Accuray (NASDAQ:ARAY) released fourth-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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Summary

Accuray Incorporated reported a decrease in net revenue for fiscal 2026, with the fourth quarter revenue at $100.9 million, down 21% year-over-year, and full-year revenue at $402 million, down 12%. The decline was primarily due to lower product revenues, especially in China.

The company has entered a strategic transaction with TCW Asset Management to strengthen its financial position, involving the conversion of $40 million of debt into preferred equity and a $15 million cash investment.

Accuray is focusing on strategic partnerships to enhance innovation and execution, with new non-binding agreements with Samsung and others, and a significant collaboration with the University of Wisconsin for adaptive radiation therapy research.

The transformation initiatives led to more than $20 million in cost and margin improvements in fiscal 2026, surpassing the initial target of $12 million. Additional improvements are expected in fiscal 2027.

While service revenue increased, product revenue declined significantly, impacting overall gross margins. The company is not providing formal revenue guidance for fiscal 2027 due to ongoing geopolitical and macroeconomic uncertainties.

Full Transcript

OPERATOR

Good day and welcome to the Accuray fourth quarter fiscal 2026 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone, and to withdraw your question, please press star then two.

Please note this event is being recorded. I would now like to turn the conference over to Mr. Steve Munro, 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 Laniv, 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 Laniv.

Steve Laniv, President and Chief Executive Officer

Thank you. 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, reduced our cost structure, worked 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 was 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 San Rafael 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 a broader published evidence base that includes randomized phase 3 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 experience with 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 recently introduced VitalHold system were presented by CHR Metz, Thienville, France, highlighting the potential of integrated surface-guided radiotherapy and automated breath-hold delivery to support precision treatment delivery. Additional data across kidney, lung, functional radiosurgery, and other precision radiotherapy use cases further reinforced the breadth of Accuray's clinical relevance across multiple disease sites. These ESTRO presentations build upon a broader and expanding body of published clinical evidence supporting Accuray technologies. This includes randomized phase 3 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 five areas: number one, financial foundation; number two, strategic partnerships and our ecosystem; number three, differentiated technology; number four, transformation phase two; and number five, the FY27 outlook. Our financial foundation. Let me begin with what I believe is one of the most important developments in the company's recent history. Last month we announced a comprehensive transaction with TCW Asset Management Co. 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 into preferred equity that is convertible into common shares at more than a 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 draw 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, remain subject to shareholder approval and other customary closing conditions as further 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's 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 emerged from our transformation work is that Accuray can devote its resources to the areas where we create the greatest value 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 non-binding letters of intent with Samsung, HME America, 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 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 one-time 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 roadmap, including the CyberKnife and Radixact systems, is increasingly centered around three areas of differentiated technology. First is motion management. Synchrony remains one 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 roadmap will continue to prioritize enhanced imaging on the Radixact 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.

VOLO'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 two. 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, reduced costs, strengthened 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 two.

This next stage of Accuray's transformation focuses on the following: differentiated innovation—investing in technologies and capabilities where Accuray possesses 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.

Ali Pervaiz, Chief Financial Officer

Thank you, Steve, and good afternoon everyone. I would like to begin by thanking our global teams for their focus and 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 $16.1 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 install 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 the 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 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 0.9. For the full year, gross orders totaled $192 million, representing a trailing twelve-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 a 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, are 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 margins 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 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 $1.5 million, or 1.5 points.

Adjusting for these one-time items, fourth quarter pro forma gross profit was $30.8 million, or 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 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% gross margins compared to 27.5% in the prior year. As noted above, the tariff favorability of $5.8 million, or 14.2 points, 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-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% gross margins compared to 31.6% in the prior year. Excluding the $0.3 million 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-tariff 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 a 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 describe 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 a revolving credit facility. In May, the company drew the full $18 million under its prior pre-existing delayed draw term loan facility and used the proceeds to pay off $18 million of outstanding convertible notes that matured on June 1st. We also recently announced a comprehensive transaction with TCW that would 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 of 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 remain 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.

Steve Laniv, President and Chief Executive Officer

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 improved the way we operate and we established the framework for transformation Phase Two. 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 and A.

OPERATOR

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. 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 two. At this time, we'll pause momentarily to assemble our roster. 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 Laniv, President and CEO, for any closing remarks. Please go ahead.

Steve Laniv, President and Chief Executive Officer

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.

OPERATOR

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

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