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Accuray's (ARAY) Q2 Loss Narrows, Radixact Demand Shoots Up

Zacks Equity Research

Accuray Incorporated ARAY reported second-quarter fiscal 2019 adjusted loss of 5 cents per share, narrower than the Zacks Consensus Estimate of a loss of 6 cents. The company had reported a loss of 6 cents in the year-ago quarter.

Net revenues totaled $102.3 million, missing the Zacks Consensus Estimate of $104 million. On a year-over-year basis, revenues climbed 2% in the quarter.

Meanwhile, the Zacks Rank #2 (Buy) stock has declined 23.6% against the industry’s 4.9% rally over the past year. The current level also compares unfavorably with the S&P 500 index’s 5.8% fall.

Q2 Details

Product Revenues: Product revenues increased 2% year over year to $48.1 million in the reported quarter on strong demand for the Radixact system.

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Service Revenues: Service revenues totaled $54.3 million, up 2% from the year-ago quarter.

Gross Order Update: Gross orders in the second quarter of fiscal 2019 totaled $100.2 million, up 28.6% on a year-over-year basis. Strong demand for Radixact and CyberKnife platforms drove the upside.

Accuray Incorporated Price, Consensus and EPS Surprise

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

Radixact Update

Per management, Accuray’s flagship Radixact System continued to see strong demand in the fiscal second quarter, with gross orders climbing 8% year over year. By the end of the quarter, management received 120 orders for the system, more than half of which came from single or dual vault customer locations.

Additionally, in the reported quarter, Accuray received FDA approval for its 510(k)-application motion synchronization on the Radixact treatment system. The kVCT imaging on Radixact is currently under development.

Margins

Gross profit in the fiscal second quarter totaled $38.4 million, down 2.5% on a year-over-year basis. Gross margin was 37.5% of net revenues, down 170 basis points (bps).

Research and development expenses declined 7% year over year to $13.6 million. Selling and marketing expenses shot up 9.1% year over year to $15.1 million. General and administrative expenses fell 11.5% year over year to $10.5 million.

Second-quarter operating loss was $0.9 million compared with a loss of $1 million in the year-ago quarter.

Guidance Intact

Accuray has kept its fiscal 2019 guidance unchanged.

The company expects product revenue growth between 4% and 8% and service revenue is expected to grow approximately 2%. This is expected to result in total revenue of $415-$425 million, representing year-over-year growth of 3-5%.

Adjusted EBITDA is expected between $23 million to $29 million, representing growth of 35-70% year over year.

Summary

Accuray wrapped up the fiscal second quarter on a mixed note. While loss per share was narrower than estimates, revenues lagged the same. However, solid demand for the company’s Radixact & CyberKnife platforms has continued to boost prospects. Moreover, a recent FDA approval for motion synchronization on the Radixact and the ongoing kVCT imaging are encouraging. Gross orders in the quarter shot up, with significant contribution from APAC regions, especially China. In fact, management foresees tremendous opportunities in China. New products in pipeline is another encouraging factor. The company has kept its fiscal 2019 view intact.

On the flip side, contraction in gross margin and persistent operating losses raise concern. Unfavorable product mix, sluggish macroeconomic conditions and pricing issues add to the apprehensions.

Other Key Picks

Other top-ranked stocks from the broader medical space are Intuitive Surgical ISRG, Becton, Dickinson and Company BDX and AngioDynamics ANGO.

Intuitive Surgical’s long-term earnings growth is projected at 14.5%. The stock carries a Zacks Rank #2.

Becton, Dickinson’s long-term earnings growth is expected at 11.5%. The stock carries a Zacks Rank #2.

AngioDynamics’ earnings growth for the current year is projected at 14.9%. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks' Top 10 Stocks for 2019

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From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

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