ARAY

Accuray Incorporated (ARAY)

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Accuray Incorporated (ARAY)

F3Q10 Earnings Call

May 06, 2010 5:00 pm ET

Executives

Dr. Euan Thomson - President & Chief Executive Officer

Derek Bertocci - Senior Vice President & Chief Financial Officer

Tom Rathjen - Vice President of Investor Relations

Analysts

Mark Arnold - Piper Jaffray

Josh Jennings - Jefferies & Company

Abigail Darby - JPMC

Robert Manning - Janney Montgomery Scott

[Bob Lubec] - CJS Securities

Josh Jennings - Jefferies & Company

Presentation

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2010, Accuray Incorporated earnings conference call. My name is Stacy and I’ll be your conference moderator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to hand the presentation over to your host for today's call, Mr. Tom Rathjen, Vice President of Investor Relations; please proceed.

Tom Rathjen

Thank you. Hello, and thanks for joining us this afternoon for Accuray's conference call for the third quarter of fiscal 2010. Joining us today is Dr. Euan Thomson, Accuray's President and Chief Executive Officer; as well as Derek Bertocci, Accuray’s Senior Vice President and Chief Financial Officer.

As we have done in past quarters, we will again be referring to revenue and backlog data, which are found in PDF files on the Investor Relations page of the Accuray website at www.accuray.com. Please log on to this site to view this information.

Before we begin I need to remind you that except for the historical information, the information that follows contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected.

Such risks and uncertainties include matters described in the Risk Factors sections of our Annual Report on Form 10-K, as well as updated from time-to-time in our quarterly reports on Form 10-Q and other filings with the SEC.

Now, I’d like to turn the call over to our President and CEO, Dr. Euan Thomson. Euan.

Euan Thomson

Thank you Tom, and thanks to everyone for joining us in our third quarter of fiscal 2010 conference call. Today we are reporting another quarter of solid orders and backlog expansion in addition to a quarter of sound profitability. During the third quarter, we added 14 orders to backlog, increasing total backlog by 8%. Six CyberKnife Systems were installed, and eight were shipped during the quarter.

For the first nine months of fiscal 2010, Accuray has added 41 CyberKnife systems into backlog, and shipped 26 unties to customers worldwide. We believe that this positive ratio is a continued indicator of future growth.

I'll now provide a brief review of the business highlights of the third quarter of our fiscal year 2010, and I'll then turn the call over Derek for a detailed financial review. During the quarter Accuray's total revenue was $51.9 million. Revenue from sources excluding previously differed platinum revenue was $48.8 million, which represents a 10% increase from Q3 and fiscal year 2009.

During the third quarter, despite the year-on-year decline in deferred platinum revenue, we recorded net income of $2.3 million or $0.04 per diluted share. This was driven largely by improving gross margin and continued operating expense control. As validation of our improving financials, we increased year-over-year net income by $1 million on lower total revenue.

As I mentioned 14 orders of CyberKnife systems were added into back-log in the third quarter, which along with service renewal contracts and other ancillary product purchases contributed a total of $76.6 million.

Of the 14 orders, six were from customers within the Americas region, with an additional six orders from the European sales region, and one from Korea. One CyberKnife system was sold in Japan during the third quarter, continuing the renewed sales momentum in the region. Five of the 14 systems sold were VSI, demonstrating continued traction for this product. In addition, two customers with a contract already in backlog converted their required system to a VSI.

During the third quarter, six CyberKnife systems were installed. The worldwide installed base as of March 31, 2010 was 196 systems. Of the six CyberKnife systems installed in the third quarter, one was in the Americas, and five in the European region.

On a worldwide scale, the demand for the CyberKnife remains strong. During the third quarter, our Americas sale team reported that customer interest in the CyberKnife remains high, and the sales pipeline remains active. Our Americas sales team is seeing some soaring of budget, and an increase in available capital, and they remain cautiously optimistic.

The European sales region continues to show strength, with six CyberKnife orders in the third quarter, as well as five installations. The European sales team reported increased traction across the region, including sales in two large academic centers. We believe that the introduction of the CyberKnife VSI system, together with the sales regionalization initiative, have contributed significantly to our increased worldwide sales momentum.

Moving to our clinical update, the capabilities and mainstream acceptance of the CyberKnife were highlighted in more than 60 clinical and 25 technical presentations at this year’s CyberKnife Society Scientific Meeting held in Dallas, Texas in March. The presentations included 20 lung and five prostate presentations, including a description of the five-year outcome of CyberKnife prostate radiosurgery.

The benefits of CyberKnife prostate radiosurgery were also further highlighted this quarter in a study by [Wilfred] University, 304 prostate cancer patients treated with the CyberKnife.

Read the rest of this transcript for free on seekingalpha.com