Accuray Incorporated — Form 10-Q Summary
Business context and reporting period. Accuray designs, manufactures, sells and services radiation therapy systems, including CyberKnife and TomoTherapy/Radixact. This unaudited report covers the three and six months ended December 31, 2021—fiscal Q2 and first half of fiscal 2022—and compares them with the periods ended December 31, 2020. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Key financial metrics
| Metric | Three months ended Dec. 31, 2021 | Prior-year quarter | Six months ended Dec. 31, 2021 | Prior-year half |
|---|---|---|---|---|
| Revenue | $116.3m | $97.5m | $223.7m | $182.8m |
| Product revenue | $60.7m | $41.8m | $113.5m | $73.1m |
| Service revenue | $55.6m | $55.7m | $110.2m | $109.7m |
| Gross profit / margin | $42.6m / 36.7% | $40.8m / 41.9% | $82.2m / 36.7% | $76.2m / 41.7% |
| Operating income / margin | $4.0m / 3.4% | $8.2m / 8.4% | $6.4m / 2.9% | $13.7m / 7.5% |
| Net income (loss) | $0.2m | $4.8m | $(0.8)m | $5.2m |
- Cash flow: First-half operating cash flow was $24.0m, versus $16.4m in the prior-year period. Investing used $2.3m and financing used $14.5m; cash, cash equivalents and restricted cash increased $6.5m. The operating cash inflow included a $10.2m increase in accounts payable and other working-capital movements.
- Liquidity: Cash and cash equivalents were $123.2m at December 31, 2021, with $1.5m of restricted cash. Current assets were $351.3m and current liabilities $204.4m. Management said available cash, debt facilities and anticipated cash flows should fund operations for at least 12 months.
- Debt: Total debt carrying value was $182.0m, compared with $173.8m at June 30, 2021; principal outstanding was $185.9m. Debt included $100.0m of 3.75% convertible notes due 2026, $2.9m of notes due 2022, a $78.0m term loan and $5.0m drawn on a $40m revolving facility. The company repaid $15.0m on the revolver and $2.0m on the term loan during the half.
- Backlog and obligations: Backlog was $581.3m, down from $616.4m at June 30, 2021. Remaining performance obligations were $1,102.7m; management estimates approximately 23% of $1,032.2m in open contracts may never produce revenue, based on historical experience.
Material changes versus prior comparable periods
- Quarterly revenue grew 19%, and first-half revenue grew 22%, primarily due to higher system sales. Product revenue increased 45% for the quarter and 55% for the half; service revenue was essentially flat.
- Gross profit rose, but gross margin fell by about 5.2 percentage points in the quarter and 5.0 points for the half. Product gross profit improved with higher unit volumes, while service gross profit fell 21% for the quarter and 20% for the half. Accuray cited supply-chain-related delays affecting return merchandise authorization credits, higher freight and parts consumption, and increased employee costs.
- Operating expenses increased 18% in the quarter and 21% for the half, including higher research and development and selling and marketing costs. Lower interest expense after fiscal Q4 2021 debt refinancing partly offset these pressures.
- Net results weakened: the quarter remained slightly profitable, but first-half results moved to a loss. The China joint venture generated an equity-method loss of $0.8m for the quarter and $1.2m for the half, compared with income of $1.1m in each prior-year comparable period.
- Backlog declined despite higher gross orders, reflecting age-outs, cancellations and currency effects. First-half gross orders rose to $155.4m from $125.9m, while net orders were $80.9m versus $66.0m.
Outlook, commentary, risks and unusual items
- Management expects COVID-19-related delivery and installation delays to continue through at least fiscal 2022, potentially longer. These delays slow backlog conversion and may contribute to higher-than-normal age-outs.
- Accuray expects increased material, freight and logistics costs to continue pressuring gross margins and net income through at least the remainder of fiscal 2022. It also warned that shortages of components, particularly electronics, could disrupt manufacturing and service.
- The company said it was in compliance with credit-facility covenants at December 31, 2021, but future noncompliance could trigger default and accelerated repayment. Management cannot predict with certainty the pandemic’s effect on future covenant compliance.
- Accuray reported $9.6m of system revenue in the quarter from Class A devices delivered to China. It anticipated revenue related to remaining awarded Class A licenses over the next 12–18 months, subject to delivery and installation timing. Required testing for the joint venture’s Class B device continued, with the NMPA submission expected in calendar Q1 2022 after a COVID-related delay.
- The company adopted ASU 2020-06 on July 1, 2021, recording a $24.8m increase in debt, a $25.6m decrease in additional paid-in capital and a $0.8m increase in accumulated deficit. The filing describes this as an accounting-standard adoption adjustment, not an operating-period cash outflow.
- The annual goodwill impairment test found no impairment. Management reported no probable and reasonably estimable material losses from current litigation, and no material changes in contractual obligations outside the ordinary course. No off-balance-sheet arrangements were reported.
- Other risks include competition and technology changes, reliance on single-source suppliers, international and currency exposure, regulatory and reimbursement changes, customer credit and cancellations, and potential dilution or cash settlement related to convertible notes. The 2022 notes mature in July 2022.
Important facts for investors to verify
- Whether service gross profit and overall gross margins recover as supply-chain, freight and parts-related pressures evolve.
- Whether backlog converts into shipments and installations as expected, and how age-outs, cancellations and currency adjustments affect reported backlog and revenue.
- The China joint venture’s sales, profitability, deferred intercompany profit, and timing of Class A deliveries and Class B regulatory submission.
- Cash generation quality, including the contribution from increased accounts payable, and ongoing liquidity and covenant headroom.
- Debt repayment or refinancing plans for the remaining 2022 convertible notes and potential share issuance or cash requirements under the convertible notes.
- Whether component availability and logistics costs constrain manufacturing, servicing, revenue, or margins beyond the company’s stated expectations.