Accuray (ARAY) Q1 Loss Wider Than Expected, Revenues Lag - Analyst Blog

Accuray Inc (ARAY) reported a loss of 28 cents per share in the first quarter of fiscal 2015, wider than the Zacks Consensus Estimate of a loss of 13 cents and a year-ago loss of 21 cents.

Following the earnings news, shares of the company increased 1.77% to close at $6.33 on Oct 31.
 

Quarter Details  

Revenues came in at $82.4 million, up 7% (9% at constant currency) from the year-ago quarter. However, revenues lagged the Zack Consensus Estimate of $87 million. The year-over-year growth was driven by robust growth across all the segments.

Product revenues increased 10.4% to $33 million on the back of higher product sales. Service revenues totaled $49.4 million, up 4.6% from the year-ago quarter. The upside was primarily driven by expansion of the company’s installed based and the conversion of customers to higher-value service contracts.

First-quarter gross orders amounted to $58.8 million, down 7% (4% at constant currency) from the year-ago quarter. In Americas, gross order surged 140% on a year-over-year basis.

During the quarter, Accuray signed a three-year exclusive contract for radiotherapy products and services with Premier, which serves approximately 40% of the U.S. hospitals. The contract will significantly expand Accuray’s penetration and reach among hospitals and oncology centers over the next couple of years.

Gross margin contracted 80 basis points (bps) on a year-over-year basis to 33.7%. This was primarily driven by a contraction in the service gross margin, which was due to increased spending.

Operating expenses increased nearly 10% year over year to $43 million, primarily attributed to 8.5% increase in research and development expenses on a year-over-year basis.

Operating loss increased 19.6% year over year to $15.3 million. The increase in loss is mainly due to higher operating expenses.

Financial Condition

Cash, cash equivalents, and investments were $152.7 million as of Sep 31, 2014, a decrease of $19.2 million from Jun 30, 2014. Long-term debt increased marginally by 0.9% to $197.4 million.

Guidance

Accuray reaffirmed its guidance for fiscal 2015 and expects revenues in the range of $390–$410 million and adjusted EBITDA of $18–$27 million. Management expects foreign currency volatility to accelerate over the remainder of the fiscal year. This will negatively impact top-line growth for fiscal 2015.

Accuray expects new orders to improve in the second half of 2015 driven by backend loaded order flow, resolution of licensing issues in China and positive impact from the commercial release of Multileaf Collimator (MLC) for the CyberKnife M6 Series.

The company expects product margins to improve significantly throughout the year due to higher product revenue base. Increasing investments on improving service excellence and customer satisfaction is expected to keep service gross margin under pressure in the near term.

Accuray continues to expect operating expense to be half of revenue growth for the rest of the fiscal year.

The company expects to generate positive cash flow for the second half of 2015.

Our Take

Accuray’s first quarter results failed to impress us. However, the company provided a n optimistic outlook driven by an anticipated growth in order flow and introduction of new products in the later half of the fiscal year. The alliance with premier is also a significant positive, which will drive top-line going forward.

Nevertheless, continuing investments will keep margins under pressure. Lack of visibility around timing of the order flow also remains a major headwind in our view.

Currently, Accuray carries a Zacks Rank #3 (Hold). Better-ranked medical instrument stocks include AngioDynamics Inc. (ANGO), Alphatec Holdings, Inc. (ATEC) and Cynosure, Inc. (CYNO). While AngioDynamics sports a Zacks Rank #1 (Strong Buy), both Alphatec Holdings and Cynosure carry a Zacks Rank #2 (Buy).

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