Accuray Incorporated — FY2012 Form 10-K
Period: Fiscal year ended June 30, 2012; filed September 7, 2012. Although the request metadata refers to 2011 Q4, this filing reports FY2012. The filing’s unaudited fourth-quarter figures are identified separately below. Accuray sells CyberKnife radiosurgery and TomoTherapy radiation-therapy systems and related services.
Financial results and liquidity
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $409.2 million | $222.3 million |
| Gross profit / margin | $137.3 million / 33.5% | $107.2 million / 48.2% |
| Operating loss | $63.0 million | $28.3 million |
| Net loss attributable to stockholders | $72.0 million; $1.02 per share | $26.7 million; $0.44 per share |
| Cash from (used in) operations | ($38.3 million) | $12.4 million |
| Cash and cash equivalents at year-end | $143.5 million | $95.9 million |
| Working capital | $142.1 million | $82.7 million |
| Long-term debt carrying value | $79.5 million | None reported |
FY2012 revenue included $240.5 million of product revenue and $166.7 million of services revenue. International revenue was $220.2 million, or 54% of total revenue, versus 45% in FY2011. Accuray installed 60 systems during FY2012 (15 in the U.S. and 45 internationally), compared with 34 in FY2011. Product-only backlog was $283.6 million at June 30, 2012; the company cautioned that the revised backlog methodology makes it non-comparable with prior reported backlog.
FY2012 Q4, ended June 30, 2012: Revenue was $100.5 million, gross profit $36.5 million, net loss $21.6 million, and net loss attributable to stockholders $20.3 million, or $0.28 per share.
Changes, outlook, and material items
- Revenue rose 84% year over year, primarily because FY2012 included a full year of TomoTherapy results, versus only 20 days in FY2011. CyberKnife product revenue declined $35.3 million; TomoTherapy contributed $141.9 million of product revenue and $78.4 million of service revenue.
- Gross margin fell 14.7 percentage points, principally because TomoTherapy revenue carried a lower margin and acquisition-related purchase-accounting adjustments reduced FY2012 gross profit by $14.9 million. R&D expense increased to $87.1 million from $41.7 million, while total operating expenses rose to $200.3 million.
- Operating cash use was $38.3 million, despite higher year-end cash. The company attributed cash use to its net loss and working-capital movements, including lower payables and accrued liabilities. Financing provided $100.5 million, mainly from issuing $100 million of 3.75% convertible notes in August 2011; net proceeds were $96.1 million. Notes mature August 1, 2016.
- Management expected to begin generating positive cash flow and become profitable in FY2013 Q4, and believed available cash and anticipated flows would support operations for at least 12 months. It forecast FY2013 capital expenditures of $12–16 million; R&D expense lower than FY2012, selling and marketing expense higher, and G&A relatively unchanged.
- Management expected most FY2013 revenue in the second half, citing potential customer shipment delays ahead of a technology release and normalization of TomoTherapy shipments. FY2012 orders were weaker in the U.S.; management said U.S. sales-team integration contributed and described a realignment intended to improve performance.
- Other notable matters: a 51-position workforce realignment generated $1.9 million of severance charges, paid by year-end. Six voluntary product recalls during FY2012 were reported as having no serious adverse health consequences and immaterial costs. The company reported remediating its prior material weakness in accounting for significant non-routine transactions; management and the auditor concluded controls were effective at year-end.
Risks, contingencies, and other developments
- Medicare’s proposed FY2013 rules included potential IMRT reimbursement reductions in freestanding centers: the filing estimated reductions of 40% to 56%, depending on assumptions and final rules. The filing also noted a 2.3% U.S. medical-device excise tax scheduled to begin in 2013.
- Key business risks include lengthy and variable sales, construction, and installation cycles; customer financing and order cancellation risk; reimbursement uncertainty; competition; integration and service-cost challenges; and reliance on single-source suppliers and international distributors.
- The filing describes pending Best Medical patent litigation, a trade-secret claim on appeal after summary judgment for Accuray, a Rotary Systems trade-secret claim, and Radiation Stabilization Solutions patent litigation. The company stated it could not estimate potential financial impacts for several claims and recorded no probable, estimable material litigation liability.
- After year-end, Accuray paid approximately $5.7 million on July 15, 2012 to acquire the remaining equity in Morphormics, a medical-imaging software developer. The Siemens strategic alliance ended in December 2011; a distribution agreement ran through March 2013, but Accuray expected few, if any, sales through Siemens after its announced partnership with Varian.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. This does not remove the risks inherent in estimates, revenue recognition, or control processes.
Investor verification priorities
- Separate acquisition-driven growth from underlying CyberKnife and TomoTherapy demand; verify order trends, cancellations, backlog conversion, and the impact of the backlog definition change.
- Track gross-margin recovery, TomoTherapy service and warranty costs, and the remaining effects of acquisition purchase accounting.
- Test the FY2013 profitability and cash-flow outlook against actual operating cash flow, revenue timing, working capital, and planned capital spending.
- Review final Medicare reimbursement rules, customer exposure to freestanding-center IMRT, and the effect of the medical-device excise tax.
- Assess convertible-note terms and potential dilution or cash obligations, and monitor the unresolved patent and trade-secret cases and single-source supply risks.