Good evening, ladies and gentlemen, and welcome to the first quarter of fiscal 2011 Accuray Incorporated earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Tom Rathjen, Vice President of Investor Relations.

Thank you, Keith. Hello and thank you for joining us this afternoon for Accuray's conference call for the first quarter fiscal year 2011. 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, clinical acceptance, and regulatory approvals. These and other risks are more fully described in the Risk Factors section 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 would like to turn the call over to our President and Chief Executive Officer, Dr. Euan Thomson.

Thank you, Tom, and thanks to everyone for joining us on today's conference to review our first quarter of fiscal 2011. I'll start with the recap of the business highlights of the quarter. Then I'll comment on the current sales environment for the CyberKnife, provide brief clinical and reimbursement updates and review our experience from the recent ASTRO convention in San Diego. During the first quarter, we added seven orders to backlog, increasing total backlog by approximately 2% from the fourth quarter. Nine CyberKnife systems were installed and six were shipped during the quarter, maintaining a positive book to bill ratio, which we believe is a continued indicator of future growth. During the past four quarters, a net of 53 CyberKnife orders have been added to backlog. 38 units have been shipped and 36 units have been installed for customers around the world. I'll now provide a brief review of the business highlights of the first quarter of our fiscal year 2011. I'll then turn the call over to Derek for a detailed financial review. During the quarter, Accuray's total revenue was $38.1 million, within the guidance range provided last quarter. Revenue from sources excluding previously deferred platinum revenue was $36.1 million during the first quarter. We recorded a net loss of $4.6 million or $0.08 per share. Seven CyberKnife systems were added to backlog during the quarter, contributing a total value of $33.8 million. In addition, service and ancillary orders with a value of $16.8 million were also signed. Of the seven orders added to backlog, two are from the Americas and five orders from the European region. While we added seven orders to backlog in the first quarter ending September 30, four additional orders that were anticipated in Q1 ended up closing during the first two weeks of…

Thank you, Euan. Revenue of $38.1 million for the first quarter of fiscal 2011 was in the middle of our guidance range as it was down from $50.6 million in the first quarter of the prior year. Excluding revenue previously differed for system sold with legacy Platinum service agreements revenue was $36.1 million, a decline of approximately 14% from the comparable $42.2 million in the first quarter of the prior year. In past years we have observed a pattern of relatively low revenue and new orders in the first quarter of the fiscal year. And this pattern has continued in the current fiscal year. Gross profit margin of 47.9% was up 5.2 percentage points from the 42.7% gross profit margin in the first quarter of the prior year. This reflects improved profitability on both system and service revenue. We continue to manage operating expenses effectively, holding them to $24.4 million for the quarter, which is approximately 3.5% below the level from the prior year's first quarter. The overall result was a net loss of $4.6 million or $0.08 per share from the first quarter, compared to a net loss of $3.3 million or $0.06 per share for the first quarter of the prior year. Net orders added to backlog totaled $44.6 million in the first quarter of fiscal 2011, which includes the value of service orders entered into by our customers as well as other ancillary purchases. During the first quarter seven new orders for CyberKnife systems were added to backlog, two of our customers within the Americas region and five from European region. One of this quarter's orders were shipped and converted to revenue within the quarter. We received one cancellation during the quarter, due to dissolution of the purchasing group. Including this quarter cancellation, net orders to backlog…

Thanks, Derek. We'll now be happy to take questions.

(Operator Instructions) Your first question is from the line of Mark Arnold.

I guess just to start with, can you just walk us through the math on the system side? And I think you explained this a little bit in the prepared remarks but I just would like a little more commentary if you could, where you placed nine systems for about $19 million in revenue but you booked seven new systems for $34 million in revenue. I think you mentioned the VSI contribution there in the quarter in terms of those shipments. But can you just talk a little bit more about that big differential in revenue per system between your placements and your new orders?

The installations were nine systems, but as you know oftentimes especially when systems are sold through a distributor, once we have completed our obligations, which is to ship the product to the distributor, if the distributor is responsible for installation, we take revenue at the time we ship, not at installations. We do report installations just because many of our investors want to follow that. So in this quarter, the number of systems that were revenue systems was five as opposed to the nine that were installed. So the seven units were of new orders compared to the five systems that were revenue systems in the quarter.

That's helpful. And then just a follow up to that. The VSI product mix in the quarter, is that a mix that we should expect will be approximately the same? Should it increase going forward? How should we think about the contribution there and the impact it has on margins going forward for the rest of the year?

The VSI product, as we had indicated when we introduced it, we anticipated selling it for a higher price which is in fact what we saw this quarter. I think that from quarter-to-quarter there will be some variability as to the mix of customers. So you should expect that the VSI will become an increasingly important part of the mix. But from quarter-to-quarter there will be some variability on it.

This quarter, there was a relatively small number of units shipped, and most all of them were VSI units. So it helped to accentuate the improvement in margin this quarter.

At ASTRO last week, I was particularly impressed with the lung optimization improvement. I think people often overlook how big that opportunity is. Can you just remind me how big you view the lung opportunity in terms of number of patients and then how many you've treated in the past year?

I think we treated last year about 6,000 lung patients, which is a worldwide number? The primary lung tumors represent about 130,000 patients a year in the U.S. It's a big opportunity. Obviously, lung cancer is the most common form of cancer. And there was actually interestingly a data which may have been relevant from the test meeting which is taking place last week as well. There was a study presented there indicating some progress with lung screening studies. The study has 50,000 patients who have followed randomized into CT screening or plain radiography screening. And it was found that those who went through CT screening program, survival was about 20% improved. So they were less likely to die of lung cancer. And those types of early detected primary lung tumors are exactly the type of tumors that we feel long term with CyberKnife will add most value for. So we definitely see lung as a continuously improving and expanding market for us.

And metastatic disease is about twice that number, somewhere in that range?

It's only about 500,000 actually. It's a little more than twice.

(Operator Instructions) Your next question is from the line of Bob Labick.

You recently announced some enhancements to your service offering. I was wondering if you could just tell us a little more about that and expand on it and tell us what are the things you're doing to maintain customers on the Diamond service plan?

The additional things we included on Diamond were really related to services we can provide as a company. So things like marketing support services and consultancy services, treatment planning and support as opposed to just simple product offerings and upgrades, which is right down to the same position in the past. In the past, Diamond customers probably realized most benefit a year or two after they install in their system, because the point of installation that had the most modern CyberKnife system, a year or so later, there were new upgrades offered and they wanted to enhance the system. The services they used, they used upfront. So the point of sale of the CyberKnife is attractive too. It makes a more attractive proposition for customers. And generally, it's been well received.

How many of the systems were under service plans during the quarter?

We don't have that right off the top of my head. It is in the Q. So we'll try and get that for you.

(Operator Instructions) And your next question is from the line of Josh Jennings.

This is actually Matthew Weiss in for Josh. I was wondering if you talked in the prepared remarks about Dr. King's data he had presented at ASTRO with respect to the prostate cancer out to five years. I was wondering if you can maybe speak to any other prostate data that you maybe coming out in calendar '11. And how meaningful it is, I guess, for the radiation oncology community in general, in terms of accelerating adoption of SRS for prostate cancer. And I guess what that five year data can mean for the market in general.

I can answer the second one more easily than the first. It's a little hard for us to predict exactly what data will be published during the year. And we do know, generally that the studies are clearly aging to rule the five-year mark and would expect certainly over the next 18 months or so for the other two studies to approach the five-year mark. Now how soon that will get into print is a little bit hard for us to say. At ASTRO, the Winthrop study reached about the five-year mark and the Naples was somewhere in the four to five year range. So certainly in the next year to 18 months, the data should mature to the point where it includes a sizable proportion of five-year data. Again, how soon it gets into print is a little bit hard for us to judge. The impact question I think is relatively simple to assess. I think the first thing we would expect to see is increased confidence amongst our existing CyberKnife users to start prostate treatments, and certainly a long way from having 100% adoption of prostate treatment throughout the CyberKnife world. And that will be the first impact. And clearly the next one then is the strengthening of the performers we put it into the sales process.

You talked about your sales funnel coming out of ASTRO. I was wondering if you could provide just a little more color on the current overall hospitals purchasing environment in North America, specifically for radiation oncology systems, and maybe as a benchmark compared to where it was at this time last year.

That's little bit hard to give data on that. But I can say that we feel like things are improving slowly. We don't see any dramatic changes and certainly no dramatic changes in either direction. We have seen continued strengthening on some international markets. Europe in particular remains very, very strong for us, and we're getting very good growth there. The U.S. market I think is strong, but not necessarily expanding at the rate as some of the international markets.

In Europe, is there any noteworthy country-by-country specific activity where it may be harder in one country or region than the other specific dynamics in Europe, or just the overall strength?

I think there are changes country-by-country. In France, we saw the results of the initial assessment of CyberKnife that was funded by the National Cancer Institute that led to reimbursement in France. And France has a good and strong and expanding pipeline for us. We've seen things driving along nicely in the U.K. and well in Germany as well. So the big markets in Europe appear to be strong and strengthening for us. Italy remains strong for us. It's always been a good country for us. In other countries such as Turkey, we have pockets where we're extremely successful. Other markets are growing. And in some cases, we're establishing a foothold there. One thing is important to remember worldwide is that in each country it's very important that we launch a CyberKnife program in a very methodical way. Selling one system doesn't necessarily mean that you've got a whole program. You have to address issues of reimbursement, of clinical acceptance, clinical adoption, awareness of patients and awareness of physicians and start to change referral patterns. So that remains a continued investment for us to engage each new site and each new country and build a program independently.

Moving across the globe to Japan, can you speak on some of your success there, specifically with the Shonin approval and you've mentioned that you have the new general manager coming into that region? Maybe you could talk about what kind of favorable impact you think that will have on sort of returning Japan back to growth region in terms of orders, because obviously I think there were two installations, but no specific orders out of that region?

Japan, we did launch of our G4 product on October 5. The initial response is very good. We had good media coverage and good media presence. We also had immediate customer interest. And it's a little bit early to talk about the impact on sales, but certainly in terms of the sales pipeline and the sales funnel, we definitely feel that it may grab people's attention. We've had a lot of inquiries from both new potential users and people that have some of the last generation CyberKnife are looking to maybe upgrade their systems to the G4. It's a market with considerable potential. One of the challenges we have there was still moving out of the environment of intracranial treatment towards being a full body treatment. And Japan is a market similar to those that I mentioned just now where you really need to build a clinical program, an in-country clinical program where there is lot of interest and a lot of interest in CyberKnife and a lot of interest in G4. We know that in order to build the business long term, we also need to build clinical programs in Japan around such treatments as lung cancer treatment. So we have a lot of work there to go, but we nevertheless have a lot activity and lot of sales interest and a lot of enthusiastic and supportive customers.

It's still obviously pretty early on the Siemens collaboration, but if you could just remind us when you believe that you're going to see some incremental systems sales. Is that more of a 2012 event?

We would remain consistent with what we said up till now that we're not expecting revenue particularly in this year. We would expect to make some progress with distribution channels and would expect to make some progress perhaps with generating some orders into backlog. But those will probably be towards the end of the year, if they happen. It takes a long time to bring on any new distribution channel. And Siemens is clearly a large company with a large infrastructure, and it takes a while to get it moving to get it engaged.

Your next question is from line of Mark Arnold.

Japan, is there any update there in terms of how fast you expect to see some of those?

I am reluctant to give a sales forecast there, but I can say that we've actually been very encouraged. The in-country team was extremely pleased, and I think the launch exceeded their expectations. And so we're actually very positive about the Japanese market. But with (Arita), as I mentioned just now, we do need to build clinical programs outside of the brain in Japan. And it will not need to be as extensive as we've run already, but certainly some local experience, perhaps some local endorsement of the CyberKnife as a lung treatment machine will certainly go a long way into rapidly expanding the market.

I'd now like to turn the call back over to Mr. Euan Thomson.

Thank you. Accuray remains dedicated to expanding the use of CyberKnife Radiosurgery, as we change the way in which cancer is treated around the world. As always, I want to take a moment to acknowledge Accuray employees and the tremendous contribution they make everyday. Thank you for joining us today, and we look forward to speaking with you on our next call.

Ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect.