ARAY

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 31st, 2026. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve La Neve, 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 can 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 31st. 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. We will continue to update investors as visibility improves. With that, let me turn the call over to Accuray's Chief Executive Officer, Steve La Neve. Steve?

Thank you, Steve. Good afternoon, 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 healthcare 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, 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. 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 right-sizing 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 non-core 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. 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. 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 standalone. 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 Miele 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 multi-center 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 roadmap, 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 Consultancy 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 for Radiotherapy and 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 install 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 install 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 in 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 3rd 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 3rd 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 non-recurring restructuring expenses, which include 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 FY 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 six and a half million dollars of non-recurring 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 $1.1 million in the prior year. Adjusted EBITDA for the quarter was $3.8 million compared to $6 million in the prior year.

We describe the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet, total 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 was 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 in 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. 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 1, driving top-line growth with our product and service business lines through a focused commercial strategy. Number 2, relentlessly executing on our transformation plan to improve gross margins and strengthen EBITDA through tighter cost management. Number 3, 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.

We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Marie Thibault with BTIG. Please go ahead.

Good evening. Just wanted to ask about the decision to remove guidance. I know that the Iran war started after your last quarterly earnings call, but, you know, your prior commentary had pointed to a close understanding of timelines in these various regions. Why not just revise the guidance to remove some of those specific customers or those revenue, you know, 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. That directly impacts both product revenue and also the associated service revenue. 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, within EMEA, the Middle East and North Africa are the fastest-growing sub-regions. Given the interdependencies that exist between other regions around the world, we felt this was the most prudent course of action.

Okay. I know you're ahead of schedule on some of your cost-cutting efforts, 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, you know, I think that excluded things like the restructuring charge. What's going on there, and is there a way to see improving profitability despite some of this macro uncertainty?

Hey, 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. You know, the main pillars of the transformation are really related to continuing to focus on our service business, really have meaningful progress in our distributor partnership model and, you know, focus on optimizing pricing. I think all of those are gonna take some time to come into play, and the timing of those are really hard to anticipate.

We think we're still gonna see a solid annualized benefit in fiscal year 2027.

Thank you, Ali. You took my question out of my mouth there. I was gonna ask about the timing of some of those potential benefits. I'll hop back in queue. Thank you.

Thank you.

Thank you.

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

Thank you, and good afternoon, everyone. Welcome to Accuray Incorporated's conference call to review financial results for 2026Q2, which ended December 31, 2025. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Stephen LaNeve, Accuray Incorporated's President and Chief Executive Officer, and Ali Pervaiz, Accuray Incorporated's Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are outlined in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. We make the forward-looking statements on this call based on the information available to us as of today's date. We assume no obligation to update any forward-looking statements as a result of new information or future events except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call: All references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our second quarter refer to our fiscal second quarter ended December 31, 2025. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accuray Incorporated's Investor Relations page at investors.accuray.com. As you review our prepared remarks and guidance today, please note that our outlook represents our current estimates and reflects the operating environment as we understand it today, including current tariff impacts and geopolitical conditions. As always, the situation remains dynamic, and we will continue to update investors as visibility improves. With that, let me turn the call over to Accuray Incorporated's Chief Executive Officer, Stephen LaNeve. Stephen?

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us. I want to begin by recognizing the dedication of our employees and the trust of our customers. Over the last ninety days, I've engaged deeply with our teams and customers across our regions, and my conviction in Accuray Incorporated's opportunity has never been stronger. The more time I spend in the field, the clearer it becomes of the opportunity to accelerate top-line growth and to meaningfully expand profitability in the years ahead. Importantly, these insights are already translating into action. The discussions I've had have directly shaped our product and service strategy and the changes we are implementing to support those strategies. From rightsizing our cost structure to reenergizing our commercial organization to more surgically prioritizing product and service investments, I recognize the unmistakable need to streamline how we operate and execute as we grow a global installed base that now spans more than 80 countries. Framing today's discussion, as many of you saw, in mid-December, we announced a comprehensive strategic operational and organizational transformation plan designed to sharpen accountability, tighten cost control, and accelerate execution while positioning Accuray Incorporated for sustained profitable growth. Today, I want to provide an update on the plan and the progress we have made on some strategic initiatives we are pursuing, as well as updates on some operational actions we introduced in December, which are geared towards improving the competitiveness, growth prospects, and profitability of our overall business. I will then discuss the quarter's performance and some insight into the next twelve months. Ali will then discuss the detailed financial results. Our plan started with establishing clear product and service strategies as well as the enablers that we believe are critical to achieving these strategies. The first of those enablers was the 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 non-core 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 customer. 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 in 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 lifecycle 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. It 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 will 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 three things: reliability, interoperability, and patient throughput. This clarity is helping us sequence our product roadmap and service investments with much greater discipline. From an operating rhythm perspective, we have tightened weekly 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 Incorporated 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 will 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 Incorporated'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 nine 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, Stephen, and good afternoon, everyone. I would like to begin by thanking our global cross-functional teams for their continued dedication and hard work as we continue to execute our transformation plan. Turning to the second-quarter results, net revenue for the quarter was $102.2 million, which was down 12% versus the prior year and down 13% on a constant currency basis. Product revenue for the second quarter was $45 million, down 26% overall and down 28% on a constant currency basis. As Stephen mentioned, most of this decline was due to product revenue in China that was lower than expected as a result of ongoing geopolitical tensions and the impact of tariffs. On a positive note, our service business was quite resilient despite some of these weaker macro trends, coming in at $57.2 million in revenue, up 4% from the prior year and up 3% on a constant currency basis. As we have mentioned on past calls, service is a key part of our recurring revenue growth strategy and continues to benefit from efforts to add to and diversify our offerings as well as continue expansion of our global installed base. Product gross orders for the second quarter were approximately $66 million and represented a book-to-bill ratio of 1.5, a trailing twelve-month ratio of 1.2. We ended the second quarter with a reported order backlog of approximately $33 million, defined to include only orders younger than thirty months. This represents over eighteen months of product revenue, and the backlog remains diversified geographically and supported by long-term customer commitments, and we saw no order cancellations during the quarter. Our overall gross margin for the quarter was 23.5% compared to 36.1% in the prior year. This decline was primarily due to product gross margins, which were 19.7% compared to 43.5% in the prior year. The majority of the unfavorable impact on 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 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 six points. Lastly, we had five CyberKnife shipments in the prior year versus zero 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, 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 one-time 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 one-time 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 Stephen.

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

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

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

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

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

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

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

Thanks, Marie. Thank you.

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

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

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

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

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

Alright, great. Thank you very much.

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

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

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