Accuray Incorporated Q1 FY2026 earnings call

• Steve LaNeve joined as CEO, emphasizing his 40+ years in med tech and biotech, and outlined a transformation plan to position Accuray for sustainable, profitable growth. - Key operational highlights included launching the Stellar product at ASTRO, signing a MOU with the University of Wisconsin School of Medicine and Public Health for adaptive radiotherapy, and treating first patients in Melbourne, Australia with the CyberKnife system. - Ali Pervaiz noted service revenue growth driven by contract revenue up 10%, and discussed product revenue volatility due to regional factors.

Net revenue for the first quarter was $94 million, down 7% versus the prior year and down 9% on a constant currency basis. Product revenue was $37 million, down 23% year-over-year and down 24% on a constant currency basis. Service revenue was $57 million, up 7% from the prior year and up 4% on a constant currency basis. Product orders for the first quarter were approximately $40 million with a book-to-bill ratio of 1.1 and a trailing 12-month ratio of 1.2. The company ended the first quarter with a reported order backlog of approximately $396 million. Overall gross margin for the quarter was 28.3%, with product gross margin at 20.3% and service gross margin at 33.5%.

• Reiterated fiscal year 2026 guidance: revenue in the range of $471 million to $485 million and adjusted EBITDA range of $31 million to $35 million. - Plans to provide more details on the transformation plan in the fiscal Q2 earnings call. - Steve LaNeve mentioned expecting to reassess revenue and adjusted EBITDA guidance in the next 90 days based on organizational progress and market dynamics.

• Geopolitical and macroeconomic uncertainties were noted as factors that could impact results. - Volatility in quarterly product revenues due to long sales cycles and low unit volumes in the product side of the business.

Q: Nice to be working with you, Steve. Welcome. I wanted to start here on sort of a high level and understand what you're seeing out there in terms of the capital equipment purchasing environment, the ordering environment.

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

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

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

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

A: We continue to take a look at the duty drawback program, which is something that will allow us to at least regain tariffs that we've paid on any equipment that does not remain in the U.S. And so that is a program that is very active for us. We have in the past sort of spoken about implementation of a foreign trade zone, which is certainly something that we continue to take a look at to see does that make sense for us as this tariff environment is pretty fluid, but that is certainly something that is on the table as well. And so it's certainly is a pretty fluid situation, Marie, as you know, the headlines change quite frequently, but we keep a pretty close pulse on it. And so I think that's sort of what's happening from a tariff standpoint. Marie, I will take the opportunity because I know we did reiterate guidance this particular earnings call as well. I think it's important to highlight that we're really pleased with the continued growth in our service business, and we expect that to continue through the year. Product revenue was obviously slower than anticipated in Q1 due to what I highlighted in the prepared remarks in terms of slower performance in EIMEA in China. And we do expect that to continue in the second quarter. But with geopolitical macro issues starting to ease, we're confident that a lot of these orders that we will not deliver in the first half will actually shift into the second half based upon customer schedules and feedback that we've gotten from our teams on the ground as well as our JV partner in China. So with that, I think it's really important to highlight that we do expect first half revenue to be closer to about 40% of our full year guidance and the second half to be about 60% of our full year guidance because we are seeing some of these -- some of this product demand shift to the second half. Obviously, we're going to keep a close pulse on it to see if there's any other dynamics that happen from each of the different regions, but this is what we're seeing right now.

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

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