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01/10 15:48
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary reveals a decline in net and product revenues, a significant drop in gross margins, and an increased operating loss. Despite a strong order backlog and stable cash position, geopolitical issues in key markets and unclear management responses in the Q&A section contribute to negative sentiment. The guidance suggests a back-loaded fiscal year, but current challenges overshadow potential future improvements. The lack of clarity in management's answers, particularly regarding tariffs and order cancellations, further exacerbates concerns, leading to an overall negative outlook for stock price movement.
Net Revenue $94 million, down 7% year-over-year and down 9% on a constant currency basis. The decline was attributed to slower performance in the EIMEA and China regions.
Product Revenue $37 million, down 23% year-over-year and down 24% on a constant currency basis. The decline was mainly due to slower performance in the EIMEA and China regions.
Service Revenue $57 million, up 7% year-over-year and up 4% on a constant currency basis. The increase was driven by contract revenue growth of 10% year-over-year, which outpaced the installed base growth of 2%, illustrating the impact of pricing actions.
Order Backlog Approximately $396 million, representing over 18 months of product revenue. This provides strong visibility and confidence in future revenue conversion.
Overall Gross Margin 28.3%, compared to 33.9% in the prior year. The decline was primarily driven by product gross margins, which were impacted by sales mix, incremental costs associated with tariffs, and a one-time obsolescence charge.
Product Gross Margin 20.3%, compared to 32.9% in the prior year. The decline was due to unfavorable sales mix ($2.9 million or 7.8 points), incremental tariff costs ($1.1 million or 3 points), and a one-time obsolescence charge ($0.7 million or 1.7 points).
Service Gross Margin 33.5%, 1.4 points lower than the prior year. The decline was primarily driven by lower parts consumption in Q1 of fiscal year '25 due to a supplier credit obtained in that quarter.
Operating Expenses $37.9 million, compared to $36.6 million in the prior year. The increase was largely due to $3.3 million in restructuring and post-financing costs, partially offset by $1 million of realized savings from restructuring actions.
Operating Loss $11.3 million, compared to a loss of $2.1 million in the prior year. The increase in loss was due to product gross margin challenges and restructuring costs.
Adjusted EBITDA Loss of $4.1 million, compared to an income of $3.1 million in the prior year. This was largely due to product gross margin challenges.
Cash, Cash Equivalents, and Short-term Restricted Cash $64 million, up from $57 million at the end of the prior quarter. The increase was primarily due to a net decrease in primary working capital.
Net Accounts Receivable $54 million, down $29 million from the prior quarter. The decrease was due to lower revenues and collection of certain past due receivables.
Net Inventory Balance $156 million, up $14 million from the prior quarter. The increase was due to ramping up for increased manufacturing in the coming quarters.
Stellar product launch: Accuray launched the Stellar product at ASTRO, emphasizing its commitment to adaptive radiotherapy and precision care. The product received strong interest from both existing and new customers.
Global adoption and partnerships: Accuray signed a memorandum of understanding with the University of Wisconsin School of Medicine and Public Health to advance adaptive radiotherapy. Additionally, the first patients were treated in Melbourne, Australia using the CyberKnife system, addressing unmet cancer needs in the region.
Service revenue growth: Service revenue increased by 7% year-over-year, driven by contract revenue growth of 10% and pricing actions.
Restructuring plan: The company initiated a restructuring plan to reduce costs, align resources with strategic priorities, and streamline operations, resulting in $2.8 million in restructuring charges.
Transformation plan: Accuray is implementing a transformation plan to enhance competitiveness, drive margin expansion, and achieve sustainable growth. The plan includes achieving a high single-digit adjusted EBITDA margin within 12 months and double-digit margins in the medium to long term.
Revenue Decline: Net revenue for the first quarter was $94 million, down 7% year-over-year and 9% on a constant currency basis. Product revenue was particularly weak, down 23% year-over-year, driven by slower performance in EIMEA and China regions.
Gross Margin Decline: Overall gross margin for the quarter declined to 28.3% from 33.9% in the prior year. Product gross margins were significantly impacted by unfavorable sales mix, tariffs, and a one-time obsolescence charge.
Geopolitical and Macroeconomic Uncertainties: Ongoing geopolitical and macroeconomic uncertainties were mentioned as factors that could impact revenue and adjusted EBITDA guidance.
Restructuring Costs: The company incurred $2.8 million in restructuring charges, including $1.5 million in severance-related costs and $1.3 million in consulting costs, which impacted operating expenses and financial results.
Order Backlog and Timing Issues: Gross orders were lower than expected due to timing issues in customer orders, particularly in China and the Americas, affecting the order backlog and future revenue visibility.
Service Gross Margin Pressure: Service gross margins declined by 1.4 points year-over-year, driven by lower parts consumption and the absence of a supplier credit obtained in the prior year.
Inventory Build-Up: Net inventory balance increased by $14 million from the prior quarter, indicating potential inefficiencies or challenges in inventory management as the company ramps up manufacturing.
Adjusted EBITDA Margin: The company expects to reach a high single-digit adjusted EBITDA margin as a percentage of revenue on a run rate basis within 12 months. Over the medium to long term, the company aims to expand this margin to double digits.
Fiscal Year 2026 Revenue and Adjusted EBITDA Guidance: Revenue is projected to be in the range of $471 million to $485 million, with adjusted EBITDA expected to range between $31 million and $35 million.
Transformation Plan Impact: The transformation plan is expected to meaningfully improve adjusted EBITDA as a percentage of revenue, with more details to be provided in the fiscal Q2 earnings call.
Revenue Growth Outlook: Despite a slower-than-anticipated start in Q1, the company remains confident in achieving its fiscal year 2026 revenue guidance.
Future Earnings Momentum: The company anticipates increased earnings momentum going into fiscal year 2027, even amidst ongoing geopolitical and macroeconomic uncertainties.
The selected topic was not discussed during the call.
The earnings call summary reveals a decline in net and product revenues, a significant drop in gross margins, and an increased operating loss. Despite a strong order backlog and stable cash position, geopolitical issues in key markets and unclear management responses in the Q&A section contribute to negative sentiment. The guidance suggests a back-loaded fiscal year, but current challenges overshadow potential future improvements. The lack of clarity in management's answers, particularly regarding tariffs and order cancellations, further exacerbates concerns, leading to an overall negative outlook for stock price movement.
The earnings call reveals mixed results: strong service revenue growth and improved gross margins are positives, but declining product revenue and geopolitical tensions are concerning. Tariff impacts and economic slowdowns add uncertainty. The Q&A highlights optimism for the U.S. market and emerging markets, yet cautiousness remains. Overall, the sentiment is balanced with no clear catalyst for significant short-term stock movement.
The earnings call presents mixed signals. Positive factors include raised revenue and EBITDA guidance, strong revenue growth, and increased cash flow. However, concerns about tariffs impacting Q4 revenue, declining gross margins, and unclear management responses on China issues balance the sentiment. The lack of a shareholder return plan also adds to the neutral outlook. Given these mixed factors, the stock price is likely to remain stable over the next two weeks.
Despite strong financial performance and positive guidance, significant risks exist. The tariff impact on China, a key market, and management's lack of clarity on exemptions introduce uncertainty. While service revenue and backlog are strong, the decline in margins and potential $10-$15M revenue loss due to tariffs offset positives. The stock's reaction will likely be muted, reflecting these mixed factors.
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