Accuray jumps out of the gate as blizzard crimps volume; Nuance mixed as shares plunge

By Rebecca Melvin

New York, Feb. 8 - Accuray Inc.'s upsized $100 million of 3.5% convertibles surged to 104-plus in first-day dealings in the secondary market on Friday after the five-year notes priced at the midpoint of talk late Thursday.

Volume was light, and market players weren't placing too much significance on Accuray's advance of 3 points to 4 points on a dollar-neutral, or hedged, basis, given heavy snow pummeling the U.S. northeast Friday afternoon, which thinned trading desks of personnel.

"Many people left early, so it's difficult to read too much into the numbers," a New York-based trader said.

Elsewhere, Nuance Communications Inc. was the name of the day, with shares of the Burlington, Mass.-based speech-recognition software firm skidding 19% by early afternoon after reporting a net loss for its most recent quarter and lowering full-year sales and earnings forecast.

Excluding items, Nuance beat earnings estimates by a penny. Nuance convertibles were lower outright but traded mixed on a hedged basis.

"I see the old ones down and the new ones up," a New York-based trader said of Nuance.

Overall, trading volume was light. Many market players left early or didn't even venture very far from home to avoid being stranded on their homebound commute, a Boston-based market player said.

One New York-based trader said, "We are a bit short handed today."

Accuray adds in aftermarket

Accuray's newly priced 3.5% convertibles due 2018 traded up on Friday to as high as the 104s as the underlying shares of the Sunnyvale, Calif.-based medical device maker slipped 1%.

The new paper was seen in the Street at 104.125 bid versus a share price of $4.43, a New York-based trader said.

Accuray shares slipped 6 cents, or 1.4%, to $4.38 on the day.

The developer of robotic radiosurgery for the treatment of tumors priced an upsized $100 million of the five-year convertible senior notes at par to yield 3.5% with an initial conversion premium of 20%.

The Rule 144A offering was enlarged by $25 million from an initially talked $75 million.

Several sources said they had not seen any of the new paper in trading action Friday and that trading was "very quiet" in general.

Pricing came at the midpoint of talked terms, which were for a 3.25% to 3.75% coupon and a 17.5% to 22.5% premium.

There is a $15 million greenshoe that the underwriters may exercise. J.P. Morgan Securities LLC was bookrunner, and Goldman Sachs & Co. Inc. was the co-manager.

The notes are non-callable with no puts, and proceeds are intended for working capital and general corporate purposes, including investing strategically in expanding business and new product initiatives.

Nuance mixed as shares skid

Nuance's newer, 2.75% convertibles due 2031 were seen at 106 versus an underlying share price of $19.85 around midsession Friday. Earlier, a source had them at 105.875 bid, 106.625 offered versus a share price of $19.90.

That was up 1 point to 1.5 points on a hedged basis, if the bonds were set up on a 60% delta going into the day and sliding to a 50% delta post news.

The older, Nuance 2.75% convertibles due 2027 were seen at 120.75 versus an underlying share price of $19.85 around midsession Friday. Earlier, a source had them at 120.25 bid, 121.25 offered versus a share price of $20.02.

The old Nuance bonds were said to have slipped by 0.25 point to 0.5 point on hedge, if holders were set up on an 80% delta going into the day and sliding to a 65% delta post news, according to a New York-based trader.

Nuance shares skidded $4.58, or 18.7%, to $19.97 in heavy volume.

"It depends on what delta you were set up on coming in - as little as five deltas made a difference, a New York-based trader said.

A second trader said that what happened was opposite of what his firm was half expecting at the beginning of the day's trade. It had looked like the older Nuance convertibles would expand on an 80% delta, and the newer ones would come "in" some, he said.

"I see the old ones have moved back up over the course of the morning, and they are 'in' modestly by 0.25 point to 0.5 point," he said.

"The deltas have moved quite a bit," he said.

The first trader said, "Guys that were set up on an 80% - and many were - even though the market delta was a little lighter, did fine."

Following Friday's early action, both Nuance bonds "are pretty darn expensive," an East Coast-based buysider said. But the older bonds "have corrected and are starting to look interesting from an outright perspective," he said.

The convertibles were very active and made up a large chunk of the days' action.

Prompting the moves was Nuance lowering its full-year sales and earnings forecast as new technology crimped use of older transcription services.

Nuance cut its fiscal 2013 sales guidance to $2.15 billion to $2.2 billion, down from its November projection of $2.17 billion to $2.22 billion.

The company also lowered its adjusted earnings forecast to $1.76 to $1.87 per share from $1.84 to $1.94 per share.

Transcription volume is falling as customers in the health industry transition to electronic medical records and its new Dragon medical speech-to-text software, Nuance said.

Also contributing to slackening growth was slowing personal computer sales and the fact that some corporate customers were postponing spending until Microsoft's new Windows 8 software is available, and also weak European sales, according to reports.

Nuance posted earnings for its fiscal first quarter ended Dec. 31, 2012, which missed estimates by a penny on revenue that rose to $462.3 million from $360.6 million in the year-earlier period, and which was slightly better than expected. The consensus estimate of analysts was for revenue of $460 million.

The company also reported a net loss of $22.1 million, or 7 cents a share, for the just completed quarter, compared to profit of $9.3 million, or 3 cents per share, in the fiscal first quarter a year earlier.

Excluding items, Nuance earned $113 million, or 35 cents per share, compared to $108.5 million, or 34 cents per share, in the year-earlier quarter. Analysts were expecting earnings of 36 cents per share.

Mentioned in this article:

Accuray Inc. Nasdaq: ARAY

Nuance Communications Inc. Nasdaq: NUAN

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