Accuray Inc. (ARAY), a global leader in the field of radiosurgery, reported fourth-quarter fiscal 2010 (ended June 30) earnings per share of 8 cents, exceeding the Zacks Consensus Estimate of 5 cent and the year-ago earnings of 2 cents.
Net income for the quarter quadrupled year-over-year to $5 million on the back of higher product sales and the company’s cost-cutting initiatives. For fiscal 2010, net income surged to $2.8 million from $0.6 million a year-ago with earnings per share of 5 cents topping the Zacks Consensus Estimate of 1 cent.
However, the California-based cancer surgery system maker released a tepid outlook for fiscal 2011, sending its shares down more than 3.5% to $6.32 in early morning trade, as the market appears to be discounting the better-than-expected results and focusing instead on the conservative guidance.
Revenues for the quarter climbed 5.1% year-over-year to $61.8 million, narrowly beating the Zacks Consensus Estimate of $61 million. Product sales rose 5% year-over-year to roughly $41.5 million. For the full year, revenues dipped 5% year-over-year to $221.6 million due to lower sales recognized under the legacy Platinum service plan. However sales were tad ahead of the Zacks Consensus Estimate of $221 million.
Sales in the quarter benefited from healthy demand for the company’s CyberKnife robotic radiosurgery systems. Accuray installed 10 new systems in the fourth quarter versus 12 a year-ago, taking the aggregate global installed base to 206 units. Moreover, the company booked 16 orders (worth $74 million) for CyberKnife compared to 15 in the prior-year quarter. Accuray sealed a deal with Siemens (SI) in the quarter, under which, the latter acquired the rights to sell CyberKnife systems globally.
Total order backlog at the end of the fourth quarter was $374 million, down 33% year-over-year. This includes roughly $132 million related to CyberKnife contracts, down 54% from the year-ago quarter.
Gross margin for the quarter improved to 50.3% from 46.1% a year-ago, supported by top-line expansion, lower cost of sales and higher service gross margin. Selling and marketing expenses, as a percentage of sales, declined to 13.4% from 16.8% a year-ago. R&D expenses (as a percentage of sales) dipped to 13.6% from 15.6%. Lower operating expenses (down 6.4% year-over-year) helped Accuray to boost its operating margins to 9.7% from 0.6% a year-ago.
Balance Sheet
Accuray ended fiscal 2010 with cash, cash equivalents and short-term investments of roughly $145.3 million, up 43% year-over-year. It remains a zero debt company.
Outlook
Accuray issued a lackadaisical outlook for fiscal 2011. The company expects total revenues to range between $210 million to $225 million, which is below the current Zacks Consensus Estimate of $254 million. The guidance reflects lower deferred revenues from the CyberKnife systems sold under the Platinum multi-year service plan (discontinued in October 2005) compared to fiscal 2010.
The company expects to book Platinum service revenues of $5 million in fiscal 2011 (versus $29 million registered in fiscal 2010), which will conclude all deferred revenues recognized under this contract. This sizable sales deficit will be a drag on the top-line in fiscal 2011.
Gross margin for fiscal 2011 is expected in the range of 48% to 51%. Accuray plans to lift spending on R&D and sales and marketing in fiscal 2011 to expand the market for CyberKnife systems and develop next-generation technologies.
Accuray’s CyberKnife system boasts 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.
Demand for CyberKnife remains strong as evidenced by roughly 15% year-over-year growth in patients treated with the system globally in fiscal 2010. Accuray competes head-to-head with Varian Medical (VAR) and TomoTherapy (TOMO) in the radiation oncology market. Currently we have a Neutral recommendation on Accuray.
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