Accuray's Outlook Disappoints

Zacks

Radiosurgery systems maker, Accuray Incorporated (ARAY) announced preliminary results for the second quarter of fiscal 2013 as well as provided guidance for fiscal 2013.
 
The company expects revenues in the range of $72 million–$75 million on a reported basis for the quarter, down 29.5%–32.3% year over year. Revenues, on an adjusted basis, are projected in the band of $72 million–$75 million as well, down 27.1%–30.0% from the year-ago level.
 
Based on these preliminary forecasts, product revenues are expected to drop 45%–50% from the prior year. However, on a positive note, service revenues are slated to grow 13%–15% from the prior-year quarter, both on an adjusted basis. Meanwhile, adjusted net loss is anticipated between $25 million and $30 million for the aforementioned quarter. Adjusted net loss for the second quarter of fiscal 2012 was $7.1 million.
 
For the second quarter, product backlog is expected between $275 million and $280 million, down from $294 million in the last quarter. Net orders to backlog are expected in the range of $15 million–$17 million.
 
Management cited manufacturing and supply-related issues along with a lack of marketing focus and sales force transitional problems as the reasons behind the disappointing second quarter guidance. The grim outlook led Accuray’s share price slid 20.23% to close at $5.41 on Friday, January 4.       
 
In an effort to remediate the shortfall, the company announced a restructuring initiative for its operations. Management will setup a cost structure that will enhance marketing capabilities and overall business processes to boost sales. Accuray will also cut workforce by 13%, mostly in the U.S. 
 
Based on these restructuring efforts, the company expects to incur a non-recurring charge of $3 million–$4 million in the third quarter of fiscal 2013. The positive impact from the restructuring will likely begin from the fourth quarter of the fiscal year and the company is hopeful that it will manage to save roughly $40 million of operating expenses in the year compared with fiscal 2012. 
 
The California-based company also provided an outlook for fiscal 2013. Revenues, on an adjusted basis, are expected in the range of $320 million–$330 million. Adjusted net loss is projected between $63 million or 87 cents and $69 million or 95 cents. The fiscal 2013 Zacks Consensus Estimates for revenues and losses are $322 million and 91 cents per share, respectively.
  
Accuray remains susceptible to the weak U.S. and European markets and reimbursement uncertainties. The company also faces stiff challenges from competitive product offerings of Varian Medical (VAR) and Integra LifeSciences (IART). However, management is optimistic regarding adoption of the company’s latest technology unveiled at the ASTRO meeting.
 
The stock currently retains a short-term Zacks #3 Rank (Hold).
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