• Total Revenue: $102 million, down 2% year over year.
• Product Revenue: $48 million, down 9% year over year.
• Service Revenue: $53 million, up 5% year over year.
• Gross Margin: 33.9%, compared to 38% in the prior year.
• Operating Expenses: $36.6 million, compared to $37.3 million in the prior year.
• Operating Loss: $2.1 million, compared to operating income of $2.2 million in the prior year.
• Adjusted EBITDA: $3.1 million, compared to $6.5 million in the prior year.
• Cash and Equivalents: $60 million, down from $69 million in the previous quarter.
• Net Inventory: $155 million, up $17 million from the prior quarter.
• Order Backlog: Approximately $469 million.
• Book to Bill Ratio: 1.1 for the quarter.
• FY25 Revenue Guidance: Raised to $462 million to $472 million.
• FY25 Adjusted EBITDA Guidance: Raised to $28 million to $30 million.

• Warning! GuruFocus has detected 7 Warning Signs with ARAY.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Accuray Inc (NASDAQ:ARAY) reported strong revenue growth in China, with a 30% year-over-year increase driven by customer demand in both type A and B markets.
• The company successfully launched the Tomo C product in China, expanding its product portfolio and allowing competition in the fast-growing type B segment.
• Accuray Inc (NASDAQ:ARAY) saw positive momentum in the APAC region, with first-time shipments to new markets like Thailand, the Philippines, and Myanmar.
• Service revenue grew by 5% year-over-year, driven by increased contract revenue and enhanced service offerings.
• The company raised its full-year fiscal 2025 revenue and adjusted EBITDA guidance, reflecting confidence in underlying demand trends and product backlog.

Negative Points

• Overall gross margin for the quarter decreased to 33.9% from 38% in the prior year, partly due to a one-time cost benefit in the previous year.
• Product revenue declined by 9% year-over-year, reflecting variability in orders and revenues due to longer sales cycles and timing of installations.
• The US market experienced an 8% decline in service revenue due to installed base consolidation, impacting overall revenue growth.
• Accuray Inc (NASDAQ:ARAY) faced challenges with the ERP system implementation, although it is now fully integrated.
• The company noted delays in the Chinese market due to the anti-corruption campaign and lack of stimulus program initiation, which could impact future growth.

Q & A Highlights

Q: Can you provide more details on the timeline and impact of the Tomo C rollout in China? A: Suzanne Winter, President and CEO, explained that the Tomo C product is expected to significantly impact growth and revenue as it targets the large type B segment in China. The product has been well-received, and there is pent-up demand. The rollout will continue through Q2 to Q4, with expectations of gaining market share in both type A and B segments.

Q: How is the service contract revenue growth outpacing installed base growth, and is this sustainable? A: Suzanne Winter noted that the service business is driven by installed base growth, especially in emerging markets. Enhanced service contracts with richer configurations are being offered, allowing for higher pricing. Additionally, non-contract revenue from value-added services like Cybercom is contributing to growth. The company plans to continue investing in service growth to improve top-line and margins.

Q: Why was the guidance increase modest, and what factors contribute to this cautiousness? A: Suzanne Winter and Ali Pervaiz, CFO, mentioned that while they are optimistic about the year's start and underlying trends, they are cautious due to the typical revenue profile, where Q4 is expected to be the largest quarter. They anticipate 45% of total revenue in the first half and 55% in the second half of FY25.

Q: What is the impact of China's stimulus and anti-corruption campaign on your business? A: Suzanne Winter acknowledged that the anti-corruption campaign and delayed stimulus have slowed processes and reduced budgets. However, Accuray is gaining market share due to its unique partnership with a joint venture in China and the domestically produced Tomo C product, which addresses pent-up demand in the radiotherapy segment.

Q: How are orders in India tracking, and when do you expect to start shipping? A: Suzanne Winter stated that India is a strategic market with significant potential. The company has invested in commercial resources and received CE mark for the Helix product, allowing order intake. They expect to complete local regulatory testing by early Q3 and begin shipping, leading to a full market launch.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.