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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, 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

incorporation or organization)

 

(IRS Employer

Identification No.)

 

1240 Deming Way

Madison, Wisconsin 53717

(Address of Principal Executive Offices Including Zip Code)

 

(608) 824-2800

(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 November 1, 2023, there were 97,072,183 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, 2023 and June 30, 2023

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2023 and 2022

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 30, 2023 and 2022

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2023 and 2022

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

PART II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

Item 1A.

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

 

 

 

Item 3.

Defaults Upon Senior Securities

67

 

 

 

Item 4.

Mine Safety Disclosures

67

 

 

 

Item 5.

Other Information

67

 

 

 

Item 6.

Exhibits

68

 

 

 

Signatures

 

69

 

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,
 2023

 

 

June 30,
2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,918

 

 

$

89,402

 

Restricted cash

 

 

524

 

 

 

524

 

Accounts receivable, net of allowance for credit losses of $2,969 and $3,079 as of September 30, 2023, and June 30, 2023, respectively (a)

 

 

77,370

 

 

 

74,777

 

Inventories

 

 

149,977

 

 

 

145,150

 

Prepaid expenses and other current assets (b)

 

 

28,798

 

 

 

27,612

 

Deferred cost of revenue

 

 

560

 

 

 

568

 

Total current assets

 

 

334,147

 

 

 

338,033

 

Property and equipment, net

 

 

24,963

 

 

 

20,926

 

Investment in joint venture

 

 

13,121

 

 

 

15,128

 

Operating lease right-of-use assets, net

 

 

24,378

 

 

 

25,853

 

Goodwill

 

 

57,656

 

 

 

57,681

 

Intangible assets, net

 

 

163

 

 

 

210

 

Restricted cash

 

 

1,249

 

 

 

1,276

 

Other assets

 

 

21,153

 

 

 

20,107

 

Total assets

 

$

476,830

 

 

$

479,214

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

34,877

 

 

$

33,739

 

Accrued compensation

 

 

26,496

 

 

 

23,793

 

Operating lease liabilities, current

 

 

6,077

 

 

 

4,151

 

Other accrued liabilities

 

 

36,634

 

 

 

38,271

 

Customer advances

 

 

19,372

 

 

 

20,777

 

Deferred revenue

 

 

71,764

 

 

 

72,185

 

Short-term debt

 

 

6,229

 

 

 

5,721

 

Total current liabilities

 

 

201,449

 

 

 

198,637

 

Long-term liabilities:

 

 

 

 

 

 

Operating lease liabilities, non-current

 

 

22,806

 

 

 

23,602

 

Long-term other liabilities

 

 

4,900

 

 

 

4,675

 

Deferred revenue, non-current

 

 

26,939

 

 

 

27,079

 

Long-term debt

 

 

169,792

 

 

 

171,562

 

Total liabilities

 

 

425,886

 

 

 

425,555

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.001 par value; authorized: 200,000,000 shares as of September 30, 2023, and June 30, 2023, respectively; issued and outstanding: 96,726,843 and 96,534,609 shares at September 30, 2023, and June 30, 2023, respectively

 

 

97

 

 

 

97

 

Additional paid-in-capital

 

 

557,668

 

 

 

555,276

 

Accumulated other comprehensive income (loss)

 

 

(1,716

)

 

 

422

 

Accumulated deficit

 

 

(505,105

)

 

 

(502,136

)

Total stockholders' equity

 

 

50,944

 

 

 

53,659

 

Total liabilities and stockholders' equity

 

$

476,830

 

 

$

479,214

 

 

(a)
Includes accounts receivable from the joint venture, an equity method investment, of $21,794 and $10,304 at September 30, 2023, and June 30, 2023, respectively. See Note 13.
(b)
Includes other receivables from the joint venture, an equity method investment, of $132 and $100 at September 30, 2023, and June 30, 2023, 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,

 

 

 

2023

 

 

2022

 

Net revenue:

 

 

 

 

 

 

Products (a)

 

$

53,350

 

 

$

44,623

 

Services (b)

 

 

50,542

 

 

 

51,870

 

Total net revenue

 

 

103,892

 

 

 

96,493

 

Cost of revenue:

 

 

 

 

 

 

Cost of products

 

 

35,699

 

 

 

28,850

 

Cost of services

 

 

28,700

 

 

 

33,046

 

Total cost of revenue (c)

 

 

64,399

 

 

 

61,896

 

Gross profit

 

 

39,493

 

 

 

34,597

 

Operating expenses:

 

 

 

 

 

 

Research and development (d)

 

 

14,013

 

 

 

14,092

 

Selling and marketing

 

 

10,244

 

 

 

10,795

 

General and administrative

 

 

13,023

 

 

 

11,892

 

Total operating expenses

 

 

37,280

 

 

 

36,779

 

Income (loss) from operations

 

 

2,213

 

 

 

(2,182

)

Income (loss) from equity method investment, net

 

 

431

 

 

 

(368

)

Other expense, net

 

 

(3,681

)

 

 

(2,558

)

Loss before provision for income taxes

 

 

(1,037

)

 

 

(5,108

)

Provision for income taxes

 

 

1,932

 

 

 

341

 

Net loss

 

$

(2,969

)

 

$

(5,449

)

Net loss per share - basic and diluted

 

$

(0.03

)

 

$

(0.06

)

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

 

 

 

 

 

 

Basic and diluted

 

 

96,555

 

 

 

93,529

 

Net loss

 

$

(2,969

)

 

$

(5,449

)

Foreign currency translation adjustment

 

 

(2,138

)

 

 

(3,655

)

Comprehensive loss

 

$

(5,107

)

 

$

(9,104

)

 

(a)
Includes sales of products to the joint venture, an equity method investment, of $21,952 and $8,869 during the three months ended September 30, 2023 and 2022, respectively. See Note 13.
(b)
Includes sales of services to the joint venture, an equity method investment, of $2,854 and $2,957 during the three months ended September 30, 2023 and 2022, respectively, See Note 13.
(c)
Includes cost of revenue from sales to the joint venture, an equity method investment, of $15,271 and $5,907 during the three months ended September 30, 2023 and 2022, respectively.
(d)
Includes charge backs to the joint venture, an equity method investment, related to research and development of $132 and $779 during the three months ended September 30, 2023 and 2022, 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

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2023

 

 

96,535

 

 

$

97

 

 

$

555,276

 

 

$

422

 

 

$

(502,136

)

 

$

53,659

 

Issuance of common stock to employees

 

 

192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

2,392

 

 

 

 

 

 

 

 

 

2,392

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,969

)

 

 

(2,969

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(2,138

)

 

 

 

 

 

(2,138

)

Balance at September 30, 2023

 

 

96,727

 

 

$

97

 

 

$

557,668

 

 

$

(1,716

)

 

$

(505,105

)

 

$

50,944

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (loss)

 

 

Deficit

 

 

Equity

 

Balance at June 30, 2022

 

 

93,500

 

 

$

94

 

 

$

543,211

 

 

$

2,406

 

 

$

(492,522

)

 

$

53,189

 

Issuance of common stock to employees

 

 

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

 

 

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,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(2,969

)

 

$

(5,449

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,251

 

 

 

1,176

 

Share-based compensation

 

 

2,392

 

 

 

2,916

 

Amortization of debt issuance costs

 

 

238

 

 

 

219

 

Recovery of provision from credit losses

 

 

(100

)

 

 

(23

)

Provision for write-down of inventories

 

 

1,395

 

 

 

769

 

Loss on disposal of property and equipment

 

 

5

 

 

 

2

 

(Income) loss on equity method investment

 

 

(431

)

 

 

368

 

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

 

 

1,576

 

 

 

39

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(5,197

)

 

 

15,466

 

Inventories

 

 

(8,917

)

 

 

(12,355

)

Prepaid expenses and other assets

 

 

(2,428

)

 

 

(2,183

)

Deferred cost of revenue

 

 

8

 

 

 

1,298

 

Accounts payable

 

 

2,756

 

 

 

2,371

 

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

 

 

11

 

 

 

(25

)

Accrued liabilities

 

 

2,051

 

 

 

1,851

 

Customer advances

 

 

(1,301

)

 

 

(6,874

)

Deferred revenues

 

 

1,069

 

 

 

480

 

Net cash (used in) provided by operating activities

 

 

(8,591

)

 

 

46

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,092

)

 

 

(1,272

)

Net cash used in investing activities

 

 

(1,092

)

 

 

(1,272

)

Cash flows from financing activities

 

 

 

 

 

 

Paydown under Term Loan Facility

 

 

(1,500

)

 

 

(1,500

)

Repayments of convertible notes

 

 

-

 

 

 

(2,865

)

Net cash used in financing activities

 

 

(1,500

)

 

 

(4,365

)

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

 

 

(1,328

)

 

 

(2,173

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(12,511

)

 

 

(7,764

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

91,202

 

 

 

90,154

 

Cash, cash equivalents and restricted cash at end of period

 

$

78,691

 

 

$

82,390

 

Supplemental non-cash disclosure:

 

 

 

 

 

 

Transfers from inventory to property and equipment

 

$

1,591

 

 

$

-

 

Leasehold improvement from lease incentive

 

$

2,593

 

 

$

-

 

Unpaid purchase of property and equipment

 

$

393

 

 

$

77

 

 

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 its headquarters are located in Madison, Wisconsin. 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 intercompany 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 (“U.S. 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, 2023, are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2024, 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, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on September 7, 2023.

Reclassifications

 

Certain amounts on the unaudited condensed consolidated statements of cash flows and statements of stockholders' equity in prior periods have been reclassified to conform to current year presentation.

 

Risks and Uncertainties

 

The Company is subject to risks and uncertainties caused, directly or indirectly, by events with significant geopolitical and macroeconomic impacts, including, but not limited to, rising inflation; actions taken to counter inflation, including rising interest rates; foreign currency exchange rate fluctuations; uncertainty and volatility in the banking and financial services sector; tightening credit markets, the effects of the COVID-19 pandemic; geopolitical concerns, such as the Russia-Ukraine and Israel-Hamas conflicts and increasing tension between China and the U.S., including with respect to Taiwan; and other factors that may emerge. The Company is also continuing to navigate supply chain and inflation challenges, and adverse foreign currency exchange rate fluctuations, all of which continues to be a significant headwind that affects the Company’s results of operations.

 

The Company expects that the business of its customers and its own business will continue to be adversely impacted, directly or indirectly, by these macroeconomic and geopolitical issues. Ongoing supply chain challenges and logistics costs have adversely affected the Company's gross margins and net income or loss, and the Company’s current expectations are that gross margins and net income or loss will continue to be adversely affected by increased material costs and freight and logistic expenses through at least the remainder of fiscal year 2024, if not longer. Furthermore, certain parts required for the manufacturing and servicing of the Company's products, such as electronic components, are scarce and becoming increasingly difficult to source, even at increased prices. If such parts become unavailable to the Company, it would not be able to manufacture or service our products, which would adversely impact revenue, gross margins, and net income (loss). The extent of the ongoing impact of these macroeconomic events on our business, our markets and on global economic activity, however, is uncertain and the related financial impact cannot be reasonably estimated with any certainty at this time. The Company’s past results may not be indicative of its future performance, and historical trends, including conversion of backlog to revenue, income (loss) from operations, net income (loss), net income (loss) per share and cash flows may differ materially.

 

The Company continues to critically review its liquidity and anticipated capital requirements in light of the significant uncertainty created by geopolitical and macroeconomic conditions. Based on the Company’s cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, the Company believes that it will have sufficient cash resources and anticipated

7


 

cash flows to fund its operations for at least the next 12 months. The Company, however, is unable to predict with certainty the impact of geopolitical and macroeconomic conditions, including its effect on global supply chain and logistics, will have on its ability to maintain compliance with the debt covenants contained in the credit agreement related to its Credit Facilities, including financial covenants regarding the consolidated fixed charge coverage ratio and consolidated senior net leverage ratio. The Company was in compliance with such covenants at September 30, 2023. Failing to comply with these covenants could adversely affect the Company’s ability to finance its future operations or capital needs, withstand a future downturn in its business or the economy in general, engage in business activities, including future opportunities that may be in its interest, and plan for or react to market conditions or otherwise execute its business strategies. The Company’s ability to comply with the covenants and other terms governing the Credit Facilities will depend in part on its future operating performance. In addition, because substantially all of the Company’s assets are pledged as a security under the Credit Facilities, if the Company is not able to cure any default or repay outstanding borrowings, such assets are subject to the risk of foreclosure by the Company’s lenders. Failure to meet the covenant requirements in the future could cause the Company to be in default and the maturity of the related debt could be accelerated and become immediately payable. This may require the Company to obtain waivers or amendments to the credit agreement in order to maintain compliance and there can be no certainty that any such waiver or amendment will be available, or what the cost of such waiver or amendment, if obtained, would be. If the Company is unable to obtain necessary waivers or amendments and the debt under such credit facility is accelerated, the Company would be required to obtain replacement financing at prevailing market rates, which may not be favorable to the Company. There is no guarantee that the Company would be able to satisfy its obligations if any of its indebtedness is accelerated.

 

Use of Estimates

 

The preparation of unaudited condensed 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. Actual results could differ materially from those estimates.

Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies during the three months ended September 30, 2023, compared to the significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

 

 

Note 2. 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 payment terms 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 two or more years from the time of order to revenue recognition due to the Company’s long sales cycle.

8


 

 

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

 

 

 

 

 

 

 

 

 

Change

 

 

 

September 30,
 2023

 

 

June 30,
2023

 

 

$

 

 

%

 

Contract Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled accounts receivable – current (1)

 

$

13,805

 

 

$

9,847

 

 

 

3,958

 

 

 

40

%

Interest receivable – current (2)

 

 

382

 

 

 

379

 

 

 

3

 

 

 

1

%

Long-term accounts receivable (3)

 

 

5,052

 

 

 

4,734

 

 

 

318

 

 

 

7

%

Interest receivable – non-current (3)

 

 

611

 

 

 

673

 

 

 

(62

)

 

 

(9

%)

Contract Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

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

%)

 

(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, 2023, 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, 2023, contract liabilities changed due to changes in the timing of revenue recognition as a result of changes in shipping timing, transaction price, reduced customer deposits for system sales and for which the warranty was deferred.

 

During the three months ended September 30, 2023, the Company recognized revenue of $30.0 million which was included in the deferred revenue balances at June 30, 2023. 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.

 

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, 2023, total remaining performance obligations amounted to $1,034.4 million. Of this total amount, $68.2 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, 2023 (in thousands):

 

 

 

Fiscal years of revenue recognition

 

 

 

2024

 

 

2025

 

 

2026

 

 

Thereafter

 

Long-term warranty and non-cancellable post-warranty services

 

$

22,445

 

 

$

23,665

 

 

$

14,438

 

 

$

7,691

 

 

For the remaining $966.2 million of performance obligations (i.e., open systems sales, upgrades, training and other miscellaneous items), the Company estimates 28% to 31% 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 to 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 20% of the Company’s $915.4 million open system sales contracts as of September 30, 2023, may never result in revenue.

 

9


 

Capitalized Contract Costs

 

As of September 30, 2023, and June 30, 2023, the balance of capitalized costs to obtain a contract was $11.4 million and $11.0 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 did not incur any capitalized contract impairment losses during the three months ended September 30, 2023, and recorded $0.2 million in capitalized contract impairment losses during September 30, 2022. The Company recognized expenses related to the amortization of the capitalized contract costs of $0.9 million for both the three months ended September 30, 2023 and 2022, respectively.

 

Note 3. 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 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 orders 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.

 

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

 

 

 

September 30,
 2023

 

 

June 30,
2023

 

Financing receivables

 

$

4,870

 

 

$

5,854

 

Allowance for credit losses

 

 

(798

)

 

 

(798

)

Total, net

 

$

4,072

 

 

$

5,056

 

Reported as:

 

 

 

 

 

 

Current

 

$

1,713

 

 

$

2,016

 

Non-current

 

 

2,359

 

 

 

3,040

 

Total, net

 

$

4,072

 

 

$

5,056

 

 

 

Inventories

Inventories consisted of the following (in thousands):

 

 

 

September 30,
 2023

 

 

June 30,
2023

 

Raw materials

 

$

64,889

 

 

$

62,945

 

Work-in-process

 

 

11,028

 

 

 

17,469

 

Finished goods

 

 

74,060

 

 

 

64,736

 

Inventories

 

$

149,977

 

 

$

145,150

 

 

The Company's inventories on the unaudited condensed consolidated balance sheets are net of reserves.

 

10


 

 

Prepaid and Other Current Assets

 

Prepaid and other current assets consisted of the following (in thousands):

 

 

 

September 30,
 2023

 

 

June 30,
2023

 

Value added tax receivables

 

$

10,445

 

 

$

11,718

 

Prepaid commissions

 

 

5,791

 

 

 

5,866

 

Capitalized contract costs

 

 

1,793

 

 

 

1,782

 

Other prepaid assets

 

 

7,929

 

 

 

5,763

 

Other current assets

 

 

2,840

 

 

 

2,483

 

Total prepaid and other current assets

 

$

28,798

 

 

$

27,612

 

 

 

Property and equipment, net

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

 

 

 

September 30,
 2023

 

 

June 30,
2023

 

Furniture and fixtures

 

$

1,636

 

 

$

1,581

 

Computer and office equipment

 

 

7,790

 

 

 

7,798

 

Software

 

 

12,887

 

 

 

5,191

 

Leasehold improvements

 

 

33,774

 

 

 

26,641

 

Machinery and equipment