Accuray Incorporated — Form 10-Q Summary
Business context and reporting period. Accuray designs, manufactures, sells and services radiation therapy systems, including CyberKnife and TomoTherapy/Radixact. This unaudited report covers the three and six months ended December 31, 2022 (fiscal 2023 second quarter); comparisons are with the periods ended December 31, 2021. Financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Six months ended Dec. 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $114.8 million | $116.3 million | $211.3 million | $223.7 million |
| Gross profit | $43.0 million | $42.6 million | $77.6 million | $82.2 million |
| Gross margin | 37.4% | 36.7% | 36.7% | 36.7% |
| Operating income | $2.7 million | $4.0 million | $0.5 million | $6.4 million |
| Net income (loss) | $(1.9) million | $0.2 million | $(7.3) million | $(0.8) million |
| Operating cash flow | Not presented quarterly | $(18.0) million | $24.0 million |
- Quarterly product revenue rose 4% to $63.3 million, while service revenue fell 7% to $51.5 million. For the six months, product revenue declined 5% and service revenue declined 6%.
- Quarterly operating expenses were $40.3 million, up from $38.6 million; higher general and administrative expense was a key increase. Six-month operating expenses were $77.0 million, compared with $75.8 million.
- At December 31, cash and cash equivalents were $67.7 million, down from $88.7 million at June 30, 2022. Current assets were $336.9 million and current liabilities $184.7 million.
- Total debt had a $179.8 million carrying value ($183.0 million principal); $5.7 million was classified as short-term. Cash less carrying-value debt was approximately $(112.1) million. Interest expense was $2.6 million for the quarter and $4.9 million for six months.
- Total assets were $468.8 million, total liabilities $417.0 million, and stockholders’ equity $51.7 million. Inventory increased to $155.7 million from $142.3 million.
Material changes versus the prior comparable periods
- Quarterly revenue declined 1%; six-month revenue declined 6%. Quarterly product growth was more than offset by lower services revenue. The six-month decline reflected lower upgrade and system sales and weaker service revenue, with foreign exchange also a headwind.
- Quarterly gross profit edged up 1%, and gross margin improved about 0.7 percentage point. Six-month gross profit fell 6%; product gross profit declined $6.7 million, partly offset by a $2.1 million increase in services gross profit.
- Net results shifted from quarterly profit of $0.2 million to a $1.9 million loss; the six-month loss widened to $7.3 million from $0.8 million. Higher interest expense and lower operating income contributed.
- Operating cash flow swung from $24.0 million provided to $18.0 million used. Inventory growth, lower customer advances and accrued liabilities, including payment of prior-year bonuses, were significant cash uses.
- Order backlog was $515.2 million, down from $581.3 million a year earlier. Six-month net orders fell to $60.4 million from $80.9 million, while gross orders declined to $148.9 million from $155.4 million. The six-month book-to-bill ratio was 1.4 in both years.
Outlook, management commentary, risks and unusual items
- Management said available cash, debt facilities, its business plan and revenue prospects should fund operations for at least the next 12 months, while noting continued close monitoring of liquidity amid economic uncertainty. This is management’s assessment, not a guarantee.
- The filing provides no specific revenue or earnings guidance. Management expected supply-chain challenges, higher material and freight costs, and delivery and installation delays to continue at least through the remainder of fiscal 2023, adversely affecting gross margins and net results.
- A cost-saving initiative reduced the global workforce by 4.5%. Expected cash charges are approximately $2.4 million: $1.9 million was charged in the quarter, with a further $0.5 million estimated for the third quarter. The remaining $1.1 million accrual was expected to be paid in fiscal 2023.
- Remaining performance obligations totaled $1.078 billion. Management estimated 26%–29% of the $1.006 billion related to open systems sales, upgrades, training and other items would be recognized in the next 12 months; it also estimated approximately 18% of open system sales contracts might never generate revenue. Backlog and performance obligations are not assurances of future revenue.
- China strategy depends on the 49%-owned joint venture and regulatory approvals. Accuray expected NMPA clearance for the JV’s Class B device in the second half of fiscal 2024, with order-taking afterward. COVID-related restrictions had affected China sales and regulatory timing. The JV contributed $1.1 million to Accuray’s six-month equity-method loss.
- In October 2022, the company amended credit-facility financial covenants through June 30, 2023, easing requirements temporarily. Accuray reported covenant compliance at December 31, 2022, but warned that later requirements become more difficult and noncompliance could accelerate debt repayment. Term and revolving credit borrowings bear floating SOFR-based rates.
- Other key exposures include COVID-19 and macroeconomic uncertainty, inflation, foreign exchange, supply-chain and single-source supplier dependence, long sales and installation cycles, backlog cancellations and age-outs, competition, reimbursement and regulatory changes, and international and China-related risks. One customer represented at least 10% of revenue in both periods and at least 10% of accounts receivable at period-end; the filing does not identify the customer.
- Management reported no probable and reasonably estimable material litigation losses and no subsequent events requiring adjustment. The annual goodwill impairment test found no impairment. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether operating cash flow recovers and cash needs remain consistent with management’s next-12-month liquidity assessment.
- Debt covenant compliance, amendment terms and the more stringent covenant requirements after June 30, 2023; also monitor floating-rate interest costs.
- Whether backlog converts to shipments, installations and recognized revenue, given the $515.2 million order backlog, age-outs and estimated potential non-conversion of open system contracts.
- Whether supply-chain, freight and installation pressures ease, and whether inventory growth results in timely deliveries or further cash use and write-downs.
- Progress and timing of the China JV’s Class B regulatory clearance, customer licensing and commercial execution.
- Quarterly trends in product and service margins, customer collections, foreign-exchange effects and the results of the cost-saving initiative.