Business context and reporting period
Accuray Incorporated designs, sells and services CyberKnife and TomoTherapy radiation-treatment systems, including Radixact. The filing is a Form 10-Q for the quarter ended March 31, 2018 (the third quarter of fiscal 2018), with nine-month results also compared with the period ended March 31, 2017. This differs from the request metadata’s “2017 Q3.” Figures below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended March 31, 2018 | Three months ended March 31, 2017 | Nine months ended March 31, 2018 | Nine months ended March 31, 2017 |
|---|---|---|---|---|
| Revenue | $99.8 | $97.3 | $291.1 | $271.3 |
| Gross profit / margin | $36.2 / 36.3% | $35.4 / 36.4% | $113.7 / 39.1% | $98.2 / 36.2% |
| Operating loss | $(3.8) | $(1.3) | $(6.9) | $(12.6) |
| Net loss | $(8.9) | $(5.0) | $(23.0) | $(24.3) |
| Net loss per share, diluted | $(0.10) | $(0.06) | $(0.27) | $(0.30) |
- Quarterly product revenue fell 10% to $43.2 million; service revenue rose 15% to $56.6 million. For the nine months, product revenue increased 9% to $129.3 million and service revenue increased 6% to $161.8 million.
- Quarterly net loss widened despite higher revenue, reflecting higher operating expenses and other expense. Nine-month gross profit improved, including because $6.0 million of prior-year acquired-intangible amortization had fully run off by fiscal 2018.
- At March 31, 2018, cash and cash equivalents were $70.4 million, short-term investments $0.9 million, and restricted cash $2.5 million. Cash, cash equivalents and restricted cash totaled $72.9 million. Total current assets were $290.5 million and current liabilities $179.8 million.
- Debt had a $134.3 million carrying value ($153.0 million aggregate principal): $85.0 million principal of 3.75% convertible notes due 2022, $40.0 million term loan, and $28.0 million revolving-facility borrowing. The two 3.50% convertible note issues due 2018 were repaid in February 2018. The company reported compliance with credit-facility covenants at quarter-end.
- For the nine months, operating cash outflow was $9.6 million, versus $23.5 million in the prior-year period; investing cash inflow was $19.3 million and financing cash outflow was $24.6 million. Cash, cash equivalents and restricted cash declined $12.3 million.
Material changes and operating indicators
- Quarterly gross orders declined to $74.9 million from $83.8 million; net orders fell to $40.9 million from $71.8 million. Management attributed the net-order decline to lower gross orders, $25.9 million of net age-outs, and increased cancellations.
- Product backlog was $468.1 million at March 31, 2018, compared with $450.0 million at March 31, 2017 and $452.8 million at June 30, 2017. The filing cautions that backlog is not a GAAP measure and may not convert to revenue because of cancellations, age-outs, installation delays and currency movements.
- For the nine months, revenue grew 7%; operating loss narrowed, while net loss improved modestly. Research and development expense rose 16% to $42.7 million, primarily due to higher compensation and consulting costs.
- Other expense, net rose to $14.8 million for the nine months, including a $3.5 million loss on debt extinguishment, higher interest expense and a loss on investment sales.
Outlook, risks and unusual items
- Management stated that cash resources, available debt facilities, the business plan and revenue prospects should fund operations for at least the next 12 months. No specific revenue, earnings or order guidance is provided in the filing.
- Management expects adoption of the new revenue standard in fiscal Q1 2019 using the modified retrospective method. Its preliminary assessment anticipates possible acceleration of some product revenue upon delivery, deferral of installation revenue until performed, and capitalization of incremental contract acquisition costs; it did not expect a significant overall financial-statement impact, subject to continued evaluation.
- Management expected the Tax Act transition-tax impact to be immaterial, but noted its analysis remained in progress. U.S. deferred tax assets were expected to be remeasured from approximately $174 million to $117 million, offset by a decrease in the valuation allowance.
- Key risks include ongoing losses and the ability to achieve profitability, quarterly volatility and backlog conversion, customer cancellations and installation delays, foreign-exchange exposure, variable-rate borrowing costs, debt service and refinancing, restrictive loan covenants, and possible need for additional capital. Approximately $44.7 million of cash and cash equivalents was held by foreign subsidiaries.
- The company reported no probable and estimable litigation losses, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2018.
Important facts for investors to verify
- Confirm the requested period: this filing covers fiscal Q3 2018, not calendar or fiscal Q3 2017.
- Track whether backlog converts to revenue and whether age-outs and cancellations moderate; backlog and order measures are not audited GAAP revenue predictors.
- Assess cash generation, inventory and receivables growth, and whether management’s stated 12-month liquidity outlook remains supportable.
- Review debt principal, interest-rate exposure, covenant compliance and the company’s capacity to refinance or repay the 2022 convertible notes.
- Monitor product-versus-service revenue and gross margins, continued operating losses, and final impacts of revenue-standard and Tax Act accounting.