Accuray Incorporated — Form 10-Q Summary
Reporting period: The filing is for the quarter ended March 31, 2022, Accuray’s fiscal 2022 third quarter—not 2021 Q3 as indicated in the request metadata. The financial statements are unaudited; comparisons below are to the same periods in fiscal 2021.
Business context
Accuray designs, sells, and services CyberKnife and TomoTherapy/Radixact radiation therapy systems. It reports one operating segment. Results depend on capital-equipment sales and installations, alongside recurring service revenue; sales and installation cycles are long. China is strategically important, including through Accuray’s 49%-owned joint venture (JV).
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue, 2022 | $96.2 million | $319.9 million |
| Revenue, 2021 | $102.6 million | $285.4 million |
| Net income (loss), 2022 | $(1.0) million | $(1.9) million |
| Net income (loss), 2021 | $(0.4) million | $4.8 million |
| Operating income (loss), 2022 | $(0.3) million | $6.1 million |
| Gross margin, 2022 | 36.2% | 36.6% |
| Gross margin, 2021 | 38.6% | 40.6% |
- Quarterly revenue fell 6% year over year: product revenue declined 9% to $43.2 million and service revenue declined 4% to $53.0 million. Product gross profit fell $4.9 million, mainly from lower system volume and deferred margin on JV sales.
- Nine-month revenue increased 12%, as product revenue rose 30% to $156.7 million; service revenue was down 1% to $163.2 million. Gross profit was nearly flat, while higher operating expenses contributed to the decline from $4.8 million of prior-year net income to a $1.9 million loss.
- Operating expenses were $35.1 million for the quarter and $110.8 million for nine months. Nine-month R&D rose 16% and selling and marketing rose 18%, reflecting higher staffing and related costs, project spending, and trade-show expenses.
- Other expense was $2.3 million for the quarter and $7.5 million for nine months, lower than the respective prior-year periods, mainly because refinancing reduced interest expense. Nine-month interest expense was $6.1 million, versus $13.1 million.
Cash, liquidity, and debt
- Cash and cash equivalents were $97.8 million at March 31, 2022, down from $116.4 million at June 30, 2021. Including restricted cash, period-end cash was $99.3 million.
- Operating cash flow was $2.2 million for nine months, versus $32.3 million a year earlier. Inventory growth used $15.9 million and accounts receivable growth used $4.6 million; higher accounts payable provided $13.0 million.
- Investing cash outflow was $3.3 million, principally capital expenditures. Financing cash outflow was $15.5 million, including $15.0 million of net revolving-credit repayments and a $3.0 million term-loan payment.
- Total debt carrying value was $181.2 million: $100.0 million principal on 3.75% convertible notes due 2026, $2.9 million on notes due 2022, $77.0 million under the term loan, and $5.0 million under the revolver. The notes due 2022 matured in July 2022. The credit agreement also has variable-rate debt.
- Current assets were $347.2 million and current liabilities $201.3 million. Management said cash, available debt facilities, its business plan, and revenue prospects should fund operations for at least 12 months. The company was in compliance with debt covenants at quarter-end, but warned that future noncompliance could accelerate debt repayment.
Material changes and business indicators
- Backlog was $580.4 million at March 31, 2022, down from $616.4 million at June 30, 2021. Nine-month net orders were $124.5 million, versus $128.8 million; age-outs were $108.7 million, versus $76.0 million.
- Remaining performance obligations were $1.12 billion, but Accuray estimates approximately 29% of the $1.05 billion portion excluding specified long-term warranty and service obligations may never become revenue. Backlog and performance obligations are not assurances of future sales.
- Accuray said 100 of 118 Chinese Class A user licenses awarded in the 13th five-year plan named its systems. It recognized about $11.9 million of system revenue from Class A devices delivered to China in the quarter and anticipated revenue from remaining awarded licenses over the next 12–18 months.
- China JV sales contributed materially to reported results: product sales to the JV were $17.4 million for the quarter and $32.2 million for nine months. Accuray deferred $5.7 million of intra-entity profit on JV sales at quarter-end.
- Adoption of accounting guidance for convertible debt on July 1, 2021 increased reported debt by $24.8 million and reduced additional paid-in capital by $25.6 million, with a $0.8 million adjustment to accumulated deficit. Prior periods were not restated.
Outlook, commentary, and risks
- The filing gives no numeric revenue or earnings guidance. Management expected COVID-related delivery and installation delays to continue at least through the end of calendar 2022, and expected elevated material, freight, and logistics costs to pressure gross margins and earnings through at least the remainder of 2022.
- Management cited scarce electronic components and other supply-chain constraints as risks to manufacturing and servicing systems. Delays in backlog conversion, customer payment delays, cancellations, and higher-than-normal age-outs were also highlighted.
- Other key risks include the long and variable sales cycle, dependence on single-source suppliers, competition and technology change, international and currency exposure, and debt covenant compliance. The company had $49.6 million of foreign-currency forward contracts; these were not designated as accounting hedges.
- Management reported no probable and reasonably estimable material litigation losses and no subsequent events requiring adjustment. Goodwill testing identified no impairment. Disclosure controls and procedures were considered effective as of March 31, 2022.
Important facts for investors to verify
- Confirm the period: this is fiscal Q3 2022, ended March 31, 2022, despite the 2021 Q3 request label.
- Track whether supply constraints, installation delays, and cost inflation persist, and how they affect revenue, gross margin, and operating cash flow.
- Assess backlog quality, including age-outs, cancellations, and the portion of remaining performance obligations management does not expect to convert to revenue.
- Monitor the China Class A delivery outlook, JV sales and deferred profit, and progress toward the JV’s Class B regulatory submission.
- Review debt maturities, variable interest exposure, liquidity, and covenant compliance, particularly around the notes due July 2022.