Accuray Incorporated (NASDAQ: ARAY) — FY2013 Form 10-K
Reporting period: Fiscal year ended June 30, 2013; the filing also reports the quarter ended June 30, 2013. The request metadata labels the period “2012 Q4,” but this filing covers FY2013, not a calendar 2012 quarter. Amounts below are U.S. dollars.
Business context
Accuray develops and sells CyberKnife robotic radiosurgery systems and TomoTherapy radiation therapy systems. Its installed base reached 700 systems worldwide. International markets generated 55% of FY2013 revenue. The company introduced CyberKnife M6 and TomoTherapy H Series systems in October 2012.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net revenue | $316.0 million | $409.2 million |
| Product revenue | $137.4 million | $240.5 million |
| Service revenue | $178.6 million | $166.7 million |
| Gross profit / margin | $97.6 million / 30.9% | $137.3 million / 33.5% |
| Operating loss | $80.7 million | $56.2 million |
| Net loss attributable to stockholders | $103.2 million | $72.0 million |
| Net loss per diluted share | $1.41 | $1.02 |
| Operating cash flow | $(66.2) million | $(38.3) million |
FY2013 product revenue fell 43%, principally as systems sold declined 48%; the company installed 58 systems, compared with 60 in FY2012. Service revenue rose 7%, supported by installed-base growth and expanded maintenance activity. Product gross margin declined to 37.8% from 43.4%; service gross margin improved to 25.6% from 19.3%.
June 2013 quarter: Revenue was $84.9 million versus $100.5 million in the prior-year quarter; gross profit was $27.3 million versus $36.5 million. Net loss was $18.7 million, or $0.25 per share, compared with $20.3 million, or $0.28 per share.
Liquidity, debt and cash flow
At June 30, 2013, cash and cash equivalents were $73.3 million and investments were $101.1 million, totaling $174.4 million; working capital was $180.1 million. Cash declined by $70.2 million during the year. Operating cash use was $66.2 million, investing cash use was $121.6 million, and financing provided $117.9 million, including net proceeds of $110.5 million from new convertible notes.
Long-term debt carrying value was $198.8 million. The company had issued $100 million of 3.75% convertible notes due 2016 and $115 million of 3.50% convertible notes due 2018. Management said available cash, cash equivalents and investments should fund anticipated needs for at least 12 months; FY2014 capital expenditures were estimated at $15–$20 million.
Material changes, outlook and unusual items
- Revenue decreased 23% year over year, chiefly due to weaker system sales amid hospital capital-spending restraint, economic uncertainty, delayed new models and MLC unavailability. Product backlog increased to $317.4 million from $283.6 million, but conversion to revenue is not assured.
- The CyberKnife M6 MLC supplier had low yields and failed durability testing. Accuray withheld those units from commercial release and was seeking alternative component sources; management warned the delay could affect orders and shipments.
- FY2013 included $9.1 million of restructuring charges, including $7.4 million of severance tied primarily to executive departures and a 13% workforce reduction. Management expected FY2014 selling and marketing expense to rise, R&D expense to decline, and G&A expense to be modestly lower.
- Cash from operations was pressured by losses and working-capital needs. Inventory write-downs were $5.3 million. A $12.2 million impairment of CPAC-related in-process R&D and a $3.4 million loss on CPAC deconsolidation were reported in discontinued operations; CPAC was deconsolidated in December 2012.
- Other risks include reimbursement and regulatory changes, intense competition, long and variable sales/install cycles, dependence on single-source suppliers, international-market exposure, and continued integration of TomoTherapy. The filing cites pending intellectual-property and trade-secret disputes; management estimated a possible aggregate loss range of zero to $3 million for certain proceedings where estimable, with no probable and estimable material loss recorded.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at June 30, 2013.
Most important facts for investors to verify
- Whether CyberKnife MLC production and reliability issues were resolved, and whether the $34.1 million of MLC-related backlog converted to shipments and revenue.
- Subsequent system orders, installations, cancellations and backlog conversion, especially in North America and Asia-Pacific.
- Cash burn, liquidity runway and the company’s ability to meet convertible-note interest and principal obligations while funding operations and planned capital expenditures.
- Whether service-margin improvement continues and whether product margins recover as production volume and yields improve.
- Changes to Medicare and other reimbursement policies, regulatory clearances, and outcomes or developments in the disclosed litigation.