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Accuray Misses Ests, Loss Widens

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Accuray Incorporated’s (ARAY - Free Report) first-quarter fiscal 2013 adjusted loss per share of 23 cents was wider than the Zacks Consensus Estimate of a loss of 20 cents. Adjusted loss excludes one-time items such as acquisition and integration-related expenses associated with TomoTherapy and Morphormics.

Reported net loss attributable to shareholders in the quarter was $24.1 million (or 34 cents a share) versus a loss of $16.9 million (or 23 cents a share) in the prior-year quarter.


Adjusted revenues for the quarter were $83 million (down 13.3% year-over-year), trailing the Zacks Consensus Estimate of $87 million. Adjustments exclude deferred sales related to TomoTherapy products and services. Reported revenues for the quarter were $82.7 million.

Adjusted revenues from products were $40.9 million (down 28%) in the quarter, reflecting the return to normalcy of the TomoTherapy shipments from the unusually high levels on completion of the acquisition in the year-ago quarter. Adjusted revenues from services were $42.1 million, (up 10%), primarily led by the continued hikes in the installed system base.

Orders and Margins

Accuray installed 15 new CyberKnife and TomoTherapy systems during the quarter, taking the aggregate global installed base to 667 units. The company added new system orders of $51.6 million in the quarter (up 31%), leading to a total system backlog of $294.3 million (up 9%).

This was led by a 61% increase in TomoTherapy net orders from Japan and Asia-Pacific markets, offset by a 12% drop in net orders for CyberKnife products.

Adjusted gross margin for the quarter was 33.3% versus 36.4% in the year-ago quarter, due to change in sales mix. Adjusted product and services gross margins were 50.1% and 16.7%, respectively, in the quarter.

On an adjusted basis, operating loss was $17.7 million compared with a loss of $9.9 million, a year ago.

On an adjusted basis, selling and marketing along with general and administrative expenses were 30.4% of sales versus 25.3% in the year-ago quarter. On an adjusted basis, Research and Development (R&D) expenses, as a percentage of sales, increased to 24.2% from 21.2% in the year-ago period.

The company expects operating expenses to increase in the upcoming quarter, driven by higher R&D expenses, marketing activities related to new products and costs associated with the departure of the company’s previous CEO.

Financial Condition

Accuray exited the quarter with cash, cash equivalents and restricted cash of roughly $124.5 million, down 13.2% year-over-year. Long-term debt was $80.5 million in the quarter, up 5.1%.

Our View

Accuray is a supplier 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. 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 - Free Report) and Integra LifeSciences (IART - Free Report) . Demands for CyberKnife products are also facing severe headwinds. We also remain wary regarding adoption of the company’s latest technology.

We currently have a short-term Zacks #4 Rank (Sell) rating on the stock.

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