Despite reporting dismal first-quarter fiscal 2014 results,
) improvement in gross order raised investor confidence in the
stock, which jumped almost 13% on Nov 8 to close at $7.70. The
stock also achieved its 52-week high of $7.87 on the same day.
ARAY's first-quarter fiscal 2014 loss of $15.5 million or 21
cents per share was narrower than the year-ago loss from
continuing operations of $21.9 million or 31 cents per share.
However, the loss was wider than the Zacks Consensus Estimate of
a loss of 19 cents per share.
Revenues of this radiosurgery systems maker dropped 7% from the
year-ago quarter to $76.6 million. The top line also missed the
Zacks Consensus Estimate of $83 million. Revenues from products
decreased 27% year over year to $29.6 million, retaining its
On the other hand, revenues from services grew 12% over the
comparable prior-year period to $47.1 million. The upsurge was
driven by higher number of installed base and conversion of
customers into the Emerald and Diamond service contracts.
Despite the revenue miss, a 17% year-over-year growth in gross
orders to $63.4 million was the highlight of the quarter. Accuray
added net new system orders worth $60.1 million, leading to a
total system backlog of $347.8 million, up 18% year over year.
The company shipped 13 and installed 14 new CyberKnife and
TomoTherapy systems during the quarter, taking the aggregate
global installed base to 706 units.
On a positive note, gross margin jumped 590 basis points (bps) to
34.5% from 28.6% in the year-ago quarter due to improvement in
service margin. Gross margins from product and services were
37.1% and 33.0%, respectively, in the fiscal first quarter versus
40.9% and 16.8% in the year-ago quarter. An improving gross
margin in the service business following the acquisition of
TomoTherapy looks promising in the near term.
Selling and marketing along with general and administrative
expenses increased 12% to $14.5 million, while research and
development (R&D) expenses significantly dropped by 30% to
$13.0 million. We are encouraged by the fact that operating
expenses decreased 12.5% to $38.8 million from $44.3 million a
year ago, owing mainly to Accuray's restructuring activities.
Operating expenses were within the company's estimated plan of
spending $40 million on operational activities.
Accuray exited the quarter with cash, cash equivalents and
investments of $161.6 million, lower than $174.4 million as of
Jun 30, 2013. Long-term debt inched up to $199.9 million as of
Sep 30, 2013 from $198.8 million as of Jun 30, 2013.
The Calif.-based company reiterated its revenue outlook for
fiscal 2014. Revenues are expected in the range of $325 to $345
million. The fiscal 2014 Zacks Consensus Estimate for revenues of
$331 million lies within the guided range.
We are impressed with Accuray's achievement in improving product
order momentum in the first quarter of fiscal 2014. This is
indicative of healthy adoption of the company's new products.
Additionally, Accuray's restructuring efforts and healthy service
revenues and gross margin are also helping it to stabilize.
However, we were disappointed with the overall fiscal
first-quarter results, which missed the Zacks Consensus Estimate
at both fronts. Although the bottom line performed better year
over year, a declining top line poses concern. Management needs
to improve its higher-margin product revenues and aggressively
remediate its structural issues for new offerings to fully
contribute to sales.
Moreover, ARAY remains susceptible to weak global markets and
reimbursement uncertainties, and faces stiff challenges from
competitors' product offerings. A lot remains to be done to bring
Accuray back on the growth track.
Currently, ARAY carries a Zacks Rank #3 (Hold). Other medical
instrument companies such as
Natus Medical Inc.
) are worth considering. All these stocks carry a Zacks Rank #1
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