Tom Rathjen - VP of IR Dr. Euan Thompson - President and CEO Bob McNamara - SVP and CFO

Tom Gunderson - Piper Jaffray Mark Richter - Jeffries & Company Tycho Peterson - JP Morgan Junaid Husain - Soleil Securities Amit Hazan - Oppenheimer Eric Snyder - UBS

Thank you, ladies and gentlemen for standing by and welcome to the Accuray Incorporated Earnings Call for the Second Quarter Fiscal 2008 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And instructions will be given at that time. (Operator Instructions). As a reminder, today's program is being recorded and at this time for opening remarks and introductions. I would like to turn the program over to Mr. Tom Rathjen. Please go ahead sir.

Thank you and good afternoon. Thank you for joining us today for Accuray's second quarter fiscal 2008 conference call. Joining us this afternoon is Dr. Euan Thompson, Accuray's President and Chief Executive Officer, and Bob McNamara, Senior Vice President and Chief Financial Officer. Before we begin, I need to remind you that, except for the historical information, the information that follows contained certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected, such risks and uncertainties include the matters described in the risk factor section of our report on Form 10-K for the 2007 fiscal year as updated from time-to-time by our quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission And now, I'd like to turn the call over to our President and Chief Executive Officer Dr. Euan Thompson. Euan?

Thank you, Tom. And thank you to everyone for joining our call today. In Q2 '08, we achieved our fourth consecutive quarter with record revenue and backlog. Revenue for the quarter was $52 million up 98% from $26.3 million during the same period last year. For the first half of the year revenues to pass $100 representing an increase of approximately 70% from the $59 million achieved during the first half of FY '07. Backlog grew to a record $660 million at 29% increase on backlog in Q2 '07. Following my remarks, our CFO Bob McNamara will provide more detailed analysis on our second quarter results. However, I would like to stop assuring the few additional highlights. There were 12 installations during the second fiscal quarter bringing the total install base of CyberKnife System's to 126 worldwide. We were profitable for our third consecutive quarter. Net income was $2.3 million or $0.04 per diluted share compared with a loss of $7.3 million or $0.45 per share during the same period last year. Service revenue during Q2 increased 144% year-over-year to $9 million and we expect that it will continue to become a more significant source of revenue for the company. It's still the case of more than 90% of all of our US customers up for high level service offerings which include upgrades. Currently, we generate 460,000 in service revenue per year at each CyberKnife site with a Diamond contract in place and as a reminder these are 4 to 5-year contracts. I will now give an overview of clinical, technical and sales developments during the quarter. I will finish with an overview of how we believe the near-term tightening of the credit markets in the United States has led us to modify our full year revenue guidance. I will discuss this in more detail before turning the call to Bob McNamara. Supporting the growth and acceptance of CyberKnife radiosurgery has increasingly strong clinical data. But at 2008, CyberKnife users meeting last week, eight presentations reported on large scale studies of 100 or more patients with intracranial, lung, prostate or spine tumors. Clinical data were presented showing two and three-year follow-up results of patients treated for prostate cancer. The data showed durable PSA reduction and no significant side effects and then treated with CyberKnife System during that time period. A data comparison of patients with acoustic neuromas treated by either CyberKnife or GammaKnife demonstrated superior hearing preservations in the patients treated with the CyberKnife. In addition, seven presentations demonstrated promising results in emerging applications treating patients with breast cancer, bone cancer, kidney cancer and various pain syndromes. Clinical utilization data for Q2 demonstrates continued significant increases in CyberKnife treatments of lung and prostate cancer. This data underscores a continued acceptance for the role of CyberKnife radiosurgery as a practical and preferred method of treating tumors throughout the body. For the first time in the United States more prostate treatments and spine treatments were delivered even the CyberKnife, despite continued strong utilizations for Spine. In Q2, prostate cancer was therefore the third most frequently treated condition in the United States behind brain and lung tumors. And it's not just the number of patients treated to indicate strong acceptance of CyberKnife radiosurgery for key cancer sites. We have seen an increase of approximately 75% in the number of CyberKnife centers treating prostate cancer since Q2 last year. In fact, this is the first quarter when more than half of CyberKnife centers in US are treating prostate Cancer. Since Q2 last year, the number of centers treating lung cancer has increased by nearly 40% and the number of total patients treated continues to accelerate. During the quarter, we announced that more than 4000 patients have now received CyberKnife radiosurgery treatment for lung caner. With the exception of those units in Japan where only head and neck treatments were approved more than 90% of all CyberKnife centers worldwide now treat lung cancer patients. Also in the field of Lung radiosurgery, we have received a great response to the study that we recently announced, but if to investigate whether the noninvasive CyberKnife radiosurgery treatment can be considered a true alternative to surgery for medically operable early stage lung cancer patients. As you may remember, in October we announced that MD Anderson Cancer Center was going to serve as lead investigator in this international randomized trial. Protocol developments of this study is now complete and enrollment in the study is expected to begin in fiscal Q4. I can reveal today that more than 40 sites around the world have now stated their intention to participate in the study, which is a great endorsement to their enthusiasm for the CyberKnife and their clear belief in its potential for treating lung cancer. To summarize, clinical interest in the field of CyberKnife radiosurgery continues its dramatic expansion. At our users meeting last week, we had more than 540 non-Accuray attendees including surgeons, radiation oncologist, physicists and administrators. On a year-on-year basis, this represents an increase in attendance of around 25%. There were 74 papers presented and around 75% of the clinical papers described extracranial radiosurgery. On the technical front, during Q2 Accuray was honored by the World Economic Forum as a technology pioneer. The award is given to a select group of companies that have developed life changing technology and innovations that have the potential for long-term impact on society. Q2 also included the annual meeting of the American Society for Therapeutic Radiology and Oncology or ASTRO, which Accuray announced four new products. These four brought the total of new products to six during calendar year 2007. They included the mix of software and hardware with the general theme of faster treatment delivery and accuracy. I spent some time describing the new releases during the last earnings call. So, I am not going to spend significant time on them today. However, I can report, we have had an exceptional market response to all of them. As an example, 100% the new US contracts generated during Q2 included that frequent delivery optimization software and our Monte Carlo Treatment Planning Software. 87% of new orders included our new high output then accelerator and 40% included our robotic couch. As a reminder, we expect the combined effect of the products launch at ASTRO to be a decrease in treatment time on the CyberKnife about to 50%. On the services front, last week, we announced that we'll now bit initiating a treatment planning service for our customers. This will use a centralized group of specialized scientist to plan individual patient treatments. We feel that this service will be embraced by our existing customers if they grow and also take away a significant barrier to entry for new sites. Importantly, in addition to this customer benefits the treatment planning service will become another recurring revenue stream for Accuray. Treatment planning services are currently reimbursed in the US, at a rate of approximately $250,000 per patient. We estimate the current potential market size is approximately $60 million. I should point out, however, we will enter this market slowly and carefully and then it may be sometime before the economic impact of this new service is seen. Moving onto sales, new contracts continue to be generated at an even faster rate than revenue is recognized and there has been a significant upturn in our international business. This quarter, we announced the sale of the first CyberKnife systems in India and Russia and the installation of our fifth system in China. These examples are representative of a growing strength internationally that results from broader clinical acceptance and a stronger international market presence. At the end of Q2, we had direct sales personnel or distribution channels established in more than 50 countries worldwide. Backlog of this quarter increased to approximately $660 million, an increase of approximately 29% from Q2 last year. This against the backdrop of revenue increasing by 98% in the same time period is a very strong indicator of future growth. As Bob will explain in a minute this increase in backlog also occurred at a time, when the changing financial environment resulted in us from moving several purchase contracts from backlog. With that as an introduction, I would like to now give an overview of the state of the market from Accuray's perspective to put this quarter's achievements into their full context. While we continue to grow our revenue net income and backlog, we now feel it sensible to adjust our expectations for the remainder of the year. With the start of this fiscal year, we stated revenue guidance between $250 million and $270 million for fiscal year 2007 and we stated that we anticipated flat to moderate growth in revenue for the first half of the year. Revenue in Q1 was $49 million up from a prior quarter value of $44 million. Q2 increased further to $52 million. Our total year-to-date revenue is an excess of $100 million. Today, however, we are adjusting the revenue guidance for FY 2008 to $210 to $230 million, which would represent annual revenue growth of 50% to 64%. The primary reason for this change, those customers, who are acquiring credit to finance either their equipment purchase or the construction of their facility are having greater than expected challenges. As a result, some of our US customers, who had committed to installation timetables have slowed their installation plans. This inevitability has affected our revenue forecast for the year. For the most part, we feel that these customers are still committed to purchasing a CyberKnife. As I have indicated, this is specifically a US effect and the group of customers affected most by these credit pressures is generally the freestanding centers, owned and managed by non-hospital based personnel. Additionally, we have always stated that we review backlog on a quarterly basis. And only include those contracts that we feel confident will lead to future revenue. This quarter, we felt a sensible to remove a number of contracts and backlogs in order to give our investors greater visibility into the potential effect of this market adjustment. The $660 million of quoted backlog is a number calculated after this adjustment. Though encouraging you the backlog growth in Q2 was achieved despite converting record revenue from our backlog and a downward adjustment of our previously quoted backlog level. Coincidently, the group of customers experiencing credit issues is the same group of customers who earlier in the year were affected by the proposed rule changed by CMS. This rule change, which is still uncertain, as CMS continues its review, would impact the ability of hospitals to bill Medicare for patient it sends to freestanding centers. Now, as future mitigation of this combination of circumstances of freestanding centers, we did receive some good news during the quarter regarding reimbursement. Last month, two regions published G-code payment rate for robotic radiosurgery under the physician fee schedule. This schedule covers technical and professional fees in free standing centers. Prior to this publication of payment rates, reimbursement levels are negotiated with Medicare on a case-by-case basis. So this publication is made for much more certain business case to freestanding centers. For the states concerned which include California, Massachusetts, upstate New York, Maine, New Hampshire, and Vermont, the fees are supported the robotic radiosurgery paying at an equal or higher rate in the hospital life patient rate. Our expectation will be that in due course this will mitigate the impact of the other pressure that the freestanding market segment is come under. To finish, I would state that, we fully expect US sales growth to continue despite these changing economic conditions. In reviewing our sales pipeline for coming quarters it's obvious, but there are more customers in the purchase cycle than ever before. Our US sales force is now focusing their attention on those customers who have less of the need for credit to complete purchasing instruction. Internationally, sales are very positive and we will continue to share with you some of the strategic sales and installation highlights that occur in all territories. Now I would like to turn the call over to Accuray Senior Vice President and Chief Financial Officer, Bob McNamara, who will provide the review of our financials. Bob?

Thank you, Euan. And again, thank you all for joining us on today's call. This afternoon, I will review our financial and operating results for the second quarter of fiscal 2008. Before I do that I would like to reiterate a few key aspects of our business. First, we have achieved solid financial performance with significant revenue growth industry leading gross margins and the strong balance sheet. Second, we have a robust business model driven by a differentiated product and service offering. And third, our business model generates significant backlog providing visibility into future revenues. As Euan mentioned in the second quarter Accuray achieved its fourth consecutive quarter of record revenue. Revenue was $52 million reflecting a 98% year-over-year increase from $26.3 million in the prior year and a 7% sequential increase over the last quarter. Net income was $2.3 million or $0.04 per diluted share, compared to a loss of $7.3 million or a loss of $0.45 per share, during the same period last year. This quarter marks Accuray's third consecutive profitable quarter since becoming a public company. Taking a closer look at second quarter's revenue, $39.1 million was generated from product revenue which increased significantly from the $19.3 million during the same period last year and was up 6% sequentially. Service revenue contributed $9 million during the second quarter, a 144% year-over-year increase from $3.7 million. As the number of installed units increases, we expect service revenue to contribute more significantly to total revenue. Service revenues are primarily derived from our long-term service agreements which over 90% of our US customers purchase. These 4 to 5-year contracts provide our US customers with high quality technical support and six upgrades when and if available over the life of the contract. Our customers benefit from this program because it keeps their CyberKnife platform updated with the latest technology enabling them to broaden clinical applications, improve treatment times and increase patient comfort. We benefit from the service payments of $460,000 per unit, per year over the life of that service contract which provides a significant stream of recurring revenue. This premier service program sets Accuray apart from the rest of the industry and enhances our very important long-term customer relationships. Shared ownership revenue increased to $3 million this quarter, compared to $2.6 million in the second quarter of last year. Sequentially, it grew $732,000 or 32% over the last quarter. The contribution to total revenue for the quarter was 5.8%. During the second fiscal quarter, two shared ownership systems were purchased and we added two new installations. Living a total of 11 current shared ownership programs the same as last quarter. The last component of revenue, other revenue contributed $913,000 in the second quarter. These compared to $792,000 during the same period last year and $2.4million in the fiscal first quarter of 2008 was included in an upgrade customization for two units in Japan. So, in the second quarter of fiscal 2008, we saw an overall continuations of revenue growth both sequentially and year-over-year. Looking at six months numbers total revenue at the end of the first half of the year was $100.7million increasing 70% from $59.1million during the same period last year. Gross margin for the second quarter increased slightly to 53.5% sequentially from last quarter's 53.3%. Accuray's overall gross margins are the highest in the industry. Operating expenses for Q2'08 were $27.3million or 52% of revenues. A slight improvement in comparison to last quarter at 53%, and showing considerable improvement year-over-year, when operating expenses were 84% of revenues. Our investments in R&D, research and development was $8.1million during the second quarter or 16% of revenue. Selling, general, and administrative expenses were $19.1million or 37% of revenue for the quarter. This positive trend demonstrates the potential leverage in our business model and potential for increasing operating profitability. During the second quarter of fiscal 2008, we recorded non-cash stock based compensation of $4.3 million or $0.07 per diluted share. Net income for the first six months of fiscal 2008 was $4.6 million or $0.08 per diluted share. Net income showed great improvement over last years first half loss of $5.3 million or a loss of $0.33 per share. At the end of Accuray's second quarter, there were 61.3 million fully diluted shares outstanding. During the second quarter of fiscal 2008, Accuray installed 12 units, six in the US and six in Asia and Japan, bringing our total worldwide installation to 126. At the end of December, our installation base included 82 units in the US -- in the Americas, 12 in Europe, 17 in Japan and 15 in the rest of Asia. During the second quarter, our sales efforts generated new contracts valued at $101.3 million consisting of 22 new CyberKnife contracts. Separate from this, however, a number of older contracts were taken out of backlog due to concerns over the tightening of the credit markets. We review the backlog and the contract is most affected by the tightening economy where we moved. These customers were generally, those whose financing is now delayed or in question. Backlog at the end of the second quarter of fiscal 2008 was $660 million, up 29% from the $513 million from the same period last year. Sequentially, ending backlog for the second quarter rose $18 million from the ending backlog last quarter. The CyberKnife System component of backlog is $365 million or 55% of total backlog. The recurring portion of backlog is $295 million, consisting of $238 million in services and shared ownership of $57 million. As a reminder, the CyberKnife portion of backlog will generally be realized over the next 18 months and the recurring portion over the next 60 months. Since essentially, all revenue flows out of backlog, this metric provides excellent visibility into future revenue. Moving to our balance sheet, cash and cash equivalents, at the end of the second quarter was $187.5 million. Deferred revenue was $124.3 million with $77 million in current deferred revenue. Total assets for the quarter were $310.5 million and the company continues to have zero debt. Last August, Accuray's Board of Directors approved a stock purchase plan under which the company has the ability to acquire up to $25 million worth of common shares in the open market for a period of one year. Through December 29th, we have repurchased approximately 220,000 shares or $3.3 million worth of our shares. Under the plan, Accuray is not obligated to acquire any particular amount of common stock, but the plan demonstrates our willingness to buy our shares when we feel the stock is particularly undervalued, reconfirming our confidence in Accuray's future. Now turning to our updated guidance for fiscal 2008. Last August, we provided top line guidance in the coming year ending June 30, 2008. Guidance was based upon our estimate of pending and anticipated installations and the existing recurring revenue in backlog. As we have mentioned in the past, we closely monitor each contract in backlog based on the input we received from both our customers and our sales team. Based on our assessment of pending and anticipated installations and the effects of the tightening US credit markets, we began to see at the end of the quarter in the past few weeks, we now expect full year fiscal 2008 revenue to be in the range of $210 million to $230 million. This decrease of 15% to 16% still represents a growth of 50% to 64% year-over-year continuing to lead the industry. Based upon installation and revenue projections for the second half of fiscal 2008, we are confident in our ability to achieve these goals. In summary, Accuray has had its fourth consecutive quarter of record revenues, and continues to achieve both backlog and revenue growth. This marked our third consecutive quarter of profitability and our balance sheet remains strong, and backlog, driven by new order growth is expanding, despite some economic concerns impacting customers in the US. And with that I would like to turn the call back to Euan.

Thank you, Bob. I would like to add that we are disappointed by the need to modify guidance, but we hope that all of our investors understand that we are doing so in the interest of priority and as a result of circumstances that did not exist at the time the initial guidance was given. We do view the effect of this changing credit environments on our forecast growth rate is temporary and we fully expect you as sales growth to continue despite the changing economic conditions. I'll repeat that during our sales pipeline in coming quarters, it is obviously that there are more customers in the purchase cycle than ever before. Our US sales force is focusing their attention on those customers, who have lesser the need for credit to complete purchasing constructions. Internationally, sales are very positive and we'll continue to share with this some of the strategic sales and installation highlights that occur in all territories. On balance, despite removing some contracts and from backlogs this quarter and achieving record revenue conversion from backlog our final backlog number still increased from last quarter. In summary, Q2 was characterized by record revenue on backlog as strengthening of our sales pipeline and international growth. Despite temporary economic conditions impacting one site of the US market, we believe Accuray is well positioned for the future. We have a strong service portfolio increasing demand for our product operates. And we are widely recognized to the technology of choice for the expanding extracranial radiosurgery market. At this point, we will take questions.

Thank you (Operator Instructions). Our first question will come from Tom Gunderson with Piper Jaffray. Tom Gunderson - Piper Jaffray: The focus is going to be -- as you said in your summary, Euan -- it's going to be on the change in guidance. Mid-point to mid-point, it's down $40 million -- or is there $40 million taken out of the backlog assumption on the credit worthiness of the CyberKnife that you took out?

It was less than that. In the past we've shown kind of how to calculate the change in backlog, where if you start with beginning backlog, you'd back out revenue and compare back to the ending backlog you will come up with the difference of the net new value contribution, and that compared to the $101 million will give you that number.

But I want to point out, as often as I can as well, that we are obviously disappointed after to do that. But at the same time, there is still, we believe, significant and probably industry leading growth in the guidance that we are giving. Tom Gunderson - Piper Jaffray: I know, it's just all about expectations and then changing expectations, so we’ve all been through this before. Is the assumption, then, that of the CyberKnifes that are in backlog six months ago, the ones that were in backlog, some of them had a contingency and the contingency was the ability to raise the money to pay for it?

Yes, some of them. But also I said there are other factors here. We’re not saying that everything that affected that guidance adjustment has come out of backlog. What we’re seeing in many cases is that people are just taking longer to get their financing resolved. So the net effect on the guidance is not just people canceling contracts; it's really about us assuming that they are not going to be able to install. It's really about doing a balanced overview of what we think will happen for the rest of the fiscal year, and that simply includes people that being telling us their financing is on its way, and when we look at it and we talk to them, we think, you know what, it maybe but we now don't think you are going to be able to continue your initial installation objective. Tom Gunderson - Piper Jaffray: And help me understand why it's having such an impact on the short-term in the next six months when, as I understand, if you have to place an order, you have to put money down, and then you'd get your contactor to build the CyberKnife house for you. All of that takes time. One would think that these adjustments to credit and pushing out would have more impact in a 12- and 18-month period rather than the next six months?

Well, it does -- although there are payments that are made upon installation, and if a customer wants to push that payment out, it’s very easy to push it out by pushing out the installations. Tom Gunderson - Piper Jaffray: Okay. But they already have a bunker all set and ready to go, but what if they don’t want the installations? Is that the way we should look at it, in some cases at least?

In some cases, yes. But if the installations are meant to take place six months from now, the bunker probably isn’t ready. Tom Gunderson - Piper Jaffray: Okay. And then I’ll just ask one quick arithmetic questioning and get back in line. You said 12 new installations -- six in the US -- which were similar revenue-generating. Were the six in Asia and Japan also revenue-generating, or did they come from distributors where we already countered the revenue?

It’s a mix. Some of them were revenue generating; some of them would have come from a previous quarter.

We pointed it out last quarter; there tends to be a mix in every quarter. Tom Gunderson - Piper Jaffray: Right. So, if some there is only six units, can you tell us how many were revenue generating?

Well, if you looked at the total, the total revenue units, there were actually 18 that touched revenue. In other words, there was the first point at which we would be recognizing revenue, and that included both the installs. It might have included shipments, or even platinum units where they had completed all the upgrades, and now we can begin recognizing revenue. Tom Gunderson - Piper Jaffray: Okay.

Thank you.

And our next question will come from Mark Richter with Jeffries & Company. Mark Richter - Jeffries & Company: Hi, guys. You recently held a CyberKnife users meeting on the 23rd or the 27th. My understanding is there were more you would managed any if they were more than 500 medical specialists. There is clearly a lot of interest in the CyberKnife product. I guess my question is, why can't we get more of that interest converted into backlog growth, unit placements, and revenues in a faster, more-expeditious way? Is it the Novalis TX impacting things at all, or can you just help us understand sort of why things are taking longer than expected?

There's a couple of questions rolled into one there. Actually there are three, all-in-all. But the delays that we've talked about are due to the reasons we've talked about. So, I don’t want to try and link them to any trend-changing clinical trends. Taking the question backwards, you also asked about Novalis and the impact on the market. And I think I can say that with a great deal of confidence that Novalis has been there for the whole of the period of growth of the CyberKnife. And this session of Novalis, the last session of Novalis, the functional capabilities as it links to clinical treatment are really not much different; it’s total different. We are not certainly internally able to see any difference at all. So, they've certainly changed the kind of the hardware platform on which is based by, using different a model, and accelerate them and using a different multi-leaf collimator. But the overall effect on whether that will be able to deliver more treatments is negligible. So, we're not experiencing any major or even minor sales impact as a result of Novalis. Like I said, it's been there for the whole period of our growth, and we're very used to dealing with questions about that. As far as the clinical changes are concerned, and how quickly they result in sort of sales and installation, I do want everybody to understand that we're building a clinical program here. We are not the same company as other radiation-producing companies like Varian, TomoTherapy and Elekta. These companies are, to a much greater extent, selling into an existing clinical market. We know that the major companies in the field say that they sell about 70% of their sales or so out to -- are repeat orders for the same customers. They are just replacement units going to an existing bunker. They are going to treat exactly the same clinical conditions. So the budget for them is predetermined, and the room configuration is right. When not in that field, and now there are pluses and minuses to that. And the plus is we have a huge potential market -- and the more the clinical treatments grow, the bigger that market becomes. To link it back to the users meeting, which is the start of your questions, we had an amazing users’ meeting. You think of installed base of not much more than a 100, and we have users there -- and customers and so on -- of more than 500. That means that people are sending four to five people on average per site. That's a massive investment, and I think it really demonstrates the level of enthusiasm and interest there is in CyberKnife as a whole. And the people that attended, I can tell you were absolutely blown away by the level of clinical presentations that were there. And I think what you will see over the next six months to a year is some real impact from the kind of clinical data that was presented pretty much for the first time at that users meeting, as it reaches a broader audience. But I think the initial impact of any new clinical data is amongst the existing user base, and that's why when we look at the change in the trends in the market, we start off by looking at utilization. When we see as a prostrate-cancer utilization on the ramp up, which it is in a dramatic fashion, we help those sites to become even more successful, and we encourage them to publish that data and their experiences. Once that data is out in the broader audience, that's when you can use it for the sales efforts. Once you have used as a source and you have got new contracts, then you are still stuck in the same environment of needing the hospital to build a room to house a CyberKnife, and that's the world we live in. These are that new construction programs -- major new projects to every single customer. And as I said, it is not, we are not in the same business as the other companies. Mark Richter - Jeffries & Company: Okay. Perfect. And then just as a follow up, did the clinical data out of Naples comparing CyberKnife versus prostate -- was that presented at that user conference, or will that be something to follow shortly?

It was presented at our conference, but I would rather leave it for them to release the full details other than to repeat what I just stated in the scripted version of the conference -- which is that all the data was very, very positive in terms of PSA response from all the prostate papers that were presented with minimal side-effects. Mark Richter - Jeffries & Company: Okay, got you. And then my last question -- and it's a follow-up to the others. I just want to make sure I am clear on this: So how many revenue-generating systems did you place this quarter, and then can you break it down for us, US versus OUS?

There were 18 revenue units, where it was the first time that we were recognizing revenue on that. And so it was 10 in the US or in the Americas, one in Europe and seven in Asia. And in the US, that could be because it was installed; it could be because it was placement that we first started recognizing revenue on; or it could be a platinum --where they have now received all of their upgrades, and we can begin recognizing revenue. Mark Richter - Jeffries & Company: Okay, perfect. Thanks guys.

And the next question will come from Tycho Peterson with JP Morgan. Tycho Peterson - JP Morgan: Hi. Good afternoon. Maybe starting off with just some of the credit issues you talked about -- have you guys shifted your sales? You talked a little bit more on focusing on accounts that have financing in place, but how do we think about shared ownership? Do you start to push the shared ownership and potential customers more? And then also to the extent you are changing your sales expectations in terms of the cost for this year -- that will be helpful.

So, in terms of sales focus, as I said just now -- I think our sales force was finding that there are real opportunities for linking up with people who had a definite financial interest in building a medical program. And those sales -- let's look -- go back 12 months where won't just say easy, but they were the ones which were presented to them as opportunities, and they were very positive path to complete a contract. And I think that became a very-- for one of our market segments, at least for certain regions of the country, that became a particular focus for them. And I think as naturally as things have tightened up in those areas then, they have naturally moved away towards the ones which are not requiring credit. So it's been kind of a natural evolution unless we really become more aware of the situation over the last few months. We've really done some serious hard-looking of both our backlog and at our future sales pipeline. The effect on backlog is the one we described; we felt it sensible to make these adjustments just to a greater level of uncertainty. In the sales pipeline, I think the changes had already taken place. People were already focusing as we look forward to our forecast for the next couple of quarters. Hardly any of those types of deal were really amongst the mix of customers that they were bringing to our attention. Tycho Peterson - JP Morgan: So then in terms of the CyberKnife backlog that you quoted, is it fair to assume that none of that has continued on financing, or how do we handicap that?

Well, there is still some that requires financing, but we looked at the credibility and credit worthiness of the customer and can see that it is, in fact, they should be able to get financing with that, and they don’t believe that it's going to be an issue for them. So we’ve rolled that into the analysis that we did on all of the backlog.

Yeah, we’ve always been given credit for this. So we actually have I think a very conservative approach to backlog, and what you're seeing this quarter is a result of that. We don’t believe that many of these customers have gone away completely, but we want to give maximum clarity to everybody, and if we don’t feel that within the kind of timeframes we've always quoted for backlog roll out that those customers are going to be ready because they are still finalizing things, and we don’t necessarily have confidence that they can complete in the original timetable. That’s when we have really taken some fairly fair options and said it's just best not to have those in our backlog number.

Yeah, it should be clear that it isn’t that the interest in CyberKnife has waned; it's their ability potentially to get the financing for CyberKnife.

Of course, it’s a big focus for everybody, and of course it’s disappointing that it's resulted in a turning down of our guidance for this year, but at the same time it's one market segment, and , it doesn’t effect the international markets and it doesn’t effect the vast majority of our U.S. deals either. iIt’s one market segment. Tycho Peterson - JP Morgan: Okay. And then in term of your outlook on spending then for the year given the revenue reduction in guidance, any real change there in terms of how you are going to be building up sales force?

I don’t think so much in terms of sales, but clearly we -- Bob do you want to [address this]?

Yeah, we still want to invest properly in the sales effort as well as the R&D effort, but we’re going to take a look at all the numbers for the next six months at this fiscal year and decide what's discretionary here and what can we pull back on in order to maintain our current profitable growth rates?

We only have, I think, the very strong and say complete, never complete, but it’s a very strong sales force in the United States, and as we progress internationally, I mean, much of the territory expansion we have been able to achieve over the last few quarter has been through addition of distributors. So, we put in place in order to find the best distributors, we put in place the territory managers some time ago, and they are the ones who have now been identifying which of the distributors who would like sell our products and again be the best one for us. That's how a lot of geographic expansion is taking place. So, completing the job, which we will be doing over coming quarters, is not necessarily one globally that requires a huge level of additional investment. Tycho Peterson - JP Morgan: Okay. You commented on Novalis a moment ago, but can you just give us a sense as to how often you're getting in bake of with Varian and how you're addressing competitive noise that maybe in the market?

Sure, there has not really been any change since last quarter. I would say that and I talked about this quite a lot, I think in the last quarter. Varian are present when we try to make a sale, in many cases but primarily in the cases where hospital is deciding to switch from what would have been a traditional replacement of the standard than accelerated unit in a bunk that already exists. When hospitals are residing either because they see radio surgery as a clinical opportunity or they see radio surgery as a business expansion opportunity for them. They are deciding to use one of their existing bunkers for CyberKnife instead. And then, of course, we compete pretty strongly for budgets and for some space inside the hospital, and all competitors in that environment, their argument tends to be that you really don't need to treat many radiotherapy patients, and the low-hanging fruit could be treated on our systems, and you'll be able to do radiosurgery as well. And our counter arguments to that, which are generally successful, are that, you have plenty of patients here and many radiosurgery cases. Most radiosurgery cases are extremely complex; they involve moving target, they involve very precise treatments close to vital structure such as spinal cord, which will be moving during treatment, and the CyberKnife is the best unit for you. As a robotic system, that’s going to monitor patient position and organ position, throughout the treatment and correct for it automatically without any interruption. You are clearly going to get more accuracy, a higher level of accuracy, and therefore CyberKnife is the right program. In the end of it, it tends to come down to whether they are ready to make the jump. And even those customers have decided that they will stick with one of the existing sort of more conventional combination units. They tend to come back to us at some point in the future anyway because they are just dipping their toes into the radiosurgery world, and they want to, as they build that and they realize what they want to do, the patients are there, they would tend to migrate back. Tycho Peterson - JP Morgan: Okay. And then finally, I may have missed this. But on the international front, the six orders for last quarter, that were not there in the installed base they are now part of it. Is that right?

The ones that were installed, yes. Tycho Peterson - JP Morgan: Okay.

Yes. Tycho Peterson - JP Morgan: Thank you.

Thanks.

Our next question will come from Junaid Husain with Soleil Securities. Junaid Husain - Soleil Securities: Hey guys, good afternoon.

Hi. Junaid Husain - Soleil Securities: Bob, I am sorry if I missed this. How many instruments did you take out of backlog? I think you said you pulled less than $40 million in contract value.

We didn’t actually identify the number of contracts. But if you do the math, it comes out to kind of net-net of about $30 million. Junaid Husain - Soleil Securities: Got you. And then all of these US [resending] centers in.

Pretty much at a majority, certainly. Junaid Husain - Soleil Securities: Thanks.

Some things aren’t right down, but yes, and that’s the impacted in the US, and that's impacted in the US and those are the ones who examine hard and those are the ones we decided should be taken out. Junaid Husain - Soleil Securities: Right. And I am assuming that these are reasonably-priced systems for centers that perhaps haven’t started building out their room. Is this how we should be thinking about this?

The ones that would have been removed would have tended to have been in the early stages because they are still sort of in the financing phase. But there are others as we mentioned which are just delaying, though there are kind of two effects going on. Junaid Husain - Soleil Securities: Yeah. So, then what happens to these customers? Could they still come back later in the year, when they…

Completely, completely. Absolutely, and it's is just because, like I said, we want to include it in backlog. We have more of a conservative approach, and we only want to really include those. When we tell investors about backlog, we want to include the ones in which we have a high degree of confidence and will roll out in a way that we expect contracts to roll on. It is that the higher degree of uncertainty than we feel is acceptable then we will move them. Junaid Husain - Soleil Securities: Okay. And then with regards to the tightening of credit markets, I guess I am trying to understand what changed from the fiscal first quarter to the fiscal second quarter. I guess the tightening of the credit markets is more or less well-known. So what's really changed with your customers was that after your issued guidance on the first quarter, you went back to your customers and did a more rigorous statistical analysis of what could convert to recognized revenue, and you just see that as these customers were getting closer to purchasing the creditors were playing hardball. I am just trying to understand what went on in the interim between the quarters there.

Yeah, sure. Now there is very much of a public recognition of the very, very tight credit markets, and before, of course, there were hints of it, but as we sort of approached our customers and our customers were still very optimistic and so we said, okay well. And then as we pursued a little more detail, a little more information it just became clear that in fact they were going to be affected by the tight market. So late in the quarter and over the last few weeks, it's just become much clear both sort of privately and publicly that the credit markets aren’t necessarily available to everybody. Junaid Husain - Soleil Securities: Got you. And then Bob, with regards to the platinum and gold contracts out there, how many of these legacy accounts do we still have sitting on the balance sheet? Is it still about 45 in total; 30 platinum and 15 gold.

That's exactly right. Junaid Husain - Soleil Securities: And then how many of these contracts signed onto or are these accounts signed onto their sixth and final upgrade in the quarter? I guess none of them did?

No, actually some of them did sign on to their final upgrades. About 90% of them have ordered and have less than two or less upgrades remaining. So 16 platinums are complete right now. Junaid Husain - Soleil Securities: And then the gold?

The gold is in -- that's just an ongoing revenue recognition. We are getting all of those on an ongoing basis, okay. Junaid Husain - Soleil Securities: Good enough. That is all I have got. Thanks.

Thanks.

And our next question will come from Amit Hazan with Oppenheimer. Amit Hazan - Oppenheimer: Hi, good afternoon guys.

Hi, Amit. Amit Hazan - Oppenheimer.: I guess, first of all, just to be very clear on the guidance: is there any thing in the new guidance in the reduction of guidance that comes from the write-off of new orders that you the $30 million or $34 million are so they are writing-off, or is it all at the reduction all type to the delays?

Well, I think, it's a combination. I mean, if you look at some of the systems that we have in a backlog that we thought they would be able to install by June 30th, clearly the credit markets have affected that because they can push out that installation now. They might not go away. But they've gone away for this fiscal year. So, to the extent that they are pushing out there installation, we believe that their installation is going to be pushed out. Now, that does affect our outlook. And then, the backlog, it's really looked at almost, well, as a separate entity looking at each of the contracts not so much is a key that they are going to be installed because that's a different process. We are just looking at each of the contracts and saying, okay, will this turn into revenue. So, if a contract is pushing out their installation they would probably still while it would still be in backlog. But if we saw that they are financing was at risks and in its entirety then in fact we would take them out of backlog. So, it isn't, I mean, they are related but at the same time to somewhat separate. Amit Hazan - Oppenheimer: What are your specific criteria for deciding if they take a unit out or to delay a unit?

Well, to delay a unit is simply to talk to the customer and decide whether not they are going to be ready for installation. And so, that's pretty straightforward to take a unit out, that's our decision typically. That doesn't mean, it involves the customers, but that is not the customer's decision parse. Amit Hazan - Oppenheimer: So you are taking units out that the customer hasn't told you that they don't want the order yet?

In some cases, correct. Amit Hazan - Oppenheimer: Okay.

Initially involves, I mean, that usually involves if customer comes into doubt and whether way we describe. We will investigate it pretty thoroughly, usually involving a discussion with the local sales representative who may local to the customer and get a full update and where they are, and what their challenges are, and we dig into this thing in some detail. We don't take it lightly.

And we go through the backlog on a monthly, quarterly basis and then we assess, we assign them a quality number, if you will, and if they fall out of the range then they come out of backlog. Amit Hazan - Oppenheimer: Okay. So, I mean, this obviously begs the question of how we get any kind of confidence in your backlog. So, I am trying if you can give us some clarity on how much of your backlog is related to free-standing clinics or how much of your backlog is related to contingent contracts. So, we can get an idea of what your backlog really is because how do you give us or investors confidence that this won't happen again?

Well, I think, you have been getting confidence, and in fact we have done that. I mean, we are demonstrating that we don't have soft orders or anything that turns soft. We don't leave it in backlog. So, if you didn't see us doing this then you should be worried. And I think. Amit Hazan - Oppenheimer: I thought you did this a couple of months ago and you didn't find these. So, this is happening in real time.

I think if you look again at the competitive companies in the industry. I mean for the most part, we do remove orders from backlog when either customers cancel or they judge not to be moving ahead. So, I don't seem there is anything unique in this. We can point to some pretty big players in the field to do exactly the same thing. I think under these circumstances, when we saw people pushing their installation dates, it was a good policy for us to go in and we are really looking detail of that particular category of customer and to weed out ones that we just didn't feel confident. and I think in sitting here today. I am telling the street that these were customers that we felt highly confident we're going to move ahead with the installations process. We've always done that. We have given a particular focus this quarter for that particular market segment and we are continue to do that, which means that as you look at our new contract value every quarter and you look at backlog value every quarter. You should feel very confident that we have been through this process and it's a solid one. Amit Hazan - Oppenheimer: Can you give us a sense generally of how much of your backlog is related to contingent orders?

We don't break that out on a public basis. Amit Hazan - Oppenheimer: Okay. Just moving to, I guess, new orders -- even if we assume your $100 million in new orders that flat year-over-year. And if we think about the $40 million you just removed, and you know with some of your comments get a sense that that $40 million in or in backlog that you just removed was new orders over the last six months or so. I've got two out of the last three quarters that were flat in terms of new orders. I've got $40 million that are coming out of new orders. I am not seeing much growth here at all. But you are painting a picture as if there is some robust growth going on in terms of interest in your product. What am I missing?

I am not really sure where you're coming from, which is not unusual, but Bob, I think release there was 22 new contracts this quarter and amounting to more than a $100 million and I think if you look back over previous quarters that's an exceptionally good quarter. I know you might do comparisons in Q2 last year to a Q2 this year. But Q1 last year was fairly minor in terms of new contract generation. Q1 was about 37, Q2 was round about a 100. When you look at the overall trend, the trend is very positive. You take our last four quarters and roll them up and compare them to the previous four quarters before that, a time period this is somewhat meaningful, I mean, you are going to see very, very strong growth. And this quarter, we've given additional visibility into the actual contract number as well as the actual new contract value as the dollar amount, which we haven't done before, which I think is very, very positive and both of those numbers are extremely positive.

And our next question will come from Eric Snyder with UBS. Eric Snyder - UBS: Hi, guys. You actually just noted that for the first time you provide actual order per contract numbers and actual new contract revenue. Is that something you planned to do going forward?

Eric, we are not necessarily making that commitment right now. We did it obviously under circumstances having removed such a significant amount from our backlog for the reasons we discussed. We really wanted to give people another level of confidence that we sell people deserve and this quarter was actually very positive one from the sales side. And we felt that if we haven't done that, then the numbers would have been distorted. Eric Snyder - UBS: Okay.

And that's the particular reason why we do at this quarter and we're not committing to do it necessarily going forward. Eric Snyder - UBS: And this contract count in revenue numbers seem to suggest $4.6 million per order versus a number you had said before was about four, does that number come up, or where you rounding previously?

VASP has come up but it does depend on the mix whether it's more international versus, or direct, indirect, domestic, international. It does depend.

The highest number, we gettable is the probably on the product side it's an international system that we, system sold internationally direct by us. Eric Snyder - UBS: Okay.

And not through a distributor, then after that probably comes down to US with platinum or so with Diamond rather. And then one sold through a distributor, where perhaps they are not buying, service contract, committing to service contract upfront without the lowest amount. Eric Snyder - UBS: And I think if I just ask a couple of different ways. But maybe this is the version you will answer. How much of the backlog depends on US free standing centers versus O-US or hospital associated centers, 20%, 10%, 40%, yeah, you said it was less than the majority but is it the minimus or is it a major factor?

We are not reporting that because we don't want to answer it. I think we haven't got a precise number on that one. I would estimate probably kind of $0.15 or something like that. Because at the time you look at international systems are really not in this category, they are not the free standing centers and they are going to represent probably a third or more of our overall backlog and then you've got the centers in the US and I am going to estimate it reflect 15%, 20%. We are not being evasive; we just don't have that breakdown. Eric Snyder - UBS: Okay. And just a follow-up on where I think Tycho and Amit together going on really the -- it seems like the point of shared services for customers who have difficulty financing systems. So to the extent that you have pulled revenue out of this year in your guidance that thing suggests that these are people who base we hadn't even started building their centers, is that right?

Yeah, we seemed delayed, but of course it is not the initial start to construction that determines when the system will be installed with the completion of construction, though that's not always the case and when we could have somebody who has started but they started late. We expected them to have started last quarter and they might be breaking ground now, and we just don't feel confident they are going to finish and there is really not much we can do about that to say if they are delaying things. Eric Snyder - UBS: Okay. And if all of these people, who have signed up whether it's a like I guess, somewhere between 8 and 12 units probably. All paid upfront amounts, I think, you normally get 10% on deposits, will you return those if they end up not purchasing or will you keep them

It depends on the situation, we are not out to upset our customer base, no.

I just want to, again, because I don’t want this to confused that the issue of customer delaying and us taking the customer out of backlog is, are different things. And obviously this, what we are seeing I guess in terms of guidance is more delay. Eric Snyder - UBS: But the backlog removal you think is orders that have permanently gone away?

No, not necessarily. It is just at this point in time, if they may not have the financing they thought they were going to get and therefore we have set them aside and said, you know what, this right now given the information we have based on conversations with the customer as well as kind of our sales organization we feel that this customer is not at the stage that we can predict with a high probability that this will turn into revenue. So it is sitting on the sideline so to speak, and we will see if it comes back to a point where they do get their financing and then they can move forward. But it doesn't necessarily mean that it goes -- that the interest has gone away. It just means that their ability to act on that interest in the CyberKnife has been delayed.

At this time that would conclude our question and answer session. I would like to turn the program back to our speakers for any additional or closing comments.

So in closing, Accuray continues to make substantial progress with the trust to build the market for radiosurgery and CyberKnife continues to demonstrate to a market leadership. Despite some short-term challenges to one segment of our US market and overall growth continues to be strong, we believe that our sale successes and technology advances provide great platform for future growth. Thank you for your time today, and we look forward to talking to you on our next quarterly call.

Thank you everyone for your participation in today's program. And you may disconnect at this time.