Accuray Incorporated — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter and nine months ended March 31, 2019 (Accuray fiscal 2019 Q3), not 2018 Q3 as indicated in the request metadata. Financial amounts below are in millions of dollars except per-share data.
Business context and reporting period
Accuray designs, manufactures, sells and supports CyberKnife and TomoTherapy/Radixact radiation oncology systems, related software and services. This unaudited report compares the three and nine months ended March 31, 2019 with the same periods in 2018. Management cautions that interim results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue, 2019 | $103.2 | $301.4 |
| Revenue, 2018 | $99.8 | $291.1 |
| Gross profit, 2019 | $40.5 | $116.7 |
| Gross profit, 2018 | $36.2 | $113.7 |
| Operating income (loss), 2019 | $2.9 | $(2.7) |
| Net loss, 2019 | $(1.2) | $(15.0) |
| Net loss, 2018 | $(8.9) | $(23.0) |
| Net loss per share, 2019 | $(0.01) | $(0.17) |
- Revenue grew 3% in the quarter and 4% year to date. Product revenue increased 7% and 5%, respectively; services revenue was nearly flat in the quarter and rose 2% year to date.
- Gross margin was approximately 39.2% for the quarter versus 36.3% a year earlier; year-to-date gross margin was approximately 38.7% versus 39.1%. Management attributed quarterly gross-profit improvement to higher TomoTherapy volume and lower service-parts consumption.
- Quarterly operating results improved to income from a loss; year-to-date operating loss narrowed. Lower R&D and selling and marketing costs helped, while year-to-date G&A expense increased, including bad debt and strategic-development consulting costs.
- Operating cash flow was $(38.7) for the nine months, versus $(9.6) in 2018. The company cited higher receivables and inventory, including a $35.0 increase in accounts receivable and a $17.8 increase in inventory. Capital expenditure cash outflow was $3.2.
- Cash and cash equivalents were $62.5 at March 31, 2019, down from $83.1 at June 30, 2018; cash, cash equivalents and restricted cash totaled $65.3. Current assets were $310.4 and current liabilities $181.1.
- Debt carrying value was $146.0, compared with $131.1 at June 30, 2018; principal outstanding was $160.5, comprising $85.0 of 3.75% convertible notes, $45.0 of term debt and $30.5 under the revolving facility. Stockholders’ equity was $47.6.
Material changes versus the prior comparable period
- Adoption of ASC 606 on July 1, 2018 changed revenue recognition and contract-cost accounting. The company used the modified retrospective method, recorded a $5.1 opening accumulated-deficit adjustment, and did not restate 2018 comparatives.
- ASC 606 materially affects reported comparisons: for the quarter, reported revenue was $10.5 lower than the filing’s “without adoption” presentation; for the nine months, reported revenue was $13.4 higher. The filing’s reconciliation also shows the standard changed reported net loss; investors should distinguish accounting effects from underlying performance.
- Backlog was $493.9 at March 31, 2019, up from $478.5 at June 30, 2018. Nine-month gross orders rose to $245.2 from $208.5, but net orders increased only to $153.9 from $144.6, with higher age-outs and cancellations offsetting some gross-order growth.
- Regional revenue mix shifted away from the Americas: quarter revenue declined to $31.6 from $41.8, while EIMEA and Japan increased. Management cited growth in EIMEA and Japan for the relevant periods.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided. Management believes cash, available debt facilities—including $15.0 available under the term-loan commitment—and anticipated cash flows should fund operations for at least 12 months.
- Management expected commercial shipments of Synchrony motion-tracking technology for Radixact by the end of calendar 2019. The China joint venture received its business license in April 2019; further permits were still needed, and management expected the radiation safety permit during summer 2019.
- Remaining performance obligations totaled $830.1. The company estimated 25%–35% of the $758.1 excluding long-term warranty and service would be recognized in the next 12 months, with the rest over the following 30 months. Management noted that approximately 15%–25% of contracts may never generate revenue because of cancellations.
- Key risks include cash burn and reliance on debt financing, covenant compliance, variable-rate interest exposure, long sales and installation cycles, order cancellations and age-outs, reimbursement and regulatory uncertainty, competition, foreign exchange and U.S.-China tariffs, and dependence on single-source suppliers. The company reported compliance with credit-facility covenants at March 31, 2019.
- Unusual items included a $1.0 credit from terminating part of a facility lease, $3.6 of bad-debt provision in operating cash-flow adjustments, and $2.1 of inventory write-downs. A workforce cost-saving initiative announced in October 2018 eliminated approximately 5% of global staff; $1.0 of restructuring-related charges had been recorded year to date.
- Management reported no probable and estimable litigation losses and no off-balance-sheet arrangements. It disclosed two voluntary CyberKnife recalls opened in fiscal 2019 through March 31; no serious adverse health consequences were reported and costs to date were not material.
Most important facts for investors to verify
- Confirm the reporting-period mismatch in the request metadata; this filing covers fiscal 2019 Q3.
- Assess cash burn, receivable collections, inventory levels and the availability and terms of remaining borrowing capacity.
- Review debt principal, variable-rate exposure, conversion terms and financial covenants, including the timing of principal amortization.
- Separate ASC 606 timing effects from operating trends when comparing revenue, earnings, backlog and contract balances.
- Track backlog conversion, cancellations, age-outs, customer readiness and progress on China JV permits and Synchrony commercialization.
- Evaluate the size and collectability of receivables, including the credit-loss allowance, and monitor product recalls, tariffs and reimbursement developments.