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Accuray Third Quarter Gross Orders Increase 49% YoY; Backlog Up 21%

SUNNYVALE, Calif., April 27, 2017 /PRNewswire/ -- Accuray Incorporated (NASDAQ: ARAY) today reported financial results for the third fiscal quarter and nine months ended March 31, 2017.

Fiscal Third Quarter Highlights

  • Ending backlog increased 21 percent year-over-year to $450.0 million; gross orders increased 49 percent to $83.8 million; net orders were $71.8 million
  • Gross orders featured a strong contribution from CyberKnife® Systems of which approximately two-thirds were equipped with the InCiseTM Multileaf Collimator ("MLC")
  • Japanese regulatory approval received to market the recently launched RadixactTM System
  • Radixact ramp and monitor sites concluded; full commercial launch underway
  • Additional study data presented at ASCO GU demonstrated the clinical efficacy of the CyberKnife® System with 100 percent of low-risk and 88.5 percent of intermediate-risk prostate cancer patients having excellent cancer control five years after receiving treatment (1)

"Our 49% year-over-year gross order growth during the third quarter was led by increased demand for our CyberKnife System especially from existing customers," said Joshua H. Levine, president and chief executive officer.  "In addition, gross orders were favorably impacted by solid demand for our new Radixact System, which is now in full commercial launch. The third quarter gross orders have resulted in nine-month order results that are above expectations. We are seeing several indicators that lead us to believe our strong order growth will continue through the end of fiscal 2017 and into fiscal 2018."

Financial Highlights

Gross product orders totaled $83.8 million for the 2017 fiscal third quarter compared to $56.4 million for the prior fiscal year period.  Ending product backlog was $450.0 million, approximately 21 percent higher than backlog at the end of the prior fiscal year third quarter. 

Total revenue was $97.3 million compared to $105.3 million in the prior fiscal year third quarter. Service revenue totaled $49.3 million compared to $51.5 million, while product revenue totaled $48.0 million compared to $53.7 million in the prior fiscal year third quarter.  The decrease in product revenue was primarily due to slower conversion of backlog to revenue from system orders placed by international distributors as well as continued delays in the awarding of Class A licenses by the government of China.  Service revenue declined as a result of lower installation and training revenue linked to the lower product revenue as well as declines in spare parts sales.

"Our revenue performance from the quarter was below expectation, largely due to the extended conversion from backlog to revenue we have experienced during the past two quarters from orders placed through international distributors," said Mr. Levine.  "We are strengthening the alignment and coordination of support activities with our independent distribution partners which will improve our revenue conversion timelines. Our confidence in the conversion of our orders remains high and we expect to begin to see some results from our focused efforts as we move into fiscal 2018.  While we are reiterating our gross order outlook for the year, we are modifying our revenue outlook."

Total gross profit for the 2017 fiscal third quarter was $35.4 million or 36 percent of sales, comprised of product gross margin of 38 percent and service gross margin of 34 percent.  This compares to total gross profit of $44.9 million or 43 percent of sales, comprised of product gross margin of 45 percent and service gross margin of 40 percent for the prior fiscal year third quarter. The decrease in gross margin stemmed from lower sales unit volume as well as product and channel mix.

Operating expenses were $36.7 million, a decrease of 7 percent compared with $39.5 million in the prior fiscal third quarter.  The decrease was primarily because of lower legal fees and research and development expenses.

Net loss was $5.0 million, or $0.06 per share, for the third quarter of fiscal 2017, compared to a net income of $0.8 million, or $0.01 per share, for the third quarter of fiscal 2016. 

Adjusted EBITDA for the third quarter of fiscal 2017 was $7.1 million, compared to $13.9 million in the prior fiscal year third quarter.

Cash, cash equivalents and investments were $84.1 million as of March 31, 2017, a decrease of $24.3 million from December 31, 2016, primarily due to working capital usage and restricting cash of $12.5 million to satisfy future payment obligations associated with the Company's secured term loan.

Nine Month Highlights

For the nine months ended March 31, 2017, gross product orders totaled $212.6 million compared to $188.4 million for the same prior year period.

Total revenue for the nine months ended March 31, 2017, was $271.3 million compared to $303.8 million in the prior fiscal year period. Service revenue totaled $152.3 million compared to $154.3 million from the prior fiscal year period, while product revenue totaled $119.0 million compared to $149.5 million in the prior year period.  The decrease in revenue is the result of extended revenue conversion times mainly resulting from a higher percentage of order growth in the Company's distributor channels, which results in less direct control over the timing of revenue.

Total gross profit for the nine months ended March 31, 2017, was $98.2 million or 36 percent of sales, comprised of product gross margin of 36 percent and service gross margin of 36 percent.  This compares to total gross profit of $121.4 million or 40 percent of sales, comprised of product gross margin of 43 percent and service gross margin of 37 percent for the same prior fiscal year period.  The decrease in gross margin stemmed from lower sales unit volume as well as product and channel mix.

Operating expenses were $110.8 million, a decrease of 10 percent compared with $123.3 million in the prior fiscal year period.  The decrease was primarily because of lower legal fees and research and development expenses.

Net loss was $24.3 million, or $0.30 per share, for the nine months ended March 31, 2017, compared to a net loss of $18.3 million, or $0.23 per share, for the prior year fiscal period.  

Adjusted EBITDA for the nine months ended March 31, 2017 was $10.1 million, compared to $19.6 million in the prior fiscal year period.

Cash, cash equivalents and investments were $84.1 million as of March 31, 2017, a decrease of $82.9 million from June 30, 2016. This decrease was the result of using $36.6 million to fully repay the Company's 3.75 percent convertible debt in August 2016, $7.6 million in secured debt principal pay down, restricting cash of $12.5 million to satisfy future payment obligations associated with the Company's secured term loan and working capital usage.

2017 Financial Guidance

The Company is updating its guidance originally provided on August 17, 2016 as follows:

  • The outlook for Gross Orders growth of approximately five percent is reaffirmed
  • Revenue for the fiscal year is now expected to range between $380.0 million and $390.0 million versus prior guidance of $410.0 million to $420.0 million
  • Operating Expenses are now expected to be 8 to 10 percent less than fiscal 2016, better than prior guidance of a 3 to 4 percent decrease over prior year, primarily due to less incentive compensation expense due to the lower revenues
  • Adjusted EBITDA is now expected to range between $22.0 million and $26.0 million as compared to prior guidance of $32.0 million to $38.0 million

Conference Call Information  

Accuray will host a conference call beginning at 1:30 p.m. PT/4:30 p.m. ET today to discuss its fiscal third quarter results and recent corporate developments.  Conference call dial-in information is as follows:

  • U.S. callers: (855) 867-4103    
  • International callers: (262) 912-4764
  • Conference ID Number (U.S. and international): 8374292

Individuals interested in listening to the live conference call via the Internet may do so by logging on to Accuray's website, www.accuray.com.  In addition, a taped replay of the conference call will be available beginning approximately two hours after the call's conclusion and available for seven days. The replay telephone number is (855) 859-2056 (USA) or (404) 537-3406 (International), Conference ID: 8374292. An archived webcast will also be available at Accuray's website.

Use of Non-GAAP Financial Measures

Accuray has supplemented its GAAP net loss with a non-GAAP measure of adjusted earnings before interest, taxes, depreciation, amortization and stock-based compensation ("adjusted EBITDA").  Management believes that this non-GAAP financial measure provides useful supplemental information to management and investors regarding the performance of the company and facilitates a meaningful comparison of results for current periods with previous operating results.  A reconciliation of GAAP net loss (the most directly comparable GAAP measure) to non-GAAP adjusted EBITDA is provided in the schedule below.

Accuray presents certain measures, such as period-over-period revenue growth, on a constant currency basis, which excludes the effects of foreign currency translation.  Due to the continuing strengthening of the U.S. dollar against foreign currencies and the overall variability of foreign exchange rates from period to period, management uses these measures on a constant currency basis to evaluate period-over-period operating performance.  Measures presented on a constant currency basis are calculated by translating current period results at prior period monthly average exchange rates.

There are limitations in using these non-GAAP financial measures because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies.  These non-GAAP financial measures should not be considered in isolation or as a substitute for GAAP financial measures.  Investors and potential investors should consider non-GAAP financial measures only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.

About Accuray
Accuray Incorporated (Nasdaq: ARAY) is a radiation oncology company that develops, manufactures and sells precise, innovative treatment solutions that set the standard of care with the aim of helping patients live longer, better lives.  The company's leading-edge technologies deliver the full range of radiation therapy and radiosurgery treatments. For more information, please visit www.accuray.com.

Safe Harbor Statement
Statements made in this press release that are not statements of historical fact are forward-looking statements and are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements in this press release relate, but are not limited, to the company's future results of operations, including management's expectations regarding orders, backlog, operating expenses, revenues and adjusted EBITDA, ability to meet financial targets, ability to influence revenue conversion, and Accuray's leadership position in radiation oncology innovation and technologies.  Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations, including but not limited to: the company's ability to convert backlog to revenue; the timing of the China Class A license announcement, the success of the adoption of our CyberKnife, TomoTherapy and Radixact Systems; the company's ability to manage its expenses; continuing uncertainty in the global economic environment; and other risks detailed from time to time under the heading "Risk Factors" in the company's report on Form 10-K, which was filed on August 24, 2016, the company's reports on Form 10-Q, which were filed on November 1, 2016 and February 3, 2017, and as updated periodically with the company's other filings with the SEC.

Forward-looking statements speak only as of the date the statements are made and are based on information available to the company at the time those statements are made and/or management's good faith belief as of that time with respect to future events.  The company assumes no obligation to update forward-looking statements to reflect actual performance or results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws.  Accordingly, investors should not put undue reliance on any forward-looking statements.

(1)

Fuller et al. 5-year outcomes from a prospective multi-institutional trial of heterogeneous dosing stereotactic body radiotherapy (SBRT) for low- and intermediate-risk prostate cancer. J Clin Oncol 35, 2017 (suppl 6S; abstract 35); abstract 35

 

Financial Tables to Follow

Accuray Incorporated

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)



Three Months Ended
March 31,


Nine Months Ended
March 31,


2017


2016


2017


2016









Gross Orders

$  83,823


$56,410


$212,612


$188,416

Net Orders

71,830


57,559


163,086


145,037

Order Backlog

449,955


370,488


449,955


370,488









Net revenue:








Products 

$  48,032


$53,740


$119,029


$149,494

Services 

49,280


51,544


152,291


154,333

Total net revenue 

97,312


105,284


271,320


303,827

Cost of revenue:








Cost of products 

29,574


29,622


75,895


85,356

Cost of services 

32,313


30,718


97,269


97,058

Total cost of revenue 

61,887


60,340


173,164


182,414

Gross profit 

35,425


44,944


98,156


121,413

Operating expenses:








Research and development 

12,484


13,270


36,657


42,497

Selling and marketing 

13,025


12,516


41,247


41,009

General and administrative 

11,184


13,716


32,890


39,820

Total operating expenses 

36,693


39,502


110,794


123,326

Income (loss) from operations

(1,268)


5,442


(12,638)


(1,913)

Other expense, net

(2,919)


(3,963)


(11,044)


(14,124)

Income (loss) before provision for income taxes

(4,187)


1,479


(23,682)


(16,037)

Provision for income taxes

842


723


642


2,260

Net income (loss)

$  (5,029)


$     756


$ (24,324)


$ (18,297)









Net income (loss) per share - basic

$    (0.06)


$    0.01


$     (0.30)


$     (0.23)

Net income (loss) per share - diluted

$    (0.06)


$    0.01


$     (0.30)


$     (0.23)

Weighted average common shares used in computing income (loss) per share:








Basic

82,913


80,860


82,268


80,320

Diluted

82,913


82,071


82,268


80,320

 

Accuray Incorporated

Consolidated Balance Sheets

(in thousands)

(Unaudited)




 March 31, 
2017


 June 30, 
2016


 Assets 





 Current assets: 





 Cash and cash equivalents 

$   60,170


$ 119,771


 Investments 

23,906


47,239


 Restricted cash 

1,154


891


 Accounts receivable, net 

87,091


56,810


 Inventories 

116,573


115,987


 Prepaid expenses and other current assets 

17,704


16,098


 Deferred cost of revenue 

3,725


4,884


 Total current assets 

310,323


361,680


 Property and equipment, net 

23,353


27,878


 Goodwill 

57,742


57,848


 Intangible assets, net 

1,646


7,611


 Deferred cost of revenue 

666


1,996


 Other assets 

23,117


12,020


 Total assets 

$    416,847


$    469,033


 Liabilities and equity 





 Current liabilities: 





 Accounts payable 

$   23,633


$   15,229


 Accrued compensation 

24,224


18,725


 Other accrued liabilities 

18,551


22,184


 Short-term debt 

115,702


39,900


 Customer advances 

18,853


22,123


 Deferred revenue 

95,250


92,051


 Total current liabilities 

296,213


210,212


 Long-term liabilities: 





 Long-term other liabilities 

10,542


10,984


 Deferred revenue 

10,301


17,665


 Long-term debt 

54,335


170,512


 Total liabilities 

371,391


409,373


 Equity: 





 Common stock 

83


81


 Additional paid-in capital 

492,311


481,346


 Accumulated other comprehensive loss 

(1,807)


(960)


 Accumulated deficit 

(445,131)


(420,807)


 Total equity 

45,456


59,660


 Total liabilities and equity 

$    416,847


$    469,033

 

Accuray Incorporated

Reconciliation of GAAP Net Loss to Adjusted Earnings Before Interest, Taxes, Depreciation,

Amortization and Stock-Based Compensation (Adjusted EBITDA)

(in thousands)

(Unaudited)



Three Months Ended
March 31,


Nine Months Ended
March 31,


2017


2016


2017


2016

 GAAP net income (loss) 

$ (5,029)


$      756


$ (24,324)


$ (18,297)

   Amortization of intangibles (a) 

1,988


1,988


5,965


5,964

   Depreciation (b) 

2,580


2,594


7,883


7,679

   Stock-based compensation (c) 

3,598


3,566


9,985


9,445

   Interest expense, net (d) 

3,138


4,291


9,902


12,585

   Provision for income taxes 

842


723


642


2,260

 Adjusted EBITDA 

$  7,117


$ 13,918


$  10,053


$  19,636









 (a) consists of amortization of intangibles - developed technology. 

 (b) consists of depreciation, primarily on property and equipment. 

 (c) consists of stock-based compensation in accordance with ASC 718. 

 (d) consists primarily of interest income from available-for-sale securities and interest expense associated with our convertible notes and term loan. 

 

Accuray Incorporated

Forward-Looking Guidance

Reconciliation of Projected Net Loss to Projected Adjusted Earnings Before Interest, Taxes, Depreciation,

Amortization and Stock-Based Compensation (Adjusted EBITDA)

(in thousands)

(Unaudited)



Twelve Months Ending June
30, 2017


From


To

 GAAP net loss 

$   (24,575)


$   (20,575)

   Amortization of intangibles (a) 

7,650


7,650

   Depreciation (b) 

10,325


10,325

   Stock-based compensation (c) 

13,100


13,100

   Interest expense, net (d) 

13,500


13,500

   Provision for income taxes 

2,000


2,000

 Adjusted EBITDA 

$     22,000


$     26,000





 (a) consists of amortization of intangibles - developed technology. 

 (b) consists of depreciation, primarily on property and equipment. 

 (c) consists of stock-based compensation in accordance with ASC 718. 

 (d) consists primarily of interest income from available-for-sale securities and interest expense associated with our convertible notes and tem loan. 

 

Doug Sherk

Beth Kaplan

Investor Relations, EVC Group

Public Relations Director, Accuray

+1 (415) 652-9100

+1 (408) 789-4426

dsherk@evcgroup.com

bkaplan@accuray.com

 

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SOURCE Accuray Incorporated