Accuray Incorporated — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2021 (fiscal 2021 third quarter; unaudited). The request metadata says “2020 Q3,” but the filing itself covers March 31, 2021. Accuray designs, develops, and sells CyberKnife and TomoTherapy/Radixact radiation therapy systems, software, and related services.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $102.6 million, up 3% from $99.5 million | $285.4 million, down 1% from $288.0 million |
| Gross profit / margin | $39.5 million / 38.5%; prior year $39.1 million / 39.3% | $115.8 million / 40.6%; prior year $110.0 million / 38.2% |
| Operating income / margin | $4.4 million / 4.3%; prior year $8.0 million / 8.0% | $18.1 million / 6.3%; prior year $7.3 million / 2.5% |
| Net income (loss) | $(0.4) million; prior year $2.6 million | $4.8 million; prior year $4.0 million |
| Operating cash flow | Not presented separately for the quarter | $32.3 million provided; prior year $20.3 million used |
- Quarterly product revenue rose 4% to $47.4 million, supported by China Class A system sales; services revenue rose 2% to $55.1 million.
- For the nine-month period, product revenue fell 5% to $120.5 million while services revenue grew 2% to $164.9 million.
- Cash and cash equivalents were $126.3 million at March 31, 2021, compared with $107.6 million at June 30, 2020. Restricted cash was an additional $5.1 million. Current assets were $359.4 million and current liabilities $193.1 million.
- Total debt carrying value was $183.0 million, including $18.9 million classified as short-term; debt principal totaled $192.5 million. Outstanding principal included $85.0 million of 3.75% convertible notes due July 2022, $79.9 million under the term loan, and $27.6 million under the revolving facility.
- Cash flow from investing activities was $(1.5) million and financing activities were $(9.4) million for the nine months. Financing cash use primarily reflected a $10.0 million term-loan prepayment and a $0.5 million amendment fee.
Material changes and business indicators
- Quarterly gross profit increased slightly, but gross margin declined year over year. Product gross profit improved, while service gross profit was lower, partly due to transition costs for a new logistics provider and higher margin deferrals on JV sales.
- Nine-month gross profit increased 5%, mainly from improved service gross profit, including lower travel and service-parts costs. Operating expenses declined overall by 5%, with lower selling and marketing costs partly offset by higher general and administrative expense.
- Quarterly net income swung to a loss, despite higher revenue. Other expense was $4.0 million; the company attributed the year-over-year improvement in quarterly other expense primarily to foreign-exchange gains and lower interest expense. Nine-month other expense was $13.0 million, compared with $2.0 million of expense in the prior year, when other income included a non-cash $13.0 million gain on a JV contribution.
- Backlog was $610.8 million at March 31, 2021, versus $602.7 million at June 30, 2020 and $569.9 million at March 31, 2020. Nine-month net orders were $128.8 million, down from $205.5 million, amid lower gross orders and more age-outs. Management said historical cancellations indicate approximately 23% of contracts may never produce revenue.
- China Class A system revenue was $24.9 million for the quarter and $49.2 million for the nine months. Accuray reported its systems on 74 of 90 Class A user licenses awarded in China.
Outlook, risks, and unusual items
- Management expects COVID-19-related delivery and installation delays to continue through the end of fiscal 2021 and potentially into fiscal 2022, adversely affecting near-term backlog conversion and revenue. It also expects higher-than-normal backlog age-outs in coming quarters. No specific numerical revenue or earnings guidance is provided.
- Management estimates 17%–23% of the $966.4 million in remaining performance obligations other than long-term warranty and service will be recognized in the next 12 months, with the remainder expected over the following 30 months. Timing depends on shipments, customer site readiness, installation, and product availability.
- Management believes available cash, debt facilities, its business plan, and revenue prospects are sufficient to fund operations for at least 12 months. However, COVID-19 creates uncertainty around customer payments, demand, supply chains, installations, and covenant compliance. The company was in compliance with debt covenants at March 31, 2021; a future breach could accelerate debt and require refinancing or waivers.
- The company reported two voluntary product recalls during fiscal 2021—one involving TomoTherapy Systems and one involving CyberKnife. It reported no serious adverse health consequences and said the costs were not material. Management reported no probable and reasonably estimable material litigation losses.
- Other risks include substantial indebtedness, variable-rate borrowing exposure, dependence on international markets and China Class A sales, single-source suppliers, regulatory and reimbursement uncertainty, foreign-exchange and tariff exposure, and continued effects of the pandemic. The filing reports no off-balance-sheet arrangements.
Investor verification priorities
- Confirm whether China Class A deliveries and remaining license-related sales convert on the expected schedule, and monitor regional demand and customer readiness.
- Track backlog age-outs, cancellations, gross and net orders, and the quality and timing of backlog conversion.
- Review cash generation, customer collections, inventory levels, and the liquidity impact of COVID-19 disruptions.
- Monitor debt maturities, interest costs, covenant headroom, and refinancing needs, particularly the convertible notes due July 2022.
- Assess whether service margins recover and whether cost increases, recall-related matters, or supply-chain disruptions materially affect profitability.