Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Accuray Inc (ARAY, Financial) reported a 14% year-over-year revenue growth for the fourth quarter, driven by strong operational and commercial execution.
- The company achieved a record number of system shipments, representing a 20% increase over the previous highest shipment milestone.
- International markets contributed more than 80% of the fiscal year's revenue, reflecting successful penetration into emerging markets.
- Product revenue grew by approximately 28% year-over-year, with significant contributions from China and the rest of the APAC region.
- Accuray Inc (ARAY) received final approval for its precision treatment planning system in China, enabling full margin recognition and competitive positioning in the Type B market.
Negative Points
- Service revenues for the quarter were down slightly due to unfavorable foreign exchange impacts in Japan and reduced training and spare parts revenue.
- The Americas region showed weakness, with product revenue down 50% year-over-year due to customer delays and installation issues.
- Overall gross margin for the quarter declined to 28.6% from 31.9% in the prior year, impacted by higher margin deferral from China shipments and increased parts consumption costs.
- Operating expenses for the full year were $142.4 million, representing a 6% reduction year-over-year, but still indicating a need for further cost control.
- The US market remains challenging, with a significant decline in revenue and delayed recovery expected only in the second half of FY25.
Q & A Highlights
Q: Can you provide more details on the guidance, particularly regarding Tomo C in China and the potential impacts of the anti-corruption campaign and stimulus?
A: The guidance range of $460 million to $470 million is influenced by the timing of the US market recovery and macroeconomic factors. The recovery of the US market is a significant factor. For Tomo C in China, we expect a surge in installations in Q2 FY25. The anti-corruption campaign has slowed processes but hasn't significantly impacted results. The stimulus program, aimed at replacing older systems, is expected to contribute in the back half of the year, but we haven't built it into our numbers yet.
Q: Can you elaborate on the contributions from Tomo C in China and the impacts of the anti-corruption campaign and stimulus?
A: We shipped our first Tomo C unit at the end of Q4 and expect a surge in installations in Q2 FY25. The anti-corruption campaign has slowed processes but hasn't significantly impacted results. The stimulus program, aimed at replacing older systems, is expected to contribute in the back half of the year, but we haven't built it into our numbers yet.
Q: Can you provide more details on the performance and outlook for the Japan market?
A: Japan showed strong revenue performance in Q4, driven by competitive replacements and targeting aged installed bases. We expect continued important contributions from Japan, which is trending towards becoming the number one market for us.
Q: What are your plans for the Helix product in India, and any updates on the FDA approval for Cenos?
A: We expect to be in a shipping position for Helix in India by the end of the calendar year and are currently building a funnel of orders. India has significant market potential, similar to China. For Cenos, we are planning a full introduction at ASTRO and expect to be in a shipping mode by the end of the calendar year, with revenue contributions in the first half of FY26.
Q: Can you provide more color on the US market, particularly the competitive environment and outlook for fiscal 2025?
A: The US market has seen delays in customer installations and capital treatment priorities. We expect gradual improvement in the back half of FY25 and more of a full recovery in FY26. Our orders in the US grew by 8%, indicating strong customer reception to our new product innovations.
Q: How are you growing service revenue, and what are the mechanics behind the optimism?
A: Service revenue growth is driven by the expansion of our installed base, pricing actions, and new value-added service offerings. We saw a 4.5% growth in service contract revenue, which is a significant win and indicates strong underlying performance.
Q: With the new initiatives in emerging markets, can we expect double-digit growth in the coming years?
A: Our international revenues grew by 10%, and we believe the US market recovery will drive higher overall revenue growth. The US market has significant potential due to the aged equipment and replacement opportunities.
Q: How do you plan to expand margins despite lower margins in emerging markets?
A: While product margins may be pressured in emerging markets, we expect overall gross margins to remain consistent or slightly pressured. However, we aim to be accretive on EBITDA through volume leverage and operational efficiencies.
Q: How does the guidance range relate to the US market recovery?
A: The midpoint of the guidance assumes a US market recovery in the second half of FY25. The bottom end could be impacted by delays in recovery, while the top end assumes a timely recovery.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
