ACCURAY INC

Previous wording

The following discussion and analysis of our financial condition as of December 31, 2023, and results of operations for the three and six months ended December 31, 2023 and 2022 should be read together with our unaudited condensed consolidated financial statements and related notes included in this report. Statements made in this Form 10-Q report that are not statements of historical fact are forward-looking statements that are subject to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this report relate, but are not limited, to: our future results of operations and financial position, including the sufficiency of cash resources and expected cash flows to fund future operations, including the next 12 months; expectations regarding our cost savings initiatives, including our reduction in our global workforce and any related costs; our expectations regarding backlog and age-outs, cancellations of contracts and foreign currency impacts; the anticipated drivers of our future capital requirements; expectations regarding our strategy in China and our China joint venture as well as its expected impact on our business; expectations regarding our new enterprise resource planning system, SAP; expectations regarding the market in China for radiation oncology systems; expectations regarding the effects of the global macroeconomic conditions and the COVID-19 pandemic on our financial results and business as well as the business of our customers and suppliers; expectations regarding delays in deliveries and installations and its impact on our business; expectations regarding inflation, supply chain challenges and heightened logistics costs and its impact on our business, including gross margins and net income (loss); expectations regarding the timing of deliveries and revenue conversion related to China; our expectations regarding the adequacy of our manufacturing facilities; the anticipated risks associated with our foreign operations and fluctuations in the U.S. Dollar and foreign currencies as well as our ability to mitigate such risks; tariffs and trade policies; expectations related to the effect of the GILTI tax on our taxable income position; the amount of unrecognized tax amounts; the sufficiency of our cash, cash equivalents and investments to meet our anticipated cash needs for working capital and capital expenditures and our business strategy, plans and objectives. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “may,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements involve risks and uncertainties. If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, actual results could differ materially from the results expressed or implied by these forward-looking statements. …

Excerpt shortened here; the source contains the full paragraph.

Current wording

The following discussion and analysis of our financial condition as of March 31, 2024, and results of operations for the three and nine months ended March 31, 2024 and 2023 should be read together with our unaudited condensed consolidated financial statements and related notes included in this report. Statements made in this Form 10-Q report that are not statements of historical fact are forward-looking statements that are subject to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this report relate, but are not limited, to: our future results of operations and financial position, including the sufficiency of cash resources and expected cash flows to fund future operations, including the next 12 months; expectations regarding our cost savings initiatives, including our reduction in our global workforce and any related costs; our expectations regarding backlog and age-outs, cancellations of contracts and foreign currency impacts; the anticipated drivers of our future capital requirements; expectations regarding our strategy in China and our China joint venture as well as its expected impact on our business; expectations regarding our new enterprise resource planning system, SAP; expectations regarding the market in China for radiation oncology systems; expectations regarding the effects of the global macroeconomic conditions and the COVID-19 pandemic on our financial results and business as well as the business of our customers and suppliers; expectations regarding delays in deliveries and installations and its impact on our business; expectations regarding inflation, supply chain challenges and heightened logistics costs and its impact on our business, including gross margins and net income (loss); expectations regarding revenue from the Americas region; expectations regarding the timing of deliveries and revenue conversion related to China; our expectations regarding the adequacy of our manufacturing facilities; the anticipated risks associated with our foreign operations and fluctuations in the U.S. Dollar and foreign currencies as well as our ability to mitigate such risks; tariffs and trade policies; expectations related to the effect of the GILTI tax on our taxable income position; expectations related to our leases; the amount of unrecognized tax amounts; the sufficiency of our cash, cash equivalents and investments to meet our anticipated cash needs for working capital and capital expenditures and our business strategy, plans and objectives. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “may,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements involve risks and uncertainties. If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, actual results could diffe…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

We are 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 Russian-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. We are also continuing to navigate supply chain and inflation challenges and adverse foreign currency exchange rate fluctuations, all of which continues to have a negative impact on our results of operations.

Current wording

We are 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 Russian-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. In particular, we are continuing to navigate supply chain and inflation challenges and adverse foreign currency exchange rate fluctuations, all of which continues to have a negative impact on our results of operations.

Previous wording

We expect that our customers’ business and our business will continue to be adversely impacted, directly or indirectly, by these macroeconomic and geopolitical issues. Delays in deliveries and installations as a result of the COVID-19 pandemic and the ongoing recovery from the COVID-19 pandemic as well as its effects on the global economic environment have occurred and may continue, to some degree, through the remainder of calendar year 2024, which could have a negative impact on our revenue during such period. In addition, rising inflation and the ongoing supply chain challenges and logistics costs have materially affected our gross margins and net income (loss), and we expect that gross margins and net income (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, and potentially longer. 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. Our past results may not be indicative of our 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. Accordingly, management is carefully evaluating our liquidity position, communicating with and monitoring the actions of our customers and suppliers, and reviewing our near-term financial performance as the uncertainty related to these factors continues to unfold. We also continue to evaluate our operating expenses, including our real estate needs and continue to assess our operations and how and to what extent we will continue to utilize our current real estate assets. The risks related to our business, including further discussion of the impact and possible future impacts of current economic conditions and the COVID-19 pandemic on our business, are further described in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Current wording

We expect that our customers’ business and our business will continue to be adversely impacted, directly or indirectly, by these macroeconomic and geopolitical issues. Delays in deliveries and installations as a result of the COVID-19 pandemic and the ongoing recovery from the COVID-19 pandemic as well as its effects on the global economic environment have occurred and may continue, to some degree, through the remainder of calendar year 2024, which could have a negative impact on our revenue during such period. Rising inflation and the ongoing supply chain challenges and logistics costs have materially affected our gross margins and net income (loss), and we expect that gross margins and net income (loss) will continue to be adversely affected by increased material costs and freight and logistic expenses through at least the remainder of calendar year 2024, and potentially longer. In addition, reduced budgets and lower capital deployment priority for radiotherapy equipment, along with longer customer installation timelines, in the United States have negatively impacted our revenue during the third quarter of fiscal year 2024, which we expect will continue to have an impact through at least fiscal year 2026. 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.

Previous wording

On October 25, 2023, we informed affected employees of a cost savings initiative (the “2024 restructuring initiative”) to reduce operating costs resulting in the elimination of approximately 5.9 percent of our global workforce. We incurred a charge of $2.6 million during the three months ended December 31, 2023. These charges are cash-based and are primarily related to severance expenses and other one-time termination benefits. We will record the restructuring charges of the affected employees in their respective department cost center. The restructuring charges recorded during the period ending December 31, 2023 are as follows: cost of sales $0.2 million, research and development $1.7 million, sales and marketing $0.1 million, and general and administrative $0.6 million. We paid approximately $1.9 million in cash for the restructuring charges during the three months ended December 31, 2023. At December 31, 2023, we have a remaining accrual of $0.7 million, which is included in accrued compensation on the unaudited condensed consolidated balance sheets, and expect to pay the remaining amounts over the remainder of fiscal year 2024.

Current wording

On October 25, 2023, we informed affected employees of a cost savings initiative (the “2024 restructuring initiative”) to reduce operating costs resulting in the elimination of approximately 5.9 percent of our global workforce. We did not incur any restructuring charges in the three months ended March 31, 2024, and incurred charges of $2.6 million during the nine months ended March 31, 2024. These charges are cash-based and are primarily related to severance expenses and other one-time termination benefits. We will record the restructuring charges of the affected employees in their respective department cost center. The restructuring charges recorded during the nine months ended March 31, 2024 are as follows: cost of sales $0.2 million, research and development $1.7 million, sales and marketing $0.1 million, and general and administrative $0.6 million. We paid approximately $0.5 million and $2.4 million in cash for the restructuring charges during the three and nine months ended March 31, 2024, respectively. At March 31, 2024, we have a remaining accrual of $0.2 million, which is included in accrued compensation on the unaudited condensed consolidated balance sheets, and expect to pay the remaining amounts over the remainder of calendar year 2024.

Previous wording

Gross orders increased by $14.8 million during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in gross orders from the China and EIMEA regions, partially offset by a decrease in gross orders from the Americas region. CyberKnife System gross orders and upgrades increased by $12.0 million, and TomoTherapy System gross orders and upgrades increased by $2.8 million during three months ended December 31, 2023, as compared to the same period in the prior fiscal year.

Current wording

Gross orders increased by $15.3 million primarily due to a $28.1 million increase in CyberKnife System gross orders and upgrades, partially offset by a $12.8 million decrease in TomoTherapy System gross orders and upgrades during the three months ended March 31, 2024, as compared to the same period in the prior fiscal year. System gross orders primarily increased from the EIMEA and Asia Pacific regions, partially offset by a decrease in system gross orders from China during three months ended March 31, 2024, as compared to the same period in the prior fiscal year.

Previous wording

Gross orders increased by $8.7 million during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in gross orders from the EIMEA, Asia Pacific, and Japan regions, partially offset by a decrease in gross orders from the Americas and China regions. CyberKnife System gross orders and upgrades increased by $15.5 million, and TomoTherapy System gross orders and upgrades decreased by $6.8 million during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year.

Current wording

Gross orders increased by $24.0 million primarily due to a $43.6 million increase in CyberKnife System gross orders and upgrades, partially offset by a $19.6 million decrease in TomoTherapy System gross orders and upgrades during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year. System gross orders increased from the EIMEA and Asia Pacific regions, partially offset by a decrease in system gross orders from the China and Americas regions during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year.

Previous wording

Our book to bill ratio is defined as gross orders for the period divided by product revenue for the period. Our book to bill ratio was 1.8 and 1.5 during the three and six months ended December 31, 2023, respectively, as compared to 1.2 and 1.4 during the three and six months ended December 31, 2022, respectively. A book-to-bill ratio greater than 1.2 indicates strong demand for our products. This metric allows management to monitor our business development efforts to ensure we grow our backlog and our business over time.

Current wording

Our book to bill ratio is defined as gross orders for the period divided by product revenue for the period. Our book to bill ratio was 1.8 and 1.6 during the three and nine months ended March 31, 2024, respectively, as compared to 1.2 and 1.3 during the three and nine months ended March 31, 2023, respectively. A book-to-bill ratio greater than 1.2 indicates strong demand for our products. This metric allows management to monitor our business development efforts to ensure we grow our backlog and our business over time.

Previous wording

Net orders increased by $13.7 million during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in gross orders. Net orders increased by $25.9 million during the six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in gross orders and a decrease in age-outs.

Current wording

Net orders increased by $6.1 million during the three months ended March 31, 2024, as compared to the same period in the prior fiscal year, primarily due to an increase in gross orders and a decrease in cancellations, partially offset by having no age-ins during the three months ended March 31, 2024. Net orders increased by $32.0 million during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year, primarily due to an increase in gross orders and a decrease in age-outs, partially offset by a decrease from age-ins.

Previous wording

Results of Operations — Three and six months ended December 31, 2023 and 2022

Current wording

Results of Operations — Three and nine months ended March 31, 2024 and 2023

Previous wording

Includes sales of products to the joint venture, an equity method investment, of $17,890 and $39,842 during the three and six months ended December 31, 2023 and $16,715 and $25,584 during the three and six months ended December 31, 2022, respectively. See Note 13.

Current wording

Includes sales of products to the joint venture, an equity method investment, of $15,662 and $55,504 during the three and nine months ended March 31, 2024 and $18,118 and $43,702 during the three and nine months ended March 31, 2023, respectively. See Note 13.

Previous wording

Includes sales of services to the joint venture, an equity method investment, of $4,134 and $6,988 during the three and six months ended December 31, 2023 and $2,494 and $5,451 during the three and six months ended December 31, 2022, respectively. See Note 13.

Current wording

Includes sales of services to the joint venture, an equity method investment, of $3,982 and $10,970 during the three and nine months ended March 31, 2024 and $2,696 and $8,147 during the three and nine months ended March 31, 2023, respectively. See Note 13.

Previous wording

The three and six months ended December 31, 2023 includes revenue from certain upgrades that were recorded in services net revenue in the three and six months ended December 31, 2022.

Current wording

The three and nine months ended March 31, 2024 includes revenue from certain upgrades that were recorded in services net revenue in the three and nine months ended March 31, 2023.

Previous wording

Products net revenue decreased by $11.7 million and $3.0 million during the three and six months ended December 31, 2023, respectively, as compared to the same periods in the prior fiscal year, mostly driven by a lower volume of shipments of system units of our TomoTherapy System and CyberKnife System.

Current wording

Products net revenue decreased $13.2 million and $16.2 million during the three and nine months ended March 31, 2024, respectively, as compared to the same periods in the prior fiscal year, mostly driven by a lower volume of shipments of system units of our TomoTherapy System and CyberKnife System. Products net revenue was negatively impacted by reduced budgets and lower capital deployment priority for radiotherapy equipment, along with longer customer installation timelines, in the Americas region for the three months ended March 31, 2024, which we expect will continue to have an impact on products net revenue through at least fiscal year 2026.

Previous wording

Services net revenue increased by $4.2 million and $2.9 million during the three and six months ended December 31, 2023, respectively, as compared to the same periods in the prior fiscal year, primarily due to an increase in revenue from service contracts as a result of an increase in our installed base and an increase in revenue from training as a result of more systems put into service, partially offset by a decrease in revenue from the purchase of spare parts by customers and revenue recognized from the installation of systems at customer locations.

Current wording

Services net revenue decreased $3.7 million and $0.8 million during the three and nine months ended March 31, 2024, respectively, as compared to the same periods in the prior fiscal year, primarily due to a decrease in revenue from training and installations as a result of fewer systems put into service during the period, and a decrease in revenue from the purchase of spare parts by customers due to lower system sales during the period, partially offset by an increase in revenue from service contracts as a result of an increase in our installed base.

Previous wording

Gross profit decreased by $7.1 million during the three months ended December 31, 2023, as compared to the same period in the prior fiscal year primarily due to a decrease in revenue from the sale of systems and higher service parts consumption, partially offset by an increase in net revenue recognized from intra-entity profit margin from sales related to shipments for the JV.

Current wording

Gross profit decreased by $9.6 million and $11.8 million during the three and nine months ended March 31, 2024, respectively, as compared to the same periods in the prior fiscal year, primarily due to a decrease in revenue from the lower volume of shipments.

Previous wording

Selling and marketing expenses decreased by $2.2 million and $2.8 million during the three and six months ended December 31, 2023, respectively, as compared to the same periods in the prior fiscal year. The decreases in both periods were primarily due to a reduction in compensation and benefits as a result of the restructuring activity in the prior fiscal year, and a decrease in consulting costs due to cost-cutting efforts, partially offset by an increase in trade show expenses.

Current wording

Selling and marketing expenses decreased by $0.8 million and $3.6 million during the three and nine months ended March 31, 2024, respectively, as compared to the same periods in the prior fiscal year. The decrease during the three months ended March 31, 2024, was primarily due to $0.4 million in lower compensation and benefit costs. The decrease during the nine months ended March 31, 2024 was primarily due to $2.8 million in lower compensation and benefit costs resulting from the restructuring initiative in fiscal year 2023, and a $0.6 million decrease in consulting costs due to cost-cutting efforts, partially offset by a $0.5 million increase in trade show expenses.

Previous wording

Income (loss) on equity method investment, net

Current wording

Income on equity method investment, net

Previous wording

Loss on equity method investment, which relates to our JV, decreased by $0.3 million in the three months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in service revenues and lower operating expenses, partially offset by a decrease in revenue from the sale of system units. Income on equity method investment increased by $1.1 million in the six months ended December 31, 2023, primarily due to an increase in revenues from the sale of system units and services and lower operating expenses.

Current wording

Income from equity method investment, which relates to our JV, decreased by $1.0 million during the three months ended March 31, 2024, as compared to the same period in the prior fiscal year, primarily due to higher operating expenses, partially offset by an increase in the sale of systems and service revenue. Income from equity method investment increased by $0.1 million in the nine months ended March 31, 2024, primarily due to an increase in the sale of systems and service revenue, offset by higher operating expenses.

Previous wording

Other expense, net, increased by $1.5 million and $2.6 million during the three and six months ended December 31, 2023, respectively, as compared to the same periods in the prior fiscal year, primarily due to an increase in interest expense as a result of higher interest rates on our Credit Facility and an increase in foreign currency transaction losses due to a stronger U.S. Dollar.

Current wording

Other expense, net, decreased by $0.9 million during the three months ended March 31, 2024 as compared to the same period in the prior fiscal year, primarily due to a gain from foreign currency transactions due to a stronger U.S. Dollar in some regions. Other expense, net, increased during the nine months ended March 31, 2024, primarily due to an increase in interest expense as a result of higher interest rates on our Credit Facility and an increase in foreign currency transaction losses.

Previous wording

On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The provision for income taxes decreased by $0.2 million during the three months ended December 31, 2023 primarily due to an additional expense in the prior year period for a tax audit in Japan. The provision for income taxes increased by $1.4 million during six months ended December 31, 2023, as compared to the same period in the prior fiscal year, primarily due to an increase in foreign earnings and deferred tax liability on unremitted foreign earnings as compared to prior fiscal year.

Current wording

On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The provision for income taxes decreased by $0.1 million during the three months ended March 31, 2024, primarily due to an additional expense in the prior year period for a tax audit in Japan. The provision for income taxes increased by $1.3 million during nine months ended March 31, 2024, as compared to the same period in the prior fiscal year, primarily due to an increase in foreign earnings and deferred tax liability on unremitted foreign earnings, as compared to prior fiscal year.

Previous wording

At December 31, 2023, we had $72.8 million in cash and cash equivalents. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the ongoing recovery from the COVID-19 pandemic, inflation, actions taken to counter inflation, foreign currency exchange rate fluctuations, instability in the banking sector and the risks included in Part II, Item 1A titled “Risk Factors.” In particular, we expect rising inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through at least the remainder of fiscal year 2024, if not longer. Based on our cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, we believe we will have sufficient cash resources and anticipated cash flows to fund our operations for at least the next 12 months. However, we continue to critically review our liquidity and anticipated capital requirements in light of the significant uncertainty created by macroeconomic conditions and ongoing recovery from the COVID-19 pandemic.

Current wording

At March 31, 2024, we had $60.5 million in cash and cash equivalents. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the ongoing recovery from the COVID-19 pandemic, inflation, actions taken to counter inflation, foreign currency exchange rate fluctuations, instability in the banking sector and the risks included in Part II, Item 1A titled “Risk Factors.” In particular, we expect rising inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through at least the remainder of calendar year 2024, if not longer. Based on our cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, we believe we will have sufficient cash resources and anticipated cash flows to fund our operations for at least the next 12 months. However, we continue to critically review our liquidity and anticipated capital requirements in light of the significant uncertainty created by macroeconomic conditions and ongoing recovery from the COVID-19 pandemic.

Previous wording

On October 25, 2023, we informed affected employees of the 2024 restructuring initiative. We incurred a charge of $2.6 million and paid $1.9 million during the three months ended December 31, 2023. We expect the remaining amounts to be paid over the remainder of fiscal year 2024.

Current wording

On October 25, 2023, we informed affected employees of the 2024 restructuring initiative. We incurred a charge of $2.6 million and paid $2.4 million during the nine months ended March 31, 2024. We expect the remaining amounts to be paid over the remainder of calendar 2024.

Previous wording

Our liquidity and cash flows have been and could continue to be materially impacted by current macroeconomic factors, including facility closures, supply chain disruptions, rising inflation, increased volatility in the financial markets, instability in the banking sector, tightening of credit markets which could impact debt availability, and the ongoing recovery from the COVID-19 pandemic. These factors have and could continue to negatively impact our business operations and cash flows for the foreseeable future, including reductions in revenue, decreases in gross margin and delays in payments from customers, as well as declines or delays in the conversion of backlog to revenue. Certain of our revenue may not be collectible to the extent our customers suffer financial difficulty and, in fiscal 2023, we increased our bad debt reserve to account for potentially uncollectible revenue. For example, in the United States, at least one has declared bankruptcy in fiscal 2023 causing us to increase our bad debt reserve due to the expectation that they will be unable to pay us. Accordingly, there remain uncertainties as to how the ongoing recovery from the COVID-19 pandemic and the current macroeconomic environment will impact our business, results of operations, access to sources of liquidity and financial condition in the future. As a result, we are unable to predict with certainty the impacts of these factors on our ability to maintain compliance with the financial covenants contained in the credit and security agreements related to our credit facilities.

Current wording

Our liquidity and cash flows have been and could continue to be materially impacted by current macroeconomic factors, including facility closures, supply chain disruptions, rising inflation, foreign currency exchange rate fluctuations, increased volatility in the financial markets, instability in the banking sector, tightening of credit markets which could impact debt availability, and the ongoing recovery from the COVID-19 pandemic. These factors have and could continue to negatively impact our business operations and cash flows for the foreseeable future, including reductions in revenue, decreases in gross margin and delays in payments from customers, as well as declines or delays in the conversion of backlog to revenue. Certain of our revenue may not be collectible to the extent our customers suffer financial difficulty and, in fiscal 2023, we increased our bad debt reserve to account for potentially uncollectible revenue. For example, in the United States, at least one customer declared bankruptcy in fiscal 2023 causing us to increase our bad debt reserve due to the expectation that they will be unable to pay us. Accordingly, there remain uncertainties as to how the ongoing recovery from the COVID-19 pandemic and the current macroeconomic environment will impact our business, results of operations, access to sources of liquidity and financial condition in the future. As a result, we are unable to predict with certainty the impacts of these factors on our ability to maintain compliance with the financial covenants contained in the credit and security agreements related to our credit facilities. On April 25, 2024, the Company entered into the Third Amendment (the “Amendment”) to the Credit Agreement as defined below) to update the calculation of Consolidated EBITDA (as defined in the Credit Agreement) to maintain compliance with the debt covenants as of March 31, 2024.

Previous wording

In May 2021, we issued $100.0 million aggregate principal amount of 3.75% Convertible Senior Notes due 2026 under an indenture between us and The Bank of New York Mellon Trust Company, N.A., as trustee. Concurrently, with the issuance of the convertible notes, in May 2021, we entered into a senior secured credit agreement with Silicon Valley Bank, individually as a lender and agent, and the other lenders (the “Credit Agreement”), which provides for a five-year $80 million term loan facility (the “Term Loan Facility”) and a $40 million revolving credit facility (the “Revolving Credit Facility”). As of December 31, 2023, we had an outstanding balance under the Term Loan Facility of $67.0 million and Revolving Credit Facility of $10.0 million. Refer to Note 9. Debt to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for discussion of the Term Loan Facility, the Revolving Credit Facility and our Convertible Notes outstanding as of December 31, 2023.

Current wording

In May 2021, we issued $100.0 million aggregate principal amount of 3.75% Convertible Senior Notes due 2026 under an indenture between us and The Bank of New York Mellon Trust Company, N.A., as trustee. Concurrently, with the issuance of the convertible notes, in May 2021, we entered into a senior secured credit agreement with Silicon Valley Bank, individually as a lender and agent, and the other lenders (the “Credit Agreement”), which provides for a five-year $80 million term loan facility (the “Term Loan Facility”) and a $40 million revolving credit facility (the “Revolving Credit Facility”). As of March 31, 2024, we had an outstanding balance under the Term Loan Facility of $65.5 million and Revolving Credit Facility of $10.0 million. Refer to Note 9. Debt to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for discussion of the Term Loan Facility, the Revolving Credit Facility and our Convertible Notes outstanding as of March 31, 2024.

Previous wording

Additionally, the undistributed earnings of our foreign subsidiaries at December 31, 2023, for all countries except Japan, France, and Switzerland are considered to be indefinitely reinvested and unavailable for distribution in the form of dividends or otherwise. Future repatriation of our foreign earnings could be subject to income taxes. As of December 31, 2023, we had $9.0 million of cash and cash equivalents at our foreign subsidiaries. If such funds were repatriated, there will be additional foreign tax withholdings imposed depending on the country from which the funds were repatriated.

Current wording

Additionally, the undistributed earnings of our foreign subsidiaries at March 31, 2024, for all countries except Japan, France, and Switzerland are considered to be indefinitely reinvested and unavailable for distribution in the form of dividends or otherwise. Future repatriation of our foreign earnings could be subject to income taxes. As of March 31, 2024, we had $10.2 million of cash and cash equivalents at our foreign subsidiaries. If such funds were repatriated, there will be additional foreign tax withholdings imposed depending on the country from which the funds were repatriated.

Previous wording

Our cash flows for the six months ended December 31, 2023 and 2022, are summarized as follows (in thousands):

Current wording

Our cash flows for the nine months ended March 31, 2024 and 2023 are summarized as follows (in thousands):

Previous wording

Net cash used in operating activities during the six months ended December 31, 2023 was from a net loss of $12.6 million and a decrease from the net changes from assets and liabilities of $11.2 million, partially offset by an increase from non-cash items of $10.1 million.

Current wording

Net cash used in operating activities during the nine months ended March 31, 2024 was from a net loss of $18.9 million and a decrease from the net changes from assets and liabilities of $20.1 million, partially offset by an increase from non-cash items of $17.2 million.

Previous wording

Non-cash items primarily consisted of share-based compensation expense of $4.7 million, depreciation and amortization expense of $2.8 million and the provision for write-down of inventories of $2.7 million.

Current wording

Non-cash items primarily consisted of share-based compensation expense of $7.4 million, depreciation and amortization expense of $4.4 million, the provision for write-down of inventories of $3.7 million, and $2.2 million in deferrals from intra-entity profit margin from sales to the JV.

Previous wording

The major contributors to the decrease from the net changes of assets and liabilities during the six months ended December 31, 2023, were as follows: a $14.6 million increase in inventories primarily due to increased costs for parts; and a $4.8 million decrease in accrued liabilities, primarily due to an decrease in accrued compensation, partially offset by a $5.1 million increase in accounts payable that was primarily due to the timing of payments and a $1.6 million increase in customer advances primarily due to an increase in orders.

Current wording

The major contributors to the decrease from the net changes of assets and liabilities during the nine months ended March 31, 2024 were as follows: a $22.7 million increase in inventories primarily due to increased purchases of materials to meet expected demand; a $8.9 million decrease in accrued liabilities primarily due to the payment of value added tax payables and a decrease in accrued compensation, and a $5.3 million decrease in customer advances due to lower sales in the third quarter of fiscal year 2024, partially offset by a $12.0 million increase in accounts payable that was primarily due to the timing of payments and a $4.5 million decrease in prepaid expenses and other assets primarily due to a decrease in value added tax receivables.

Previous wording

Net cash used in investing activities was $2.3 million during the six months ended December 31, 2023 and was for the purchase of property and equipment.

Current wording

Net cash used in investing activities was $3.1 million during the nine months ended March 31, 2024 and was for the purchase of property and equipment.

Previous wording

Net cash used in financing activities during the six months ended December 31, 2023 was due to the scheduled payment of $3.0 million for the principal amount outstanding on our Term Loan Facility, partially offset by $1.4 million in proceeds from issuance of common stock to employees.

Current wording

Net cash used in financing activities during the nine months ended March 31, 2024 was due to the scheduled payment of $4.5 million for the principal amount outstanding on our Term Loan Facility, partially offset by $1.4 million in proceeds from issuance of common stock to employees.

Previous wording

We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Our contractual obligations consist of debt, operating leases, purchase commitments, and other contractual obligations. There have been no material changes to these obligations outside the ordinary course of business during the six months ended December 31, 2023 as compared to the contractual obligations disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended June 30, 2023.

Current wording

We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Our contractual obligations consist of debt, operating leases, purchase commitments, and other contractual obligations. There have been no material changes to these obligations outside the ordinary course of business during the nine months ended March 31, 2024 as compared to the contractual obligations disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended June 30, 2023.

Previous wording

We experienced rising costs for certain materials, including increased logistics and duties costs that adversely affected our gross margins and net income (loss), and had a material effect on our business, financial condition and results of operations for fiscal year 2023 and the first six months of fiscal year 2024. We expect that gross margins and net income (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, and potentially longer. Continued pressure from inflationary factors, such as further increases in the cost of materials for our products, cost of labor, interest rates, overhead costs, logistics and duties costs could further exacerbate these effects and harm our business, operating results, and financial condition.

Current wording

We experienced rising costs for certain materials, including increased logistics and duties costs that adversely affected our gross margins and net income (loss), and had a material effect on our business, financial condition and results of operations for fiscal year 2023 and the first nine months of fiscal year 2024. We expect that gross margins and net income (loss) will continue to be adversely affected by increased material costs and freight and logistic expenses through at least the remainder of calendar year 2024, and potentially longer. Continued pressure from inflationary factors, such as further increases in the cost of materials for our products, cost of labor, interest rates, overhead costs, logistics and duties costs could further exacerbate these effects and harm our business, operating results, and financial condition.

Previous wording

During the six months ended December 31, 2023, there have been no material changes to the critical accounting policies and estimates, previously disclosed in Part II, Item 7, of our Annual Report on Form 10-K filed with the SEC on September 7, 2023.

Current wording

During the nine months ended March 31, 2024, there have been no material changes to the critical accounting policies and estimates, previously disclosed in Part II, Item 7, of our Annual Report on Form 10-K filed with the SEC on September 7, 2023.