Why Is Accuray (ARAY) Down 8% Since its Last Earnings Report?

A month has gone by since the last earnings report for Accuray Incorporated ARAY. Shares have lost about 8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is ARAY due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Accuray reported loss of 6 cents per share in the second quarter of fiscal 2018, 5 cents narrower than the Zacks Consensus Estimate and the year-ago figure.

Total revenues in the second quarter increased 15% year over year to $100.3 million, which beat the Zacks Consensus Estimate of $91.29 million.

Segment Details

Product Revenues

Product revenues grew 33% to $47.1 million. The upside was primarily fueled by the Radixact product launch. Also, higher distributor revenues were a major contributor.

Service Revenues

Service revenues amounted $53.2 billion in the reported quarter, up 2% on a year-over-year basis, courtesy of increased upgrade purchase on service contract.

Gross Order Update

Gross Order performance for the second quarter of fiscal 2018 is $77.9 million, improving 40% from the last quarter. Order growth was primarily driven by TomoTherapy array of products and Radixact system orders.

Other Highlights

Radixact Platform Drives Sales

Radixact is one of the company’s latest devices, which contributed to revenues in the second quarter. The Radixact system comprised 70% of all TomoTherpay orders in the reported quarter. More than 25 Radixact units have been recognized since the product launch.

Further, the system is being accepted as a true workhorse product in the market, because of its significantly improved product performance, functional efficacies and broad case mix versatility.

Suite of Software Upgradation

A series of software upgradation has been another growth driver for Accuray. These upgrades include integrated data management system (IDMS) and Accuray Precision Treatment Planning Software. Within the system, the PRECISEART module, captures and identifies anatomical changes taking place within the patient during the course of treatment.

It has led to notable improvement in the company’s treatment planning capabilities and oncology department workflow.

Geographical Gains Improve

Per management, revenue growth in second quarter can attributed to European and APAC regions. Contributions in order performance from the EMEA and Japan regions have also been strong.

Margin Details

In the quarter under review, total gross margin was 39.2%, up 340 basis points year over year. Product gross margins increased 43% in the reported quarter, compared with 35.1% in the year-ago quarter. This increase is attributable to the increased revenue contribution by CyberKnife Systems and Radixact Systems.

Service gross margins in the second quarter were 35.9%, compared with 36.4% in the year-ago quarter.

Operating expenses totaled $40.4 million, compared with $36.2 million in the year-ago quarter. The increase is primarily due to investments in research and development and G&A.

Financial Condition

Accuray exited the second quarter with $106 million of cash and cash equivalents, compared with $94.4 million in the first quarter of fiscal 2018.

Guidance for 2018

The company reaffirmed its previous guidance.

The company expects revenues between $390 and $400 million, with a growth of 2-4% on a year-over-year basis. Product revenues are expected to grow 5-10% year over year.

Gross Orders are expected to rise approximately 5% on a year-over-year basis.

The company expects adjusted EBITDA between $25million and $30 million, which indicates growth of 23-47% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. In the past month, the consensus estimate has shifted by 14.3% due to these changes.

Accuray Incorporated Price and Consensus

 

Accuray Incorporated Price and Consensus | Accuray Incorporated Quote

VGM Scores

At this time, ARAY has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, ARAY has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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