Good day, ladies and gentlemen, and welcome to the fourth quarter and year-end fiscal year 2010 Accuray Incorporated earnings conference call. My name is Caitlin and I will be your operator moderator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today to Mr. Thomas Rathjen, Vice President of Investor Relations. Please proceed.

Thank you, Caitlin. Hello and thank you for joining us this afternoon for Accuray's conference call for the fourth quarter and fiscal year-end 2010. Joining us today are Dr. Euan Thomson, Accuray's President and Chief Executive Officer, and Derek Bertocci, Accuray’s Senior Vice President and Chief Financial Officer. As we have done in the past quarters, we will again be referring to revenue and backlog data, which are found in PDF files on the Investor Relations page of the Accuray website at 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, but are not limited to, revenue guidance, installations, gross margins, operating expenses, profitability, and clinical acceptance. These and other risks are more fully described in the Risk Factors sections of our Annual Report on Form 10-K, as updated from time to time by our quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. And now I’d like to turn the call over to our President and Chief Executive Officer, Dr. Euan Thomson. Euan?

Thank you, Tom. And thanks to everyone for joining us for our fourth quarter and fiscal 2010 year-end conference call. Today I’m pleased to announce a strong fourth quarter, solid orders and backlog expansion. During the fourth quarter, we added 16 orders to backlog, increasing total backlog by nearly 7% from the third quarter. We received one cancelation of a 2009 order from Europe, our only cancelation from backlog for the 2010 fiscal year. 10 CyberKnife systems were installed and 12 were shipped during the quarter. For the full year of fiscal 2010, Accuray has added a net of 56 CyberKnife systems into backlog and shipped 38 units worldwide. We believe that this positive book-to-bill ratio is a continued indicator of future growth. I' will now provide a brief review of the business highlights of the fourth quarter and our fiscal year 2010, an overview of how we see our business growing. I'll then turn the call over to Derek for a detailed financial review and guidance update. During the quarter, Accuray’s total revenue was $61.8 million. Revenue from sources excluding previously deferred platinum revenue was $58.2 million, representing an increase of 21% from Q4 in fiscal 2009. During the fourth quarter, despite the year-on-year decline in deferred platinum revenue, we recorded net income of $5 million or $0.08 per diluted share. This was driven largely by growth in our core revenue, continued improvement in gross margin, and operating expense control. For the full year fiscal 2010, total revenue was $221.6 million, in line with our annual guidance. We recorded net income for the year of $2.8 million or $0.05 per diluted share. During the fourth quarter, 16 CyberKnife systems were added to backlog, contributing a total value of $74 million. In addition, service and ancillary orders with a value…

Thank you, Euan. I'd like to start with a review of our financial operating results for the fourth quarter and fiscal year 2010 and then provide details for prospective. As Euan mentioned, during the fourth quarter of fiscal 2010, total revenue was $61.8 million compared to $58.8 million for the fourth quarter of the prior year. Excluding revenue previously deferred for systems sold with Platinum service agreements, revenue was $58.2 million, up nearly 21% from the comparable $48.1 in the fourth quarter of the prior year. Gross profit margin for the fourth quarter was 50.3%, a sequential increase from the prior quarter and an improvement of 4.2 percentage points over the gross profit margin from the fourth quarter of last year. We continued to control operating expenses, holding them to $25.1 million for the quarter, which is approximately 6% below the prior year’s level. The overall result was net income of $5 million or earnings of $0.08 per diluted share for the fourth quarter compared to net income of $1.2 million or $0.02 per share for the fourth quarter of the prior year. For the full fiscal year, total revenue was $221.6 million, a decrease of 5% from last year. Net income for fiscal 2010 was $2.8 million or $0.05 per diluted share. This compares favorably to fiscal 2009 net income of $609,000 or $0.01 per diluted share. Net orders added to backlog totaled $85.9 million in the fourth quarter and $313.5 million for the full year of fiscal 2010, representing book-to-bill ratios of 1.4 in the quarter and fiscal year from a dollar standpoint. We had a book-to-bill ratio of approximately 1.5 when comparing CyberKnife system unit orders to shipments. The decreases in backlog generated by these orders validate ongoing customer demand for the CyberKnife and will help support…

Thank you, Derek. We had a strong fourth quarter and fiscal 2010 in terms of orders, expanding backlog, improving gross margin, and effective management of operating expenses. Importantly, we saw continued acceptance of CyberKnife radiosurgery, with a 15% increase in the number of patients treated and the steadily increasing CyberKnife installation base. With that, we’ll now be happy to take your questions.

(Operator instructions) Bob Labick of CJS Securities. Please proceed.

Good afternoon. Thanks for taking my questions.

Hi, Bob.

Hi, Bob.

Why don’t we start with guidance? I know you just touched on. I appreciate all the color you gave us. It seems to imply absolutely no non-backlog system revenue. But in the past you’ve talked about anywhere between zero and four, zero and three per quarter. Am I missing something there or is there a lower ASP per system, or what else could be causing it to be just the product backlog order that you have at this time plus the implied systems with implied services revenue?

Bob, the revenue that we are forecasting is based on the backlog we have and our expectations for business in fiscal 2011. It’s probably worth noting that the order flow that we had in fiscal 2010, particularly as we’ve gotten towards the middle of the year and the second half of the year. As a result, the first half of fiscal 2011 is based on order rates that were not as strong in fiscal 2009 and the first half of fiscal 2010. The second quarter of fiscal 2010, the orders were very much bunched up towards the end of the quarter. And we are trying to be realistic about when our customer’s site will be ready to accept those. We are not, though, seeing any change in ASP in terms of the degradation in that in our products. So it’s really based on customer schedules for installation of products.

Okay. And then I guess as my follow-up I’ll just ask – I appreciate that answer. I’ll ask it slightly differently. You’ve discussed the book-to-bill of 1.5 times but your guidance is for 10% core growth, down from 20% in the current quarter. Is that all because it’s being deferred into fiscal ’12 or –? I mean, 1.5 times book-to-bill and 10% growth are not necessarily – are a little confusing.

Well, again, it’s really based on the time periods in which we got the orders and the expectation from a customer standpoint of when their facilities will be ready to accept those orders. We did indicate that we expect the second half of fiscal 2011 to be significantly stronger than the first half. But the first half is really a reflection of the weaker order picture that we had in towards the end of fiscal 2009 in most of the first half of fiscal 2010.

Okay. I will let other people ask. I’ll get back in queue. Thank you.

Your next question comes from the line of Tycho Peterson of JP Morgan. Please proceed.

Hey. Good afternoon. Thanks for taking the questions. Maybe just kind of sticking with the outlook, can you elaborate a little bit more on your comments on spending for 2011? You talked about R&D picking up a little bit. Can you elaborate maybe directionally on where you are putting those dollars? And then I think you may have said G&A down, but I wasn’t sure if it was SG&A down. I’m just wondering if you could talk a little bit about sales, how you’re thinking about that program next year.

We can’t get details of exactly what we are spending money on in this area with two generic areas, as Derek indicated. We feel there is considerable scope for accelerating the difference between CyberKnife and other technologies, and we want to take advantage of that fact to make some investment in R&D. Obviously, we can’t be specific about the timing that that will roll out or any details of the product itself. But we certainly feel it’s worth making that investment. Similarly, with market awareness, we think there is opportunity to step up the pace and actually invest in programs and people really to raise awareness of the CyberKnife benefits, which are materializing from the clinical data.

And also, Tycho, in terms of the decline that I mentioned in G&A, that is actually just general and administrative, not selling, general and administrative. We expect that there would be some increases in our sales and marketing costs as we work to improve the awareness of the CyberKnife and radiosurgery with the CyberKnife.

Okay. And then, Euan, can you talk a little bit about how you think about the market opportunity in Japan in terms of potential system placements over the next couple of years?

Yes. Without being specific numbers, I think it’s clear that Japan is the second largest single country base market in the world. And I think with the new Shonin in place, we are much more compatible now in terms of technology we offer than we have been in the past. We had approval for body Shonin, but it was based on technology approval to treat the whole body rather. But it was based on technology, which was not necessarily optimized for the whole body. The G4 is a system platform, you may remember, was a definite design for whole body applications. We’re seeing acceleration of clinical work in Japan, clinical adoption in Japan, and that should drive adoption rates and sales. That’s been happening in recent years.

Okay. You can’t quantify kind of the number of Tier 1, Tier 2 hospitals you think you could target?

No, I don’t want to go to details of the market size in Japan.

Okay. And then last one, you said you’re not going to recognize revenues from Siemens in 2011. Can you just remind us why? I mean, given the potential sales synergies there, it seemed like that would be something that could some sooner to you.

Right. Obviously, we’re not getting any distribution channel, whether it’s a distributor or a new sales person. They take some time to get up to speed. And we’re really talking about market segments that are not currently CyberKnife market segments. So the first thing we have to do is to engage and to train the sale team to look for appropriate deals and then to work appropriate deals. After that, revenue of course wouldn’t flow until we had actually got to the point of inflation or close to. So there wouldn’t actually be a time lag. So we’re working right now primarily on getting the sales force – their sales force up to speed in the relevant areas. And after that, we would expect sales activity to kick in. After that, we would expect revenue to flow.

Okay. Thank you.

Your next question comes from the line of Mark Arnold of Piper Jaffray. Please proceed.

Good afternoon, guys. I guess I want to just go back to the outlook question as well. I guess the question about the book and ships and the fact that historically even in this last quarter I think you had three of them. When we think about your backlog number here at the end of the quarter being $132 million on the system side, I guess I’m just still a little confused in terms of how you are thinking about additional book and ships on top that and kind of – are you expecting that that may be a little bit more difficult over the next 12 months or are you just not including any revenue expectation from that at this time? How should we think about the system sales component of your outlook?

One of the things, Mark, just make sure that you and the other analysts and investors are remembering is that fiscal 2011 is another year when we will drop approximately $24 million worth of revenue out of the picture from the standpoint of ending of the Platinum deferred revenue rollout. So that has to be picked up by additional sales of systems just to break even with this year. In addition to that, we are – we do expect that there will be some number of systems that would be ordered and shipped within the year. The expectation, if you look at our backlog today, is that we would expect some units that would also get ordered and shipped within fiscal 2011.

Derek, can you just give us the breakdown of the $29 million in Platinum revenue that you recognized in fiscal 2010? What amount was in the system revenues line and what amount was in the service revenue line?

$12.6 million of it was in the system line. And then in the service line, it’s $16.3 million.

Okay. And then just one last clarification question. The other – the interest income and other expense line, can you just tell us what’s in that in the fourth quarter? Why is that number – why are you recording other expense there? And should we expect to see some interest income, given your strong cash and investment balance in 2011?

This quarter was a quarter where we were affected significantly by the rapid decline in the euro from March 31 to June 30. We do have a fair number of sales that are denominated in euros and the translation – or the FX losses on those is what hit our other income and other expense line in the fourth quarter. Looking forward, as we look at fiscal 2011, with the cash balance that we have, we certainly do expect interest income. The exact amount is really going to be dependent obviously on what the markets fair. But I think given that we are trying to take a reasonably conservative posture with our cash, I wouldn’t suggest that you assume it getting a very high interest rate today on potentially one year or less investments.

All right. Thank you.

Your next question comes from the line of Josh Jennings of Jefferies & Company. Please proceed.

Hi, good evening, gentlemen. Thanks for taking the questions. Just a quick one just on – in terms of again the outlook, which obviously is treated kind of ahead of itself as I did in terms of (inaudible) expectations. But if you take a look at your 38 units shipped in fiscal ’10, how many units did you actually ship, not just installed, but shipped in fiscal ’09? And are you expecting that 38 number to grow in fiscal ’10 – I'm sorry, fiscal ’11?

In terms of fiscal ’09, we shipped 36 units. But we shipped 38 in fiscal ’10. We do expect that that will increase from fiscal ’10 to fiscal ’11. And that’s a significant reason why we expect revenue to go up. Again, remember, we have to replace $24 million worth of Platinum revenue just to break even. And so we have to ship additional units – significant additional units in order just reach break even in terms of revenues.

And just to touch on that, in terms of sort of $24 million that you need to – that market has to break even, I mean, just in terms of thinking about your increased installed base and increasing service component in the backlog, what is – if you increase your installed base by about 15% or so over the course of the year, is that sort of bogey for service revenue growth for fiscal ’11? Is that an appropriate level to expect?

No. Again, I think that it is a little bit deceiving is the Platinum service which in service alone was $16.3 million of revenue in fiscal ’10. That will go down to just a few million in fiscal ’11. So again, just to pull these in, we have to have a significant increase in service revenue and the growth in the installed base just to break even. So that $16.5 million or so represents about 23% of total service revenue. So it appears to have a pretty significant increase in installed base just again to break even.

Okay. In terms of reported service level, it’s going to be tough to break even on the service side in fiscal ’11. I think that’s where the disconnect is.

Probably. I think that may be what is confusing folks because of that – as that $16.5 million comes out and we grow the installed base, it’s a tall order to break even given that.

Great. And just lastly on the competitive front, I mean, can you – I know you spoke that you haven’t sort of seen competition impact your business at this point. Is any of your guidance breaking in some elevated level of competition next year with Varian launching their TrueBeam early in the – your next fiscal year, I mean? Thanks a lot, guys.

I think we’ve had – if I remember the timing correctly, two quarters now since the bookings rather since the TrueBeam launch. So I think we are one complete quarter. And I think we’ve set on both goals so far, but we haven’t seen any impact from that launch.

(Operator instructions) Your next question comes from the line of Junaid Husain of Soleil Securities. Please proceed.

Good afternoon, everyone.

Hi, Junaid.

Derek, excluding the legacy stuff, the patterns [ph] on the balance sheet and just given your 2011 guidance, how should we be thinking about the organic rate of sales growth? Shouldn’t – do you call it mid-to-low single digits?

Probably. The guidance that we are providing compared to the $221 million of revenue that our guidance spends, that both above and below, if you look at the results excluding the deferred portion of the Platinum, as we indicated, it’s a range of potentially 6% to 14% organization growth in terms of the ongoing activity of the business, excluding the previously deferred Platinum piece for our business.

All right. Thanks so much, guys.

Okay.

And there are no further questions in queue at this time. Part of the interruption, you have a question from the line – please proceed.

Okay. After a solid quarter of fiscal – fourth quarter of fiscal 2010, Accuray remains dedicated to expanding the use of CyberKnife radiosurgery, as we change the way cancer is treated around the world. As always, I want to take a moment to acknowledge Accuray employees and the tremendous contribution they make every day. Thank you for joining us today and we look forward to speaking with you on our next call.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.