TOMO Tomotherapy Incorporated (MM)

Accuray Incorporated (ARAY) has swung to a loss in third-quarter fiscal 2011 (ended March 31) as costs (of roughly $2.6 million) associated with its impending acquisition of rival TomoTherapy (TOMO) more than offset an increase in sales.

The California-based leading radiosurgery systems maker posted a net loss of $1.2 million or 2 cents per share in the quarter versus a net income of $2.3 million (or 4 cents a share) a year-ago. The results missed the Zacks Consensus Estimate of earnings of 4 cents.

Revenues

Revenues leapt 5% year over year to $54.7 million, but missed the Zacks Consensus Estimate of $63 million. Products sales rose 4.3% year over year to roughly $35.2 million while service revenues increased 4% to $18.3 million.

Orders and Margins

Accuray installed 4 new CyberKnife robotic radiosurgery systems in the quarter versus 6 systems a year ago, taking the aggregate global installed base to 226 units. The company booked 13 orders for CyberKnife compared to 14 orders a year ago.

Total order backlog surged 18% year over year to reach $413.4 million at the end of the quarter, boosted by sustained new order flow for CyberKnife.

Gross margin improved to 49.9% from 48.9% a year-ago owing to higher sales. Operating expenses climbed 23% year over year to $27.8 million.

Financial Condition

Accuray ended the quarter with cash, cash equivalents and short-term investments of roughly $143 million, up 22% year over year, with no debt.

Guidance Reiterated

Accuray has once again backed its revenue forecast for fiscal 2011. The company continues to expect revenues between $210 million and $225 million for the year. The current Zacks Consensus Estimate is $225 million.

Accuray is a global leader in the field of radiosurgery and provides a non-surgical treatment option for patients diagnosed with cancer. In the radiation oncology market, the company competes head-to-head with Varian Medical (VAR). Accuray continues to enjoy healthy demand for CyberKnife as evidenced by sustained growth in the number of patients receiving treatment with the device.

Accuray, in March 2011, agreed to buy Wisconsin-based radiation system maker TomoTherapy in a cash and stock deal worth $277 million. The company recently received antitrust clearance for the transaction. The acquisition, which is now subject to customary closing conditions and approval of TomoTherapy shareholders, is expected to complete in June or July 2011.

The deal, if eventually consummated, will mark the union of TomoTherapy’s best-in-class radiation therapies with Accuray’s coveted radiosurgery systems to create a leading player in the radiation oncology space. Besides expanding its global reach, the acquisition will offer a major boost to Accuray’s sales and will reinforce its foothold in this market.

Moreover, Accuray expects the transaction to be accretive to its earnings in the fiscal year beginning July 1, 2012 and will offer opportunities for cost synergies through increased operating efficiencies, complementary patient base and overhead reductions. We currently have an Outperform rating on Accuray.

 
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