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Accuray (ARAY) Q1 Loss Wider than Expected, Revenues Lag

Zacks Equity Research

Sunnyvale, CA-based Accuray Inc. ARAY, a global leader in the field of radio surgery, reported a loss of 12 cents per share in the first quarter of fiscal 2017, wider than the Zacks Consensus Estimate of a loss of 10 cents. However the figure was in line with the year-ago reported loss.

Coming to revenues, the company registered an approximate 3.5% year-over-year decline in total revenues to $86.5 million, lower than the estimated $89 million.

Meanwhile, market sentiments for the company have not been very promising of late. Accuray represents a negative one-year return of 29.9%, comparing unfavorably with the S&P 500’s 1.05% over the same time frame.

 

Quarter Highlights

Accuray presented data showcasing the clinical efficacy of the CyberKnife System at the annual ASTRO Conference in Boston in the quarter. Notably, the study was the first large multi-center clinical trial that allows long-term follow up and good quality assurance of CyberKnife System in treating prostate cancer with ‘97% of low-and intermediate-risk’.

Accuray registered several orders in the quarter for Radixact System and anticipates a full commercial launch for the product in the third quarter of this fiscal. Notably, the system got an U.S. FDA approval in June and a CE Mark in August.

The company noted solid revenue performance in Japan which is primarily a distributer market. However, Europe, a direct market, demonstrated dismal trends. In fact, due to some shipment issues, the entire EIMEA region failed to impress management.

Quarter in Detail

The downside in revenues was majorly because of declining product revenues totaling $35.6 million, compared with $40.0 million in the prior-year quarter. However, service revenues increased 3% year over year to $50.9 million.

ACCURAY INC Price, Consensus and EPS Surprise

 

ACCURAY INC Price, Consensus and EPS Surprise | ACCURAY INC Quote

Meanwhile, gross orders decreased 22.5% year over year to $50.3 million. Net orders totaled $37.1 million, down 17% on a year-over-year basis. Per management, the prior fiscal first-quarter orders included a huge number of orders for the MLC-equipped CyberKnife Systems and the 5-unit multi-system in the United States. Notably, the foreign exchange adjustments positively impacted net orders by $1 million.

The company ended the first quarter with backlog of $407.5 million, up 7% on a year-over-year basis.

Single and dual vault sites represented more than half of current TomoTherapy orders, demonstrating the expanded versatility and workhorse capabilities of the TomoTherapy product line.

Coming to TomoTherapy and Multileaf Collimator (MLC) equipped CyberKnife unit volumes, Accuray witnessed higher TomoTherapy system orders as compared to CyberKnife. The product mix was approximately in the 2:1 ratio, in favor of TomoTherapy.

Margin Details

Total gross margin contracted 160 basis points (bps) on a year-over-year basis to 36.2%.

While the product gross margins in the quarter declined 800 bps, owing to the lower overall sales unit volume, service gross margins expanded 340 bps from the year-ago quarter to 37.5%, courtesy of the cost efficiencies from a larger installed base and strong focus on improved power consumption.

As a percentage of revenues, ‘research and development’ and ‘general & administrative’ expenses decreased 180 bps and 190 bps, respectively.

However, Selling & Marketing expenses, as a percentage of revenues, soared a notable 160 bps.

Balance Sheet

Accuray had $124.4 million of cash and investments as of Sep 30, 2016. Cash used in operations totaled $6.4 million in the quarter.

Guidance

Accuray reaffirmed the guidance provided in Aug 2016.

The company projects full-year revenues in the band of $410.0 million to $420.0 million, which reflects growth of approximately 3% to 5% on a year-over-year basis, driven by continued penetration and market share gains by the TomoTherapy system. Additionally, solid momentum in CyberKnife system sales is expected to drive growth in the forthcoming quarters.

Adjusted EBITDA is anticipated in the range of $32 million to $38 million, representing year-over-year growth between 30% and 55%.

Operating expenses are now projected at around $164.0 million.

Backlog and gross orders are forecasted to grow around 5% in fiscal 2017.

Zacks Rank & Key Picks

Currently, Accuray carries a Zacks Rank #2 (Buy).

Other favorably ranked stocks in the broader medical sector are Intuitive Surgical Inc. ISRG, AngioDynamics Inc. ANGO and Glaukos Corporation GKOS.

Notably, Intuitive Surgical carries a Zacks Rank #2 while Glaukos and AngioDynamics sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical has a long-term expected earnings growth rate of approximately 11.35%. The stock represents an impressive one-year return of roughly 33.3%.

AngioDynamics has a long-term expected earnings growth rate of 15.00%. The company posted a solid one-year return of almost 26.1%.

Glaukos Corporation recorded a stellar one-year return of almost 77.8%. Notably, the company posted positive surprises in the past four quarters, the average being 110.93%.

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