Accuray (ARAY) Q4 2018 earnings summary

Executive summary

• FY18 net revenue rose 6% to $404.9M; gross margin expanded to 40% from 37%, and net loss narrowed to $23.9M from $29.6M.

• Product backlog reached $478.5M, while net orders fell to $209.5M amid higher age-outs and cancellations; lengthy sales and installation cycles continue to make conversion uncertain.

Financial highlights

• Product revenue increased 2% to $183.9M; services revenue rose 8% to $221.0M, driven by installed-base support, upgrades and spare parts.

• Gross profit was $161.7M; product gross margin improved to 44% from 37%, while service gross margin was flat YoY.

• Operating loss narrowed to $3.8M from $9.8M; net loss was $23.9M versus $29.6M, and diluted loss per share was $0.28 versus $0.36.

• Operating cash flow was $18.3M versus cash use of $0.4M; cash and cash equivalents were $83.1M at June 30, 2018.

• Product gross-margin improvement included an $8.0M decrease in acquired-intangible amortization, fully amortized in Q4 FY17; this comparison benefited FY18 reported results.

Outlook and guidance

• FY19 R&D expense expected slightly below FY18; selling and marketing expense expected higher on product launches and added headcount; G&A expected relatively stable.

• Existing cash, cash equivalents and investments were expected to fund working capital and capital expenditures for at least 12 months; additional financing may be needed if liquidity falls short.

• Revenue under ASC 606 was expected to shift direct system sales toward recognition upon delivery, with installation deferred until performed; indirect sales and service recognition expected to remain unchanged.