Accuray Incorporated — Q2 FY2021 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2020. Financial statements are unaudited; amounts below are USD millions unless stated otherwise. Accuray develops, sells and services CyberKnife and TomoTherapy/Radixact radiation therapy systems.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $97.5 | $98.8 | $182.8 | $188.4 |
| Gross profit / margin | $40.8 / 41.9% | $37.9 / 38.3% | $76.2 / 41.7% | $70.8 / 37.6% |
| Operating income (loss) | $8.2 | $3.6 | $13.7 | $(0.7) |
| Net income | $4.8 | $10.7 | $5.2 | $1.4 |
| Diluted EPS | $0.05 | $0.12 | $0.06 | $0.02 |
- Quarterly revenue declined 1%; product revenue fell 4% while service revenue rose 1%. Six-month revenue declined 3%, as lower product sales were partly offset by service growth.
- Gross profit increased 8% in both comparison periods. Management attributed service-margin improvement principally to lower parts consumption and travel costs, plus higher service-contract revenue; lower system volume reduced product gross profit.
- Quarterly net income was down despite stronger operating income, reflecting other expense of $4.3 million versus other income of $7.8 million a year earlier. The prior-year period included a $13.0 million noncash gain on assets contributed to the China joint venture. Six-month comparisons were also affected by that prior-year gain.
Cash, liquidity and debt
- Cash and cash equivalents were $107.3 million at December 31, 2020; restricted cash was $10.0 million, bringing cash, cash equivalents and restricted cash to $117.4 million.
- Six-month operating cash flow was $16.4 million, versus use of $8.2 million in the prior-year period. Investing cash use was $1.2 million; financing cash use was $11.0 million, primarily reflecting a $10.0 million Term Loan prepayment and $0.5 million amendment fee.
- Current assets were $344.9 million and current liabilities $178.7 million (working capital $166.2 million; current ratio approximately 1.9). Inventories were $138.7 million.
- Debt carrying value totaled $180.6 million, including $12.5 million classified as short-term and $168.1 million long-term. Principal outstanding was approximately $191.7 million: $85.0 million convertible notes, $79.9 million Term Loan and $26.7 million revolver. The Term Loan and revolver bear variable interest.
- Management believes available cash, debt facilities and expected cash flows will fund operations for at least 12 months. The company was in compliance with amended debt covenants at quarter-end, but warned that future noncompliance could accelerate debt maturity.
Material changes, outlook and risks
- COVID-19 continued to delay customer deliveries, installations and backlog conversion; management expected delays to persist through fiscal 2021 and into fiscal 2022. Customer payment delays/defaults and requests for extended terms or service-payment suspensions were also reported.
- Backlog was $596.2 million, down from $602.7 million at June 30, 2020 but above $539.4 million a year earlier. Six-month net orders fell to $66.0 million from $128.9 million, with lower gross orders and higher age-outs. Management expects higher-than-normal age-outs in coming quarters. Backlog is not a GAAP measure and may not convert to revenue.
- China contributed materially: Accuray reported $17.9 million of system revenue from Class A license shipments during the quarter and had systems named in 74 of 90 awarded licenses. Management anticipated revenue from remaining awarded licenses over the next 18–24 months, subject to delivery and installation timing.
- Remaining performance obligations were $1.02 billion; management estimated 19%–26% of the $942.9 million excluding long-term warranty and service would be recognized in the next 12 months. The filing notes historical cancellations mean approximately 22% of contracts may never produce revenue.
- No numerical company-wide revenue or earnings guidance was provided. Management’s outlook is qualified by pandemic uncertainty, customer financing and facility readiness, supply-chain disruption, foreign exchange, competition and regulatory/reimbursement risks.
- Other items: the company recorded a $3.5 million inventory write-down for the six months. It voluntarily initiated one TomoTherapy software-related recall in the first half of FY2021; reported no serious adverse health consequences and immaterial costs. Annual goodwill testing found no impairment. Management reported no probable, reasonably estimable material litigation losses.
Key facts for investors to verify
- Whether China Class A shipments, tenders, installations and collections proceed on the expected schedule and sustain revenue.
- Backlog age-outs, cancellations and conversion into recognized revenue, particularly amid COVID-related delays.
- Cash generation, customer credit quality and covenant headroom; debt maturities, variable-rate exposure and refinancing needs.
- Whether service-margin gains and cost reductions are sustainable as travel restrictions and operating conditions change.
- Progress on the TomoTherapy recall and any future product, regulatory, reimbursement or supply-chain developments.