Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Accuray Incorporated Earnings Conference Call. My name is Regina and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instructions) As a reminder, today’s event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Tom Rathjen, Vice President of Investor Relations. Please go ahead, Tom.

Hello, and thank you for joining us today on our conference call as we review Accuray’s second quarter of fiscal 2013. Joining us today is Josh Levine, Accuray’s President and Chief Executive Officer; and Derek Bertocci, Accuray’s Senior Vice President and Chief Financial Officer. Please note that today we will be referring to information which can be found on a 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 call today includes forward-looking statements that involve risks and uncertainties. There are a number of factors that could cause actual results to differ materially from our expectations, including risks associated to the effects of the introduction of the new CyberKnife and TomoTherapy Systems, commercial execution, future order growth, future revenue growth, future profitability, and guidance for fiscal 2013. These and other risks are more fully described in the press release we issued earlier this afternoon, as well as in our 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, Josh Levine. Josh?

Thank you, Tom. And thanks to everyone for joining us today as we review our second quarter of fiscal 2013. I’ll begin with a brief overview of the second quarter with Derek providing more detailed financial review later in the call. I will then summarize the actions we are taking to position Accuray for commercial success and provide leading elements of our plan for sustainable revenue growth and profitability. I will be using non-GAAP numbers as we believe they are a better reflection of the ongoing results of our operations. We announced our preliminary expectations for the quarter on January 3. Our actual results met or slightly exceeded those preliminary expectations. During the second quarter, our new orders for systems and our product revenue both fell. Product revenue declined to $33.2 million and net product orders added to backlog totaled $17.9 million with new orders for the TomoTherapy Systems stronger than for the CyberKnife. The preliminary challenges we faced in the quarter were manufacturing and supply-related issues, which delayed the contribution from the new products we announced at ASTRO and were further complicated by previously initiated structural changes in our commercial organization. During Derek’s financial review, he will provide our ending backlog by product line, which should provide increased visibility to assist in your financial modeling. At $44.6 million, our service revenue continued its steady upward progress, contributing more than half our total revenue for the quarter of $77.7 million. Our service gross margin improved to nearly 27%. Since our acquisition of TomoTherapy, we have improved system uptime, reduced the needs for partial placements, and as a result have seen a reduction in service calls per system. This has allowed us to turn TomoTherapy service from an activity that generated gross margin losses close to 50% in the year preceding our acquisition to a service business that is starting to generate a positive gross profit. Thee reliability of our CyberKnife systems continues to be excellent. While we expect the underlying positive trends in our service gross margin to continue, we expected to experience quarterly fluctuations. Given the decline in product revenue in the quarters, it was clear to me that we needed to reset the company’s cost structure in a way that would still allow us to capitalize on the significantly increased capabilities of our new products. That is why we announced on January 3 that we would reduce our operating expenses by $40 million a year, with the new lower run-rate taking effect as of the exit of the fourth quarter of fiscal 2013. The goal is to return the company to sustained revenue growth and profitability. I’ll expand on this after Derek provides you with a more detailed review of our financials. Derek?

Thank you, Josh. In reviewing the quarter I will discuss our non-GAAP results. We believe they are the best indicator of progress in our ongoing operations and trends that may influence future results. Our press release provides details of the adjustments between GAAP and non-GAAP results. I will specifically make – mention if I refer to GAAP results. Our results for our second quarter ended December 31, 2012 were down from the same quarter of the prior year, though slightly better than the preliminary results we announced on the 3rd of January. Principal cause for the decline in revenue and increase in loss from operations with the drop in the product revenue from $64.5 million in the prior year second quarter to $33.2 million in this year’s second quarter. We believe that product revenue was down primarily due to the lack of availability of the new CyberKnife model that we announced at the ASTRO meeting in late October 2012, combined with delays in expected shipments from backlog. The gross profit margin on product revenue of 50% in the second quarter of fiscal 2013 approximately unchanged from 50.1% in the first quarter, but down from 55.9% in the second quarter of the prior fiscal year. This year-over-year decline was due mainly to the lower level of production resulted in higher overhead per unit. By contrast revenues and gross profits from our service business continued to improve compared to the second quarter of the prior year, service revenue increased 16% to $44.6 million compared to the $8.4 million and the service gross profit margin more than doubled to 26.9% from 12.3%. Most of our new systems are sold to new customer or to replace competitor systems. Each of these new customer sites generates a new stream of service revenue which increases our…

Thanks Derek. Before taking your questions, I want to spend a few minutes and discussion the transformation that has taken place at Accuray. My strategic and operational review of the business since joining the company in mid-October has given me many reasons to be confident about our future. However, to generate sustainable profitability and revenue growth, we need to change our strategy and culture from a focus on technology to a focus on strengthening our commercial capabilities and better meeting customer needs. In cutting our operating expenses by an average of $10 million a quarter, we are realigning our resources to focus on customers and on driving commercial execution, while maintaining our core ability to innovate. We will be investing in the downstream marketing resources that directly support the success of our field sales teams and on optimizing the business processes that support our commercial sales activities. The greatly expanded capabilities of our new products allow us to compete for many more customer opportunities than the previous generation equipment. We need to drive the marketing activities that allow for the most aggressive competitive positioning of our new products and the importance of their feature sets and capabilities. This expanded feature set and functionality, we believe will translate into enhanced economic value to our customers. To improve cross-functional alignment all market facing functions and activities that either directly or indirectly support customers now report directly to Kelly Londy, our Chief Commercial Officer. As you know, we are currently transitioning the new products introduced at ASTRO from the development stage into full commercial manufacturing. The first patients had been treated with the CyberKnife M6 in Munich, Germany and we expect to start shipping the Multileaf Collimator or MLC starting this summer. The new Cyberknife M6 is ideally positioned for the trend toward…

(Operator Instructions) And your first question today is from the line of Anthony Petrone with Jefferies Group.

Thanks. Josh, I will begin with M6 if I am hearing you correctly, the launch date is a little bit pushed up, is that right. I believe that you were talking about the beginning of fiscal ‘14 which does somewhat coincide with the summer. But I’m wondering if that’s at all pushed up from what you had announced on the call on January?

Anthony, it’s really not, that the timeframe is still in that window of Q1 fiscal 2014. We did obviously install the first M6 in Munich. It’s been installed with fixed and Iris collimators and they’re actively treating patients. I think they actually put a press release out as did we on first patient treatments commencing. So, we are excited that that system is in place. Obviously, we want the MLC component installed because we think that that’s obviously it will generate real-time data and experience and help validate the – essentially the different set of economics that we expect to be able to drive with the system in terms of increased – improved patient treatment time as well as throughput.

So, to be clear the system in Munich does not have the Multileaf Collimator and today there hasn’t been any feedback on treatment times there?

No, no, it does not.

Okay. And then moving over to the January call, you also announced sales issues on the TomoTherapy side, but we do have the new system being rolled out here. I’m wondering if you can share with us the outlook for new sales hires for that business specifically and what we should expect going forward there?

When you say, I am sorry, can you repeat the last part of that question you said…?

Sure. New sales hires for the TomoTherapy business that was an issue you had spoken about in January being a little bit light there, I’m wondering if there is any update?

Alright. So, what we announced in January is in essence where we are at right now. We did not change the headcount or the manpower investment that we had in field selling resources. What we said Anthony and it has taken place is we were creating a dedicated selling responsibility for each individual product platform. So, essentially CyberKnife has a dedicated group and the TomoTherapy has a dedicated group. And we aligned those selling sources in a way that we think represents that the market opportunity and the near-term opportunity that exist for those – those two pieces of the product platform and we will begin the first commercial shipments of TomoTherapy H this quarter.

Okay. And last one for me, I’ll get back in. Josh just some comments on sort of use of cash here there was – with the convert announcement after the close, it sounds like TomoTherapy service margins are improving perhaps even in profitability at this point. And you’ve spoken about the $40 million in operating expenses coming out. So, by our math, you are certainly going to the cash flow positive sometime in fiscal ‘14, so just getting a sense for why they need now for excess cash and sort of uses of cash going forward that would be helpful? Thanks.

Yeah, I mean in a general sense, I think we shared on the January 3rd announcement Anthony. We – obviously we are cognizant of the balance sheet situation and the cash position and we are monitoring it on a regular basis. And well, I think today we have sufficient cash to sustain operations as we see them. We are seeing an opportunity at this critical juncture given the launch of these two new products. We think it’s prudent to strengthen the balance sheet in order to capitalize on the opportunity attached to the new products. The sales cycles for this product line are very long. We – there is obviously a service component and online service component that customers have a need to know that the companies are buying equipment from are strong, well capitalized, they are going to be around going forward. And we think that it’s prudent and the right thing to do for our business to take advantage of strengthening that position.

Okay, thanks.

Your next question comes from the line of Charles Croson with Sidoti & Company. Charles Croson - Sidoti & Company: Hi, guys, thanks for taking my questions. I just have a quick couple here. On the preliminary call, you mentioned, Josh you mentioned a need to focus a little bit more on the freestanding centers. Can you add a little bit more color on what your plan is to approach that and what is changed if anything since that prelim announcement?

Yeah. So, we – that is an opportunity for us. We have not had a really well-defined mechanism or infrastructure capability to get to strategic account or national account kind of customers. And as part of the restructuring and essentially the refocusing or reallocation of recourses to the sales and marketing effort, we put infrastructure in place to drive national contracts, strategic account management, selling capabilities and one of the targets for that group is going to be the freestanding centers. Charles Croson - Sidoti & Company: Okay, okay that’s helpful and Derek I might have missed this a little bit when you were giving your presentation there. How many legacy Tomo systems are pretty much left that need to be replaced, or the components replaced I guess as a percent of the total and what’s the timing on that?

It’s not a sort of black and white line, we have approximately 370 Tomo systems installed around the world. And over the last roughly a year we have shipped 50 units with increasing levels of new component tree. As far as the other sort of slightly over 300 that are in the field, we have been making targeted improvements to them. There is not though a pattern of going in and taking a system if you will and completely renovating it if you will and replacing all of the components. So, there is not that kind of a situation as we can look at it. We still have a significant opportunity for parts that we have designed for the H Series product that over time to the extent the customers were to upgrade their older systems that they would see improvements in both the liability as well as throughput and speed. Charles Croson - Sidoti & Company: I see, okay, that’s helpful. So, just to be clear on that, it sounds like there is not really a systemic way that you go in and try and retrofit any of these, but it might be somewhat at the customer request and then more so probably just trying to replace there, is that do I have that right?

We are replacing parts as they fail. So, if you have a part that we have newly designed component for we will be using the newly designed component. But we are not actively necessarily going out and replacing parts that are still working well in the field. Charles Croson - Sidoti & Company: Okay, alright, that’s helpful. And then one last question for you Josh just kind of tailing off on that the capital raise here that you are proposing, is this a response from customers that are getting potentially worried at the restructurings and such and would like to see to have more cash on the balance sheet or is this kind of you doing it in anticipation to quash any of those fears that might emerge?

I am not going to comment on that I mean again I think that that’s we have been pretty clear we monitor the cash position in the balance sheet situation. As Derek has alluded to we expect these less cash in Q3 than we did in Q2 and Q4, we will probably expect to see the benefit of some of the – significant benefits of the OpEx reductions and the beginning of the ramp in revenue for the decrease in the cash burn. So, I think we are continuing to monitor this situation. And but the opportunity to take advantage of just unfortunately we really we can’t talk about the convert we announced it and under the Reg 144A rules we really can’t talk about it any further. Charles Croson - Sidoti & Company: Okay, alright, that’s helpful. Thanks guys.

(Operator Instructions) Your next question is from the line of Jason Wittes with Brean Capital.

Hi, can you guys hear me?

Yes.

Okay, great. Thanks. So, I just wanted to follow-up on just the sales force makeup. You mentioned it’s going to take some time to sort of gestate, but if you could just review for us where you stand in the U.S. I think you have mentioned you have 25 sales people. I think you have also mentioned that they have on average been on the job about six months. How long do you generally expect it to – A, how long do you generally expect it to be for the really fully up in running. B, I guess with this cash infusion do you expect to increase those numbers?

Yeah, I am not going to speak about the cash discussion and what we are going to be doing with it I think in general terms I mean if you said 25 to 30 people in the U.S. in general, you would be in the right range in terms of the headcount and the manpower allocation. We basically have said that we – I think you said or asked about the average tenure in the…

Yes.

The role, I am not sure about the six-month piece. We had the last restructuring that was done in the field – the U.S. field organization was took place last spring. And so if you looked at today where people are, we probably had some people being hired on during the summer, but at this point, they are probably nine months on average in the role. And in general I would say that, that we have been pleased with what we see in terms of their ramp, their learning curve. Again, we are talking about a very long cycle sales process, but I think we are well positioned in terms of the allocation of people to the selling effort given where we are at right now. And we would evaluate any need to increase that group or adjust the size of the footprint based on future conditions.

How long – and in terms of gestation for that sales force, I mean, what is your assumption in terms of how long it really take them to be fully up and functional? I know there is always a delay with a sales person when you bring them on?

Yeah, I mean, again because of the nature of the cycle, I think what you would see is you would see some gradual improvement in terms of momentum from an opportunity and a order standpoint, but probably somewhere in that 9 to 12 month range is probably a reasonable window.

Okay. And I just wanted to ask also about I think Tomo, the new Tomos will be out at the end of this quarter, I guess that’s important for generating sales, what kind of timeframe do you think about once you put these up in terms of when they actually start to generate, I guess, actual orders and the same goes for the CyberKnife?

So, just to be clear on the Tomo H series, the first commercial shipments will take place by the end of this quarter, the current quarter. And as we indicated on January 3rd, those shipments will go into reference sites. They won’t install though, the ones that shipped this quarter probably won’t install until I would guess maybe April sometime. So, in our fourth quarter, you would actually have installation. And from there I would think you probably need 90 days, a quarter’s worth of real-time patient experience and patient treatment experience to see the real experience with treatment times, treatment planning times, and all of the enhanced functionality that the equipment should drive.

Okay. And I guess I assume it’s the same for CyberKnife although potentially little longer given it’s a longer – even longer sales cycle than Tomo, but with that in mind, I think in terms of when you actually see sort of a nice increase in order rates, that’s not something we should expect until probably the end of the summer given this timeline, at least for TomoTherapy given the timeline you presented here?

Yeah, I mean I think that’s probably right. Again, I think you will see a gradual improvement. We basically are still thinking about this the way we were when we described this in our January 3rd announcement. It’s going to take several quarters to get – to start to see some of the traction and some of the improved momentum in this area, but I think that timeline is reasonably accurate.

Okay. And last question I’ll jump back into queue. And that is within your pipeline itself, I assume in terms of people deciding whether or not they want to upgrade to those systems, are they also going to want to see the reference sites or have you seen some positive movement there?

I think on a – it’s maybe a little bit different discussion like product line. I think the Tomo H Series is probably more of a natural replacement market opportunity and a little bit more straightforward. I think because the M6, fully MLC equipped M6 really has the expectations about improvement in treatment time and improvement in patient throughput have been modeled in a formula, but there hasn’t been actual treatment of patients in that one. I think that one is a little bit longer developing timeline. And as a – the primary reason for that is that patients – or I am sorry, customers are going to want to see real-time data and feedback from reference accounts.

Okay, great. Thank you.

Your next question is from the line of Steve Beuchaw with Morgan Stanley.

Hi, good afternoon. Thanks for taking the questions. I wanted first to Josh to give you a chance to more directly give us an update on what you are seeing as you move through the quarter in terms of customer response to the systems, you again on – in your prepared remarks, you referenced the positive response from ASTRO, but frankly ASTRO was pretty light in the year. We had Sandy and then before we are in the holiday. So, now that we are here in January and potential customers are, I’m sorry February, potential customers have their budgets up running for the New Year. Is there anything you would say different that you might have said five, six weeks ago about what you are seeing in the field in terms of response to the new systems and does that translate to any change to your perspective that we discussed in the last call that over the course of year, let’s say by the end of the calendar year, you can get that order level back up to something materially north of $50 million may be closer to $100 million?

Yeah, I mean, one of the things to be clear and I – we were very clear about it, I think in the January 3rd announcement, Steve, I will reiterate it again. I mean, in a perfect world we would not have had the kind of time lag that we’ve had between standing up at ASTRO in October of last year and announcing the introduction of these two new platforms and the time lag that we kind of incurred with regards to first commercial shipments. When you think about commercial launch excellence, I am used to a scenario where you – if you’re going to introduce products with this kind of really fundamental shift in capabilities and functionality, you really want to be able to start place an equipment in reference sites relatively quickly. And I think we were very honest and transparent about some of this in our January 3rd announcement. We were dealing with quite frankly very large – largely aggressively development in commercial release timelines that put a lot of strain on a company – that the company and just to be candid, we fell short. Our best case scenarios in terms of availability of product fell short. I am not happy about it. None of our commercial organization is happy about it, but it has absolutely been a more of an impediment in terms of again until you have equipment in reference sites, it really especially on the CyberKnife side with the MLC, it becomes a little bit more challenging selling process to move customers in terms of thought process. In a general sense though, the question focusing on any change or shifts in customer reaction, the answer is no. I mean, customers are again on a practical level, they are seeing in terms of feature set, functionality and capability wise, they are seeing these products as they should as fundamentally different for us in terms of their capabilities from the previous generation devices especially on the TomoTherapy side. I mean, it really has a capability from a positioning perspective to be a true mainstream workhorse product.

Okay, so no change to your perspective in terms of the order ramp then?

No.

And then just one other comment on the broader environment, I think we were all certainly we were a little surprised by the calendar fourth quarter order number. But since that time – since the January 3rd announcement, we’ve seen one of your larger competitors kind of results for the fourth quarter order number that was a little tougher than we might have expected as well. So, I wonder given that, could you give us your perspective on broader demand trends in radiation oncology and to the extent you can give us a sense for the extent which that might have been an issue in terms of the fiscal second quarter order results? Thanks.

Yeah, I mean, on a macro level, I mean, we are not seeing – we are not seeing anything that would suggest a significant shift in demand characteristics in the marketplace. We are not seeing anything that really represents very significant pressure in terms of price. Our ASPs essentially have been stable. So, I don’t see on a macro level or an environmental level, I don’t see any of those things that you would call watch outs in terms of what we see down the road. We have a unique opportunity in terms of being able to position our business and our company in a very different way than we have historically based on these new product platforms. And our focus right now really is having all hands on deck and all of our resources aligned around ensuring that we can execute as well as possible on commercial launch of these devices. And again those steps, the steps required for that launch excellence start with first commercial shipments hitting equipment placed in reference sites and starting that data accumulation process. But I’m – my view of and expectations haven’t changed in terms of order ramp or order momentum and how that comes online based on anything from a macro level or environmental level standpoint.

Perfect. Thanks so much Josh.

Ladies and gentlemen, this concludes the question-and-answer portion of today’s event. I would like to turn the call back over to management for any closing remarks they would like to make.

Thank you, operator. While we recognize we’ve got work ahead, we are encouraged about the progress we’ve made in fundamentally transforming the business. You’ve seen for yourselves the upward trend in service revenue and service gross margin since the acquisition of TomoTherapy. And as we announced on January 3rd, we’ve taken actions to reduce our operating expenses. Finally, with the enhanced capabilities of our new products combined with the aggressive focus on commercial execution, we expect renewed growth in new orders for systems. These are the factors that make us confident about our path to profitability. Thanks for joining us on this afternoon’s call. We look forward to speaking with you on the Q3 call.

Ladies and gentlemen, thank you so much for your participation today. This does conclude the presentation. And you may now disconnect. Have a great day.