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Why ViewRay Inc. Is Sinking Today

By Brian Feroldi – Nov 9, 2018 at 1:31PM

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Shares plunge after the company reports third-quarter results that missed the mark and lowers guidance. Is something wrong with the business?

What happened

In response to reporting disappointing third-quarter results, shares of ViewRay (VRAY 1.31%), the maker of the MRIdian Linac system, fell 20% as of 12:45 p.m. EST on Friday.

So what

Here are the key takeaways from the quarter:

  • Sales rose 45% to $17.7 million. For context, Wall Street was expecting $18.3 million in total revenue.
  • Gross profit declined from $2 million last year to just $0.4 million this quarter. Management stated that one-time costs were responsible for the huge fall. If you exclude those costs, the adjusted gross margin was 22%.
  • Operating expenses ballooned to $24.5 million. A large chunk of the increase relates to severance costs from the recent turnover in the executive suite
  • Net loss was $32.9 million, or $0.39 per share. The adjusted net loss was $0.25 per share. That was higher than the $0.22 net loss that analysts had wanted to see. 
  • Backlog at quarter end was $201 million, which is flat sequentially.
  • Cash balance at quarter end was $202 million thanks to a recently completed common stock offering.
  • Revenue for the full year is now expected to be around $80 million. That's down from its prior range of $80 million to $90 million, and it is also well below the $86.7 million that market watchers were looking for.
Doctor holding up hand saying "stop."

Image source: Getty Images.

Given the weak earnings and downbeat forecast, it isn't hard to figure out why shares are being mauled today.

Now what

ViewRay's new management team stated that the revised guidance is mostly caused by a customer that experienced flooding prior to the final sign-off. As a result, the sale is being pushed back into 2019 and won't be counted this year. 

That excuse seems reasonable, but since ViewRay is a high-growth business that is still burning through its capital, I understand why traders are not in a forgiving mood today.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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