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Tickers in this Article: ARAY, VAR, IART
Accuray Incorporated's (ARAY) fourth-quarter fiscal 2012 adjusted (excluding one-time items except stock-based compensation expense) loss per share of 20 cents was wider than the Zacks Consensus Estimate of a loss of 13 cents. The year-ago combined (including TomoTherapy) pro forma adjusted loss per share was 12 cents. The pro forma results of the fourth quarter and fiscal 2012 reflect the integration of the Wisconsin-based radiation system maker TomoTherapy, which was acquired by the company in June 2011. 

Reported net loss attributable to shareholders in the quarter was $20.3 million (or 28 cents a share) versus a loss of $25 million (or 40 cents a share) in the prior-year quarter. Controlled operating expenses along with higher service margins contributed to improved fourth quarter results.

For fiscal 2012, adjusted loss of 60 cents a share was wider than the Zacks Consensus Estimate of a loss of 52 cents per share. The year-ago combined (including TomoTherapy) pro forma adjusted loss per share was 44 cents.

Reported net loss attributable to shareholders in fiscal 2012 was $72 million (or $1.02 a share) versus a loss of $26.7 million (or 44 cents a share) in the prior-year quarter.

Revenues

Consolidated revenues for the quarter were $100.5 million (up 33.6% year-over-year), trailing the Zacks Consensus Estimate of $108 million. Sales fell dropped 8.5% when compared with the year-ago combined pro forma revenues of $109.8 million.

Revenues from products and services were $60.6 million (up 26.8%) and $39.5 million, (up 53.8%) respectively, in the quarter. Adjusted sales were $101.1 million in the fourth quarter.

For fiscal 2012, consolidated sales of 409.2 million (up 84.1% year-over-year) missed the Zacks Consensus Estimate of $411 million. Sales were flat year-over-year when compared with the year-ago combined pro forma revenues of $409.7 million.

Cyberknife revenues in fiscal 2012 were lower by $37.6 million (down 27% year over year) than in fiscal 2011, primarily because of shipment delays in Europe and lower demand in the American region. This was, however, partially offset by improved sales in Japan and Asia-Pacific ("APAC"). On the other hand, TomoTherapy sales were $5.8 million above fiscal 2011 sales on a pro forma basis.

Orders and Margins

Accuray installed 15 new CyberKnife and TomoTherapy systems during the quarter, taking the aggregate global installed base to 642 units. The company added $74.2 million of new system orders in the quarter, leading to a total system backlog of $283.6 million.

Consolidated gross margin (as reported) for the quarter was 36.3% while adjusted gross margin came in at 39.6%. Year-ago combined pro forma gross margin was 38.8%. Combined adjusted product and services gross margins were 52.8% and 19.9%, respectively. Higher service margin (loss of 2.3% in the prior-year quarter on a pro forma basis) was buoyed by better reliability and lower service costs of TomoTherapy Systems.

Operating loss was $16.7 million in the quarter compared with a loss of $25.3 million, a year ago. On an adjusted basis, operating loss was $11.6 million. Selling and marketing along with general and administrative expenses were 30.1% of sales versus 56.5% in the year-ago quarter. On an adjusted basis, selling and marketing along with general and administrative expenses were 28.6% of sales.

Research and Development (R&D) expenses, as a percentage of sales, increased to 22.8% from 20% in the year-ago period, based on the company's plans to introduce two major new products in October 2012 at the American Society for Radiation Oncology's (ASTRO) Annual Meeting. On an adjusted basis, R&D expenses, as a percentage of sales, were 22.5% in the fourth quarter.

Financial Condition

Accuray exited the quarter with cash and cash equivalents of roughly $143.5 million, up 49.6% year-over-year. Long-term debt was $79.5 million in the quarter. The company had no debt in the year-ago quarter.

Guidance

Accuray expects adjusted revenues in the range of $405 million to $425 million in fiscal 2013. The company also forecasts first quarter fiscal 2013 sales to be considerably lower than the year-ago quarter. However, it expects revenues to increase from there on.  This is mainly due to the potential delay in shipments and a significant backlog of TomoTherapy orders in the prior-year quarter.

In addition, the company expects to achieve 20%-22% adjusted service gross margin for fiscal 2013. Accuray anticipates returning to profitability by the end of fiscal 2013.

Accuray is a global leader in the field of radiosurgery and provides a non-surgical treatment option for patients diagnosed with cancer. Globally, more than 200,000 people have been treated with the company's technology.

Accuray continues to enjoy healthy demand for its CyberKnife radio-surgery system as evident by the sustained growth in the number of patients receiving treatment with the device. Moreover, the acquisition of rival TomoTherapy has bolstered the company's foothold in the radiation oncology space.

However, Accuray remains susceptible to the weak U.S. and European markets, reimbursement uncertainties and faces stiff challenges from competitive product offerings of Varian Medical (VAR) and Integra LifeSciences (IART). We are currently Neutral on the stock, which carries a Zacks #3 Rank (short-term Hold rating).

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