Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Accuray Incorporated Earnings Conference Call. My name is Regina and I’ll be your conference operator for today. [Operator Instructions] Today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Thomas Rathjen, Vice President of Investor Relations, please go ahead, sir.

Thank you, Regina. Hello and thank you for joining our conference call this afternoon as we review Accuray's second quarter fiscal 2012. 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. Please note that today we’ll be referring to financial data which can be found on our summary slide deck on the Investor Relations page of the Accuray website at accuray.com/investors. Before we begin, I need to remind you that our presentation includes forward-looking statements that involve risks and uncertainties. There are number of factors that could cause actual results to differ materially from our expectations including risks related to our ability to successfully integrate TomoTherapy, our ability to achieve projected revenue, gross margin and profitability targets and our ability to implement our long term growth strategy. These risks are more fully described in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2011 and our other filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statement. And now, I would like to turn the call over to our President and Chief Executive Officer, Dr. Euan Thomson. Euan?

Thank you, Tom and thanks for everyone for joining us today for Accuray’s second quarter fiscal year 2012 conference call. Now, since we’re in this time of rapid transition we’ve also posted some slides on our website to help illustrate the main points we’ll be discussing. During the call we’ll provide both GAAP and non-GAAP numbers, when Derek talks later he’ll refer to both measures. But for the sake of clarity, I’ll refer only to the non-GAAP numbers since they give you a clear picture of Accuray’s ongoing cooperations. Today I’m pleased to report that Accuray delivered a good second quarter marked by solid revenue, continued improvements in gross margins, effective management of operating expenses and positive cash flow. Today’s results give us an even greater confidence in both our path to profitability and our long term growth strategy. This afternoon I’ll update you on our integration of TomoTherapy, I’ll then discuss the global sales environment for our technologies, review growth metrics for the company and comment on a recent development in Medicare CyberKnife coverage. I’ll then turn the call over to Derek Bertocci, who will give a detailed financial review. Our June 2011 acquisition of TomoTherapy dramatically increased Accuray’s global presence, added innovative new technologies to our portfolio and created exciting new revenue opportunities. Shortly after we announced the acquisition of TomoTherapy, we laid out 3 milestones to help you measure our progress through integration and track our return to profitability. The first milestone is to maintain or modestly growth revenue while generating a book-to-bill ratio greater than one, we’re meeting that goal. For the second quarter total revenue was $102.9 million and the book-to-bill ratio was approximately 1.1. Pro forma revenue for the equivalent quarter a year ago was higher, but this reflects a specific pattern in TomoTherapy’s…

Thank you, Euan. Today, I will be reviewing our non-GAAP results which we believe are most representative of our ongoing core business. If I refer to GAAP results, I will specifically state so. In our press release announcing our results for this quarter, we provided details of the adjustments between GAAP and non-GAAP results. We also provided pro forma results for the 3 and 6 months period ended December 31, 2010. Unless stated otherwise, all results for prior year periods represent the combined total of the results reported separately by Accuray in TomoTherapy as standalone companies, excluding expenses related to the acquisition that were incurred during those periods. Results of operations for Q2 were on track or ahead of our expectations as we continued to make steady progress with the integration of TomoTherapy. These results demonstrate the progress we’re making towards the goals we identified when we first announced our agreement to acquire TomoTherapy. For the second quarter of fiscal 2012, total revenue and product revenue were lower than in the same quarter of the prior year mainly due to the large seasonal increase in TomoTherapy product revenue in the December 2010 quarter as previously noted by Euan. As our product portfolio and geographic presence become more diversified, we expect this seasonality to smooth out and for revenue to be more evenly distributed throughout the year. Service revenue in the second quarter grew 17% from the prior year due to continued growth in the installed base of both CyberKnife and TomoTherapy systems. Service revenue recognized as a result of payments received from cash basis customers had been unusually high in the first quarter of this fiscal year, but was relatively normal in the second quarter. This sequential decrease matched the ongoing growth in service revenue achieved in the second quarter…

Thank you, Derek. As we discussed during the second quarter, Accuray remained on target to achieve the 3 milestones established for you to measure our success. We delivered solid revenue on the book-to-bill ratio greater than 1, our 12.3% gross margin is helping create a profitable service business and is ahead of this year’s projection. Through effective management of operating expenses, we’re on track to return the company to profitability by the end of fiscal 2013. Finally, you’ll see that the slides we posted today on the Investor Relations page of our website include an indicative picture of what the financials of the company could look like once we reach an installed base of 1,000 systems. And with that we’ll now be happy to take your questions.

[Operator Instructions] And your first question today gentlemen come from the line of Steve Beuchaw with Morgan Stanley.

One follow up on the Trailblazer coverage and in past instances have you seen an expansion of coverage in a region drive new orders over the next 6 months, 12 months, 18 months? What's a logical expectation for any impact there?

I don’t know that we’ve got that level of granularity in our data to be honest. I think that overall we see the sales environment generally sort of loosening up and the business case for CyberKnife is very dependent on the level of coverage that can be achieved. So, I think we would definitely expect to be a positive move, exactly how we transition into new orders is a little bit tougher to say, but it certainly a positive.

Following up on your comments Derek -- I’m sorry Euan -- on the freestanding center market could you go into a bit more detail there? I appreciate that it is less than 10% of your business, but could you spend a little bit more time on the balance of the issues that you’re seeing and their impact?

Well, I think we’re responding to what others have quoted as sort of a decline in the market and trying to analyze why that might be. I think that one of the factors that we’ve come up with is that, we feel that the majority of financial pressure in sort of tough economy climate and tough times for obtaining capital is fought within those smaller freestanding centers that are more dependent on sort of independent financing. Our business is primarily with hospitals as I indicated and we’re hearing from our customers is that yes, they have access to capital. So, that the impact that we’re seeing on our sales environment is that we find they're very, very detailed in terms of that business plan. They’re looking at returns in investment and with fewer deals there's certainly kind of increased competition. But overall, we’re not forecasting a change in the forecast that we entered the year with in terms of either product line in the United States at this point.

Your next question is from the line of Tycho Peterson with JPMorgan.

It's Evan Lotus in for Tycho. I had a couple of questions, I guess, first could you maybe talk about some of the data that you expecting to come out, specifically on prostate, this year and where and when we might see sort of larger studies that are now maturing to five years.

Sure. I think the key thing is data will actually be there, I think. We know that the 3 key sort of independent studies, the one from Stanford, the one from Naples and the one from Winthrop, have all reached the point where the follow up will mature through the 5 year point. And of course, that’s seen as a natural milestone in cancer treatment. As for the timing of the release of the data or even the details of the data itself, it’s a little bit harder for me to be specific. Other than to say that from what we know, we haven’t seen any changes in the trends which are very positive from a clinical standpoint, I mean. An effective treatment and one which reduces very low side effects, even compared to more established treatment with allergies [ph] .

Okay, and then, could you talk a little bit more about, give some more color on orders, either by product or by geography, I guess mostly where you’re seeing strength with Tomo versus where you’re seeing strength with CyberKnife?

We are not at the thinking of breaking things down by individual product line. I think what I can say is that we’re anticipating that we for both product lines that we will reach the end of the year achieving our initial sales forecast and in fact, overall, I would say we’re seeing some very encouraging signs particularly around the TomoTherapy products since the acquisition was completed. I don’t think it would be going too far to say that we’re feeling actually pretty positive about the way things are panning out for the TomoTherapy products since the acquisition.

[Operator Instructions] Your next question comes from the line of Anthony Petrone with Jefferies.

I’m going be in the backlog for a moment. Can you elaborate how many Tomo systems were dropped out of the backlog this quarter and how many reentered that were dropped out last quarter? I just want to get a handle on that new system backlog number of $70.3 million.

There aren’t any that were dropped out in last quarter that came in this quarter. There were a couple of orders that we did not have full deposits and so forth on, that shipped this quarter, but they will be recorded as orders this quarter.

We didn’t actually have any cancellations in Q2?

So, no cancellations and no reentry, just to be sure that new system number has...

As Derek says, these are all new orders.

Okay. And then, just in terms of revenue I guess to go back to that for a moment. I know you’re not breaking things down to that level, but it seems it was a little bit light relative to the individual companies reported results last year and I am just wondering if there was either a moderation in CyberKnife in the queue and/or not a similar acceleration in Tomo systems that we saw last quarter. I don’t know if you can give a little bit more color on system revenues in the queue?

The factors that led us to have a stronger quarter last quarter relative to the prior year and this quarter looking little less strong are related. So, the biggest thing going is that TomoTherapy, prior to the acquisition, had a very unusual seasonal pattern in shipment of systems. Their December quarter in the last two years was approximately 50% higher on average than other quarters in the year. They just happened to have a lot of shipments that went out in the December quarter. What you saw in the pattern of shipments that has occurred since Accuray has acquired TomoTherapy, is a more balanced shipment of those units across both the first and second quarters. As far as, also if we look into our shipments, our backlog is still very solid. We did notice and we had mentioned this in prior calls that on our CyberKnife product line as we have been evolving and growing our business from a more U.S. focused business to a worldwide focused business that orders from customers as we expand around the world on average are taking a little bit longer to go from order to install. So that also somewhat tempered the results this quarter. As far as our sales pipeline, we continue to see it as a very strong pipeline in terms of new customer prospects, so we look at this more as a timing issue than anything else.

That's very helpful and just 2 quick follow ups if I may. Just to stay on products for the moment in relation to Siemens, in light of the extended distribution agreement with the Siemens, what is the approach now to go after that new business? Should we assume now that the Accuray sales force kind of does not go after that business and just leaves it up to Siemens or is it going to be a dual effort by the Siemens sales force as well as Accuray's?

I think, we're far from leaving it to Siemens. I think that we are going to be very focused on talking to the people who really make the decisions and those with the customers. The Siemens arrangement will really help us in, in environments where they’re having -- where they're doing kind of a bundled sale. In the past they might have done CT scans, MRI scanners, the link bundled in with radiation oncology product. Not that it always be the case, but at least they have it as an option now to bundle in our products under those circumstances with some pre-agreed business conditions that may well help us in the future. But our main efforts are around capitalizing on the increased opportunity from Siemens exit are really focused on individual customer discussions.

The last one for me is on the service margins. So you had the increase this quarter. If you care to break that out, did you, how close are you to profitability, specifically on the Tomo side? And then a follow up there would be, what are the short and medium term targets for diamond and emerald penetration into the 350 plus or so Tomo accounts?

As far as the TomoTherapy service product line and its margins, as we had indicated we expected to have that product line transition from a very significant loss of 47% in 2010 calendar year to a breakeven or slight profit in the latter part of our fiscal ’13 year. As you can see from the reported results we are ahead of our target and we expect that we will be slightly ahead of our target of that 20% target next year overall, which would imply that it would become profitable, breakeven or profitable in the latter part of fiscal ’13. As far as the emerald and diamond contracts, it is the first quarter that we have those contracts. We are seeing the initial uptake from customers. It's still little bit early after only a couple of months of selling to draw a lot of conclusions as to the effect on the P&L, but it will be a positive impact.

There are no further questions at this time I'll go ahead and turn the call back over to management for some closing remarks.

Thank you for joining us for this afternoon's call. I want to take a moment to acknowledge Accuray employees for their continued hard work and dedication to success as we improve the life of cancer patients globally. We look forward to speaking with you on our next call.

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a great day.