Good day, and welcome to the Accuray Fiscal 2025 Second Quarter Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jesse Chew. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Accuray’s conference call to review financial results for the second quarter of fiscal year 2025, which ended December 31, 2024. During our call this afternoon, management will review recent corporate developments. Joining us on today's call is Suzanne Winter, Accuray's President and Chief Executive Officer; and Ali Pervaiz, Accuray's Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. The actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are outlined in the press release we issued just after the market close this afternoon, as well as in our filings with Securities and Exchange Commission. We based the forward-looking statements on this call on the information available to us as of today's date. We assume no obligation to update any forward-looking statements as a result of new information or future events, except to the extent required by applicable security laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. First, during the Q&A session, we request that participants limit themselves to two questions and then re-queue with any follow ups. Second, all references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our second quarter refer to our fiscal second quarter ended December 31, 2024. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Acura's Investor Relations page at investors.accuray.com. With that, let me turn the call over to Accuray's Chief Executive Officer, Suzanne Winter. Suzanne?

Thank you, Jesse. Good afternoon and thank you for joining us today. I'm very pleased to report on another strong quarter of performance across key financial metrics, which is enabling us to innovate and expand our efforts to improve outcomes for cancer patients around the world, which is our mission. We saw strong year-over-year revenue and adjusted EBITDA results this quarter reflecting significant progress on our FY’25 priorities. These include advancing cancer care through innovation, expanding our service solutions business, and improving patient access to radiotherapy in developing markets where we believe we can grow faster than the market and achieve number one or number two market share in the long term. Finally, we advanced operational efficiencies and pricing actions to improve margins and long-term profitability. Revenue for the quarter was solid growing 8% year-over-year with outstanding product revenue performance compared to the prior year period. Additionally, I was also pleased with our adjusted EBITDA performance at $9.6 million which was driven by pricing and operational improvements as well as Tomo C System deliveries to end customers from our joint venture facility in Tianjin. Turning to orders in Q2, I'm very pleased with our book-to-bill results, which are encouraging especially given the strength of our product shipments this quarter. EIMEA led the way with 7% orders growth balanced in both developed and emerging markets within the region. Last quarter, we gained CE Mark for the new Accuray Helix platform, which is manufactured in Madison, Wisconsin. And in Q2, we booked 12 new Helix system orders with key breakthrough wins from Pakistan, Northern Africa, and key markets in APAC. Turning to product revenues, we were up 19% versus last year, growing faster than the market driven by strong demand for our solutions across the portfolio. Here, our new product innovation is…

Thank you, Suzanne, and good afternoon, everyone. I would like to begin by thanking our global cross-functional teams who continue to execute tirelessly with their incredible work ethic and helped us deliver a strong Q2, which gives us the confidence that our underlying growth strategy is working both from a top-line and margin expansion standpoint. As Suzanne mentioned, our revenue growth was broad-based during the quarter led by a strong performance in our China, APAC, and Japan regions. The overall demand trend we see as we enter high-growth emerging markets remains positive and is expected to allow us to gain share in the coming years while steadily increasing our global install base which will in turn help grow our service business. This focused top-line growth while continuing to remain committed to our margin expansion efforts is starting to pay off despite continued inflation and macro headwinds. Turning to the financials, net revenue for the second quarter was $116 million which was up 8% versus the prior year and up 8% on a constant currency basis. Product revenue for the second quarter was $61 million up 19% from the prior year and up 20% on a constant currency basis reflecting a 17% increase in unit volume over the same time period. Service revenue for the quarter was $55 million down 1% from the prior year and down 2% on a constant currency basis. As a reminder, service revenue was unusually high in the same period of the prior year primarily due to a catch-up of revenue related to the timing of the ERP implementation and cleanup of aged deferred revenue. Adjusting for those one-time items, service revenue would have been up 2% and in line with contract revenue growth, which makes up greater than 90% of our global service revenue and…

Thanks, Ali. Before Q&A, I want to sum up my view on the recent results which show clear progress toward our full year goals, setting the stage for sustained profitability in the long term. Product revenue growth was very strong, faster than the markets we compete in, driven by sales in China and Japan and strong demand for CyberKnife. While on a normalized basis, services revenue increased modestly. Margin release and deliberate operating efficiencies against some inflationary trends. Most importantly, I'm pleased that our financial performance improvements should help us to continue to innovate and expand our efforts to improve outcomes for cancer patients around the world. I would like to thank the entire Accuray team for all of their hard work and the role they have played in the meaningful progress we have made against our strategic priorities and their ongoing dedication and passion to advancing our mission and creating value for all stakeholders. I will now turn it back over to the operator for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Marie Thibault with BTIG. Please go ahead.

Wanted to start here with China, 54% year-over-year growth. I wonder if you could detail for us what that is in terms of revenue and just how sustainable you think this demand is? You have some obvious catalysts like Tomo C coming onto the market. You've got new clearances in the Type A category. And I just want to have an understanding of can we see this demand continue for a couple of quarters, a couple of years? How would you kind of size this for us?

Yes, we're very pleased with our performance in China, both in Q2 and really the full first half. You know, I think we have been an outlier in the market compared to what a lot of other folks are seeing in China. And the market data does show that the market was down mainly due to market dynamics around the anti-corruption campaign. But I think we were an outlier and outperformed the market for two major reasons. One is that our JV partner is executing very well and has really proven to be a very strategic partner for us and our success, within this market. And then the other is the strength of our product portfolio. We now have a very strong broad portfolio with the clearance of Tomo C for the Type B segment, as well now the enhanced version of CyberKnife and Radixact with Synchrony and ClearRT. So, we feel good about the product portfolio and how we can compete within this market. Now we did expect the first half to be stronger, just due to the normal historical seasonality in China, but we're very pleased, and we're pleased with the market share gain, that we have seen over this year. Our goal is to disrupt, the competitive share dynamic within this market and I think that's really important especially as we, look to go into other emerging markets.

Very helpful. Were you able to share a revenue number for us from China?

Yes. And maybe we can do that when we're on the one-on-one calls, Marie.

Okay. Fair enough. And then I want to ask a follow-up, very encouraging to hear that your outlook includes minimal impact from tariffs, very good to hear, and as well as recovery in The U.S. market in the second half of this fiscal year. Guess on the macro side, would love to understand what sort of feeds your confidence on that, what you're seeing today if you're starting to see green shoots? And then as well on the macro side, any impact you're building in for FX? I know of course the Japanese yen has recovered, but I know it is a big part of it, the euro as well. So, any details on that as well?

Let me start with the U.S. business and then I'll hand to Ali more on the macro discussion. But we have we want to remind you that we have said that we expected gradual recovery in the U.S. business in the second half with FY’26 being more of the normalized market conditions. We've built into the balance of the year. What we have built in we think is reasonable, and it's based on what we have high visibility to in the next six months, and these are orders that are already in the backlog that are going into the installation phase. And so, we think the assumptions for the second half are reasonable, with just final timing always being the only variable as it relates to just customer readiness. But we have some key installations this quarter. OU, the Stephenson Cancer Center, which is the only NCI, National Cancer Institute designated cancer center in Oklahoma, installed a Radixact, which was a competitive displacement, also Boston Medical Center where they installed the CyberKnife and a trade in trade up. So, we are consistent with what we believe in the second half and going into FY’26, and we're going to continue to monitor the market conditions. And so, we'll keep you posted on the upcoming calls. And then Ali can talk more about macro and…

Yes, absolutely. Marie, obviously there's a lot going on in terms of just the macro, obviously a lot of uncertainty as it pertains to tariffs as well, which as I mentioned during my prepared remarks that's something that we are closely monitoring. We think that it has a de minimis risk over here in the second half. But again, of course, it is a pretty fluid situation, so we're going to continue to keep a close eye on it. I think beyond that, inflation is something that impacted us quite a bit over the last couple of years. Inflation has not gone away. It's probably increasing at a lower rate, but it still is impacting our P&L both on the product and the service side, and we have a lot of efforts going on internally as part of our margin expansion plan to combat that. And that's going to continue to remain a focus point for us because we really do over the midterm want to see our COGS come down as part of our margin expansion strategy, which will really help with overall margin expansion. So, inflation is a big one that we're keeping an eye on and again combating some of that. In terms of foreign exchange, I think the biggest factor really is Japan. And so, we have a significant installed base over there. We enjoy number two market share and we have really great service revenue. And so, we want to be able to maintain that service revenue. We are taking pricing actions. That's certainly not enough to be able to combat all the weakness we've seen in the Japanese yen. It ebbs and flows between 150 to 160. So again, just keeping a close eye on that right now and just making sure that we're factoring that into our models as we look into the future.

The next question comes from Brooks O'Neil with Lake Street Capital Markets. Please go ahead.

I'm just going to follow on a little bit with Marie's last question related to Japan. I think in our conversations in recent quarters, you've suggested Japan was a mature market, but it sounded like you had a pretty strong performance there this quarter. Are there any factors you'd call out for driving that?

Yes. Hi, Brooks. Yes, I think the only thing to call out is we did expect the first half of the year in Japan to be the stronger half just based on again visibility to customer timing. It is a replacement market. It is a developed market, and most of their installations and wins are competitive displacements, so very strategic, but we do think the first half was probably the stronger half within the year.

And then secondly, I'm very interested in your progress around the world beyond China and some of the other markets that you're developed in. So, why don't you talk just a little bit about what you're seeing in India and the kind of opportunity you see there going forward?

Yes, absolutely. So EIMEA, which includes India within the region, this still remains our largest region, in a very heterogeneous in terms of both developed and emerging markets. We are expecting a strong second half growth from this region. And in particular, in India, now we did get CE mark for the Helix. We are still awaiting the local regulatory approval for the Helix targeted for India. We do expect it in the near term and we do expect that it's going to have a meaningful impact in strategic markets like India. We were really thrilled to see the order performance of Helix in some of these other markets, and we talked about that in our prepared remarks, but markets like Pakistan, like various countries within Northern Africa. And so, we do expect that we'll be able to penetrate some of these higher growth underpenetrated markets with this product and have similar success as what we see with the Tomo C, which is a similar value segment product, really a workhorse product for these markets.

And just if I could toss in one more to follow on. Would you say from a competitive position those are differentiated in terms of price, but also in terms of clinical capability?

Yes. I would definitely say clinical capabilities. I will tell you that both the Helix and the Tomo C, the fact that it has a helical delivery is a differentiator. And also, within those markets, a breakthrough high-end premium technology like CyberKnife is also very attractive to establish the Accuray technology brand. So, it's not pricing, it is technology.

This concludes our question-and-answer session. I would like to turn the conference back over to Suzanne Winter for any closing remarks.

Thank you all for joining our call. This concludes our earnings call and we're looking forward to speaking with you again this spring for our fiscal 2025 third quarter earnings release.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.