Accuray Incorporated Stock

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Accuray First Quarter Fiscal 2027 Financial Results Call.

[Operator Instructions]

I would now like to turn the conference over to Steve Monroe, Vice President of Financial Planning and Analysis. You may begin.

Thank you, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the first quarter of fiscal year 2027, which ended September 30, 2026.

During our call this afternoon, management will review financial results for the quarter as well as 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, everyone, and thank you for joining us.

The end of our first quarter of fiscal 2027 marks approximately 1 year since I joined Accuray. Over the past year, we have made significant progress against the transformation plan we laid out. We made changes across the company to strengthen our financial foundation, lowered our cost structure, improved our organization, sharpened our commercial focus and positioned Accuray for sustainable growth.

But rather than spending time looking back, today, I want to focus on where we are going. As I said on our last call, fiscal 2026 was a year of transformation. Fiscal 2027 is about execution. During the first quarter, we made significant progress across several areas. We continue to expand our global installed base, which enlarges the foundation for recurring service and solutions revenue and enables margin expansion.

Service revenues increased, service margins improved. Operating expenses remained well controlled. We strengthened our financial position, and we continued to advance our product innovation road map through strategic partnerships.

At the same time, our product orders and revenue performance did not meet our expectations, with geopolitical and other market factors in China representing a key headwind to product sales performance.

Importantly, we continue to see strong underlying commercial opportunities across the business. We have a sizable pipeline, a high degree of customer and distributor engagement and a growing portfolio of innovations that we believe further differentiates our solutions in the marketplace.

Our priority now is execution, converting that pipeline and customer interest into orders, translating orders into product revenue and leveraging our installed base to drive an increasingly durable stream of recurring service revenue and company-wide profitability.

Strategic partnerships and innovation. Over the past year, we have been deliberate about where Accuray can differentiate and where partnerships can help us move faster rather than relying primarily on internal product development, which Accuray had done historically.

During the first quarter, we took 2 important steps forward in this regard. We entered into a definitive agreement with RaySearch to accelerate our online adaptive radiation therapy strategy, combining Accuray's treatment delivery and imaging capabilities with RaySearch's treatment planning and workflow software initially on Radixact with a planned extension to CyberKnife.

Online adaptive radiation therapy allows treatment plans to be adjusted immediately before treatment based on the patient's anatomy at the time of delivery. The solution is designed to support more personalized treatments while helping clinics work more efficiently.

We also advanced our collaboration with Samsung NeuroLogica to pursue volumetric imaging capabilities for CyberKnife, bringing together their imaging expertise with our strengths in robotic radiosurgery, precision treatment delivery and real-time motion management. Leading practitioners have emphasized that volumetric imaging can enhance visualization of patient anatomy in the treatment environment and support future clinical workflows.

Professor Nicholas van As of the Royal Marsden spoke on our behalf during ASTRO where he noted that seeing the target and surrounding anatomy together at the time of treatment could help us make more informed decisions for each patient.

Looking further ahead, this could open up new possibilities for adapting treatment to the patient's anatomy of the day alongside real-time motion management during delivery. That perspective reflects the opportunity we see in bringing advanced imaging, adaptation and motion management together in the broader direction we heard from clinicians at ASTRO.

Professor Van As presented long-term results from randomized Phase III PACE-A trial comparing surgery with stereotactic body radiation therapy or SBRT for localized prostate cancer. The trial randomized 123 patients and at a median follow-up of 8 years, the estimated 5-year freedom from biochemical or clinical failure rate was 94.8% with SBRT and 94.1% with prostatectomy.

These findings are notable because they provide evidence supporting SBRT as an effective nonsurgical treatment option with disease control comparable to prostatectomy.

Importantly, the study also evaluated patient-reported quality of life outcomes. At 5 years, the median sexual function score had declined 42 points for patients treated with surgery compared with 17 points for patients treated with SBRT. Based on these results, the investigators concluded that SBRT had significant advantages over surgery in preserving sexual function and sexual quality of life at 5 years.

For Accuray, these clinical developments reinforce where we believe radiation oncology is heading toward greater precision through motion management, personalization and adaptation with an increasing focus on protecting healthy tissue and preserving quality of life. By combining our strengths in precision treatment, delivery and real-time motion management with enhanced imaging and adaptive capabilities, we believe we can further differentiate our platforms and deliver greater value for clinicians and patients.

Commercial and operational execution. Our focus now is translating innovation and clinical differentiation of this type into stronger commercial performance. Over the past year, we have made significant changes to strengthen our commercial organization and improve execution. We changed our commercial leadership, realigned our sales and marketing organizations, expanded our sales enablement capabilities and created a dedicated channel management organization designed to improve both our relationships with distributors and their performance.

Our new commercial leadership team has also made important changes in the U.S. organization and enhanced our go-to-market approach with channel partners. We expect these actions to increase commercial accountability, improve pipeline conversions and drive more consistent execution, particularly across Eastern Europe and APAC.

At the same time, the continued growth of our installed base is increasing the scale and strategic importance of our services and solutions business. Our installed base has now surpassed 1,100 systems globally, supporting more than $230 million of recurring annual revenue and creating an increasingly meaningful and durable foundation for the company. The opportunity extends beyond revenue growth. As the installed base expands, we also have an opportunity to improve the profitability of that recurring revenue stream.

Service gross margin improved by 410 basis points in Q1 compared with FY '26 trailing 12-month service gross margin of 31%. We continue to focus on pricing discipline, contract renewals, remote diagnostics, parts consumption and a greater mix of higher-margin solutions to drive further improvement. We have also increased the rigor of our services and solutions operating model with a focus on sustaining margin expansion over the next several years.

Taken together, growth in the installed base, increasing recurring service revenue and continued margin expansion provide an important source of stability and earnings leverage as we work to return product orders and revenue to stronger levels.

In addition, our efforts over the last year to lower our cost structure continue to bear fruit. Our operating costs, excluding restructuring costs, were approximately $13 million lower than in the first quarter of last year. We told you last year that we expected our transformation efforts to result in at least $25 million of annualized profitability improvement, and we have significantly exceeded that amount on an annualized basis from operating cost reductions alone. These are areas within our control. The opportunity now is to pair this operating discipline with stronger product and order performance.

The financial foundation. Supporting these priorities is a stronger financial foundation. During the quarter, we received a $15 million cash investment associated with our previously announced TCW financing transaction. Following quarter end, stockholders approved the proposals necessary to advance the broader transaction, including the previously announced exchange of $40 million of term loan debt for convertible preferred equity. These actions are intended to reduce leverage, enhance liquidity and provide greater flexibility to execute our strategy.

We also welcomed Richard Randy Meier to our Board of Directors. Randy brings more than 30 years of extensive health care, financial and operational leadership experience, and we look forward to benefiting from his perspective.

Looking ahead, Ultimately, our strategy comes back to our purpose, expanding the curative power of radiation therapy to improve as many lives as possible while building a stronger, more competitive and more profitable Accuray.

With that, I'll turn the call over to Ali to discuss our first quarter financial performance in more detail.

Thank you, Steve, and good afternoon, everyone.

Before I begin, I want to thank our teams around the world for their tremendous commitment and focus as we continue to transform the business and position Accuray for the future.

As Steve discussed, our first quarter results reflect continued progress in strengthening the underlying economics of the business while also highlighting the need to drive improved product volume and orders to accompany our growing service revenues and margins.

Turning to the financials. Net revenue for the quarter was $86.5 million, which was down $7.4 million or 8% versus the prior year and down 7% on a constant currency basis. As Steve mentioned, product revenues continue to be impacted by geopolitical factors and market issues in China. This was partly offset by year-over-year growth in our services and solutions business.

Service revenue was $59.2 million, up $2.4 million or 4% from the prior year and up 5% on a constant currency basis. Approximately $0.8 million of the increase was attributable to service contract pricing actions. The remaining $1.6 million was driven by nearly 3% growth in our global installed base and higher training and other service solutions revenue. Our contract capture rate, defined as a percentage of active systems covered by a service agreement was 90%.

Overall, we're pleased with the performance of our service business, which continues to demonstrate the strength of its recurring revenue model and our ability to drive growth through pricing, installed base expansion and additional service solutions.

Product revenue for the first quarter was $27.3 million, down $9.8 million or 26% versus the prior year on both a reported and a constant currency basis. Product revenue reflected 12 units and several upgrades shipped during the quarter across our sales regions. As Steve mentioned, improving commercial execution and driving higher product volumes are key priorities for fiscal 2027, and we remain focused on strengthening our pipeline and converting that pipeline into orders and shipments.

Product gross orders for the first quarter were $19.8 million and represented a book-to-bill ratio of 0.7 in the quarter. The trailing 12-month book-to-bill ratio is 1.1. We ended the first quarter with a reported order backlog of approximately $272 million, defined to include only orders younger than 30 months.

As we've stated previously, we view a book-to-bill ratio of 1.2 as a healthy level to support backlog growth and improving order performance remains a key priority. We are focused on strengthening our commercial pipeline and improving revenue conversion as the changes we've made across our sales organization, distributor network and commercial processes begin to gain traction.

Overall, gross profit for the first quarter was $26.1 million, representing gross margins of 30.1% compared to gross margins of 28.8% in the prior year. Service gross profit was $20.8 million, representing a gross margin of 35.1% compared with 33.9% in Q1 of the prior year and 31% for all of fiscal 2026.

Service contract pricing actions improved margins by approximately $0.8 million or 1.4 points and our lower labor cost structure contributed approximately $1.6 million or 2.6 points. These benefits were partially offset by tariffs and inflationary pressures on materials and freight, which had an unfavorable impact of approximately $2 million or 3.3 points.

We've seen meaningful improvement in our service margins over the past 2 quarters, reflecting the benefits of pricing, better parts management, labor efficiencies and the transformation initiatives we implemented during fiscal 2026. We see further opportunity ahead as we continue to improve pricing and reduce our cost to serve, and we expect service margins to improve over the next several years.

Product gross profit was $5.3 million, representing a gross margin of 19.4% compared with 20.8% in the prior year. Product margins were impacted by lower fixed cost absorption due to reduced volumes as well as tariffs and purchase price variances. As product shipments and revenue increase, we expect to see improved fixed cost absorption and corresponding improvement in product gross margins.

Operating expenses were $62.6 million compared with $38.3 million in the prior year. The current year includes a $35.4 million noncash goodwill impairment charge and restructuring expenses of $0.4 million. The prior year first quarter included restructuring expenses of $2.8 million.

Excluding the goodwill impairment and restructuring expenses, operating expenses for the first quarter were $26.8 million, a decrease of $8.7 million or 25%. This decrease resulted from our efforts to implement a substantial reduction of our cost structure as part of our transformation programs over the last year.

As we mentioned earlier, the transformation initiatives we began in fiscal 2026 are delivering meaningful and measurable results. In the first quarter, these actions contributed approximately $13 million of year-over-year bottom line improvement and importantly, have created a structurally lower cost base for our business.

While headcount reductions and continued headcount discipline have been a significant driver, the improvement extends well beyond headcount. We are seeing benefits from more effective use of strategic partners, greater focus on our product development and marketing investments and continued discipline around discretionary spending.

With the primary restructuring activity now substantially complete, our focus shifts from restructuring the cost base to sustaining these efficiencies and maintaining the discipline we've established. We believe this provides a stronger foundation for continued improvement in profitability as we move forward.

In the first quarter, the company recognized a gain on extinguishment of debt of approximately $59.6 million in connection with its July 2026 financing transaction. The transaction added a substantive contingent conversion feature to the outstanding debt, resulting in extinguishment accounting and initial recognition of the replacement loans at fair value.

The gain primarily reflects the difference between the net carrying amount of the existing loans and the fair value of the replacement loans. This gain on extinguishment of debt caused a significant increase in the carrying amount of the company's equity without a corresponding increase to the company's fair value, requiring an interim goodwill impairment test to be performed.

As a result, the noncash goodwill impairment charge of $35.4 million was recorded. While additional fair value versus carrying value goodwill adjustments may occur in future quarters, these noncash items have no impact on the company's strategic plan, strategic focus, operational model or financing agreements.

Operating income for the first quarter was a loss of $36.5 million compared to a loss of $11.3 million in the prior year. Excluding the goodwill impairment charge, operating income was a loss of $1.1 million. The goodwill impairment and gain on extinguishment of debt did not have an impact on adjusted EBITDA, which was $2.5 million in the first quarter compared to a loss of $4.1 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 at quarter end were $50.4 million, including $8.1 million of restricted cash related to required postings for cash flow hedging and tariffs. This compares with $48.8 million of total cash, cash equivalents and restricted cash at the end of fiscal 2026, which also included $8.1 million of restricted cash.

Net accounts receivable was $50 million, down $17.4 million from the prior quarter. Our net inventory balance was $146.1 million, down $1 million from the prior quarter. Accounts payable were $33.1 million, down $7.5 million from the prior quarter. We continue to focus on driving down our net working capital in order to generate additional liquidity that we can deploy across the business. At the end of the first quarter, we had $5 million outstanding on our revolving credit facility.

As a reminder, in July, we announced the transaction with TCW designed to meaningfully improve our capital structure, including the exchange of $40 million of debt for equity and a $15 million cash investment from TCW during the quarter.

Following quarter end, our stockholders approved the proposals necessary to move forward with the transaction. Upon completion, we expect to have a stronger balance sheet, a lower interest burden and greater financial flexibility as we execute our strategy and continue the transformation of the business.

To summarize, the first quarter demonstrates that the actions we have taken are translating into tangible financial results. We are seeing service revenue growth, higher service margins and a meaningfully lower structural cost base.

With that foundation in place, our focus is increasingly on commercial execution and driving higher product volume. As we improve orders and product shipments, we believe there is meaningful opportunity to generate additional operating leverage from the more efficient business model we have built.

While we are not providing guidance at this time, we are clear on what we need to accomplish. The team is executing against the focus set of priorities, maintaining the discipline we established through our transformation and working to convert the progress we have made into sustainable improvements in profitability and financial performance.

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

Thank you, Ali.

I'll close where I started. fiscal 2027 is about execution. We have made significant progress positioning Accuray for the future, and we are focused on translating that progress into stronger performance. Our installed base and our growing recurring revenue service business remain a unique and valuable strategic asset.

At the same time, the customer engagement we are seeing, the clinical evidence supporting motion management and the precision radiation therapy it helps to deliver and the opportunities created by our innovation strategy reinforce our confidence in the direction we are taking. We know what we need to execute, and our team is focused on delivering.

I'll now turn the call back to the operator for Q&A.

[Operator Instructions] It seems we have no questions for the question-and-answer session. I'd now like to turn the call over to Steve LaNeve, President and CEO, for closing remarks.

Thank you all for joining our call today. We look forward to speaking with you again early next year when we report our fiscal 2027 second quarter results. This concludes our earnings call. Thank you.

This concludes today's meeting. You may now disconnect.

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...