Earnings call transcript: Accuray’s Q3 2025 revenue up 12%, stock dips

Accuray Incorporated (ARAY) reported its third-quarter 2025 earnings, showcasing a 12% increase in revenue year-over-year to $113 million. Despite the revenue growth, the company’s stock dipped 4.32% to close at $1.62, before slightly recovering in aftermarket trading. The adjusted EBITDA improved significantly, reaching $6 million compared to $1.1 million last year. The gross margin saw a slight decline to 27.9% from 28.7% the previous year. According to InvestingPro data, the company operates with a significant debt burden, with a debt-to-equity ratio of 4.46x, while trading below its calculated Fair Value.

Key Takeaways

• Accuray’s Q3 revenue rose by 12% year-over-year, driven by strong product and service sales.
• The company reported a significant improvement in adjusted EBITDA, reaching $6 million.
• Stock price fell by 4.32% during regular trading hours but saw a slight recovery in aftermarket trading.
• Gross margin experienced a minor decline, highlighting cost pressures.
• Accuray’s order backlog grew to $452 million, indicating strong future demand.

Company Performance

Accuray demonstrated robust performance in the third quarter of 2025, with revenue growth driven by both product and service segments. Product revenue increased by 16% to $57 million, while service revenue rose by 9% to $56 million. The company’s focus on operational efficiency and reduced inventory levels contributed to a higher adjusted EBITDA of $6 million, a notable improvement from the previous year. Despite these positive developments, the gross margin declined slightly, reflecting ongoing cost challenges.

Financial Highlights

• Revenue: $113 million, up 12% year-over-year
• Product Revenue: $57 million, up 16%
• Service Revenue: $56 million, up 9%
• Adjusted EBITDA: $6 million, up from $1.1 million last year
• Gross Margin: 27.9%, down from 28.7% last year
• Free Cash Flow: $16 million generated

Market Reaction

Accuray’s stock price decreased by 4.32% to $1.62 during regular trading hours, reflecting investor concerns over the slight decline in gross margin and potential future challenges. However, in aftermarket trading, the stock saw a modest recovery, rising by 1.29% to $1.57. This movement suggests mixed investor sentiment, with some confidence in the company’s long-term growth prospects despite short-term pressures.

Outlook & Guidance

Looking ahead, Accuray has set a revenue forecast for the fourth quarter between $121 million and $129 million, with an adjusted EBITDA target of $9.5 million to $12 million. The company anticipates potential revenue impacts from China tariffs, estimated at $10 million to $15 million in the fourth quarter. Accuray continues to explore strategic initiatives, including establishing a foreign trade zone in Wisconsin and developing secondary domestic sources for raw materials.

Executive Commentary

CEO Suzanne Winter emphasized Accuray’s commitment to being "the most reliable and trusted global partner of choice in radiation therapy treatment technology." She also highlighted the resilience of the company’s service business, noting it is "much more insulated from the tariff dynamics." CFO Ali Purvais reiterated the company’s proactive approach, stating, "We are exploring any and all alternatives to find an optimal solution to maximize our opportunities."

Risks and Challenges

• Supply Chain Issues: Ongoing global supply chain disruptions could impact raw material availability and costs.
• Tariff Impacts: Potential revenue impact from China tariffs may affect profitability.
• Market Saturation: Increased competition in key markets could pressure growth.
• Macroeconomic Pressures: Economic slowdowns in key regions could dampen demand.
• Currency Fluctuations: Volatility in foreign exchange rates may impact financial results.

Q&A

During the earnings call, analysts focused on the impact of China tariffs and Accuray’s strategies for mitigating these challenges. The company discussed its efforts to secure medical device tariff exemptions and redirect resources to other markets such as the UK and Non-China APAC regions. Analysts also inquired about the company’s plans for capital structure refinancing and its implications for future growth.

Full transcript - Accuray Incorporated (ARAY) Q3 2025:

Conference Operator: Good day, and welcome to the Accuray Third Quarter Fiscal twenty twenty five Financial Results Conference Call. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jesse Chu, Chief Legal Officer.

Please go ahead.

Jesse Chu, Chief Legal Officer, Accuray: Thank you, operator, and good afternoon, everyone. Welcome to Accuray’s conference call to review financial results for the third quarter of fiscal year twenty twenty five, which ended 03/31/2025. During our call this afternoon, management will review recent corporate developments. Joining us on today’s call are Suzanne Winter, Accuray’s President and Chief Executive Officer and Ali Purvais, Accuray’s Chief Financial Officer. 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. Factors that could cause these results to differ materially are outlined in the press release we issued just after the market closed this afternoon as well as in our filings with the Securities and Exchange Commission. We base the forward looking statements on this call on the information available to us as of today’s date. We assume 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.

A few housekeeping items for today’s call. First, during the Q and 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 third quarter refer to our fiscal third quarter ended 03/31/2025. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Investor Relations page at investors.accurate.com.

With that, let me turn the call over to Accurate’s Chief Executive Officer, Suzanne Winter. Suzanne?

Suzanne Winter, President and Chief Executive Officer, Accuray: Thank you, Jesse. Good afternoon, everyone, and thank you for joining us today. Today, I want to explain four key points to help our stakeholders understand Accuray even better. First, similar to every U. S.-based company with significant international markets, the visibility on our very near term growth in revenues and earnings is lower than just one month ago.

However, our teams are identifying and executing on opportunities to operate more efficiently to become more and more resilient, while our commercial partnerships with customers are focused on placing our important products as quickly as possible. Second, recent results and orders outlook suggest strong demand for our technologies and improving execution by our teams. This gives us increasing confidence that we can emerge from the current environment as a stronger, more resilient organization. Third, we continue to benefit from approximately $215,000,000 of recurring annual services revenue, within which we see several potential growth avenues. Demand for our products is strong and our services revenue provides a stable predictable base of growing revenues.

Fourth, our investments in ERP and talent is expanding our adaptability and improving our capabilities to operate in a rapidly changing highly fluid global market. Regardless of the global trade circumstances that will likely remain volatile, we want to be the most reliable and trusted global partner of choice in radiation therapy treatment technology and we are staying close with our customers and prospects to help them get the equipment they need to provide vital care to their patients. Today, we reported strong third quarter results, which exceeded our expectations and we are encouraged by the overall progress we have made operationally through the first three quarters of fiscal twenty twenty five. Revenue for the quarter was solid growing at 12% year over year. This growth was driven by strong performances in both developed and emerging markets.

We also saw a strong performance in our service business, which this quarter represented approximately 49% of our revenue and 59% of our gross margin. I was also pleased with our adjusted EBITDA performance at $6,000,000 compared to $1,100,000 a year ago. The year over year increase was driven primarily by volume, pricing and operational improvements. We managed our working capital extremely well this quarter with $16,000,000 of free cash flow generation and reduced overall inventory levels, which Ali will speak about in greater detail. Turning to orders.

Our book to bill was over 1.2 this quarter, representing healthy customer demand for solutions across both developed and emerging markets. Within these markets, order growth was driven largely by new customer expansion from customers adding new radiation therapy capacity to their facilities and approximately 35% coming from the replacement of aged equipment. Product revenues were up 16% versus last year, growing faster than the market and was driven by strong demand for our solutions across our expanded portfolio. Moving on to our service business. Our Q3 service revenue grew by 9% year over year.

We expect the service business to be a growth engine and primary catalyst for expanding margins as we benefit from higher pricing, increased scale and operating leverage and as we develop subscription software as a service offerings in the coming years. Finally, I’ll briefly touch on the recently announced tariff policies and the impact to our business. As a global company with life changing technologies in key markets, 70% of our raw materials and product components are sourced within The U. S. And finished products are assembled and manufactured within The U.

S. With over 80% exported throughout the world. I’m incredibly confident in our supply chain flexibility and we have multiple mitigation actions underway to help offset the impact of the tariffs, including establishing a foreign trade zone in Madison, Wisconsin 2, duty drawback on qualifying parts and sub components three, development of secondary domestic sources of raw material and components and four, working closely with our China JV to obtain a tariff exemption in China for our life saving products. While there is significant uncertainty, assuming the existing tariffs remain in place, we are expecting minimal shipments to China, despite customer demand, which has averaged over $25,000,000 to $30,000,000 per quarter in product shipments over the first three quarters of FY twenty twenty five. Our teams are confident that we can offset a significant portion of this revenue impact in Q4 with greater contributions from the other regions.

We estimate that there is a potential negative impact of 10,000,000 to $15,000,000 in Q4 revenue as a direct result. Note that this impact is primarily isolated to product sales in China. In general, our service business is much more insulated from the tariff dynamics with exposure limited to parts consumption. For adjusted EBITDA, although we expect headwinds due to reduced China volume and associated increased tariff costs, our teams have been laser focused on what we can control and are taking every action possible to mitigate the impact in Q4 and are confident that we can remain within full year adjusted EBITDA guidance range. Further, we expect to see much greater positive impact to the mitigation efforts as we enter the second half of FY twenty twenty six.

This situation is subject to change at any point and we’re monitoring it very closely. Overall, we believe that despite the volatility and the uncertainty of these new challenges, we are well positioned to implement both long and short term mitigations to offset the tariff policy impact. I will now turn it over to Ali, who will cover our financial performance for the quarter.

Ali Purvais, Chief Financial Officer, Accuray: Thank you, Suzanne, and good afternoon, everyone. Before we go into our fiscal third quarter financial results, I want to begin by addressing the dynamic tariff situation and potential range of impact on our fiscal fourth quarter and FY twenty twenty five results as the situation continues to evolve. As a company with a global footprint and majority of revenue generated outside The U. S, we have spent a considerable amount of time understanding the changes in trade policies and global tariffs announced recently and the potential impact on our business. As Suzanne mentioned, the impact of tariffs is expected to decrease near term volume of product sales in China, which we estimate could impact product revenue by 10,000,000 to $15,000,000 in Q4.

Additionally, tariffs associated with The U. S.-China trade are expected to have an incremental cost, which we had anticipated, and we believe we can offset these impacts through driving near term actions with our cross functional teams as well as higher levels of contribution from other regions. With the above in mind, based on what we know today, we expect Q4 revenues to be in the range of $121,000,000 to $129,000,000 and adjusted EBITDA in the range of 9,500,000.0 to $12,000,000 Lastly, this range does not reflect any potential additional tariffs or any potential inflationary impact on labor cost or the cost of procured components. Now turning to the quarter’s financials. Net revenue for the third quarter was $113,000,000 which was up 12% versus the prior year and up 14% on a constant currency basis.

Product revenue for the third quarter was $57,000,000 up 16% from the prior year and up 16% on a constant currency basis, reflecting a 23% increase in unit volume over the same time period. Service revenue for the quarter was $56,000,000 up 9% from the prior year and up 11% on a constant currency basis. Product gross orders for the third quarter were approximately $71,000,000 and represented a book to bill ratio of 1.2. Our book to bill ratio is defined as gross product orders for the period divided by product revenue for the period. 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.

We ended the third quarter with a reported order backlog of approximately $452,000,000 defined as orders that are younger than thirty months. We had zero order cancellations in the quarter. As mentioned before, over the last couple of years, we have redefined our order booking criteria focused on deals with higher profitability that convert to revenue within thirty months. Our overall gross margin for the quarter was 27.9% compared to 28.7% in the prior year. This decrease was due to approximately 1.3 points or $1,400,000 of incremental net China margin deferral associated with the shipments to the JV that did not make it to the end customer.

This was partly offset by higher install, training and spare parts volume in our service business, which tends to have a higher margin. Operating expenses in the third quarter were $31,000,000 compared to $34,000,000 in the third quarter of the prior fiscal year. Operating income for the quarter was $1,000,000 compared to an operating loss of $4,600,000 from the prior year. Adjusted EBITDA for the quarter was $6,000,000 compared to $1,100,000 from the prior year, primarily due to higher shipments, better service margins and lower overall OpEx. Turning to the balance sheet.

Total cash, cash equivalents and short term restricted cash amounted to $79,000,000 compared to $64,000,000 at the end of last quarter. Net accounts receivable were approximately $78,000,000 compared to $87,000,000 in the prior quarter. Our net inventory balance was $146,000,000 down $2,000,000 from the prior quarter as we focus on a leaner approach to inventory management. Additionally, a major focus is addressing our capital structure and refinancing needs. And as it pertains to that, we are exploring any and all alternatives to find an optimal solution to maximize our opportunities and create value for our constituents.

Lastly, as Suzanne mentioned, while we anticipate 10,000,000 to $15,000,000 of product volume pressure in China due to the recent tariffs, we are maintaining our adjusted EBITDA guidance for fiscal year twenty twenty five in the range of 28,500,000.0 to $31,000,000 Those are our key financial highlights. And with that, I’d like to hand the call back to Suzanne.

Suzanne Winter, President and Chief Executive Officer, Accuray: Thanks, Ali. I’m proud of our team and our ability to navigate through unforeseen challenges and execute at a high level advancing progress towards achieving our longer term goals. We continue to monitor and navigate the fluid tariff and geopolitical situation and the potential impact of the global economy and are taking the actions needed. Our results year to date demonstrate our dedication to improving patient outcomes and execution of our strategy. From an operational perspective, our business remains healthy with strong underlying demand for our solutions and strength of our position in the markets in which we compete.

Further, we are actively exploring all possible avenues to strengthen our capital structure to allow us to achieve our long term goals and deliver substantial long term value for our shareholders. I will now turn it back over to the operator for Q and A.

Conference Operator: We will now begin the question and answer session. The first question today comes from Brooks O’Neil with Lake Street Capital Markets. Please go ahead.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Thank you. Good afternoon. Congratulations on the strong quarter and performance guys. Really nice. I had a question.

Obviously, Suzanne, you commented on the strong adjusted EBITDA performance in the quarter. I didn’t hear Ali’s specific comments about the impacts to adjusted EBITDA in the quarter. But was there much of a significant impact of deferred China adjusted EBITDA in this particular quarter?

Ali Purvais, Chief Financial Officer, Accuray: Yes. Brooks, I can start. So on product margins specifically, you’ll see that product margins were at 22.7% this quarter and that was primarily due to just having a higher margin deferral on China. If you recall last quarter, our China sorry, our overall product margin was about 43.5% because we did see an outsized China margin release last quarter. But if you actually take a look at our overall product margins for the year, we’re hovering around 31%, which is pretty much in line with where we want to be given that we’re penetrating into the value segment.

So I think overall, our EBITDA is reflective of the overall revenue volume that we had this quarter.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Good. That’s great. Let me just ask, obviously, you commented quite a bit about the China impacts. I know you see tremendous potential in other non U. S.

Markets. Would you anticipate a big as big an impact in markets like India and South America as you anticipate in China at this time?

Suzanne Winter, President and Chief Executive Officer, Accuray: Again, we’re monitoring everything that is evolving and coming out of this administration. And I think that probably the China impact is the highest and that’s what we’ve really been laser focused on and determining what other regions will be able to either make up the volume here in Q4, but as we move forward. We’ve got strength in our largest region, which is the IMEA and that does include India. Our non China APAC region is also performing very strong. Japan had a very good quarter as well that we continue to see strength there.

And The U. S. In this quarter, it was better than previous quarters and we’re still looking for more of a turnaround in The U. S. Market.

But in general, I would say, we’re preparing for all potential as it relates to the China tariffs. And again, as visibility improves, we’ll be able to provide more clarity.

Conference Operator: The next question comes from Marie Toibault with BTIG. Please go ahead.

Marie Toibault, Analyst, BTIG: Good afternoon. Thanks for taking the questions and congrats on a strong quarter. We have to commend you for being able to hold up those profit metrics despite some of the challenges from the macro environment. Wanted to just quickly try to dive into the China issue a little bit more and ask if you could help us think about a couple of various scenarios. I know there had been some speculation that China might carve out medical products.

So I’m wondering if that’s what you’re referring to when you said that trying to work with the China JV to find a tariff exemption. And then if there were to be an exemption, how quickly could things flip? Could you start shipping right away? Or is this we should really think of this as being something that would get pushed out into fiscal twenty twenty six? And as part of that, how would you have us think about this 10,000,000 to $15,000,000 a quarter?

Is that kind of a good number to think about on a quarterly basis going forward? I realize it’s a lot to get through, but any more detail on kind of the scenarios as we think about

Suzanne Winter, President and Chief Executive Officer, Accuray: Yes. No, I would say, it’s murky. It’s murky and we’re taking a look at all the facts that we have. Now let me just talk about the exemption. We’re working very closely with our China JV.

And as you know, they are part of a state owned entity and they have their own government affairs efforts just like we do here in The U. S. And we are partnering with them both in The U. S. And in China to try and get a medical device exemption.

And again, we don’t really have a lot of clarity in terms of probability or when and how quickly that could impact things. So again, I think as we learn more, we’ll be able to provide more transparency around that.

Marie Toibault, Analyst, BTIG: Okay. And any detail on how quickly you’d be able to start shipping again if something like that came through?

Suzanne Winter, President and Chief Executive Officer, Accuray: Yes. I mean, I think relatively quickly.

Conference Operator: The next question comes from Jason Witz with ROTH Capital. Please go ahead.

Jason Witz, Analyst, ROTH Capital: Hi. Thanks for taking the question and solid performance this quarter. Obviously, more questions on China. In terms of the potential impact going into next year, I mean, this tariff situation gets resolved one way or the other, are we assuming there’s really just no there’ll be no activity in China? And in terms of the magnitude of that impact, this is the fourth quarter, is it more would been more pronounced in the fourth quarter?

Just trying to think about what parameters we’re talking about here in relation to China?

Suzanne Winter, President and Chief Executive Officer, Accuray: Yes. I mean, think we’re doing various scenarios. And again, as visibility improves, we’ll be able to comment more. We’re not going to be able to comment on FY ’20 ’20 ’6 at this point. And we normally don’t at this point anyway.

And we will probably have more clarity at the Q4 earnings call to be able to comment on FY 2026. But I would just say we’re doing our own internal scenario planning based on that and taking the appropriate actions to remain profitable and within our outlook.

Jason Witz, Analyst, ROTH Capital: Well, just from your commentary, it sounds like you’re diverting resources at least from the sales and marketing front away from China for the moment to sort of offset that. I assume that that’s going be focused more towards some of the emerging markets, notably I think you’re now focused on India. Or how does that going to work? Is that just a global focus? Or is that going to be looking at more emerging markets?

Suzanne Winter, President and Chief Executive Officer, Accuray: Yes. Great question. I think we have areas of strength in both developed and emerging markets. For example, just this past quarter, we were able to take advantage of stimulus in The UK, for example. And we took five order new orders for premium high end equipment.

So that was fantastic. And I think we’re looking for those areas of opportunity and we’re going to be very opportunistic on where we put our resources. But of course, then there are also areas of opportunity in the emerging markets in Non China APAC. I think we talked about last time how we had created a separate region for Non China APAC because of the opportunities that we see there. Certainly last quarter, we did see strength there and we had very strong orders in Thailand, Taiwan, Korea.

And also from a revenue standpoint, we shipped the first Helix system to Myanmar and in Taiwan, we also shipped three Radixact high end X9 systems. And so we’re going to continue to take a look at both mid and long term opportunities in both developed and emerging markets.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Suzanne Winter, President and Chief Executive Officer, Accuray: Very good. This concludes our earnings call. We look forward to speaking with you again in the summer for our fiscal twenty twenty five fourth quarter and full year earnings release. Thanks very much.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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