Accuray Incorporated — FY2015 Form 10-K
Reporting period: Fiscal year ended June 30, 2015. The filing is an annual report, not a standalone “2014 Q4” filing; fourth-quarter figures are shown separately below. Accuray develops, sells, and services CyberKnife radiosurgery and TomoTherapy radiation therapy systems.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $379.8 million | $369.4 million |
| Gross profit / margin | $145.4 million / 38% | $142.8 million / 39% |
| Operating loss | $(19.2) million | $(18.1) million |
| Net loss | $(40.2) million | $(35.4) million |
| Operating cash flow | $(16.7) million | $0.3 million |
| Cash and investments at year-end | $143.9 million | $171.9 million |
| Working capital | $184.4 million | $179.9 million |
| Long-term debt carrying value | $202.9 million | $195.6 million |
- Revenue grew 3%; product and service revenue each increased about 3%. Product revenue benefited from more CyberKnife systems recognized and upgrades, partly offset by currency effects. Services benefited from installed-base growth and higher-priced maintenance contracts.
- Gross margin slipped one percentage point. Product margin declined to 42% from 44%, largely attributed to foreign exchange; service margin improved to 35% from 34%.
- Net loss widened by $4.8 million. Higher interest expense and foreign-exchange losses contributed; operating loss also increased modestly.
- FY2015 fourth-quarter revenue was $101.8 million, gross profit $40.5 million, and net loss $5.6 million. Q4 FY2014 revenue was $102.0 million and net loss $9.8 million.
- Operating cash use increased from near break-even, with inventory up $21.1 million and accounts receivable up $8.3 million among the stated working-capital drivers. Capital expenditures were $10.4 million.
- Year-end cash and investments totaled $143.9 million, down $28.0 million year over year. Current assets were $354.3 million and current liabilities $169.9 million; reported working capital was $184.4 million.
- Convertible notes had $215.0 million principal outstanding, with $202.9 million net carrying value. Contractual principal and interest payments totaled $229.5 million; the 3.75% notes mature in August 2016 and the other notes in February 2018.
Orders, outlook, and management commentary
- Product backlog was $375.0 million, versus $364.7 million a year earlier. Gross orders rose 2% to $267.8 million, but net orders fell 14% to $189.0 million. Age-outs were $50.9 million, cancellations $11.6 million, and currency reduced backlog by $16.3 million.
- Management expected FY2016 R&D expense to slightly increase, selling and marketing expense to be slightly lower, and G&A expense to be slightly lower, including expected reductions in legal and consulting costs. These are expense expectations, not revenue or earnings guidance.
- Management stated that available cash, investments, and anticipated cash flows were expected to fund operations for at least 12 months. It also noted approximately $51.2 million of cash and cash equivalents at foreign subsidiaries, which it intended to keep invested abroad.
- The InCise multi-leaf collimator launched commercially in the U.S. in FY2015 Q3. The filing describes prior supplier yield and durability issues; continued production and shipment meeting customer standards were identified as important to CyberKnife M6 adoption.
Risks, contingencies, and unusual items
- A pending Cowealth Medical arbitration sought approximately $170 million in damages and injunctive relief; Accuray counterclaimed for approximately $35 million. A decision was expected between October 2015 and February 2016. The company said it could not estimate the likelihood or range of loss.
- Other material business risks include long sales and installation cycles, order cancellations and backlog age-outs, reimbursement changes, intense competition, reliance on single-source suppliers, international and foreign-exchange exposure, and regulatory requirements. CMS reimbursement proposals described in the filing could affect certain treatment payments if adopted.
- Accuray reported an accumulated deficit of $395.3 million and said it may continue to incur losses. Domestic deferred tax assets were subject to a full valuation allowance; federal and state net operating loss carryforwards were approximately $329.6 million and $157.5 million.
- The company reported no goodwill impairment in FY2015. The filing also notes a prior-year settlement of Sarif patent litigation and a voluntary CyberKnife recall in FY2014; it reported no serious adverse health consequences and immaterial recall costs.
- FY2015 financial statements received an unqualified audit opinion. Management and the independent auditor concluded internal control over financial reporting was effective as of June 30, 2015.
Most important facts for investors to verify
- Whether backlog converts to revenue and whether age-outs, cancellations, and currency effects improve as management expected.
- Whether operating cash flow recovers, inventory growth moderates, and cash remains sufficient alongside upcoming convertible-note maturities and potential conversion or repurchase obligations.
- Progress on InCise MLC manufacturing reliability, output, and customer uptake.
- The outcome and financial consequences of the Cowealth arbitration, including any later disclosures on loss estimates or settlement.
- Actual FY2016 expense trends and any developments in reimbursement policy that could affect customer demand.