Accuray Reports Fiscal 2019 Second Quarter Results

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Jan 22, 2019, 16:05 ET

SUNNYVALE, Calif., Jan. 22, 2019 /PRNewswire/ -- Accuray Incorporated (NASDAQ: ARAY) today reported its financial results for the second quarter of fiscal 2019 ended December 31, 2018.

Fiscal Second Quarter Highlights

Gross orders increased 29 percent year over year to a record $100.2 million
16 orders received from China in the quarter
Net orders increased 31 percent year over year to $69.2 million, and Backlog ended at $482.2M
Revenue increased 2 percent year over year to $102.3 million
Received FDA 510(k) application approval for motion management on Radixact

"Our second quarter gross order performance was an all-time high for the Company," said Joshua H. Levine, President & Chief Executive Officer. "Our 29% gross order growth was driven by the China Ministry of Health's long-awaited issuance of new license quotas for Class A and Class B radiation systems in late October 2018, a sequential rebound in CyberKnife orders, and continued strength in Radixact demand worldwide. Going forward, we believe Accuray is well positioned to win additional orders under the new quotas as the process for hospitals to secure licenses is activated. At the same time, we continued to make progress in our efforts to establish a joint venture in China that we believe will expand our ability to meet demand for Class B systems. From a financial perspective during the quarter, Accuray grew revenue, generated adjusted EBITDA, executed our plan designed to realize $15 million in annualized cost savings and moved closer to our goal of achieving GAAP net income profitability."

"We also continued to advance our product roadmap. During the quarter we received FDA approval for our 510(k) application for motion synchronization capability, called Synchrony, on our Radixact treatment platform. Just as we have with our CyberKnife system, Radixact with Synchrony will automatically ensure beam synchronization with tumor motion or movement, enabling tighter dosing margins that spare healthy tissue and provides precise, efficient treatments. With Synchrony on Radixact, Accuray will have the only two radiotherapy systems able to provide true motion tracking and beam synchronization and correction during treatment."

Fiscal Second Quarter Results

Total revenue was $102.3 million compared to $100.3 million in the prior fiscal year second quarter. Product revenue totaled $48.1 million compared to $47.1 million in the prior fiscal year second quarter, while service revenue totaled $54.3 million compared to $53.2 million in the prior fiscal year second quarter.

Total gross profit for the 2019 fiscal second quarter was $38.4 million, or 37.5 percent of revenue, comprised of product gross margin of 39.5 percent and service gross margin of 35.7 percent. This compares to total gross profit of $39.4 million, or 39.2 percent of revenue, comprised of product gross margin of 43.0 percent and service gross margin of 35.9 percent for the prior fiscal year second quarter. The decrease in product gross margin was primarily driven by product mix, with a larger percentage of sales attributable to the TomoTherapy platform in the 2019 fiscal second quarter.

Operating expenses were $39.2 million, a decrease of 3 percent compared with $40.4 million in the prior fiscal year second quarter. The decrease was driven by lower research and development and general and administrative expense, offset by approximately $0.6 million in severance costs associated with the Company's previously announced cost reduction initiative.

Net loss was $4.6 million, or $0.05 per share, for the 2019 fiscal second quarter, compared to a net loss of $4.7 million, or $0.06 per share, for the 2018 fiscal second quarter.

Adjusted EBITDA for the 2019 fiscal second quarter was $4.1 million, compared to $4.8 million in the prior fiscal year second quarter.

Cash, cash equivalents, investments and short-term restricted cash were $64.6 million as of December 31, 2018 compared to $70.5 million as of September 30, 2018. The decrease was primarily driven by the timing of accounts receivable collections.

Fiscal Six Month Results

For the six months ended December 31, 2018, gross product orders totaled $161.6 million compared to $133.6 million for the same prior fiscal year period. Ending product backlog was $482.2 million, approximately 2 percent higher than backlog at the end of the prior fiscal year second quarter.

Total revenue for the six months ended December 31, 2018 was $198.1 million compared to $191.3 million in the same prior fiscal year period. Product revenue for the six months ended December 31, 2018 totaled $89.6 million compared to $86.0 million, while service revenue totaled $108.6 million compared to $105.3 million in the same prior fiscal year period. The increase in product revenue was primarily due to an increase in sales of Radixact systems. The increase in service revenue is primarily driven by continued installed base growth.

Total gross profit for the six months ended December 31, 2018 was $76.3 million, or 38.5 percent of revenue, comprised of product gross margin of 40.2 percent and service gross margin of 37.1 percent. This compares to total gross profit of $77.5 million, or 40.5 percent of revenue, comprised of product gross margin of 43.1 percent and service gross margin of 38.4 percent for the same prior fiscal year period. The decrease in product gross margin stemmed from product mix, with fewer CyberKnife systems sold in the first half of fiscal 2019.

Operating expenses for the six months ended December 31, 2018 were $81.8 million, an increase of 2 percent compared with $80.5 million in the same prior fiscal year period. The increase is primarily due to a one-time receivable impairment charge and approximately $0.6 million severance charge related to a cost reduction initiative recorded in the first half of fiscal 2019.

Net loss was $13.8 million, or $0.16 per share, for the six months ended December 31, 2018, compared to a net loss of $14.1 million, or $0.17 per share, for the same prior fiscal year period.

Adjusted EBITDA for the six months ended December 31, 2018 was $8.1 million, compared to $7.9 million in the prior fiscal year period.

2019 Financial Guidance

The company is reaffirming its fiscal year 2019 guidance provided on October 30, 2018. Details are summarized as follows:

Revenue: Product revenue growth is expected to range between 4 and 8 percent and service revenue is expected to grow approximately 2 percent, resulting in total revenue of between $415 million to $425 million, which would represent 3 to 5 percent growth year over year; and
Adjusted EBITDA: $23.0 million to $29.0 million representing growth of approximately 35 percent to 70 percent year over year.

Guidance for non-GAAP financial measures excludes amortization of intangibles, depreciation, stock-based compensation expense, interest expense, net and provision for income taxes. For more information regarding the non-GAAP financial measures discussed in this press release, please see "Use of Non-GAAP Financial Measures" below.

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 second 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): 5538239

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: 5538239. 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 financial statement tables included in the schedule below.

There are limitations in using this non-GAAP financial measure because it is 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 revenue and adjusted EBITDA; expectations related to GAAP net income profitability and sales growth; expectations regarding order growth in China; expectations regarding the impact of establishing a joint venture in China; expectations regarding the impact of our recent cost savings initiative; and the company's leadership position in radiation oncology innovation and technologies. These forward-looking statements involve risks and uncertainties. If any of these risk or uncertainties materialize, or if any of the company's assumptions prove incorrect, actual results could differ materially from the results express or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the company's ability to achieve widespread market acceptance of its products, including new product offerings; the company's ability to develop new products or enhance existing products to meet customers' needs and compete favorably in the market; the company's ability to effectively manage its growth; the company's ability to maintain or increase its gross margins on product sales and services; delays in regulatory approvals or the development or release of new offerings; the company's ability to meet the covenants under its credit facilities; the company's ability to convert backlog to revenue; risks and uncertainties related to the company's ability to take advantage of the China Class A and B license announcement; and such other risks identified under the heading "Risk Factors" in the company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on August 24, 2018, the company's report on Form 10-Q, which was filed on November 6, 2018, 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.

Doug Sherk	Beth Kaplan
Investor Relations, EVC Group	Public Relations Director, Accuray
+1 (415) 652-9100	+1 (408) 789-4426
[email protected]	[email protected]

Financial Tables to Follow

Accuray Incorporated
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)

	Three Months Ended December 31,				Six Months Ended December 31,
	2018		2017		2018		2017
Gross Orders	$	100,169	$	77,908	$	161,583	$	133,555
Net Orders		69,202		52,649		94,113		103,687
Order Backlog		482,230		470,511		482,230		470,511
Net revenue:
Products	$	48,051	$	47,106	$	89,568	$	86,022
Services		54,267		53,223		108,579		105,257
Total net revenue		102,318		100,329		198,147		191,279
Cost of revenue:
Cost of products		29,062		26,857		53,586		48,959
Cost of services		34,876		34,117		68,302		64,859
Total cost of revenue		63,938		60,974		121,888		113,818
Gross profit		38,380		39,355		76,259		77,461
Operating expenses:
Research and development		13,640		14,664		27,529		28,757
Selling and marketing		15,139		13,872		28,175		28,629
General and administrative		10,469		11,836		26,111		23,144
Total operating expenses		39,248		40,372		81,815		80,530
Loss from operations		(868)		(1,017)		(5,556)		(3,069)
Other expense, net		(3,321)		(3,738)		(7,304)		(10,309)
Loss before provision for income taxes		(4,189)		(4,755)		(12,860)		(13,378)
Provision for (benefit from) income taxes		451		(36)		986		723
Net loss	$	(4,640)	$	(4,719)	$	(13,846)	$	(14,101)
Net loss per share - basic and diluted	$	(0.05)	$	(0.06)	$	(0.16)	$	(0.17)
Weighted average common shares used in computing loss per share:
Basic and diluted		87,237		84,586		86,858		84,167

Accuray Incorporated
Consolidated Balance Sheets
(in thousands)
(Unaudited)

	December 31,		June 30,
	2018		2018
Assets
Current assets:
Cash and cash equivalents	$	59,428	$	83,083
Restricted cash		5,182		9,830
Accounts receivable, net		86,333		65,994
Inventories		119,494		108,540
Prepaid expenses and other current assets		18,476		15,569
Deferred cost of revenue		273		1,141
Total current assets		289,186		284,157
Property and equipment, net		21,103		23,698
Goodwill		57,764		57,855
Intangible assets, net		750		821
Other assets		17,270		12,196
Total assets	$	386,073	$	378,727
Liabilities and equity
Current liabilities:
Accounts payable	$	31,396	$	19,694
Accrued compensation		20,883		28,992
Other accrued liabilities		24,101		22,448
Customer advances		19,900		22,896
Deferred revenue		72,726		75,404
Total current liabilities		169,006		169,434
Long-term liabilities:
Long-term other liabilities		10,693		8,608
Deferred revenue		23,406		20,976
Long-term debt		136,823		131,077
Total liabilities		339,928		330,095
Equity:
Common stock		88		86
Additional paid-in capital		528,254		521,738
Accumulated other comprehensive income		759		1,093
Accumulated deficit		(482,956)		(474,285)
Total equity		46,145		48,632
Total liabilities and equity	$	386,073	$	378,727

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 December 31,				Six Months Ended December 31,
	2018		2017		2018		2017
GAAP net loss	$	(4,640)	$	(4,719)	$	(13,846)	$	(14,101)
Amortization of intangibles		36		35		72		71
Depreciation (a)		2,009		2,458		4,102		4,936
Stock-based compensation		1,687		3,438		4,899		5,870
Interest expense, net (b)		3,593		3,578		7,185		10,398
Impairment charge (c)		-		-		3,707		-
Cost savings initiative (d)		998		-		998		-
Provision for (benefit from) income taxes		451		(36)		986		723
Adjusted EBITDA	$	4,134	$	4,754	$	8,103	$	7,897

_____________________________

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

(b) consists primarily of interest income from available-for-sale securities, interest expense associated with outstanding debt and non-cash loss on extinguishment of debt.

(d) consists of costs associated with a staff reduction recorded in the fiscal second quarter of 2019.

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, 2019
	From		To
GAAP net loss	$	(20,000)	$	(14,000)
Depreciation and amortization (a)		9,600		9,600
Stock-based compensation		11,500		11,500
Impairment charge (b)		3,700		3,700
Cost savings initiative (c)		1,500		1,500
Interest expense, net (d)		14,600		14,600
Provision for income taxes		2,100		2,100
Adjusted EBITDA	$	23,000	$	29,000