Accuray Incorporated Stock

Good day, and welcome to the Accuray Fourth Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Steve Monroe, Vice President of Corporate Financial Planning and Analysis. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the fourth quarter of fiscal year 2026, which ended June 30, 2026. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve LaNeve, Accuray's President and Chief Executive Officer; and Ali Pervaiz, Accuray's Chief Financial Officer.

Before we begin, I would like to remind everyone that our discussion today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause actual results to differ materially are outlined in today's earnings release and in our filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements, except as required by law.

In addition, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in today's earnings release. There is also a supplemental slide presentation available on the Investor Relations section of our website.

With that, let me turn the call over to Steve LaNeve.

Thank you, Steve. Good afternoon, and thank you for joining us. Fiscal 2026 was an important year for Accuray. Last October, we began a comprehensive effort to evaluate every aspect of our business, engage with customers around the world, improve accountability and operating discipline and position Accuray for sustainable long-term success. Over the last several quarters, we have streamlined our organization, strengthened commercial leadership, sharpened our strategic focus and our execution, reduce our cost structure, work towards expanding partnerships and taken significant steps to improve our financial position. These actions were all designed with a common objective in mind, building a stronger, more competitive and more profitable Accuray.

While the operating environment remained challenging throughout much of fiscal 2026 due to geopolitical uncertainty, tariff pressures and regional market volatility. We remain focused on the factors within our control and have executed well against the transformation plan we introduced in December of last year. As a result of these actions, Accuray is fundamentally stronger than it was a year ago. We have strengthened our financial foundation, upgraded our people and processes, focused on core competencies by expanding our ecosystem of strategic partners, advanced key technology platforms and service solutions, improved organizational discipline, increased our installed base and are now entering the next phase of our transformation. which consists of decisive steps to strengthen our competitive position, enhance customer value and drive long-term growth in revenues and margins.

One of the most encouraging developments has been the positive response we are seeing from customers, partners and the broader radiation oncology community. The exceptional engagement we experienced at ESTRO 2026 is illustrative of this response. Our booth remained highly active throughout the event. Our clinical symposium with standing room only and the quality of customer discussions was robust. Together, these interactions reinforced our belief that the market increasingly recognizes the value of Accuray's innovation in precision treatment delivery, adaptive therapy, real-time motion management and intelligent software solutions.

Importantly, clinical data presented at ESTRO by global clinical leaders reinforced the growing role of precision, short-course radiotherapy across multiple disease sites. in prostate cancer, presentations from SunrofIL Scientific Institute Italy and the European Institute of Oncology supported the feasibility and early safety of highly precise motion-managed ultra-hypofractionated treatment approaches using the CyberKnife platform. This data is built on broader published evidence space that includes randomized Phase III prostate SBRT data and mature long-term robotic SBRT outcomes showing favorable relapse-free survival with very low severe toxicity.

In breast cancer, investigators shared encouraging clinical global experience with the treatment delivery on both robotic and helical platforms. The National Institute of Oncology, Hungary, reported institutional experience with partial breast irradiation while researchers from the European Institute of Oncology, Italy, provided an update further supporting the feasibility and safety of this approach. Preliminary outcomes from patients treated on the Radixact platform, incorporating the recent introduced vital hold system represented by CHR Mette and bill frees. highlighting the potential of integrated surface-guided radiotherapy and automated breath hold delivery to support precision treatment delivery.

Additional data across kidney, lung, functional radio surgery and other precision radiotherapy use cases further reinforced the breadth of Accuray's clinical relevance across multiple disease sites. These Estro presentations built upon a broader and expanding body of published clinical evidence supporting Accuray technologies. This includes randomized Phase III prostate SBRT data and mature long-term robotic SBRT outcomes demonstrating favorable disease control and low rates of severe toxicity, further strengthening the evidence base that supports our differentiated approach to radiation therapy.

Lastly, ESTRO 2026 was not simply about visibility. It was about momentum. The event translated strong interest into measurable commercial activity which led to a meaningful increase in qualified leads year-over-year. We also saw encouraging traction from the European debut of Stellar as well as continued interest in the unique capabilities of the CyberKnife System. This engagement reinforces our confidence that the investments we have made in innovation, partnerships and commercial execution are gaining traction in the market and creating opportunities for future growth.

This afternoon, I will discuss our progress across 5 areas: number one, financial foundation; number two, strategic partnerships and our ecosystem; number three, differentiated technology; number four, transformation Phase 2 and number five, the FY '27 outlook. Our financial foundation. Let me begin with what I believe is 1 of the most important developments in the company's recent history. Last month, we announced a comprehensive transaction with TCW Asset Management Company, LLC. that fundamentally strengthens our financial position and enhances our ability to execute our strategy. The transaction includes a conversion of $40 million of existing debt in the preferred equity that is convertible into common shares of more than 100% premium to where the common stock was trading immediately prior to the announcement.

A $15 million cash investment in additional convertible preferred equity, additional liquidity available through a delayed broad facility, a covenant holiday through December 2027 and several governance and capital structure enhancements. I will add that certain elements of the transaction, such as the issuance of convertible preferred equity remains subject to shareholder approval and other customary closing conditions, as fairly described in our related Form 8-K filing.

Collectively, these actions would improve liquidity, reduce leverage, enhance financial flexibility and provide a greater runway to execute our strategic priorities. We appreciate the continued support and confidence demonstrated by our partners at TCW. Importantly, these steps allow us to spend less time managing capital constraints and more time investing in our customers, innovation, commercial execution and profitable growth. This transaction was not simply a financing exercise. It was designed to create a stronger foundation for the next phase of Accuray evolution and beyond.

Strategic partnerships and our ecosystem. The second area I would like to discuss is partnerships in our expanding clinical ecosystem. One of the key conclusions that emerge from our transformation work is an actuation to one's resources to the areas where we create the greatest valve by focusing on core competencies and competitive differentiators while partnering with world-class organizations to further accelerate innovation and execution. We have taken important steps to build exactly that type of ecosystem.

Recently, we entered into nonbinding letters of intent with Sansoft-HMEAmerica and research laboratories while continuing to expand our relationship with Tata Consultancy Services. These relationships are intended to strengthen our capabilities across volumetric imaging, software development, adaptive therapy, engineering and customer support while simultaneously producing operational efficiencies that we could not capture on our own.

Additionally, we announced in May, a landmark 10-year strategic collaboration with the University of Wisconsin School of Medicine and Public Health. This relationship is especially meaningful because it builds upon decades of shared innovation. Many of the technologies that helped establish Accuray's helical platform originated from groundbreaking work conducted at the University of Wisconsin.

Today, we are extending that legacy by creating a framework designed to advance adaptive radiation therapy research, education, training, and the next generation of personalized cancer treatment using our stellar adaptive radiation therapy platform. Together, these relationships are allowing us to build an ecosystem that extends our capabilities while enabling Accuray to remain sharply focused on our core competencies. radiation therapy innovation, clinical excellence, treatment delivery, patient outcomes and customer solutions.

By partnering with world-class organizations across imaging, software, engineering, AI and services, we can accelerate innovation, improve execution and increase efficiency [Audio Gap] without having to build every capability internally ourselves. We believe this approach can accelerate innovation while also improving efficiency and scalability across the business over time. Importantly, this is not a onetime effort. We view strategic partnerships as a key pillar of our operating model going forward. We expect to continue expanding our ecosystem with additional partnerships that further enhance our capabilities and create value for customers and shareholders.

Differentiated technology. Innovation remains central to our strategy. As we look ahead, our product road map, including the CyberKnife and Radixact Systems, is increasingly centered around 3 areas of differentiated technology. First is motion management. Synchrony remains 1 of the most differentiated capabilities in radiation therapy and enables clinicians to track and adapt to patient and tumor motion in real time during treatment. Leveraging Accuray's proprietary software and AI-enabled algorithms, Synchrony helps predict, track and compensate for motion throughout treatment. positioning Accuray at the forefront of Intelligent Motion Management.

As precision medicine continues to evolve, we believe the importance of motion management will only increase. Second is imaging. ClearRT continues to provide high-quality volumetric imaging that supports treatment planning, patient positioning, adaptive workflows and clinical decision-making on our Radixact platform. As the field increasingly emphasizes precision and adaptation, Accuray's innovation road map will continue to prioritize enhanced imaging on the Ratings Act and CyberKnife Systems.

Third is software. In response to our voice of customer findings, we continue to invest in precision. VOLO, workflow enhancements and software-enabled treatment optimization capabilities. We believe software will play an increasingly important role in driving both clinical and operational value. Bolo's advanced optimization engine enables faster, high-quality treatment planning while ongoing investments in workflow automation and adaptive treatment capabilities help improve efficiency, support clinician productivity and further differentiate the Accuray treatment platform.

What gives us confidence is not only the technology itself, but also the growing body of supporting clinical evidence. At ESTRO 2026, data presented by key opinion leaders highlighted compelling outcomes across multiple indications, including impressive kidney treatment results and long-term prostate cancer outcomes demonstrating excellent disease control with low toxicity profiles. These clinical findings reinforce our belief that Accuray's differentiated technology platform remains well positioned as radiation oncology increasingly shifts towards adaptive, precise and personalized treatment approaches.

Our transformation Phase II. The first phase of our transformation program focused primarily on creating a more efficient and competitive operating model and a more agile, responsive and accountable enterprise. We streamlined our organization, simplified decision-making, improved accountability, reduce costs, strengthen commercial focus and improved operational discipline. With the incredible efforts of our team, we were able to exceed the financial benefits of our transformation actions.

As we had previously communicated, we were expecting approximately $12 million of cost and margin improvement in fiscal 2026, which represented roughly $25 million of annualized benefit. Through disciplined execution, we ultimately realized more than $20 million of cost and margin improvement during fiscal 2026 versus a target of $12 million. These realized improvements are expected to support approximately $15 million of incremental annualized cost and margin improvement in fiscal 2027. With the degree of contribution depending on product demand levels, the cost environment and broader business and macro conditions.

Now we are entering transformation Phase II. This next stage of Accuray's transformation focuses on the following priorities: differentiated innovation, investing in technologies and capabilities where Accuray possess unique competitive advantages, continuing to lower our cost structure, driving further efficiency, leveraging technology and partnerships and removing complexity throughout the organization. expanded market reach improving commercial execution, strengthening distributor performance, growing customer and channel partner engagement and expanding market penetration globally.

Service revenue and margin expansion, driving growth in service revenues and margins through price optimization more efficient parts and personnel utilization using remote diagnostics and introduction of value-added solutions our customers have been asking for. We believe these initiatives help position us to improve both revenue growth and profitability over time.

As we enter fiscal 2027, we are doing so from a position of greater strength than a year ago. Our priorities remain clear: executing on our transformation initiatives, improving profitability, expanding recurring revenue and creating long-term shareholder value. At the same time, geopolitical developments, trade policy uncertainty, tariff impacts, conditions in China and the Middle East and broader macroeconomic factors continue to create significant uncertainty around product demand and margins.

Given the long sales cycle inherent in our business, these factors can also affect the timing of orders, installations and revenue recognition. As a result, we are not providing formal revenue or adjusted EBITDA guidance for fiscal 2027. Instead, we expect continued growth in service revenue, improved service margins driven primarily by pricing optimization and operational efficiencies, ongoing operating expense discipline and continued benefits from our transformation initiatives. We also expect strategic partnerships to play an increasingly important role in expanding our capabilities while allowing us to remain focused on our core competencies.

While product revenue and margin performance remain difficult to predict, we believe the actions taken over the past year have strengthened the business and improved our ability to execute in fiscal 2027.

With that, I'll turn the call over to Ali.

Thank you, Steve, and good afternoon, everyone. I would like to begin by thanking our global teams for their focus, commitment and execution throughout this transformational year. Turning to the financial results for fiscal year 2026, fourth quarter and full fiscal year.

Net revenue for the quarter was $100.9 million, which was down 21% versus the prior year on both a reported and constant currency basis. For the full fiscal year, total revenue was $402 million, down 12% from last year and down 14% on a constant currency basis. The decreases for both periods were driven by lower product revenues partially offset by higher service revenue.

Service revenue for the fourth quarter was $60.1 million, up $3.2 million or 6% from the prior year and up 5% on a constant currency basis. Approximately $1.4 million of that increase was attributable to service contract pricing actions, while the remaining $1.8 million increase was driven by an increase in our global installed base and higher out-of-contract time and material billings.

Full year service revenue was $229 million, up $8.3 million or 4% from last year and up 2% on a constant currency basis. The increase was driven by approximately $5.4 million related to service contract pricing actions, while the remaining $2.9 million increase was driven by an increase in our global installed base and higher out-of-contract time and material billings.

The company's contract capture rate defined as a percentage of active systems covered by a service agreement continues to be at nearly 90% across our active installed base.

Product revenue for the fourth quarter was $40.8 million, down $29.9 million or 42% versus the prior year on both a reported and constant currency basis. For the full year, product revenue was $173 million, down $65 million or 27% as compared to the prior year and down 28% on a constant currency basis. Approximately $58 million of that decline was attributable to lower revenue in China versus prior year, resulting from a sustained geopolitical tension and ongoing tariff uncertainty.

Product gross orders for the fourth quarter were approximately $38 million and represented a book-to-bill ratio of 0.9x. For the full year, gross orders totaled $192 million representing a trailing 12-month book-to-bill ratio of 1.1. We ended the fourth quarter with a reported order backlog of approximately $313 million defined to include only orders younger than 30 months.

As we previously stated, we consider our book-to-bill ratio of 1.2 to be a healthy level for our growing backlog. While we fell short of that target in fiscal 2026 as we implemented significant commercial transformation initiatives, including sales region realignment and leadership changes, those foundational actions are now largely complete.

We have strengthened our commercial organization and developing a healthier pipeline, have introduced product improvements and are improving engagement with our distribution partners. We believe these actions position us to improve order intake as we move through fiscal 2027.

Overall, gross profit for the quarter was $35.1 million, representing gross margin of 34.8% compared to gross margins of 30.6% in the prior year. In the fourth quarter, the company recorded favorability of $5.8 million or 5.7 points related to EPA tariff expenses incurred prior to those tariffs being invalidated by the Supreme Court earlier this year.

Additionally, a nonrecurring write-down of an obsolete component unfavorably impacted fiscal 2026 fourth quarter gross margins by 30.5%. For the full year, overall gross profit was $111 million, representing gross margins of 27.7% compared to gross margins of 32.1% in the prior fiscal year. Note that $5.5 million or 95% of the EPA tariff favorability was related to tariff expense that was recognized in fiscal year 2026.

Service gross profit for the quarter was $22.1 million, representing gross margins of 36.8% compared to gross margins of 34.4% in the prior year. Service contract pricing actions drove margins higher by $1.4 million or 2.3 points and lower overall service labor cost structure improved margins by $3.2 million or 5.3 points as compared to the prior year. Offsetting these items was primarily the impact of tariffs as well as inflationary pressures on materials and freight, which had an unfavorable impact of $2.4 million or 4 points.

On a sequential basis, service gross margins were 10.7 points higher than the third quarter of fiscal 2026 driven by favorable pricing, lower parts consumption and lower freight costs. The fourth quarter improvement reflects the benefits of pricing actions and operational initiatives implemented throughout fiscal 2026, which gained momentum during the second half of the year. For the full year, service gross profit was $71 million, representing gross margins of 31% compared to gross margins of 32.6% in the prior year. Service contract pricing actions drove margins higher by $5.4 million or 2.4 points and lower overall service labor cost structure improved margins by $8.3 million or 3.6 points as compared to prior year.

This favorability was primarily offset by higher net parts consumption of approximately $11.2 million or 4.9 points. Product gross profit in the quarter was $12.9 million, representing 31.7% of gross margins compared to 27.5% in the prior year. As noted above, the EPA tariff favorability of $5.8 million or 1.2 points were recorded in the fourth quarter drove product margins higher. Excluding this favorability, pro forma product gross profit was approximately $7.1 million, representing adjusted product gross margins of 17.5%.

The lower product gross margins were also impacted by the unfavorable obsolete inventory impact, higher non-EPA tariff expense and unfavorable product and region mix of product shipments. For the full year, product gross profit was $40.4 million, representing 23.4% of gross margins compared to 31.6% in the prior year. Excluding the $0.3 million EPA tariff favorability related to prior periods to fiscal year 2026, adjusted product gross profit was approximately $40.1 million representing adjusted product gross margins of 23.2%.

The year-over-year decrease was driven by non-iEPtariff expense and unfavorable product and region mix in particular, significantly fewer CyberKnife system shipments to China. Operating expenses in the fourth quarter were $29.6 million compared to $34.7 million in the prior fiscal year. The current year fourth quarter includes $0.7 million of nonrecurring restructuring expenses, which includes severance costs and other costs directly related to our restructuring and transformation plans.

Excluding these restructuring expenses, fourth quarter 2026 operating expenses decreased $5.9 million or 17% versus the prior year. For the full year, operating expenses were $137.9 million compared to $139.1 million in the prior year, excluding restructuring expenses of $16.2 million operating expenses decreased to $121.7 million, a decrease of 13% year-over-year.

As Steve mentioned earlier, our transformation initiatives continue to deliver measurable results in fiscal 2026 generating more than $20 million in bottom line improvements realized during the fiscal year compared to our previously communicated target of $12 million. These benefits are translating into a higher long-term savings opportunity and are expected to support approximately $15 million of incremental annualized cost and margin improvement in fiscal 2027 with the degree of contribution depending upon product demand levels, the cost environment and broader business and macro conditions.

As noted earlier, we recognized $16.2 million of nonrecurring restructuring expenses in fiscal year 2026. As our transformation plan has progressed over the second half of fiscal 2026, we expect restructuring costs related to our transformation plan to be substantially complete. Operating income for the quarter was $5.5 million compared to $4.2 million in the prior year. Operating income for the full year was a loss of $26.4 million compared to income of $7.8 million in the prior year.

Adjusted EBITDA for the quarter was $12.9 million compared to $9.4 million in the prior year. Adjusted EBITDA for the full year was $10.6 million compared to $28.3 million in the prior year. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today.

Turning to the balance sheet. Total cash, cash equivalents and restricted cash as of quarter end amounted to $48.8 million compared to $44.4 million at the end of last quarter. The restricted cash is related to required postings for cash flow hedging and tariffs amounting to $8.1 million in the current quarter as compared to $6.4 million at the end of last quarter. Net accounts receivable were $67.4 million, up $2.8 million from the prior quarter.

Our net inventory balance was $147.1 million, down $9.6 million from the prior quarter as finished goods inventory built early in the second half of fiscal 2026 was monetized in the fourth quarter. At the end of the fourth quarter, we had $5 million outstanding on our revolving credit facility. In May, the company drew the full $18 million under its prior preexisting delayed draw term loan facility and used the proceeds to pay off $18 million of outstanding convertible notes that matured on June 1.

We also recently announced a comprehensive transaction with TCW that will significantly strengthen our balance sheet and liquidity position. Under the agreement, TCW will exchange $40 million of existing term debt for convertible preferred equity with an equivalent liquidation preference. The preferred shares will accrue dividends at 8% annually and are convertible into common stock at a conversion price of $0.50 per share, representing an approximately 105% premium to our share price at announcement.

In addition, TCW has made a $15 million convertible preferred equity investment and has agreed to make available a delayed draw term loan of up to $5 million, providing additional liquidity and financial flexibility. The transaction also includes a covenant holiday with certain financial covenants waived through December 31, 2027, and the first covenant testing date set for March 31, 2028, giving us additional runway to execute our strategic priorities and planned investments.

As Steve mentioned earlier, portions of the TCW transaction remains subject to shareholder approval and other customary closing conditions. We look forward to engaging with shareholders as we move through that process. We're excited to continue our partnership with TCW and appreciate their confidence in our transformation plan and long-term opportunity. In addition, we plan to implement a reverse stock split at a ratio still to be determined and subject to stockholder approval, which we believe will better position the company moving forward.

Collectively, these actions would strengthen our capital structure, improve financial flexibility and support our focus on driving sustainable profitability and long-term shareholder value.

Thank you, Ali. Fiscal 2026 was a year of transformation. Fiscal 2027 is a year of execution. We are strengthening our financial foundation. We are expanding our partnership ecosystem. We sharpened our focus on differentiated technology, we improve the way we operate, and we established the framework for transformation Phase I.

Most importantly, we remain focused on helping customers deliver exceptional patient care while positioning Accuray to generate sustainable long-term value for shareholders.

I will now turn it back over to the operator For Q&A.

[Operator Instructions] As there are no questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Steve LaNeve, President and CEO, for any closing remarks. Please go ahead.

Thank you all for joining our call today. We look forward to speaking with you again later this fall when we report our fiscal 2027 first quarter results. This concludes our earnings call. Thank you.

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

Good day, and welcome to the Accuray Third Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve Monroe, Vice President of Financial Planning and Analysis. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the third quarter of fiscal year 2026, which ended March 31, 2026. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve LaNeve, 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. 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 base 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 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 third quarter refer to our fiscal third quarter ended March 31.

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. 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, among other things, 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's Chief Executive Officer, Steve LaNeve. Steve?

Thank you, Steve. Good afternoon, and thank you for joining us. Since joining Accuray last October, I've spent time with teams across the company and in our key markets. What stands out is the strength of our technology, the commitment of our people, the conviction health care providers and patients have in our solutions and the scale of the opportunity ahead of us.

Turning to the quarter. Total revenue was approximately $105 million, up 3% sequentially, but down 7% year-over-year. In the third quarter, we had product shipments planned to certain customers in the Middle East, North Africa and Pakistan that have been delayed indefinitely due to increased geopolitical disruption in the Middle East, which is also impacting our service revenue in those regions. We don't know how long this regional dynamic might continue. Additionally, our business in China continues to face headwinds that we discussed during our last earnings call, which pertained to geopolitical tensions and ongoing tariff uncertainty. These are markets that remain strategically important to Accuray over the long term, but the current environment has added volatility and uncertainty that is largely outside of our control and difficult to predict. That said, restating our strategy, we are prioritizing investment in innovation, product reliability, service solutions, workflow efficiency and partnerships that expand our reach and strengthen our platform.

Additionally, we are relentlessly focused on executing on our transformation program initiatives that did not take effect until the middle or end of the third quarter, which, coupled with the geopolitical factors I've mentioned, have masked their impact to date. While we remain confident in our ability to execute against our transformation plan, the current geopolitical environment, including the conflict involving Iran and its ripple effects across the Middle East as well as my earlier comments about our business in China has created significant unpredictability for both the product and the service sides of our business. Given such uncertainty, we believe the responsible approach is to withdraw our financial guidance at this time. We will provide an update on the business when we report fiscal fourth quarter results.

Now turning to our transformation plan and the progress we've made. As a reminder, in mid-December, we launched a comprehensive strategic operational and organizational transformation plan. This plan was designed to sharpen accountability, tighten cost control and accelerate execution while positioning Accuray for sustainable, profitable growth over the long term. The foundation of this plan was to establish clear product and service strategies supported by a set of critical enablers we believe are necessary to execute at a higher level. The first of those enablers was rightsizing our cost structure while improving efficiency through better processes and the use of our ERP system and business intelligence tools.

This was paired with an organizational realignment that centralized key functions, outsourced noncore activities and reinforced accountability, speed and commercial focus across the business by reducing approximately 15% of our workforce. At the same time, we reallocated engineering resources toward higher ROI programs, particularly those that integrate third-party solutions and more directly reflect the voice of the customer. Taken together, these actions were designed to structurally improve operating profitability by approximately $25 million on an annualized basis, with roughly $12 million expected to benefit fiscal 2026.

As of the end of the third quarter, we have already achieved approximately $10 million of those improvements, and we are well on track to exceed the $12 million we originally targeted for fiscal year 2026. We continue to believe that at least $25 million of these improvements should be realized in fiscal year 2027. We remain encouraged by the pace, the quality of execution and the sustainability of these actions to date, and we will provide an updated view on these annualized improvements on our fourth quarter earnings call.

To put some color around what this looks like in practice, let me briefly highlight a few initiatives that are already underway. First, we are expanding and diversifying our service portfolio to better monetize our installed base and enhance customer value. During the quarter, we launched new training and educational solutions, which can be included in service agreements or sold stand-alone. Additionally, we will launch packages to add software solutions to our service agreements, which we believe strengthens recurring revenue opportunities and improves customer engagement over time. Our strategy is to better leverage our substantial and growing installed base and to drive significant value creation through our service business.

Second, we are making meaningful progress toward a more structured and disciplined distributor partnership model. In markets where distributors are essential to our reach, we are implementing clear performance standards, improved transparency, stronger alignment and better support models to drive consistent, high-quality execution. During the quarter, we advanced this effort with several concrete actions, including the appointment of a Vice President of Distributor Partnerships, a new and strategically important role for Accuray, focused on elevating distributor performance and accountability globally. Third, we are implementing systems, processes and controls to help ensure we are fully and appropriately compensated for the work our service teams deliver every day.

During the quarter, we have made enhancements to our service systems, which are designed to improve cash conversion and margin quality. Fourth, we continue to optimize pricing across our product and service portfolio to better reflect the clinical and economic value our technology and our service solutions deliver. This work is designed to support competitive wins at appropriate margins and is expected to translate into stronger sales quality and margin expansion over time. Finally, an essential element of the transformation is strong commercial leadership.

I am very excited that Paul Maeli has joined Accuray as Chief Commercial Officer. Paul brings more than 2 decades of experience leading and scaling global capital medical device businesses across the Americas, EMEA and APAC regions. His track record strongly aligns with Accuray's priorities in terms of building effective commercial operating models, reactivating the installed base, expanding service and solutions monetization and accelerating capital equipment sales, specifically in the areas of imaging, navigation and robotics. In prior roles, his leadership helped drive the reversal of revenue decline trends and helped deliver double-digit annual growth. Paul and his team will play a critical role in strengthening our top line, improving profitability and supporting sustainable long-term value creation.

With our internal transformation well underway, I'd like to now turn to strategic partnerships, which is an area that is playing an increasingly important role in shaping Accuray's future. A core principle of our transformation is focus. We are being very deliberate about where we invest our internal resources and where partnering allows us to move faster, scale more efficiently and deliver greater value to our customers. Over the past several months, we've made meaningful progress aligning with partners that strengthen our execution today and fortify our long-term position as an innovative leader in radiation medicine. One of the most exciting areas of progress is how we are leveraging partnerships with the goal to convert one of Accuray's most distinctive capabilities, real-time adaptation to patient and tumor motion during treatment into a durable clinical evidence engine. Radiation medicine is entering an era where precision is increasingly defined not just by the treatment plan created in advance, but by what happens during treatment itself.

Recent high-impact prostate SBRT data have reinforced that delivery side factors, including intrafraction motion management can meaningfully impact outcomes. Accuray's installed base gives us access to one of the largest repositories of real-world motion tracked treatment data in the industry, spanning hundreds of thousands of treatment fractions across multiple disease sites. By pairing these insights with a multicenter registry sponsored by the Radiosurgery Society, we are working to define the clinical value of real-time correction, inform future product development and help shape emerging standards of care. Importantly, this effort strengthens our differentiation, supports our product road map and reinforces our focus on clinically meaningful innovation.

Our new partnership strategy is built around creating an ecosystem of aligned partners that amplifies our strengths. We are building a constellation of strategic collaborations with many leading organizations, including the University of Wisconsin Madison, Tata Consulting Services as well as many others. Each bring distinct capabilities across imaging, software, workflow innovation, clinical research, treatment continuity and operational execution. Together, these partnerships allow us to deliver more comprehensive solutions to radiation medicine teams while improving speed to market and capital efficiency.

This partnership-driven model is an important pillar of our transformation and a key component of how we intend to create enduring value for customers and shareholders alike. In addition to the momentum we're seeing across our transformation and partnerships, -- we are very excited about the upcoming European Society of Radiation Oncology, ESTRO, conference in Stockholm later this month. ESTRO is an important global forum for radiation medicine and a key opportunity to engage directly with our customers. At ESTRO, we plan on highlighting a series of practical customer-driven product enhancements and new partnerships that reinforce our commitment to clinical excellence, workflow efficiency and continuous innovation. As I've said before, these are areas where we believe Accuray can make the biggest difference for patients and where we can meaningfully differentiate ourselves in the market. In summary, while the external environment remains challenging, the transformative progress we're making across execution, innovation and partnerships gives us confidence that we are building a stronger, more resilient Accuray for the future.

With that, I'll hand it over to Ali to take you through our financial results and key financial metrics.

Thanks, Steve, 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 execute on our transformation plan. Turning to the third quarter results. Net revenue for the quarter was $104.8 million, which was down 7% versus the prior year and down 10% on a constant currency basis. On a sequential basis, revenue increased 3%.

Product revenue for the third quarter was $49.7 million, down 13% versus the prior year and down 15% on a constant currency basis, representing the majority of the year-over-year decline. Similar to the first half of fiscal year 2026, most of this came as a result of ongoing macroeconomic headwinds in China and more recently, geopolitical tensions in the Middle East. Service revenue for the third quarter was $55.1 million, down 1% from the prior year and down 5% on a constant currency basis. As a result of our global installed base and service network being negatively impacted by Middle East tensions, we had a $1.2 million negative impact to service revenue.

The company's contract capture rate, defined as a percentage of active systems covered by a service agreement continues to be at nearly 90% across our active installed base. As Steve discussed, optimizing pricing to reflect our true clinical and economic value has been a key piece of our transformation plan. This includes a significant focus on pricing on service contract renewals. While the pricing secured and renewals has an impact that spans over the next 2 to 3 years, we did experience $0.6 million of price favorability within service revenues in the third quarter. Product gross orders for the third quarter were approximately $49 million and represented a book-to-bill ratio of 1.0 in the quarter with a trailing 12-month ratio of 1.2. We ended the third quarter with a reported order backlog of approximately $356 million, defined to include only orders younger than 30 months.

Our overall gross margin for the quarter was 24.1% compared to 27.9% in the prior year. This decline was primarily due to service margins, which were 26.1% compared to 33.3% in the prior year. Driving this decrease was higher net parts consumption of $3.2 million, which negatively impacted service gross margins by approximately 600 basis points. As we have mentioned in prior quarters, the timing of parts consumption can fluctuate quarterly depending on the volume and extent of service requirements. In the third quarter, our higher-than-anticipated service parts consumption also required higher-than-average logistics and duties costs. Additionally, tariffs adversely impacted service margins by $0.8 million or 150 basis points.

Product gross margins in the third quarter were 21.9% compared to 22.7% in the prior year. The year-over-year incremental cost from higher tariffs was $2.6 million, which adversely impacted product gross margins by approximately 530 basis points. Tariffs have been quite fluid recently. And although IEPA tariffs have been invalidated, we continue to monitor how the tariff landscape evolves over the near term and how that impacts our profitability and cash flow.

Operating expenses in the third quarter were $34.4 million compared to $30.6 million in the third quarter of the prior fiscal year. The current year third quarter includes $6.5 million of nonrecurring restructuring expenses, which includes severance costs and other costs directly related to our restructuring and transformation plans. Additionally, the prior year third quarter benefited from a $3.2 million reversal of unrealized accrued compensation from the first half of fiscal year 2025, -- adjusting for these discrete items, third quarter 2026 operating expenses decreased $6 million or 18% versus prior year, which illustrates that the cost actions taken as part of our transformation have taken hold. As stated above, during the third quarter, we recognized $6.5 million of nonrecurring restructuring expenses. As our transformation plan progresses, we expect restructuring costs to sequentially decrease from these third quarter levels in future quarters with a significant portion of the restructuring costs recognized by the end of the fiscal year.

Operating loss for the quarter was $9.1 million compared to income of $1 million in the prior year. Adjusted EBITDA for the quarter was $3.8 million compared to $6 million in the prior year. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet. Total cash, cash equivalents and restricted cash as of quarter end amounted to $44.4 million compared to $47.9 million at the end of last quarter. The restricted cash is related to required postings for cash flow hedging and tariffs amounting to $6.4 million in the current quarter as compared to $6.6 million at the end of last quarter.

Net accounts receivable were $64.6 million, up $3.6 million from the prior quarter, largely due to higher sequential quarter revenue. Our net inventory balance was $156.6 million, up $5.7 million from the prior quarter. At the end of the third quarter, we had $5 million outstanding on our revolving credit facility. As Steve noted earlier, we continue to execute our transformation strategy and remain ahead of plan to achieve the $12 million in improvements we had originally forecasted. By the end of the third quarter, we had already realized approximately $10 million of these transformation-related improvements, which were largely achieved through workforce and discretionary spend reductions as well as pricing realization.

And with that, I'd like to hand the call back to Steve.

Thank you, Ali. I remain excited about the opportunities ahead for Accuray and continue to have strong conviction in the differentiation of our technology and the value it brings to customers and patients. We believe the impact of our strategic focus and the transformation plan we initiated will become increasingly evident over the coming quarters with 2027 and 2028 financial performance expected to reflect the benefits of the actions we are taking today. As we look ahead, we believe our progress should be measured against a clear set of priorities: number one, driving top line growth with our product and service business lines through a focused commercial strategy; number two, relentlessly executing on our transformation plan to improve gross margins and strengthen EBITDA through tighter cost management; and number three, prioritizing innovation grounded in voice of customer as part of our product and service development programs.

With that, I'll turn the call back over to the operator for Q&A.

[Operator Instructions] The first question comes from Marie Thibault with BTIG.

Just wanted to ask about the decision to remove guidance. I know that the Iran war started after your last quarterly earnings call. But your prior commentary had pointed to a close understanding of time lines in these various regions. Why not just revise the guidance to remove some of those specific customers or those revenue installs in those regions? Why remove entirely?

Thank you, Marie. This is Steve. Appreciate the question. And obviously, we've spent a lot of time thinking through this very carefully. As we noted in our remarks earlier, the shipments to customers in the Middle East, North Africa and Pakistan, particularly, have been delayed indefinitely due to these tensions. And that directly impacts both product revenue and also the associated service revenue. And just given the dynamic nature of these disruptions and the difficulty in predicting when these installations will resume, we collectively felt it was more appropriate to withdraw guidance. EMEA is the largest region for Accuray. And then within EMEA, the Middle East and North Africa are the fastest-growing subregions. And then given the interdependencies that exist between other regions around the world, we felt this was the most prudent course of action.

Okay. And then I know you're ahead of schedule on some of your cost-cutting efforts, but it looks like adjusted EBITDA came in well below what we were expecting and certainly does not really keep you on track for your prior outlook. I understand that's been removed. What's going on there? I know I think that excluded things like the restructuring charge. So what's going on there? And is there a way to see improving profitability despite some of this macro uncertainty?

Marie, it's Ali. Thanks for the question. Look, we're really excited about the fact that the transformation is moving along well, and we are ahead, just like you said, in terms of the savings, we've made a lot of progress to date. You sort of heard about the workforce reductions and the reorganization that we've done. We've made a lot of progress in terms of just overall cost and spend rationalization. And I think we just continue to execute on the transformation. The main pillars associated with the transformation are really related to continuing to focus on our service business, really have meaningful progress in our distributor partnership model and focus on optimizing pricing. And I think all of those are going to take some time to come into play and the timing of those are really hard to anticipate. And so we think we're still going to see a solid annualized benefit in fiscal year '27.

Thank you Ali, going to ask about the timing of some of those potential benefits.

This concludes our question-and-answer session. I would like to turn the conference back over to Accuray's President and CEO, Steve LaNeve, for any closing remarks.

Thank you all for joining our call today, and we look forward to speaking with you again in the summer when we report our fiscal 2026 fourth quarter earnings results.

This concludes our earnings call. Thank you again. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to Accuray's conference call to review financial results for the second quarter of fiscal year 2026, which ended December 31 of 2025. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Steve Monroe. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the second quarter of fiscal year 2026, which ended December 31, 2025. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve LaNeve, 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. 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 base 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 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'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's Chief Executive Officer, Steve LaNeve. Steve?

Thank you, Steve. 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 90 days, I've engaged deeply with our teams and customers across our regions, and my conviction in Accuray's opportunity has never been stronger. The more time I spend in the field, the clear it becomes of the opportunity to accelerate top line growth and to meaningfully expand profitability in the years ahead. And 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 reenergize 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 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 12 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 rightsizing of our cost structure while improving process efficiency and use of technology. This was coupled with an organizational realignment that centralized certain functions, outsourced noncore activities and emphasized accountability, control, speed of decision-making and selling. At the same time, we reallocated engineering resources to focus on high ROI programs to integrate third-party solutions and to better reflect the voice of our customers. These elements of our transformation plan targeted an approximately $25 million improvement in annualized operating profitability, which included a workforce reduction of about 15% and are expected to deliver roughly $12 million of benefit in fiscal 2026, with substantially all initiatives implemented by fiscal year-end.

We also indicated that we expect approximately $10 million of restructuring charges across the second, third and fourth fiscal quarters related to workforce reductions, facility consolidation, contract terminations and other implementation costs. These measures are not, however, ends to themselves, but rather are enablers of our long-term strategies intended to build substantial value going forward as we take disciplined actions to strengthen our commercial execution and build a more predictable, higher-margin growth engine.

Let me briefly highlight a few examples of the initiatives already underway. First, we are working to expand and diversify our service portfolio. We are shifting towards a comprehensive solutions-oriented offering that increases customer uptime, enhances system performance and drives higher-margin recurring revenue while addressing customer needs and increasing life cycle engagement across the installed base.

Second, we are working towards a more structured distributor partnership and management program. In global markets where distributors are central to our reach, we are in the process of putting in place robust systems, clear performance standards, tighter alignment, more transparency and critically, better support models to ensure consistent, high-quality commercial execution.

Third, our determination to meet or exceed our customers' expectations has sometimes resulted in us not billing or collecting for services and service levels we have provided. We are now designing and implementing systems, processes and controls to help ensure we are compensated to the extent to which we are entitled for the work our teams deliver every day.

As a fourth example, we are on a path to optimizing pricing across our product and service portfolio. This work will help ensure that our pricing reflects the true clinical and economic value our technology delivers, will facilitate our winning competitive bids at appropriate margins and should be reflected in our sales and margin growth over time. Collectively, these are the types of actions that as they are implemented and begin to take effect, are intended to represent a step change in how we drive growth, creating a more diversified revenue mix, a more resilient recurring base and a more disciplined commercial organization.

Strong commercial leadership is also a critical enabler of our strategies, and we hope to announce in the period ahead the appointment of a new global Chief Commercial Officer with a track record and approach that align with our long-term objectives. Overall, these initiatives are already in motion and would play a critical role in strengthening our top line, improving profitability and supporting sustainable value creation going forward. Against the backdrop of our transformation, our customer conversations have been strikingly consistent across geographies. Health systems appear to be prioritizing 3 things: reliability, interoperability and patient throughput. This clarity is helping us sequence our product road map and service investments with much greater discipline.

From an operating rhythm perspective, we have tightened weekly and monthly financial and operating reviews around orders, revenue, margins, service performance and cash, highlighting KPIs that are critical to improve business performance, enabling faster corrective actions where needed. This rhythm supports the accountability and execution pace we committed to in December. Lastly, from a people and culture point of view, our leadership team knows that we need to emphasize and incentivize teamwork, cross-functional collaboration, data-driven decision-making and a heightened sense of urgency in order to create a performance-driven environment. I believe strongly that transformations succeed when they are owned by the organization. I'm proud of how our teams have leaned in maintaining customer focus while embracing new ways of working. We are supporting our people through the transformation, and I want to thank every Accuray teammate for their resilience and professionalism.

Now turning to the quarter results. From a top line perspective, this quarter did not meet our expectations. Our business was most notably impacted by the ongoing tariffs and an increasingly unstable geopolitical environment, particularly as it relates to China, which has been a big part of our growth story over the last couple of years. These external pressures affected both demand patterns and the timing of commercial activity in ways that have been difficult to fully anticipate. We are keeping a close eye on all of these factors, and we'll keep you updated as we get more clarity over the next few quarters.

Given the visibility we have today, we think it's prudent to reset our fiscal 2026 revenue and adjusted EBITDA outlook for the remainder of the fiscal year. This updated guidance assumes and reflects continued volatility in China, the persistence of current tariff structures and other ongoing headwinds, but does not assume a material worsening beyond what we are experiencing today. Our revised guidance on the revenue will be in the range of $440 million to $450 million, with adjusted EBITDA guidance of $22 million to $25 million. This compares to our previous guidance of $471 million to $485 million of revenue and $31 million to $35 million of adjusted EBITDA. That said, the underlying trends inside the company tell a different and more encouraging story. We are beginning to translate our strategic intent into operational execution, tightening costs, streamlining decision-making, improving competitiveness and reallocating resources toward areas where we can drive the greatest value.

Despite the external headwinds, we remain firmly focused on delivering against our transformation commitments and strengthening Accuray's foundation for sustained profitable growth. Our objectives are clear: drive top line growth, improve profitability and create lasting value for patients, providers and shareholders. With that in mind, we continue to expect to reach a high single-digit adjusted EBITDA margin run rate within the next 9 months and to expand that margin to double digits over the medium to long term.

With that, I'll hand it over to Ali for a detailed review of our second quarter results. Ali?

Thanks, Steve, 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 on 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 Steve 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 continued 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 with a trailing 12-month ratio of 1.2. We ended the second quarter with a reported order backlog of approximately $383 million, defined to include only orders younger than 30 months. This represents over 18 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 prior year. The majority of the unfavorable impact to product gross margins was related to our China business. First, we had lower China margin releases compared to the prior year, which contributed 8.2 points of the decline. As a reminder, in Q2 of fiscal 2025, we released 27 units of China product following NMPA approval of the Tomo C. Second, the year-over-year incremental costs from higher tariffs impacted product gross margins by approximately 6 points.

Lastly, we had 5 CyberKnife shipments in the prior year versus 0 in the current quarter, which impacted product gross margins by approximately 5.4 points. Service gross margins were 26.6% compared to 27.7% in the prior year, primarily driven by higher net parts consumption. Overall, we continue to be focused on margin expansion in our service business driven by higher pricing, improved product reliability, leading to lower labor costs and parts consumption and reducing our cost to serve and the increased penetration of diverse high-margin service offerings. Quarterly service gross margins can fluctuate due to the timing of parts consumption, which we experienced in Q2. While several of these factors are transitory, such as prior year China releases and product mix, others like tariffs may persist in the near term.

Our transformation actions are designed to offset these pressures through cost reduction, operational efficiency and margin improvement in service. Operating expenses in the second quarter were $35.6 million compared to $37.2 million in the second quarter of the prior fiscal year. The $35.6 million includes $6.1 million of onetime restructuring expenses. Stripping those out, our operating expenses declined almost 21% quarter-over-quarter. Operating loss for the quarter was $11.6 million compared to income of $4.7 million in the prior year. The $6.1 million in restructuring charges recognized in the second quarter included severance costs and other onetime costs directly related to our restructuring and transformation plans.

Adjusted EBITDA for the quarter was a loss of $1.9 million compared to positive $9.6 million in the prior year. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet. Total cash, cash equivalents and short-term restricted cash amounted to $41.9 million compared to $63.9 million at the end of last quarter, primarily due to working capital usage, cash interest and restructuring payments. Net accounts receivable were $61 million, up $6.6 million from the prior quarter, largely due to higher sequential quarter revenue. Our net inventory balance was $151 million, down $4.5 million from the prior quarter.

And with that, I'd like to hand the call back to Steve.

Thank you, Ali. In closing, I continue to be excited about the opportunities Accuray 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 drive 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 3 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.

[Operator Instructions]

And our first question for today will come from Marie Thibault with BTIG.

I wanted to dig here a little bit on the revenue guidance cut. We've grown very used to Accuray 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 that's coming in the back half of the year that's sort of made you get more cautious? Is it China alone? Is there just closer visibility on time lines 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. Marie, thanks for the question. This is Steve. 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 clarification there. And then with respect to China, clearly, as we stated in the remarks, the business was impacted by the ongoing tariffs and an increasingly unstable geopolitical environment that we've 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, Steve. And then I guess on product gross margins, I think 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've discussed?

I can take that one, Marie. 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 prior year. And then also just inflation that we continue to have over the last couple of years. We're certainly taking actions 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 3 main contributors. There was a China JV release of about 8 points compared to prior year. There were the tariffs of about 6 points. And then overall product mix that was roughly another 8 points or so.

So those are really the key contributors versus prior year. Again, probably 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's shipped out and also dependent upon the timing of the releases, which is very China-centric.

The next question will come from Young Li with Jefferies.

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 the solutions-oriented initiatives as well as the structured distributor partnerships. I guess for those, are there any potential for disruption as things change? When do you expect us to see some results from that? And yes, those are the questions.

Yes. Thank you, Young. This is Steve. Appreciate the question. As we've looked at transformation and spoken about that in the past, obviously, 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 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 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 regions 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.

All right. Great. Very helpful. And then we've been asking several of our companies sort of the same theme type of question, but new calendar year, just wanted to get your views on, I guess, from your hospital customers' perspective, how is the capital environment from their perspective, especially in places like U.S., 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, 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. It doesn't seem to be any shift or trend there that would work against us.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Steve 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.

Good day, and welcome to the Accuray First Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Steve Monroe, Vice President of Corporate Financial Planning and Analysis. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the first quarter of fiscal year 2026, which ended September 30, 2025. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve LaNeve, 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.

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 just issued after the market closed this afternoon as well as in our filings with the Securities and Exchange Commission. We base 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 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 first quarter refer to our fiscal first quarter ended September 30, 2025. 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 the call over to Accuray's Chief Executive Officer, Steve LaNeve. Steve?

Thank you, Steve. Good afternoon, everyone, and thank you for joining us today. It's a privilege to address you on my first earnings call as Accuray's CEO. I want to begin by recognizing the remarkable dedication and expertise of the entire Accuray team whose commitment and innovative technologies have made a meaningful difference in patients' lives around the world. I have also genuinely appreciated the transition time that Suzanne is making for me as I onboard. Today, I'm excited to share why I chose to join Accuray and my high level of conviction in Accuray's success as we enter the next phase of transformational growth. Accuray is one of just a few companies operating at the intersection of technical sophistication and human impact.

I have a tremendous amount of respect for what the Accuray radiation delivery systems can do to prolong life and for being indispensable in treating malignant and nonmalignant disease. I've spent my first several weeks at the company listening to and learning from many different stakeholders, and I continue to be incredibly impressed with Accuray's foundation and technology. This makes me more confident than ever about the potential to enhance our performance, market position and our long-term growth prospects. Here's why I have this belief. I've come to Accuray with over 40 years of global experience in med tech and biotech, including capital equipment and have held executive leadership and CEO roles at high-performing, well-differentiated and impactful publicly traded companies, including Roche Diagnostics, Becton Dickinson, Medtronic, ETEX, Bone Biologics Corporation and most recently at Globus Medical.

The common thread across my experience was driving top line growth profitably while meaningfully improving patients' lives with innovative technology. This was achieved by creating clear strategic and financial goals, solid execution against these goals, consistently identifying avenues to optimize operations and grow margins and disciplined cost management. I am encouraged by what I've seen so far at Accuray, and I'm even more optimistic about the tremendous opportunities ahead. This is where our transformation plan comes in. Our immediate goal is to identify key strategic, operational and financial areas that we believe are necessary to position Accuray to compete more effectively, drive margin expansion, enhance organizational responsiveness and agility and ultimately position Accuray for sustainable, profitable growth.

In short, continue to build a performance-based culture. As mentioned in our news release a couple of weeks ago, Steven Mayer, one of Accuray's Board members and our transformation Board sponsor will support us with this set of initiatives. Stephen brings extensive experience leading complex corporate transformations and will be instrumental in helping us to prioritize our resources, sharpen our focus and reinforce our culture of continuous improvement. The management team and I look forward to working closely with Stephen to execute on these goals.

In the near term, as we implement key changes during the current fiscal year, we expect to reach a high single-digit adjusted EBITDA margin as a percentage of revenue on a run rate basis within 12 months. Furthermore, we are confident that our transformation efforts will enable us to expand our adjusted EBITDA margin as a percentage of revenue to double digits over the medium to long term and drive sustained and profitable growth for our company. We look forward to presenting more details on our transformation plan in early 2026, and we'll be updating you on the progress being made toward our goals on a regular cadence. I will now turn the call over to Ali to review the first quarter results. Ali?

Thanks, Steve, and welcome to the Accuray team. We look forward to working closely with you as we execute on our transformation plan. Before discussing our financial highlights, I wanted to call out some major wins during the quarter. In September, we launched our Stellar product at ASTRO. This was more than a product debut. It was a statement. Stellar represents our commitment to adaptive radiotherapy and our belief that every patient deserves precision care. The reception at ASTRO was overwhelmingly positive, and we're already seeing strong interest from both existing and new customers.

This is the kind of innovation that sets Accuray apart. Other highlights in the quarter include the announced signing of a memorandum of understanding with the University of Wisconsin School of Medicine and Public Health to advance online adaptive radiotherapy on the Accuray helical radiation treatment delivery platform. As part of the MOU, the 2 parties outlined their intent to collaborate on clinical research, education and training and adaptive technology development to help empower medical care teams to raise the bar in the personalization and precision of cancer care. Another highlight was the announcement of first patients treated in Melbourne, Australia using our CyberKnife system. Aligned with the Accuray mission to expand the curative power of radiation therapy, the recent treatment using a CyberKnife system fills an unmet cancer need in Australia to improve community access to this powerful technology while limiting the patients' need to travel long distances for care.

Both these events provide further testament to the high level of interest and adoption of our technology, both in the U.S. as well as globally. Turning to the first quarter results. Net revenue for the first quarter was $94 million, which was down 7% versus the prior year and down 9% on a constant currency basis. As you know, due to the long sales cycle and relatively low unit volumes in the product side of our business, quarterly product revenues can be volatile. With that said, product revenue for the first quarter was $37 million, which was below expectations, mainly due to slower performance in our EIMEA and China regions. Year-over-year product revenue was down 23% and down 24% on a constant currency basis.

On the other hand, as you know, our installed base generates a relatively predictable, higher-margin, valuable revenue stream, which continues to grow and which we intend to emphasize strategically. Service revenue was again a highlight of the quarter with revenue of $57 million, up 7% from the prior year and up 4% on a constant currency basis. This increase was driven by contract revenue growth of 10% year-over-year, which was higher than our installed base growth of 2% over the same period, illustrating that our pricing actions are taking effect. Product orders for the first quarter were approximately $40 million and represented a book-to-bill ratio of 1.1 with a trailing 12-month ratio of 1.2.

Gross orders were also lower than our expectations for the first quarter, which was largely due to timing of receipt of customer orders for certain projects in China and the Americas regions. We ended the first quarter with a reported order backlog of approximately $396 million, defined as orders that are younger than 30 months. This represents over 18 months of product revenue, giving us strong visibility and confidence in future revenue conversion. As part of our diligence in ensuring a high-quality backlog, we canceled 1 unit representing approximately $2 million of orders to maintain a high-quality backlog.

Our overall gross margin for the quarter was 28.3% compared to 33.9% in the prior year. This decline was primarily driven by product gross margins, which were 20.3% compared to 32.9% in the prior year. The key elements that unfavorably impacted product gross margins were sales mix, both geographical and by product of $2.9 million or 7.8 points, incremental costs associated with the tariffs announced earlier this year of $1.1 million or 3 points and a onetime obsolescence charge associated with aged inventory of $0.7 million or 1.7 points.

Service gross margins were 33.5%, 1.4 points lower than the prior year, primarily driven by lower parts consumption in Q1 of fiscal year '25 due to a supplier credit obtained in that quarter. Overall, we continue to be focused on margin expansion in our service business driven by higher pricing and reducing our cost to serve. Operating expenses in the first quarter were $37.9 million compared to $36.6 million in the first quarter of the prior fiscal year. The increase was largely due to $3.3 million in restructuring and post-financing costs recorded within operating expenses this quarter. This was partially offset with $1 million of realized savings from restructuring actions. Operating loss for the quarter was $11.3 million compared to a loss of $2.1 million in the prior year.

During the first quarter of fiscal 2026, we also had some onetime items that impacted financial results during this period. The company initiated a restructuring plan aimed at reducing costs, aligning resources with strategic priorities and streamlining operations. This resulted in $2.8 million in restructuring charges, which included $1.5 million in severance-related costs and $1.3 million in consulting costs directly related to the restructuring plan. Adjusted EBITDA for the quarter was a loss of $4.1 million compared to an income of $3.1 million in the prior year. This was largely due to the product gross margin challenges discussed earlier. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today.

Turning to the balance sheet. Total cash, cash equivalents and short-term restricted cash amounted to $64 million compared to $57 million at the end of last quarter, primarily due to the net decrease in primary working capital. Net accounts receivable were $54 million, down $29 million from the prior quarter due to lower revenues and collection of certain past due receivables. Our net inventory balance was $156 million, up $14 million from the prior quarter as we ramp up for increased manufacturing in the coming quarters. Turning to guidance. Although we have had a slower-than-anticipated start for the first fiscal quarter of fiscal year '26, we have confidence in our cross-functional teams to execute the plan we had set out in the beginning of the fiscal year.

With that in mind, we are reiterating our fiscal year '26 guidance with revenue in the range of $471 million to $485 million and an adjusted EBITDA range of $31 million to $35 million. We plan to provide more details behind the new transformation plan, which is expected to meaningfully improve our adjusted EBITDA as a percentage of revenue on our fiscal Q2 earnings call. And with that, I'd like to hand the call back to Steve.

Thank you, Ali. At this point, as Ali indicated, guidance is unchanged. However, in the next 90 days, I will have a better feel for the organization, the progress of the transformation initiative and the external market dynamics in order to make an assessment of revenue and adjusted EBITDA guidance for the fiscal year at that time. As I begin my tenure, I see the path to deliver the adjusted EBITDA guidance with increased earnings momentum going into FY '27, even with the ongoing geopolitical and macroeconomic uncertainties. In closing, I'm extremely excited to have joined Accuray at this critical time of transformation for the company. My underlying goal is to foster a performance-driven culture that pairs innovation with execution, strengthens operational discipline and drive sustainable, profitable growth while creating long-term value for the patients, providers and shareholders we serve. I will now turn it back over to the operator for Q&A.

[Operator Instructions]. Our first question comes from Marie Thibault from BTIG.

Nice to be working with you, Steve. Welcome. I wanted to start here on sort of a high level and understand what you're seeing out there in terms of the capital equipment purchasing environment, the ordering environment. You did talk a little bit about product revenue and some of the recognition, of course, but wanted to understand if you're seeing things get better, get worse, stabilize in the various regions on the ordering front.

Marie, thanks so much for the question. That answer really varies by region. Obviously, this particular quarter, we did see a slowdown in EIMEA and in China, mainly due to some of the geopolitical and macro issues that we are starting to see ease up a little bit. The U.S., we feel okay about from an overall capital equipment standpoint. And then we continue to see growth in our APAC business. And so it really does vary by region. And so I think overall, we're still going to continue to work with our region teams to gain a better pulse in terms of how capital equipment is shaping up as we look into the rest of fiscal year '26.

Okay. That's very helpful, Ali. And as part of that, I also wanted to ask on net orders. Certainly, a bigger difference between gross orders and net orders than we're used to seeing this quarter. Did some of that have to do -- I heard about the cancellation, but did some of that have to do with age-outs maybe related to China? Just any detail on that?

We did have read outs, but I would say they weren't out of the [indiscernible]. And at the end of the day, I tend to focus more on gross orders because that truly is a representation of new business that's coming in. And so we reported new gross orders from across the globe of about $40 million, which was lower than expectation and primarily related to timing of customer receipts in both the Americas and in China.

Okay. And if I may sneak in one other. Just wanted to hear the latest on kind of tariff mitigation efforts. I know that you have a number of initiatives to sort of offset some of that. So any progress or any updates on those?

We continue to take a look at the duty drawback program, which is something that will allow us to at least regain tariffs that we've paid on any equipment that does not remain in the U.S. And so that is a program that is very active for us. We have in the past sort of spoken about implementation of a foreign trade zone, which is certainly something that we continue to take a look at to see does that make sense for us as this tariff environment is pretty fluid, but that is certainly something that is on the table as well.

And so it's certainly is a pretty fluid situation, Marie, as you know, the headlines change quite frequently, but we keep a pretty close pulse on it. And so I think that's sort of what's happening from a tariff standpoint. Marie, I will take the opportunity because I know we did reiterate guidance this particular earnings call as well. I think it's important to highlight that we're really pleased with the continued growth in our service business, and we expect that to continue through the year. Product revenue was obviously slower than anticipated in Q1 due to what I highlighted in the prepared remarks in terms of slower performance in EIMEA in China.

And we do expect that to continue in the second quarter. But with geopolitical macro issues starting to ease, we're confident that a lot of these orders that we will not deliver in the first half will actually shift into the second half based upon customer schedules and feedback that we've gotten from our teams on the ground as well as our JV partner in China. So with that, I think it's really important to highlight that we do expect first half revenue to be closer to about 40% of our full year guidance and the second half to be about 60% of our full year guidance because we are seeing some of these -- some of this product demand shift to the second half. Obviously, we're going to keep a close pulse on it to see if there's any other dynamics that happen from each of the different regions, but this is what we're seeing right now.

That's really helpful, Ali. And I appreciate that, especially the 40-60 split, we'll make note of that. I know in the past, it's been 45-55. So certainly helpful to have that split now. If I could then maybe follow up with one more question just on the margin side. I heard the commentary about product and geography mix impacting product gross margins. It sounds like that should also continue into fiscal second quarter and then possibly improve in the second half. Is that the right way to think about that as well, Ali?

I think that's the right way to think about it, Marie. We did have more deals that went into emerging markets that contributed to revenue in Q1. We expect something similar in Q2. And then as we start to execute on our backlog that has more for developed markets, those come with a better margin profile. I think at the end of the day, Marie, we've spoken about this in the past and which really we just want to be able to continue to make sure that we're getting our installed base to increase, and that's really going to help our service business grow. And you saw that as a highlight in terms of service grew by about 7% this quarter and contract revenue grew by about 10%. And so I feel really good about the way that our service business is positioned right now and moving forward.

[Operator Instructions]. At this time, there are no more questions. This concludes our question-and-answer session. I would like to turn the conference back over to Steve LaNeve, President and CEO, for any closing remarks.

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

The conference has now...

Good afternoon, everyone, and welcome to Accuray's Analyst briefing. We're coming to you from the ASTRO conference in San Francisco for 2025. We'll be leading a discussion about leading in the adaptive era of radiation medicine. I want to welcome everyone. It's absolutely a privilege to be here with a distinguished group of our global key opinion leaders in radiation oncology as well as our research analysts and shareholders who are joining us virtually. Our analysts that cover medtech and radiation oncology market, and they write notes for investors and advise on investment decisions. You're all experts and who -- how we shape, how we understand innovation in medical technology and how we bridge clinical insight, patient outcomes and investment perspectives.

As you know, at Accuray, we believe our role is not just to build devices, but to advance medicine by partnering with clinicians and researchers who set the standard of care. Today, we're going to have an open dialogue about the trends in adaptive radiation medicine treatment. We'll be sharing science behind the technology and hearing perspectives from our esteemed panel, and we'll be exploring how we can make the greatest impact for patients and health care systems to deliver clinical and economic value. So thank you for taking the time to be here. We'll dive into the conversation. I'll make a few opening remarks, and then we'll go right into the discussion.

Let's start with our safe harbor statement. And again, this is a presentation that is intended exclusively for investors. Again, from an agenda standpoint, we're going to talk a little bit about technology. We have Mu Young Lee here who will be talking about our technology. And then I'm going to hand it over to Seth Blacksburg, who is going to talk about Clinical Trends in Radiation Medicine and introduce our esteemed panel that will cover a number of topics in radiation medicine. And then we'll close and before we close, we'll do some questions and answers, and we'll have the opportunity for those listening and to submit questions.

Just very quickly, when we talk about Accuray and where we are today, we are a global leader. We are dedicated in everything that we do to precision radiation therapy, technology and clinical outcomes. Our vision is really to expand the technology and our solutions really to further the curative power of radiation therapy so that we can impact lives truly through transforming care. Right now, we have achieved in FY '25. We just finished our fiscal year in FY '25 with the highest revenue that we've had in history.

As well, we have increased our overall EBITDA by 30% year-over-year. And we've also completed a debt refinancing as of June 2025, which really gives us the flexibility for operational investment back into the business. And we also have a new Board member that's bringing new insights, a new lender and Board member that is really making a difference, I think, in how we take a look at the business. From an overall revenue standpoint, one of the areas that's a highlight for us is the growth of our recurring revenue as we see this as the future for our overall profitability as well as top line growth.

As you know, we have over 1,100 systems installed globally. This year, we have really made a significant expansion into new markets and new countries, and you'll see that, that's a major cog in our overall strategy. We have two major unique technology platforms which Mu will talk a little bit more about the power and potential of these delivery systems.

But we've also had a number of new introductions with the Tomo C system for China. The Accuray Helix, which is a new system for rest of world manufactured in Madison, Wisconsin. We have introduced the compatibility of surface-guided radiation therapy and also introduced additional operational and commissioning improvements for the CyberKnife through our CyberComm introduction. So we'll get right into some of the things, but we do want to reinforce our strategy, which is really all around closing the gaps to cancer care. We will continue to advance care through innovation through our new product innovation. We certainly are introducing some very significant things here at ASTRO, and I'm going to talk about that. But another major part of our overall strategy is going to emerging markets that are higher growth markets that don't necessarily need the higher-end advanced applications and are really focused on throughput because the capacity is limiting for those that can get radiation therapy.

Additionally, we have placed a significant importance on our service and support for our customers. We know that if our customers are down and they cannot perform treatments that, that has a massive impact on overall patient outcome. And so we are committed to really providing service that reduces patients being rescheduled. And then finally, we think it's our obligation as a radiation therapy leader to connect the global radiation medicine community. And we're going to talk a little bit about that as it relates to adaptive radiation medicine. One area that we also want to focus on, and I think this is true not only for Accuray, but really across the developed markets is there's a lot of aged systems that are out there that do not have all of the latest capabilities.

This is certainly a focus for us in our innovation, especially in the developed markets to make sure that those customers and those sites have the latest technology capable to do SBRT to do SGRT, et cetera. So that's a major focus for us for both of our platforms. And here at ASTRO, we have introduced a new platform. It's Accuray Stellar. It's a helical based platform. It really is fully loaded with all of the latest capabilities, including ClearRT imaging, including Synchrony, real-time imaging as well as the full adaptive suite, which you're going to hear a little bit more from Seth and from Mu on it as well. But inclusive of that is also a training program and a confidence building effort to make sure that the integration of new technology is done in the right way, in a practical way to ensure adoption.

Because overall, we do believe that there are 3 key requirements to advancing care and really making a difference and it starts with making sure that we are addressing a clinical need with our technology development. And that ensures, of course, that we are closing a gap to care but at the same time, we need to ensure that it's adopted. And it's adopted on a full-scale basis and understanding what it takes to integrate new technology into the department is critical to our success. And then finally, being supported by reimbursement that truly is commensurate with the value that we provide to patients only then can we really have a true impact on care. And we believe when these requirements are met, that the result is not just incremental progress, but can be transformational in terms of patient outcomes that are sustainable providers and health care systems. So with that, I'm going to hand it to Mu, who will talk more about technology.

Thank you, Suzanne. I'm really happy to be here, especially with our esteemed guests and all the people -- so a little bit about our technology. Well, Accuray has always been about focusing on the patient first. And so the notion of precision medicine is well understood by a lot of people, including late persons. And it really means making sure that in how you choose the therapy you look at the unique aspects of the patient. Oftentimes, that means doing genetic screening of the patient, maybe understanding the mutations in the tumor. But we've always thought about the need to adapt technology to the patient.

Today, you're going to hear about from our clinician colleagues about adaptive therapy, which has a very specific meaning in radiation oncology today. But let's zoom out a little bit, and I'll talk about why adapt at all? And what are we adapting to? And it really means that if you put the patient at the center, the patient is not static. The patient is dynamic. Whether those changes are happening on the order of seconds or minutes or days or years, we've focused our technology strategy in adapting to the patient and how they change over time.

So let me take you back a little bit in time to -- at the time that Accuray was founded. Coincidentally -- or this picture on the left is an image from a patent that was granted at the same time that our company was founded. And the patent was for a fixation device for doing stereotactic radio surgery at a very demanding technically challenging form of radiation therapy that requires submillimeter accuracy. And at the time, knowing that the patient is difficult for them to stay still, this patent disclosed that, well, we're going to bolt the spine to the piece of equipment. And so the paradigm of that error was because the machines that deliver radiation are rigid, large and flexible, let's contort or conform the patient to fit into the limitation of the machine.

Certainly, about 30 years ago, around the time that our company was founded, CT imaging became more and more prevalent in the treatment of radiotherapy. And the use of CT to create a digital twin of the patient was an important part of planning the therapy. And most people today because of big data and the hype around AI, you've heard of the terminology digital twin. But this is something that's been prevalent in our field for decades. But if we go back to that era, what we did with CT images in the beginning was looked at the shape of the tumor and there was a type of therapy that was delivered at the time called conformal radiation therapy. And to put it simply, it really treated the patient as if there was this tumor floating in space and the beams were shaped for the tumor, not taking into account all the other information about the tissue that was present in the CT image because at the time, the computers of that era and the radiotherapy systems of that era we're not powerful enough to take that into account.

And yet the folks here at Accuray had a different mindset and an idea. We said, let's take -- let's make use of all that information because we could deliver a better treatment and take into account the radiation that's incident upon all the healthy tissue as well as the tumor. So if you've got a patient that it's difficult to stay still, well, how is our technology going to adapt to the patient rather than force the patient to adapt to the technology. On the CyberKnife side, the key idea was make it frameless, don't immobilize the patient by literally fixating their cranium or their spine to the machine.

And so the form factor of our devices look very different from the other machines of that era. In fact, they still look different. If you look at most of our competitors, their main products, the form factors have been the same for the last 70 years. So at the essence of our CyberKnife system is a robot and the type of robot is called the manipulator robot. And that shares the same Latin root word for hand because when you're doing surgery, the surgeon's hands are what adapt to the patient.

When you're doing radiosurgery with the machine, you need a machine that's capable of having that level of flexibility and adaptability. And so that's why the essence of the CyberKnife was built around a robot. If you look at the Radixact System and its predecessor, the TomoTherapy System, it looks like a CT machine. And why does it look like a CT machine. If we're using CT to look inside the patient and understand the anatomy, why would we not develop a therapy system that does the inverse of that. So if you're using CT, computed tomography, let's do tomographic therapy. And we leverage and make use of the entire information about the patient anatomy, not only targeting the tumor but preserving as much healthy tissue as possible. So that's again why our products look so different than anything else out there from their origins and even until today.

Let's make the technology adapt and conform to the patient and not vice versa. So a lot of improvements have been made, both at Accuray and our competitors over the years. We took a step further. We know that a lot of the tumors inside a patient move over time. And some of those movements are quite quick and they happen over a period of seconds. So we've got a unique technology in our portfolio called Synchrony, and it's available on both of our robotic and our Helical platforms.

And what this does, it uses a machine learning model. So knowing that every patient is unique and that the motion of their tumors is unique, our systems autonomously generate an AI model for each patient and predict what that tumor motion will be. And redirect the treatment beam to follow the tumor wherever the tumor is. And the benefit of that, you don't have to be a physician to understand what these pictures are telling you. Just if you look at the left, look at the right, around the bright spot, that's the tumor. And they're sort of a gray cloud around either of those pictures. On the right, a treatment delivered with Synchrony, you see that sort of gray cloud is very compact. And on the left, if you do not have access to technology at Synchrony, the approach is to radiate a large volume of tissue, expecting that wherever the tumor may move, you're still going to hit it. The trade-off, of course, is you treat a lot of healthy tissue. And so again, because the machines were incapable of tracking the tumor, what you typically do without access to something like Synchrony is irradiate a large volume of healthy tissue. Another example of forcing the patient to conform to limitations of the technology and not vice versa. So that's an emotion. But we also have -- I'm going to -- this is the same image, but the title is different in the sense that when you use Synchrony, you're able to track motion that's happening on the order of seconds and minutes. But another benefit over the years, some people have said, "Hey, Accuray, what's the big deal? Why do you care so much about precision and accuracy.'' We can deliver to a large region and control the tumor. Just this year, the American Association of Cancer Research, ACR published their 2025 report that said over the last 3 decades, cancer death rates in America have dropped by 34%, and that's because of the amazing advancements in medicine, both in radiation oncology, immunotherapy and in oncology in general. So people are living longer with cancer, which means just probabilistically, stochastically, as they survive cancer, they're at a higher likelihood of getting additional lesions or tumors again. And the benefit of being able to have something like Synchrony or a system like the CyberKnife or the Radixact that could compactly deliver dose to the tumor and spare healthy tissue is that it opens up greater possibilities for retreatment because people are living longer and longer with cancer.

So there was a technological advantage that we had for a long time that for many years, people said, is it absolutely necessary? Well, I think people will come back to retreatments today would definitely say it's necessary, and they appreciate what Accuray has done. So in summary, our technology is always inherently designed to adapt to the patients rather than forcing patients to adapt the technology. We have adaptations that will allow machines to respond to patient changes on the order of milliseconds to seconds. Our precision and accuracy and targeting and healthy tissues bearing allows us to have additional treatments and options for patients for curative intent when they get retreated, perhaps sometimes months and years later. And just at this ASTRO, we released our adaptive solution, which incorporates large population-based AI models to speed up the workflow so that for changes that occur in the anatomy over a period of days or weeks can be managed. And that's really that last adaptive -- that paradigm of treating changes that happen over days or weeks is what our clinician partners today are going to speak about.

And so with that, I'm going to hand it over to Seth.

Thank you, Mu, and thank you so much for joining us. We're not going to go over the clinical trends in radiation medicine. And when one looks from a longitudinal perspective, the key trends in radiation, what we see over time is 2 key areas. One is the ever improvement in advancing technology and Mu, who has deep experience in the field has highlighted some of that, and we'll focus on that a little bit here as well. And then also the improvement in precision and personalization in cancer care and especially in radiation delivery. And as we all know, the goal in treatment is to enhance patient convenience and quality of life. And there are several different parameters of that statement. One is to improve just overall control of disease and the other is to reduce the cost of care. And so radiation has been around for well over a century, but we're living in interesting times. And we are now at the convergence of advanced technology, biology, physics, that are allowing radiation to truly enter into a new era of transformative care.

And we're seeing ongoing engineering advances that are continuing to drive precision, but obviously, that takes time. And fortunately, Accuray has quite a head start. And in general, if we take a look at overall personalized cancer care has three primary treatment modalities. One is, as folks know, is surgery. Surgery removes all or some tumor. It is invasive and very much subject to complications as well as a dependency on the operator skills. Chemotherapy or systemic agents kill a proportion of tumor cells, and these are effective adjunct treatments, but they usually aren't stand-alone treatments in the vast majority of cancer cases. Accuray is a radiation company. We are a radiation solution company and radiation therapy and radiation medicine is minimally invasive, highly precise and machine-guided treatments. It's personalized inherently to patient anatomy and well over 50% of all patients with cancer will require radiation at some point in their cancer journey.

All of the esteemed panelists here that we'll introduce have lived during the era of a rapid advancement in radiation. All of us have seen this. We lived in the era where radiation was prescribed through plain radiographs, and it was administered through a very limited number of angles where we did our best to address the tumor and our very best to minimize the adjacent normal structures. But as you can see, we were incredibly limited. A very exciting innovation came about within 10, 20 years ago, where radiation was starting to get developed and designed based on 3-dimensional imaging. And that was the 3D conformal era, where physicians were able to outline on a computer, the type of structures they wanted to treat. It was no longer based on 2 dimensions. It was 3 dimensions, and we were able to put blocks in certain areas, and we got better at increasing the dose to the tumor and decreasing the dose to the normal tissues.

And we now are living in incredibly exciting times where with our amazing machines, we could paint the dose of radiation preferentially to areas with such a high degree of specificity and at the same time, minimize the dose to normal tissues where we're able to expand the range of treatments that we can offer and minimize long-term effects of treatment and have patients receive curative treatments that allow them to get back to their daily lives much quicker. And what we know is that there are significant tailwinds from an increasing global cancer incidence. This is data that comes from the WHO and the United Nations, which shows a rapid expected increase in the diagnosis of cancer.

And as we've mentioned, radiation is critical to addressing cancer. And the primary concerns in cancer care are not only cure or survivorship, but quality of care and cost and access to care. And this is where we believe Accuray has very much a right to win. Accuray is a revolution in radiation technology. And so we were always at the forefront of developing shorter treatment cycles and allowing clinicians to have the confidence that they could deliver better patient outcomes, and that all is predicated on having precision that we believe our technology can best deliver. And as Mu mentioned, the hallmarks of our treatment fleet include 2 systems. One is the CyberKnife system, which is a robotic-guided radiosurgery device that could treat with a high degree of precision and sub-millimeter accuracy. And the other is the Radixact system, which is able to move around the body and treat with an incredible level of precision to shape the doses to broader areas of the body. And what both of these have in common is a revolutionary innovation, which we call real-time adaptive radiotherapy. And at Accuray, we've always labeled as Synchrony where we are able to dynamically in real time, follow a target as it's moving. So just like all of us are breathing and the lungs move, every part in the body, the normal anatomy moves. And when we're treating a patient, the tumor is moving as well.

And at Accuray, we have technology that's able to follow that. The challenge that we have is that overall, things are changing in our body. And this gets into the concept of adaptation, adaptive radiotherapy. And adaptive radiotherapy represents some of the challenges that we experience, which is on a day-to-day, minute-by-minute basis, all of patient anatomy is changing. Not only does the anatomy change, but the tumor shrink. Tumor shift, they shrink and they respond to treatment. Patients also can move during treatment. What adaptive radiotherapy offers and what you'll hear from the panelists is an ability to increase the personalization of cancer care that we can improve our targeting and minimizing normal tissue toxicity and increasing the dose to the areas that we want to treat. And we know that we're at the very beginning of an exciting evolution in radiation. What we know is that when we look at the total fleet of linear accelerators in the United States and in fact, globally, those -- the number of dedicated machines in adaptive is relatively small.

And so there's a need for luminaries like on this panel and others that we'll discuss to help guide the field to feel confident in how to use adaptive therapy. And it's also incredibly important for companies like Accuray to lead the charge and to provide the right technology. We believe we have a right to win. And so we've helped develop an interstellar peer-to-peer education program that we are growing. And this includes a panel of international luminaries who have experience in providing adaptive radiotherapy to different anatomical sites of the body and the different constellation of adaptive treatments and is designed to pair these clinician leaders to others learning adaptive therapy to improve their trust and to facilitate their adoption of adaptive radiotherapy.

We know that this is going to help enhance new users to utilize the technology and to feel comfortable in leveraging the best possible treatments for their patients. And so now I am absolutely delighted to introduce our panelists. And the panelists here are international luminaries in the field of radiation medicine, and these are thought leaders. In addition, many of us have been mentored by individuals here on the panel. And so what we'll begin with is Dr. Shalom Kalnicki, who's the Chairman of Montefiore Medical Center, Albert Einstein College of Medicine. And Dr. Kalnicki will give us a talk on the future of radiation oncology, precision real-time adaptive, followed by Dr. Jonathan Haas. Dr. Jonathan Haas is the Chairman of Radiation Oncology at NYU Grossman, Long Island School of Medicine, and Dr. Haas will provide a lecture on how early adoption of adaptive and AI-based radiation can be used to build a thriving radiation oncology department. Following Dr. Haas's lecture, Professor Peppe Sasso from Auckland Radiation Oncology will provide us a view of motion management and imaging from the global perspective. And afterwards, Dr. John Kresl, who leads the Phoenix CyberKnife and Radiation Oncology Center in Arizona, will provide us a view of radiation oncology, where we are now and where we are going. And following this, we'll have a brief Q&A. So with that said, it's my absolute pleasure to introduce Dr. Kalnicki to provide his lecture.

Thank you Dr. Blacksburg [Audio Gap] cost-efficient curative cancer treatment in the market today. The future is bright. We have expanding indications, but those depend all in perfect technique, comprehensive execution, and this is where integration with clinical trials, health delivery science with the 2 other specialties, surgery and chemotherapy, integration with the new theranostics treatments that are coming on market and the new field of radiation immunology open tremendous perspectives. The new era, as Dr. Blacksburg explained, started with precision radiation therapy. You can see on the left what radiation beams did in the past in terms of treating so much more normal tissue and how we can today shape it precisely, completely skipping organs like the bladder and the bowel at the center, like the hips in the periphery and concentrating the radiation in the target lymph nodes where the tumor is on the right figure.

But with this precision, the problem is one cannot miss. Tumor moves, during treatment, it shrinks and changes shapes, Normal tissues start occupying spaces that were previously contained by cancer, and this is extremely important to prevent side effects. Breathing, items like bowel gas, bladder feeling and other changes of internal anatomy happen. And this is where the platform that was previously shown, the Radixact and now the Stellar innovation has to be consistent with us addressing all these issues. Instead of taking a snapshot from a CT or an MRI in the beginning of a series of treatments that can last up to 2 weeks, we now consider adaptive therapy the standard of care and the future of radiation oncology. It is the process enabling the modification of a radiotherapy treatment in response to changes that happen, like we said before, in the anatomy, in the biology and in the whole patient. It's a huge paradigm shift. We are moving from static one-size fits all treatment plans to dynamic, precise and patient-specific care.

There are different technical considerations how this is done. It can be done offline. It can be done offline, but the ideal holy grail that we are getting to it now is real-time adaptive therapy, the plan of the day, looking at how the original plan is adjusted as necessary while the treatment proceeds treatment after treatment, day after day. The future of radiation therapy is that adaptation will move from niche to mainstream and radiotherapy vendors are being challenged to provide the tools that will make this daily part of our lives. Daily setup images need to be utilized.

The formable contouring algorithms with AR need to adjust sometimes up to 32 different structures for a head and neck in cancer. Those has to be recalculated in seconds and those variations have to be tracked. And this is what we do in adaptive radiotherapy, and we are moving from offline to online to real time. This for everyone to have an idea, this is how we track the daily dose of targets and look on the right, how many normal tissues, OAR is an acronym for organs at risk. These are the normal tissues, and we track every single one of them. And when we move over time, we look at our graphs on how we are adapting for every single fraction, and this is a visual realization on how we follow a head and neck cancer shrinking. This can all be done because leaves in the multi-leaf collimator precisely dense according to the movement of the tumor and according to the plan of the day that we created.

We need to go and we are getting there to efficient continuous delivery by following the actual holy grail of radiation therapy, reducing artificial margins that we put around the tumor targets to actually compensate for our lack of precision. And Accuray is proud that the Radixact team in our hospital won the prize of the American Association of Physicians of Medicine for being the closest real-time motion management and adaptation with less than 1 millimeter variation for precision in every direction. In short, we are dealing with highly improved image quality, which makes auto contouring and AI algorithms actually a possibility.

AI algorithms for automated contouring are directly linked to the quality of the image of the CT that you are using to base your AI into. Continued computational advances will lead to quick adaptive replanning that can now be done in minutes. Online adaptive planning require, again, incredibly precise imaging tools. And advances in medical technology of including all the imaging and computer software are making an adaptive radiation therapy a practical reality for more and more clinics around the world. This will not only improve quality or -- improve cure rates, but also improve quality of life, decrease side effects and have a tremendous impact in many, many countless patients all over the world. Thank you for your attention.

Thank you, Dr. Kalnicki, and we'll now have Dr. Haas present his talk.

So thank you for allowing me to speak today. I was asked to speak about how early adoption of adaptive AI-based radiation can be used to build a thriving radiation oncology department. So I'm the Chair of Radiation Oncology at NYU Long Island. And this is our story. So we weren't always NYU Long Island. We used to be a hospital called Winthrop University Hospital, a small community hospital, really close to downtown New York City, but we are in downtown Mineola. So right out of the gate, I have to overcome misconceptions that the best level of medicine is done at major cities. So you can see all these little bubbles here. So we're right in the center surrounded by multiple academic and private really high-level radiation oncology departments. So in 2005, I thought I was smart. I was a young Chief of service, and I thought I was going to get a machine that -- a Varian TrueBeam that could do some SBRT, some IMRT, and I thought I had it figured out. And there's a reason why I am not a CEO. So this is what I got, a first-generation CyberKnife. And this is what I thought I got. But we decided to try to build a world-class center. So Jack Welch, who is a role model of mine, I've met him, said the former CEO of GE. He was never the smartest guy in the room. From the first person I hired, I was never the smartest guy in the room. That's a big deal. If you're going to be a leader and you're the smartest guy in the room, you've got real problems. So everyone who knows me knows I'm far from the smartest guy in the room. But I have plenty of people that are. So we worked with this. We went from 2 sites to 6 sites. For a while, I was the only radiation oncologist for 3 months in my department. We're now at 7. We went from 5 to 14 physicists, 10 to 25 therapists, doubled our linacs, and we have strategic growth aligned with vision for precision and innovation. So what does adaptive mean, right? It's the sexy word now. There's real-time adaptive, which adjusts during treatment, such as Synchrony, there's off-line adaptive, which modifies the plan between fractions and there's online adaptive, which replans in real time before each fraction based on the daily anatomy for highest precision. So CyberKnife was the first adaptive AI platform decades before it became sexy. This is John Adler with a first-generation CyberKnife probably from the 1990s at Stanford. But the company continues to innovate. This is an S7 CyberKnife, which we have 2 of them and we're going to get more. So radiation oncology sounds pretty simple, right? Just hit the target. Target moves lots of ways, 6 degrees like an airplane, XYZ, petrol and yaw. And when people come to try to sell me linacs, they say, well, it's accurate. What does that really mean? There's a lot that goes into treatment, beam delivery, treatment planning, imaging. Patients are going to move. Patients are going to set up and the tumor is going to move. And all that has to go into our planning. So the CyberKnife system has a mechanical accuracy of 0.2 millimeters, less than the diameter of a piece of hair. What makes the CyberKnife system unique? It's a robotic system. It's noncoplanar, which means that the beams come in at hundreds or many different angles. It's nonisocentric, so we don't have to focus on one point in time or one point in the tumor. It has submillimeter accuracy. It knows the target position throughout the entire treatment. It tracks and corrects in real time. And again, it was AI long before AI became sexy. So I want to see data, right? I'm a clinician, the company can tell me something, that sounds great. But there is fantastic high-level data proving this for fixed targets, you can see in the middle bar, super sub-millimeter accuracy and for moving targets in lung, liver, also submillimeter accuracy. And it's AI for reactive tracking, things that don't move such as the skull, the spine, fiducials, and it's proactive. It can anticipate where a tumor is going to be for things like liver or lung, which move in real time.

So we're tracking, we're detecting and we're correcting while the patient is being treated. So Synchrony is how we treat our moving targets such as lung and liver. This is -- you can see a lung tumor moving up and down, left right. And in real time, it perceives the change in target position. It uses AI decision-making to adjust the treatment delivery in real time to make those changes and it synchronizes the treatment beam to the target location so we can reduce the margins. That's the volume of normal tissue that we treat around the tumor.

So as part of the outcome, it reacts to real-time changing circumstances while the patient is being treated. And Accuray is comfortable in their own skin. So this is one of the sentinel studies that has recently come out, the PACE trial. It's a Phase III trial. PACE-A was a trial randomizing healthier patients to surgery versus SBRT. And PACE-B was a randomized trial, randomized patients that were in candidas for surgery to either SBRT, 5 fraction radiation versus conventional radiation. And imagine you're Adidas and you sponsor an event and you say, well, you can wear Converse, you can wear Nike. Accuray was comfortable enough to support that study. And they just wanted to show that the SBRT was better. And despite that, and they didn't try to do this. That wasn't -- this was a secondary analysis, but in the SBRT arm of PACE-B, patients that treated at a center that used CyberKnife had the lowest toxicity compared to other platforms. They weren't trying to do that. They were just trying to show that the treatment was [ equipos ] that it was equivalent, and this was the outcome anyway.

So our CyberKnife System success led us to explore forward technology on the Radixact System. Both systems leverage Synchrony technology, enabling real-time motion tracking and correction and adaptation. It's enabled us to publish. So I'm a clinician. I like to get my hands dirty. That said, since we were early with this, we were able to have papers at the highest generals for prostate, for breast, even the red journal, which is our luminary journal, a little 6-person department in

Mineola is competing at the highest level. We're able to punch above our weight. And we've become a global department due in no small part to Accuray. This is -- I was a keynote speaker last year in Brazil. Every year, Seth and I host an international training course for prostate SBRT, and we're comfortable in our own skin. This is a platform-neutral course that we have. So with Accuray's help, we have a platform-neutral course because we're comfortable with our system, but we want to teach the world to use whatever they feel comfortable with. It's enabled me and my department in the most competitive market in the country to be one of the busiest radiation oncologists. This is from ProPublica.

If you remember, I told you that we used to compete with Manhattan. We now are in Manhattan. We were the first CyberKnife in New York City 10 years ago. So why online adaptive and why now? It aligns with commitment to precision, personalization and progress, a high-volume clinic demands efficiency, elevates knowledge of the entire team and build similar expertise. And we're now going to be starting emulator-based training to get better before we take all of this and go live.

So thank you for allowing me to speak. This is where I grew up, Long Beach Long Island. Thank you.

Thank you so much, Dr. Haas and will now be joined by Professor Sasso, who will give his talk.

Thank you so much, and good afternoon, everyone. I'm going to try and convince you why motion management is helpful and give you a global perspective on how we can transform cancer treatment with increased precision and this technique of treatment that you heard from the other luminaries. I actually have a dreadful Imposter syndrome at the moment being sitting here, how actually this is going to change cancer management and cancer care.

A little bit about me. You can see New Zealand, it's quite a big country in the Southern Hemisphere, quite. And I work across a number of institutions, in particular, Health in New Zealand, Te Aka Whai Ora is the Maori name, the native language name for our public health system and also private center, CyberKnife and University of Auckland. I have some disclosures. I love tennis almost as much as I like my CyberKnife, and I am extremely interested in radiogenomics, which I'm going to try and explain you how also works in perfect combination as an extra element of precision within highly precise radiation medicine. So going back to the main talk is, is adaptive radiotherapy the future of cancer care and in particular, precise cancer care, why should we consider using adaptive therapy and also trying to introduce you this concept that radiotherapy doesn't have just 3 dimensions, it has the fourth dimension we've heard before. There's a fifth dimension that we can talk about biological and then potentially even a sixth dimension that is how the biology changes and we want to track that.

So this is me. This is what made my CyberKnife program. We heard about what happened in New York. This is what made my CyberKnife program so successful, one of the most relevant newspapers in a small country like New Zealand, like 5 million people and 20 million ships. We had an article about it, and this is how AI likes to think I could be. Now why I'm here? I'm here because I was lucky enough for short period of time to be the President and the Board Chair for -- I was in the Board for about 7 years and Board Chair for about 2 years of the third largest radiation oncology cooperative group for clinical trials in the world, which is called Trans Tasman Radiation Oncology Group. So we have now more than 15,000 patients enrolled into clinical trials. So this gives a bit of perspective of where radiation research is going and how precision medicine and precision radiotherapy can play a role over the near future. So we heard about the clinical trial of PACE. We -- I was actually one of the investigators, the PI for New Zealand. And also, I was lucky enough with Shankar Siva to be part of a clinical trial of pulmonary metastasis, which made quite a bit of news comparing a single fraction versus multifraction stereotactic. So -- but now I have a secret to tell you something that you probably don't know about it. They're actually not all machines are the same, okay?

So you do have machines that are reliable, efficient, machines that are very accessible and foundational. But you will see there is a fundamental differences between the old-fashioned CRM linac that have been dominated radiation medicine for the last 50 years, which are machines that are bolted to the wall. They are quite flexible in treating a number of indications, but they have a number of limitations, as John was saying earlier on. And so you can actually not compare the ability to acquire imaging with a CT scanner integrated inside your radiotherapy device to what you can do with the cone beam panels, which can only have a slower rotation and therefore, they are much more subject to image errors due to patient motion.

And also the CyberKnife, as we heard from John, is completely different technology. And I like to compare that not all the cars are the same. And perhaps if you want to really have a car that has ultra-high precision on the road for ultimate performance, you need a different design. You can't go with a more traditional design. So radiation medicine is changing. When I was the Chairman of the Radiation Oncology working group at the Ministry of Health, we set up a national repository called [ ROC ], which look at how the number of fractions or the number of sessions of radiotherapy is changing over time. And this is a trend that is global, it's international. It's not just in Australasia. And we are also seeing that the interest for more precise, more intense doses of radiation delivered over a much shorter period of time with sharper dose gradients called stereotactic radiotherapy is increasing, especially in Australia and New Zealand. This has a very important effect on patients because long treatments with potential large volumes and side effects are actually affecting quality of life of patients. And we need to remember, as we heard before, that patients are living longer and therefore, avoiding even mild side effects can actually have a major impact on patients when they will be 20-, 30-year survivors of radiotherapy.

Grade 2 toxicity is not a small point. It's a very important point because a minor dysphagia that is present at 3 years after an oropharyngeal cancer can be a major issue 20 years later when patients are still having a really good quality of life with their family and whanau, it's a Maori word for family and extended members of friends around that. So we have heard about the Radixact technology and CyberKnife precision. I'm not going to mention that on that more, but our center in Auckland has been lucky enough to be implementing offline adaptive radiotherapy for 10 years now. And you probably have seen some of these white papers that we presented very early. And the great thing about the adaptive radiotherapy that you can perform with the Radixact or the real-time adaptive that you can perform with the CyberKnife is that you actually have much less uncertainty about where your dose cloud is going to be in the surrounding [ organ rest ]. And this does play an effect. You will see here if you are constantly on target, you can make sure that your 40-gray isodose is actually not going around and spilling outside your target in ways that in the long run can always cause an increased risk of side effects.

So why do I like Accuray is because it's got a comprehensive portfolio with solutions that complement with each other. You have obviously, the unsurpassed quality of 3-dimensional imaging with Radixact and more recently with the stellar of this presentation was made before the announcement of yesterday. And then the CyberKnife, you heard about it. Now other companies are trying to compete with the same principle by improving the software around it. But the reality is that the quality of the hardware, it's very hard to be compensated with the software. And when the hardware is superior, is the same hardware that you actually have in a high standard CT scanner. It's very likely that your software implementation will actually overperform an inferior hardware even if they invest a lot into AI and software with this.

This is an example, for instance, when I first saw this slide, I couldn't really see the difference between a scan that was taken at the time of treatment with ClearRT and a scan that was taken when we were planning the radiotherapy, as you've heard before, in the process of radiotherapy planning. And the accuracy of less than 1 millimeter is actually something we see in the clinic every day. It's not just across one center. It's seen across multiple centers. These are the experience we've had.

So we heard from John, why would you want a CyberKnife because you actually get over 96% cancer control rate, for instance, in clinical trials being published so far. And a relative risk of reduction, as we've seen from PACE clinical trial of 60% to 90% of side effects. This is -- these are not small numbers for our patients. We are seeing here, for instance, the difference between CyberKnife and CRM linac that was in the PACE trial. And these are competitive technologies, very good with MRI, but you will see how tighter are the color lines of the isodoses when you compare a CyberKnife with a competitive technology. And this is an example of how, for instance, reducing margins that we heard from our previous speakers can reduce the number of side effects. And this was a clinical trial one before showing how you compare a cone beam CT guided, so treatment of prostate cancer with CT guidance versus MRI. But you will see this is the yellow bar from the CyberKnife treatment when you compare it with MRI. There is a significant difference between the results that we've been published, and that's where the value stands.

So why do I like CyberKnife and Radixact. There is a unique design and performance. There is an attention to details. And also, as we heard, the way of tracking is, in a way, simple yet elegant, simple ingredients, very well put it together. So the other important aspect is the importance of taking away the uncertainty of human driving the precision. We know that, for instance, AI can do a great job. It doesn't go parting the night before. It's no -- doesn't have any headache. It doesn't have -- and so you take away some uncertainty, which is related to individual. What we can deliver now, we can deliver high-quality imaging with stellar. We can have the formation, accurate registration and monitoring management. This is the Helical platform to give you an idea of the large acquisition and the image quality that you can have for both online adaptive radiotherapy in real time with continuous motion tracking that you can mix together in just one platform. And this is pretty unique in the global portfolio today.

So why should I want to buy Ferrari, I'm originally from Italy because you have engineering excellence, investment potentially add values, it grows over time, emotional connection and this exclusive ownership experience. I've had all this in my CyberKnife experience in my center. It was like having a fantastic Ferrari.

And with this, I'm closing my talk, and thank you so much for your time.

Thank you so much, Professor Sasso. And we'll now hear from Dr. Kresl.

Thank you. I love the opportunity to talk, and I'm glad I'm going last. You guys have teed up everything that I'm going to talk about. I was asked to kind of give a perspective with regards to where are we now and where are we going from a radiation oncology perspective. So I'm going to kind of overlay one of the most important parts of radiation oncology, which is kind of the reimbursement and what's driving a lot of the development. But you've already seen how the evolution has gone from 2-dimensional, 3-dimensional setup utilizing surface anatomy to plain films to cone beam CT.

So over that time, I'm going to kind of give you a little bit of the snapshot of where we are in the last 10, 15 years and how it's driven some of the decisions going forward. Some of the other things I've been involved with where there on the disclosure slide. But here is kind of one of the main drivers. Over the last 10, 15 years, there's been a reduction in the number of fractions delivered in a single treatment course for either breast or prostate patients. And this is U.S. data that shows the 2 main disease sites in the U.S., breast and prostate, have had a significant decline in the blue line, which is just a conventional fractionation that most people are familiar with and an increase in both hypofractionation or reduced number or the extreme hypofractionation, which is radiosurgery and SBRT. And that's important not only for just breast and prostate, which makes up about 1/3 of all radiation oncology patients in the U.S., but you can also see that there's been an impact in the decline of the number of fractions kind of delivered in a single treatment course for other disease sites as well as the metastatic population.

This is important because it's one of the drivers of payments for you in the U.S. The treatment duration. You kind of get paid to some extent on how many fractions you deliver to treat an individual patient in an individual treatment course. The treatment modality also goes into determining kind of the reimbursement for that patient, 2D, SRS, SBRT on the lower end, 3D conformal IMRT and protons on the upper end. And then finally, treatment location. And that means treating a patient in a freestanding center or treating a patient in a hospital center is different in the United States with regards to reimbursement. And what all that does when you kind of combine them all together and calculate everything is that over the last 10, 15 years, there's been cuts in the reimbursement rates. There's been a reduction in the number of fractions to treat a patient. And this has led to kind of creating an uncertainty or a little bit of instability around the Medicare physician fee schedule and the hospital outpatient department setting payments.

On the left is the decline in overall reimbursement for the freestanding centers. On the right is kind of the [ HOPs ] or the hospital outpatient department decline. So in reality, we've experienced about a 20% reduction while we've been developing and advancing the technology. Well, typically, every year, we go through a Medicare rule-making cycle where there's a proposed rule that kind of is reevaluating or resetting the reimbursement for the different codes. And coding is just another language that allows -- basically translates what you do or what you deliver for a patient into different numbers that allow you to get reimbursed. And that's important to run a department and keep your doors open. Well, we're through the July proposed rule. We're in the public comments, which have kind of closed, and we're now kind of waiting for the final rule. But for the first time this year, there's been a little bit of a difference in the Medicare rule-making change approach. Instead of just kind of reevaluating or reaffirming or slightly modifying the 17 treatment delivery codes and the 6 treatment imaging codes, which are primarily for the Medicare physician fee schedule, they are now proposing combining all of those into 3 treatment delivery codes, which is more along the line of how the hospitals have been paid with a reduction in -- or with a reduced number of overall delivery codes. And why that's important is that these kind of now represent the 3 proposed levels for reimbursement in radiation oncology in the U.S. with a simple Level 1 code, the 402 code, which is going to be electrons and 2D. So very simple.

The 407 or the intermediate and Level 2 code, which is going to be most of the IMRT and 3D conformal that represents the majority of radiation oncology patients being treated today. And then the more complex Level 3, 412 code, which for the first time, really acknowledges and reimburses patients being treated with active motion management, which is the, again, highest level of complex SRS, SBRT or IMRT. And why that's important is everything you've heard so far clinically on how everything is involved, evolved along the lines of having to identify your target, image your target, track your target and deliver treatment. The better you can do that, the better you can physically deliver dose to target and physically exclude those to surrounding tissues and organs at risk results in 2 things. Obviously, if you reduce dose, you're going to reduce -- to surrounding tissues, you're going to reduce side effects. But what's also important is you can now increase your dose on a daily or fraction basis to the target, which doesn't necessarily mean you're just increasing dose on a linear scale. There's the biological involvement of how radiation interacts with tissues results in a higher radiobiologically equivalent dose. It's actually a more potent dose, even though the actual number might be the same. But if you deliver it in a shorter period of time, you get more cell kill, cancer kill and better outcomes.

Well, to do that, I was lucky enough to be introduced to CyberKnife in radiosurgery early in my career, had a chance to utilize it. Over a long period of time, I had serial #9 for my first CyberKnife and developed a number of different CyberKnife centers up and down the west of the U.S. and help start centers around the world. And it was always driven by physicians and organizations that wanted to deliver the highest level of SRS, SBRT and IMRT. So now finally, CMS is acknowledging this by integrating active motion management into the reimbursement, not only because of better patient outcomes, but because of the extra time that is required for physicians to have practice expense and equipment. With this, the Accuray has provided a small health economic simulator where you can kind of plug these new numbers in should they go into effect to see how it affects the future of your clinical practice and future going forward, is really going to be what's called ROCR.

And this is the Radiation Oncology Case Race Act that's been proposed and is in kind of in the process of working its way through Congress. But it's going to accomplish the 5 things that ASTRO and our professional committee kind of set out to do about 10 years ago, which is kind of become free of how best to choose your patient by blending the impact of financial hypofractionation or the incentive to kind of deliver a large number of fractions for your treatment, eliminate away or eliminate or reduce prior authorization delays, help give some access to patients that are underserved or hard to reach and to unify payment across the different settings. So it no longer is dependent on whether it's hospital or freestanding. Kind of the basic details is the 15 most common cancer patients -- disease sites, I'm sorry, will be under ROCR. It simplifies the payment. So now it's just going to be a single payment regardless of the technique or technology you choose. There is an accreditation component, which is -- incentivizes and increases your payment should you be accredited. And it also still allows for low-volume disease sites as well as increasing or allowing development of new technologies. The way it works kind of in the simplest form is, again, we're going to have a base payment for the 15 most common types of cancer. The important part here is it's now going to apply an adjusted inflation update and savings. So we will not kind of have that steady decline over time. There'll be stability as well as expansion of use and capabilities. There's an incentivized for accreditation, which will help quality of care.

And then there's also some support for helping patients access those that are in underserved areas. Again, this was introduced in March. It's working its way through, but hopefully, it will be enacted in the next year or 2. We've got all kinds of supporting groups at the very top of that list on the left-hand side is Accuray, both by alphabet and I think also early identification of how important this is. And then for the future directions, yes, the reimbursement models are always going to reward investments in advanced technologies in the U.S., and that's because of the incentive to reduce the fractionation, reduce the dose to surrounding tissues and organs at risk and increase the dose to target. And that's that continued focus and evolution that we're all after. And that requires integration of this advanced technology, both hardware and software and increasing its ability to be incorporated and utilized throughout the U.S. as well as throughout the world. So that's where we're going, and it's being driven by better outcomes. Thanks for listening.

Thank you so much, Dr. Kresl. We'll now begin our Q&A panel, and we'll open it up to asking -- to looking at some of the questions that have come forward as well as discussing some of the key elements of adaptive radiotherapy that have been covered already. And so we'll begin with Dr. Kalnicki. So Dr. Kalnicki, you've described adaptive radiotherapy as a paradigm shift in radiation medicine. Can you elaborate on what makes this shift, in your opinion, so significant especially compared to past innovations like IMRT or IGRT.

I would say thank you, Dr. Blacksburg. I would say it's not compared. It's a direct consequence actually. And one of the items that I would like to stress at this point is that hypofractionation was mentioned so many times by all of us. And I think that the new technologies with sparing of normal tissues by IMRT and IGRT have moved from us delivering what normal tissues could tolerate smaller daily doses of radiation on a protracted treatment time of almost 2 months usually to very high precisely localized doses that are radiobiologically much more effective. So this hypofractionation trend has proven to yield extremely high cure rates with the radiation regimens that we give today and with more precision and the realization like we discussed that everything moves and changes, adaptive has to be if we want to pursue the holy grail of high cure rates and excellent quality of life for our surviving patients. It has to be a consequence of increased precision.

Thank you, Dr. Kalnicki. The next question is for Dr. Haas. Dr. Haas, you've built one of the most competitive and high-volume practices in the country, if not the world, what role has precision and more specifically, real-time adaptive radiation played and helping your team differentiate and grow.

It essentially defined us. So 20 years ago or 21 years ago before we got our CyberKnife system, I was used to big margins, 20 millimeters around the prostate, 4 fields. And pretty quickly, I saw that if I can tighten the margins down to 3 to 5 millimeters and be the first in an aggressive market, that defined us. And we continue to kind of try and innovate with the technology. We've done 5 fractions for years. We have an open protocol for 2 fractions that's being presented at this meeting. So to answer your question, because of the technology and the precision, we became with a little bit of ego known for being among the first to be a super precise HD or SBRT practice because of this technology.

Thank you, Dr. Haas. And a follow-on question to that is, what practical challenges do you see when implementing online or real-time adaptive in a busy clinical workflow? And how do you manage them?

Yes. I mean so a lot of it is having a staff. I've got a world-class physic staff to help train my staff we were able to kind of forward see that with the success of the precision with the CyberKnife to pivot that to the Radixact. So instead of doing precision just for SBRT, we cannot do it for VMAT for a conventional fractionation also. So that really would help us for both.

Thank you, Dr. Haas. Next question comes to Professor Sasso. Professor Sasso, you've practiced and you've trained across multiple continents and care systems. How do you see the global perspective shaping the future of adaptive radiation therapy?

The most fascinating aspect is that we are seeing a globalization in upward trend of care. So we are actually thanks to the way we have now to meet and communicate. Centers and countries around the world and institutions are more and more taking experience internationally. I mean we heard from fantastic clinical trials coming from the subcontinent and we have some amazing technologies coming from all other continents. And I think there is a real positive effect of globalization. In my view, I mean, obviously, been lucky enough to have worked in different countries, including France and England, Australia and so forth and Italy and now New Zealand and also visiting other countries for periods of time. It does add you a global perspective and opens up your mind. And I think this is actually happening, thanks to technology across the whole world. And trends are not just coming from major -- a few handful of major institutions, but from a global network. And this is what I see, for instance, with Accuray, bringing people together a true democratic environment of multidisciplinary approach and it's fantastic. It's a breadth of fresh air.

Thank you, Professor Sasso. We actually have a follow-on question. You are known as a bit of a connoisseur of finer technologies, and you've worked with a number of them and published and presented on that. In your view, what differentiates Accuray's approach to motion management and imaging from others in the field?

In my view, is the -- as I mentioned in my presentation, is the simplicity taken to the extreme level. It's almost like -- I use an example. It is an example, but in Italian cuisine to have the most delicious field, you only want to have 3 ingredients, but perfectly made of the highest quality. If you look at the motion tracking of, for instance, fiducial tracking is actually a relatively simple concept, but implemented with the highest level of technology and in a very clever and elegant way. Similarly, if you want to have -- as we heard before from Shalom in his wonderful presentation, if you want to have great images, you have to have a great hardware. And you can only play as much with AI. But if you don't start from a good hardware, then any iterative reconstruction on CT scanner imaging is never going to give you the right quality. So I think the quality of the ingredients, the attention to detail is really what I value most.

Next question is for Dr. Kresl. Dr. Kresl, you've noted how reimbursement pressures are reshaping practice economics in radiation oncology in the United States. How are technologies, in your opinion, like motion management and adaptive helping practices remain financially viable?

Well, there's a couple of things involved there. I think throughout the evolution of radiation oncology, there's always been the need to improve. And then once that technology has been developed, the ability to then move it out into mainstream and have it penetrate the market and be used commonly is then based on the reimbursement or the realization of what the value is of that new technology for the patient population. And I think now we're seeing that with the proposed rules having the active motion management at the highest level.

For me, it's been relatively simple. I love the technology of CyberKnife was the only and still is the only treatment platform that has the radiation beam move with the patient based on the tracking and treatment delivery and keeps the dose centered on the target. And now that's starting to move into IMRT, as you saw in my presentation, the fraction numbers are coming down because we're just getting better at delivering dose more easily, and that's -- a lot of that is involved with the different ways of tracking the motion management, whether it's Synchrony or whether it's surface or imaging. So I think now having the ability to support the technology is important, and that's the reimbursement component. And the other part that's also driving that is patients and other referring physicians are looking and seeking out the highest level of care.

Thank you. Dr. Kresl, you've been the principle of thriving private facilities. You've highlighted how your centers have used motion management is a core part of delivering efficient high-value care how did that influence purchasing decisions at your institutions?

I think I just went over it last time. I mean, right now, CyberKnife is the only 1 that delivers that kind of treatment tracking and delivery I think we saw a couple of examples of that with regards to treating the lung, which was a huge step. As in anything in medicine, you start off with the simple thing. So radio surgery was done in the brain because that doesn't move very much, especially if you've got it locked in a frame. But then when you take that principle and you want to deliver that elsewhere in the bodies, but specifically when you've got a moving target, you had to have new technology. And the new technologies, as you saw, you can't bolt a spine patient to a treatment couch very easily, and you can't do that with a lung cancer. So the ability to track and deliver radiosurgery with image guidance and motion management really is the only solution that makes any sense.

Next question comes to Dr. Kalnicki. Dr. Kalnicki, you were at the forefront of when we showed the trends in radiation medicine, you've been at the forefront of several of those major trends, helping to lead the evolution to IMRT and IGRT and now to adaptive radiotherapy. Given your experience leading large academic programs, Dr. Kalnicki, how do you see adaptive being integrated into real-world practice in terms of workflow, staffing and decision-making?

The most important is the ability to develop clinical protocols that are easily reproducible, that are simple, that are real quality driven and will allow the technology to spread with the quality and reproducibility it deserves. That's why it is so important to have the backing of computerization and a reliable hardware and software platform like it was discussed before. It allows to track proactively quality management. It allows to track results and publish them like was mentioned before, so we can get better and better at it. And it is very important, again, to develop the quality management systems that will spread the technology and be applied correctly by large amounts of clinics, so more and more patients can benefit.

Thank you, Dr. Kalnicki. And the next question is directed once again to Dr. Kalnicki, but also to the other panelists if they have thoughts that they'd like to share. Accuray is proud to have a constellation of different adaptive solutions to clinical problems. Question to Dr. Kalnicki and then to the rest of the panel, if somebody has a thought is, where do you see the greatest opportunity for adaptive radiotherapy to expand its clinical indications in the next 3 to 5 years? And specifically, are there disease sites or patient populations where you feel it's currently underutilized?

The greatest opportunity and need is what was explained before, which is the need of hypofractionation with less and less fractions, adaptation becomes almost a necessity and a corollary of the treatment philosophy. And as far as disease sites, it is hard to exclude any disease sites. Every disease site and every patient deserves the highest quality of care, and it comes with adaptive radiation in our view.

I agree entirely. I agree.

Yes. I just want to reinforce that. And we had a previous meeting a couple of days ago, and Shalom and I were at the meeting. And it's what I would call the Shalom's best principle is the opportunities to use adaptive radiotherapy to reduce side effects across the whole spectrum. Any potential indications from head and neck, [ kidney ], pelvic, other pelvic areas, ultracentral, where you actually have a risk of side effects that is related to tumor variations or uncertainty related to management of motion or changes of shape where you can use adaptive therapy to reduce the risk of side effects, that's your goal.

I'd love to thank our esteemed panel. Thank you so much for your guidance and for your thoughts and for sharing your wisdom with us. And we'll now turn it back to Suzanne Winter, our CEO, for some concluding thoughts.

Yes. I just want to thank all of you. This was just a wonderful discussion. And I think the questions that came in as well as your insights and sharing all of the challenges that you face on a day-to-day basis. Your perspective is essential to us, especially as we advance technology and clinical innovation and the reimbursement. And I think from a reimbursement standpoint, what's exciting, I think, is we're moving away from a period of time where there was great uncertainty and now there are signals that I think are very positive for greater precision, better technology.

I started the talk talking about the number of aged equipment that's out there. And there really are a number of catalysts now, I think, that are available, not only the rise of SBRT, certainly technology development, getting more precise, more personalized and a signal toward Class III complex cases and reimbursement that just aligns very well with Accuray technology. So that's wonderful to see.

But again, we look forward to continuing this dialogue and working together to shape the future of care. I thank you again for your time and your partnership, and we are grateful to everyone on the call for joining us today, and we look forward to connecting again soon.