Q2 2025 Accuray Inc Earnings Call
Good day and welcome to the Accuray fiscal 'twenty 'twenty five second quarter financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after.
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Your question. Please press Star then two.
Jesse: Please note. This event is being recorded I would now like to turn the conference over to Jesse to please go ahead.
Yeah.
Speaker Change: Thank you operator, and good afternoon, everyone. Welcome to Accuray's Conference call to review the financial results for the second quarter of fiscal year 2025, which ended December 31 2024.
Speaker Change: During our call. This afternoon management will review recent corporate developments joining us on today's call are stimulator, Accuray's, President and Chief Executive Officer.
Speaker Change: As accurate Chief financial Officer.
Speaker Change: Before we begin I would like to remind you that our call. Today includes forward looking statements actual results may differ materially from those contemplated or implied by these forward looking statements.
Speaker Change: Could cause these results to differ materially are outlined in the press release, we issued just after the market close this afternoon as well as our filings with the Securities and Exchange Commission.
Speaker Change: We base our forward looking statements on this call and the information available to us as of today's date.
Speaker Change: We have no obligation to update any forward looking statements as a result of new information or future events, except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward looking statements.
Speaker Change: Housekeeping for today's call first during the Q&A session, we request that participants limit themselves to two questions and then re queue with any follow ups second all references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example statements regarding our second quarter refer to our fiscal second quarter ended December 31 2000.
Speaker Change: For Italy.
Speaker Change: The little slide deck that accompany this call, which can access by going directly to equity Investor Relations page at <unk>.
Speaker Change: Is that accurate dot com.
Let me turn the call over to <unk>, Chief Executive Officer, Suzanne Winter Suzanne. Thank you Jessie good afternoon, and thank you for joining US today I'm very pleased to report on another strong quarter of performance across key financial metrics, which is enabling us to innovate and expand our efforts to improve the outcomes.
Speaker Change: Cancer patients around the world, which is our mission.
Speaker Change: Saw strong year over year revenue and adjusted EBITDA results this quarter, reflecting significant progress on our FY 'twenty five priorities. These include advancing cancer care through innovation.
Speaker Change: Spanning our servicer solutions business and improving patient access to radiotherapy and developing markets, where we believe we can grow faster than the market and achieved number one or number two market share in the long term.
Speaker Change: Finally, we advanced operational efficiencies and pricing actions to improve margins and long term profitability.
Speaker Change: Revenue for the quarter was solid growing 8% year over year with outstanding product revenue performance compared to the prior year period.
Speaker Change: I was also pleased with our adjusted EBITDA performance at $9 6 million, which was driven by pricing and operational improvements as well as Thomas C system deliveries to end customers from our joint venture facility in Tianjin.
Speaker Change: Turning to orders in Q2, I'm very pleased with our book to Bill results were trying are encouraging, especially given the strength of our product shipments this quarter yeah.
Speaker Change: E I EMEA led the way with 7% orders growth balanced in both developed and emerging markets within the region.
Speaker Change: Last quarter, we gained CE mark for the new accurate helix platform, which is manufactured in Madison, Wisconsin and in Q2, we booked 12, new helix system orders with key breakthrough wins from Pakistan, Northern Africa, and key markets in APAC.
Speaker Change: Turning to product revenues were up 19% versus last year growing faster than the market driven by strong demand for our solutions across the portfolio.
Speaker Change: Here, our new product innovation is focused on advancing the capabilities of our existing systems and always looking to improve patient care in the markets, where we compete.
Speaker Change: The cyber knife system, which remains the only truly robotic radiotherapy systems dedicated to S. P. R T and stereotactic Radiosurgery treatments grew revenue well above 50% year over year, So great performance here.
Speaker Change: Another key driver for revenue growth with our overall performance in China, which is one of the standout story for this quarter. Our teams delivered over 50% revenue growth year over year in China. Our strategy in China is working driven first by our differentiated product portfolio and service growth and I am very pleased with the perform.
Speaker Change: <unk> of our joint venture partner, China, isotope and radiation Corporation or C. I R. C, which is one of the largest state run entities. Additionally.
Speaker Change: Additionally, we are very encouraged that in the most recent China market data for calendar year 2024, although the overall market declined versus the prior year. We gained 10 points of market share and are disrupting competitive market share dynamics. According to himself a global leader in market research.
Speaker Change: As well as the official China government bidding and local government procurement websites.
Speaker Change: And the type B market, we saw strong adoption of the tomo system, which positively impacted revenue and adjusted EBITDA in the quarter.
Speaker Change: We were able to complete significant Thomas C customer deliveries, allowing us to realize deferred margin, which has built up over the past several quarters as we waited for national medical products administration regulatory approval.
Speaker Change: As a reminder, the tomo.
Speaker Change: Product is manufactured in our JV Tien tsin facility, specifically for the China market.
Speaker Change: Again, we've invested heavily in understanding regional customer trends and develop the right product with our JV partner to address the unique needs of the type B market, which is estimated to be $3 billion in market potential over the next five years.
Speaker Change: During the quarter. We also continued to see positive customer reception to our technology and the premium type a segment in China with the recent approvals for the cyber knife S seven and synchrony and clear our teen now available on the rat exact sync system customers have access to advanced capabilities, which are critical to performing S. P. R T.
Speaker Change: In stereotactic Radiosurgery treatments.
Speaker Change: We also saw standout revenue performance in Japan, where we continue to hold the number two market share position with over 40% growth in the quarter versus last year.
Speaker Change: Revenue was down in EMEA and Ams regions in the quarter compared to last year, but as we have discussed in the past regional performance can vary significantly from quarter to quarter and I expect both of these regions to show stronger revenue growth in the second half.
Speaker Change: Moving on to our service business. Our Q2 service contract revenues grew modestly on a comparable basis and were up sequentially from last quarter service revenue remains the largest long term growth opportunity driven by our growing installed base of global customers, who contract service from accuray throughout the life of their system.
Speaker Change: This service revenue opportunity, which is predominantly a recurring revenue source will further grow by retaining existing customers, winning new customers and expanding new solution offerings like Ciber com accelerated commissioning for the cyber knife, which continued to contribute materially within the quarter.
Speaker Change: We expect that our service business will be a growing part of our overall revenue and a primary catalyst for expanding margins as we benefit from higher pricing increased scale and improved operating leverage in the upcoming years.
Speaker Change: Finally, we're very proud of our clinical research and the academic recognition of clinical innovation, leveraging our technology to advanced cancer care. For example in December the International Journal of cancer highlighted the cyber knife system as an effective and time efficient treatment option for brain stem metastases.
Speaker Change: Additionally, in October we announced the publication of the Accuray sponsored pace B trial in the New England Journal of Medicine with show groundbreaking potential for S. B R. T to change the way prostate cancer is treated.
Speaker Change: In summary, I'm proud of our team and the progress, we're making towards achieving our longer term goals.
Speaker Change: Operationally, we continue to strengthen our corporate leadership and are excited to welcome Lee now Peralta as Chief operations officer to the team.
Speaker Change: And now has a proven work history in driving growth, while improving productivity and brings more than 25 years of leadership experience in supply chain business process improvement and manufacturing optimization.
Speaker Change: This experience will be instrumental in transforming our supply base driving operational excellence and optimizing working capital.
Speaker Change: I'm pleased with our strong Q2, and first half performance, which demonstrates the execution of our strategy.
Speaker Change: With a solid first half behind us, we're raising our full year fiscal 2025 guidance for revenue to $4 63 to 475 million from $4 62 to 472 million and.
Speaker Change: And adjusted EBITDA to $28 $5 million to $31 million from $28 million to $30 million as.
Speaker Change: As we look to the second half of our fiscal year, we would expect similar seasonality as we've seen in the past years with a larger portion of revenues and earnings coming in the fourth quarter aligned with the timing of customer demand compared to Q3.
Speaker Change: In closing we are confident that we are well positioned to achieve our goals and top line growth drive share in the markets, where we compete and expand margins in FY 'twenty five and beyond.
Ali: I will now turn it over to Ali who will cover our financials.
Ali: Thank you Suzanne and good afternoon, everyone I would like to begin by thanking our global cross functional teams, who continue to execute tirelessly with their incredible work ethic and helped us deliver a strong Q2, which gives us the confidence that our underlying growth strategy is working both from a topline and margin expansion standpoint.
Ali: As Suzanne mentioned, our revenue growth was broad based during the quarter led by a strong performance in our China, APAC and Japan regions. The overall demand trend, we see as we enter high growth emerging markets remains positive and is expected to allow us to gain share in the coming years, while steadily increasing our global installed base, which will in turn help grow our service.
Ali: Business.
Ali: This focus topline growth, while continuing to remain committed to our margin expansion efforts is starting to pay off despite continued inflation and macro headwinds.
Ali: Turning to the financials net revenue for the second quarter was $116 million, which was up 8% versus the prior year and up 8% on a constant currency basis product revenue for the second quarter was $61 million up 19% from the prior year and up 20% on a constant currency basis, reflecting a 17% increase in unit volume.
Ali: At the same time period.
Ali: Service revenue for the quarter was $55 million down 1% from the prior year and down 2% on a constant currency basis. As a reminder, service revenue was unusually high in the same period of the prior year, primarily due to a catch up of revenue related to the timing of the ERP implementation and cleanup amazing deferred revenue.
Ali: Adjusting for those one time items service revenue would have been up 2% and in line with contract revenue growth, which makes up greater than 90% of our global service revenue and as the annuity part of our revenue stream.
Ali: Product gross orders for the second quarter were approximately $77 million and represented a book to Bill ratio of one three for the trailing 12 month ratio of one three book.
Ali: Book to Bill ratio is defined as gross product orders for the period divided by product revenue for the period.
Ali: And we continue to believe that the book to Bill ratio is the right metric to ensure healthy growth of our backlog as we add more product orders and shipments in the quarter.
Ali: We ended the second quarter was a reported order backlog of approximately $463 million defined as orders that are younger than 30 months. This represents approximately two years of FY 'twenty for product revenue as part of our diligence in ensuring a high quality backlog, we cancelled only one unit representing approximately $2 million of orders due to evolving customer.
Ali: Dynamics as mentioned before over the last couple of years, we have redefined our order booking criteria are focused on deals with higher profitability that convert to revenue within 30 months and as a result have seen lower age outs and faster order to revenue conversion.
Ali: Our overall gross margin for the quarter was 36, 1% compared to 33, 5% in the prior year.
Ali: Increase was due to an approximately.
Ali: Two four points or $2 $6 million of incremental net China margin relief associated with shipments from our JV partner to their end customers.
Ali: Additionally, favorable pricing and efficiencies within our manufacturing operations contributed approximately two nine points offset by higher parts consumption and other service cost impact of approximately two seven points coming back to the China margin release as a reminder, due to JV accounting rules, we must defer approximately 50% of the margin associated with the shipment revenue that we have.
Ali: Made to the JV and do not realize that margin until the JV shifts that product to their end customer.
Ali: This phenomena resulted in an accumulation of deferred margin on our balance sheet as we were awaiting regulatory approval, which was obtained in June of 2024.
Ali: Since then the China do we started to make shipments to their end customers in our fiscal Q1 and delivered higher than anticipated shipments in Q2, allowing the release of that margin earlier than we expected. We have provided additional details in our supplemental deck on the impact of a deferral historically and moving forward. We expect this margin deferral timing to be less of a factor.
Ali: Moving beyond FY 'twenty, five as JV volumes normalize and to have a nominal impact operating expenses in the second quarter was $37 million compared to $40 million in the second quarter of the prior fiscal year, primarily due to higher ERP implementation costs incurred last year.
Ali: Operating income for the quarter was $4 $7 million compared to operating loss of $4 million from the prior year adjusted.
Ali: Adjusted EBITDA for the quarter was $9 6 million compared to $2 million from the prior year, primarily due to higher shipments higher release of deferred China margin and lower operating expenses turning to the balance sheet total cash cash equivalents and short term restricted cash amounted to $64 million compared to $60 million at the end of last quarter.
Ali: Net accounts receivables were approximately $87 million compared to $92 million in the prior quarter, our net inventory balance was $149 million down $6 million from the prior quarter as we focus on a leaner approach to inventory management Lastly, we continue to be focused on addressing our capital structure and refinancing needs to ensure we have flexibility to grow the business.
Ali: And as for the years to come.
Ali: Given the we are an international business with a global supply chain, we are keeping a close eye on how tariffs being imposed by the new U S administration could impact our business considering everything we know as of the time of this call. We think it is a de minimis risk for the second half of the year, but it's also a fluid situation that we intend to monitor closely and we'll update you further.
Ali: As the situation develops.
Ali: Summary, we are pleased with our Q2 and first half results and are raising our full year FY 'twenty five revenue guidance range to $463 million to $475 million from the previous range of $462 million to $472 million and full year, adjusted EBITDA guidance range to $25 to $31 million.
Ali: From the previous range of $20 million to $30 million. This revised guidance range assumes minimal tariff impact and as the U S market will begin its recovery in the second half of FY 'twenty five delaying system.
Ali: Revenue and associated EBITDA for the fourth quarter of our fiscal year.
Suzanne: Those are a few financial highlights and with that I'd like to hand, the call back to Suzanne.
Suzanne: Thanks Ali before Q&A I want to sum up my view on the recent results, which show clear progress toward our full year goals setting the stage for sustained profitability in the long term.
Suzanne: Product revenue growth was very strong faster than the markets. We compete in driven by sales in China, and Japan and strong demand for cyber knife, well on a normalized basis services revenue increased modestly margins benefited from our China margin relief and deliberate operating efficiencies against some inflationary.
Suzanne: Trends.
Suzanne: Most importantly, I'm pleased that our financial performance improvement should help us to continue to innovate and expand our efforts to improve outcomes for cancer patients around the world.
Suzanne: I would like to thank the entire accuray team for all of their hard work and the role. They have played in the meaningful progress we have made against our strategic priorities and their ongoing dedication and passion to advancing our mission and creating value for all stakeholders I will now turn it back over to the operator for Q&A.
Suzanne: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please.
Suzanne: Press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Murray Diebold with B T. I G. Please go ahead.
Murray Diebold: Hi, good evening, thanks for taking the questions and congrats on a very nice quarter.
Murray Diebold: Wanted to start here with China, 54% year over year growth I Wonder if you could detail for us what that is in terms of revenue.
Murray Diebold: And just how sustainable you think this this demand is you have some obvious catalysts like tomasi coming onto the market <unk> got new clearances in the type a category and I just wanted to have an understanding of <unk>.
Murray Diebold: Can we see this demand continue for a couple of quarters a couple of years, how would you kind of size it for us.
Speaker Change: Thanks for the question Murray, Yes, we're very pleased with our performance in China, both in Q2 and really to follow up first half.
Speaker Change: I think we have been an outlier in the market compared to what a lot of other folks are seeing in China and the market data does show that the market was down mainly doing due to market dynamics around the anti corruption campaign, but I think we were an outlier and outperformed the market for two major reasons why.
Speaker Change: One is that our JV partner is executing very well and is really has really proven to be a very strategic partner for us and our success within this market and then the other is the strength of our product portfolio. We now have a very strong broad portfolio with the clearance of the tomo C for the type B.
Speaker Change: Segment.
Speaker Change: As well now the enhanced version of cyber knives, and rat exact with synchrony and clear our T. So we feel good about the product portfolio and how we can compete within this market now we did expect the first half to be stronger just due to the normal historical seasonality in China.
Speaker Change: But we're very pleased and were pleased with the market share gain that we have seen over this year you know our goal is to disrupt.
Speaker Change: The competitive share dynamics within this market and I think that's really important, especially as we look to go into other emerging markets.
Speaker Change: Very helpful were you able to share a revenue number for us from China.
Speaker Change: And maybe we can do that when we're on the one on one calls Murray.
Speaker Change: Okay.
Speaker Change: Fair enough and then I wanted to ask a follow up very encouraging to hear that your outlook includes you know minimal impact from tariffs very good to hear and as well as.
Speaker Change: The recovery in the U S market in the second half of this fiscal year guess on the macro side would love to understand what sort of feeds your confidence on that what you're seeing today, if you're starting to see.
Speaker Change: Green shoots and then as well on the macro side any impact you're building in for FX I know of course, the Japanese yen has recovered, but I know it is a big part of it the euro as well so any details on that as well. Thanks for taking the questions. Let me start with the U S business, and then I'll hand to Ali and more on the macro discussion, but you know we have well.
Speaker Change: I remind you that we have said that we expected gradual recovery in the U S business in the second half with FY 'twenty six being more of the normalized market conditions.
Speaker Change: <unk> built into the balance of the year, what what we have built in we think is reasonable and it's based on what we have five high visibility to in the next six months and these are orders that are already in the backlog that are going into the installation phase and so we think the assumptions for the second half of reasonable.
Speaker Change: Just final tiny timing always being the only variable as it relates to just customer readiness.
Speaker Change: But but we had some G installations this quarter.
Speaker Change: Oh, you Stephenson cancer Center, which is the only NCI National Cancer Institute designated Cancer Center in Oklahoma.
Speaker Change: Install the erratic back which was a competitive displacement also Boston Medical center, where they install the cyber knife and a trade in trade up. So you know we are we're consistent with what we believe in the.
Speaker Change: It happened going into FY 'twenty, six and we're going to continue to monitor the market conditions and so we'll keep you posted on the upcoming calls.
Speaker Change: And then Ali can talk more about macro and yeah absolutely.
Murray Diebold: Murray, obviously theres a lot going on.
Speaker Change: In terms of just.
Speaker Change: The macro.
Speaker Change: Obviously, a lot of uncertainty as it pertains to tariffs.
Speaker Change: Tariffs as well of which as I mentioned during my prepared remarks, that's something that we are closely monitoring we think that it has a de minimus risk over here in the second half, but again of course it is a pretty fluid situation. So we're going to continue to keep a close eye on it I think beyond that you know inflation is.
Speaker Change: Something that impacted us quite a bit over the last couple of years.
Speaker Change: Inflation has not gone away.
Speaker Change: It's probably a.
Speaker Change: Increasing at a lower rate, but it still is impacting our P&L both on the product and the service side.
Speaker Change: We have a lot of efforts going on internally as part of our margin expansion plan to combat that and that's going to continue to remain a focus point for us because we really do over the midterm, we want to see our Cogs come down as far as part of our margin expansion strategy, which will really help with overall margin expansion so inflation.
Speaker Change: It's a big one that we're keeping an eye on and again combating some of that.
Speaker Change: In terms of foreign exchange you know I think the biggest factor really is Japan, and so we have a significant.
Speaker Change: Install base over there we enjoy number two market share.
Speaker Change: We have really great service revenue and so we want to be able to maintain that service revenue.
Speaker Change: We are taking pricing actions, but certainly not enough to be able to combat older weakness we've seen in the Japanese yen.
Speaker Change: It ebbs and flows between 150 to 160, so again, just keeping a close eye on that right now and just making sure that we're factoring that into our models as we look into the future.
Speaker Change: Thank you so much.
Brooks O'neil: The next question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Speaker Change: Thank you very much good afternoon, everyone. Congratulations on a terrific second quarter.
Speaker Change: I'm just going to follow on a little bit with Murray's last question related to Japan.
Speaker Change: I think in our conversations in recent quarters.
Speaker Change: Suggest that Japan was a mature market, but it sounded like you had a pretty pretty strong performance. There. This quarter are there any factors you'd call out for driving that.
Yeah, Hi, Brooks.
Speaker Change: I think the only thing to call out is we did expect the first half of the year in Japan to be the stronger half just based on again visibility to customer timing.
Speaker Change: It is a replacement market. It is a developed market and most of their installations and wins are competitive displacements of very strategic but we do think the first half was probably the stronger half.
Speaker Change: Sure.
Speaker Change: Cool and then secondly, I'm very interested in your progress around the world beyond China and some of the other markets that you're developing so why don't you talk just a little bit about what you're seeing in India.
Speaker Change: The kind of opportunity you see there going forward.
Yeah, absolutely so.
Speaker Change: EMEA, which includes our India within the region, there's still remains our largest region in a very heterogeneous in terms of both developed and emerging markets. I'm. You know we are expecting a strong second half growth from this region and in particular in India.
Speaker Change: Now we did get CE Mark for the helix, we are still awaiting the local regulatory approval.
Speaker Change: For the helix are targeted for India, we do expect it in the near term and we do expect that it's going to have a meaningful impact in strategic markets like India.
Speaker Change: We're really thrilled to see the order performance of helix in some of these other markets and we've talked about that in our prepared remarks, but markets like Pakistan like various countries within Northern Africa.
Speaker Change: And so we do expect that we will be able to penetrate some of these higher growth underpenetrated markets with this product and have similar success as what we see with the time, let's see which has a similar value segment product really a workhorse product for these markets.
Speaker Change: And just if I could touch one more.
Speaker Change: What would you say from a competitive position those are differentiated in terms of price, but also in terms of political capability.
Speaker Change: Yes, I would definitely say clinical capabilities I will tell you that both the helix and the Thomas C. The fact that it has a helical delivery is a differentiator and also within those markets and you know a a breakthrough high end premium technology like cyber knife is also very attractive.
Speaker Change: You know to establish the Accuray technology brand. So it's not pricing it is technology.
Speaker Change: Alright, Thank you very much congratulations again.
Brooks O'neil: Thanks Brooks.
Brooks O'neil: This concludes our question and answer session.
Speaker Change: The conference back over to Suzanne winter for any closing remarks.
Speaker Change: Thank you all for joining our call. This concludes our earnings call and we're looking forward to speaking with you again in the spring for our fiscal 2025 third quarter earnings release.
Speaker Change: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.