Accuray Incorporated — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the three months ended September 30, 2022; comparative period ended September 30, 2021. The condensed consolidated financial statements are unaudited. Accuray develops, manufactures, sells, and services radiation therapy and radiosurgery systems, including CyberKnife and TomoTherapy/Radixact.
Key financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Product revenue | $44.6 million | $52.8 million | Down 15% |
| Service revenue | $51.9 million | $54.7 million | Down 5% |
| Total revenue | $96.5 million | $107.4 million | Down 10% |
| Gross profit / gross margin | $34.6 million / 35.9% | $39.5 million / 36.8% | Gross profit down 12% |
| Operating income (loss) | $(2.2) million | $2.4 million | Declined $4.6 million |
| Net loss | $(5.4) million | $(1.0) million | Loss increased $4.4 million |
| Basic and diluted loss per share | $(0.06) | $(0.01) | — |
| Cash from operating activities | $0.05 million | $(8.6) million | Improved |
Revenue and expense figures are presented in U.S. dollars. Product gross profit fell to $15.8 million from $21.3 million; service gross profit rose to $18.8 million from $18.3 million. Management attributed weaker product gross profit mainly to lower unit sales and unfavorable foreign exchange; service gross profit benefited from lower parts costs.
Balance sheet, debt, and liquidity
- At September 30, 2022, cash and cash equivalents were $81.0 million; current assets were $335.3 million and current liabilities were $192.5 million. The current ratio was approximately 1.74.
- Total assets were $466.3 million, total liabilities $419.4 million, and stockholders’ equity $47.0 million. Accumulated deficit was $498.0 million.
- Debt carrying value totaled $176.3 million: $100.0 million principal on 3.75% convertible notes due 2026, $74.5 million under the term loan, and $5.0 million under the revolving facility. The remaining $2.9 million of 2022 convertible notes was repaid in July 2022. The filing reports $5.7 million of short-term debt and $170.6 million of long-term debt on the balance sheet.
- Operating cash flow was approximately break-even. A $15.5 million reduction in receivables and other working-capital movements helped offset the net loss, while inventories increased $12.4 million, customer advances fell $6.9 million, and exchange-rate movements reduced cash, cash equivalents, and restricted cash by $2.2 million.
- Cash, cash equivalents, and restricted cash decreased $7.8 million during the quarter to $82.4 million. Investing activities used $1.3 million; financing activities used $4.4 million, including debt repayments.
Material changes and operating trends
- Revenue fell $10.9 million year over year. Product revenue declined $8.1 million, reflecting lower system sales and upgrades; service revenue declined $2.8 million, including a $2.3 million foreign-exchange impact on contract service revenue.
- China revenue decreased to $11.5 million from $29.1 million, which the company primarily attributed to COVID-19-related restrictions. EMEA and Japan revenue increased, while Americas revenue declined.
- Gross orders were $69.8 million, essentially flat year over year, but net orders fell to $19.6 million from $40.8 million, largely because net age-outs rose to $45.3 million from $25.8 million. The book-to-bill ratio was 1.6, versus 1.3.
- Period-end order backlog was $538.4 million, down from $602.9 million a year earlier. Backlog is not a GAAP measure and is subject to cancellations, age-outs, timing, and currency changes.
Outlook, risks, and notable items
- Management said cash resources, available debt facilities, and anticipated cash flows should fund operations for at least the next 12 months, while noting continued uncertainty and close liquidity monitoring. The filing gives no specific revenue or earnings guidance.
- Management expected supply-chain challenges, higher material costs, and freight and logistics expenses to continue pressuring gross margins and net results at least through the remainder of fiscal 2023. It also expected delivery and installation delays to continue to some degree through at least the remainder of calendar 2022.
- COVID-19, inflation, foreign-exchange volatility, the war in Ukraine, customer financing and facility-readiness delays, and dependence on some single-source suppliers may affect demand, manufacturing, backlog conversion, margins, and cash flows.
- Remaining performance obligations totaled $1.107 billion. The company estimated 25%–27% of $1.041 billion in open systems, upgrades, training, and other obligations would be recognized in the next 12 months. Management estimated approximately 16% of open system-sales contracts could never result in revenue.
- At September 30, the company said it was compliant with its credit-facility financial covenants. On October 28, 2022, it amended the credit agreement to relax financial covenant requirements for the quarters ending December 31, 2022 through June 30, 2023.
- Management reported no probable and reasonably estimable material losses from current legal proceedings. The filing identifies no goodwill impairment trigger as of quarter-end.
- Disclosure controls and procedures were assessed as effective as of September 30, 2022; no significant first-quarter changes in internal control over financial reporting were reported.
Important facts for investors to verify
- Whether revenue, margins, and cash generation recover as product shipments and installations progress, particularly in China.
- How much of the reported backlog and remaining performance obligations converts to revenue, and the impact of cancellations, age-outs, customer readiness, and currency movements.
- Compliance with the amended credit covenants, future debt service needs, and whether liquidity remains sufficient if operating performance weakens.
- Whether supply constraints, freight costs, inflation, and foreign exchange continue to pressure gross margins and working capital.
- The timing and financial impact of China joint-venture regulatory approvals and COVID-related restrictions.