Accuray Incorporated — Form 10-Q Summary
Reporting period: Three months ended September 30, 2023, the first quarter of Accuray’s fiscal 2024 (not calendar 2023 Q1). Comparative results are for the three months ended September 30, 2022. Financial figures below are in U.S. dollars.
Business context
Accuray designs, sells, and supports radiation therapy systems, including CyberKnife and TomoTherapy/Radixact, and provides related services. It operates as one reporting segment. The company also owns 49% of a China joint venture (JV) that manufactures and sells radiation oncology systems.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change or context |
|---|---|---|---|
| Revenue | $103.9 million | $96.5 million | Up 8% |
| Product revenue | $53.4 million | $44.6 million | Up 20% |
| Service revenue | $50.5 million | $51.9 million | Down 3% |
| Gross profit / margin | $39.5 million / 38.0% | $34.6 million / 35.9% | Margin up 2.1 percentage points |
| Operating expenses | $37.3 million | $36.8 million | Up 1% |
| Operating income (loss) | $2.2 million | $(2.2) million | Improved |
| Net loss / diluted loss per share | $(3.0) million / $(0.03) | $(5.4) million / $(0.06) | Loss narrowed |
| Operating cash flow | $(8.6) million | $0.05 million | Cash use increased |
Higher system revenue and lower service-part consumption and freight costs contributed to the gross-margin improvement. Net loss persisted despite operating income, reflecting $3.7 million of net other expense and $1.9 million of income tax expense. Interest expense was $2.9 million, up from $2.3 million.
At September 30, 2023, cash and cash equivalents were $76.9 million; cash, cash equivalents, and restricted cash totaled $78.7 million. Current assets were $334.1 million and current liabilities $201.4 million. Total debt principal was $178.5 million, comprising $100.0 million of convertible notes due 2026, $68.5 million under the term loan, and $10.0 million under the revolver. The term and revolver borrowings carried a weighted-average effective rate of approximately 8.3%. The company paid down $1.5 million of term-loan principal during the quarter.
Material changes and operating indicators
- Revenue growth was led by China, where revenue rose 102% to $26.2 million; EIMEA rose 8% to $39.5 million and Japan rose 10% to $12.6 million. Americas revenue fell 25% to $20.6 million.
- The JV accounted for $22.0 million of product sales and $2.9 million of service sales in the quarter. Product sales to the JV were substantially higher than the prior-year quarter; the filing notes that some related profit is deferred until the JV sells products to end customers.
- Gross orders fell 9% to $63.7 million. Net orders increased to $31.7 million from $19.6 million, mainly because age-outs declined and age-ins increased, partly offset by higher cancellations and lower gross orders. Ending backlog was $489.0 million, down from $538.4 million a year earlier. Book-to-bill was 1.2 versus 1.6.
- Total remaining performance obligations were $1.034 billion. Accuray estimates that approximately 20% of its $915.4 million in open system-sales contracts may never generate revenue, principally because of the long sales cycle and customer or regulatory factors.
- Inventory rose to $150.0 million from $145.2 million. Operating cash outflow reflected working-capital use, including higher inventory and receivables and lower customer advances.
Outlook, risks, contingencies, and unusual items
- Management said available cash, debt facilities, its business plan, and revenue prospects should fund operations for at least the next 12 months. It cautioned that macroeconomic uncertainty could affect liquidity and future compliance with debt covenants. Accuray was compliant at September 30, 2023; substantially all assets secure the credit facilities.
- Management expects higher material, freight, and logistics costs to continue pressuring gross margins and net income through at least the remainder of FY2024, potentially longer. Scarce electronic components and other supply constraints could impede manufacturing and servicing.
- On October 25, 2023, after quarter-end, Accuray announced a workforce reduction of approximately 5.9%. It expects approximately $2.5 million of employee-related costs, to be recorded in Q2 FY2024 and paid in cash; completion is expected in that quarter.
- In September 2023, the China JV received approval for its Class B device from China’s National Medical Products Administration. Sales and revenue conversion in China remain exposed to regulatory licensing, tender timing, geopolitical and trade risks.
- Other disclosed risks include long sales and installation cycles, customer cancellations and backlog age-outs, foreign-exchange exposure, reliance on single-source components, competition, reimbursement uncertainty, and variable-rate debt. A 50-basis-point change in credit-facility rates would change annual interest expense by approximately $0.4 million, assuming borrowings remained constant.
- Management reported no probable and reasonably estimable material losses from current litigation. The filing also reports a voluntary Radixact-related recall in FY2024; associated costs for the cited recalls were not material and no serious adverse health consequences were reported.
- The new SAP ERP system went live in August 2023. Management said disclosure controls were effective, while noting that internal controls will continue to be monitored as processes evolve.
Investor verification points
- Verify whether China’s elevated JV-related product revenue converts into end-customer sales and cash collections, and how much profit remains deferred.
- Track order cancellations, age-outs, backlog conversion, and the sustainability of the 1.2 book-to-bill ratio.
- Monitor operating cash flow, inventory and receivables, and progress against the stated 12-month liquidity assessment.
- Assess the impact of supply constraints, logistics costs, and foreign exchange on margins and delivery timing.
- Confirm the restructuring’s final costs, timing, and realized savings, and monitor debt-covenant headroom and interest expense.