Accuray outlines transformation plan with adjusted EBITDA margin targets amid margin pressures and service revenue growth

Earnings Call Insights: Accuray Incorporated (ARAY) Q1 2026

MANAGEMENT VIEW

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Steve LaNeve, President and CEO, opened the call by highlighting his recent appointment and outlined the company's transformation plan. LaNeve indicated that "our immediate goal is to identify key strategic, operational and financial areas that we believe are necessary to position Accuray to compete more effectively, drive margin expansion, enhance organizational responsiveness and agility and ultimately position Accuray for sustainable, profitable growth." He emphasized a performance-based culture and plans to collaborate closely with Board member Steven Mayer on transformation initiatives.

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LaNeve stated, "In the near term, as we implement key changes during the current fiscal year, we expect to reach a high single-digit adjusted EBITDA margin as a percentage of revenue on a run rate basis within 12 months." He added confidence in expanding adjusted EBITDA margin to double digits over the medium to long term.

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CFO Ali Pervaiz reported major wins, including the launch of the Stellar product at ASTRO, describing it as "more than a product debut. It was a statement. Stellar represents our commitment to adaptive radiotherapy and our belief that every patient deserves precision care." Pervaiz also highlighted a memorandum of understanding with the University of Wisconsin and the first patients treated in Melbourne, Australia using CyberKnife, reflecting global adoption momentum.

OUTLOOK

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Pervaiz reiterated fiscal year 2026 guidance with revenue projected in the range of $471 million to $485 million and adjusted EBITDA between $31 million and $35 million. He noted, "we are reiterating our fiscal year '26 guidance...and an adjusted EBITDA range of $31 million to $35 million."

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No changes were made to guidance from the previous quarter. LaNeve explained, "in the next 90 days, I will have a better feel for the organization, the progress of the transformation initiative and the external market dynamics in order to make an assessment of revenue and adjusted EBITDA guidance for the fiscal year at that time."

FINANCIAL RESULTS

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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, below expectations due to slower performance in EIMEA and China, representing a 23% year-over-year decline.

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Service revenue reached $57 million, up 7% from the prior year, driven by contract revenue growth of 10%. Backlog at quarter-end was $396 million, with a book-to-bill ratio of 1.1 and a trailing 12-month ratio of 1.2.

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Gross margin declined to 28.3% from 33.9% in the prior year, with product gross margin at 20.3%, impacted by sales mix, tariffs ($1.1 million), and a onetime obsolescence charge ($0.7 million). Service gross margin was 33.5%, a decrease of 1.4 points.

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Operating expenses were $37.9 million, up from $36.6 million, including $3.3 million in restructuring and post-financing costs. Operating loss was $11.3 million compared to a loss of $2.1 million in the prior year. Adjusted EBITDA was a loss of $4.1 million compared to an income of $3.1 million.

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Total cash, cash equivalents, and short-term restricted cash were $64 million, up from $57 million at the end of last quarter. Net accounts receivable were $54 million, down $29 million from the prior quarter. Inventory increased to $156 million, up $14 million.

Q&A

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Marie Thibault, BTIG: Asked about the capital equipment purchasing and ordering environment. Pervaiz responded, "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...And then we continue to see growth in our APAC business."

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Thibault: Questioned the difference between gross and net orders. Pervaiz clarified that the main focus is on gross orders, which were about $40 million, lower than expected, "primarily related to timing of customer receipts in both the Americas and in China."

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Thibault: Inquired about tariff mitigation efforts. Pervaiz explained, "We continue to take a look at the duty drawback program...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."

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Thibault: Asked about margin outlook. Pervaiz said, "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."

SENTIMENT ANALYSIS

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Analysts pressed on order softness, regional variations, and margin pressures, indicating a slightly negative to neutral sentiment, especially regarding volatility and macroeconomic headwinds.

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Management maintained an optimistic and confident tone during prepared remarks, but acknowledged challenges and a need for transformation. LaNeve emphasized optimism, while Pervaiz provided detailed explanations and reassurances, especially on service revenue strength and ongoing mitigation efforts.

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Compared to the previous quarter, both analysts and management displayed more caution, with management focusing on transformation and cost control, signaling an increased emphasis on execution amid external headwinds.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language remained unchanged compared to the previous quarter, with continued revenue and adjusted EBITDA targets. The main shift was the introduction of a new CEO and a transformation initiative.

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Service revenue growth accelerated, while product revenue and gross margin declined sharply. The previous quarter featured stronger product revenue and higher margins.

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Analysts' focus shifted toward the impact of geopolitical and macroeconomic factors on order flow and margins. Management's confidence was maintained but was more tempered, focusing on operational transformation and cost control.

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The transformation plan and emphasis on adjusted EBITDA margin improvement became more prominent compared to the prior quarter's focus on international expansion and refinancing.

RISKS AND CONCERNS

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Management cited ongoing geopolitical and macroeconomic uncertainties, especially in EIMEA and China, affecting product revenue and gross orders.

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Tariffs and related incremental costs remained a challenge, with mitigation strategies including the duty drawback program and potential implementation of a foreign trade zone.

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Product gross margins were impacted by sales mix, tariffs, and a onetime obsolescence charge. Management is focused on margin expansion, particularly in the service segment.

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Restructuring actions and cost controls are being implemented to align resources with strategic priorities and streamline operations.

FINAL TAKEAWAY

Accuray's Q1 2026 call marked a leadership transition and the unveiling of a transformation plan targeting higher adjusted EBITDA margins, while reiterating full-year guidance for revenue and profitability despite near-term margin pressures and order volatility in key regions. Service revenue growth and backlog stability offer some resilience, but management is prioritizing operational improvements, cost discipline, and strategic execution to navigate ongoing macroeconomic headwinds and to drive long-term profitable growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/aray/earnings/transcripts]

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