Accuray(ARAY) - 2023 Q1 - Quarterly Report

PART I. Financial Information 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 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 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] - 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] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss 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] - 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] Unaudited Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to Unaudited Condensed Consolidated Financial Statements 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][40] - 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][84][85] - 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][101][104] 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) 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 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] - 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] Results of Operations 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] - Services net revenue decreased by $2,800 thousand YoY, primarily due to a $2,300 thousand negative impact from foreign exchange rates[130] - 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] - Overall gross profit decreased by $4,900 thousand (12%) YoY, mainly due to lower product sales volume and an unfavorable foreign exchange impact[132] Liquidity and Capital Resources 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] - As of September 30, 2022, the company had $36,600 thousand of cash and cash equivalents held by its foreign subsidiaries[144] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] - 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] Item 4. Controls and Procedures 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] - There were no significant changes in the company's internal control over financial reporting during the first quarter of fiscal year 2023[175] PART II. Other Information This section covers legal proceedings, risk factors, and other required disclosures for the reporting period Item 1. Legal Proceedings 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][76] Item 1A. Risk Factors 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][194] - 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][223] - 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] - 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][231][235] Other Items (Items 2, 3, 4, 5, 6) 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] - Item 3: There were no defaults upon senior securities[382] - Item 6: The report lists exhibits filed, including CEO and CFO certifications under Sarbanes-Oxley[384][386][387]