Accuray Turns to Black, Backs View - Analyst Blog

Leading radiosurgery systems maker Accuray Incorporated (ARAY) has turned to profit in second-quarter fiscal 2011 (ended December 31) as lower costs offset a decline in sales.

The California-based company posted a net income of $4.1 million or 7 cent per share in the quarter versus a net loss of $1.2 million (or 2 cents a share) a year-ago. The results comfortably beat the Zacks Consensus Estimate of a loss of 2 cents. Accuray's shares leaped 9.3% in after-hours trading to $7.50 on January 27.

Revenues & Orders

Revenues dipped 5% year over year to $54.2 million, but were ahead of the Zacks Consensus Estimate of $49 million. Products and services revenues fell 3.6% and 8.9% year over year, respectively, to roughly $34.4 million and $18.8 million.

Accuray installed 6 new CyberKnife robotic radiosurgery systems in the quarter versus 11 systems a year-ago, taking the aggregate global installed base to 222 units. The company booked 19 orders for CyberKnife compared to 18 orders in the prior-year quarter. Total order backlog at the end of the quarter was $410 million, up 26% year over year.

Margins

Gross margin climbed to 54.3% from 45.3% a year-ago on the back of lower cost of sales (down 21%). Operating expenses declined 8.8% year over year to $25.8 million, supported by the company's prudent cost management initiatives.

Financial Condition

Accuray ended the quarter with cash, cash equivalents and short-term investments of roughly $152 million, up 33% year over year. It remains a zero debt company.

Outlook Backed

Accuray has once again reaffirmed its revenue outlook for fiscal 2011. The company continues to expect total revenues between $210 million and $225 million for the year. The current Zacks Consensus Estimate is $221 million.

The guidance reflects lower deferred revenues from CyberKnife sold under the Platinum multi-year service plan (discontinued in October 2005) compared to fiscal 2010. Accuray expects to book revenues of $5 million in fiscal 2011 (versus $29 million a year-ago) under the Platinum service agreement, which will conclude all deferred revenues recognized under this contract. This sizable sales deficit is expected to be a drag on the top line in fiscal 2011.

Accuray is a global leader in the field of radiosurgery and provides a non-surgical treatment option for patients diagnosed with cancer. In the radiation oncology market, the company competes head-to-head with Varian Medical (VAR) and TomoTherapy (TOMO).

Accuray's CyberKnife system boasts of a technology that differentiates it from traditional treatments. The CyberKnife system, a non-invasive alternative to traditional surgery, is the first and only commercially available intelligent robotic radiosurgery system designed to treat solid tumors anywhere in the body.

Accuray continues to enjoy healthy demand for the product as evidenced by sustained growth in the number of patients receiving treatment with the device.

However, Accuray remains susceptible to reimbursement uncertainties surrounding its products. Moreover, its CyberKnife system faces stiff challenge from competitive product offerings, especially from Varian.

 
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