Accuray(ARAY) - 2024 Q3 - Quarterly Report

PART I. Financial Information Provides a comprehensive overview of the company's financial performance, condition, and related disclosures Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for the period ended March 31, 2024, show decreased assets, net losses, and negative operating cash flow Unaudited Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2024, and June 30, 2023 Condensed Consolidated Balance Sheet Data (in thousands) | Balance Sheet Item | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $60,450 | $89,402 | | Accounts receivable, net | $73,154 | $74,777 | | Inventories | $159,566 | $145,150 | | Total current assets | $313,910 | $338,033 | | Total assets | $462,527 | $479,214 | | Liabilities & Equity | | | | Total current liabilities | $198,390 | $198,637 | | Long-term debt | $166,246 | $171,562 | | Total liabilities | $421,446 | $425,555 | | Total stockholders' equity | $41,081 | $53,659 | - Total assets decreased from $479.2 million at June 30, 2023, to $462.5 million at March 31, 2024, primarily driven by a decrease in cash and cash equivalents[16] - Total liabilities saw a slight decrease to $421.4 million from $425.6 million, while stockholders' equity declined from $53.7 million to $41.1 million over the same period[16][23] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Summarizes the company's revenues, expenses, and net income or loss for the three and nine months ended March 31, 2024 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $101,132 | $118,060 | $312,262 | $329,313 | | Gross profit | $29,074 | $38,718 | $104,469 | $116,282 | | Income (loss) from operations | $(4,562) | $2,316 | $(6,313) | $2,839 | | Net income (loss) | $(6,342) | $599 | $(18,932) | $(6,724) | | Diluted EPS | $(0.06) | $0.01 | $(0.19) | $(0.07) | - Total net revenue decreased by 14% for the three months and 5% for the nine months ended March 31, 2024, compared to the same periods in the prior year[20] - The company reported a net loss of $6.3 million for the third quarter of fiscal 2024, a significant shift from a net income of $0.6 million in the prior-year quarter[20] Unaudited Condensed Consolidated Statements of Cash Flows Details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended March 31, 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(21,786) | $6,658 | | Net cash used in investing activities | $(3,136) | $(4,705) | | Net cash used in financing activities | $(3,257) | $(1,590) | | Net increase (decrease) in cash | $(29,048) | $696 | - Net cash used in operating activities was $21.8 million for the nine months ended March 31, 2024, a significant negative swing from the $6.7 million provided by operating activities in the prior-year period, primarily due to the net loss and a $22.7 million increase in inventories[25] Notes to Unaudited Condensed Consolidated Financial Statements Provides additional details and explanations for the financial statements, including significant accounting policies and disclosures - The company faces risks from geopolitical and macroeconomic impacts, including inflation, rising interest rates, and supply chain challenges, which are expected to adversely affect gross margins and net income through at least the remainder of calendar year 2024[34][35] - As of March 31, 2024, total remaining performance obligations amounted to $959.9 million, of which the company estimates 27% to 30% of the $896.1 million related to open systems sales and upgrades will be recognized in the next 12 months[47][49] - The company owns a 49% interest in its China joint venture (JV), CNNC Accuray (Tianjin) Medical Technology Co. Ltd., which is accounted for using the equity method. The carrying value of this investment was $13.6 million as of March 31, 2024[116] - On October 25, 2023, the company initiated a cost savings plan, eliminating approximately 5.9% of its global workforce and recording $2.6 million in restructuring charges for the nine months ended March 31, 2024[96] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant financial decline in Q3 and first nine months of fiscal 2024, highlighting revenue drops, margin contraction, and liquidity Overview and Current Economic Conditions Provides an overview of the company's business and the macroeconomic factors impacting its operations and financial performance - Accuray develops, manufactures, and sells advanced radiation therapy solutions, including the CyberKnife® and TomoTherapy® platforms, designed for precise cancer treatment[128][129] - The company is navigating significant macroeconomic headwinds, including rising inflation, supply chain challenges, and adverse foreign currency fluctuations, which are negatively impacting results of operations[130] - Reduced budgets and longer customer installation timelines in the United States negatively impacted revenue in Q3 FY2024, with this trend expected to continue through at least fiscal year 2026[131] Backlog and Orders Presents key metrics related to gross orders, net orders, and the order backlog, indicating future revenue potential Order and Backlog Summary (in thousands) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Gross orders | $89,086 | $73,764 | $246,676 | $222,647 | | Net orders | $60,795 | $54,737 | $147,141 | $115,176 | | Order backlog at end of period | $503,220 | $506,587 | $503,220 | $506,587 | - Gross orders increased by $15.3 million (21%) in Q3 FY2024 compared to the prior year, driven by a $28.1 million increase in CyberKnife System orders, primarily from the EIMEA and Asia Pacific regions[142] - The book-to-bill ratio was 1.8 for the third quarter of fiscal 2024, up from 1.2 in the prior-year period, indicating strong demand for the company's products relative to current product revenue[144] Results of Operations Analyzes the company's net revenue, gross profit, operating expenses, and net income (loss) for the reporting periods Net Revenue by Sales Classification (in thousands) | Revenue Type | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Products | $49,603 | $62,846 | (21)% | | Services | $51,529 | $55,214 | (7)% | | Total Net Revenue | $101,132 | $118,060 | (14)% | Net Revenue by Geographic Region (in thousands) | Region | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Americas | $21,270 | $34,160 | (38)% | | EIMEA | $37,858 | $37,983 | (0)% | | China | $19,125 | $22,165 | (14)% | | Japan | $15,200 | $16,524 | (8)% | | Asia Pacific (ex-China) | $7,679 | $7,228 | 6% | - Gross profit margin decreased to 28.7% in Q3 FY2024 from 32.8% in Q3 FY2023, primarily due to the lower volume of shipments[154] - Total operating expenses decreased by 8% in Q3 FY2024, mainly due to a 23% reduction in R&D expenses resulting from lower headcount after the 2024 restructuring initiative[155] Liquidity and Capital Resources Discusses the company's cash position, debt facilities, and ability to fund operations, including recent credit agreement amendments - As of March 31, 2024, the company had $60.5 million in cash and cash equivalents. Management believes this, along with available debt facilities and anticipated cash flows, is sufficient to fund operations for at least the next 12 months[162] - Net cash used in operating activities was $21.8 million for the nine months ended March 31, 2024, a sharp decline from $6.7 million in cash provided by operations in the prior-year period, driven by the net loss and an increase in inventory[169][170] - On April 25, 2024, the company amended its Credit Agreement to update the calculation of Consolidated EBITDA to maintain compliance with debt covenants as of March 31, 2024[166] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency, interest rate, and equity price risks, with strategies to mitigate these financial exposures - The company is exposed to foreign currency risk as a majority of its sales are in foreign currencies, notably the Euro and Japanese Yen. It uses forward contracts, with a notional value of $80.5 million as of March 31, 2024, to manage this exposure[184][185] - The company has variable-rate debt under its Credit Facilities. As of March 31, 2024, a 50 basis point (0.50%) change in interest rates would result in an approximate $0.4 million change in annual interest expense on its outstanding $75.5 million balance[186] - Equity price risk exists due to the 3.75% Convertible Notes due 2026. If the stock price exceeds the conversion price of approximately $5.86 per share upon conversion, the company may need to issue additional cash or shares[187] Controls and Procedures Management evaluated disclosure controls as effective, noting the new ERP system's impact on internal controls over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[189] - The company implemented a new enterprise resource planning (ERP) system, SAP, in August 2023. This is expected to change certain processes and internal controls over financial reporting, which management will continue to evaluate[190] PART II. Other Information Details legal proceedings, significant risk factors, and other pertinent disclosures impacting operations and outlook Legal Proceedings The company is involved in ordinary course legal proceedings, with no expected material adverse financial impact - The company is involved in legal proceedings from time to time in the ordinary course of business. Management does not currently believe any of these proceedings will have a material adverse effect on its financial condition or results of operations[90][193] Risk Factors Outlines numerous significant risks, including business, regulatory, and financial factors, that could adversely affect the company's operations and stock Risks related to our business and results of operations Identifies key risks impacting the company's core business, including economic conditions, competition, and supply chain dependencies - The business is materially affected by the global economic environment, including inflation, rising interest rates, and potential recession, which could delay customer purchases and negatively impact revenues and gross margins[205][206] - The industry is subject to intense competition from large, well-capitalized companies like Varian (a Siemens Healthineers company) and Elekta, which have greater market share and resources[227][229] - Reliance on single-source suppliers for critical components (e.g., robot, couch, magnetron) exposes the company to supply chain disruptions, which could harm its ability to meet product demand and has already adversely affected gross margins[259][260] - Cybersecurity risks are significant, as a breach could lead to loss of data, business disruptions, and liability. The increasing use of AI and remote work may heighten these risks[265][266] Risks related to the regulation of our products and business Highlights regulatory challenges, including FDA approvals, compliance with healthcare laws, and reimbursement policy changes - The company's products are subject to extensive regulation by the FDA in the U.S. and similar agencies internationally. Product modifications or new products may require new, lengthy, and unpredictable 510(k) clearances or premarket approvals[330][332][333] - The company is subject to various federal, state, and foreign laws, including anti-kickback statutes, false claims acts, and anti-corruption laws like the FCPA, violations of which could result in substantial penalties[339][340][345] - Changes in healthcare reimbursement policies, such as those from Medicare (CMS) or private payors, could reduce demand for the company's products if coverage and payment for procedures are reduced[284][285] Risks related to our common stock Addresses risks specific to the company's common stock, such as price volatility and potential dilution from convertible notes - The company's common stock price is volatile and subject to significant fluctuations due to factors like variations in operating results, regulatory developments, and broader market conditions[360][361] - The conditional conversion features of the company's Convertible Senior Notes, if triggered, could require cash payments or result in the reclassification of debt to a current liability, adversely affecting financial condition[363][364] - Provisions in the company's debt agreements, certificate of incorporation, and bylaws could discourage or prevent a takeover, even if an acquisition would be beneficial to stockholders[365]