Accuray Lags 3Q Earnings Est - Analyst Blog
May 08 2013 - 1:04PM
Zacks
Accuray Lags 3Q Earnings Est
Accuray Incorporated’s (ARAY) third-quarter fiscal
2013 adjusted loss of 37 cents per share was wider than the Zacks
Consensus Estimate of a loss of 21 cents. Adjusted loss excludes
one-time items such as acquisition, restructuring and
integration-related expenses associated with TomoTherapy and
Morphormics.
Results were higher than both the year-ago adjusted loss of 13
cents per share as well as the sequential quarter’s adjusted loss
of 30 cents per share.
Reported net loss attributable to shareholders in the quarter was
$31.2 million (or 44 cents a share) versus a loss of $14.9 million
(or 21 cents a share) in the prior-year quarter.
In spite of a declining bottom-line in the quarter, management
asserted that higher new order volumes in the third quarter along
with healthy adoption of Accuray’s new products such as the
CyberKnife M6 Series and TomoTherapy H Series systems should boost
the company’s growth going forward.
Revenues
Adjusted revenues for the quarter were $70.6 million (down 30.5%
year-over-year), which missed the Zacks Consensus Estimate of $78
million. Adjustments exclude deferred sales related to the
TomoTherapy products and services. Reported revenues for the
quarter were $70.5 million.
Adjusted revenues from products were $25.1 million (down 59%) in
the quarter, mainly due to manufacturing and supply-related issues,
which led to shipment delays of new products. Adjusted revenues
from services were $45.5 million, (up 13.2% year over year),
reflecting positive trends from the TomoTherapy business.
Orders
Accuray shipped 7 and installed 14 new CyberKnife and TomoTherapy
systems during the quarter, taking the aggregate global installed
base to 693 units.
The company added new system orders worth $44.1 million, net in the
quarter, leading to a total system backlog of $297.9 million (up
6.5% year over year). Net new product orders jumped more than
twofold sequentially, which led to backlogs increasing 7% over the
prior quarter.
Margins
Adjusted gross margin for the quarter was 31.4% versus 38.6% in the
year-ago quarter due to a change in sales mix. Adjusted product and
services gross margins were 34.7% and 29.5%, respectively, in the
third quarter versus 53.5% and 16.1% in the year-ago quarter.
Improving service gross margin following the acquisition of
TomoTherapy is encouraging. The company expects service gross
margin to improve but it is likely to demonstrate quarterly
fluctuations, going forward.
On an adjusted basis, operating expenses decreased to $39.8 million
from $44.2 million a year ago, mainly due to the company’s
restructuring activities. Operating expense was close to the
company’s plan of spending $38 million on operational
activities.
On an adjusted basis, selling and marketing along with general and
administrative expenses were 41.2% of sales versus 24.8% in the
year-ago quarter. On an adjusted basis, Research and Development
(R&D) expenses, as a percentage of sales, inched up to 22.0%
from 21.7% in the year-ago period.
Financial Condition
Accuray exited the quarter with cash, cash equivalents and
restricted cash of roughly $184.1 million, up 18.9% year over year.
Long-term debt was $197.7 million in the quarter, up 51.8%.
Outlook
The Calif.-based company lowered its revenue outlook for fiscal
2013. Revenues, on an adjusted basis, are expected in the range of
$310–$318 million (earlier $320–$330 million). The fiscal 2013
Zacks Consensus Estimate for revenues and losses is $325 million
and 88 cents per share, respectively.
Our View
We are impressed with Accuray’s achievement of improving product
order momentum in the third quarter, reflecting healthy product
adoption of new products. Additionally, the company’s restructuring
efforts and healthy service revenues and gross margin are also
helping it stabilize.
However, a lot needs to be done to bring the company back on track.
We remain concerned over Accuray’s declining top and bottom line
along with reduced full-year guidance. Management needs to improve
its higher-margin product revenues and aggressively remediate its
structural issues for new offerings to fully contribute to total
sales. Moreover, Accuray remains susceptible to the weak U.S. and
European markets, reimbursement uncertainties and faces stiff
challenges from competitive product offerings.
Currently, the company carries a Zacks Rank #2 (Buy). Other medical
instrument companies such as Heartware
International (HTWR), Intuitive
Surgical (ISRG) and MAKO Surgical Corp.
(MAKO) with a Zacks Rank #2 (Buy) are worth considering.
ACCURAY INC (ARAY): Free Stock Analysis Report
HEARTWARE INTL (HTWR): Free Stock Analysis Report
INTUITIVE SURG (ISRG): Free Stock Analysis Report
MAKO SURGICAL (MAKO): Free Stock Analysis Report
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