Accuray Incorporated — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021 (Accuray fiscal 2022 first quarter); unaudited. Comparisons are with the three months ended September 30, 2020 unless otherwise noted. Accuray develops, sells and supports CyberKnife and TomoTherapy/Radixact radiation therapy systems and related services.
Financial performance
| Metric | Quarter ended Sep. 30, 2021 | Prior-year quarter | Change |
|---|---|---|---|
| Product revenue | $52.8 million | $31.3 million | +69% |
| Service revenue | $54.7 million | $54.1 million | +1% |
| Total revenue | $107.4 million | $85.3 million | +26% |
| Gross profit / gross margin | $39.5 million / 36.8% | $35.4 million / 41.5% | Margin down 4.7 percentage points |
| Operating income / margin | $2.4 million / 2.2% | $5.5 million / 6.4% | Operating income down 56% |
| Net income (loss) | $(1.0) million | $0.4 million | Decline of $1.4 million |
| Operating cash flow | $(8.6) million | $(2.9) million | Cash use increased |
Margins and expenses: Product gross profit increased 66% to $21.3 million, while service gross profit fell 19% to $18.3 million. Management attributed weaker service gross profit to higher operating costs and parts consumption, and fewer return merchandise authorization credits amid supply-chain logistics challenges. Research and development, selling and marketing, and general and administrative expenses rose 18%, 27%, and 29%, respectively.
Cash and liquidity: Cash and cash equivalents were $104.7 million at September 30, versus $116.4 million at June 30, 2021. Current assets were $350.5 million and current liabilities $188.3 million, giving working capital of approximately $162.2 million. Cash, cash equivalents and restricted cash decreased $11.7 million during the quarter. Operating cash use reflected, among other items, a $9.2 million increase in receivables and a $2.1 million increase in inventory.
Debt: Debt had a net carrying value of $197.8 million (principal of $201.9 million), including $20.0 million drawn on the revolving facility, $79.0 million on the term loan, $100.0 million of 2026 convertible notes and $2.9 million of 2022 convertible notes. The term loan balance was repaid by $1.0 million during the quarter. Management reported compliance with credit-facility covenants at quarter-end. The company held $63.6 million of cash at foreign subsidiaries that it considers indefinitely reinvested and not available for distribution.
Material changes and notable items
- Revenue growth was driven mainly by higher CyberKnife system volume and average selling prices. China contributed $29.1 million, or 27% of revenue, compared with $5.6 million a year earlier; management said approximately $25.5 million of current-quarter system revenue related to China Class A licenses.
- Despite higher revenue, gross margin declined as service profitability weakened and operating expenses increased. Other expense fell to $2.7 million from $4.7 million, principally due to lower interest expense following refinancing and accounting changes.
- Effective July 1, 2021, Accuray adopted ASU 2020-06 for its convertible notes. The adoption increased debt by $24.8 million, reduced additional paid-in capital by $25.6 million and increased accumulated deficit by $0.8 million; prior periods were not restated. This non-cash accounting adjustment materially affected reported equity.
- Backlog was $602.9 million at September 30, down from $616.4 million at June 30. Quarterly net orders were $40.8 million, versus $23.6 million in the prior-year quarter; age-outs remained substantial.
Outlook, risks and contingencies
- Management expects COVID-19-related delivery and installation delays to continue through fiscal 2022, potentially slowing backlog conversion and weighing on revenue. Supply-chain disruption, component delays, labor constraints, pricing pressure, delayed customer payments and customer facility readiness remain risks.
- Management believes available cash, debt facilities, its business plan and anticipated cash flows are sufficient to fund operations for at least 12 months. This outlook is subject to uncertainty, including the company’s ability to maintain debt-covenant compliance; covenant breaches could accelerate repayment.
- Remaining performance obligations were $1.091 billion. Of $1.017 billion in open contracts excluding specified long-term warranty and service obligations, management estimates 20%–28% will be recognized in the next 12 months; approximately 26% may never generate revenue based on historical cancellations. Backlog and performance obligations are not guarantees of future revenue.
- Accuray had systems named in 100 of 118 China Class A user licenses awarded under the 13th five-year plan and anticipated revenue from remaining awarded licenses over the next 12–18 months. The China joint venture’s product testing was ongoing, with its NMPA submission expected to be completed in fourth-quarter calendar 2021.
- Other risks include competition and technology adoption, reimbursement and regulatory changes, foreign exchange and tariffs, dependence on single-source suppliers, and the long, variable system sales and installation cycle. The filing identifies no probable and reasonably estimable material loss from current litigation. Bank guarantees totaled approximately $1.2 million.
Most important facts for investors to verify
- Whether product growth and China deliveries continue, and how much revenue is concentrated in China and the joint venture.
- Whether backlog converts to revenue as expected, given age-outs, cancellations, installation delays and the stated cancellation exposure.
- Whether service gross margin recovers as supply-chain and parts-related pressures evolve.
- Cash burn, receivable collections, customer payment extensions and the availability of foreign-held cash.
- Debt-covenant headroom, variable-rate borrowing costs, and repayment or conversion terms for the 2022 and 2026 notes.
- Formal numerical financial guidance is not provided in the supplied filing text.