Good afternoon, and welcome to Accuray Incorporated's Conference Call to Review Financial Results for 2026Q2, which ended December 31, 2025. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please note this event is being recorded. I would now like to turn the conference over to Mr. Stephen Monroe. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Accuray Incorporated's conference call to review financial results for 2026Q2, which ended December 31, 2025. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Stephen LaNeve, Accuray Incorporated's President and Chief Executive Officer, and Ali Pervaiz, Accuray Incorporated's 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 outlined in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. We make the forward-looking statements on this call based 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 securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call: 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, 2025. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accuray Incorporated's Investor Relations page at investors.accuray.com. As you review our prepared remarks and guidance today, please note that our outlook represents our current estimates and reflects the operating environment as we understand it today, including current tariff impacts and geopolitical conditions. As always, the situation remains dynamic, and we will continue to update investors as visibility improves. With that, let me turn the call over to Accuray Incorporated's Chief Executive Officer, Stephen LaNeve. Stephen?

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. I want to begin by recognizing the dedication of our employees and the trust of our customers. Over the last ninety days, I've engaged deeply with our teams and customers across our regions, and my conviction in Accuray Incorporated's opportunity has never been stronger. The more time I spend in the field, the clearer it becomes of the opportunity to accelerate top-line growth and to meaningfully expand profitability in the years ahead. Importantly, these insights are already translating into action. The discussions I've had have directly shaped our product and service strategy and the changes we are implementing to support those strategies. From rightsizing our cost structure to reenergizing our commercial organization to more surgically prioritizing product and service investments, I recognize the unmistakable need to streamline how we operate and execute as we grow a global installed base that now spans more than 80 countries. Framing today's discussion, as many of you saw, in mid-December, we announced a comprehensive strategic operational and organizational transformation plan designed to sharpen accountability, tighten cost control, and accelerate execution while positioning Accuray Incorporated for sustained profitable growth. Today, I want to provide an update on the plan and the progress we have made on some strategic initiatives we are pursuing, as well as updates on some operational actions we introduced in December, which are geared towards improving the competitiveness, growth prospects, and profitability of our overall business. I will then discuss the quarter's performance and some insight into the next twelve months. Ali will then discuss the detailed financial results. Our plan started with establishing clear product and service strategies as well as the enablers that we believe are critical to achieving these strategies. The first of those enablers was the…

Thanks, Stephen, and good afternoon, everyone. I would like to begin by thanking our global cross-functional teams for their continued dedication and hard work as we continue to execute our transformation plan. Turning to the second-quarter results, net revenue for the quarter was $102.2 million, which was down 12% versus the prior year and down 13% on a constant currency basis. Product revenue for the second quarter was $45 million, down 26% overall and down 28% on a constant currency basis. As Stephen mentioned, most of this decline was due to product revenue in China that was lower than expected as a result of ongoing geopolitical tensions and the impact of tariffs. On a positive note, our service business was quite resilient despite some of these weaker macro trends, coming in at $57.2 million in revenue, up 4% from the prior year and up 3% on a constant currency basis. As we have mentioned on past calls, service is a key part of our recurring revenue growth strategy and continues to benefit from efforts to add to and diversify our offerings as well as continue expansion of our global installed base. Product gross orders for the second quarter were approximately $66 million and represented a book-to-bill ratio of 1.5, a trailing twelve-month ratio of 1.2. We ended the second quarter with a reported order backlog of approximately $33 million, defined to include only orders younger than thirty months. This represents over eighteen months of product revenue, and the backlog remains diversified geographically and supported by long-term customer commitments, and we saw no order cancellations during the quarter. Our overall gross margin for the quarter was 23.5% compared to 36.1% in the prior year. This decline was primarily due to product gross margins, which were 19.7% compared to 43.5% in the…

Thank you, Ali. In closing, I continue to be excited about the opportunities Accuray Incorporated has in front of it. I fundamentally believe in our differentiated product offerings and am committed to enabling access to these truly unique helical and robotic platform technologies by patients globally. As stated previously, my underlying goal is to foster a performance-driven culture that pairs innovation with execution, strengthens operational discipline, and drives sustainable profitable growth while creating long-term value for patients, providers, and shareholders we serve. As you look ahead to the next several quarters, we believe our progress should be measured by three things: resumption of expansion of our installed base, improved cost discipline and EBITDA margin trajectory, continued resilience and margin expansion in our service business, and evidence that our operational simplification is translating into more consistent execution. I will now turn it back over to the operator for Q&A. Thank you.

We will now begin the question and answer session. To ask a question, please press star then 1. Our first question for today will come from Marie Thibault with BTIG. Please go ahead.

Good evening, Stephen and Ali. Thanks for taking the questions. I wanted to dig here a little bit on the revenue guidance cut. We've grown very used to Accuray Incorporated having kind of a 40-60 split, 40% of revenue coming in the first half of the fiscal year, 60% in the back half. If I look at what you've done so far in the first half of this fiscal year, you're right on track with 40% for that prior guidance range. So I'm wondering what exactly you saw coming in the back half of the year that sort of made you get more cautious? Is it China alone? Is there just closer visibility on timelines and other projects? Any more detail on the guidance cut because you're certainly right on track for that 40-60 that we're used to.

Yes. Hi, Marie, and thanks for the question. This is Stephen. Maybe I'll just do a very gentle kind of adjustment on the 40-60 comment. I think it's typically been closer to 45-55. So maybe just that, you know, clarification there. And then with respect to China, you know, clearly, we stated in the remarks, the business was impacted by the ongoing tariffs and an increasingly unstable geopolitical environment that I commented on before. And obviously, that's been a big part of our growth story over the last couple of years. And those external pressures affected both the demand patterns and the timing of our commercial activity in ways that have been difficult to fully anticipate. As you likely know, there's a process in China around quota, license, tender, and then funding. And that process flow has slowed. And so the deal dynamics have wound up being different than we had anticipated and have just become more protracted. And it's really as simple and as complicated as that.

Okay. That's helpful, Stephen. Thank you. And then I guess on product gross margins, they were a little light this quarter, I think related to some of the China JV timing. What should we expect on product gross margins going forward here with this new revenue range and with some of the dynamics that you just showed?

Thanks for the question. So look, I mean, I think in general, product gross margins are going to continue to get hit with the impact of tariffs, which is a new entrant compared to the prior year, and then also just inflation that we continue to have over the last couple of years. We're certainly taking steps to combat that as part of our margin expansion plan, but the headwinds are certainly stronger than the way that we're executing against it. As it pertains to Q2 in particular, in my prepared comments, there are really three main contributors. There was a China JV release of about eight points compared to the prior year. There were tariffs at about six points. And then overall product mix that was roughly another eight points or so. So those are really the key contributors versus the prior year. Again, more headwinds this quarter, so I would not expect product gross margins to continue to hover in the 20% range. I would expect them to be somewhere between 20% to 30%, but that's highly dependent upon the product mix that shipped out and also dependent upon the timing of the releases, which is very China-centric.

Alright. Very helpful, Ali. I'll jump back in queue. Thank you.

Thanks, Marie. Thank you.

The next question will come from Yung Lee with Jefferies. Please go ahead.

Alright, great. Thanks for taking our questions. I guess, maybe to start, I wanted to hear a little bit more about the new initiatives you put in for, I guess, returning the business to growth. Sort of via solutions-oriented initiatives as well as the structured distributor partnerships. I guess for those, you know, are there any potentials for disruption as things change? When do you expect us to see some results from that? And, yeah, those are the questions. Thank you.

Yes. Thank you, Yung. This is Stephen. Appreciate the question. As we've looked at transformation and spoken about that in the past, obviously, we have spent time on restructuring the organization to really position ourselves for growth. And as we had commented on before, about a 15% workforce reduction. And then looking at kind of the opposite side to the cost savings and the program redirection, really spending time on growth and looking at operating rigor and speed of decision-making, making sure that we establish clear product and service strategies, reallocating engineering sources to focus on high ROI programs. And then specifically to your point on the solutions in the service area, we think there's a great opportunity to build on what we call our select advantage and optimum programs. And those programs go from sort of base level to mid-level to premium level service offerings. And they go beyond break-fix and include potentially areas like training, quality support, user groups and forums, data management, real-time monitoring, software upgrades, consulting, workflow analysis, those sorts of options that we want to build into our services capabilities. It gives us steadier, we think, opportunities to drive top-line growth. It's less lumpy in nature, and we think it changes the way we look at that services business. The company, I think, has focused a lot on products in the past, and we see a great opportunity and a lot of lift on the service side with respect to our transformation activities. And so that's an area that we've kind of doubled down on just in terms of our staff that we've put into that area, our strategy, our structure, our systems, and think there's a lot of upside there. With respect to the dealers and distributors, we have a program that looks at tiered levels, basically a pay-for-performance model. And obviously, for those dealers and distributors that do more for us, the idea would be that they enjoy better margins or transfer pricing, really. It's really about pricing. And we think the addition of a channel leader that really doubles down on looking at those channel management opportunities versus having this maybe at a higher level within the region gives us the kind of focus and precision that we're looking for out of channel partners who do a lot for us in terms of driving revenue. And of course, with our presence in 81 countries, it would be impossible with our current scale to have directly loaded sales organizations in all those locations. And so our distributor and dealer base obviously are very important to us.

Alright. Great. Very helpful. And then, you know, we've been asking several of our companies sort of the same theme type of question. But, you know, new calendar year, just wanted to get your views on, I guess, from your hospital customers' perspective, you know, how is the capital environment from their perspective? Especially in places like the US, China, EU, and key emerging markets.

Yes, so we spend a lot of time talking to our customers directly, and from everything that we're seeing and hearing, we don't see CapEx shifts by hospitals downward. We see increases, and we see opportunities, you know, we believe for our equipment to be purchased or leased depending on how they go about that. There are different acquisition models in different countries. But we haven't heard anything from the conversations that we're having with our various regions or customers specifically where they're concerned about the ability to buy equipment. Doesn't seem to be any shift or trend there that would work against us.

Alright, great. Thank you very much.

Again, if you have a question, please press star then 1. Again, that is star then 1. This concludes our question and answer session. I would like to turn the conference back over to Mr. Stephen LaNeve for any closing remarks. Please go ahead.

Thank you all for joining our call today, and we look forward to speaking with you again in May when we report our fiscal 2026 third-quarter earnings results. This concludes our earnings call. Thank you very much.

The conference call has now concluded. Thank you for your participation. You may now disconnect.