Accuray Incorporated — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2023; fiscal year ends June 30. Financial statements are unaudited. Unless stated otherwise, amounts below are in U.S. dollars.
Business context
Accuray develops, sells, and supports CyberKnife and TomoTherapy/Radixact radiation therapy systems and related services. The business has long sales and installation cycles, and system revenue can vary materially with shipment timing and customer readiness. Accuray reports one operating segment.
Key financial metrics
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Product revenue | $51.5m | $63.3m | $104.9m | $107.9m |
| Service revenue | $55.7m | $51.5m | $106.2m | $103.4m |
| Total revenue | $107.2m | $114.8m | $211.1m | $211.3m |
| Gross profit / margin | $35.9m / 33.5% | $43.0m / 37.4% | $75.4m / 35.7% | $77.6m / 36.7% |
| Operating income (loss) | $(4.0)m | $2.7m | $(1.8)m | $0.5m |
| Net income (loss) | $(9.6)m | $(1.9)m | $(12.6)m | $(7.3)m |
| Net loss per share, diluted | $(0.10) | $(0.02) | $(0.13) | $(0.08) |
- Cash flow: Six-month operating cash use was $13.7m, versus $18.0m a year earlier. Investing cash use was $2.3m; financing cash use was $1.8m. Cash, cash equivalents, and restricted cash declined $16.7m to $74.5m over the six months.
- Liquidity: Cash and cash equivalents were $72.8m at December 31, down from $89.4m at June 30. Current assets were $331.2m and current liabilities $209.3m.
- Debt: Principal debt totaled $177.0m: $100.0m of 3.75% convertible notes due 2026, $67.0m on the term loan, and $10.0m on the revolving facility. Net carrying value was $174.8m. The term and revolving facilities had a weighted-average effective rate of about 8.4% for the quarter and six-month period; the company made a scheduled $3.0m term-loan payment. It was covenant-compliant at quarter-end.
- Other balance-sheet items: Inventory was $155.2m, up from $145.2m at June 30; the six-month cash flow included a $2.7m inventory write-down. Accumulated deficit was $514.7m.
Material changes versus comparable periods
- Quarterly revenue declined 7%, driven by a 19% fall in product revenue as system shipments decreased; service revenue rose 8%, supported by a larger installed base and more training. Six-month revenue was essentially flat.
- Quarterly gross margin fell 3.9 percentage points. Management cited lower system revenue, higher service-parts consumption, product mix and inflation-related costs. For the six-month period, it also cited incremental scrap, inbound duties, and lower recognized intra-entity profit on joint-venture sales.
- The quarterly operating result shifted from $2.7m income to a $4.0m loss; the six-month operating result shifted from $0.5m income to a $1.8m loss. Net losses widened in both periods, reflecting lower quarterly gross profit and higher other expense, including interest and foreign-exchange losses.
- Quarterly other expense increased to $4.4m from $2.8m. Six-month interest expense rose to $5.8m from $4.9m, while six-month foreign-currency transaction losses were $2.2m versus $0.3m.
- Six-month operating cash use improved by $4.3m year over year, though inventory investment and reductions in accrued liabilities remained significant cash uses.
Orders, outlook, risks, and unusual items
- Orders and backlog: Q2 gross orders were $93.9m, net orders $54.6m, and ending system backlog $492.1m, compared with $515.2m a year earlier. Q2 book-to-bill was 1.8; six-month book-to-bill was 1.5. Six-month net orders included $71.4m of age-outs and $8.8m of cancellations. Orders and backlog are non-GAAP operating measures, not audited predictors of future revenue.
- Performance obligations: Remaining performance obligations totaled $987.9m. Accuray estimates 28%–31% of the $920.4m related to open systems, upgrades, training, and other items will be recognized in the next 12 months. Management estimates approximately 23% of the $870.4m of open system-sales contracts may never generate revenue; cancellations and renegotiations remain possible.
- Management outlook: The company believes available cash, debt facilities, its business plan, and revenue prospects will fund operations for at least 12 months. It expects delivery and installation delays could continue through the remainder of calendar 2024, and that higher material, freight, and logistics costs will pressure margins and net results through at least the remainder of FY2024, potentially longer. No specific revenue or earnings guidance is provided.
- Restructuring: A cost-savings initiative announced October 25 eliminated approximately 5.9% of the global workforce. Accuray recorded $2.6m in cash-based charges, paid $1.9m, and expected to pay the remaining $0.7m during FY2024.
- China joint venture: Accuray owns 49% of the China JV and records its results on a one-quarter lag. The company received Chinese regulatory approval for its Class B device in September 2023. Q2 sales to the JV included $17.9m of products and $4.1m of services; JV-related receivables were $19.9m at quarter-end. China licensing, tendering, and execution remain relevant uncertainties.
- Principal risks: Supply shortages and single-source components, inflation and logistics costs, customer financing or facility delays, order cancellations and backlog age-outs, foreign-exchange movements, international and China exposure, customer concentration, competition, regulatory requirements, and debt covenants and refinancing. A 50-basis-point change in facility interest rates would change estimated annual interest expense by about $0.4m at the period-end borrowing level.
- Contingencies and controls: Management reported no probable and reasonably estimable material litigation losses. It disclosed a Radixact product recall initiated in FY2024, with no serious adverse health consequences reported and costs described as not material. The new SAP ERP system went live in August 2023; management said disclosure controls were effective and continues to monitor related internal-control changes.
Investor verification priorities
- Track system shipments, customer installation readiness, and conversion of backlog to recognized revenue; verify the timing and scale of age-outs and cancellations.
- Assess whether product gross margin stabilizes as material, freight, logistics, scrap, and service-parts costs evolve.
- Monitor cash burn, inventory levels, liquidity, and compliance with fixed-charge coverage and senior-net-leverage covenants.
- Evaluate the collectability and concentration of receivables, including the $19.9m JV receivable and the disclosed significant customer concentration.
- Follow the China JV’s Class B product commercialization, customer licensing and tender process, and related-party sales and balances.
- Review execution and costs of the workforce reduction, and any operational or reporting issues as SAP processes mature.