Accuray Incorporated — Form 10-K Summary
Period clarification: The filing is for the fiscal year ended June 30, 2020, and includes the quarter ended June 30, 2020. It is not a filing for 2019 Q4.
Business context and reporting period
Accuray develops, manufactures, sells and services radiation oncology systems, including CyberKnife, TomoTherapy and Radixact, as well as related software. Fiscal 2020 results were affected by COVID-19-related delays in customer deliveries and installations, travel restrictions, and disruption to customer operations and supply chains. International markets represented 66% of revenue.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $382.9 million | $418.8 million |
| Gross profit / margin | $149.7 million / 39% | $162.7 million / 39% |
| Operating income | $12.5 million | $0.6 million |
| Net income (loss) | $3.8 million | $(16.4) million |
| Cash from operating activities | $(1.5) million | $(29.6) million |
| Cash and cash equivalents at year-end | $107.6 million | $76.8 million |
| Working capital at year-end | $175.2 million | $151.9 million |
| Long-term debt carrying amount | $189.3 million | $159.8 million |
Product revenue fell 15% to $167.3 million, mainly because of lower system unit sales; service revenue fell 3% to $215.6 million. Product gross margin improved to 43% from 41%, while service gross margin declined to 36% from 37%. The filing reports $202.1 million of debt principal outstanding, consisting of $85.0 million of convertible notes, $89.1 million of term-loan principal and $28.0 million under the revolving facility.
For the June 2020 quarter, revenue was $95.0 million, gross profit was $39.7 million and net loss was $0.2 million. The comparable June 2019 quarter had revenue of $117.4 million and a net loss of $1.4 million.
Material changes versus the prior comparable period
- Annual revenue declined 9%, while gross margin held at 39%. Product sales drove most of the revenue decrease.
- Operating income improved to $12.5 million, and the company moved from a net loss to net income. Results included a $13.0 million non-cash gain on the contribution of systems to its China joint venture; operating expenses also decreased.
- Operating cash use narrowed substantially, but remained negative. Inventory rose $23.2 million, which management attributed primarily to slower-than-expected backlog conversion.
- Backlog increased to $602.7 million from $495.6 million. Net orders rose to $280.5 million from $218.3 million; backlog and orders are non-GAAP operating measures and are not assured to convert to revenue.
Outlook, management commentary, risks and unusual items
- Outlook: No numerical revenue or earnings guidance is provided. Management expects COVID-related delivery and installation delays to continue into fiscal 2021 and said their financial impact could not be reliably estimated.
- China opportunity: Accuray said systems associated with 50 Class A user licenses had an estimated revenue value of $115 million. Tender-process delays and COVID uncertainty postponed expected recognition; management then expected recognition to begin in the first half of fiscal 2021. Timing and realization remain uncertain.
- Liquidity and debt: Management believed available cash, debt facilities and expected cash flows would fund operations for at least 12 months, while cautioning that COVID-related customer delays and payment problems could affect liquidity. On July 3, 2020, after year-end, the company amended debt covenants and paid $10 million of term-loan principal plus a $0.5 million amendment fee. Covenant compliance remains important; failure could trigger default and acceleration.
- Cost actions: The company announced a reduction of approximately 3% of its global workforce, temporary senior executive salary reductions, suspension of the 401(k) match through December 2020, and elimination of most fiscal 2020 bonus-plan awards except contractual guarantees.
- Other notable items: Accuray launched the CyberKnife S7 in June 2020. It reported one completed Radixact recall during fiscal 2020 and closure requests for two earlier CyberKnife recalls; stated recall costs were not material and no serious adverse health consequences were reported.
- Reported-results adjustment: The 10-K explains that subsequent to the August 13 earnings release, a $1 million customer payment led to a reduction in the allowance for doubtful accounts. Other small adjustments were also made. Full-year net income consequently increased from $3.2 million in the release to $3.8 million in the filing; Q4 loss decreased from $0.823 million to $0.152 million.
- Key risks: COVID-driven customer defaults, payment delays and deferred installations; intense competition and uncertain reimbursement; long sales cycles and backlog cancellations or age-outs; dependence on single-source components; foreign-exchange and U.S.-China tariff exposure; and debt-covenant requirements. The filing reports an unqualified audit opinion and effective internal control over financial reporting as of June 30, 2020.
Important facts for investors to verify
- Whether the $115 million China license-related opportunity progresses through tenders, installation and revenue recognition as expected.
- Whether backlog converts to revenue, and the scale of future cancellations, age-outs and COVID-related delays.
- Cash generation, customer collections and inventory levels, including the quality and collectability of receivables.
- Debt balances, post-year-end repayment, covenant thresholds and compliance under the amended credit agreements.
- Underlying earnings trends excluding the one-time $13.0 million JV contribution gain, and whether cost reductions can offset lower sales.