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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 September 30, 2022

 

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

Incorporation or Organization)

 

(IRS Employer

Identification Number)

 

1310 Chesapeake Terrace

Sunnyvale, California 94089

(Address of Principal Executive Offices Including Zip Code)

 

(408) 716-4600

(Registrant’s Telephone Number, Including Area Code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ARAY

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No

 

As of October 28, 2022, there were 93,778,769 shares of the Registrant’s Common Stock, par value $0.001 per share, outstanding.

 

+

 


 

Table of Contents

 

 

 

Page No.

 

 

 

PART I.

Financial Information

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

3

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and June 30, 2022

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2022 and 2021

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2022 and 2021

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2022 and 2021

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

29

 

 

 

PART II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

Item 3.

Defaults Upon Senior Securities

64

 

 

 

Item 4.

Mine Safety Disclosures

64

 

 

 

Item 5.

Other Information

64

 

 

 

Item 6.

Exhibits

65

 

 

 

Signatures

 

66

 

We own or have rights to various trademarks and tradenames used in our business in the United States or other countries, including the following: Accuray®, Accuray Logo®, CyberKnife®, Hi‑Art®, RoboCouch®, Synchrony®, TomoTherapy®, Xsight®, Accuray Precision®, AutoSegmentation™, CTrue™, H™ Series, iDMS®, InCise™, Iris™, CyberKnife M6™ Series, Accuray OIS Connect™, PreciseART®, PreciseRTX®, Treatment Planning System™, TomoDirect™, TomoEDGE™, TomoH®, TomoHD®, TomoHDA™, TomoHelical™, TomoTherapy Quality Assurance™, Radixact®, Onrad ™, S7™, and VoLO™.

2


 

PART I. FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

 

Accuray Incorporated

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share amounts and par value)

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

81,007

 

 

$

88,737

 

Restricted cash

 

 

203

 

 

 

204

 

Accounts receivable, net of allowance for credit losses of $848 and $1,000 as of September 30, 2022 and June 30, 2022, respectively (a)

 

 

77,029

 

 

 

94,442

 

Inventories

 

 

152,624

 

 

 

142,254

 

Prepaid expenses and other current assets (b)

 

 

24,241

 

 

 

23,794

 

Deferred cost of revenue

 

 

161

 

 

 

1,459

 

Total current assets

 

 

335,265

 

 

 

350,890

 

Property and equipment, net

 

 

10,938

 

 

 

12,685

 

Investment in joint venture

 

 

12,776

 

 

 

13,879

 

Operating lease right-of-use assets, net

 

 

26,789

 

 

 

16,798

 

Goodwill

 

 

57,658

 

 

 

57,840

 

Intangible assets, net

 

 

214

 

 

 

250

 

Long-term restricted cash

 

 

1,180

 

 

 

1,213

 

Other assets

 

 

21,529

 

 

 

19,294

 

Total assets

 

$

466,349

 

 

$

472,849

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

32,945

 

 

$

31,337

 

Accrued compensation

 

 

30,890

 

 

 

29,441

 

Operating lease liabilities, current

 

 

4,864

 

 

 

8,567

 

Other accrued liabilities

 

 

30,201

 

 

 

30,285

 

Customer advances

 

 

17,983

 

 

 

25,290

 

Deferred revenue

 

 

69,948

 

 

 

75,375

 

Short-term debt

 

 

5,705

 

 

 

8,563

 

Total current liabilities

 

 

192,536

 

 

 

208,858

 

Long-term liabilities:

 

 

 

 

 

 

Operating lease liabilities, non-current

 

 

24,123

 

 

 

10,453

 

Long-term other liabilities

 

 

3,626

 

 

 

3,748

 

Deferred revenue, non-current

 

 

28,453

 

 

 

24,694

 

Long-term debt

 

 

170,620

 

 

 

171,907

 

Total liabilities

 

 

419,358

 

 

 

419,660

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.001 par value; authorized: 200,000,000 shares as of September 30, 2022 and June 30, 2022, respectively; issued and outstanding: 93,778,769 and 93,499,500 shares at September 30, 2022 and June 30, 2022, respectively

 

 

94

 

 

 

94

 

Additional paid-in-capital

 

 

546,117

 

 

 

543,211

 

Accumulated other comprehensive income (loss)

 

 

(1,249

)

 

 

2,406

 

Accumulated deficit

 

 

(497,971

)

 

 

(492,522

)

Total stockholders' equity

 

 

46,991

 

 

 

53,189

 

Total liabilities and stockholders' equity

 

$

466,349

 

 

$

472,849

 

 

(a)
Includes trade receivable from the China joint venture, an equity method investment of $18,591 and $24,828 at September 30, 2022 and June 30, 2022, respectively. See Note 14.
(b)
Includes other receivable from the China joint venture, an equity method investment of $779 and $861 at September 30, 2022 and June 30, 2022, respectively.
 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

Accuray Incorporated

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share amounts)

 

 

 

Three Months Ended
September 30,

 

 

 

 

2022

 

 

2021

 

 

Net revenue:

 

 

 

 

 

 

 

Products (a)

 

$

44,623

 

 

$

52,759

 

 

Services (b)

 

 

51,870

 

 

 

54,683

 

 

Total net revenue

 

 

96,493

 

 

 

107,442

 

 

Cost of revenue:

 

 

 

 

 

 

 

Cost of products

 

 

28,850

 

 

 

31,509

 

 

Cost of services

 

 

33,046

 

 

 

36,409

 

 

Total cost of revenue (c)

 

 

61,896

 

 

 

67,918

 

 

Gross profit

 

 

34,597

 

 

 

39,524

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development (d)

 

 

14,092

 

 

 

14,382

 

 

Selling and marketing

 

 

10,795

 

 

 

11,271

 

 

General and administrative

 

 

11,892

 

 

 

11,460

 

 

Total operating expenses

 

 

36,779

 

 

 

37,113

 

 

Income (loss) from operations

 

 

(2,182

)

 

 

2,411

 

 

Loss on equity method investment, net

 

 

(368

)

 

 

(340

)

 

Other expense, net

 

 

(2,558

)

 

 

(2,668

)

 

Loss before provision for income taxes

 

 

(5,108

)

 

 

(597

)

 

Provision for income taxes

 

 

341

 

 

 

431

 

 

Net loss

 

$

(5,449

)

 

$

(1,028

)

 

Net loss per share - basic

 

$

(0.06

)

 

$

(0.01

)

 

Net loss per share - diluted

 

$

(0.06

)

 

$

(0.01

)

 

Weighted average common shares used in computing net loss per share:

 

 

 

 

 

 

 

Basic

 

 

93,529

 

 

 

90,838

 

 

Diluted

 

 

93,529

 

 

 

90,838

 

 

Net loss

 

$

(5,449

)

 

$

(1,028

)

 

Foreign currency translation adjustment

 

 

(3,655

)

 

 

231

 

 

Comprehensive loss

 

$

(9,104

)

 

$

(797

)

 

 

(a)
Includes sales to the China joint venture, an equity method investment, of $8,869 and $5,920 during the three months ended September 30, 2022 and September 30, 2021, respectively. See Note 14.
(b)
Includes sales to the China joint venture, an equity method investment, of $2,957 and $3,638 during the three months ended September 30, 2022 and September 30, 2021, respectively. See Note 14.
(c)
Includes cost of revenue from sales to the China joint venture, an equity method investment, of $5,907 and $8,044 during the three months ended September 30, 2022 and September 30, 2021, respectively.
(d)
Includes chargeback to the China joint venture, an equity method investment, related to a research and development project of $779 and $579 during the three months ended September 30, 2022 and September 30, 2021, respectively.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

Accuray Incorporated

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2022

 

 

93,500

 

 

$

94

 

 

$

543,211

 

 

$

2,406

 

 

$

(492,522

)

 

$

53,189

 

Issuance of restricted stock

 

 

279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

2,906

 

 

 

 

 

 

 

 

 

2,906

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,449

)

 

 

(5,449

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(3,655

)

 

 

 

 

 

(3,655

)

Balance at September 30, 2022

 

 

93,779

 

 

$

94

 

 

$

546,117

 

 

$

(1,249

)

 

$

(497,971

)

 

$

46,991

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2021

 

 

90,822

 

 

$

91

 

 

$

554,680

 

 

$

2,093

 

 

$

(488,024

)

 

$

68,840

 

Cumulative adjustment due to adoption of ASU No. 2020-06

 

 

 

 

 

 

 

 

(25,633

)

 

 

 

 

 

849

 

 

 

(24,784

)

Issuance of restricted stock

 

 

97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

2,506

 

 

 

 

 

 

 

 

 

2,506

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,028

)

 

 

(1,028

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

231

 

 

 

 

 

 

231

 

Balance at September 30, 2021

 

 

90,919

 

 

$

91

 

 

$

531,553

 

 

$

2,324

 

 

$

(488,203

)

 

$

45,765

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

Accuray Incorporated

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended
September 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(5,449

)

 

$

(1,028

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,176

 

 

 

1,419

 

Share-based compensation

 

 

2,916

 

 

 

2,516

 

Amortization of debt issuance costs

 

 

219

 

 

 

156

 

Provision (reversal of provision) for credit losses

 

 

(23

)

 

 

303

 

Provision for write-down of inventories

 

 

769

 

 

 

1,007

 

Loss on disposal of property and equipment

 

 

2

 

 

 

22

 

Loss on equity method investment

 

 

368

 

 

 

340

 

Deferral of equity method investment intra-entity profit margin from sales

 

 

39

 

 

 

1,738

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

15,466

 

 

 

(9,178

)

Inventories

 

 

(12,355

)

 

 

(2,093

)

Prepaid expenses and other assets

 

 

(2,183

)

 

 

(1,487

)

Deferred cost of revenue

 

 

1,298

 

 

 

516

 

Accounts payable

 

 

2,371

 

 

 

3,575

 

Operating lease liabilities, net of operating lease right-of-use assets

 

 

(25

)

 

 

(217

)

Accrued liabilities

 

 

1,851

 

 

 

(2,302

)

Customer advances

 

 

(6,874

)

 

 

(1,935

)

Deferred revenues

 

 

480

 

 

 

(1,952

)

Net cash provided by (used in) operating activities

 

 

46

 

 

 

(8,600

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,272

)

 

 

(1,456

)

Net cash used in investing activities

 

 

(1,272

)

 

 

(1,456

)

Cash flows from financing activities

 

 

 

 

 

 

Paydown under Term Loan Facility

 

 

(1,500

)

 

 

(1,000

)

Repayments under the Notes

 

 

(2,865

)

 

 

 

Net cash used in financing activities

 

 

(4,365

)

 

 

(1,000

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(2,173

)

 

 

(654

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(7,764

)

 

 

(11,710

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

90,154

 

 

 

118,201

 

Cash, cash equivalents and restricted cash at end of period

 

$

82,390

 

 

$

106,491

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Reclassification of equity component of convertible notes into liabilities upon adoption of ASU 2020-06

 

$

-

 

 

$

25,633

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

Accuray Incorporated

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1. The Company and its Significant Accounting Policies

The Company

 

Accuray Incorporated (together with its subsidiaries, the “Company” or “Accuray”) designs, develops and sells advanced radiosurgery and radiation therapy systems for the treatment of tumors throughout the body. The Company is incorporated in Delaware and has its principal place of business in Sunnyvale, California. The Company has primary offices in the United States, Switzerland, China, Hong Kong and Japan and conducts its business worldwide.

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the periods presented. The results for the three months ended September 30, 2022, are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2023, or for any other future interim period or fiscal year.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended June 30, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 17, 2022.

Risks and Uncertainties

 

The ongoing COVID-19 pandemic has created significant global economic uncertainty, adversely impacted the business of the Company's customers, partners and vendors, contributed to supply chain and labor issues, and has impacted its business and results of operations in the past and could further impact its results of operations and cash flows in the future. The Company is also subject to risks and uncertainties caused by events with significant macroeconomic impacts, including, but not limited to, the Russian invasion of Ukraine, inflation, actions taken to counter inflation and foreign currency exchange rate fluctuations. These conditions have created and may continue to create significant disruptions with respect to demand for the Company's products and services; the operating procedures and workflow of its customers, particularly hospitals; its ability to continue to manufacture its products; and the reliability of its supply chain, which have impacted and could continue to impact its revenue, expenses and operating results.

 

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company. Key estimates and assumptions made by the Company relate to revenue recognition and the assessment of stand-alone selling price, assessment of recoverability of goodwill, valuation of our equity method investment CNNC Accuray (Tianjin) Medical Technology Co. Ltd., the Company’s joint venture in China (the “JV”), valuation of inventories, annual performance related bonuses, allowance for credit losses and loss contingencies. Actual results could differ materially from those estimates.

Significant Accounting Policies

 

There have been no changes in the Company’s significant accounting policies during the three months ended September 30, 2022, compared to the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

 

 

7


 

Note 2. Recent Accounting Pronouncements

 

Accounting Pronouncement Not Yet Effective

 

In March 2020, the FASB issued an update (ASU 2020-04) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company’s Term Loan Facility and Revolving Credit Facility applies Eurodollar rate LIBOR to the variable component of the interest rate, or if a Benchmark transition event, or an early opt-in election, as applicable occurred a transition to the use of the Secured Overnight Financing Rate ("SOFR") to replace such rate. This accounting standard update was effective upon issuance and may be applied prospectively through December 31, 2022. In October 2022, the Company will begin to use the SOFR to calculate the variable component of the interest rate for its Term Loan Facility and Revolving Credit Facility. The change to SOFR will not have a material impact on the Company's financial statements.

 

Note 3. Revenue

 

Contract Balances

 

The timing of revenue recognition, billings, and cash collections results in trade receivables, unbilled receivables, and deferred revenues on the unaudited condensed consolidated balance sheets. The Company may offer longer or extended payments of more than one year for qualified customers in some circumstances. At times, revenue recognition occurs before the billing, resulting in an unbilled receivable, which represents a contract asset. The contract asset is a component of accounts receivable and other assets for the current and non-current portions, respectively.

 

When the Company receives advances or deposits from customers before revenue is recognized, this results in a contract liability. It can take up to two and half years from the time of order to revenue recognition due to the Company’s long sales cycle.

 

Changes in the contract assets and contract liabilities are as follows (dollars in thousands):

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

 

Change

 

 

 

Amount

 

 

Amount

 

 

$

 

 

%

 

Contract Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled accounts receivable – current (1)

 

$

12,934

 

 

$

13,325

 

 

 

(391

)

 

 

(2.9

%)

Interest receivable – current (2)

 

 

394

 

 

 

493

 

 

 

(99

)

 

 

(20.1

%)

Long-term accounts receivable (3)

 

 

5,492

 

 

 

5,301

 

 

 

191

 

 

 

3.6

%

Interest receivable – non-current (3)

 

 

643

 

 

 

683

 

 

 

(40

)

 

 

(5.9

%)

Contract Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Customer advances

 

 

17,983

 

 

 

25,290

 

 

 

(7,307

)

 

 

(28.9

%)

Deferred revenue – current

 

 

69,948

 

 

 

75,375

 

 

 

(5,427

)

 

 

(7.2

%)

Deferred revenue – non-current

 

 

28,453

 

 

 

24,694

 

 

 

3,759

 

 

 

15.2

%

 

(1)
Included in accounts receivable on the unaudited condensed consolidated balance sheets.
(2)
Included in prepaid expenses and other current assets on the unaudited condensed consolidated balance sheets.
(3)
Included in other assets on the unaudited condensed consolidated balance sheets.

 

During the three months ended September 30, 2022, contract assets changed primarily due to changes in the timing of billings that occurred after revenues were recognized and changes in transactions with payment terms exceeding 12 months. During the three months ended September 30, 2022, contract liabilities changed due to changes in the timing of recognition of revenue for system sales for which the warranty has not yet started and was deferred and due to changes in transaction price.

 

During the three months ended September 30, 2022, the Company recognized revenue of $34.9 million, which was included in the deferred revenue balances at June 30, 2022. During the three months ended September 30, 2021, the Company recognized revenue of $33.5 million, which was included in the deferred revenue balances at June 30, 2021.

 

8


 

Remaining Performance Obligations

 

Remaining performance obligations represent deferred revenue from open contracts for which performance has already started and the transaction price from executed contracts for which performance has not yet started. Service contracts in general are considered month-to-month contracts.

 

As of September 30, 2022, total remaining performance obligations amounted to $1,107.2 million. Of this total amount, $66.1 million related to long-term warranty and non-cancellable post warranty services, which is the estimated revenue expected to be recognized over the remaining service period and warranty period for systems that have been delivered (the time bands reflect management’s best estimate of when the Company will transfer control to the customer and may change based on timing of shipment, readiness of customers’ facilities for installation, installation requirements, and availability of products). The Company has elected the practical expedient to not disclose the unsatisfied performance obligations of contracts with an original expected duration of one year or less.

The following table represents the Company's remaining performance obligations related to long-term warranty and non-cancellable post warranty services as of September 30, 2022 (in thousands):

 

 

 

Fiscal years of revenue recognition

 

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

Long-term warranty and non-cancellable post warranty services

 

$

22,378

 

 

$

21,638

 

 

$

12,789

 

 

$

9,285

 

 

For the remaining $1,041.1 million of performance obligations (i.e., open systems sales, upgrades, training and other miscellaneous items), the Company estimates 25% to 27% will be recognized in the next 12 months, and the remaining portion will be recognized thereafter. The Company’s historical experience indicates that some of its customers will cancel or renegotiate contracts as economic conditions change or when product offerings change during the long sales cycle. The Company anticipates a portion of its open contracts may never result in revenue recognition primarily due to the long sales cycle and factors outside of its control including changes in its customers' needs or financial condition, changes in government or health insurance reimbursement policies or changes to regulatory requirements. Based on historical experience and management's best estimate, approximately 16% of the Company’s $988.6 million open system sales contracts as of September 30, 2022, may never result in revenue.

 

Capitalized Contract Costs

 

As of September 30, 2022, and June 30, 2022, the balance of capitalized costs to obtain a contract was $11.5 million and $11.4 million, respectively. The Company has classified the capitalized costs to obtain a contract as a component of prepaid expenses and other current assets and other assets with respect to the current and non-current portions of capitalized costs, respectively, on the unaudited condensed consolidated balance sheets. The Company incurred impairment losses of $0.2 million and $0.1 million during the three months ended September 30, 2022 and 2021, respectively. The Company recognized $0.9 million in expenses related to the amortization of the capitalized contract costs in both the three months ended September 30, 2022 and 2021, respectively.

 

Note 4. Supplemental Financial Information

 

Balance Sheet Components

 

Financing receivables

 

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset on the Company’s balance sheets. The Company’s financing receivables, consisting of its accounts receivable with contractual maturities of more than one year, totaled $2.6 million and $2.8 million as of September 30, 2022, and June 30, 2022, respectively, and are included in Other assets on the unaudited condensed consolidated balance sheets. The Company evaluates the credit quality of a customer at contract inception and monitors credit quality over the term of the underlying transactions. The Company performs a credit analysis for all new customers and reviews payment history, current order backlog, financial performance of the customers and other variables that augment or mitigate the inherent credit risk of a particular transaction. Such variables include the underlying value and liquidity of the collateral, the essential use of the equipment, the contract term and the inclusion of credit enhancements, such as guarantees, letters of credit or security deposits. The Company classifies accounts as high risk when it considers the financing receivable to be impaired or when management believes there is a significant near‑term risk of non‑payment. The Company performs an assessment each quarter of the allowance for credit losses related to its financing receivables.

 

9


 

A summary of the Company’s financing receivables is presented as follows (in thousands):

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

Financing receivables

 

$

5,717

 

 

$

6,137

 

Allowance for credit losses

 

 

(943

)

 

 

(943

)

  Total, net

 

$

4,774

 

 

$

5,194

 

Reported as:

 

 

 

 

 

 

Current

 

$

2,204

 

 

$

2,435

 

Non-current

 

 

2,570

 

 

 

2,759

 

  Total, net

 

$

4,774

 

 

$

5,194

 

 

The Company did not have any additions to the allowance for credit losses during the three months ended September 30, 2022 and 2021.

 

Inventories

Inventories consisted of the following (in thousands):

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

Raw materials

 

$

65,296

 

 

$

61,871

 

Work-in-process

 

 

19,673

 

 

 

16,367

 

Finished goods

 

 

67,655

 

 

 

64,016

 

   Inventories

 

$

152,624

 

 

$

142,254

 

 

Property and equipment, net

Property and equipment, net consisted of the following (in thousands):

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

Furniture and fixtures

 

$

1,784

 

 

$

1,766

 

Computer and office equipment

 

 

8,309

 

 

 

8,605

 

Software

 

 

5,319

 

 

 

5,344

 

Leasehold improvements

 

 

26,520

 

 

 

26,659

 

Machinery and equipment

 

 

45,956

 

 

 

46,522

 

Construction in progress

 

 

2,154

 

 

 

2,999

 

 

 

 

90,042

 

 

 

91,895

 

Less: Accumulated depreciation

 

 

(79,104

)

 

 

(79,210

)

Property and equipment, net

 

$

10,938

 

 

$

12,685

 

 

Depreciation expense related to property and equipment for the three months ended September 30, 2022 and 2021 was $1.1 million. and $1.4 million, respectively.

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) are excluded from earnings and reported as a component of stockholders’ equity. The foreign currency translation adjustment results from those subsidiaries not using the U.S. Dollar as their functional currency since the majority of their economic activities are primarily denominated in their applicable local currency. Accordingly, all assets and liabilities related to these operations are translated to the U.S. Dollar at the current exchange rates at the end of each period. Revenues and expenses are translated at average exchange rates in effect during the period.

10


 

The components of accumulated other comprehensive income (loss) in the stockholders' equity section of the Company’s unaudited condensed consolidated balance sheets are as follows (in thousands):

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

Cumulative foreign currency translation adjustment

 

$

(5,196

)

 

$

(1,541

)

Defined benefit pension obligation

 

 

3,947

 

 

 

3,947

 

   Accumulated other comprehensive income (loss)

 

$

(1,249

)

 

$

2,406

 

 

Statements of Operations

 

Other expense, net, consisted of the following (in thousands):

 

 

 

Three Months Ended
September 30,

 

 

 

2022

 

 

2021

 

Interest expense

 

$

(2,262

)

 

$

(2,039

)

Foreign currency transaction loss

 

 

(251

)

 

 

(769

)

Other expense, net

 

 

(45

)

 

 

140

 

   Total other expense, net

 

$

(2,558

)

 

$

(2,668

)

 

Note 5. Leases

 

The Company has operating leases for corporate offices and warehouse facilities worldwide. Additionally, the Company leases cars, copy machines and laptops that are considered operating leases. Some of the Company’s leases are non-cancellable operating lease agreements with various expiration dates through June 2035. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments. In August 2022, the Company entered to a material lease agreement to extend the lease term at its office building and manufacturing facility in Madison, Wisconsin through 2035.

 

Operating lease costs were $2.3 million and $2.3 million during the three months ended September 30, 2022 and 2021, respectively, not including $0.1 million and $0.1 million, respectively, of short-term operating lease costs.

 

Cash paid for amounts included in the measurement of operating lease liabilities was $2.2 million and $2.5 million during the three months ended September 30, 2022 and 2021, respectively. Operating lease liabilities arising from obtaining operating right-of-use assets were $12.2 million and $0.9 million, during the three months ended September 30, 2022 and 2021, respectively.

 

Operating lease right-of-use assets and operating lease obligations are represented in the table below (in thousands):

 

 

 

September 30,
 2022

 

 

June 30,
2022

 

Beginning balance operating lease right-of-use assets

 

$

16,798

 

 

$

22,522

 

Lease asset added

 

 

12,203

 

 

 

3,522

 

Amortization for the year

 

 

(2,212

)

 

 

(9,246

)

   Ending balance operating lease right-of-use assets

 

$

26,789

 

 

$

16,798

 

 

 

 

 

 

 

 

Beginning balance operating lease obligations

 

$

19,020

 

 

$

25,609

 

Lease liability added

 

 

12,199

 

 

 

3,209

 

Repayment and interest accretion

 

 

(2,232

)

 

 

(9,798

)

   Ending balance operating lease obligations

 

$

28,987

 

 

$

19,020

 

 

 

 

 

 

 

 

Current portion of operating lease obligations

 

$

4,864

 

 

$

8,567

 

Non-current portion of operating lease obligations

 

$

24,123

 

 

$

10,453

 

 

11


 

Maturities of operating lease liabilities as of September 30, 2022 are presented in the table below (dollars in thousands):

 

 

 

Amount

 

2023 (remaining 9 months)

 

$

6,938

 

2024

 

 

2,678

 

2025

 

 

4,247

 

2026

 

 

3,344

 

2027

 

 

3,193

 

Thereafter

 

 

26,263

 

Total operating lease payments

 

 

46,663

 

Less: imputed interest</