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Accuray (ARAY) Q2 Loss Narrower Than Estimates, Revenues Top

Zacks Equity Research
Updated

Accuray Incorporated ARAY reported a loss of 6 cents per share in the second quarter of fiscal 2018, 5 cents narrower than the Zacks Consensus Estimate and the year-ago figure.

Total revenues in the second quarter increased 15% year over year to $100.3 million, which beat the Zacks Consensus Estimate of $91.29 million.

Segment Details

Product Revenues: Product revenues grew 33% to $47.1 million. The upside was primarily fueled by the Radixact product launch. Also, higher distributor revenues were a major contributor.

Service Revenues: Service revenues amounted $53.2 billion in the reported quarter, up 2% on a year-over-year basis, courtesy of increased upgrade purchase on service contract.

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Gross Order Update: Gross Order performance for the second quarter of fiscal 2018 is $77.9 million, improving 40% from the last quarter. Order growth was primarily driven by TomoTherapy array of products and Radixact system orders.

Accuray Incorporated Price, Consensus and EPS Surprise

 

Accuray Incorporated Price, Consensus and EPS Surprise | Accuray Incorporated Quote

 

Other Highlights

Radixact Platform Drives Sales: Radixact is one of the company’s latest devices, which contributed to revenues in the second quarter. The Radixact system comprised 70% of all TomoTherpay orders in the reported quarter. More than 25 Radixact units have been recognized since the product launch.

Further, the system is being accepted as a true workhorse product in the market, because of its significantly improved product performance, functional efficacies and broad case mix versatility.

Suite of Software Upgradation: A series of software upgradation has been another growth driver for Accuray. These upgrades include integrated data management system (IDMS) and Accuray Precision Treatment Planning Software. Within the system, the PRECISEART module, captures and identifies anatomical changes taking place within the patient during the course of treatment.

It has led to notable improvement in the company’s treatment planning capabilities and oncology department workflow.

Geographical Gains Improve: Per management, revenue growth in second quarter can attributed to European and APAC regions. Contributions in order performance from the EMEA and Japan regions have also been strong.

Margin Details

In the quarter under review, total gross margin was 39.2%, up 340 basis points year over year. Product gross margins increased 43% in the reported quarter, compared with 35.1% in the year-ago quarter. This increase is attributable to the increased revenue contribution by CyberKnife Systems and Radixact Systems.

Service gross margins in the second quarter were 35.9%, compared with 36.4% in the year-ago quarter.

Operating expenses totaled $40.4 million, compared with $36.2 million in the year-ago quarter. The increase is primarily due to investments in research and development and G&A.

Financial Condition

Accuray exited the second quarter with $106 million of cash and cash equivalents, compared with $94.4 million in the first quarter of fiscal 2018.

Guidance for 2018

The company reaffirmed its previous guidance.

The company expects revenues between $390 and $400 million, with a growth of 2-4% on a year-over-year basis. Product revenues are expected to grow 5-10% year over year.

Gross Orders are expected to rise approximately 5% on a year-over-year basis.

The company expects adjusted EBITDA between $25million and $30 million, which indicates growth of 23-47% year over year.

Our Take

Accuray reported impressive second quarter of fiscal 2018 results, wherein adjusted loss per share narrowed year over year and revenues beat the Zacks Consensus Estimate. Also, the company reiterated its guidance for fiscal 2018. Accuray rides on the market’s solid response to the Radixact platform and the company’s revamped software.

On the flip side, long sales and implementation cycles of the CyberKnife and TomoTherapy systems can majorly affect the company’s top line. Increasing operating expenses as a result of research and development activity is also a concern.

Price Performance

Accuray Incorporated has been outperforming the industry over the six months. The stock has gained 18.1% compared with the industry’s rally of 11.9%.

Zacks Rank & Key Picks

Accuray Incorporated carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical sector are Bio-Rad Laboratories, Inc. BIO, Intuitive Surgical, Inc. ISRG and Amedisys AMED. Notably, Bio-Rad sports a Zacks Rank #1 (Strong Buy), while Amedisys and Intuitive Surgical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bio-Rad is expected to release fourth-quarter 2017 results on Feb 22. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is $1.27, while revenues are estimated at $617.2 million.

Amedisys is expected to release fourth-quarter 2017 results on Feb 27. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is 59 cents, while revenues are estimated at $394.9 million.

Intuitive Surgical is expected to release fourth-quarter 2017 results on Jan 25. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is $2.27, while revenues are estimated at $877.2 million.

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