Good day, and welcome to the Accuray Fscal 2024 Fourth Quarter Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] After today's remarks, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jesse Chew, Senior Vice President and Chief Legal Officer. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the fourth quarter of fiscal year 2024, which ended June 30, 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 third quarter refer to our fiscal third quarter ended June 30, 2024. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accuray's Investor Relations page at investors.accuray.com. With that, let me turn this call over to Accuray's Chief Executive Officer, Suzanne Winter. Suzanne?

Thank you, Jesse, and thank you all for joining the call. Today I will provide highlights from our fourth quarter and fiscal 2024, both on our accomplishments and the areas of focus for FY ‘25 and beyond. I am pleased with our solid performance in the fourth quarter, with total company revenue growing 14% year-over-year, reflecting strong operational and commercial execution. This growth was driven by a record number of system shipments within the quarter, representing 20% more than our previous highest shipment milestone. Momentum going into FY 2025 remains elevated, particularly in the international markets, which represented more than 80% of our revenue for the fiscal year and reflects the strategy we laid out at the beginning of FY ‘24 of entering emerging markets where patient access to radiation therapy is under-penetrated and where we can become the number one or number two player over time. In the quarter, we saw shipments accelerate nicely, both to new customers and by closing open opportunities from the prior period. We also saw orders growth of 8% versus last year, largely driven by emerging market growth in APAC and Latin America. China, which despite remaining headwinds from the anti-corruption campaign, grew orders by 80% in the quarter year-over-year, driven by pent-up demands for the new Tomo C product, which recently received approval for our precision treatment planning system, making our Tomo C products ready to ship to end customers. Gaining share in Latin America is a priority for us, and this region saw order growth of more than 400% within the quarter, including a four-system competitive replacement win in Mexico. Finally, I was very pleased with our global Q4 book-to-bill ratio, where even with record revenue shipments, it was healthy at 1.2. We believe the book-to-bill metric continues to represent a strong…

Thank you, Suzanne, and good afternoon everyone. I would like to begin by thanking our global cross-functional teams who banded together and executed with unwavering dedication to deliver the strongest revenue quarter in the company's history. As we had mentioned before, fiscal year 2024 was a very important year for our company. Not only did we enter the value market of radiation therapy equipment to essentially double our addressable market, we also continued to add more operational efficiencies to our business model, which continues to move the needle in our margin expansion plan. Although we face macroeconomic headwinds, particularly in the US, as well as unfavorable foreign exchange and inflation, we believe we are in a good position for growth in most of our markets and are well positioned when the US market recovers. Now, turning to the quarter. Net revenue for the fourth quarter was $134 million, which was up 14% versus prior year, and the highest reported revenue quarter in the company's history, exceeding Q4 of last year by $16 million, exhibiting strong demand for innovations driven by a 28% increase in year-over-year product revenue. Net revenue on a constant currency basis for the fourth quarter was approximately $137 million, which represented a 16% increase versus prior year. On a full year basis, total revenue was $447 million, which is roughly flat from the prior fiscal year. On a constant currency basis, total revenue for the fiscal year was $448 million and represents a slight increase versus the prior fiscal year despite the Americas region being down 26% versus prior year. Revenue in the rest of the world grew by 10% year-over-year and made up 80% of our global revenue in fiscal year ‘24, which is a powerful indication of our continued strength in those markets. Product revenue…

Thank you, Ali. In closing, I'm incredibly proud of our global employees and the progress they have made this year against each of our strategic growth objectives. While we did not grow the way we had planned, we end with very strong fourth quarter performance. We have major regulatory approvals in place, including full Tomo C approval in China and CE Mark for the Helix platform. We have a strong backlog of orders, commercial momentum in the majority of our markets, and strong customer demand for our unique radiotherapy platforms. Additionally, we've navigated a number of macroeconomic factors over the last couple of years, including inflation and foreign exchange headwinds, and remain cautiously optimistic that as these conditions improve, could provide a tailwind to our performance. All of this sets us up nicely to deliver to our guidance of 3% to 5% top line growth and greater than 40% EBITDA for the year and advance our strategic growth pillars into the next phase of execution as we drive to deliver compelling solutions to improve patient outcomes and quality of life for patients diagnosed with cancer or neurological disease. I will now turn it back over to the operator for Q&A.

[Operator Instructions] Our first question comes from Young Li from Jefferies. Please go ahead.

All right, great. Thanks for taking our questions and congrats on a strong finish to the year. I guess to start just on the guidance. Was curious if you can talk a little bit more about it, how much Tomo C is in the guidance, what are some of the potential upside and downside drivers that can get you to the top end or lower end? And I guess within China, what are the expectations for either anti-corruption impacts or stimulus impacts?

Hey, Young. Thanks so much for the question. I think in terms of overall guidance, maybe starting with the bottom end versus the top end. I think really the two big factors are the recovery and the timing of the recovery of the US market, which would really take us to the higher end versus the lower end that continues to be delayed. So that's a significant factor. And then obviously there's certainly a lot of different macro tailwinds that we continue to track as well. So I think those are sort of the two main factors that really determine the range of our guidance between $460 million to $470 million, the important one really being the timing of the US market recovery. I think overall when you think about our guidance for next year, maybe I could just provide some more color. If you think about revenue, we really think it's going to be a similar first half, second half performance that we've had historically, which is 45% in the first half versus 55% in the second half, which really is related to the demand profile that we're seeing for our customers. I think one thing that is noteworthy in the first half is that we do expect seasonality between Q1 and Q2. Historically speaking, Q1 has been our lowest revenue quarter. Q1 of ‘24 perhaps was a little bit of an anomaly, so maybe Q1 of ‘23 is a better representation of how we expect revenue to unfold in the first half between those two quarters. And then also in the back half of the year, Q3 tends to be the lower revenue quarter, and then we obviously have a huge ramp up in Q4, which we experienced this particular year. Okay, so I think that's certainly very…

Okay, great. That's very comprehensive, very helpful. I guess maybe just to follow up, I was wondering if you can talk a little bit more about the contributions from Tomo C in China and we are hearing from the anti-corruption campaign side and anything on the stimulus side.

Yes, absolutely. For Tomo C, of course we're all celebrating after a very long time waiting for the final approval to really do a full line production. Certainly our JV partner, very excited. We did ship our first unit to our first customer at the very end of Q4 and now they are working very closely to drive the remainder of the installations based on customer timing in the first half and of course into the back after the year as well. But really we think there'll be a surge in Q2 in terms of the overall installations. I think that the response is very strong. And again, China ended the year very strong on orders, to which we'll translate into revenue over the coming years. So we're very enthusiastic about the potential now that we have this clearance behind us. Just in terms of the anti-corruption campaign, I think there's just lingering sort of processes that have slowed down over this past year, the process. But again, it certainly hasn't hurt us from the results that we are seeing. But we do expect that [something] (ph) is going to be the new normal. So I think our team should sort of build that into their overall forecast that some things are just going to take longer. In terms of stimulus, that is starting to roll out. Again, it's an interest-free loan that the government is providing, and not just in healthcare but many industries, but it's really directed at replacement of older systems. And so, again, our team in China is positioning these customers to be able to try and access those funds. They have not -- we haven't seen it actually initiated yet, but we do expect that probably in the back half of the year we'll start to see some contributions to that, but we have not built that into our numbers until we start to see greater signals.

All right, great. That's very helpful. Thank you so much.

Our next question comes from Marie Thibault from BTIG. Please go ahead.

Hi. Thanks for taking the questions. I wanted to follow up a little bit on Japan. I heard that after you exclude the yen headwind, it certainly sounds like strong demand. I think in the past you've said that you expected to see a strong backlog come through in that country. I'm curious if some of that came through in this quarter, and how long we might expect some of that demand to last?

Thanks for your question, Marie. Yes, I think that we -- Japan's Q4 did come through with some strong revenue performance. It is a developed market and our -- we've talked about this in the past, the developed markets do not have the same sort of goal phrase as some of the emerging markets. But our Japan team is really going after competitive replacements. They have done just an outstanding job in terms of really going after aged installed base, not only ours, but also our competition. And, again, we've talked a bit about the number two position. But, we think they're on their way to being number one just based on their -- how they're trending at this point. So, again, we look at the Japan team and we think that they are -- they’ve set a high bar for the other regions just in terms of really how to drive strong customer satisfaction. So, we do expect continued important contributions from that region.

Okay, that's helpful. And then maybe talking about one of the more emerging regions that has a lot of opportunity. Congrats on the CE Mark for Helix. Can you tell us a little bit more about your plans there in India? Could we expect to see some orders get booked here in this fiscal year? And while we're talking about regulatory wins, have there been any updates from the FDA on Cenos since you submitted the 510(k) last year? Thanks.

Yes. Let me talk about India first. We do have to see if there's still a couple more regulatory hurdles in India, but we do expect that we'll be in a shipping position by the end of our calendar year. But we are able to take orders now. So, the good news is we get to actually build a funnel of orders within that region. And you're right, we see a lot of potential in India. And we believe that India has the potential over this coming year to be as big a market as China's potential. Right now, we think it's about $100 million to $125 million market. We think the Helix will play very well there. But meanwhile, we are investing in our commercial footprint in India as well as our back office because we do believe the potential is very strong. And now with Helix, we've got a full portfolio we need to really go out in the market. Just in terms of the regulatory approval on Cenos, that is extended, I think, from what we had originally thought. Again, we had gone back and were having conversations with the FDA in terms of just making sure that we now have the cybersecurity requirements as well as some other requirements around human factors. So at this point, we're planning for a full introduction at ASTRO, but we'll be in a shipping mode probably by the end of the calendar year. So, we do think it will help us to win the new Radixact orders, but the revenue from Cenos will come in the first half of FY ‘26.

Okay very helpful, Suzanne. Just to clarify, more regulatory hurdles in India for Helix. Is that things like treatment planning system or something else?

Yeah, no. Now we were at CDSCO and it's more of a localization kind of hurdle and what we need to do is make sure that we ship our first order and then we have someone come in and send a local body that does testing on it and then we open it up to greater shipments.

Got you. Okay. Thank you so much. Nice quarter.

Thank you.

The next question comes from Brooks O'Neil from Lake Street Capital Markets. Please go ahead. Brooks O’Neil: Thank you very much. Good afternoon. I'm just curious if you could give us a little more color on the US market. In particular, maybe a little bit about the competitive environment. Do you feel like you're gaining share or losing share, gaining bunkers, losing bunkers, and what do you think the outlook is for fiscal 2025 in the US?

Thanks for your question, Brooks. I would say the US market, when we talk about revenue, we're really talking about the delays that we see our customers having from order to installations and getting the capital treatment priorities to be able to install what we saw over FY ‘24 was a slowdown of lower priority for radiation therapy. But I think as we go into FY ‘25, what's playing out is what our customers have been telling us, which is they expect to see some gradual improvement in the back half of the year. They have greater visibility. As a result, we have greater visibility. So we think the back half of the year will start to see a gradual increase and then more of a full recovery in FY ‘26. In terms of, are we winning? Our orders actually were good in the US, and overall, it was an 8% growth orders. So we think that's very strong. We think it's faster than the overall market growth and that we are gaining share as a result of our strong customer reception to our new product innovation. So, what we're really looking at, and we take a look at the region for the year is what is that timing in order to installation and can we help to accelerate that. And, some of the things, again, is better visibility. The other is making sure that we've got a very robust order to revenue process, so that we work very closely with our customers to help them to get the [indiscernible]. Brooks O’Neil: Great. Let me ask one more. Appreciate the color. Year or two ago, a lot of focus on service, margin improvement, service growth. Would you say if I was listening correctly, maybe I wasn't, but it sounded like most of the service opportunity is perhaps more tied to system shipments, new system shipments. And I guess the question really is, do you continue to see opportunity to drive growth in service and service margin? Thank you very much.

Yes, absolutely. I'll start and I'll let Ali jump in here. Yeah, I would say our service results for the year don't tell the full story. I think that we did get some training and some installation revenue that was tied to the Americas installations that we had planned for events that affected our overall service revenue. But what's most important to us is growing that service contract revenue. That's the recurring part of the business. That is 90% of the revenue because these other things are one-time factors. And so at 4.5% growth, we think that that is a significant win. And we think there's still a lot more room for us to grow the service business, not only from an increasing price, but these new service solutions that we talked about like CyberComm, that we can now sell to our CyberKnife customers in a service contract, that's greatly reduced their commissioning time, as well as other value-added service solutions that we can bring to the table and also advanced education. We've made a big investment in our global education center facility in Genolier, Switzerland, Innovation Hub, as well as one in China, we have one in Japan, and we have also invested to expand our training center in Madison. So all of these things, we think we're in the early inning. We're certainly consciously optimistic at the 4.5% growth on the service contract revenue. And we think we've got more to go. From a margin standpoint, I'll let Ali make comments.

Yeah, Suzanne, I totally agree with what you said. I mean, I think, the important metrics that we look at is how is contract revenue growing. That is really representative of most of the annuity part of the service business. I mean, as Suzanne mentioned, that's growing at 4.5% year-over-year and just installer terms that added about $8.5 million of continued revenue into that particular line item. So then you're asking, why is that -- why is service revenue not growing by the same amount? Like Suzanne mentioned, that's being offset by some of the training, install revenue, mostly by lower activity in our US markets. And then also spare parts revenue. And spare parts revenue gets impacted when we actually enter countries for the first time because our distributors are building up their spare parts. And we actually had lower first-in-country activity in this particular year. So I would say that's all mostly timing driven, but it's not a good indication of the fundamentals and performance of our service business. The contract revenue really is, and so that grew 4.5%, which is both an indication of going higher than our installed base, and also the pricing activity that the team has been doing over the last 18 months. So we feel good about the fact that pricing activity is now starting to showcase into the panel. Okay. I think the other element that's important to note is that, we got hit with about $2.4 million of higher part consumption when related to a supplier quality issue. And so really had it not been for that particular one-off, our service margins would have been better by that amount. I think we look at a lot of other operating metrics as well. I think the good news in terms of service…

Thanks, Brooks.

[Operator Instructions] And our next question comes from Jason Wittes from Roth Capital. Please go ahead.

Hi, thanks for the questions. So, in terms of your service revenue and how you're growing it, is that largely pricing initiatives or are just higher take rates on service contracts? I'm trying to understand the mechanics behind the optimism there.

Yeah. Well, it's definitely the growth of our installed base. So, we had a strategy of going to emerging markets that would hide growth. Those installations then generate service contract revenue. So that's really the big driver. But we also have -- we're starting to see pricing actions come through the P&L. And so that's also very encouraging. And then we believe that in the future, we'll start to see more contributions to the workplace from new value-added service offerings that are new and could be a source of growth for higher value in what we provide to our installed base.

Okay, and then if I think about your growth over the last several years, it's kind of mid to high single-digits is kind of in the range. Part of that's half your revenue being service, the other half obviously being capital equipment purchases. But with this new initiative to go after emerging markets and now that you're kind of set up both in China and India, I assume that's all incremental and is that potentially going to push you guys more towards double digit type growth or how do we think about this opportunity sort of progressing over the next couple years?

Yeah, I mean, again, I did look at the year. It ended up flat from a revenue perspective, but our international revenues grew by 10%. And so just significant growth. It was really the US that was down significantly. So what we believe is when the US recovers, because we do think it was temporary, then our international growth will be incremental growth that can drive higher overall outlook from a revenue perspective. So that's why, we're being prudent here in our revenue outlook for this next year as we watch to see the US market recover. And again, the US market has tremendous potential because they got aged equipment across the market. There is an opportunity for replacement and upgrades. And so that is going to be the catalyst for the US market. And again, we think this past year was an anomaly of what was happening in the US. And we will continue to watch it to see when, this is the timing of improvement.

Okay. And then also related to emerging markets, I guess it's my assumption, and you can correct me, that those -- both the product sales and even the services are going to be at a lower margin than your current base, yet you guys are looking to continue to expand margins. So how does the math work with that? Am I wrong about my assumptions about the margins for the emerging markets being lower or is it just economies of scale working its way through the P&L?

Maybe let me take that one. So I would say your comments are actually right. That as we penetrate into the value segment of these emerging markets, we do expect our product markets to be pressured. And as a result, our gross margin will likely stay consistent or be pressured slightly. And the reason I say consistent is because we expect that that pressure on product to be offset by the activity that we're doing on service. And so at gross margin level, it's likely going to be some pressure. But really, I think we're getting accretive on our overall EBITDA, and EBITDA as the percentage of revenue, which is what we're looking to expand. And all of that's really driven by this whole phenomenon of volume leverage, in which the more volume that we have, we don't expect our costs to go up the same way. And that should meaningfully contribute to margins at adjusted EBITDA level.

Okay, that's very helpful. And then maybe just a quick follow-up. I know you mentioned in the beginning that the guidance range is related to when the US recovers. Just to clarify, at the bottom end of the range is assuming no US recovery or and the top end is assuming a second half recovery or how do we think about that?

The midpoint is assuming US recovery in the second half. I mean the bottom end could be impacted depending upon the timing of that moving around. And then same comment for the top end of that. So obviously something that we are watching very, very closely and we are really getting intimate with our customers that we expect products [can go to revenue with] (ph) and then also obviously we have a continued [pulse of our] (ph) service business over there. So I think just a lot of focus on overall US business but I think that's the right way to think about it.

Okay, great. I'll jump back in queue. Thanks, and congrats on a solid end to it. Tough year.

Thanks, Jason.

Thanks, Jason.

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

Thanks very much. This concludes our earnings call. We look forward to speaking again with you in October for our fiscal 2025 first quarter earnings release.

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