Accuray (ARAY) Q3 Loss Wider Than Estimates, Revenues Top

Accuray Incorporated ARAY reported a loss of 10 cents per share in the third quarter of fiscal 2018, 7 cents wider than the Zacks Consensus Estimate and 4 cents wider than the year-ago figure.

Total revenues in the quarter increased 2.6% year over year to $99.8 million, beating the Zacks Consensus Estimate of $98.2 million.

Segment Details

Product Revenues: Product revenues declined 10% to $43.2 million. The same from Japan declined roughly $10 million in the third quarter. Despite the year-over-year decline in total product revenues, the company continued to witness strength in Radixact.

Service Revenues: Service revenues amounted to $56.6 billion in the reported quarter, up 14.8% year over year, courtesy of increased upgrade purchase on service contract.

Gross Order Update: Gross Order performance in the third quarter of fiscal 2018 was $74.9 million, down 10.6% 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 handsomely to revenues. The Radixact system accounted for 80% of all TomoTherpay orders in the quarter under review.

Further, the system is being accepted as a true workhorse product in the market, courtesy 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 were primarily focused on improvised imaging, faster planning capabilities as well as system connectivity. Further, software enhancements involved improvisation of CyberKnife treatment planning efficiency.

In this regard, Accuray had introduced CTrue iterative reconstruction, an enhanced CT imaging capability for Radixact in the annual ESTRO meeting, which was held in Barcelona in 2018.

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

Margin Details

In the quarter under review, total gross margin was 36.3%, roughly flat year over year. Product gross margin increased 41.4% in the reported quarter, compared with 38.4% in the year-ago quarter. This can be attributed to increased revenue contribution from CyberKnife Systems and Radixact Systems.

Service gross margin in the third quarter was 32.4%, compared with 34.4% in the year-ago quarter.

Operating expenses totaled $40.1 million versus $36.7 million in the year-ago quarter. The increase was primarily led by investments in research and development and sales and marketing.

Financial Condition

Accuray exited the third quarter with $70.4 million of cash and cash equivalents, compared with $79.5 million in the second quarter of fiscal 2018.

Guidance for 2018

The company revised its previous guidance.

The company expects revenues between $395 million and $400 million from the previous range of $390 million to $400 million. The Zacks Consensus Estimate for fiscal 2018 revenues of $399.72 million is near the high end of the guided range.

The guidance for gross order growth has been maintained to rise at approximately 5% on a year-over-year basis.

The company expects adjusted EBITDA between $18 million and $20 million from the previously provided range of $25 million and $30 million.

Our Take

Accuray reported a mixed third quarter of fiscal 2018. Further, the company lowered the EBITDA expectations largely due to strategic investments and lower-than-expected gross margins. However, Accuray continues to 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 has been outperforming the industry over the past six months. The stock has gained 4.7% against the industry’s decline of 10.6%.

Zacks Rank & Key Picks

Accuray carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector which reported solid results this season are Intuitive Surgical ISRG, Chemed Corporation CHE and Baxter International Inc. BAX. While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted earnings per share (EPS) of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Baxter posted first-quarter 2018 adjusted EPS of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report
 
Accuray Incorporated (ARAY) : Free Stock Analysis Report
 
Baxter International Inc. (BAX) : Free Stock Analysis Report
 
Chemed Corporation (CHE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research