Good afternoon. Welcome to the Accuray Report Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz from Lytham Partners. Please go ahead.

Thank you, Kate, and good afternoon to everyone. Welcome to Accuray's conference call to review financial results for the fourth quarter of fiscal year 2020, which ended on June 30, 2020. During our call this afternoon, management will review recent corporate developments. Joining us today are Josh Levine, Accuray's President and Chief Executive Officer; and Shig Hamamatsu, Accuray's Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. 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 set forth in the press release we just issued after the close – after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. The forward-looking statements on this call are based on information available to us as of today's date, and 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 securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. There will be slide presentation accompanying today’s call, which can be accessed on the link provided in today’s earnings release or by going directly to the company’s investor page at accuray.com. Also, during the Q&A session, we request that participants limit themselves to two questions and then re-queue with any follow-ups. Finally, all references we make to a specific quarter in the prepared remarks are to our fiscal year. For example, statements regarding our fourth quarter refer to our fiscal fourth quarter ended June 30, 2020. With that, le me turn the call over to Accuray's President and Chief Executive Officer, Josh Levine. Josh?

Thanks, Joe, and thank you to everyone joining us today. Joining Shig and I on today’s call is also Suzanne Winter, our Chief Commercial Officer and Head of R&D, who will be joining us during the Q&A session. Despite the challenging environment caused by COVID-19, we concluded the fiscal year on a strong note and feel good about our full year fiscal 2020 performance. We generated 10% year-on-year order growth, aggressively managed expenses and working capital and positioned the business for future growth. With that said, it's clear that the macro environment is requiring our team to find new and creative ways to engage customers and manage the business. The intensity of the COVID-19 situation is highly variable by region and local markets, continuing travel and customer access restrictions in certain markets, and the resulting logistics and bunker construction schedules related to installation project timelines have been impacted at both our distributor and end user levels. As a result, we expect continued uncertainty of revenue conversion timing for at least the first half of fiscal 2021. Despite these headwinds, we're demonstrating a high degree of adaptability. Our commercial team continues to successfully respond to customer specific conditions and requirements. Sales, clinical application support, and even some service related diagnostics and troubleshooting interactions are being conducted through videoconference platforms that enable customer communication and support in real time. On balance, we believe we are operating very effectively within the constraints of the COVID environment. And I'm proud of our commercial team's ability to adapt and the dedication of our entire organization during these challenging times. From an internal focus perspective, we've been taking actions across an array of operational and financial areas to help ensure the continuity of our business. Operationally, we are continuing to work aggressively with critical supply chain…

Thank you, Josh. And good afternoon, everyone. I'll begin with some additional details on our financial performance for the fourth quarter, as well as our fiscal year 2020. And then focus on certain highlights for the period. Gross orders for the fourth quarter were $94.3 million, which was down 3% from the prior year. For the fiscal year 2020, gross orders totaled $377.3 million, an increase of 10% over the prior year. The Americas and Japan regions were the primary drivers of this year-over-year growth, with the growth rates of 64% and 10%, respectively. From a product mix perspective, the TomoTherapy platform accounted for approximately 70% of gross orders for the fourth quarter, and CyberKnife accounted for the remaining 30%. For the full year, TomoTherapy platform accounted for approximately 60% of gross orders and CyberKnife accounted for 40%, which was consistent with the prior year. Net age-outs for the quarter were $17 million, which was a better than our expectation going into the quarter, as we had approximately $5 million of age-in activities during the quarter. During the fourth quarter, we had cancellations of approximately $4 million, which was offset by $1.8 million of FX impact and other adjustments. As a result, on a net basis, we generated $75 million orders in the fourth quarter, which represented a 17% increase over the prior year. For the full year, net orders were $281 million, an increase of 29% over the prior year. We ended the fourth quarter with backlog of $603 million, representing an increase of 22% from June 30, 2019. Overall, the team has done a great job in generating new orders and age-ins in this challenging environment. With that said, and as Josh had indicated, we continue to anticipate that COVID-19 disruption will adversely impact revenue conversion timing in…

Thanks, Shig. Even with the uncertainties created by the COVID environment, we are encouraged by our Q4 and full fiscal year operating results. We are demonstrating daily that we have the ability to successfully adapt to this new external environment. And we are excited about our future. I want to thank all of our employees across the globe for their energy and contributions they're making to support our customers and their patients during these unprecedented times. And with, we’re ready to open up the call for your questions.

[Operator Instructions] Our first question is from Josh Jennings from Cowen. Go ahead.

Thanks. Good afternoon and congratulations on such a strong new order results, despite the pandemic. I was hoping to start off, Josh, just to hear your thoughts on the Siemens-Varian combination and what that potentially does to the radiation oncology market from a competitive standpoint. Do you expect any more consolidation between advanced imaging, manufacturers and radiation therapy companies? And if you could remind us just about your relationship with Hitachi, what that exactly - how that sits today and whether or not just help us understand what their radiation business looks like internationally outside of their proton therapy business?

Yeah, Josh, there's obviously a bunch of components to that question. Let me start with just kind of Siemens Varian situation. The - I mean, I think to some degree there's an inflection point here. I think that there will be undoubtedly during some period, taking place of integration. There's going to be some likely disruption or distraction factor, we certainly would expect that to occur. And I think that we're going to be opportunistic in trying to take advantage during that period of time of, you know, just from a commercial perspective, the competitive dynamics and be opportunistic to the degree that we can and taking advantage of it. On, you know, the question, the part of the question around, is there is there more to occur in this regard? I mean, I think we believe strongly that there's that imaging and imaging capability is a growing in importance area related to radiotherapy treatment. We have, as you know, we have a significant amount of activity taking place in our development roadmap around that kind of technology upgrade ourselves. But, as you think about diagnostic imaging, and you think about radiation therapy, that the combination of these pieces together, create a true end-to-end kind of oncology care strategy or oncology care services strategy related to what is important to customers and their patients. So, I mean, while it's difficult to predict specifics or timing, I think that the strategy or the potential value proposition that results is - would likely create some tailwind for more consideration of these types of combinations. On the question around Hitachi, Hitachi has been a distribution partner of ours in Japan for many years, that relationship is now non-exclusive. And Hitachi has actually been in the process of exiting their diagnostic imaging business. The deal hasn't closed yet, but that business I believe is being purchased by Fujifilm. And we're strong in Japan. Its probably our strongest from a market penetration region of the world. We're continuing to do well there. We are considering and looking at a variety of options from a distribution standpoint, at present. We're still involved with Hitachi. But obviously, as they transition their business to Fuji, it becomes probably something that is a catalyst for us looking at other options or possible combinations. So I think I'll leave it at that.

Great. And then just one follow up on hospital capital equipment budgets, there's been a lot of concerns around how they'll shape up in the back half here. But can you provide any color on what you're hearing from your hospital customers and anything on new order trends you experienced already in July and August? Thanks a lot for taking all the questions.

Sure. Look, I think while procedure activity, you know, some of the other procedures that had been put on hold by most hospitals, while the procedure activity in general is starting to come back. I think it's safe to say or fair to say that most hospitals right now are in kind of a holding pattern, on large capital equipment, CapEx spending. Those that are that are moving forward with those kind of decisions are places where either they're at capacity with their current product and technology capability or are moving in a direction where they need to be able to treat a different mix of patients or they're at the end of useful, you know, lifecycle of the equipment they've already had, historically, their legacy equipment. And so again, it's hard to kind of put everyone in the same box with regards to one size fitting all. But as our strength coming through the fourth quarter showed, there were still people obviously placing orders for equipment. And we would expect that to continue. I think it's more difficult to predict in the near term, and maybe intermediate term what the trends look like. But again, I think that any one of a number of those two or three kind of variables I talked about, are creating a catalyst for people to continue on with CapEx investments in this kind of equipment. So, which is encouraging.

Thanks, Josh.

Our next question is from Brooks O'Neil from Lake Street Capital Markets. Go ahead.

Good afternoon, and congratulations on the terrific results in this environment. I was hoping to maybe pick Suzanne's brain a little bit in terms of how you guys see your hospital and clinic customers balancing three big things that are going on out there in the world. Number one is obviously COVID-19. Number two is this movement that you guys talked about towards adaptive radiotherapy, something that's probably transforming cancer care, both here and around the world. And then third, is the reality that at some point, our friends at CMS will get off their butt and get us to the APM, and the reality that they need to - that these hospitals need to prepare for that and be in a position where they can still play and deliver cancer care in their communities, whether obviously, we're talking to US on that factor. But Suzanne, what are you seeing out there right?

Hey, Brooks. Yeah, no, I think you're absolutely right. It's a balance. I think it's a real challenge for all of our customers and trying to make sure that they're providing the best care, but getting access to capital. I would say here in the short term, and I say the short term, the next couple of quarters for sure, there's just uncertainty. And so, you know, where we are focusing is exactly what Josh had just talked about, are those customers that can access capital because they lack capacity or it's going to be very clear that the RO-APM at some point is going to go into effect. But not only that, I think the COVID environment in general has put on - magnified the importance of shorter duration treatments. And so having technology that's going to allow them to do hypofractionation and ultra hypofractionation is going to be critically important for them to remain relevant and competitive within their own marketplace. So, we're working with our customers to be able to build that kind of an argument, so that they can go and propose to their administration. That being said, it's still really hard, as the COVID continues, they're - everyone's sort of holding back, until the end of the tunnel, and then may release additional capital equipment fund. So, it's for sure, a balance. I think the only other area that we are being opportunistic are in under-penetrated markets. Again, where radiation therapy is not available and to where the government sees it as being strategically important. So again, it just means being close to our customers as much as possible and helping them with lots of abilities to try and navigate this environment.

Great. That's fantastic. I appreciate that. And then maybe, obviously there were some comments in the prepared remarks about China. But in my opinion, China is a huge opportunity for you guys and a huge wildcard in terms of when we're actually going to see things start to move. So any other color, either Josh or Shig, or Suzanne could give about what you're seeing and hearing from people in China. And when we're going to break that logjam? That would be extremely helpful.

Yeah, Brooks, again, you've heard us say this before. We don't think this is a matter of if, we think this is a matter of when. And there's no question that the COVID situation has impacted the timing of this. But we still believe from a visibility and kind of an encouragement standpoint based on our people on the ground there and the things they're hearing, that this is something from an activity standpoint, in terms of the Type A impact, that we should start to see some beginnings of revenue impact on this, between now and the end of this calendar year. So, again, nothing definitive, beyond what we've said before, but the tendering process, which is really kind of the administrative aspect of what was the remaining work that needed to be done on the Type A licenses, from our understanding, is now complete, which means that there should be some news here, sometime soon.

Okay. And Type B, you're pretty excited about too, I think, right?

We are, Type B is - we've made - while it's, you know, it really hasn't had the visibility that the Type A part of the discussion has. We've made a lot of progress. And I think that we're going to be able to compete, certainly for our fair share of what is really by comparative context, the much bigger opportunity, longer term in China on the Type B side.

Okay. Thank you so much for taking my questions.

Sure.

[Operator Instructions] Our next question is from Anthony Petrone from Jeffries. Go ahead.

Hi. This is Briana, on for Anthony. Thank you for taking our questions. We have two, and I'll just ask them upfront, if that's okay. So I was wondering if you have an update on rad-onco volumes. Are centers seeing volumes back up to pre-COVID levels at this point? And then regarding the RO bundle, are you expecting it to be implemented for January 1, 2021, or will that be delayed? Thank you.

Briana, this is Josh. So I got the first question. Regarding patient volumes, the data that we get off of our installed base equipment suggest that from a patient volume, a treatment volume standpoint, we're actually seeing pretty stable numbers and numbers that would be consistent with what we were driving or seeing coming through those devices from a throughput standpoint in the pre COVID timeframe. So, at the end of the day, radiotherapy and radiation oncology is revenue generating service line, clinical service line for hospitals around the world. And they, while they're doing it, and providing these services, obviously under different protocols now from a patient and employee safety standpoint, no one really, that I can identify or very, very few people have ever had turned off, if you will their radiotherapy capability during this time. It was one of the only areas of the hospital that you know, they were consistently moving forward with. So no real drop off in patient volume from a treatment perspective. And was your second question related to the APM discussion?

Yes, the RO bundle, that was going to be implemented in January or January 1, 2021, or if that will be delayed?

No, I think the answer is, there's a reasonable degree of certainty at this point that it's going to be probably longer out than that in terms of timeframe. But sometime still, in a, you know, an overall window that would be probably sometime in the first half of calendar 2021. So, while not in January, sometime not too far beyond that.

Okay. Thank you so much.

Our next question is from Tycho Peterson from JPMorgan. Go ahead.

Hi, guys. This is Casey on for Tycho. A few of my questions have been answered, but just one maybe on OpEx. How should we be thinking about that moving forward in terms of any more sort of levers you can pull for more OpEx reductions in maybe the first half of 2021? Thank you.

Sure. Yeah. No problem. Thanks for the question. And obviously, given no guidance, I can't be specific to the number in ‘21. But what I can do is kind of give you a sense of our OpEx run rate in Q3, Q4, looking backwards here in 2020. Because I know that in Q3 and Q4, there was some noise in our OpEx in terms of one-offs here and there. So if you look at Q3 of FY ‘20, we reported $31 million of OpEx but that included a benefit of about $3.5 million related to the elimination of bonus accrual. So Our Q3 run rate in true sense were about $35 million, I would say, looking backwards and Q4, we just reported, we reported about $35 million. And I had a earlier remark in my section that highlight $1 million of severance in there, which I consider one-time and a few things, although I didn't specify my prepared remarks, but I would say there's about $1.5 million to $2 million, including $1 million of severance that’s in there in Q4. So I would say Q4 OpEx run rate exiting the year was about $33 million. So hopefully that gives you a sense of what the run rate is on OpEx exiting the fiscal 2020.

Got you. Thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Joshua Levine for closing remarks.

I'd like to thank everyone for joining the call this afternoon. And we look forward to speaking with you again in October when we host our Annual ASTRO investor event and report our fiscal 2021 first quarter results. Thanks very much.

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