Financial Data and Key Metrics - Global revenue grew by 8% year-over-year, with product revenue increasing by 17% year-over-year [8] - Order backlog stood at $489 million, representing more than 2x fiscal year 2023 product revenue [8] - Installed base of customers grew to 1,040 systems, a 5% year-over-year increase [9] - Net revenue for Q1 was $104 million, up 8% from the prior year, with product revenue at $53 million, up 17% [22][23] - Service revenue was $51 million, down 1% from the prior year [23] - Gross margin for the quarter was 38%, up from 35.9% in the prior year [25] - Adjusted EBITDA for the quarter was $6.5 million, compared to $1.9 million in the prior year [25] Business Line Performance - Continued customer adoption of CyberKnife, Radixact, and TomoTherapy platforms, driven by demand for advanced radiotherapy treatments [7] - New product innovations showcased at ASTRO, including VitalHold, Alliance-Plus, and Cenos online adaptive capability [10][11] - Cenos, leveraging AI for adaptive radiotherapy, is expected to be available for customer orders in spring 2024 [12] Market Performance - Strong performance in the U.S. and China, with regulatory clearance for the Tomo C platform in China, targeting a $600 million annual market opportunity [14][15] - Introduction of Helix, a value segment product, targeting high-potential emerging markets like India [16] - Strategic win at the Royal Marsden in the U.K., reinforcing the company's brand and market position [17][18] Strategic Direction and Industry Competition - Focus on achieving above-market revenue growth through innovation and commercial execution, expanding margins, and leveraging strategic partnerships [6] - Emphasis on improving patient access in underpenetrated global markets, particularly in China and India [14][16] - Competitive differentiation through comprehensive adaptive tools like Cenos, expected to increase win rates and upgrade the aged TomoTherapy installed base [12] Management Commentary on Operating Environment and Future Outlook - Positive outlook for radiation oncology, supported by technology advancements and clinical data, despite short-term headwinds in the U.S. [13] - Restructuring actions, including a 6% workforce reduction, aimed at simplifying the organization and improving operational efficiency [19] - Investments in commercial and customer support resources to maximize product innovations and market position [20] Other Important Information - Participation in the ASTRO conference, driving interest in new product innovations and showcasing the company's leadership in radiation oncology [10][17] - Launch of Accuray Financial Services to provide flexible financing options for capital equipment acquisition [10] - Enhanced executive team with new leadership in R&D, global service, and IT, leveraging experience from leading companies in the sector [21] Q&A Session Summary Question: Guidance and Order Funnel - The company remains cautiously optimistic, with strong Q1 performance but conservative guidance due to extended sales cycles in the U.S. and anti-corruption campaigns in China [30][31] Question: China Tomo C Opportunity - Tomo C approval came earlier than expected, with strong demand anticipated in the Type B market segment in China [32][33] - Revenue from Tomo C is expected to start contributing in Q4, with shipments to customers beginning in fiscal Q4 [34] Question: Inflation and Pricing Environment - Inflation remains a challenge, with a $2.5 million headwind in Q1, though supplier price increases have slowed [36][37] Question: Reimbursement Changes - Positive movement in U.S. reimbursement models, with ASTRO proposing a model that favors shorter-duration treatments like SBRT, expected to take over a year to implement [38][39] Question: Cenos Online Adaptive Solution - Strong customer interest in Cenos, with 510(k) pending and expected availability for orders in Q3 [42][43] Question: Helix Market Potential in India - India represents a $100 million to $150 million annual market opportunity for the Helix product, targeting high-growth emerging markets [44][45]

PART I. Financial Information [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Accuray's unaudited condensed consolidated financial statements for Q1 FY24 are presented, covering balance sheets, operations, equity, cash flows, and key notes [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased to **$476.8 million**, liabilities marginally increased, and stockholders' equity decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:------------------------|-------------:|-------------:|-----------:|-----------:| | Total Assets | $476,830 | $479,214 | $(2,384) | (0.5%) | | Total Liabilities | $425,886 | $425,555 | $331 | 0.1% | | Total Stockholders' Equity | $50,944 | $53,659 | $(2,715) | (5.1%) | - Cash and cash equivalents decreased from **$89.4 million** to **$76.9 million**, a reduction of **$12.5 million**[9](index=9&type=chunk) - Accounts receivable, net, increased by **$2.6 million**, from **$74.8 million** to **$77.4 million**[9](index=9&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Accuray reported an **8%** increase in total net revenue for Q1 FY24, driven by product sales, significantly reducing net and comprehensive loss Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | Change ($) | Change (%) | |:-----------------------------|-----------------------:|-----------------------:|-----------:|-----------:| | Net Revenue | $103,892 | $96,493 | $7,399 | 7.7% | | Gross Profit | $39,493 | $34,597 | $4,896 | 14.1% | | Income (Loss) from Operations | $2,213 | $(2,182) | $4,395 | 201.4% | | Net Loss | $(2,969) | $(5,449) | $2,480 | (45.5%) | | Net Loss Per Share - Basic and Diluted | $(0.03) | $(0.06) | $0.03 | (50.0%) | | Comprehensive Loss | $(5,107) | $(9,104) | $3,997 | (43.9%) | - Product revenue increased by **19.6%** to **$53.4 million**, while service revenue decreased by **2.6%** to **$50.5 million**[13](index=13&type=chunk) - Gross profit margin improved from **35.9%** in Q1 FY23 to **38.0%** in Q1 FY24[13](index=13&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity decreased to **$50.9 million** due to net loss and foreign currency adjustments, partially offset by share-based compensation Changes in Stockholders' Equity (in thousands) | Item | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | |:--------------------------------------|-----------------------:|-----------------------:| | Balance at June 30 | $53,659 | $53,189 | | Share-based compensation | $2,392 | $2,906 | | Net loss | $(2,969) | $(5,449) | | Foreign currency translation adjustment | $(2,138) | $(3,655) | | Balance at September 30 | $50,944 | $46,991 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Accuray experienced a net decrease in cash, cash equivalents, and restricted cash of **$12.5 million** for Q1 FY24, primarily from operating activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | |:------------------------------------|-----------------------:|-----------------------:| | Net cash (used in) provided by operating activities | $(8,591) | $46 | | Net cash used in investing activities | $(1,092) | $(1,272) | | Net cash used in financing activities | $(1,500) | $(4,365) | | Effect of exchange rate changes | $(1,328) | $(2,173) | | Net decrease in cash | $(12,511) | $(7,764) | | Cash, cash equivalents and restricted cash at end of period | $78,691 | $82,390 | - Operating activities shifted from providing **$46 thousand** in cash in Q1 FY23 to using **$8.6 million** in Q1 FY24, mainly due to increases in inventories and accounts receivable, and decreases in customer advances[20](index=20&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on Accuray's financial statements, covering accounting policies, revenue, leases, assets, debt, and recent restructuring [Note 1. The Company and its Significant Accounting Policies](index=8&type=section&id=Note%201.%20The%20Company%20and%20its%20Significant%20Accounting%20Policies) Accuray designs and sells advanced radiosurgery systems globally, facing macroeconomic risks, but maintains sufficient liquidity and debt compliance - Accuray designs, develops, and sells advanced radiosurgery and radiation therapy systems for tumor treatment globally[23](index=23&type=chunk) - Accuray is subject to risks from rising inflation, interest rates, foreign currency fluctuations, and geopolitical conflicts, which are expected to adversely affect gross margins and net income through at least fiscal year 2024[28](index=28&type=chunk)[29](index=29&type=chunk) - Accuray believes it has sufficient cash resources and anticipated cash flows to fund operations for at least the next **12** months and was in compliance with debt covenants as of September 30, 2023[30](index=30&type=chunk)[31](index=31&type=chunk) [Note 2. Revenue](index=9&type=section&id=Note%202.%20Revenue) Accuray's revenue recognition involves contract assets and liabilities; total remaining performance obligations were **$1,034.4 million** as of September 30, 2023 Contract Balances (in thousands) | Contract Balance Item | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:-------------------------------|-------------:|-------------:|-----------:|-----------:|\n| Unbilled accounts receivable – current | $13,805 | $9,847 | $3,958 | 40% | | Customer advances | $19,372 | $20,777 | $(1,405) | (7%) | | Deferred revenue – current | $71,764 | $72,185 | $(421) | (1%) | | Deferred revenue – non-current | $26,939 | $27,079 | $(140) | (1%) | - Total remaining performance obligations were **$1,034.4 million** as of September 30, 2023. Of this, **$68.2 million** relates to long-term warranty and non-cancellable post-warranty services[40](index=40&type=chunk) - For the remaining **$966.2 million** of performance obligations, **28%** to **31%** is estimated to be recognized in the next **12** months. Approximately **20%** of the **$915.4 million** open system sales contracts as of September 30, 2023, may never result in revenue[41](index=41&type=chunk) [Note 3. Supplemental Financial Information](index=11&type=section&id=Note%203.%20Supplemental%20Financial%20Information) This note details balance sheet components, showing decreases in financing receivables and other accrued liabilities, with increases in inventories and property/equipment Financing Receivables (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:--------------------------|-------------:|-------------:|-----------:|-----------:|\n| Financing receivables | $4,870 | $5,854 | $(984) | (16.8%) | | Allowance for credit losses | $(798) | $(798) | $0 | 0.0% | | Total, net | $4,072 | $5,056 | $(984) | (19.5%) | Inventories (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:----------------|-------------:|-------------:|-----------:|-----------:|\n| Raw materials | $64,889 | $62,945 | $1,944 | 3.1% | | Work-in-process | $11,028 | $17,469 | $(6,441) | (36.9%) | | Finished goods | $74,060 | $64,736 | $9,324 | 14.4% | | Total Inventories | $149,977 | $145,150 | $4,827 | 3.3% | Property and Equipment, Net (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:------------------------|-------------:|-------------:|-----------:|-----------:|\n| Software | $12,887 | $5,191 | $7,696 | 148.2% | | Leasehold improvements | $33,774 | $26,641 | $7,133 | 26.8% | | Construction in progress | $3,821 | $13,499 | $(9,678) | (71.7%) | | Total, net | $24,963 | $20,926 | $4,037 | 19.3% | Other Accrued Liabilities (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:-------------------------------|-------------:|-------------:|-----------:|-----------:|\n| Commissions due to third parties | $6,685 | $10,499 | $(3,814) | (36.3%) | | Total other accrued liabilities | $36,634 | $38,271 | $(1,637) | (4.3%) | Other Expense, Net (in thousands) | Metric | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | Change ($) | Change (%) | |:-----------------------------|-----------------------:|-----------------------:|-----------:|-----------:|\n| Interest expense | $(2,922) | $(2,262) | $(660) | 29.2% | | Foreign currency exchange loss | $(956) | $(251) | $(705) | 280.9% | | Total other expense, net | $(3,681) | $(2,558) | $(1,123) | 43.9% | [Note 4. Leases](index=13&type=section&id=Note%204.%20Leases) Accuray's operating lease costs increased to **$2.6 million** in Q1 FY24, with liabilities at **$28.9 million** and a **9.1**-year weighted average lease term - Operating lease costs were **$2.6 million** for the three months ended September 30, 2023, up from **$2.3 million** in the prior year[60](index=60&type=chunk) Operating Lease Liabilities Maturities (in thousands) | Fiscal Year | Amount | |:------------|-------:| | 2024 (remaining nine months) | $4,342 | | 2025 | $5,757 | | 2026 | $3,762 | | 2027 | $3,654 | | 2028 | $3,349 | | Thereafter | $23,306 | | Total operating lease payments | $44,170 | | Less: imputed interest | $(15,287) | | Present value of operating lease liabilities | $28,883 | - Weighted average remaining lease term is **9.1** years, and the weighted average discount rate is **9.7%**[63](index=63&type=chunk) [Note 5. Goodwill and Intangible Assets](index=14&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained stable at **$57.7 million** with no impairment, while net intangible assets slightly decreased to **$163 thousand** due to amortization Goodwill Activity (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | |:-------------------------------|-------------:|-------------:| | Balance at the beginning of the period | $57,681 | $57,840 | | Currency translation | $(25) | $(159) | | Balance at the end of the period | $57,656 | $57,681 | Purchased Intangible Assets, Net (in thousands) | Metric | Sep 30, 2023 | Jun 30, 2023 | |:------------------------|-------------:|-------------:| | Patent license, net | $71 | $107 | | Other intangibles, net | $92 | $103 | | Total intangible assets | $163 | $210 | - No goodwill impairment was identified as of September 30, 2023[65](index=65&type=chunk) [Note 6. Derivative Financial Instruments](index=15&type=section&id=Note%206.%20Derivative%20Financial%20Instruments) Accuray uses foreign currency forward contracts to manage exchange rate exposure, with **$59.5 million** outstanding and an **$818 thousand** loss in Q1 FY24 - Accuray uses foreign currency forward contracts to manage exposure to fluctuations in foreign currency exchange rates, primarily for Japanese Yen, Swiss Franc, and Euro[70](index=70&type=chunk) Notional Amount of Outstanding Forward Currency Exchange Contracts (in thousands) | Currency | Sep 30, 2023 | Jun 30, 2023 | |:---------------|-------------:|-------------:| | Swiss Franc | $30,679 | $26,867 | | Chinese Yuan | $4,054 | $249 | | Euro | $11,618 | $17,885 | | Japanese Yen | $9,919 | $12,492 | | Total | $59,531 | $61,548 | - A foreign currency exchange loss of **$818 thousand** on forward contracts was recorded for the three months ended September 30, 2023[72](index=72&type=chunk) [Note 7. Fair Value Measurements](index=16&type=section&id=Note%207.%20Fair%20Value%20Measurements) Accuray measures assets and liabilities at fair value using Level 2 inputs, with outstanding currency forward contracts at **$59.4 million** and convertible notes at **$90.1 million** fair value - Fair value measurements are categorized into Level 1, Level 2, and Level 3 inputs. Accuray's fair value measurements for currency forward contracts and debt are considered Level 2[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - The fair value of open currency forward contracts was **$59.4 million** as of September 30, 2023[75](index=75&type=chunk) Carrying Value and Estimated Fair Value of Debt (in thousands) | Debt Instrument | Sep 30, 2023 Carrying Value | Sep 30, 2023 Fair Value | |:-------------------------------|----------------------------:|------------------------:|\n| 3.75% Convertible Notes due 2026 | $98,335 | $90,122 | | Term Loan Facility | $67,686 | $67,686 | | Revolving Credit Facility | $10,000 | $10,000 | | Total | $176,021 | $167,808 | [Note 8. Commitments and Contingencies](index=17&type=section&id=Note%208.%20Commitments%20and%20Contingencies) Accuray is involved in legal proceedings but anticipates no material losses, with bank guarantees of **$1.2 million** and royalty costs of **$0.5 million** for Q1 FY24 - Management believes there are no probable and reasonably estimable material losses related to current legal proceedings and claims[80](index=80&type=chunk) - Accuray provides indemnification for software infringement and leased facilities, with no associated liabilities recorded as of September 30, 2023[81](index=81&type=chunk)[82](index=82&type=chunk) - Bank guarantees totaled **$1.2 million** as of September 30, 2023, and royalty costs were **$0.5 million** for the three months ended September 30, 2023[83](index=83&type=chunk)[84](index=84&type=chunk) [Note 9. Debt](index=17&type=section&id=Note%209.%20Debt) Accuray's debt includes **$100.0 million** convertible notes and **$78.5 million** outstanding on credit facilities, with an **8.3%** weighted average interest rate and covenant compliance - Outstanding debt includes **$100.0 million** aggregate principal of **3.75%** Convertible Senior Notes due 2026[85](index=85&type=chunk)[87](index=87&type=chunk) - Credit Facilities include a **$40.0 million** Revolving Credit Facility (**$10.0 million** outstanding) and an **$80.0 million** Term Loan Facility (**$68.5 million** outstanding) as of September 30, 2023[88](index=88&type=chunk) - The weighted average effective interest rate on the Term Loan Facility and Revolving Credit Facility was approximately **8.3%** for the three months ended September 30, 2023[89](index=89&type=chunk) - Accuray was in compliance with all covenants under the Credit Agreement as of September 30, 2023[91](index=91&type=chunk) [Note 10. Stock Incentive Plan and Employee Stock Purchase Plan](index=19&type=section&id=Note%2010.%20Stock%20Incentive%20Plan%20and%20Employee%20Stock%20Purchase%20Plan) Total share-based compensation expense decreased by **18%** to **$2.4 million** for Q1 FY24 compared to the prior year Share-Based Compensation Expenses (in thousands) | Functional Line Item | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | Change ($) | Change (%) | |:---------------------------|-----------------------:|-----------------------:|-----------:|-----------:|\n| Cost of revenue | $236 | $366 | $(130) | (35.5%) | | Research and development | $401 | $368 | $33 | 9.0% | | Selling and marketing | $408 | $486 | $(78) | (16.0%) | | General and administrative | $1,347 | $1,696 | $(349) | (20.6%) | | Total | $2,392 | $2,916 | $(524) | (18.0%) | [Note 11. Net Loss Per Common Share](index=19&type=section&id=Note%2011.%20Net%20Loss%20Per%20Common%20Share) Basic and diluted net loss per share improved to **$(0.03)** for Q1 FY24, reflecting a reduced net loss, with **17.1 million** potentially dilutive shares excluded Net Loss Per Common Share (in thousands, except per share amounts) | Metric | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | |:------------------------------------------|-----------------------:|-----------------------:|\n| Net loss | $(2,969) | $(5,449) | | Weighted average shares outstanding - basic and diluted | 96,555 | 93,529 | | Basic and diluted net loss per share | $(0.03) | $(0.06) | - Approximately **17.1 million** shares from the **3.75%** Convertible Notes due 2026 were excluded from diluted EPS calculation as they were anti-dilutive[98](index=98&type=chunk) [Note 12. Segment Information](index=19&type=section&id=Note%2012.%20Segment%20Information) Accuray operates as a single segment, with total net revenue increasing by **7.7%** to **$103.9 million** in Q1 FY24, driven by **102%** China revenue growth - Accuray operates as one operating and reporting segment: Oncology systems group[99](index=99&type=chunk) Revenue by Geographic Region (in thousands) | Region | Q1 FY24 (Sep 30, 2023) | Q1 FY23 (Sep 30, 2022) | Change ($) | Change (%) | |:----------------------------|-----------------------:|-----------------------:|-----------:|-----------:|\n| Americas | $20,557 | $27,285 | $(6,728) | (24.7%) | | EIMEA | $39,533 | $36,746 | $2,787 | 7.6% | | China | $26,215 | $13,000 | $13,215 | 101.7% | | Japan | $12,592 | $11,488 | $1,104 | 9.6% | | Asia Pacific, excluding China | $4,995 | $7,974 | $(2,979) | (37.4%) | | Total | $103,892 | $96,493 | $7,399 | 7.7% | Long-Lived Assets by Geographic Region (in thousands) | Region | Sep 30, 2023 | Jun 30, 2023 | Change ($) | Change (%) | |:----------------------------|-------------:|-------------:|-----------:|-----------:|\n| Americas | $44,317 | $41,569 | $2,748 | 6.6% | | EIMEA | $2,621 | $3,074 | $(453) | (14.7%) | | China | $1,056 | $501 | $555 | 110.8% | | Japan | $913 | $1,096 | $(183) | (16.7%) | | Asia Pacific, excluding China | $434 | $539 | $(105) | (19.5%) | | Total | $49,341 | $46,779 | $2,562 | 5.5% | [Note 13. Joint Venture](index=20&type=section&id=Note%2013.%20Joint%20Venture) Accuray holds a **49%** equity interest in a China JV, whose revenue increased by **19.1%** to **$31.9 million** in Q1 FY24, with **$431 thousand** net income attributable to Accuray - Accuray owns a **49%** interest in the CNNC Accuray (Tianjin) Medical Technology Co. Ltd. (JV) in China, accounted for using the equity method[106](index=106&type=chunk)[107](index=107&type=chunk) Summarized Financial Information of the JV (in thousands) | Metric | Q1 FY24 (Jun 30, 2023) | Q1 FY23 (Jun 30, 2022) | |:------------------------------------------|-----------------------:|-----------------------:|\n| Revenue | $31,855 | $26,740 | | Gross profit | $5,813 | $4,596 | | Net income (loss) | $879 | $(752) | | Net income (loss) attributable to the Company | $431 | $(368) | - The total change in deferred intra-entity profit margin from sales was **$1.6 million** for the three months ended September 30, 2023[111](index=111&type=chunk) [Note 14. Income Tax](index=21&type=section&id=Note%2014.%20Income%20Tax) Income tax expense increased to **$1.9 million** in Q1 FY24, primarily due to foreign taxes, with GILTI offset by NOLs and no material impact from R&D capitalization changes - Income tax expense increased to **$1.9 million** for the three months ended September 30, 2023, from **$0.3 million** in the prior year, primarily due to foreign taxes[112](index=112&type=chunk) - The global intangible low tax income (GILTI) inclusion is expected to be fully absorbed by net operating loss carryforwards for fiscal year 2024[112](index=112&type=chunk) - The change in U.S. tax law requiring capitalization and amortization of R&D expenditures had no material impact on Q1 FY24 financial statements[113](index=113&type=chunk) [Note 15. Subsequent Events](index=22&type=section&id=Note%2015.%20Subsequent%20Events) Accuray announced a restructuring initiative on October 25, 2023, to reduce operating expenses by eliminating **5.9%** of its global workforce at an estimated cost of **$2.5 million** - On October 25, 2023, Accuray announced a cost savings initiative to reduce operating expenses by eliminating approximately **5.9%** of its global workforce[114](index=114&type=chunk) - The total estimated cost of this initiative is approximately **$2.5 million** for employee-related costs, expected to be recorded in the second quarter of fiscal year 2024[114](index=114&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Accuray's business, economic conditions, and recent restructuring, detailing Q1 FY24 results, liquidity, capital resources, and critical accounting policies [Overview](index=23&type=section&id=Overview) Accuray develops and sells advanced radiosurgery systems globally, navigating macroeconomic challenges, with a China JV device approval and a recent **5.9%** workforce reduction - Accuray develops, manufactures, sells, and supports advanced radiosurgery and radiation therapy systems (CyberKnife and TomoTherapy platforms) for tumor treatment[118](index=118&type=chunk)[119](index=119&type=chunk) - Accuray continues to navigate significant macroeconomic headwinds, including rising inflation, supply chain challenges, and adverse foreign currency exchange rate fluctuations, which are expected to negatively impact gross margins and net income through at least fiscal year 2024[121](index=121&type=chunk)[122](index=122&type=chunk) - Accuray's joint venture in China received approval for its Class B device in September 2023, aiming to manufacture and sell locally branded radiotherapy devices[126](index=126&type=chunk) - A restructuring initiative announced on October 25, 2023, will eliminate approximately **5.9%** of the global workforce, with an estimated cost of **$2.5 million**[128](index=128&type=chunk) [Backlog](index=25&type=section&id=Backlog) Accuray's order backlog decreased to **$489.0 million** at September 30, 2023, with gross orders down but net orders up, resulting in a **1.2** book-to-bill ratio Gross Orders, Net Orders, and Order Backlog (in thousands) | Metric | Q1 FY24 (2023) | Q1 FY23 (2022) | |:-----------------------------|---------------:|---------------:|\n| Gross orders | $63,734 | $69,848 | | Age-ins | $8,726 | $5,891 | | Age-outs | $(30,993) | $(51,176) | | Cancellations | $(8,841) | $(1,460) | | Currency impacts and other | $(886) | $(3,532) | | Net orders | $31,740 | $19,571 | | Order backlog at the end of the period | $489,031 | $538,447 | - Gross orders decreased by **$6.1 million**, primarily due to decreased orders in China and Americas regions, partially offset by increases in Asia Pacific and Japan[133](index=133&type=chunk) - The book-to-bill ratio was **1.2** for the three months ended September 30, 2023, compared to **1.6** in the prior year, with a ratio greater than **1.2** indicating strong demand[134](index=134&type=chunk) [Results of Operations — Three months ended September 30, 2023 and 2022](index=26&type=section&id=Results%20of%20Operations%20%E2%80%94%20Three%20months%20ended%20September%2030%2C%202023%20and%202022) Accuray's net revenue increased by **8%** year-over-year, driven by **20%** product revenue growth and **102%** China revenue surge, improving gross profit by **14%** and reducing net loss by **45.5%** Net Revenue by Sales Classification (in thousands) | Sales Classification | Q1 FY24 (2023) | Q1 FY23 (2022) | Percent Change | |:---------------------|---------------:|---------------:|---------------:|\n| Products | $53,350 | $44,623 | 20% | | Services | $50,542 | $51,870 | (3%) | | Total Net Revenue | $103,892 | $96,493 | 8% | Net Revenue by Geographic Region (in thousands) | Region | Q1 FY24 (2023) | Q1 FY23 (2022) | Percent Change | |:----------------------------|---------------:|---------------:|---------------:|\n| Americas | $20,557 | $27,285 | (25%) | | EIMEA | $39,533 | $36,746 | 8% | | China | $26,215 | $13,000 | 102% | | Japan | $12,592 | $11,488 | 10% | | Asia Pacific, excluding China | $4,995 | $7,974 | (37%) | | Total | $103,892 | $96,493 | 8% | Operating Expenses (in thousands) | Operating Expense | Q1 FY24 (2023) | Q1 FY23 (2022) | Percent Change | |:---------------------------|---------------:|---------------:|---------------:|\n| Research and development | $14,013 | $14,092 | (1%) | | Selling and marketing | $10,244 | $10,795 | (5%) | | General and administrative | $13,023 | $11,892 | 10% | | Total Operating Expenses | $37,280 | $36,779 | 1% | - Income from equity method investment increased by **$0.8 million**, primarily due to higher product and service revenues and gross profit from the JV[146](index=146&type=chunk) - Other expense, net, increased by **$1.1 million**, driven by higher interest expense due to increased interest rates and increased foreign currency transaction losses[147](index=147&type=chunk) - Provision for income taxes increased by **$1.6 million**, mainly due to higher foreign earnings and deferred tax liability on unremitted foreign earnings[148](index=148&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Accuray had **$76.9 million** in cash at September 30, 2023, with sufficient liquidity for **12** months, despite Q1 FY24 operating cash outflows and **$178.5 million** in total debt - Accuray had **$76.9 million** in cash and cash equivalents at September 30, 2023, and expects sufficient cash resources for the next **12** months[149](index=149&type=chunk) - The 2024 restructuring initiative is estimated to cost **$2.5 million** in employee-related cash expenditures, to be recorded in Q2 FY24[150](index=150&type=chunk) - Net cash used in operating activities was **$8.6 million** in Q1 FY24, primarily due to increased inventories (**$8.9 million**) and accounts receivable (**$5.2 million**), and decreased customer advances (**$1.3 million**)[156](index=156&type=chunk)[157](index=157&type=chunk) - Outstanding debt includes **$100.0 million** in **3.75%** Convertible Senior Notes due 2026 and **$78.5 million** outstanding under the Term Loan Facility and Revolving Credit Facility[153](index=153&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) No material changes occurred in Accuray's critical accounting policies and estimates during Q1 FY24 compared to the prior fiscal year - No material changes to critical accounting policies and estimates during the three months ended September 30, 2023[166](index=166&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Accuray is exposed to market risks from credit, foreign currency, interest rates, and equity prices, managed through forward contracts and monitoring variable-rate debt and convertible note features [Concentration of Credit and Other Risks](index=31&type=section&id=Concentration%20of%20Credit%20and%20Other%20Risks) Accuray's cash is held with major financial institutions, one customer accounts for **10%**+ of revenue/receivables, and Accuray relies on single-source suppliers - Cash and cash equivalents are deposited with several major financial institutions, with deposits sometimes exceeding insurance limits, but no significant risk of loss is believed[168](index=168&type=chunk) - One customer represented **10%** or more of total net revenue and accounts receivable for the three months ended September 30, 2023[168](index=168&type=chunk) - Accuray depends on single-source suppliers for several critical components of its products[169](index=169&type=chunk) [Foreign Currency Exchange Rate Risk](index=31&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) A majority of Accuray's sales are in foreign currencies, exposing Accuray to exchange rate fluctuations, which are mitigated by **$59.5 million** in foreign currency forward contracts - A majority of sales are denominated in foreign currencies (Euro, Japanese Yen), making Accuray vulnerable to U.S. Dollar fluctuations[170](index=170&type=chunk) - A strengthening U.S. Dollar negatively impacts revenue and can cause sales and margins outside the U.S. to decline[170](index=170&type=chunk) - Accuray uses foreign currency forward contracts with a notional value of approximately **$59.5 million** to manage this risk, with gains/losses recorded in other expense, net[171](index=171&type=chunk) [Interest Rate Risk](index=32&type=section&id=Interest%20Rate%20Risk) Accuray's **$78.5 million** variable-rate debt is tied to SOFR; a **50** basis point change would impact annual interest expense by approximately **$0.4 million** - Debt obligations, including the Term Loan Facility (**$68.5 million**) and Revolving Credit Facility (**$10.0 million**), are subject to variable interest rates tied to SOFR[173](index=173&type=chunk) - A **50** basis point change in interest rates would increase or decrease annual interest expense by approximately **$0.4 million**[173](index=173&type=chunk) [Equity Price Risk](index=32&type=section&id=Equity%20Price%20Risk) Accuray's convertible notes expose Accuray to equity price risk if its common stock exceeds the **$5.86** conversion price, potentially requiring **$17.1 million** in cash or shares - The **3.75%** Convertible Notes due 2026 have an initial conversion rate equivalent to approximately **$5.86** per share[174](index=174&type=chunk) - If the common stock price exceeds **$5.86** upon conversion, Accuray expects to issue an additional **$17.1 million** in cash or shares if all notes are converted[174](index=174&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Accuray's disclosure controls were effective as of September 30, 2023, with a new ERP system (SAP) implemented to strengthen internal financial controls - Management concluded that disclosure controls and procedures were effective as of September 30, 2023, providing reasonable assurance for timely and accurate reporting[176](index=176&type=chunk) - Accuray implemented a new enterprise resource planning (ERP) system, SAP, in August 2023, which is expected to strengthen internal financial controls by automating processes and standardizing reporting[177](index=177&type=chunk) - No other significant changes in internal control over financial reporting occurred during the three months ended September 30, 2023[177](index=177&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Accuray is involved in various legal proceedings but does not anticipate any probable and reasonably estimable material losses - Accuray is involved in legal proceedings but does not believe any current claims would materially and adversely affect its financial condition or operating results[80](index=80&type=chunk)[180](index=180&type=chunk) [Item 1A. RISK FACTORS](index=33&type=section&id=Item%201A.%20RISK%20FACTORS) This section outlines numerous risks including global economic instability, market acceptance, profitability, indebtedness, competition, international operations, supply chain, and regulatory compliance [Risk Factors Summary](index=33&type=section&id=Risk%20Factors%20Summary) Accuray's business faces significant risks including global economic instability, market acceptance, profitability, indebtedness, competition, international operations, supply chain, and regulatory compliance - Risks related to business and results of operations include global economic environment, market acceptance, gross margins, indebtedness, operating result fluctuations, intense competition, international operations, foreign currency exchange rates, COVID-19 pandemic effects, manufacturing problems, new product development, growth management, product liability, single-source suppliers, key employee dependence, and IT system disruptions[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) - Regulatory risks involve new FDA clearances for product modifications, compliance with federal, state, and foreign laws, and obtaining necessary regulatory approvals in specific countries[187](index=187&type=chunk)[188](index=188&type=chunk) - Risks related to common stock include price volatility, future equity issuances causing dilution, conditional conversion features of notes, and provisions that could discourage takeovers[189](index=189&type=chunk) [Risks Related to Our Business and Results of Operations](index=35&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Results%20of%20Operations) Accuray's business is highly susceptible to global economic conditions, market acceptance, profitability challenges, substantial indebtedness, intense competition, supply chain disruptions, and cybersecurity threats - Global economic environment, including inflation, increased interest rates, and geopolitical conflicts, significantly impacts Accuray's business, potentially reducing demand, increasing costs, and affecting gross margins[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[197](index=197&type=chunk) - Achieving widespread market acceptance for CyberKnife and TomoTherapy platforms is crucial, requiring extensive physician education, clinical data, and favorable third-party reimbursement, which are uncertain[198](index=198&type=chunk)[199](index=199&type=chunk)[202](index=202&type=chunk) - Profitability depends on maintaining or increasing gross margins, which are vulnerable to manufacturing yields, production volume, selling prices, increased labor/material costs, supply chain disruptions, and price competition[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - Outstanding debt (**$100M** convertible notes, **$78.5M** credit facilities) poses risks by dedicating cash flow to payments, limiting future financing, and increasing vulnerability to economic downturns[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk) - Operating results fluctuate due to long sales and implementation cycles, high unit prices, timing of orders/installations, cancellations, age-outs, and macroeconomic factors like COVID-19, making future performance unpredictable[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Intense competition from larger, well-capitalized companies (Varian, Elekta) and rapid technological change threaten to render Accuray's products obsolete or less useful[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - International operations (majority of revenue) expose Accuray to economic, regulatory, social, and political risks, including import delays, foreign laws, trade policies, and currency fluctuations[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - Supply chain disruptions, reliance on single-source suppliers for critical components, and manufacturing problems can lead to delays, increased costs, inability to meet demand, and adverse impact on financial results[239](index=239&type=chunk)[243](index=243&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) - Dependence on key employees and challenges in attracting/retaining qualified personnel, exacerbated by workforce reductions, could adversely affect business growth[256](index=256&type=chunk)[257](index=257&type=chunk) - Disruption of IT systems, cyberattacks, and security breaches pose risks of data loss, operational inefficiencies, legal liabilities, and reputational harm[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) - Failure to comply with evolving global privacy, cybersecurity, and data protection laws (e.g., GDPR, CCPA, PIPL) could result in significant fines, litigation, and reputational damage[263](index=263&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) - Third-party claims of intellectual property infringement or violation of license agreements could lead to costly litigation, licensing expenses, supply disruptions, or inability to sell products[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk)[285](index=285&type=chunk) - Difficulty and cost in protecting intellectual property (patents, trade secrets) against third-party challenges, design-arounds, and varying international protections could reduce competitive advantage[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[294](index=294&type=chunk) - Reliance on third-party distributors in international markets introduces risks related to their marketing efforts, regulatory compliance, financial stability, and potential termination of relationships[301](index=301&type=chunk)[302](index=302&type=chunk) - Extended payment terms offered to customers may increase days sales outstanding, reduce cash flows, and lead to greater payment defaults[305](index=305&type=chunk) - Collaborations, partnerships, and joint ventures (like the China JV) are subject to risks such as capital contributions, failure to meet expectations, regulatory delays, and inconsistent interests with partners[307](index=307&type=chunk)[308](index=308&type=chunk) - Acquisitions of new businesses, products, or technologies carry risks of integration difficulties, failure to realize expected benefits, dilution, and increased litigation risk[309](index=309&type=chunk)[310](index=310&type=chunk) - Limited ability to raise capital or obtain future financing, especially during economic downturns or banking instability, could hinder growth strategy[311](index=311&type=chunk)[312](index=312&type=chunk) - Uncertainty regarding the full utilization of tax loss carryforwards (**$294.1M** federal, **$125.1M** state) due to limitations from Section 382 and changes in tax laws[313](index=313&type=chunk)[314](index=314&type=chunk)[316](index=316&type=chunk) - Failure to maintain an effective system of internal control over financial reporting, especially with the new ERP system, could impair financial reporting accuracy and investor confidence[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk) [Risks Related to the Regulation of our Products and Business](index=60&type=section&id=Risks%20Related%20to%20the%20Regulation%20of%20our%20Products%20and%20Business) Accuray's products are subject to extensive FDA and international regulations, requiring new clearances and compliance with healthcare, anti-corruption, and privacy laws, with healthcare reform posing additional risks - Modifications, upgrades, and new products require new FDA 510(k) clearances or premarket approvals and similar international licensing, which can be expensive, lengthy, and unpredictable[321](index=321&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk) - Failure to comply with manufacturing standards (FDA QSR, ISO), medical device reporting, and advertising regulations can lead to enforcement actions, recalls, and significant penalties[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[322](index=322&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk) - Operations are subject to federal, state, and foreign laws, including anti-kickback, false claims, self-referral, and anti-corruption (FCPA) laws, with violations potentially resulting in substantial civil and criminal penalties[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk) - Compliance with patient health information privacy laws (HIPAA) and transparency laws (Sunshine Act) is mandatory, with non-compliance risking civil and criminal liability, and penalties[333](index=333&type=chunk)[334](index=334&type=chunk) - Failure to obtain and maintain necessary regulatory approvals in specific countries (e.g., CE mark in EU, Shonin in Japan) or comply with environmental laws can prevent market access and harm revenue[337](index=337&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - Healthcare reform legislation (e.g., ACA, RO-APM) could adversely affect demand for products, revenue, and financial condition through changes in reimbursement rates and payment models[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk) [Risks Related to Our Common Stock](index=65&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Accuray's common stock price is volatile, with future equity issuances potentially diluting ownership, and conditional conversion features impacting liquidity, while corporate provisions could deter takeovers - The price of Accuray's common stock is volatile and can fluctuate significantly due to macroeconomic factors, operating results, and market perceptions[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) - Future issuances of equity securities, including common stock upon conversion of convertible notes, could dilute the ownership interests of existing stockholders[352](index=352&type=chunk)[353](index=353&type=chunk) - Conditional conversion features of the Notes, if triggered, may require cash payments or reclassification of debt as current liability, adversely affecting liquidity and working capital[354](index=354&type=chunk)[355](index=355&type=chunk) - Provisions in Accuray's certificate of incorporation, bylaws, and debt agreements (Notes indenture, Credit Facilities) could discourage or prevent a takeover, even if beneficial to stockholders[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk) [General Risks](index=66&type=section&id=General%20Risks) Accuray's liquidity is vulnerable to adverse financial market conditions, operations are exposed to interruptions, changes in accounting principles may affect results, and no dividends are expected - Liquidity could be adversely impacted by adverse conditions in financial markets, including reduced liquidity, defaults, and instability in the banking sector[360](index=360&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk) - Operations are vulnerable to interruptions from natural disasters, global health pandemics (e.g., COVID-19), terrorist acts, and equipment failures, which could disrupt manufacturing and IT systems[362](index=362&type=chunk)[363](index=363&type=chunk) - Changes in the interpretation or application of U.S. GAAP can significantly affect reported results and cause fluctuations in operating results[364](index=364&type=chunk) - Accuray has never paid and does not expect to pay cash dividends in the foreseeable future, retaining earnings for business operations and expansion[365](index=365&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds to report[367](index=367&type=chunk) [Item 3. Defaults Upon Senior Securities](index=68&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - No defaults upon senior securities to report[367](index=367&type=chunk) [Item 4. Mine Safety Disclosures](index=68&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to Accuray - Mine Safety Disclosures are not applicable[367](index=367&type=chunk) [Item 5. Other Information](index=68&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 FY24 - No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of fiscal 2024[367](index=367&type=chunk) [Item 6. Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including amended bylaws, CEO and CFO certifications, and Inline XBRL documents - Exhibits include Amended and Restated Bylaws, CEO and CFO certifications (Rule 13a-14(a) and 13a-14(b)), and various Inline XBRL documents[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk)[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk) [SIGNATURES](index=70&type=section&id=SIGNATURES) The report is duly signed by Suzanne Winter, President & CEO, and Ali Pervaiz, SVP & CFO, on behalf of Accuray as of November 7, 2023 - The report is signed by Suzanne Winter, President & Chief Executive Officer, and Ali Pervaiz, Senior Vice President & Chief Financial Officer[379](index=379&type=chunk) - The signing date for the report is November 7, 2023[379](index=379&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-33301 ACCURAY INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 20-8370041 (State or Other J ...

Accuray Incorporated (NASDAQ:ARAY) Q2 2023 Earnings Conference Call August 9, 2023 4:30 PM ET Company Participants Jesse Chew - Chief Legal Officer Suzanne Winter - President and CEO Ali Pervaiz - CFO Conference Call Participants Josh Jennings - Cowen Young Li - Jefferies Marie Thibault - BTIG Aaron Wukmir - Lake Street Capital Markets Neil Chatterji - B. Riley FBR Operator Hello and welcome to the Accuray Fourth Quarter and Fiscal 2023 Financial Results Conference Call. All participants will be in listen-o ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-33301 ACCURAY INCORPORATED (Exact name of registrant as specified in its charter) Delaware 20-8370041 (State or other jurisdiction of inco ...

Accuray Incorporated (NASDAQ:ARAY) Q3 2023 Earnings Conference Call April 26, 2023 4:30 PM ET Company Participants Jesse Chew – Chief Legal Officer Suzanne Winter – President and Chief Executive Officer Ali Pervaiz – Chief Financial Officer Conference Call Participants Brooks O’Neil – Lake Street Capital Markets Neil Chatterji – B Riley Marie Thibault – BTIG Josh Jennings – Cowen Jason Wittes – Loop Capital Operator Good day, and welcome to the Accuray Third Quarter Fiscal 2023 Financial Results Conference ...

PART I. Financial Information [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents Accuray Incorporated's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and detailed notes [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This section presents Accuray's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity Balance Sheet Summary (USD thousands) | ASSETS | December 31, 2022 (USD thousands) | June 30, 2022 (USD thousands) | |:---|:---|:---| | Cash and cash equivalents | $67,729 | $88,737 | | Accounts receivable, net | $89,187 | $94,442 | | Inventories | $155,665 | $142,254 | | Total current assets | $336,948 | $350,890 | | Total assets | $468,769 | $472,849 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Accounts payable | $33,861 | $31,337 | | Accrued compensation | $20,099 | $29,441 | | Total current liabilities | $184,720 | $208,858 | | Long-term debt | $174,102 | $171,907 | | Total liabilities | $417,024 | $419,660 | | Total stockholders' equity | $51,745 | $53,189 | | Total liabilities and stockholders' equity | $468,769 | $472,849 | - Total assets decreased from **$472.8 million** at June 30, 2022, to **$468.8 million** at December 31, 2022, with cash and cash equivalents decreasing from **$88.7 million** to **$67.7 million**[15](index=15&type=chunk) - Total liabilities decreased slightly from **$419.7 million** to **$417.0 million**, while total stockholders' equity also decreased from **$53.2 million** to **$51.7 million**[15](index=15&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This section presents Accuray's unaudited condensed consolidated statements of operations and comprehensive income (loss) for the reported periods Statements of Operations and Comprehensive Income (Loss) Summary (USD thousands) | Metric | Three Months Ended Dec 31, 2022 (USD thousands) | Three Months Ended Dec 31, 2021 (USD thousands) | Six Months Ended Dec 31, 2022 (USD thousands) | Six Months Ended Dec 31, 2021 (USD thousands) | |:---|:---|:---|:---|:---|\n| Net revenue | $114,760 | $116,275 | $211,253 | $223,717 | | Products revenue | $63,269 | $60,721 | $107,892 | $113,480 | | Services revenue | $51,491 | $55,554 | $103,361 | $110,237 | | Gross profit | $42,967 | $42,627 | $77,564 | $82,151 | | Income from operations | $2,705 | $3,981 | $523 | $6,392 | | Net income (loss) | $(1,874) | $179 | $(7,323) | $(849) | | Net income (loss) per share - basic | $(0.02) | $0.00 | $(0.08) | $(0.01) | | Comprehensive income (loss) | $916 | $71 | $(8,188) | $(726) | - Net revenue decreased by **1%** for the three months ended December 31, 2022, and by **6%** for the six months ended December 31, 2022, compared to the prior year periods[19](index=19&type=chunk) - The company reported a net loss of **$1.9 million** for the three months ended December 31, 2022, a significant decline from a net income of **$0.2 million** in the prior year period, with the six-month net loss widening to **$7.3 million** from **$0.8 million**[19](index=19&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section presents Accuray's unaudited condensed consolidated statements of stockholders' equity, detailing changes in equity components Stockholders' Equity Summary (USD thousands) | Stockholders' Equity Component | Balance at June 30, 2022 (USD thousands) | Balance at December 31, 2022 (USD thousands) | |:---|:---|:---|\n| Common Stock (Shares) | 93,500 | 95,494 | | Common Stock (Amount) | $94 | $95 | | Additional Paid-in Capital | $543,211 | $550,288 | | Accumulated Other Comprehensive Income (Loss) | $2,406 | $1,541 | | Accumulated Deficit | $(492,522) | $(500,179) | | Total Stockholders' Equity | $53,189 | $51,745 | - Total stockholders' equity decreased from **$53.2 million** at June 30, 2022, to **$51.7 million** at December 31, 2022, primarily due to a net loss of **$7.3 million** and a negative foreign currency translation adjustment of **$0.9 million**[24](index=24&type=chunk)[19](index=19&type=chunk) - Share-based compensation contributed **$6.0 million** to additional paid-in capital during the six months ended December 31, 2022[24](index=24&type=chunk)[28](index=28&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents Accuray's unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Cash Flow Summary (USD thousands) | Cash Flow Activity | Six Months Ended Dec 31, 2022 (USD thousands) | Six Months Ended Dec 31, 2021 (USD thousands) | |:---|:---|:---|\n| Net cash provided by (used in) operating activities | $(17,968) | $24,011 | | Net cash used in investing activities | $(2,806) | $(2,259) | | Net cash used in financing activities | $(90) | $(14,510) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $(79) | $(747) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(20,943) | $6,495 | | Cash, cash equivalents and restricted cash at end of period | $69,211 | $124,696 | - Net cash used in operating activities was **$18.0 million** for the six months ended December 31, 2022, a significant decrease from **$24.0 million** provided in the prior year, primarily due to a net loss and changes in assets and liabilities[28](index=28&type=chunk)[156](index=156&type=chunk) - Investing activities used **$2.8 million**, mainly for property and equipment purchases, while financing activities used **$0.1 million**, reflecting debt repayments partially offset by revolving credit facility drawdowns and employee stock plan proceeds[28](index=28&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining Accuray's significant accounting policies and other financial information [Note 1. The Company and its Significant Accounting Policies](index=8&type=section&id=Note%201.%20The%20Company%20and%20its%20Significant%20Accounting%20Policies) This note describes Accuray's business, financial statement preparation, and significant accounting policies - Accuray Incorporated designs, develops, and sells advanced radiosurgery and radiation therapy systems globally for tumor treatment, with primary offices in the US, Switzerland, China, Hong Kong, and Japan[31](index=31&type=chunk) - The financial statements are prepared in accordance with GAAP, with certain information condensed per SEC rules, and results for the three and six months ended December 31, 2022, are not indicative of future periods[33](index=33&type=chunk) - The company faces risks from geopolitical and macroeconomic impacts, including the Russian invasion of Ukraine, inflation, and the COVID-19 pandemic, which have affected and may continue to affect demand, supply chain, and operating results[35](index=35&type=chunk) [Note 2. Recent Accounting Pronouncements](index=9&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) This note details recent accounting pronouncements adopted by Accuray and their impact on financial statements - Accuray adopted ASU 2020-04, Reference Rate Reform, transitioning from LIBOR to SOFR for its Term Loan and Revolving Credit Facility in October 2022, with no material financial statement impact[38](index=38&type=chunk) [Note 3. Revenue](index=9&type=section&id=Note%203.%20Revenue) This note provides details on Accuray's revenue recognition, contract balances, and remaining performance obligations Contract Balance Summary (USD thousands) | Contract Balance | December 31, 2022 (USD thousands) | June 30, 2022 (USD thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|\n| Unbilled accounts receivable – current | $22,395 | $13,325 | $9,070 | 68% | | Customer advances | $17,169 | $25,290 | $(8,121) | (32%) | | Deferred revenue – current | $72,675 | $75,375 | $(2,700) | (4%) | | Deferred revenue – non-current | $30,357 | $24,694 | $5,663 | 23% | - Contract assets increased primarily due to changes in billing timing after revenue recognition and transactions with payment terms over 12 months, while contract liabilities decreased due to changes in revenue recognition timing, reduced customer deposits, and deferred warranty[42](index=42&type=chunk) - As of December 31, 2022, total remaining performance obligations were **$1,077.6 million**, with **$71.9 million** related to long-term warranty and non-cancellable post-warranty services, and approximately **26% to 29%** of the remaining **$1,005.7 million** expected to be recognized in the next 12 months[45](index=45&type=chunk) [Note 4. Supplemental Financial Information](index=10&type=section&id=Note%204.%20Supplemental%20Financial%20Information) This note provides supplemental financial details, including financing receivables, inventories, and interest expense Financing Receivables Summary (USD thousands) | Financing Receivables | December 31, 2022 (USD thousands) | June 30, 2022 (USD thousands) | |:---|:---|:---|\n| Total, gross | $6,165 | $6,137 | | Allowance for credit losses | $(943) | $(943) | | Total, net | $5,222 | $5,194 | | Reported as: Current | $2,245 | $2,435 | | Reported as: Non-current | $2,977 | $2,759 | Inventories Summary (USD thousands) | Inventories | December 31, 2022 (USD thousands) | June 30, 2022 (USD thousands) | |:---|:---|:---|\n| Raw materials | $65,463 | $61,871 | | Work-in-process | $16,427 | $16,367 | | Finished goods | $73,775 | $64,016 | | Total Inventories | $155,665 | $142,254 | - Interest expense increased to **$2.6 million** for the three months ended December 31, 2022, from **$2.1 million** in the prior year, and to **$4.9 million** for the six-month period from **$4.1 million**, primarily due to higher interest rates[60](index=60&type=chunk) [Note 5. Leases](index=12&type=section&id=Note%205.%20Leases) This note describes Accuray's operating lease arrangements and related liabilities - Accuray has operating leases for offices and facilities, with some non-cancellable agreements extending through June 2035, including a material lease for its Madison, Wisconsin facility extended in August 2022[61](index=61&type=chunk) Operating Lease Liabilities (USD thousands) | Operating Lease Liabilities | December 31, 2022 (USD thousands) | |:---|:---|\n| 2023 (remaining six months) | $4,793 | | 2024 | $2,839 | | 2025 | $4,344 | | 2026 | $3,315 | | 2027 | $3,175 | | Thereafter | $26,263 | | Total operating lease payments | $44,729 | | Less: imputed interest | $(17,152) | | Present value of operating lease liabilities | $27,577 | | Weighted average remaining lease term (in years) | 8.7 | | Weighted average discount rate | 8.8% | [Note 6. Goodwill and Intangible Assets](index=13&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) This note provides information on Accuray's goodwill and intangible assets, including impairment testing Goodwill and Intangible Assets (USD thousands) | Asset Type | December 31, 2022 (USD thousands) | June 30, 2022 (USD thousands) | |:---|:---|:---|\n| Goodwill | $57,776 | $57,840 | | Patent license, net | $268 | $250 | - Goodwill decreased slightly due to currency translation, and the company's annual impairment test in Q2 FY23 found no impairment[68](index=68&type=chunk) - No triggering events for impairment of definite-lived intangible and long-lived assets were identified as of December 31, 2022[69](index=69&type=chunk) [Note 7. Derivative Financial Instruments](index=13&type=section&id=Note%207.%20Derivative%20Financial%20Instruments) This note details Accuray's use of derivative financial instruments to manage foreign currency exposure - Accuray uses foreign currency forward contracts to manage exposure to exchange rate fluctuations on intercompany balances, cash, receivables, and liabilities, primarily in Japanese Yen, Swiss Franc, and U.S. Dollar, which are not designated as hedging instruments[71](index=71&type=chunk) Notional Amount of Outstanding Forward Currency Exchange Contracts (USD thousands) | Currency | Notional Amount as of December 31, 2022 (USD thousands) | Notional Amount as of June 30, 2022 (USD thousands) | |:---|:---|:---|\n| Swiss Franc | $32,981 | $27,910 | | Japanese Yen | $17,224 | $14,167 | | Euro | $1,462 | $16,307 | | Total outstanding forward currency exchange contracts | $57,678 | $68,335 | Foreign Currency Exchange Gain (Loss) (USD thousands) | Gain (Loss) Type | Three Months Ended Dec 31, 2022 (USD thousands) | Six Months Ended Dec 31, 2022 (USD thousands) | |:---|:---|:---|\n| Foreign currency exchange gain (loss) on forward contracts | $(213) | $1,446 | | Foreign currency transaction gain (loss) | $180 | $(1,730) | [Note 8. Fair Value Measurements](index=14&type=section&id=Note%208.%20Fair%20Value%20Measurements) This note provides information on Accuray's fair value measurements for financial instruments - The company's open currency forward contracts are measured at fair value using Level 2 inputs, based on observable market data, with a notional value of **$57.7 million** as of December 31, 2022[78](index=78&type=chunk) Debt Instrument Carrying Value vs. Fair Value (USD thousands) | Debt Instrument | Carrying Value (Dec 31, 2022, USD thousands) | Fair Value (Dec 31, 2022, USD thousands) | |:---|:---|:---|\n| 3.75% Convertible Notes Due 2026 | $97,901 | $83,161 | | Term Loan Facility | $71,903 | $71,903 | | Revolving Credit Facility | $10,000 | $10,000 | | Total | $179,804 | $165,064 | - The carrying value of the Revolving Credit Facility and Term Loan Facility approximates their estimated fair value, based on bank quoted market rates (Level 2 fair value measurement)[79](index=79&type=chunk) [Note 9. Commitments and Contingencies](index=15&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note outlines Accuray's legal proceedings, indemnities, bank guarantees, royalty costs, and restructuring charges - Accuray is involved in legal proceedings in the ordinary course of business but does not believe any current claims will materially and adversely affect its financial condition or operating results[81](index=81&type=chunk) - The company provides indemnities for software infringement and to landlords, with no recorded liability as of December 31, 2022, as no probable losses are anticipated[82](index=82&type=chunk)[83](index=83&type=chunk) - Bank guarantees totaled **$1.3 million** as of December 31, 2022, primarily for customer bidding processes, with royalty costs of **$0.6 million** and **$1.1 million** recorded for the three and six months ended December 31, 2022, respectively[85](index=85&type=chunk)[86](index=86&type=chunk) - A Q2 FY23 cost-saving initiative resulted in a **4.5%** global workforce reduction, costing an estimated **$2.4 million**, with **$1.9 million** charged in Q2 FY23 and a remaining accrual of **$1.1 million** expected to be paid in FY23[87](index=87&type=chunk) [Note 10. Debt](index=16&type=section&id=Note%2010.%20Debt) This note provides details on Accuray's outstanding debt, including convertible notes and credit facilities - The remaining **$2.9 million** of 3.75% Convertible Senior Notes due July 2022 were repaid in cash in July 2022[88](index=88&type=chunk) - As of December 31, 2022, **$100.0 million** aggregate principal amount of 3.75% Convertible Senior Notes due July 2026 remained outstanding[88](index=88&type=chunk) Debt Summary (USD thousands) | Debt Instrument | Principal Amount (Dec 31, 2022, USD thousands) | Net Carrying Amount (Dec 31, 2022, USD thousands) | |:---|:---|:---|\n| 3.75% Convertible Notes Due 2026 | $100,000 | $97,901 | | Revolving Credit Facility | $10,000 | $10,000 | | Term Loan Facility | $73,000 | $71,903 | | Total Debt | $183,000 | $179,804 | | Reported as: Short-term debt | | $5,702 | | Reported as: Long-term debt | | $174,102 | - In October 2022, the company amended its credit agreement, increasing the senior net leverage ratio and reducing the consolidated fixed charge coverage ratio requirements until June 30, 2023[92](index=92&type=chunk) [Note 11. Stock Incentive Plan and Employee Stock Purchase Plan](index=17&type=section&id=Note%2011.%20Stock%20Incentive%20Plan%20and%20Employee%20Stock%20Purchase%20Plan) This note details Accuray's share-based compensation expense and changes to its stock incentive plans Share-Based Compensation Expense (USD thousands) | Expense Category | Three Months Ended Dec 31, 2022 (USD thousands) | Six Months Ended Dec 31, 2022 (USD thousands) | |:---|:---|:---|\n| Cost of revenue | $443 | $809 | | Research and development | $403 | $771 | | Selling and marketing | $458 | $944 | | General and administrative | $1,822 | $3,518 | | Total share-based compensation | $3,126 | $6,042 | - Total share-based compensation increased to **$3.1 million** for the three months ended December 31, 2022, from **$2.7 million** in the prior year, and to **$6.0 million** for the six-month period from **$5.2 million**[94](index=94&type=chunk) - In October 2022, the company increased shares available under its 2016 Equity Incentive Plan by **4.0 million** and its 2007 Employee Stock Purchase Plan by **2.5 million**[94](index=94&type=chunk) [Note 12. Net Income (Loss) Per Common Share](index=18&type=section&id=Note%2012.%20Net%20Income%20(Loss)%20Per%20Common%20Share) This note provides the calculation of basic and diluted net income (loss) per common share Net Income (Loss) Per Common Share (USD thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2022 | |:---|:---|:---|\n| Net income (loss) | $(1,874) | $(7,323) | | Weighted average shares outstanding - basic | 94,567 | 94,048 | | Basic net income (loss) per share | $(0.02) | $(0.08) | | Diluted net income (loss) per share | $(0.02) | $(0.08) | - Potentially dilutive securities, including stock options, RSUs, PSUs, and convertible notes, were excluded from diluted EPS calculation for the periods ended December 31, 2022, and 2021, as their effect would have been anti-dilutive due to net losses[97](index=97&type=chunk)[98](index=98&type=chunk) [Note 13. Segment Information](index=18&type=section&id=Note%2013.%20Segment%20Information) This note provides information on Accuray's operating segment and geographic revenue distribution - Accuray operates as one operating and reporting segment: Oncology systems group, which develops, manufactures, and markets medical devices for radiation therapy[100](index=100&type=chunk) Revenue by Geographic Region (USD thousands) | Geographic Region | Three Months Ended Dec 31, 2022 (USD thousands) | Six Months Ended Dec 31, 2022 (USD thousands) | |:---|:---|:---|\n| Americas | $27,919 | $55,204 | | Europe, India, Middle East and Africa | $39,664 | $76,410 | | Asia Pacific, excluding Japan and China | $9,199 | $17,173 | | Japan | $15,700 | $27,188 | | China | $22,278 | $35,278 | | Total | $114,760 | $211,253 | - Revenue from outside the Americas increased for both the three and six months ended December 31, 2022, driven by system sales in EIMEA, Japan, and China, while Americas revenue decreased due to lower system sales and contract services[104](index=104&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Note 14. Joint Venture](index=19&type=section&id=Note%2014.%20Joint%20Venture) This note describes Accuray's investment in its China Joint Venture and its financial impact - Accuray holds a **49%** interest in CNNC Accuray (Tianjin) Medical Technology Co. Ltd. (the JV) and applies the equity method of accounting, recognizing sales to the JV with profit eliminated until goods are sold to an end customer[107](index=107&type=chunk) Joint Venture Financial Data (USD thousands) | JV Financial Data | Three Months Ended Sep 30, 2022 (USD thousands) | Six Months Ended Sep 30, 2022 (USD thousands) | |:---|:---|:---|\n| Revenue | $23,983 | $50,723 | | Net loss | $(1,416) | $(2,168) | | Net loss attributable to the Company | $(699) | $(1,067) | - The carrying value of the investment in the JV decreased to **$12.3 million** at December 31, 2022, from **$13.9 million** at June 30, 2022, partly due to the company's proportional share of the JV's currency translation adjustment[108](index=108&type=chunk) [Note 15. Income Tax](index=20&type=section&id=Note%2015.%20Income%20Tax) This note provides information on Accuray's income tax expense, GILTI inclusion, and unrecognized tax benefits - Income tax expense was **$1.0 million** for the three months and **$1.4 million** for the six months ended December 31, 2022, primarily due to foreign taxes[113](index=113&type=chunk) - GILTI inclusion is expected to be fully absorbed by net operating loss carryforwards, not causing a U.S. taxable income position for fiscal year 2023, and the change in U.S. tax law requiring capitalization of R&E expenditures is not expected to materially impact FY23 financial statements[114](index=114&type=chunk) - Gross unrecognized tax benefits were **$19.8 million** as of December 31, 2022, with **$19.6 million** not affecting income tax expense before valuation allowance[115](index=115&type=chunk) [Note 16. Subsequent Events](index=20&type=section&id=Note%2016.%20Subsequent%20Events) This note discloses any significant events occurring after the balance sheet date - The company evaluated subsequent events through the filing date of this 10-Q and found no events requiring adjustments to its unaudited condensed consolidated financial statements[116](index=116&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of Accuray's financial condition, operating results, liquidity, and critical accounting policies for the reported periods - Accuray develops, manufactures, sells, and supports advanced radiosurgery and radiation therapy systems (CyberKnife® and TomoTherapy® platforms) for tumor treatment, aiming for better accuracy, flexibility, and shorter treatment times[120](index=120&type=chunk)[121](index=121&type=chunk) - Macroeconomic factors (e.g., Russian invasion of Ukraine, inflation, foreign currency fluctuations) and the COVID-19 pandemic continue to create significant global economic uncertainty, impacting demand, supply chain, and operating results[123](index=123&type=chunk)[124](index=124&type=chunk) - A Q2 FY23 cost-saving initiative reduced the global workforce by **4.5%**, incurring **$1.9 million** in charges, with an estimated additional **$0.5 million** in Q3 FY23[125](index=125&type=chunk) - The China Joint Venture (JV) has begun selling products, with regulatory submission for a locally branded Class B device completed, expecting NMPA clearance in H2 FY24[126](index=126&type=chunk)[127](index=127&type=chunk) Order Backlog Summary (USD thousands) | Metric | Three Months Ended Dec 31, 2022 (USD thousands) | Three Months Ended Dec 31, 2021 (USD thousands) | Six Months Ended Dec 31, 2022 (USD thousands) | Six Months Ended Dec 31, 2021 (USD thousands) | |:---|:---|:---|:---|:---|\n| Gross orders | $79,035 | $85,381 | $148,883 | $155,365 | | Net orders | $40,869 | $40,183 | $60,439 | $80,946 | | Order backlog at period end | $515,236 | $581,267 | $515,236 | $581,267 | - Gross orders decreased by **$6.3 million** (3 months) and **$6.5 million** (6 months) year-over-year, primarily due to declines in EIMEA, Japan, and Asia Pacific regions, partially offset by Americas and China increases[131](index=131&type=chunk)[132](index=132&type=chunk) - Net orders increased by **$0.7 million** (3 months) year-over-year due to lower cancellations and age-outs, but decreased by **$20.5 million** (6 months) year-over-year due to lower age-ins, gross orders, and unfavorable foreign exchange impacts[133](index=133&type=chunk) Key Financial Results (USD thousands) | Metric | Three Months Ended Dec 31, 2022 (USD thousands) | Change ($ thousands) | Change (%) | Six Months Ended Dec 31, 2022 (USD thousands) | Change ($ thousands) | Change (%) | |:---|:---|:---|:---|:---|:---|:---|\n| Products Net Revenue | $63,269 | $2,548 | 4% | $107,892 | $(5,588) | (5%) | | Services Net Revenue | $51,491 | $(4,063) | (7%) | $103,361 | $(6,876) | (6%) | | Total Net Revenue | $114,760 | $(1,515) | (1%) | $211,253 | $(12,464) | (6%) | | Gross Profit | $42,967 | $340 | 1% | $77,564 | $(4,587) | (6%) | | Net Income (Loss) | $(1,874) | $(2,053) | (1147%) | $(7,323) | $(6,474) | (763%) | - Products net revenue increased by **$2.5 million** (3 months) due to system sales, but decreased by **$5.6 million** (6 months) due to lower product upgrades and system sales, both unfavorably impacted by foreign exchange[136](index=136&type=chunk) - Services net revenue decreased by **$4.1 million** (3 months) and **$6.9 million** (6 months) year-over-year, primarily due to foreign exchange impacts on contract services and reduced training/installation activity[137](index=137&type=chunk) - Overall gross profit increased by **1%** (3 months) due to lower service costs, but decreased by **6%** (6 months) due to unfavorable product mix and foreign exchange impacts on product revenue[142](index=142&type=chunk) - Net cash used in operating activities was **$18.0 million** for the six months ended December 31, 2022, compared to **$24.0 million** provided in the prior year, driven by net loss and changes in working capital[155](index=155&type=chunk)[156](index=156&type=chunk) - The company believes its current cash and debt facilities are sufficient to fund operations for at least the next 12 months, but continues to critically review liquidity due to ongoing macroeconomic uncertainty[150](index=150&type=chunk)[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details Accuray's exposure to market risks, including foreign currency, interest rate, equity price, and inflation risks, and mitigation strategies - Accuray uses foreign currency forward contracts (notional value ~**$57.7 million** as of Dec 31, 2022) to manage exposure to foreign currency exchange rate fluctuations, primarily in Euro and Japanese Yen, with changes in fair value reported in earnings[175](index=175&type=chunk)[176](index=176&type=chunk) - The company's Credit Facilities (Term Loan and Revolving Credit) have variable interest rates tied to SOFR, where a **50 basis point** change in interest rates would impact annual interest expense by approximately **$0.4 million**[177](index=177&type=chunk) - Equity price risk exists for the 3.75% Convertible Notes due 2026; if the common stock price exceeds **$5.86 per share** upon conversion, the company may issue additional cash or shares[178](index=178&type=chunk) - Elevated inflation levels could materially impact Accuray's business by increasing costs (e.g., freight, logistics) that may not be fully offset by price increases, especially for long-term contractual agreements[179](index=179&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of Accuray's disclosure controls and procedures and reports no significant changes in internal control over financial reporting - Accuray's disclosure controls and procedures were evaluated as effective as of December 31, 2022, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[181](index=181&type=chunk) - No significant changes in internal control over financial reporting occurred during the six months ended December 31, 2022[182](index=182&type=chunk) - Internal controls have inherent limitations, including human diligence, judgment lapses, and potential circumvention by collusion or management override, meaning they can only provide reasonable, not absolute, assurance[183](index=183&type=chunk) PART II. Other Information [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates information on commitments and contingencies related to litigation, with no anticipated material adverse effects on financial condition - Information regarding legal proceedings is incorporated by reference from Note 9, Commitments and Contingencies, of the financial statements[185](index=185&type=chunk) - Management believes there are no probable and reasonably estimable material losses related to any current legal proceedings and claims[81](index=81&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks to Accuray's business, including global economic conditions, market acceptance, debt, competition, and regulatory compliance - Accuray faces risks from the current global economic environment, including inflation, recession, and the COVID-19 pandemic, which could delay customer financing, impact demand, and disrupt supply chains[197](index=197&type=chunk)[198](index=198&type=chunk)[200](index=200&type=chunk) - Widespread market acceptance of CyberKnife and TomoTherapy platforms is crucial; failure to achieve this due to physician adoption, capital purchase decisions, or competition could harm revenue[207](index=207&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - Maintaining or increasing gross margins is vital for profitability, but factors like manufacturing costs, low production volume, pricing, and supply chain disruptions could adversely impact them[211](index=211&type=chunk) - Outstanding debt (Convertible Senior Notes, Credit Facilities) poses risks, including substantial interest and principal payments, restrictive covenants, and potential acceleration of debt if covenants are breached[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - Operating results, including orders, revenues, and margins, are volatile due to long sales cycles, high unit prices, and external factors like the COVID-19 pandemic, making financial performance unpredictable[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk)[225](index=225&type=chunk) - The medical device industry is highly competitive and subject to rapid technological change; failure to innovate or keep pace with competitors (e.g., Varian, Elekta) could render Accuray's products obsolete[228](index=228&type=chunk)[230](index=230&type=chunk)[232](index=232&type=chunk) - International operations, which generate a majority of revenue, are exposed to economic, political, regulatory, and currency risks, including trade tariffs and sanctions, which could adversely affect business[234](index=234&type=chunk)[235](index=235&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk) - Reliance on single-source suppliers for critical components, coupled with global supply chain disruptions, poses risks of delays, increased costs, and inability to meet demand, impacting gross margins and revenue[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) - The company's ability to protect its intellectual property (patents, trade secrets) is difficult and costly, with risks of infringement claims, challenges to patent validity, and inadequate protection in foreign jurisdictions[296](index=296&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk)[302](index=302&type=chunk) - Compliance with extensive federal, state, and foreign laws (e.g., anti-kickback, false claims, HIPAA, FCPA, GDPR) is critical; violations could result in substantial penalties, reputational harm, and operational restructuring[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds to report[378](index=378&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports no defaults upon senior securities for the period - No defaults upon senior securities to report[378](index=378&type=chunk) [Item 4. Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[378](index=378&type=chunk) [Item 5. Other Information](index=67&type=section&id=Item%205.%20Other%20Information) This section reports no other information for the period - No other information to report[378](index=378&type=chunk) [Item 6. Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including key agreements and certifications - Exhibit 10.1: First Amendment to Credit Agreement, dated October 28, 2022[381](index=381&type=chunk) - Exhibit 10.2: Accuray Incorporated Amended and Restated 2016 Equity Incentive Plan[382](index=382&type=chunk) - Exhibit 31.1 and 31.2: Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)[385](index=385&type=chunk)[386](index=386&type=chunk) - Exhibit 32.1: Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. 1350[387](index=387&type=chunk)

[PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) This section provides Accuray's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended September 30, 2022 [Item 1. Unaudited Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Accuray's unaudited financial statements for Q1 FY2023 show a 10% revenue decrease to $96.5 million and an increased net loss of $5.4 million, with detailed notes on accounting policies and debt [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This section presents Accuray's unaudited consolidated balance sheets, detailing assets, liabilities, and equity as of September 30, 2022, and June 30, 2022 Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Items | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $81,007 | $88,737 | | Total current assets | $335,265 | $350,890 | | Total assets | $466,349 | $472,849 | | **Liabilities & Equity** | | | | Total current liabilities | $192,536 | $208,858 | | Total liabilities | $419,358 | $419,660 | | Total stockholders' equity | $46,991 | $53,189 | - Total assets decreased slightly to **$466,349 thousand** from **$472,849 thousand** at the end of the previous quarter, primarily due to a decrease in cash and accounts receivable[10](index=10&type=chunk) - Total stockholders' equity declined from **$53,189 thousand** to **$46,991 thousand** during the quarter, driven by the net loss and negative foreign currency translation adjustments[10](index=10&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section presents Accuray's unaudited consolidated statements of operations and comprehensive loss for the three months ended September 30, 2022, and 2021 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total net revenue | $96,493 | $107,442 | | Gross profit | $34,597 | $39,524 | | Income (loss) from operations | $(2,182) | $2,411 | | Net loss | $(5,449) | $(1,028) | | Net loss per share (basic & diluted) | $(0.06) | $(0.01) | - Total net revenue decreased by **10.2%** year-over-year, with both product and service revenues declining[14](index=14&type=chunk) - The company reported a net loss of **$5,449 thousand** for the quarter, a significant increase from the **$1,028 thousand** net loss in the same period of the prior year, primarily due to lower revenue and gross profit[14](index=14&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents Accuray's unaudited consolidated statements of cash flows for the three months ended September 30, 2022, and 2021 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $46 | $(8,600) | | Net cash used in investing activities | $(1,272) | $(1,456) | | Net cash used in financing activities | $(4,365) | $(1,000) | | Net decrease in cash, cash equivalents and restricted cash | $(7,764) | $(11,710) | - Cash flow from operations was slightly positive at **$46 thousand**, a significant improvement from the **$8,600 thousand** used in the prior-year period, mainly due to a large decrease in accounts receivable[21](index=21&type=chunk) - Cash used in financing activities increased to **$4,365 thousand** due to repayments of debt, including the final repayment of the 3.75% Convertible Notes due 2022[21](index=21&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies and financial statement line items, including revenue recognition, debt, leases, and the China joint venture - As of September 30, 2022, the company had total remaining performance obligations of **$1,107,200 thousand** It estimates that **25% to 27%** of the **$1,041,100 thousand** related to open systems sales and other items will be recognized as revenue in the next 12 months[39](index=39&type=chunk)[40](index=40&type=chunk) - Total debt as of September 30, 2022, was **$176,300 thousand**, consisting of the 3.75% Convertible Notes due 2026, the Term Loan Facility, and the Revolving Credit Facility The 3.75% Convertible Notes due 2022 were fully repaid in July 2022[82](index=82&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - The company holds a **49%** interest in its China joint venture (JV) For the quarter, sales to the JV included **$8,900 thousand** in products and **$3,000 thousand** in services The company recorded a **$400 thousand** loss from its equity method investment in the JV[14](index=14&type=chunk)[101](index=101&type=chunk)[104](index=104&type=chunk) Revenue by Geographic Region (in thousands) | Region | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Americas | $27,285 | $33,968 | | Europe, Middle East, India and Africa | $36,746 | $30,100 | | Asia Pacific (excl. Japan & China) | $7,974 | $3,920 | | Japan | $13,000 | $10,398 | | China | $11,488 | $29,056 | | **Total** | **$96,493** | **$107,442** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 10% YoY revenue decline to $96.5 million and a widened net loss of $5.4 million, addressing order backlog, macroeconomic impacts, and liquidity [Backlog and Orders](index=22&type=section&id=Backlog%20and%20Orders) This section details the company's order performance and backlog, including gross orders, net age-outs, cancellations, and the ending order backlog Order Summary (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Gross orders | $69,848 | $69,984 | | Net age-outs | $(45,285) | $(25,827) | | Cancellations | $(1,460) | $(3,180) | | Net orders | $19,571 | $40,763 | | Ending order backlog | $538,447 | $602,905 | - Gross orders were flat year-over-year, but net orders decreased by **$21,200 thousand**, primarily due to a **$19,500 thousand** increase in net age-outs (orders removed from backlog after 2.5 years)[126](index=126&type=chunk) - The book-to-bill ratio for the quarter was **1.6**, an improvement from **1.3** in the same period last year, indicating that new orders exceeded product revenue recognized[125](index=125&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section analyzes the company's operational performance, including changes in product and service net revenue, gross profit, and the impact of foreign exchange rates - Products net revenue decreased by **$8,100 thousand** YoY, driven by a **$5,000 thousand** decrease in system sales and a **$3,100 thousand** decrease in upgrades[130](index=130&type=chunk) - Services net revenue decreased by **$2,800 thousand** YoY, primarily due to a **$2,300 thousand** negative impact from foreign exchange rates[130](index=130&type=chunk) - Revenue from China fell sharply, representing only **12%** of total net revenue compared to **27%** in the prior-year quarter, primarily due to COVID-19 related restrictions[131](index=131&type=chunk) - Overall gross profit decreased by **$4,900 thousand (12%)** YoY, mainly due to lower product sales volume and an unfavorable foreign exchange impact[132](index=132&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, ability to fund operations, and the potential impact of macroeconomic factors on liquidity and debt covenants - The company ended the quarter with **$81,007 thousand** in cash and cash equivalents and believes it has sufficient resources to fund operations for at least the next 12 months[140](index=140&type=chunk) - As of September 30, 2022, the company had **$36,600 thousand** of cash and cash equivalents held by its foreign subsidiaries[144](index=144&type=chunk) - The company warns that macroeconomic factors, including COVID-19 and supply chain disruptions, could materially impact liquidity and its ability to comply with financial covenants on its debt facilities[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company details exposure to market risks including foreign currency, interest rate, equity price, and inflation, utilizing forward contracts to mitigate currency exposure - The company is exposed to foreign currency risk, primarily from the Euro and Japanese Yen It uses forward contracts to manage this risk, with a notional value of **$44,600 thousand** as of September 30, 2022[167](index=167&type=chunk) - The company has interest rate risk from its variable-rate credit facilities A **50 basis point** change in interest rates would impact annual interest expense by approximately **$400 thousand**[169](index=169&type=chunk) - Equity price risk exists due to the 3.75% Convertible Notes due 2026, which have a conversion price of approximately **$5.86 per share** If the stock price exceeds this level, the company may be required to issue additional cash or shares upon conversion[171](index=171&type=chunk) - Management believes that sustained high inflation could have a material effect on the business by increasing costs, which it may not be able to fully offset through price increases[172](index=172&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no significant changes to internal control over financial reporting - Based on an evaluation as of September 30, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[174](index=174&type=chunk) - There were no significant changes in the company's internal control over financial reporting during the first quarter of fiscal year 2023[175](index=175&type=chunk) [PART II. Other Information](index=31&type=section&id=PART%20II.%20Other%20Information) This section covers legal proceedings, risk factors, and other required disclosures for the reporting period [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, none of which are expected to have a material adverse effect on its financial condition or operating results - The company refers to Note 9 of the financial statements, which states there are no probable and reasonably estimable material losses related to any current legal proceedings[177](index=177&type=chunk)[76](index=76&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company outlines key risks including global economic impacts, intense competition, reliance on single-source suppliers, international operational challenges, and regulatory hurdles - The company faces significant risks from the global economic environment, including the COVID-19 pandemic, inflation, and potential recession, which could delay customer purchases, disrupt supply chains, and increase costs[189](index=189&type=chunk)[194](index=194&type=chunk) - The medical device industry is intensely competitive and subject to rapid technological change Key competitors like Varian (a Siemens Healthineers company) and Elekta have significantly greater resources[221](index=221&type=chunk)[223](index=223&type=chunk) - The company relies on single-source suppliers for critical components of its systems, which creates vulnerability to supply disruptions, quality issues, and price increases, particularly amid global supply chain challenges[254](index=254&type=chunk) - A majority of revenue is derived from international operations, exposing the company to risks such as currency fluctuations, tariffs, political instability (including the Russia-Ukraine conflict), and complex foreign regulations[228](index=228&type=chunk)[231](index=231&type=chunk)[235](index=235&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=64&type=section&id=Other%20Items%20(Items%202,%203,%204,%205,%206)) This section confirms no unregistered equity sales, no defaults on senior securities, and lists filed exhibits including CEO/CFO certifications - Item 2: There were no unregistered sales of equity securities during the period[382](index=382&type=chunk) - Item 3: There were no defaults upon senior securities[382](index=382&type=chunk) - Item 6: The report lists exhibits filed, including CEO and CFO certifications under Sarbanes-Oxley[384](index=384&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk)

Accuray Incorporated (NASDAQ:ARAY) Q1 2023 Results Conference Call November 2, 2022 4:30 AM ET Company Participants Ken Mobeck - Vice President of Finance and Investor Relations Suzanne Winter - Chief Executive Officer Ali Pervaiz - Chief Financial Officer Conference Call Participants Charlie Montang - Lake Street Capital Josh Jennings - Cowen Neil Chatterji - B. Riley Sam Eiber - BTIG Jason Wittes - Loop Capital Operator Good afternoon, and welcome to the Accuray First Quarter 2023 Financial Results Confer ...

PART I [Business Overview](index=4&type=section&id=Item%201.%20BUSINESS) Accuray develops, manufactures, and supports CyberKnife and TomoTherapy platforms for cancer and neurologic disorders, focusing on market expansion and innovation - Accuray develops, manufactures, sells, and supports radiation therapy solutions designed for **accuracy, flexibility, and control**, offering **fewer and shorter treatments** for complex cases and expanding beyond cancer[8](index=8&type=chunk) - Key product platforms include **CyberKnife®** and **TomoTherapy® (Radixact® System)**, delivering advanced treatments such as **stereotactic radiosurgery (SRS)**, **stereotactic body radiation therapy (SBRT)**, **intensity modulated radiation therapy (IMRT)**, **image-guided radiation therapy (IGRT)**, and **adaptive radiation therapy (ART)**[11](index=11&type=chunk) - Strategic goals include **increasing physician adoption and patient awareness**, **expanding the radiosurgery market**, **continuous innovation** through clinical development and collaboration, and **expanding sales in international markets**, including through strategic partnerships and joint ventures[29](index=29&type=chunk)[30](index=30&type=chunk)[34](index=34&type=chunk) - The global cancer treatment market faces increasing incidence rates, with an estimated shortage of over **15,000 linear accelerators (linacs)** globally in 2015, projected to grow to over **21,000 by 2035**, particularly in low and middle-income countries like China[16](index=16&type=chunk) - The COVID-19 pandemic has caused widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices, affecting the company's operations, supply chain, and financial results[13](index=13&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Factors) The company faces significant risks from global economic conditions, intense competition, international operations, supply chain dependencies, regulatory compliance, and financial factors - Risks related to the current global economic environment, including the COVID-19 pandemic, inflation, and potential recession, could adversely affect business by delaying customer financing and facility implementation[171](index=171&type=chunk)[172](index=172&type=chunk)[176](index=176&type=chunk) - The medical device industry is subject to intense competition and rapid technological change, with major competitors like Varian and Elekta, which could render Accuray's products obsolete if the company fails to keep pace with market changes and customer demands[207](index=207&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - International operations, which account for a **significant portion of revenue**, expose the company to risks such as economic/political instability, import delays, changes in foreign regulations, tariffs (e.g., US-China trade war), and foreign currency fluctuations[214](index=214&type=chunk)[219](index=219&type=chunk) - Reliance on **single-source suppliers** for critical components (robot, couch, magnetron) and potential manufacturing problems could harm the ability to meet demand, increase costs, and disrupt operations, exacerbated by global supply chain disruptions[243](index=243&type=chunk)[244](index=244&type=chunk) - The company is subject to extensive federal, state, and foreign laws and regulations, including FDA requirements for product modifications, anti-kickback laws, physician self-referral laws, transparency laws (Sunshine Act), and data privacy laws (HIPAA, GDPR, PIPL), with violations potentially leading to **substantial penalties** and harm to the business[330](index=330&type=chunk)[338](index=338&type=chunk)[346](index=346&type=chunk) [Unresolved Staff Comments](index=70&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[379](index=379&type=chunk) [Properties](index=70&type=section&id=Item%202.%20Properties) Accuray leases primary facilities in Sunnyvale, California, and Madison, Wisconsin, along with international offices, and expects future needs for manufacturing growth - Leases approximately **124,000 sq ft** for headquarters and R&D in Sunnyvale, California, with leases expiring December 2023[380](index=380&type=chunk) - Leases approximately **158,000 sq ft** for product development, manufacturing, administration, and warehouse space in Madison, Wisconsin, with leases expiring June 2025 for main facilities[381](index=381&type=chunk) - International facilities include an office in Morges, Switzerland (**~21,000 sq ft**, lease until Dec 2024) and a manufacturing facility in Chengdu, China (**~42,000 sq ft**, lease until July 2023)[381](index=381&type=chunk) - Maintains additional offices in Pennsylvania, Durham (NC), Solon (OH), Hong Kong, Japan, Spain, India, Russia, Germany, Brazil, and the United Arab Emirates[382](index=382&type=chunk) - Current facilities are deemed adequate for present needs, but additional space, including radiation-shielded areas, may be required for anticipated manufacturing growth[382](index=382&type=chunk) [Legal Proceedings](index=70&type=section&id=Item%203.%20Proceedings) Accuray is involved in ordinary course legal proceedings, but management believes no material adverse financial impact is probable or estimable - The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business[383](index=383&type=chunk)[664](index=664&type=chunk) - Management believes there are no probable and reasonably estimable losses related to any current legal proceedings and claims as of June 30, 2022[664](index=664&type=chunk) [Mine Safety Disclosures](index=70&type=section&id=Item%204.%20Safety%20Disclosures%20PART%20II) This item is not applicable to Accuray Incorporated - Not applicable[383](index=383&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=71&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Accuray's common stock trades on Nasdaq under "ARAY," with **176 stockholders** as of August 2022, no cash dividends, and no repurchases in Q4 FY2022 - Accuray's common stock trades on the Nasdaq Global Select Market under the symbol **"ARAY."**[385](index=385&type=chunk) - As of August 9, 2022, the number of outstanding shares of common stock was **93,499,500**[2](index=2&type=chunk) - As of August 15, 2022, there were **176 stockholders of record**[385](index=385&type=chunk) - The company has never paid cash dividends and does not anticipate declaring or paying cash dividends in the foreseeable future, intending to retain all future earnings for business operations and expansion[377](index=377&type=chunk)[385](index=385&type=chunk) - In May 2022, **312,500 restricted stock units (RSUs)** were granted to an employee, with a grant-date fair value of **$2.08 per RSU**, vesting annually over four years[386](index=386&type=chunk) - The company had **no repurchases** of its common stock during the quarter ended June 30, 2022[387](index=387&type=chunk) [RESERVED](index=72&type=section&id=Item%206.%20%5BRESERVED%5D) This item is reserved and contains no content - This item is reserved[393](index=393&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=73&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Accuray's FY2022 financial condition and results, detailing business performance, COVID-19 impacts, key financial metrics, backlog, and critical accounting estimates [Overview](index=73&type=section&id=Overview) Accuray develops and supports advanced radiosurgery and radiation therapy systems, focusing on market adoption, innovation, and international expansion, while managing ongoing COVID-19 impacts - Accuray develops, manufactures, sells, and supports market-changing radiation therapy solutions for complex and common cases, aiming for better **accuracy, flexibility, control**, and shorter treatment times[396](index=396&type=chunk) - Key product platforms include **CyberKnife®** and **TomoTherapy® (Radixact® System)**, delivering advanced treatments like **SRS, SBRT, IMRT, IGRT, and ART**[397](index=397&type=chunk) - The **CyberKnife S7 System** is a robotic, full-body SRS/SBRT device with **AI-driven motion tracking** and synchronized treatment delivery, capable of treatments in as little as **15 minutes**, and enhanced by the **VOLO Optimizer** for faster planning[398](index=398&type=chunk)[402](index=402&type=chunk) - The **Radixact System**, the next-generation TomoTherapy platform, offers integrated treatment planning, delivery, and data management, featuring **ClearRT helical kVCT high-fidelity imaging** and **Synchrony real-time motion tracking** for adaptive radiation therapy[403](index=403&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk) - Accuray systems were named in **100 out of 118 Class A user licenses** in China's 13th five-year plan, generating approximately **$65.1 million in system revenue** from Class A devices in FY2022[412](index=412&type=chunk) - The joint venture (JV) with CNNC High Energy Equipment (Tianjin) Co., Ltd. (Accuray Asia holds **49%**) aims to manufacture and sell locally branded radiotherapy devices in China, with NMPA submission for the Class B device expected in **Q4 2022**[413](index=413&type=chunk)[415](index=415&type=chunk) - The COVID-19 pandemic continues to adversely impact backlog conversion, deliveries, installations, sales, customer payments, and the global supply chain, leading to increased material costs and freight expenses that affect gross margins and net income[420](index=420&type=chunk) [Backlog](index=78&type=section&id=Backlog) Accuray's backlog decreased to **$563.7 million** as of June 30, 2022, from **$616.4 million** in the prior year, primarily due to increased age-outs and unfavorable foreign currency impacts, despite an increase in gross orders Order Backlog Summary (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :----- | :------------ | :------------ | | Backlog | $563,684 | $616,399 | - Backlog conversion to revenue is impacted by factors outside of control, including cancellations, age-outs (contracts not recognized after **2.5 years**), and foreign currency fluctuations[424](index=424&type=chunk) - The COVID-19 pandemic has adversely impacted the pace of new orders and backlog conversion, leading to a **higher than normal level of age-outs**[425](index=425&type=chunk) Gross Orders, Net Age-outs, Cancellations, and Net Orders (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------ | :----------- | :----------- | :----------- | | Gross orders | $332,268 | $325,929 | $377,295 | | Net age-outs | $(148,869) | $(122,132) | $(81,073) | | Cancellations | $(11,348) | $(15,119) | $(13,939) | | Currency impacts and other | $(4,735) | $3,203 | $(1,746) | | **Net orders** | **$167,316** | **$191,881** | **$280,537** | - Gross orders increased by **$6.3 million (2%)** in FY2022 compared to FY2021, driven by CyberKnife platform orders and upgrades, but decreased by **$51.4 million (14%)** in FY2021 compared to FY2020 due to a decline in China Class A system orders and COVID-19 impacts[428](index=428&type=chunk)[429](index=429&type=chunk) - Net orders decreased by **$24.6 million** in FY2022 compared to FY2021, primarily due to an increase in age-outs (**$35.0 million**) and unfavorable foreign currency impacts (**$7.9 million**)[430](index=430&type=chunk) - International orders from distribution partners represented **71% of gross orders** in FY2022, down from **82% in FY2021**[436](index=436&type=chunk) [Results of Operations](index=80&type=section&id=Results%20of%20Operations) In fiscal year 2022, Accuray's net revenue increased by **8% to $429.9 million**, driven by strong product sales, partially offset by decreased service revenue, resulting in a net loss of **$5.3 million**, an improvement from the prior year Consolidated Statements of Operations (in thousands, except percentages) | Metric | 2022 Amount | % of Total Net Revenue | 2021 Amount | % of Total Net Revenue | Change $ | Change % | | :---------------------------------- | :---------- | :--------------------- | :---------- | :--------------------- | :--------- | :--------- | | Products Net Revenue | $214,715 | 50% | $176,647 | 45% | $38,068 | 22% | | Services Net Revenue | $215,194 | 50% | $219,642 | 55% | $(4,448) | (2)% | | **Total Net Revenue** | **$429,909** | **100%** | **$396,289** | **100%** | **$33,620** | **8%** | | Gross Profit | $159,955 | 37% | $159,507 | 40% | $448 | 0% | | Products Gross Profit | $87,428 | 41% | $74,547 | 42% | $12,881 | 17% | | Services Gross Profit | $72,527 | 34% | $84,960 | 39% | $(12,433) | (15)% | | Research and development expenses | $57,752 | 13% | $52,729 | 13% | $5,023 | 10% | | Selling and marketing expenses | $49,664 | 12% | $42,820 | 11% | $6,844 | 16% | | General and administrative expenses | $44,391 | 10% | $41,723 | 11% | $2,668 | 6% | | (Gain) loss on equity method investment | $(241) | (0)% | $(872) | 0% | $631 | (72)% | | Other expense, net | $10,391 | 2% | $27,666 | 7% | $(17,275) | (62)% | | Provision for income taxes | $3,345 | 1% | $1,752 | 0% | $1,593 | 91% | | **Net income (loss)** | **$(5,347)** | **(1)%** | **$(6,311)** | **(2)%** | **$964** | **(15)%** | - Product net revenue increased by **$38.1 million (22%)** in FY2022, driven by higher unit volume sales and increased system average product revenue, particularly in the Americas, EMEA, and China regions[441](index=441&type=chunk) - Service net revenue decreased by **$4.4 million (2%)** in FY2022, primarily due to the strong US dollar reducing the dollar value of foreign currency service contract revenue, mainly in Japan and Europe, partially offset by increased installation revenue[442](index=442&type=chunk) Net Revenue by Geographic Region (in thousands, except percentages) | Net revenue | 2022 | 2021 | | :---------- | :--- | :--- | | Americas | 29% | 27% | | Europe, Middle East, India and Africa | 31% | 31% | | Asia Pacific, excluding Japan and China | 7% | 7% | | Japan | 13% | 15% | | China | 20% | 20% | - Research and development expenses increased by **$5.0 million (10%)** in FY2022, mainly due to higher compensation and employee benefits (additional headcount) and increased outside services[445](index=445&type=chunk) - Selling and marketing expenses increased by **$6.8 million (16%)** in FY2022, driven by increased headcount, a greater number of in-person tradeshows, and higher travel expenses[446](index=446&type=chunk) - Other expense, net, decreased by **$17.3 million (62%)** in FY2022, primarily due to lower interest costs on debt and the absence of a loss on extinguishment of old convertible notes recorded in FY2021[450](index=450&type=chunk) [Liquidity and Capital Resources](index=84&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, Accuray had **$88.7 million** in cash and cash equivalents, believing it has sufficient liquidity for the next 12 months despite economic uncertainties, with net cash used in operating activities of **$2.4 million** in FY2022 - Cash and cash equivalents totaled **$88.7 million** as of June 30, 2022[467](index=467&type=chunk) - The company believes it has sufficient cash resources and anticipated cash flows to fund operations for at least the next **12 months**, but this is subject to significant uncertainty from COVID-19, supply chain disruptions, rising interest rates, and geopolitical events[467](index=467&type=chunk) - Outstanding debt includes **$2.9 million** of 3.75% Convertible Senior Notes due 2022 (repaid post-June 30, 2022) and **$100.0 million** of 3.75% Convertible Senior Notes due 2026, along with New Credit Facilities comprising an **$80 million Term Loan Facility ($76.0 million outstanding)** and a **$40 million Revolving Credit Facility ($5.0 million outstanding)** as of June 30, 2022[468](index=468&type=chunk)[665](index=665&type=chunk)[672](index=672&type=chunk)[693](index=693&type=chunk) - Compliance with debt covenants (fixed charge coverage ratio and consolidated senior net leverage ratio) under the New Credit Facilities is critical; failure could lead to **default and accelerated debt maturity**[471](index=471&type=chunk) - As of June 30, 2022, **$55.1 million** of cash and cash equivalents were held at foreign subsidiaries; undistributed earnings from Japan, France, and Switzerland are subject to income taxes upon repatriation[472](index=472&type=chunk) Cash Flows Summary (in thousands) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------------------------------------------------- | :--------- | :--------- | :--------- | | Net cash provided by (used in) operating activities | $(2,400) | $38,512 | $(1,469) | | Net cash used in investing activities | $(4,717) | $(2,399) | $(3,728) | | Net cash provided by (used in) financing activities | $(15,369) | $(28,805) | $26,696 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $(5,561) | $982 | $234 | | **Net increase (decrease) in cash, cash equivalents and restricted cash** | **$(28,047)** | **$8,290** | **$21,733** | - Net cash used in operating activities was **$2.4 million** in FY2022, primarily due to increases in inventories (**$22.9 million**) and accounts receivable (**$12.5 million**), offset by non-cash items[475](index=475&type=chunk) [Critical Accounting Estimates](index=88&type=section&id=Critical%20Accounting%20Estimates) Accuray's financial statements rely on significant management estimates for revenue recognition, goodwill, inventory, convertible notes, investments, and credit losses, with economic uncertainty potentially affecting their accuracy - Critical accounting policies and estimates include revenue recognition, assessment of goodwill recoverability, valuation of inventories, convertible notes, impairment of investments, and allowance for credit losses[491](index=491&type=chunk) - Revenue is recognized for products upon transfer of control (generally delivery) and for services over the contractual period or when performed. For bundled arrangements, transaction price is allocated based on **standalone selling price (SSP)**, which is determined from observable prices or estimated considering market conditions[494](index=494&type=chunk)[495](index=495&type=chunk)[568](index=568&type=chunk)[569](index=569&type=chunk) - Inventory valuation requires estimating obsolete or excess inventory based on historical usage rates and future product demand[501](index=501&type=chunk) - Goodwill is evaluated for impairment annually; **no impairment was identified** in fiscal years 2022, 2021, and 2020[500](index=500&type=chunk)[579](index=579&type=chunk) - Convertible notes are accounted for as a **single liability at amortized cost** following the adoption of ASU 2020-06[502](index=502&type=chunk) - The equity method investment in the China JV is monitored for impairment based on financial condition, business outlook, and other relevant factors[503](index=503&type=chunk)[596](index=596&type=chunk) - Allowance for credit losses is evaluated quarterly based on customer creditworthiness and contractual terms[506](index=506&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=91&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) Accuray is exposed to foreign currency, interest rate, and equity price risks, using forward contracts to mitigate foreign exchange risk, with variable interest rates on debt, and conditional conversion features on Convertible Senior Notes - Accuray is exposed to foreign currency exchange rate risk, primarily from the Euro and Japanese Yen, and uses foreign currency forward contracts (notional value **~$68.3 million** as of June 30, 2022) to mitigate this risk[508](index=508&type=chunk)[644](index=644&type=chunk) - The company is exposed to interest rate risk due to variable rates on its New Credit Facilities (tied to LIBOR); a **50 basis point change** would impact annual interest expense by approximately **$0.4 million**[511](index=511&type=chunk) - Equity price risk arises from the conditional conversion features of the 3.75% Convertible Notes due 2022 (conversion price **~$5.72/share**) and 3.75% Convertible Notes due 2026 (conversion price **~$5.86/share**)[514](index=514&type=chunk)[515](index=515&type=chunk) - The company does not believe inflation has had a material effect on its business, but an inability to offset higher costs from significant inflationary pressures could harm its financial condition[513](index=513&type=chunk) [Financial Statements and Supplementary Data](index=93&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Accuray's audited consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes for fiscal years 2020-2022 [Report of Independent Registered Public Accounting Firm](index=94&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Grant Thornton LLP issued an unqualified opinion on Accuray's FY2022 and FY2021 consolidated financial statements and internal control over financial reporting, identifying standalone selling price as a critical audit matter - Grant Thornton LLP issued an **unqualified opinion** on Accuray's consolidated financial statements for the fiscal years ended June 30, 2022 and 2021[521](index=521&type=chunk) - An **unqualified opinion** was also expressed on the effectiveness of the company's internal control over financial reporting as of June 30, 2022[522](index=522&type=chunk) - The determination of **standalone selling price (SSP)** of performance obligations was identified as a critical audit matter due to the significant judgments and high degree of auditor judgment required in evaluating these estimates[526](index=526&type=chunk)[528](index=528&type=chunk) [Consolidated Balance Sheets](index=96&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2022, Accuray reported total assets of **$472.8 million**, a slight decrease from 2021, with total liabilities increasing to **$419.7 million**, and total stockholders' equity decreasing to **$53.2 million** Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | June 30, 2021 | Change | | :-------------------------------- | :------------ | :------------ | :------- | | **ASSETS** | | | | | Cash and cash equivalents | $88,737 | $116,369 | $(27,632) | | Accounts receivable, net | $94,442 | $85,360 | $9,082 | | Inventories | $142,254 | $125,929 | $16,325 | | Total current assets | $350,890 | $352,773 | $(1,883) | | Property and equipment, net | $12,685 | $12,332 | $353 | | Investment in joint venture | $13,879 | $15,935 | $(2,056) | | Goodwill | $57,840 | $57,960 | $(120) | | **Total assets** | **$472,849** | **$480,098** | **$(7,249)** | | **LIABILITIES** | | | | | Accounts payable | $31,337 | $19,467 | $11,870 | | Accrued compensation | $29,441 | $26,865 | $2,576 | | Short-term debt | $8,563 | $3,790 | $4,773 | | Total current liabilities | $208,858 | $192,359 | $16,499 | | Long-term debt | $171,907 | $170,007 | $1,900 | | **Total liabilities** | **$419,660** | **$411,258** | **$8,402** | | **STOCKHOLDERS' EQUITY** | | | | | Accumulated deficit | $(492,522) | $(488,024) | $(4,498) | | **Total stockholders' equity** | **$53,189** | **$68,840** | **$(15,651)** | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=97&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) For fiscal year 2022, Accuray reported a net loss of **$5.3 million**, an improvement from 2021, with total net revenue increasing by **8% to $429.9 million**, driven by product sales and lower other expenses Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Products Net Revenue | $214,715 | $176,647 | $167,302 | | Services Net Revenue | $215,194 | $219,642 | $215,626 | | **Total Net Revenue** | **$429,909** | **$396,289** | **$382,928** | | Cost of products | $127,287 | $102,100 | $95,882 | | Cost of services | $142,667 | $134,682 | $137,325 | | **Total Cost of Revenue** | **$269,954** | **$236,782** | **$233,207** | | **Gross Profit** | **$159,955** | **$159,507** | **$149,721** | | Research and development | $57,752 | $52,729 | $49,784 | | Selling and marketing | $49,664 | $42,820 | $47,254 | | General and administrative | $44,391 | $41,723 | $40,144 | | **Total Operating Expenses** | **$151,807** | **$137,272** | **$137,182** | | Income from operations | $8,148 | $22,235 | $12,539 | | Income (loss) on equity method investment | $241 | $872 | $(149) | | Other expense, net | $(10,391) | $(27,666) | $(6,700) | | Provision for income taxes | $3,345 | $1,752 | $1,863 | | **Net income (loss)** | **$(5,347)** | **$(6,311)** | **$3,827** | | Net income (loss) per share - basic | $(0.06) | $(0.07) | $0.04 | | Net income (loss) per share - diluted | $(0.06) | $(0.07) | $0.04 | | Comprehensive income (loss) | $(5,034) | $(3,734) | $3,353 | [Consolidated Statements of Stockholders' Equity](index=98&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Accuray's total stockholders' equity decreased to **$53.2 million** at June 30, 2022, primarily due to a net loss, a cumulative adjustment from ASU 2020-06 adoption, and negative foreign currency translation Consolidated Stockholders' Equity (in thousands) | Metric | June 30, 2022 | June 30, 2021 | June 30, 2020 | | :------------------------------------------ | :------------ | :------------ | :------------ | | Common Stock | $94 | $91 | $91 | | Additional Paid-in Capital | $543,211 | $554,680 | $545,741 | | Accumulated Other Comprehensive Income | $2,406 | $2,093 | $(484) | | Accumulated Deficit | $(492,522) | $(488,024) | $(481,713) | | **Total Stockholders' Equity** | **$53,189** | **$68,840** | **$63,635** | | Cumulative adjustment due to adoption of ASU No. 2020-06 | $(24,784) | N/A | N/A | | Net loss | $(5,347) | $(6,311) | $3,827 | | Share-based compensation | $10,535 | $9,385 | $8,166 | | Foreign currency translation adjustment | $(3,998) | $1,705 | $(238) | [Consolidated Statements of Cash Flows](index=99&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In fiscal year 2022, Accuray experienced net cash used in operating activities of **$2.4 million**, a shift from cash provided in 2021, primarily due to increased working capital needs and debt repayments Consolidated Statements of Cash Flows (in thousands) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------------------------------------------------- | :--------- | :--------- | :--------- | | Net cash provided by (used in) operating activities | $(2,400) | $38,512 | $(1,469) | | Net cash used in investing activities | $(4,717) | $(2,399) | $(3,728) | | Net cash provided by (used in) financing activities | $(15,369) | $(28,805) | $26,696 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $(5,561) | $982 | $234 | | **Net increase (decrease) in cash, cash equivalents and restricted cash** | **$(28,047)** | **$8,290** | **$21,733** | | Cash, cash equivalents and restricted cash at beginning of period | $118,201 | $109,911 | $88,178 | | **Cash, cash equivalents and restricted cash at end of period** | **$90,154** | **$118,201** | **$109,911** | - Net cash used in operating activities was **$2.4 million** in fiscal 2022, primarily due to increases of **$22.9 million** in inventories and **$12.5 million** in accounts receivable, offset by **$25.5 million** of non-cash items[475](index=475&type=chunk) - Net cash used in investing activities was **$4.7 million** in fiscal 2022, primarily related to the purchase of property and equipment[480](index=480&type=chunk) - Net cash used in financing activities was **$15.4 million** in fiscal 2022, primarily due to **$15.0 million** of repayments under the Revolving Credit Facility and **$4.0 million** paydown in debt[481](index=481&type=chunk) [Notes to Consolidated Financial Statements](index=100&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on Accuray's accounting policies, revenue recognition, financial information, leases, debt, equity, and other critical areas, offering comprehensive context to the financial statements [The Company and its Significant Accounting Policies](index=100&type=section&id=Note%201.%20The%20Company%20and%20its%20Significant%20Accounting%20Policies) Accuray designs and sells advanced radiation therapy systems globally, with financial statements prepared under U.S. GAAP, highlighting ongoing COVID-19 risks and key accounting estimates, including a full valuation allowance against deferred tax assets - Accuray designs, develops, and sells advanced radiosurgery and radiation therapy systems for tumor treatment throughout the body, operating globally[546](index=546&type=chunk) - The COVID-19 pandemic continues to adversely impact backlog conversion, deliveries, installations, sales, customer payments, and the global supply chain, leading to increased material costs and freight expenses that affect gross margins and net income[549](index=549&type=chunk)[550](index=550&type=chunk)[552](index=552&type=chunk) - Key accounting estimates and assumptions include revenue recognition (especially **standalone selling price**), goodwill recoverability, valuation of the JV equity method investment, inventory valuation, annual performance bonuses, allowance for credit losses, and loss contingencies[554](index=554&type=chunk) - Revenue is recognized for products upon transfer of control (generally delivery) and for services over the contractual period or when performed, with transaction prices allocated based on **standalone selling price (SSP)** for bundled arrangements[564](index=564&type=chunk)[565](index=565&type=chunk)[568](index=568&type=chunk)[569](index=569&type=chunk) - The company has recorded a **full valuation allowance** against its domestic and certain foreign net deferred tax assets due to the uncertainty of their realization[599](index=599&type=chunk) [Recent Accounting Pronouncements](index=108&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) Accuray adopted ASU 2020-06 in FY2022, which increased debt by **$24.8 million** and decreased additional paid-in capital by **$25.6 million**, and is evaluating other ASUs related to reference rate reform and contract assets/liabilities - Adopted **ASU No. 2020-06**, "Debt with Conversion and Other Options," effective July 1, 2021, using a modified retrospective method[601](index=601&type=chunk) - Upon adoption of ASU 2020-06, the company recorded an increase to Accumulated Deficit of **$0.8 million**, a decrease to Additional Paid-in Capital of **$25.6 million**, and an increase to Debt of **$24.8 million**, with no impact on diluted loss per share[601](index=601&type=chunk) - Currently evaluating the impact of **ASU 2020-04 (Reference Rate Reform)** on debt, leases, and derivatives, particularly the transition from LIBOR to SOFR for the New Credit Facility[602](index=602&type=chunk)[604](index=604&type=chunk) - Also evaluating **ASU 2021-04 (Earnings Per Share)** and **ASU 2021-08 (Accounting for Contract Assets and Contract Liabilities from Contracts with Customers)**, with the latter effective for fiscal years beginning after December 15, 2022[605](index=605&type=chunk)[606](index=606&type=chunk) [Revenue](index=109&type=section&id=Note%203.%20Revenue) Accuray's revenue recognition involves managing contract balances and allocating transaction prices using standalone selling price, with total remaining performance obligations of **$1,104.4 million** as of June 30, 2022, and **16%** of open system sales contracts potentially not converting to revenue - Contract balances include trade receivables, unbilled receivables (contract assets), and deferred revenues (contract liabilities), with payment terms varying from **30 to 90 days or longer**[607](index=607&type=chunk) Changes in Contract Assets and Liabilities (in thousands) | Metric | June 30, 2022 | June 30, 2021 | Change | Change % | | :------------------------------------ | :------------ | :------------ | :------- | :------- | | Unbilled accounts receivable – current | $13,325 | $12,354 | $971 | 8% | | Long-term accounts receivable | $5,301 | $4,970 | $331 | 7% | | Customer advances | $25,290 | $24,937 | $353 | 1% | | Deferred revenue – current | $75,375 | $81,660 | $(6,285) | (8)% | | Deferred revenue – non-current | $24,694 | $23,685 | $1,009 | 4% | - Total remaining performance obligations amounted to **$1,104.4 million** as of June 30, 2022, with **$69.1 million** related to long-term warranty and service[610](index=610&type=chunk) - For the remaining **$1,035.3 million** of performance obligations, **25% to 28%** is estimated to be recognized in the next **12 months**, with the remainder thereafter[612](index=612&type=chunk) - Approximately **16%** of the company's **$983.2 million** open system sales contracts may never result in revenue due to long sales cycles and factors outside of its control[612](index=612&type=chunk) - Capitalized contract costs were **$11.4 million** as of June 30, 2022, with **$3.3 million** in amortization expense recognized during the year[613](index=613&type=chunk)[615](index=615&type=chunk) [Supplemental Financial Information](index=111&type=section&id=Note%204.%20Supplemental%20Financial%20Information) This note details accounts receivable (**$94.4 million**), inventories (**$142.3 million**), property and equipment (**$12.7 million**), and accumulated other comprehensive income, which shifted from a loss to a gain, primarily due to pension obligations Accounts Receivable, Net (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :-------------------------- | :------------ | :------------ | | Accounts receivable | $82,117 | $74,054 | | Unbilled fees and services | $13,325 | $12,354 | | Less: Allowance for credit losses | $(1,000) | $(1,048) | | **Accounts receivable, net** | **$94,442** | **$85,360** | Inventories (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :-------------- | :------------ | :------------ | | Raw materials | $61,871 | $45,301 | | Work-in-process | $16,367 | $22,014 | | Finished goods | $64,016 | $58,614 | | **Total Inventories** | **$142,254** | **$125,929** | Property and Equipment, Net (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :-------------------------- | :------------ | :------------ | | Total gross property & equipment | $91,895 | $90,507 | | Less: Accumulated depreciation | $(79,210) | $(78,175) | | **Property and equipment, net** | **$12,685** | **$12,332** | Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | June 30, 2022 | June 30, 2021 | June 30, 2020 | | :------------------------------------------ | :------------ | :------------ | :------------ | | Foreign Currency Items | $(1,541) | $2,457 | $752 | | Change in Defined Pension Benefit Obligation | $3,947 | $(364) | $(1,236) | | **Total** | **$2,406** | **$2,093** | **$(484)** | Other Expense, Net (in thousands) | Metric | 2022 | 2021 | 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Interest expense | $(8,129) | $(16,893) | $(18,080) | | Foreign currency transaction loss | $(2,618) | $(1,953) | $(2,343) | | Gain on contribution to joint venture | — | — | $12,964 | | Loss on Debt Extinguishment | — | $(9,948) | — | | Other expense, net | $356 | $1,128 | $759 | | **Total other expense, net** | **$(10,391)** | **$(27,666)** | **$(6,700)** | [Leases](index=113&type=section&id=Note%205.%20Leases) Accuray's operating lease costs were **$9.2 million** in FY2022, with right-of-use assets of **$16.8 million** and obligations of **$19.0 million** as of June 30, 2022, reflecting a weighted average remaining lease term of **2.59 years** - Operating lease costs for the twelve months ended June 30, 2022, were **$9.2 million**, with cash paid for operating lease liabilities totaling **$9.8 million**[631](index=631&type=chunk)[632](index=632&type=chunk) Operating Lease Right-of-Use Assets (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :------------------------------------------ | :------------ | :------------ | | Beginning balance | $22,522 | $28,647 | | Lease asset added | $3,522 | $1,069 | | Amortization for the year | $(9,246) | $(7,194) | | **Ending balance** | **$16,798** | **$22,522** | Operating Lease Obligation (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :------------------------------------------ | :------------ | :------------ | | Beginning balance | $25,609 | $32,397 | | Lease liability added | $3,209 | $1,069 | | Repayment and interest accretion | $(9,798) | $(7,857) | | **Ending balance** | **$19,020** | **$25,609** | | Current portion | $8,567 | $8,169 | | Noncurrent portion | $10,453 | $17,441 | - As of June 30, 2022, the weighted average remaining lease term for operating leases was **2.59 years**, and the weighted average discount rate was **6.07%**[635](index=635&type=chunk) Maturities of Operating Lease Liabilities (in thousands) | Year Ending June 30, | Amount | | :------------------- | :----- | | 2023 | $9,554 | | 2024 | $6,770 | | 2025 | $3,631 | | 2026 | $354 | | 2027 | $197 | | **Total** | **$20,506** | [Goodwill and Purchased Intangible Assets](index=114&type=section&id=Note%206.%20Goodwill%20and%20Purchased%20Intangible%20Assets) Accuray's goodwill remained stable at **$57.8 million** as of June 30, 2022, with no impairment, and purchased intangible assets had a net carrying amount of **$0.25 million**, with **$0.1 million** in amortization expense in FY2022 Goodwill Carrying Amount (in thousands) | Metric | June 30, 2022 | June 30, 2021 | | :-------------------------------- | :------------ | :------------ | | Balance at beginning of period | $57,960 | $57,717 | | Currency translation adjustment | $(120) | $243 | | **Balance at end of period** | **$57,840** | **$57,960** | - **No impairment** to goodwill was identified in fiscal years ended June 30, 2022, 2021, and 2020[637](index=637&type=chunk)[579](index=579&type=chunk) Purchased Intangible Assets, Net (in thousands) | Metric | June 30, 2022 (Net) | June 30, 2021 (Net) | | :------------ | :------------------ | :------------------ | | Patent license | $250 | $435 | - Amortization expense related to purchased intangible assets was **$0.1 million** in FY2022, **$0.2 million** in FY2021, and **$0.2 million** in FY2020[638](index=638&type=chunk) Estimated Future Amortization Expense of Purchased Intangible Assets (in thousands) | Year Ending June 30, | Amount | | :------------------- | :----- | | 2023 | $100 | | 2024 | $150 | | **Total** | **$250** | [Derivative Financial Instruments](index=115&type=section&id=Note%207.%20Derivative%20Financial%20Instruments) Accuray uses foreign currency forward contracts, with a notional value of approximately **$68.3 million** as of June 30, 2022, to manage foreign exchange rate risk, with fair value changes reported in earnings - The company utilizes foreign currency forward contracts to manage exposure to fluctuations in foreign currency exchange rates on intercompany balances, customer receivables, and liabilities[642](index=642&type=chunk) - These forward contracts are **not designated as hedging instruments** for accounting purposes, and all changes in fair value are reported in earnings as part of other expenses, net[509](index=509&type=chunk)[642](index=642&type=chunk) Outstanding Forward Currency Exchange Contracts (Notional Amount in thousands of U.S. dollars) | Currency | June 30, 2022 | June 30, 2021 | | :-------------- | :------------ | :------------ | | Swiss Franc | $27,910 | $8,891 | | Chinese Yuan | $2,524 | $1,927 | | Euro | $16,307 | $19,037 | | British Pound | $3,699 | $3,191 | | Indian Rupee | $3,728 | $7,825 | | Japanese Yen | $14,167 | $12,803 | | **Total** | **$68,335** | **$54,201** | Gain (Loss) from Derivative Financial Instruments (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Foreign currency exchange gain (loss) on forward contracts | $(2,045) | $(2,349) | $744 | | Foreign currency transactions gain (loss) | $(887) | $396 | $(3,087) | [Fair Value Measurements](index=115&type=section&id=Note%208.%20Fair%20Value%20Measurements) Accuray categorizes fair value measurements into a three-level hierarchy, with foreign currency forward contracts and debt instruments, including Convertible Notes, classified as **Level 2** measurements - Fair value measurements are categorized into a three-level hierarchy: **Level 1** (unadjusted quoted prices in active markets), **Level 2** (other observable inputs), and **Level 3** (unobservable inputs)[647](index=647&type=chunk)[648](index=648&type=chunk) - Foreign currency forward contracts, with a notional value of approximately **$68.3 million** at June 30, 2022, are considered **Level 2** fair value measurements[649](index=649&type=chunk) - The carrying value of the company's debt (Term Loan, Revolving Credit Facility, 3.75% Convertible Notes due 2022 and 2026) approximates its estimated fair value, which is also considered a **Level 2** fair value measurement[650](index=650&type=chunk) Carrying Value and Estimated Fair Value of Debt (in thousands) | Metric | June 30, 2022 (Carrying Value) | June 30, 2022 (Fair Value) | June 30, 2021 (Carrying Value) | June 30, 2021 (Fair Value) | | :-------------------------------- | :----------------------------- | :--------------------------- | :----------------------------- | :--------------------------- | | 3.75% Convertible Notes Due 2022 | $2,863 | $2,729 | $2,712 | $3,164 | | 3.75% Convertible Notes Due 2026 | $97,619 | $78,561 | $72,388 | $108,163 | | Term Loan Facility | $74,988 | $74,988 | $78,697 | $78,697 | | Revolving Credit Facility | $5,000 | $5,000 | $20,000 | $20,000 | | **Total** | **$180,470** | **$161,278** | **$173,797** | **$210,024** | [Commitments and Contingencies](index=116&type=section&id=Note%209.%20Commitments%20and%20Contingencies) Accuray has long-term debt commitments, purchase commitments, indemnification agreements, and bank guarantees, and is involved in ordinary course legal proceedings, with no material adverse financial impact currently anticipated Future Minimum Long-Term Principal and Interest on Debt (in thousands) | Year Ending June 30, | Long-Term Debt (Principal & Interest) | | :------------------- | :------------------------------------ | | 2023 | $16,266 | | 2024 | $13,138 | | 2025 | $14,827 | | 2026 | $116,777 | | **Total** | **$161,008** | - The company has open purchase commitments and contractual obligations in the ordinary course of business, with a majority due within a year, and terms generally allowing cancellation or rescheduling[657](index=657&type=chunk) - Standard indemnification agreements are in place with landlords and mortgagees; **no liability has been recorded** as of June 30, 2022, as no probable losses are identified[658](index=658&type=chunk) - Bank guarantees totaled approximately **$1.2 million** as of June 30, 2022 and 2021, related to customer bidding processes[659](index=659&type=chunk) - Royalty costs of **$1.9 million** were recorded in FY2022 and FY2021 related to software license agreements with third parties[660](index=660&type=chunk) - The company is involved in ordinary course legal proceedings but believes there are **no probable and reasonably estimable losses** that would materially affect its financial condition or operating results[664](index=664&type=chunk) [Debt](index=118&type=section&id=Note%2010.%20Debt) Accuray's debt includes Convertible Senior Notes due 2022 (repaid post-FY2022) and 2026, and New Credit Facilities, with the adoption of ASU 2020-06 changing convertible note accounting to a single liability, and the company subject to financial covenants - The **$2.9 million** aggregate principal amount of 3.75% Convertible Senior Notes due 2022 outstanding as of June 30, 2022, was **repaid in cash** subsequent to the fiscal year-end[665](index=665&type=chunk) - The **$100.0 million** aggregate principal amount of 3.75% Convertible Senior Notes due 2026 was outstanding as of June 30, 2022, with an initial conversion rate of **170.5611 shares per $1,000 principal amount** (conversion price **~$5.86 per share**)[672](index=672&type=chunk)[671](index=671&type=chunk) - Upon adoption of **ASU No. 2020-06** on July 1, 2021, the 3.75% Convertible Notes due 2026 are accounted for wholly as debt, reversing the prior separation of debt and equity components[673](index=673&type=chunk) - New Credit Facilities, entered into in May 2021, include an **$80 million Term Loan Facility ($76.0 million outstanding)** and a **$40 million Revolving Credit Facility ($5.0 million outstanding)** as of June 30, 2022[688](index=688&type=chunk)[693](index=693&type=chunk) - Interest on the New Credit Facilities is variable, tied to **90-day LIBOR** (with a **0.50% floor**) plus a margin ranging from **2.50% to 3.25%** based on the Consolidated Senior Net Leverage Ratio[689](index=689&type=chunk) - The New Credit Agreement contains financial covenants, including a **Fixed Charge Coverage Ratio** and **Consolidated Senior Net Leverage Ratio**, which the company must meet[691](index=691&type=chunk) Carrying Value of New Credit Facilities and Notes (in thousands) | Metric | June 30, 2022 | | :-------------------------------- | :------------ | | Revolving Credit Facility | $5,000 | | 3.75% Convertible Notes Due 2022 | $2,864 | | 3.75% Convertible Notes Due 2026 | $97,619 | | Term Loan Facility | $74,987 | | **Net Carrying Amount** | **$180,470** | | Short-term debt | $8,563 | | Long-term debt | $171,907 | Interest Expense on New Credit Facilities and Notes (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Contractual interest coupon | $7,233 | $10,590 | $12,373 | | Amortization of debt discount | — | $4,887 | $4,168 | | Amortization of debt issuance costs | $909 | $1,356 | $1,350 | | Extinguishment of debt | — | $9,948 | — | | **Total** | **$8,142** | **$26,781** | **$17,891** | [Shareholders' Equity](index=122&type=section&id=Note%2011.%20Shareholders%27%20Equity) As of June 30, 2022, **1.6 million shares** of common stock were reserved for issuance under Accuray's stock incentive plans, and the company repurchased **3,108,369 shares** for **$14.1 million** in May 2021 - As of June 30, 2022, **1.6 million shares** of common stock were reserved for issuance under stock incentive plans and the employee stock purchase plan[696](index=696&type=chunk) - In May 2021, the company repurchased **3,108,369 shares** of its common stock for an aggregate amount of **$14.1 million**[697](index=697&type=chunk) [Stock Incentive Plan and Employee Stock Purchase Plan](index=123&type=section&id=Note%2012.%20Stock%20Incentive%20Plan%20and%20Employee%20Stock%20Purchase%20Plan) Accuray operates equity incentive plans, with share-based compensation expense of **$10.6 million** in FY2022, and **$14.5 million** in unrecognized compensation expense related to unvested awards as of June 30, 2022 - The company operates the **2016 Equity Incentive Plan** and the **2007 Incentive Award Plan** (no new grants under 2007 Plan), granting stock options, restricted stock awards (RSUs), performance units (PSUs), market stock units (MSUs), and Employee Stock Purchase Plan (ESPP) awards[698](index=698&type=chunk)[700](index=700&type=chunk) Share-Based Compensation Expense (in thousands) | Metric | 2022 | 2021 | 2020 | | :-------------------------- | :--------- | :--------- | :--------- | | Cost of revenue | $1,584 | $1,296 | $1,244 | | Research and development | $1,371 | $1,348 | $1,457 | | Selling and marketing | $2,213 | $1,457 | $1,159 | | General and administrative | $5,432 | $5,231 | $4,292 | | **Total** | **$10,600** | **$9,332** | **$8,152** | - As of June 30, 2022, approximately **$14.5 million** of unrecognized compensation expense, net of estimated forfeitures, related to unvested stock options, ESPP, and restricted stock units, is expected to be recognized over a weighted average period of **0.6 to 2.4 years**[466](index=466&type=chunk)[710](index=710&type=chunk)[724](index=724&type=chunk) - The fair value of stock options and ESPP awards is estimated using the **Black-Scholes option-pricing model**, while MSUs use a **Monte Carlo simulation model**[706](index=706&type=chunk)[722](index=722&type=chunk)[585](index=585&type=chunk) Stock Options Activity (in thousands, except per share and term) | Metric | Options Outstanding (June 30, 2022) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | | :------------------------------------------ | :-------------------------------- | :------------------------------ | :-------------------------------------------------- | | Balance at June 30, 2022 | 7,053 | $3.73 | 7.05 | | Exercisable at June 30, 2022 | 4,576 | $4.00 | 6.27 | Unvested Restricted Stock (RSUs, PSUs, MSUs) Activity (in thousands, except fair value per share) | Metric | Total Number of Shares Underlying Stock Awards (June 30, 2022) | Weighted Average Grant Date Fair Value Per Share | | :------------------------------------------ | :--------------------------------------------------- | :----------------------------------------------- | | Unvested at June 30, 2022 | 5,136 | $3.74 | [Joint Venture](index=128&type=section&id=Note%2013.%20Joint%20Venture) Accuray Asia holds a **49%** equity interest in a China JV, accounted for using the equity method, with a carrying value of **$13.9 million** as of June 30, 2022, and the JV reported **$55.2 million** in revenue for the twelve months ended March 31, 2022 - Accuray Asia holds a **49% equity interest** in the joint venture (JV) with CNNC High Energy Equipment (Tianjin) Co., Ltd., formed in January 2019 to manufacture and sell radiation oncology systems in China[725](index=725&type=chunk) - The JV is accounted for using the **equity method**, with Accuray recognizing its proportionate share of income or loss on a one-quarter lag and eliminating intra-entity profits on sales until realized[726](index=726&type=chunk) - As of June 30, 2022, the carrying value of Accuray's investment in the JV was **$13.9 million**, and equity method goodwill was **$4.7 million**, with **no impairment identified**[727](index=727&type=chunk) Summarized Financial Information of the JV (in thousands) | Metric | 12 Months Ended March 31, 2022 | 12 Months Ended March 31, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $55,190 | $33,054 | | Gross Profit | $15,915 | $10,578 | | Net income | $422 | $1,785 | | Net income attributable to the Company | $241 | $872 | | **Balance Sheet Data (in thousands):** | | | | Current assets | $71,730 | $24,703 | | Non current assets | $21,754 | $23,089 | | Current liabilities | $61,877 | $16,854 | | Non current liabilities | $1,055 | $1,467 | | Stockholder's equity | $30,552 | $29,471 | [Income Taxes](index=129&type=section&id=Note%2014.%20Income%20Taxes) Accuray reported a loss before income taxes of **$2.0 million** in FY2022, with a provision of **$3.3 million**, and holds significant NOL carryforwards and R&D tax credits, but a full valuation allowance is recorded against deferred tax assets Income (Loss) Before Provision for Income Taxes (in thousands) | Metric | 2022 | 2021 | 2020 | | :-------------- | :--------- | :--------- | :--------- | | Domestic | $(14,092) | $(8,448) | $(1,811) | | Foreign | $12,090 | $3,889 | $7,501 | | **Total** | **$(2,002)** | **$(4,559)** | **$5,690** | Provision for Income Taxes (in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Total current | $1,560 | $1,866 | $1,510 | | Total deferred | $1,785 | $(114) | $353 | | **Total provision for income taxes** | **$3,345** | **$1,752** | **$1,863** | Significant Components of Net Deferred Tax Assets (Liabilities) (in thousands, June 30, 2022) | Metric | Amount | | :-------------------------------- | :------- | | Federal and state net operating losses | $75,450 | | R&D Credits | $25,146 | | Total deferred tax assets | $123,366 | | Total deferred tax liabilities | $(5,768) | | Valuation allowance | $(119,115) | | **Net deferred tax assets (liabilities)** | **$(1,517)** | - As of June 30, 2022, the company had approximately **$324.0 million** in federal and **$131.1 million** in state net operating loss carryforwards, expiring in varying amounts starting in 2025 and 2023, respectively[738](index=738&type=chunk) - As of June 30, 2022, federal R&D tax credits were approximately **$25.5 million** (expiring 2023+) and state R&D tax credits were **$22.1 million** (California credits have no expiration date)[739](index=739&type=chunk) - A **100% valuation allowance** is established against combined domestic net deferred tax assets due to uncertainty surrounding their realization[740](index=740&type=chunk) - The company had **$19.8 million** in gross unrecognized tax benefits as of June 30, 2022, with no material changes anticipated in the next **12 months**[743](index=743&type=chunk) [Employee Benefit Plan](index=132&type=section&id=Note%2015.%20Employee%20Benefit%20Plan) Accuray sponsors a 401(k) Plan in the United States, allowing voluntary employee contributions, with discretionary matching contributions totaling **$2.3 million** in fiscal year 2022 - The company's employee savings and retirement plan is a **401(k) Plan**, allowing voluntary, tax-deferred contributions up to statutory limits[747](index=747&type=chunk) - Discretionary matching contributions to the 401(k) Plan were **$2.3 million** in FY2022, **$1.1 million** in FY2021, and **$2.0 million** in FY2020[747](index=747&type=chunk) [Defined Benefit Pension Obligation](index=132&type=section&id=Note%2016.%20Defined%20Benefit%20Pension%20Obligation) Accuray maintains an unfunded defined benefit pension plan for its Switzerland subsidiary, with an unfunded liability of **$0.1 million** as of June 30, 2022, and an actuarial gain of **$4.3 million** recognized in other comprehensive loss - The company has an **unfunded defined benefit pension plan** for its Switzerland subsidiary, providing benefits upon retirement, death, or disability[748](index=748&type=chunk) - As of June 30, 2022, the unfunded liability was **$0.1 million**, recognized in long-term other liabilities, and an actuarial gain of **$4.3 million** was recognized in other comprehensive loss[748](index=748&type=chunk) Funded Status of Defined Benefit Pension Plan (in thousands) | Metric | 2022 | 2021 | | :------------------------------------------ | :--------- | :--------- | | Benefit obligation—end of fiscal year | $17,453 | $18,705 | | Plan assets—end of fiscal year | $17,350 | $14,419 | | **Funded status** | **$(103)** | **$(4,286)** | Estimated Future Benefit Payments (in thousands) | Year Ending June 30, | Amount | | :------------------- | :----- | | 2023 | $1,001 | | 2024 | $1,015 | | 2025 | $1,212 | | 2026 | $1,054 | | 2027 | $1,218 | | Thereafter | $8,605 | | **Total** | **$14,105** | - Plan assets are invested in insurance contracts with Copré Collective Foundation in Lausanne, Switzerland, with a guaranteed interest rate for mandatory retirement savings of **1.00%** in FY2022 and FY2021[763](index=763&type=chunk) [Segment Disclosure](index=135&type=section&id=Note%2017.%20Segment%20Disclosure) Accuray operates as a single oncology systems segment, with revenue attributed by customer shipping address, primarily from Americas, EMEA, and China, and long-lived tangible assets mainly located in the Americas - The company has **one operating and reporting segment**: the oncology systems group, which develops, manufactures, and markets proprietary medical devices for radiation therapy[766](index=766&type=chunk) Revenue by Geographic Region (in thousands) | Region | 2022 | 2021 | 2020 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Americas | $126,005 | $105,878 | $128,562 | | Europe, Middle East, India and Africa | $134,640 | $121,568 | $119,989 | | Asia Pacific, excluding Japan and China | $28,953 | $26,425 | $31,297 | | Japan | $53,376 | $62,636 | $72,688 | | China | $86,935 | $79,782 | $30,392 | | **Total** | **$429,909** | **$396,289** | **$382,928** | Long-Lived Tangible Assets by Geographic Area (in thousands) | Region | June 30, 2022 | June 30, 2021 | | :------------------------------------------ | :------------ | :------------ | | Americas | $11,251 | $10,588 | | Europe, Middle East, India and Africa | $228 | $265 | | Asia Pacific, excluding Japan and China | $272 | $170 | | Japan | $265 | $701 | | China | $669 | $608 | | **Total** | **$12,685** | **$12,332** | [Restructuring Charges](index=136&type=section&id=Note%2018.%20Restructuring%20Charges) Accuray incurred **no restructuring charges** in fiscal years 2022 and 2021, but recorded **$1.1 million** in FY2020 due to a cost-saving initiative involving a **3% reduction** in its global workforce - **No restructuring charges** were incurred for the years ended June 30, 2022, and 2021[770](index=770&type=chunk) - In fiscal 2020, **$1.1 million** in restructuring charges were recorded due to a cost-saving initiative involving the elimination of approximately **3% of the global workforce**[770](index=770&type=chunk) [Subsequent Events](index=136&type=section&id=Note%2019.%20Subsequent%20Events) No subsequent events requiring adjustments to financial statement disclosures were identified through the filing date of the Annual Report on Form 10-K - **No subsequent events** requiring adjustments to financial statement disclosures were identified through the filing date of the Annual Report on Form 10-K[771](index=771&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=137&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no changes in or disagreements with accountants on accounting and financial disclosure to report - None[773](index=773&type=chunk) [Controls and Procedures](index=137&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that Accuray's disclosure controls and internal control over financial reporting were effective as of June 30, 2022, with no material changes during the quarter - Management, including the CEO and CFO, concluded that **disclosure controls and procedures were effective** as of June 30, 2022, providing reasonable assurance for timely and accurate information disclosure[775](index=775&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of June 30, 2022, based on the COSO 2013 framework[776](index=776&type=chunk) - **No material changes** to internal control over financial reporting occurred during the quarter ended June 30, 2022[777](index=777&type=chunk) [Other Information](index=138&type=section&id=Item%209B.%20Information) There is no other information to report under this item - None[779](index=779&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=138&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) There are no disclosures regarding foreign jurisdictions that prevent inspections - None[779](index=779&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=140&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information from the 2022 Proxy Statement regarding directors, executive officers, and corporate governance matters - Information regarding directors, executive officers, corporate governance, director nomination process, Audit Committee financial expert, and Audit Committee members is **incorporated by reference** from the 2022 Proxy Statement[787](index=787&type=chunk) [Executive Compensation](index=140&type=section&id=Item%2011.%20Executive%20Compensation) This section incorporates by reference information from the 2022 Proxy Statement concerning executive compensation and related committee reports - Information on executive compensation, Compensation Committee Report, Compensation Discussion and Analysis, Compensation of Non-Employee Directors, and Compensation Committee Interlocks and Insider Participation is **incorporated by reference** from the 2022 Proxy Statement[788](index=788&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=140&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section incorporates by reference information from the 2022 Proxy Statement regarding security ownership of beneficial owners, management, and equity compensation plans - Information regarding security ownership of certain beneficial owners and management, and Equity Compensation Plan Information is **incorporated by reference** from the 2022 Proxy Statement[789](index=789&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=140&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section incorporates by reference information from the 2022 Proxy Statement regarding certain relationships, related transactions, and director independence - Information on Certain Relationships and Related Transactions, and Director Independence is **incorporated by reference** from the 2022 Proxy Statement[790](index=790&type=chunk) [Principal Accountant Fees and Services](index=140&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section incorporates by reference information from the 2022 Proxy Statement regarding principal accountant fees, services, and Audit Committee pre-approval policies - Information regarding Principal Accountant Fees and Services and Audit Committee Pre-Approval Policies and Procedures is **incorporated by reference** from the 2022 Proxy Statement[791](index=791&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=141&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This item lists all documents filed as part of the report, including consolidated financial statements, omitted schedules, and a detailed list of exhibits - The report includes consolidated financial statements as set forth in Item 8[793](index=793&type=chunk) - All financial statement schedules have been omitted as the required information is not applicable or is included in the consolidated financial statements and notes[794](index=794&type=chunk) - A detailed list of exhibits, incorporated by reference or filed herewith, is provided[795](index=795&type=chunk) [10-K Summary](index=149&type=section&id=Item%2016.%2010-K%20Summary) This item is marked as "None," indicating no 10-K summary is provided in the report - None[807](index=807&type=chunk) [Signatures](index=150&type=section&id=SIGNATURES) The Annual Report on Form 10-K was duly signed on August 17, 2022, by key executives and Board members, certifying compliance with the Securities Exchange Act of 1934 - The report was signed on **August 17, 2022**, by Suzanne Winter (President and CEO), Ali Pervaiz (CFO), Franco Palomba (Chief Accounting Officer), and members of the Board of Directors[808](index=808&type=chunk)[809](index=809&type=chunk)[813](index=81