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DATE

Wednesday, May 6, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Stephen LaNeve
  • Chief Financial Officer — Ali Pervaiz
  • Vice President, Investor Relations — Stephen Monroe

TAKEAWAYS

  • Total Revenue -- $104.8 million, representing a 3% sequential increase but a 7% decrease year over year, as reported by both LaNeve and Pervaiz.
  • Product Revenue -- $49.7 million, down 13% year over year and down 15% on a constant currency basis; most of the annual revenue decline was attributed to this category.
  • Service Revenue -- $55.1 million, down 1% year over year and down 5% on a constant currency basis, with a $1.2 million negative impact caused by Middle East geopolitical tensions.
  • Operating Loss -- $9.1 million for the quarter, compared to $1 million in operating income in the prior year period.
  • Adjusted EBITDA -- $3.8 million, a decline from $6 million during the prior year period.
  • Gross Margin -- 24.1%, down from 27.9% the previous year; the decrease was primarily driven by lower service margins and higher net parts consumption.
  • Service Gross Margin -- 26.1% compared to 33.3% in the prior year, adversely affected by $3.2 million of higher parts consumption and $0.8 million of tariffs, which reduced margins by 600 and 150 basis points, respectively.
  • Product Gross Margin -- 21.9%, compared to 22.7% last year; $2.6 million of higher tariffs reduced product gross margins by 530 basis points.
  • Order Backlog -- Approximately $356 million (including only orders younger than thirty months), as reported by Pervaiz.
  • Book-To-Bill Ratio -- Product gross orders in the quarter equaled approximately $49 million, with a quarterly ratio of 1.0 and a trailing twelve-month ratio of 1.2.
  • Transformation Plan Execution -- Approximately $10 million in cost improvements achieved as of quarter end, putting the company ahead of its fiscal 2026 target of $12 million.
  • Workforce Reduction -- Approximately 15% of employees were laid off as part of the transformation plan, aligning with organizational realignment and cost control.
  • Restructuring Costs -- $6.5 million in nonrecurring restructuring expenses recognized in the quarter.
  • Operating Expenses -- $34.4 million this quarter versus $30.6 million in the prior year period; adjusting for one-time items, operating expenses fell by $6 million, or 18%.
  • Cash, Cash Equivalents, and Restricted Cash -- $44.4 million at quarter end, versus $47.9 million in the previous quarter; restricted cash fell from $6.6 million to $0.4 million.
  • Net Inventory -- $156.6 million, rising $5.7 million from the prior quarter.
  • Revolving Credit Facility -- $5 million outstanding as of the end of the quarter.
  • Contract Capture Rate -- Nearly 90% of active installed base covered by service agreements.
  • Pricing Initiatives -- $0.6 million in price favorability achieved in service revenues during the quarter due to enhanced pricing on contract renewals.
  • Guidance Withdrawn -- Management withdrew all financial guidance given the unpredictable business impact from Middle East conflict and China headwinds.
  • Leadership Additions -- Appointment of Paul Maielli as Chief Commercial Officer and a new Vice President of Distributor Partnerships to strengthen distributor performance and global accountability.
  • Strategic Partnerships -- New collaborations established, including multilateral data initiatives and alliances with University of Wisconsin–Madison and Tata Consulting Services; expected to advance innovation, workflow, and clinical outcomes.
  • Installed Base Data Asset -- Access to a large repository of real-world, motion-tracked treatment data through the installed base, supporting research and differentiation efforts for real-time tumor tracking.

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RISKS

  • LaNeve said, "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," resulting in lost revenue and associated service sales with no clear recovery timeline.
  • Ongoing business headwinds in China were described by LaNeve as part of "geopolitical tensions and ongoing tariff uncertainty," negatively impacting both the product and service segments.
  • Ali Pervaiz disclosed, "Driving this decrease was higher net parts consumption of $3.2 million, which negatively impacted service gross margins by approximately 600 basis points." from higher net parts consumption, with tariffs further eroding margins by 150 basis points, highlighting cost pressure.
  • Management confirmed, "Given such uncertainty, we believe the responsible approach is to withdraw our financial guidance at this time," removing prior visibility for investors on financial outlook.

SUMMARY

The announcement of indefinitely delayed product shipments and directly associated service revenue in the Middle East, North Africa, and Pakistan was characterized as a primary driver of both top-line contraction and increased business unpredictability. Accuray Incorporated (ARAY +3.52%) management formally withdrew all financial guidance as a direct response to unresolved geopolitical risks and growing operational uncertainty in its largest and historically fastest-growing EMEA subregions. Gross margin erosion reflected significant cost headwinds from both rising service parts consumption and adverse tariff impacts across product and service categories. The company’s transformation plan yielded $10 million in structural cost reductions in the period, and management projected that full-year savings will outpace its original fiscal 2026 improvement targets. Strategic investments in distribution oversight, recurring service revenue, and real-time treatment data partnerships were positioned as core to future operating resilience and product differentiation.

  • Appointment of Paul Maielli and new distributor partnership leadership marked an explicit shift toward strengthened commercial execution and improved alignment with international channel partners.
  • LaNeve stated, "EMEA is the largest region for Accuray Incorporated, and within EMEA, the Middle East and North Africa are the fastest-growing subregions," framing the gravity of the delayed shipments in those geographies.
  • Ali Pervaiz described, "operating expenses decreased $6 million, or 18%, versus prior year," after adjusting for nonrecurring items, underscoring tangible progress on cost structure improvement despite increased absolute operating expense figures.
  • The backlog at quarter end—$356 million—provided contextual visibility on future contracted revenue, although a significant portion remains subject to geopolitical execution risk.
  • Transformation program timing effects and regional disruptions may produce further near-term margin volatility, per management’s comments.

INDUSTRY GLOSSARY

  • Contract Capture Rate: The share of active installed medical systems under a current service agreement, serving as a measure of recurring revenue coverage.
  • SBRT: Stereotactic Body Radiation Therapy, a targeted high-dose radiation treatment for tumors outside the central nervous system.
  • Book-To-Bill Ratio: Ratio comparing orders received to units billed and shipped, indicating order momentum and business pipeline health.
  • IEPA Tariffs: International Emergency Economic Powers Act tariffs, U.S. trade measures affecting import/export cost structures in global medical device markets.

Full Conference Call Transcript

Stephen Monroe: Thank you, and good afternoon, everyone. Welcome to Accuray Incorporated's conference call to review financial results for the third quarter of fiscal 2026, which ended 03/31/2026. 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 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 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, 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 Incorporated's Chief Executive Officer, Stephen LaNeve.

Stephen LaNeve: Thank you, Stephen. Good afternoon and thank you for joining us. Since joining Accuray Incorporated last October, I have 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 do not 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 pertain to geopolitical tensions and ongoing tariff uncertainty. These are markets that remain strategically important to Accuray Incorporated 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 have 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 have made. We launched a comprehensive strategic, operational, organizational transformation plan.

This plan was designed to sharpen accountability, tighten cost control, and accelerate execution, while positioning Accuray Incorporated 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 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, 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 billion 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 standalone.

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 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 Incorporated 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 Maielli has joined Accuray Incorporated as Chief Commercial Officer. Paul brings more than two 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 Incorporated'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 would like to now turn to strategic partnerships, which is an area that is playing an increasingly important role in shaping Accuray Incorporated'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 have 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 Incorporated'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, intrafractional motion management, can meaningfully impact outcomes.

Accuray Incorporated'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 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 Consulting Services, as well as many others. Each brings 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 are seeing across our transformation and partnerships, we are very excited about the upcoming European Society for Radiotherapy and Oncology 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 have said before, these are areas where we believe Accuray Incorporated 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 are making across execution, innovation, and partnerships gives us confidence that we are building a stronger, more resilient Accuray Incorporated for the future. With that, I will hand it over to Ali to take you through our financial results and key financial metrics.

Ali Pervaiz: 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 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 earlier in fiscal 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 Stephen 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 spans over the next two to three 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 twelve-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 thirty 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 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 fiscal 2025. Adjusting for these discrete items, third quarter fiscal 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 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 $44.4 million compared to $47.9 million at the end of last quarter. The restricted cash related to required postings for cash flow hedging and tariffs amounted to $0.4 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 Stephen noted earlier, we continue to execute our transformation strategy and remain ahead of plan to achieve the $12 million 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 would like to hand the call back to Stephen.

Stephen LaNeve: Thank you, Ali. I remain excited about the opportunities ahead for Accuray Incorporated 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. We will now open the call for questions. I will turn the call back over to the operator for Q&A.

Operator: We will now open the call for questions. The first question comes from Marie Thibault with BTIG. Please go ahead.

Marie Thibault: 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 timelines 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?

Stephen LaNeve: Thank you, Marie. This is Stephen. I appreciate the question, and obviously, we have 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 all the associated service revenue. Just given the dynamic nature of these disruptions and the difficulty in predicting when these installations will resume, we collectively thought it was more appropriate to withdraw guidance. EMEA is the largest region for Accuray Incorporated, and within EMEA, the Middle East and North Africa are the fastest-growing subregions.

Given the interdependencies that exist between other regions around the world, we felt this was the most prudent course of action.

Marie Thibault: Okay. And then I know you are 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 has been removed. What is going on there? I think that excluded things like the restructuring charge. So what is going on there? And is there a way to see improving profitability despite some of this macro uncertainty?

Ali Pervaiz: Hey, Marie, it is Ali. Thanks for the question. We are 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 have made a lot of progress to date. You heard about the workforce reductions and the reorganization that we have done. We have made a lot of progress in terms of overall cost and spend rationalization, and we will continue to execute on the transformation. The main pillars associated with the transformation relate to continuing to focus on our service business, making meaningful progress in our distributor partnership model, and focusing on optimizing pricing.

All of those are going to take some time to come into play, and the timing of those is really hard to anticipate. We think we are still going to see a solid annualized benefit in fiscal year 2027.

Marie Thibault: Thank you, Ali. You took my question out of my mouth. I was going to ask about the timing of some of those potential benefits. I will hop back in queue. Thank you.

Stephen LaNeve: Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Accuray Incorporated's President and Chief Executive Officer, Stephen LaNeve, for any closing remarks.

Stephen LaNeve: 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.

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