined all of these new upgrades together, we were getting such short treatment times. Thijs Spoor – JPMorgan: Then just the followup on margins then as it relates to if the new upgraded systems will impact margin also if you have international sales growth through distributors. Do you expect a margin decrease as more sales go through those distributors?

To answer your second question first, we wouldn’t expect a margin decrease as more sales through distributors specifically, although clearly if that takes on a larger percentage of total sales versus direct, then that would impact the gross margin because the gross margin on direct sales is better than the sale through distributors, and then regarding the upgrades, I won’t speak specifically to that, but what I can say is I can speak to next year’s gross margin that we believe will be similar to what it is now in the low 50s.

Some of the technology aspects, we were provider a linear accelerator before, whereas now we’re providing a higher output linear accelerator. We were providing a collimation system; now, we’re providing a variable collimation system, and obviously software, one software version versus another software version has fairly low impact on margin, so I don’t think we’re expecting any significant changes in margin as a result of this upgrade profile.

Our next question comes from Eric Schneider with UBS. Eric Schneider – UBS: First, thanks for providing a little information on the backlog, particularly the historical split between contingent and non-contingent, which brings my question. On the non-contingent piece, it had been growing sort of the mid-teens rate year over year. The growth in your fourth quarter was stunning compared to that, so do you think that is typical sales, fourth quarter phenomenon, where things are being pulled forward from the first quarter of next fiscal year, so do you expect a drop in that, or is that reflecting some other change dynamic in the market that nobody else is seeing?

I think as we’ve seen historically our fourth quarter is typically our largest quarter in terms of quarters for all the reasons that every sales organization has. As you enter the last quarter where the annual objectives are trying to be met, fourth quarter comes into play more than the other quarters, so to that extent, I think that’s one reason why the actual dollars went up for non-contingent, but the other piece is, focusing again as we talked about a little bit on the call, the quality of the orders that are coming in and the quality of the orders moving more away from the entrepreneurial customer and more to the hospital based customer has clearly affected favorably the non-contingent mix, as well as the international order flow has also favorably affected the non-contingent mix in Q4. Eric Schneider – UBS: A portion of that non-contingent is the deferred revenue from the legacy contracts. It looks like looking at the balance sheet movements that about $50 million of next year’s expected revenue comes from legacy contracts through. Is that about right?

We currently have within the backlog about $60 million of CyberKnife deferred revenue.

Our next question comes from Junaid Husain with Soleil. Junaid Husain – Soleil: Relative to the Stark laws, it seems as if the folks at Congress are moving forward with the tightening of the rules relative to the under-arrangements. It would seem at least on first blush that Stark is not outright prohibiting the under-arrangements, but almost evaluating them on a case-by-case basis. Euan, could you very quickly walk us through this very complicated piece of legislation and then talk about what these new rules could potentially mean to your business?

I think we’ve actually touched on that several times over the past year. There’s no doubt it is one of the things we faced very much during the first half of the year. So the changes that are taking place, one relates to under-arrangements which is a freestanding center delivering a treatment on behalf of a hospital and then billing the hospital and the hospital itself then billing for Medicare reimbursement, and CMS continues to tighten up on that. There’s a little bit more information that came out in the inpatient prospective payment schedule, and it does appear that they really are pushing hard on tidying what they consider to be a loophole, but in terms of how that affects our business, I believe we’ve already taken the impact of that over the first part of the year. I think as we see the situation gaining greater clarity, in essence, it’s really helping us because people are then able to structure their business models knowing that rather than sign a contract in the hope that something will happen and everything will work out, and they’ll still be able to persist with the original plan that they had, so I think we’re sorting out through our good customers early on which enables our sales force to either focus on them or not focus on them, and all in all, it just gives much, much greater clarity, so we’re fairly positive at this point, and I think looking at the backlog again, seeing the influx of non-contingent backlog, what that tells you is that we really don’t have a bunch of new contracts that are so heavily weighted towards people sorting out their financing, sorting out their arrangements with hospitals, their joint venture structures, so we’re getting a much cleaner group of contracts all around. That’s really the biggest impact area for us. In terms of Stark and such and ownership, there really hasn’t been an awful lot of change in that. I think it’s always been the case that referring physicians are not really supposed to own the system and benefit from it financially, so that’s an area that doesn’t really change very much, and I think all of our customers always know that that’s the environment that we’re working in. Junaid Husain – Soleil: And then could you tell us what portion of your backlog, I guess the contingent backlog, is reflective of these entrepreneurial centers?

Sure. Certainly less than half of that contingent is reflective of what we call entrepreneurial. Junaid Husain – Soleil: So more than half of it is the hospital-based operational.

Our next question comes from Peter Bye with Jefferies & Company. Peter Bye – Jefferies & Company: Just a couple of questions, and obviously there are questions about orders and units shipped and quality of backlog over the last several quarters. How long does it take once a hospital starts construction to finish the site, and then how many people who placed orders are under construction today?

Let me give you a little bit of view about the time to install and such. We actually think it has expanded over the last year or so, and let me kind of talk about this, and we track this based on the units that have been installed, etc., so if you looked at it, say, in ’06, it was closer to 11 months; in ’07, that extended to about 12 months; and now, it’s actually closer to 18 months, and so while an average can be very dangerous here because every customer is different and it’s bimodal, it’s not trimodal, but we look at the range of right now of being between, in terms of time to install, 15 to 24 months. Peter Bye – Jefferies & Company: Okay, but do you know sites are under construction today?

We actually don’t disclose that much detail on a public basis.

Our next question comes from Amit Hazan with Oppenheimer. Amit Hazan – Oppenheimer: I’ll ask both of my questions at once and then take my answers offline just in case we encounter technical difficulties. The first one would be just a very straight forward question, looking historically over the last three years now, you pretty much installed about the same number of units every year, roughly around 30; 32 in ’07, 31 in ’08 net. You’re expecting a huge jump in ’09 to get to your guidance of installations. I recognize you said maybe you think you might be over the hump with some of the economic issues, but in your strongest fiscal quarter, your June quarter, you just put up 6 installations. I’m wondering what gives you the confidence that you can increase your installations beyond what we’ve seen in the last three years. That’s my first question, and my second question is on the new orders, we’re getting to an ASP scores of about $4.1 million for those new orders, so the first question is, why has the ASP gone down so much, and also in addition to that, isn’t that going to negatively impact gross margins as that goes through the P&L?

I’ll answer your second question first. Our ASP is between $3.5 and $4.0 million. It really depends on again whether it’s a direct or whether it is through a distributor, and then your question regarding the growth or acceleration or increase in installations that we’re looking for next year, part of this year, just as we were coming into the fourth quarter, we did run into some issues that we didn’t quite see, and so, had we been able to handle those properly or we’d been able to make those installs, you would’ve seen an increase, first and foremost, and secondly and we touched on this on the call, we really are going after accelerating those installs. We have this non-contingent backlog, and those contracts are good contracts, and we want to make sure we are able to increase the number of installs next year. How do we do that? Well, we focus on it, so we know who those customers. We know where they are in terms of construction, whether it’s pre-construction, during construction, etc. A lot of the issue has to do with the actual build out and whether it’s part of a single CyberKnife unit or part of a larger facility buildup. That is a real challenge for us, but what we want to be able to do is expand our relationships. We have relationships with the clinicians at the hospital. We have relationships with the administrators in the hospital. Where we want to expand this relationship is to the facilities in the hospitals, so that we can in fact accelerate those installations, and that is clearly one of our goals for next year.

We take a followup question comes from Eric Schneider of UBS. Eric Schneider – UBS: You were talking about the time to install lengthening, and investing and accelerating that. How much is that investment costing? These are additional people that are out in the field trying to push this process through?

I would say yes, but it’s marginal. We have the infrastructure. It’s a matter of reassigning some existing resources. We might bring in some additional resources. While it will be a focus program, it’s not going to be large enough that you’ll really see it negatively affect the financials. In fact, if it’s successful, you’ll see it favorably affecting the financials. Eric Schneider – UBS: On the clinical side, is there any concern that the traditional radiation treatment market, particularly for prostate, is at risk with the recommendation to actually not screen in older patients though?

No, I don’t think we’re expecting any significant impact in the market from that.

We’ll take a followup from Peter Bye with Jefferies and Company. Peter Bye – Jefferies & Company: Just to follow up on Eric’s question, you talked about expanding international sales effort too, and given new orders are out-clipping the US orders here, where do you think that sales force should go or will go next year? I think we have you around in the mid 20s right now. I don’t know if that’s right or not, but maybe you can expound on that a little bit.

I’m not sure I understand your question. Are you talking about the… Peter Bye – Jefferies & Company: Head count.

Most of our international sales are managed through distributors. Where we focus on those is distributor management, and really if you look at the sales profile, we really have doubled the size of the sales force during ’07 and ’08, and much of that was an investment in international management, so I think we’ve got most of the infrastructure inside where we now need to manage a pretty large distribution network, and we’re really focused on is identifying the correct distributors for us, and that can be somewhat of a challenge. It’s pretty unique technology, capital equipment for a very specific oncology treatment, so we take some time to find those distributors, and it tends to be an ongoing process of interview and review, and that’s really where we’re focusing our efforts. It’s just reaching out into the rest of countries that we’re not covering right now.

And that does conclude our question-and-answer session.

Alright. Q4 fiscal 2008 was a solid quarter for new contracts. As a result of good sales momentum and very encouraging clinical data, we believe we’re well positioned to increase our leadership position in the expanding radiosurgery market. We continue to build evidence that the CyberKnife is changing the cancer treatment paradigm and in many cases to replace surgery and /or radiation therapy. During fiscal 2008, we weathered the majority of the effects of a rapid change in US market conditions, while still producing revenue growth of 50%. Thank you for your time today. We look forward to talking to you on our next call.