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

Peter Bye - Jefferies and Co Josh Jennings - Jefferies and Co Junaid Husain - Soleil Securities Eric Meyer- UBS Amit Hazan - Oppenheimer David Fondrie - Heartland Funds Larry Haimovitch - HMTC

Ladies and gentlemen, thank you for standing by and welcome to the Accuray Incorporated Earnings Call for the Third Quarter Fiscal Year 2008, ended March 29, 2008. 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 conference is being recorded. At this time, I would like to turn the conference over to Tom Rathjen, Vice President of Investor Relations. Please go ahead.

Thank you very much and good afternoon. Thank you for joining us today for Accuray's third quarter of 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. This quarter we will be referring to financial data which is found in a PDF file on the investor relations page of the Accuray website at www.accuray.com. Please log on to this site to view this information. Before we begin, I need to remind you that, except for the historical information, the information that follows contains 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 SEC. And now I would like to turn the call over to our President and Chief Executive Officer Dr. Euan Thompson. Euan?

Thank you Tom. I would also like to thank everyone for joining our call this afternoon. Today I would like to provide highlights of the third quarter of our 2008 fiscal year. I would also like to discuss our sales environment and the changing market conditions and how we are addressing these changes. Finally I will outline our continued clinical growth. Following my remarks our CFO Bob McNamara will discus our third quarter financial results in detail. First let me share the highlights of the quarter. This is our fifth consecutive quarter of record revenue and our fourth consecutive profitable quarter. Total revenues for the quarter were $58.8 million a 57% increase over the same period last year. Net income was $584,000 compared to a net loss of $785,000 in the third quarter of last year. Our Services revenue grew 141% to $11 million compared to the third quarter of fiscal '07. We generated 16 new orders during the quarter with a total value of $76.6 million. Now given the Accuray sales environment, last quarter we discussed how changing conditions in the marketplace were impacting a segment for our US market. Specifically the impacted segment represents free standing providers of CyberKnife Radiosurgery. Those customers operate outside of a hospital environment. I want to run through that explanation again to make sure it’s clearly understood and then I will try to quantify some of the impact and how we are addressing it. To start, despite constant comparisons between ourselves and other manufactures of radiation equipment, I want to reinforce that Accuray is not in the business of providing traditional radiation therapy technology. I can understand why these comparisons arise particularly in light of confusing marketing claims by some of our peers. But the important thing to remember is that we provide a dedicated Radiosurgery system that predominantly treats a new group of patients who may well not have been referred for radiation treatment if the CyberKnife were not available. This makes our sales process significantly different from that of the other radiation equipment providers. For example, the radiation therapy companies rely heavily for much of their business on replacement of existing radiation therapy equipment that has reached the end of its useful life. This replacement equipment is generally purchased by existing providers of radiation therapy services who have a predefined budget and a room ready to house it. Sales to these customers are usually technical in nature. The customer will want to review a list of the current features of the equipment on offer and make a decision about which manufacturer system they prefer. Once a decision is made installation would tend to follow at a predictable time, because a new unit has been purchased to replace an existing one, so the facility to house the system that’s complete and available. What I just described is radically different from the Accuray sales environment and purchase process. Unlike traditional radiation therapy equipment which is typically used to deliver a course of treatment of 6 weeks to 8 weeks. The CyberKnife system is used to perform radio surgery, typically in any 1 to 5 treatments in as many days. Whereas conventional radiation therapy would generally follow surgical removal of the tumor by a surgeon, CyberKnife's Radio surgery generally replaces the surgery by destroying the tumor in a non-invasive manner. As I'll describe later, the radio surgery market is growing at a very fast pace, which is very positive for Accuray. But the key thing to remember is that full body radio surgery is a relatively new clinical concept and as a result there is generally no budget or space allocation at our customer's sites at the time we approach them. It's more normal that once a customer has recognized the need for CyberKnife radiosurgery system as well as the benefits the system can provide, they will need to find a budget and a location. In short, the CyberKnife for very positive clinical reasons is a new business development proposition for most of our customers. So in order to complete the sale of CyberKnife in an accelerated timeframe, our sales force has to find customers who have access to financing and a location. In past years, particularly in the United States, we found that entrepreneurial physicians and free standing centers have sometimes been more amenable to taking on that challenge than hospitals. We certainly do have many hospitals as customers, but is often proved softer and less challenging to complete a sale in the US, to independent entrepreneurial service providers or free standing centers. The owner of these centers will often later form joint ventures with the hospital to provide CyberKnife treatments thereby solving the hospital's problem of budget and space. During this fiscal year, proposed regulatory changes in the general economy and credit environment have placed more pressure on the business plans of these free standing centers. As a consequence, we have experienced some slow down in planned revenue from this market segment. Last quarter we reported that some orders have been cancelled and that we have removed others from backlog simply because we now have less confidence that certain customers would take delivery of a CyberKnife system in a timely manner. To reiterate this, change in the environment has predominantly impacted one segment of our US market. There has been no significant impact on our hospital based customers in the US or in our international business. Our job over recent quarters has been to continuously evaluate progress of customers with this profile and where necessary to remove their orders from our stated backlog. I do also want to stress that not every customer in this category is at risk. We have successful free standing centers including those at Miami and San Diego, that have extensive clinical programs and we have many robust orders in our pipeline that we feel confident will complete the installation process. However, our US sales force is now focused predominantly on hospital based customers and on customers who were less impacted by the regulatory and economic challenges. We are already seeing the positive impact of that effort in the sales pipeline as I'll describe in a moment. Looking outside of the US, I am pleased to report that 6 of the 16 orders received during Q3 were from international customers. This represents continued growth in our international business. We are very positive about this trend as in general, international business is heavily dependent on the strength of clinical data and we feel this growth to be added confirmation of the increasing strength of our clinical programs. Again the issues I just described regarding free standing centers to not apply internationally since a vast majority of CyberKnife sales made outside of the US are to hospitals. In part of new order generation we did continue to reevaluate our backlog in the ways I have just described. As a result we once again removed certain contracts in backlog to ensure that we continue to give investors an accurate picture of business trends. Bob McNamara will be giving a full overview of backlog in a moment. However, in summary, we generated substantial new backlog and also removed certain previously included contracts from backlog, as a result of some cancellations and some unfavorable changes in our perspective of the likelihood of revenue resulting from the contracts. I am with my report on the sales environment; I want to briefly talk about competition. As I mentioned just now, our sales process is different from that of the other radiation equipment providers, because clinical utilization of the CyberKnife is different. CyberKnife radiosurgery is generally delivered to a different group of patients from those who would normally be treated in a radiation therapy department. Importantly it is still the case that once the facility decides to establish a dedicated full-body radiosurgery program, CyberKnife is a clear choice. The CyberKnife radiosurgery system is the most accurate full body radiation delivery system in the world. The gantry-based systems that were originally designed for radiation therapy do not have the CyberKnife's ability to track, detect and correct for tumor and patient movement in real time. And this sets the CyberKnife apart from other devices in the market. Despite our competitor's claims, the so called part time devices can deliver radiation therapy and perform radiosurgery, it is still the case that the CyberKnife dominates the field of full body radiosurgery. To reinforce this, a recent survey of more than 1400 radiation-oncology sites in the United States, showed that so called part time devices are having no measurable impact on the rapidly expanding extracranial radio surgery market. The independent survey conducted by marketing group Dominic & Irvine Research was described in the March 2008 press release. It concluded that an average part time unit was used to perform radiosurgery on only five patients at the year for extracranial tumors. In contrast each CyberKnife system was used to treat approximately 91 extracranial patients each year. Survey data also showed 74% of CyberKnife systems are now being used more than half the time to perform Radiosurgery on extracranial tumors. While part time units are being used at this level less than 1% of the time. Mostly all CyberKnife systems in use today treat some type of extracranial tumor with prostate, lung and spine treatment increasing most dramatically in 2007. The survey included systems from all the major manufactures. The reality is CyberKnife's change in the cancer treatment paradigm by offering a treatment that in many cases can replace surgery, treat highly surgical patients or patients that have no other medical or surgical options. Accuray is therefore enabling its customers to expand their radiation oncology treatment business with a new group of patients and an entirely new and unique cancer treatment service. So the end result is, once the customer decides to buy a dedicated full body radiosurgery device they invariably select the CyberKnife system. The only competition we face from the part time systems is a budget and space within the hospital. Should we [loose/use] that competition and a customer elects to buy a part time system they definitely turn our radars to potentially CyberKnife site in the future, because we know they were not satisfied with the part time radiosurgery capability in the long-term. As confirmation of these several other of the most important sites and two CyberKnife systems and radiation therapy systems that are marketed as part time radiosurgery devices. So our strategy is to continue to build the radiosurgery market and to ensure that the CyberKnife remains the brand name technology for that market. In Q3 we continued to make excellent progress with this strategy. CyberKnife's systems worldwide treated more than 5.000 patients, which represents a 30% increase in treatments from the same period in fiscal '07. On a particular note there was an approximately 80% increase in prostate cancer treatments in the US compared with the same period last year, while the number of lung cancer treatments increased by about 50% in the same period. We hope and expect this to be important publications to further validate this utilization trend and the unique benefits of the CyberKnife's system over the coming months and years. Earlier this month, the results of one study comparing CyberKnife treatment with high dose rate or HDR brachytherapy was published in the International Journal Of Radiation Oncology*Biology*Physics also known as the Red Journal by the CyberKnife team in San Diego. The study concluded that the CyberKnife's clinical flexibility enabled it to non-invasively deliver complex HDR like radiation doses to the prostate and also eliminated the need for hospitalization and anesthesia. HDR brachytherapy is a proven and well accepted method for treating prostate cancer but it's also by its nature invasive and not pleasant to patients. Its invasive nature also enhances the risk of side effects. Demonstration of the CyberKnife to replicate the dose characteristics of HDR brachytherapy with a non-invasive treatment is a big step toward validating the efficacy of CyberKnife radiosurgery treatment for prostate cancer. To briefly consider some of our other clinical applications, last month we also announced that about 90% of all CyberKnife's centers worldwide are now treating lung cancer. In fact, between November 2007 and March 2008 more than 1,000 patients are treated for lung cancer with the CyberKnife system, bringing the total treated to date to more than 5.000 patients. CyberKnife's system is particularly promising for lung cancer because it's non-invasive, making it one of the only viable options available to patients that may have complicating medical conditions and are considered inoperable. And as we mentioned in our last call, M.D. Anderson Cancer Center is serving as the lead investigator in an international randomized trial that will evaluate whether non-invasive CyberKnife Radiosurgery could be considered a true alternative surgery for many of the operable early stage lung cancer patients. I can report today that this clinical trial is moving along as planned. M.D. Anderson has successfully completed its internal review of the protocol and they expect to begin enrollment of participating CyberKnife centers within the next few months. To educate future customers on the rapidly developing clinical market, once or twice per year we host what's known as our Robotic Radiosurgery course. We invite existing CyberKnife customers to this event to present their experiences to qualified sales prospects who are serious about considering the purchase of a CyberKnife system. The most recent Robotic Radiosurgery course was held in Boston earlier this month. I am pleased to report that more than 170 health professionals representing approximately 100 healthcare institutions from 13 different countries attended to hear presentations of our latest scientific and clinical experiences from CyberKnife uses around the world. Attendees included physicians, physicists, nurses, therapists and hospital administrators. All interested in learning the clinical applications of Robotic Radiosurgery and the specifics of establishing a successful CyberKnife center. This level of attendance is a record. It represents more than double the number of attendees than any previous course, which is a clear indication of the growing strength of our sales pipeline. At the course there were oral presentations focused on both intracranial and extracranial treatment experiences. With additional sessions covering coding and reimbursement, payer relations and a tour of the CyberKnife facility at Beth Israel Deaconess Medical Center in Boston. Presentation highlights included Winthrop University Hospital's experience treating 230 prostrate cancer patients with CyberKnife Radiosurgery. Demonstrating excellent prostate specific antigenal PSA response and few reports of acute toxicity. They've seen only one biochemical failure to-date and that was in a patient with high risk disease. Additionally, experience from Sinai Hospital in Baltimore highlighted the outcomes of 45 patients with pancreatic cancer. Whose prior surgery or prior radiation was unsuccessful or who were in operable or who subsequently were treated with CyberKnife Radiosurgery. The median overall time for diagnosis was 18.4 months with a local control rate of 91% for these patients. These constituted very promising results given the generally prognosis for patients with pancreatic cancer. In summary the increasing utilization trends and strengthens in the growing body of clinical evidences is impressive. It overwhelmingly reinforces both our leadership in the extracranial radiosurgery market and continued strong new customer interest. In conclusion there are three points I would like you to take away from our call today. Firstly general short-term regulatory development and economic conditions have negatively impacted one segment of our US market. And the ability of some of our more entrepreneurial customers to purchase a CyberKnife system. But Accuray has taken the appropriate steps to refocus its sales strategy and sales activity. Our sales pipeline is strong and sales performance in Q3 was solid. Of particular note is the continued growth of our international business. Secondly the CyberKnife remains the only dedicated full body radiosurgery device available. Claims by other radiation technology manufacturers, that part time systems can have an impact on the fast growing radiosurgery market are not supported by independent marketing data or by our own experiences in the sales environment. Accuray continues to define the market for full body radiosurgery and the CyberKnife system is the obvious choice for hospitals that decide to expand their cancer treatment services by initiating a radiosurgery program. Finally clinical data continues to be acquired and published supporting the use and efficacy of the CyberKnife in treating tumors anywhere in the body. We expect to see sustained increases in the number of patients treated and expansion of use of the CyberKnife to treat new conditions as clinical studies progress and experience continues to grow. Now I'd like to turn it over to Bob who will discuss the financial results of the third quarter.

Thank you Euan and again thank you all for joining us on today's call. This afternoon I'll review our financial and operating results for the third quarter of fiscal 2008. As Euan mentioned in the third quarter Accuray achieved its fifth consecutive quarter of record revenue. Total revenue was $58.8 million a 57% year-over-year increase from $37.3 million in the third quarter of fiscal year 2007 and a 13% sequential increase over last quarter. For the nine months ended March 29, total revenue was $159.4 million, an increase of 65% over the first nine months of last fiscal year. Net income was $585,000 or $0.01 per diluted share compared to a loss of $785,000 or $0.02 loss per share during the third quarter of last fiscal year. This marks Accuray's fourth consecutive profitable quarter, since becoming a public company 14 months ago. Net income was $5.2 million or $0.09 per diluted share for the nine months ended March 29, compared to a loss of $6.1 million or $0.26 per share during the first nine months of last fiscal year. Taking a closer look at revenue for the third quarter $40.7 million was generated from product revenue, an increase of $11.2 million over the same period last fiscal year and up 4% sequentially from last quarter. Services revenue contributed $11 million during the third quarter, an increase of 141% over the third quarter of last fiscal year. Services revenue primarily is associated with maintenance agreements that our customers enter into with us, generally for four year terms and the associated revenue is recognized ratably over the respective service period. It is important to note that services revenue was 19% of total revenue this quarter, up from 12% during the same period last year. This expanding stream of revenue provides Accuray with an increasingly significant source of recurring revenue as we move forward. Shared ownership programs contributed $2.7 million during the quarter, up from $2.4 million for the third quarter of last year and down from the $3.0 million last quarter. This decrease is due to shared ownership buyouts in previous quarters. Other revenue contributed $4.3 million compared to $809,000 in the third quarter of last fiscal year. This quarter's other revenue was primarily related to specialized upgrade services for units previously sold in Japan. Of the $58.8 million of total third quarter revenue, 18% came from our international business. Now, I would like to remind everyone how we recognize product revenue, which is generally in one of three ways. First, product revenue is recognized upon CyberKnife installation and acceptance, where Accuray carries the responsibility such as our direct territories in North America, Hong Kong and several European Countries. Second when selling through certain distributors to international customers we recognize product revenue upon shipment to the end customer. In these cases the distributor assumes responsibility for installation and our contractual obligations are met upon shipment. And third, product revenue is recognized from legacy platinum accounts. As you recall, once the final upgrade has been installed on these contracts we then ratably recognize the value of that agreement over the remaining life of the contract. Exiting the third quarter of fiscal 2008 all of this 30 legacy platinum systems are installed and we are recognizing revenue on 18 of them. Of the 12 systems that remain most have only one or two upgrades left before we can begin to recognize that revenue. During the quarter we sold the rights to six of our shared ownership units to Alliance Imaging. Alliance is a leading national provider of shared service and fixed site diagnostic imaging services with 88 imaging centers and 12 radiation therapy centers. This transaction provides the opportunity to develop a strategic relationship with Alliance and encourages Alliance to partner with the growing number of hospitals interested in establishing a full body radiosurgery program. Alliance has established a dedicated business unit, known as Alliance Radiosurgery to operate these sites and pursue the radiosurgery market. Two additional sites bought out their shared ownership agreement, one of which included a free standing physician group that was already using this system, the other was sold to 21st Century Oncology in connection with their acquisition of the radiation oncology services business at the hospital where the CyberKnife is located. We don't disclose the specific selling prices for any deals because of competitive reasons, but it should be noted that multiyear service agreements providing recurring revenue have been signed as part of these deals. These transactions reduce the number of shared ownership sites to four. We installed one new shared ownership unit during the third quarter. We will continue to offer our shared ownership programs as we see advantages in maintaining this program. It provides customers an effective lease device structure, therefore making it easier for qualified institutions with capital constraints to obtain our technology, build the customer base and revenue stream, which will ultimately fund the outright purchase of the system. It will be a smaller part of our business but nonetheless important. Our goal in connection in with shared ownership transactions will be for customers to ultimately purchase the system either early at their election or in accordance with the provisions of the shared ownership agreement. Gross margin for the fiscal third quarter was 44.7% resulting primarily from the lower than average margins from the sale of the shared ownership systems. In addition, as previously noted we delivered multiple, specialized upgrade for units in Japan, which also yield a lower overall margin. While gross margin was pressured in the third quarter, we expect margins to return to levels approximating recent historical averages in the fourth quarter, as we do not anticipate activity of the same magnitude that resulted in the margin pressures. Total operating expenses for the third quarter of fiscal 2008 were $27.4 million or 47% of revenues, an improvement from 61% revenues in the third quarter of 2007, and 52% sequentially. Our investment in research and development was $8.6 million for the quarter and shows improvement as a percentage of revenue. In Q3, R&D was 15% of revenues, Q2 of this fiscal year it was 16% and a year ago it was 19%. So the total of research and development expenditures as a percentage of total revenue has been decreasing sequentially, but our absolute dollar investment in R&D continues to increase as we are committed to continuing to develop and improve our technology. During the third quarter of fiscal 2008 we recorded non-cash stock based compensation of $4.2 million or $0.07 per diluted share. There were eight new systems installations completed in the third quarter, five in the United States, two in Japan, and one is Asia bringing the worldwide installed base to 134. As of the end of the fiscal third quarter, the geographic installed breakdown is as follows; America's 87, Japan 19, rest of Asia 16 and Europe 12. Now I’d like to spend some time discussing backlog. With an effort to provide greater transparency, let me start by saying that our definition of backlog has remained the same and the backlog includes signed contracts that the company believes have a high probability of being recognized as revenue in the future. We’d like to provide more color and insight into our current backlog. As such we have posted a chart on the Investor Relations section of our corporate website at www.accuray.com. The chart shows a segmented snap shot of backlog. We’ve also shown Q2's balance, so that you can draw sequential quarter-on-quarter comparisons. Backlog at the end of the third quarter of fiscal 2008 was $602 million up from the same period last year, but down sequentially from the previous quarters balance of $660 million. Aside from the revenue coming out of backlog the sequential decrease of $58 million is a net result of cancellations of existing contracts of approximately $54 million combined with unfavorable contract movements out of backlog based on our specific assessment. All of these cancellations were associated with contingent contracts and 90% were non-hospital deals. Euan touched on the uncertain regulatory and financial environment that affected these deals. It did not affect the non-contingent deals. In fact over the last 18 months we have only had three non-contingent contracts cancelled and two of those were from the same group. Of the $602 million in total backlog $332 million or 55% is associated with CyberKnife systems and $270 million is associated with recurring revenue. At this point I would like to walk through the chart and give you some basis to stratify the risk profile of the backlog. The chart segments ending backlog into non-contingent and contingent backlog and then further breaks down these categories into CyberKnife, Services and Shared ownership. Of the ending total backlog of $602 million approximately 64% or $386 million is non-contingent backlog. And that the contingencies to which the contracts are subject have been satisfied. This reflects an increase of $14 million over the last quarter and represents a movement of $86 million from contingent to non-contingent during the quarter. The remaining 36% or $216 million of backlog is contingent backlog which may include standard contingencies such as forward approval or certificates of need. Of this contingent segment about two thirds represents hospitals and roughly one-third consists of contracts that are associated with entrepreneurial free standing sites which includes physicians or physician groups that are embarking on their first equity venture without an existing hospital relationship. It is also important to note that not all contracts signed in this quarter are included in backlog. Every order that is received is reviewed to assess the magnitude of the contingencies and if they are deemed significant then the order is excluded from the ending backlog for the respective period until the probability of installation associated with the contract is deemed reasonable to be included. In addition, on a quarterly basis we reveal each contingent contract included in backlog, specifically with our customer engagement and progress towards satisfaction of contingencies warrant continued inclusion of the contract within backlog. Moving to our balance sheet, cash and investments as of March 29, 2008 was $165.5 million. This consists of cash, short-term investments and approximately $21 million in long-term investments. Deferred revenue was $118.4 million with $86 million in current deferred revenues. Total assets at the end of the quarter were $293.9 million and the company continues to have zero debt. Last August, Accuray's Board of Directors approved a stock purchase plan, providing the company with the ability to acquire up to $25 million worth of its common shares in the open market for a period of one year. Within this third fiscal quarter we repurchased $18 million worth of stock and through March 29th, we have repurchased approximately 1.9 million shares or $21.6 million worth of our equity. Turning to guidance. Last quarter we gave a revenue range of $210 million to $213 million for the fiscal year 2008. We are reaffirming this range. In summary Accuray has had its fifth consecutive quarter of record revenues and its fourth consecutive quarter of profitability and its balance sheet remains strong and without debt and with that, I would like to turn the call back to Euan.

Thanks Bob. In summary despite challenges to one segment of our US market, our over sale performance continues to be solid and our revenue once again reached record levels this quarter. CyberKnife is once again been validated as a clear leader in the fast growing field of body radiosurgery and our clinical programs continue to expand. This is an excellent indicator of future growth to come and now we'd be happy to answer your questions.

Thank you. (Operator Instructions) Our first question comes from Tom Gunderson with Piper Jaffray.

Its actually Amy calling in for Tom this afternoon.

Hello Amy.

One quick question as far as international and domestic type order growth, you mentioned that you are seeing some strength internationally whereas on the other hand some of the other players in radiation and oncology field have noted weakness in Europe. I am wondering if you could give us any more color from your perspective on what you are seeing as far as the markets of strength or weakness in different international geographies?

Yes, it is difficult to comment on other people's perspective of the market. I mean I can comment on our own, which Europe is actually one of our high growth areas, quite definitively and I think we have somewhat of a slow start which is not unusual for Europe because European market is very sensitive to clinical data. New technologies tend to be slow to take off. I think some of our peers came into the replacement market and that market was already well established but the whole dynamic was slightly different. And how that market is affected, I really could not say, but from our perspective I think people are really seeing the clinical value and CyberKnife is a technology that essentially reduces the overall cost of treatment of cancer by avoiding the need for surgical procedure. In a price sensitive market like Europe once you have good clinical data, which we're really starting into get now, I think we could definitely expect to see this particular market grow for us. And there are signs of that definitely there right now with it.

Okay and then I have a follow up and at the over the last couple of quarters just done as Bob mentioned with that distributor in fact, how are they to do the install you can recognize the revenue upfront. What is the typical lead time or lag time for that those units to actually be installed.

Well really depends on the distributor but a couple of months it’s certainly reasonable, it depends on how it’s shipped. If its shipped by boat or it is shipped shift by airplane but when we ship they know where its going, they know the end customer because obviously these are very expensive units and they want to make sure that they got their money in hand or at least the money is safe that they know that they are going to get the money before we even shipped. Similarly we want to protect ourselves. So that we want to make sure that we are not shipping any units without certainty of receiving the cash for that.

So you usually definite and quarterly you will see that come through, as far as the install?

Generally yes.

Okay and then one just quick numbers, first on the interest and other line. Is there anything nonrecurring pay for unusual included in that line this quarter?

Well the upgrades of the Japan units and returned about down below, other revenues were just interest.

Okay

If your talking about other income expenses in that line?

Right.

Yes, it's just interest.

Okay, thank you.

We'll take our next question from Peter Bye with Jefferies and Co.

Hi Peter. Peter Bye - Jefferies and Co: Hi this is Peter and Josh Jennings.

Hey Josh. Peter Bye - Jefferies and Co: Could you just comment, I think I may have missed the order number in the quarter? Was it $76 million?

Yeah, total. Peter Bye - Jefferies and Co: Total new orders.

Total new orders correct. Peter Bye - Jefferies and Co: And then how does that compare on a year-over-year basis from the fiscal third quarter last year?

It's, well year-to-date orders are about 20% higher than year-to-date last year. Peter Bye - Jefferies and Co: Okay and you think that you were just about to comment on the other income line. Was there any reason why there was such a big number this quarter? Was it just timing and it just happened to work out that way?

Yeah for other, are you referring to other income or other revenue? Peter Bye - Jefferies and Co: I'm sorry other revenue, excuse me.

Yeah, that's just a mater of timing. Peter Bye - Jefferies and Co: Great and then just back to new orders, can you break out, sort of the break down between international and domestic orders for the quarter?

We said six out of the 16 were international orders. Peter Bye - Jefferies and Co: Okay thank you. Josh Jennings - Jefferies and Co: Bob, could you give any color on the bump up on the accounts receivables and anything in particular there, international or Japan, or was it…?

Sure, that's that -- there is actually two parts to that but that's really just a timing issue because of the installs occurred towards the end of the quarter then the receivables tend to come in after the quarter. Josh Jennings - Jefferies and Co: So would you expect that to come back down in the June quarter?

Correct. Josh Jennings - Jefferies and Co: Okay thanks.

I mean it would depend on the number of installs at the end of June, but yeah, though in terms of those dollars coming into the company, yes. Josh Jennings - Jefferies and Co: Great. And just one more, I think your comment on the trend have been positive with the sort of refocusing the sales force on the hospital based customers. Can you give us anymore color on that in terms of what those trends have led to. Where those positive in this quarter?

I would say, its still kind of work in progress to some extent, there were generally positive trends. I think the biggest indicator we had during this quarter was the attendance at the Robotic Radiosurgery course. As we said almost 100 different institutes represented there and what we are seeing in the pipeline is a definitive trend towards the hospital versus non-hospital deals. That would add, those deals tend to be ones which are harder to provide incentive for a quick sale. It tends to be more of a process inside the hospital. You can opt for a sales promotion for example when you are dealing with sort of an entrepreneurial site, then its more likely to be effective in closing a deal in short term than going through a hospital, which has just got a natural buying cycle and there is nothing you can really do to push it through the system. So we are very, very positive about the overall trend than what we are seeing in the pipeline. I think to maintain the level of sales activity that we have despite the pressures that we've been pretty open about, I think it is actually a sign of the overall strength of the market. I do want to stress that what we are talking about is just one segment of the US market and all other aspects of the market have really remained strong for us. Josh Jennings - Jefferies and Co: I have just one last question on that front. On a competitive side are you seeing that your sales force is coming head-to-head on accounts they are looking to develop a sort of a Radiosurgery program. Are there any competitors out there that you are seeing more frequently in the quarter?

No, we are seeing a lot of noise and marketing activity, but the reality is I don't think the market has really changed for us. I think that the sort of Novartis for example has always been there. We made this point last quarter and I do want to be very strong about this that the level of competition we tend to see with these part time systems, which are all that, that's real out there is for budget and for space inside the hospital. It is very typical that we will come into the hospital and we will be talking about a full time radiosurgery program where somebody else is there saying you can really make do by upgrading your existing linac and offerings some part time radiosurgery. And that's the big decision that the hospital faces. Whenever they choose to go for a full body radiosurgery program, I cannot think of a single sight where we have seen them choose anything other than CyberKnife and that's really born out by the strength of the market. We tend to answer a lot more enquires and I said this many times to individuals. There are a lot more enquiries about this competitive overlap in the sort of investor relations world that we do in the marketplace. The reason for that is really demonstrated by the Dominic and Irvine data. We have there solid evidence that very few extracranial radiosurgery cases are ever treated on these part time units. And I think the market tends to understand that. The customer market tends to understand that. So the choices is about to be clear for them. So in terms of an overall trend I would say no significant difference other than fair amount of activity noise. Josh Jennings - Jefferies and Co: Alright. Great, thanks a lot.

We will go next Junaid Husain with Soleil Securities

Hi Junaid.

Hi Junaid. Junaid Husain - Soleil Securities: Good afternoon gentlemen. Relative to the $54 million of contracts that you moved from backlog, when you scrubbed your backlog assumptions back in the fiscal second quarter. I guess the question becomes why you did not remove the $64 million of contracts back then or was there something different back then what we saw on the fiscal of third quarter.

Sure, first of all, let me just say, the cancellations occurred for several reasons, mostly due to the concerns around the uncertainty relating to regulatory changes, underwriting arrangements with hospitals. So this ambiguity affected customers and most importantly affected their business models, right. So this is why they cancelled their orders, now they've cancelled and at least until there is more clarity around that uncertainty, and what happened originally was there was supposed to be and this is what our regulatory advisors tell us. There was supposed to be a decision or at least an announcement made about November timeframe. So, some people when that decision was not made in November they cancelled other people waited to see, okay well that means they are going to make this announcement soon. Well now what we have heard is that the conclusion or the announcement won't be made until July and so the remaining customers who were sort of sitting on the sidelines waiting for that clarity didn’t get it and so now they have pulled back on their contracts. Junaid Husain - Soleil Securities: And this announcement is relative to…

So Junaid it’s the CMS ruling, when the CMS propose changes to or updates in Medicare reimbursement. When they made their announcement last summer about the proposed changes, they mentioned in that they would be evaluating these under arrangements, which is where such a free standing center contracts with the hospital. The hospital bills Medicare patients who were treated and they pay the free standing center under contract. So, they said they would evaluate this. This wasn’t specifically to do with CyberKnife, so I think they were looking at the broader picture, a lot of imaging centers and imaging services are provided in this way and then everybody was really waiting for clarity. So we have some people that kind of reacted to that immediately and sort of changed that that this might lead a pull back or delayed and that was really the first impact that we saw, and not materialized really over the summer. And then people were expecting when they published the final rule change to have some more clarity and that's the one that happened in November. The reality was that CMS didn't really clarify the situation. They said they would have a lot of data, a lot of input from a lot of different people and that they are evaluating that over the course of time, and I think when people did not get the clarity that they were hoping for, then we did have another batch of people that revaluated their business plans. Junaid Husain - Soleil Securities: Okay that's helpful, lets switch gears just a bit and talk about Alliance Imaging and I kind of appreciate you don't want to give us what the AFP was on the stocks that you sold to Alliance but can you tell me where those revs show up on the P&L. Are they showing up in the product line then?

That is correct. Junaid Husain - Soleil Securities: Okay and the purchase price, does the purchase price represent the fair value of the instruments?

The purchase price technically represents the total value of the unit in the relationship. So an important component of that is, in fact the recurring revenue stream for us is the recurring stream that we will be receiving.

So this is not as if they are buying brand new CyberKnife's from us and their ownership is slightly different. What they're really doing is they're buying the revenue stream associated with those products because the products are already installed at hospital sites and there's a revenue share in place at that site. So a lot of the value for us, as Bob says was in the recurring revenues going forward and in fact that, just to give you an example of value of that, the net change in backlog for us was only about $4 million or so. It’s only simply because they signed up for very valuable long-term service arrangements at the same time. Junaid Husain - Soleil Securities: Okay. And then, Bob on the gross margin front, so the instrument margins are lower than I was modeling and down sequentially. So and when I look over the last year or so the instrument gross margins seem to have been steadily coming down since their highest cost like the low 60s in early 2007, which of course begs a question, what's happening to pricing?

Well, I will just speak to the variables that can affect that. Certainly pricing is one of those. Although we have kept our pricing up in the US, internationally when we are working through distributors and if the product mix is growing towards distributors, they obviously have to have their cut, so that does affect the gross margin. Junaid Husain - Soleil Securities: Understood. Then you know the shared ownership revs, I guess half or more of it going away and you know the shared ownership actually had pretty decent gross margins. So I guess how should we be thinking about gross margins now, I guess, just given the fact that the shared ownership revs are lower with a lower gross margin contribution?

Yeah, well, I think of the total gross margin the way to think about it is, we clearly are going to be and trying to improve that, based on what this quarter would show, because of the two items that we spoke about the shared ownership purchase, as well as the upgraded units in Japan, that did dampen the gross margin. So going forward we would expect to get them more to the historical levels and in the fifties.

So do not forget that with shared ownership program we do have some kind of committed costs associated with that. We have to provide service, we also have to provide a level of upgrade depending on the commit when we make when we sign the original agreement. So they are definitely cost associated with revenue we generate from those and I think what we are looking to do, at least from these particular contract systems is to tidy that up and put it into a more conventional service line. Junaid Husain - Soleil Securities: All right good enough guys. Thank very much.

Thank you.

We ask you to please limit your question to one. We will go next [Eric Meyer] with UBS. Eric Meyer- UBS: Good afternoon or good evening.

Hi Eric. Eric Meyer- UBS: I can probably get it into a one question but its going to have a lot of ands in it. So on the backlog first thank you very much for providing more information and I think that's going to be helpful for our Stanford investors. Are you going to restate or provide the details going back further, given how long the window is from order to install, that is I think necessary for people to figure what they should be expecting in terms of revenues in the next year.

Yes I think what your asking is that we are not going to go back historically and restate all of this but we have shown Q2 see we have the breakdown there and if you go way back, I think you have got some non-contingent numbers, as well that have been public. But the way to think about this, because I think what you are really asking is, what's the risk profile of this backlog? And the way to think about it is the non-contingent very, very low, low risk. In fact just under half of this is actually already installed so we are going to be getting the services revenue on that. If you focus on the contingent piece, you know that we've actually pulled out a lot of the contracts out of here based on this quarter’s assessment. When we do that we look at each contract and we say, okay what the demonstrated progress towards contingency resolution is and what milestones have they have achieved. So we've really scraped this now what's left are contracts where the highest risk profile of the customer is probably this entrepreneurial free standing centre, which is about a third of this total contingent. So if you wanted to handicap this backlog, that would be a good way to look at it. But we won't go back and break this out on a quarterly basis.

And I think one of the reasons again for not doing that as Bob indicated is, when we’re giving you non-contingent backlog. We have such a low fallout rate from our non-contingent backlog that it really should reinforce our ability to build the model. Eric Meyer- UBS: Okay and on the new orders, did those almost all go in to the contingent buck with that backlog and we calculate the changes second or third quarter and look at the new orders it looks like about $69 million of those $77 million of new orders is now in the contingent bucket of backlog is that right or is that in the supplement?

Not all the orders that we take, while if the order immediately goes into any backlog there is an element of it that we consider, that we have to observe for a little while to make sure that we even put into the contingent backlog. It’s rare I would say for orders to go for the dollar value of orders to go straight into non-contingent backlog. The exception to that I think would be international orders. Where we, I think with the numbers five systems from international customers that went straight into non-contingent in this quarter. Eric Meyer- UBS: Okay I'll respect the request to get back in queue.

Thank you Eric.

And we have six minutes left for today's conference call. We'll take our follow-up question from Tycho Peterson with JPMorgan.

Hi. Thanks for taking the call. I am standing in for Tycho. Just a question about the treatment planning service, which you just mentioned that you were starting to launch last quarter. Can you give some clarity on how that's progressing?

Yes. We are doing well. We have our first customer lined up. And we are on the verge of initiating the treatment, sorry the service.

So you haven't booked any revenues from that, but it is --

None of the revenue in this quarter is from that service.

Okay. Great. Thank you.

Welcome.

We will go next to Amit Hazan with Oppenheimer. Amit Hazan - Oppenheimer: Hi, first of all

Hi Amit. Amit Hazan - Oppenheimer: Can you hear me.

Yes.

Yes. Amit Hazan - Oppenheimer: First of all on your new orders of $76.6 million, when we calculate as you have asked us to do so in the past we do not arrive at this figure. So do you want to give us the break out of what component of that $76.6 million does not even go into your backlog number?

About 80% went into backlog. Amit Hazan - Oppenheimer: Okay. So what is the point of giving us the other 20% at this point?

We are only showing you the level of sales activity. So I think we recognize that this is a very fast changing environment and I think the perspective from that is the greater clarity and the greater information we can give you the better it will be.

Yeah. Keep in mind that each time we go through this we do look at the customer, we look at their ability to follow through and so these orders are very important. The customer had spent a lot of time getting this contract, reviewing the contract, having their attorneys reviewed. So and they are signing this very important document. So they take it very seriously. Now when it comes into our house, then we do a review of it and we decide whether or not it should be included in backlog, but that does not mean that just because it's not in backlog now, it will not be in backlog later.

We'll go next to David Fondrie with Heartland Funds David Fondrie - Heartland Funds: Yes, Good afternoon.

Hi, David David Fondrie - Heartland Funds: I wonder, just thinking about your operating model here and specifically, sales were up and yet we still didn't cover operating expenses, which were relatively flat. As you go forward, are you going to grow into your operating expense, I mean, is that the plan to grow into operating expense, I suppose?

Yeah, thanks for the question. The reason that we weren't more profitable this quarter almost is because of the lower gross margin. That's really where, with the higher gross margin, that we will be able to leverage that and that will drop to the bottom-line. So profitability is clearly one of our priorities but, that said, we want to make sure we're not short changing the future of the company by not investing in things like R&D and things like marketing and sales as build the business. Keep in mind that we really do have to invest quite a bit ahead of when the revenue is recognized, because you build out your sales organization, you sign these contracts and you're not actually going to see the revenue until twelve to eighteen months later.

We'll go next to Larry Haimovitch with HMTC Larry Haimovitch - HMTC: Good afternoon, could you talk a little bit about your share buyback. You bought back, I think 1.7 million shares, what have you authorized for further buy back?

Yeah, so the existent buyback that is in place was a $25 million repurchase and so out of that we've purchased 18 million this quarter in total we purchased $21.6 million worth, which is 1.9 million shares. Larry Haimovitch - HMTC: So you bought another 200,000 shares, so far this quarter.

It is actually prior to the quarter. Larry Haimovitch - HMTC: And are you continuing to buy the stock now, because you do have authorization.

Well, technically we are in a closed period and… Larry Haimovitch - HMTC: Okay.

During a close period, which begin generally two week before the quarter ends or if there is even material inside information, we can't actually buy it on the open market. So, we have to wait until an open period which is, in this case, 48 hours after. Larry Haimovitch - HMTC: Bob what’s the long term investment in the balance sheet this quarter that appeared for the first time, $21 million?

So, okay, yes, that is a cash investment. It is auction rate security. So, we have got about $21.4 million in auction rate securities. These are the student loans backed. They are all AAA rated and so; we have been in the long-term portion. We could hold them to maturity. It doesn't really affect our liquidity and we did however take a temporary impairment charge $1.1 million to record the investment at their current value. So, we are going to keep them there until, basically until there is resolution on the entire auction rate security situation. But we don't have a short-term need for that cash given our strong financial balance sheet.

That concludes the question and answer session today. At this time, Dr. Euan Thompson, I will turn the conference back over to you for your additional or closing remarks.

Thank you. To conclusion, there are several key points to take that from our call today. Firstly, despite some short-term regulatory and economic charges to one segment of our US market, our sales pipeline remained strong and sale performance in Q3 was solid. Secondly, the CyberKnife remains the only dedicated full body radiosurgery devices available. Plans by other radiation technology manufacturers, the part time systems can have an impact on the fast growing radiosurgery market are not supported by independent marketing data or by our own experience in a sales environment. And finally clinical data continue to be acquired and published, supporting the use and efficacy of CyberKnife in treating tumors anywhere in the body. We expect to see sustained increases in the number of patients treated and expansion of use of the CyberKnife to treat new condition as clinical studies progress and experience continues to grow. Thank you to everybody for your time today. Wed look forward talking to you next time.

Thank you for your participation that concludes today's conference. You may now disconnect.