ACCURAY INC
For the period ended Sep 30, 2024. Filed Nov 6, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 6, 2024
ARAY$0.11-11.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0000950170-24-055736
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0000950170-24-122358
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 101 previous paragraphs and 94 current paragraphs.
55 unchanged; 33 reworded; 6 added; 13 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 9 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
Gross profit decreased by $5.0 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to $2.0 million increase in the net deferred gross profit on sales to the JV, a $2.0 million increase in departmental costs, and $1.0 million in higher service parts consumption.
Current report
Selling and marketing expenses increased by $1.4 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year primarily due to an increase of $1.0 million in trade show expenses that resulted from a trade show occurring in the first quarter of fiscal year 2025 compared to the second quarter of fiscal year 2024.
Current report
General and administrative expenses decreased by $0.2 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year primarily due to $0.6 million in lower facility costs offset by a $0.3 million increase in bad debt expense.
Current report
Interest Expense
Current report
Interest expense remained flat during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to higher average interest rates, partially offset by lower outstanding balances on our Credit Facilities.
Current report
Other expense, net, increased by $2.6 million during the three months ended September 30, 2024 as compared to the same period in the prior fiscal year, due to a gain from foreign currency transactions primarily due to the Japanese Yen being more favorable when translated into the U.S. Dollar.
Removed paragraphs (13)
Previous report
Restructuring
Previous report
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 report
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 report
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 report
(c)
Previous report
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 report
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 report
Net revenue decreased $17.1 million during the nine months ended March 31, 2024, as compared to the same period in the prior fiscal year, primarily due to a lower volume of shipments to the Americas, Asia Pacific and Japan regions and a decrease in service revenue in the Americas region, partially offset by an increase in revenues due to a higher volume of shipments to the EIMEA and China regions and an increase in service revenue from China. During the nine months ended March 31, 2024, EIMEA net revenue included a $4.2 million favorable impact from foreign exchange and Japan net revenue had a $2.6 million unfavorable impact from foreign exchange.
Previous report
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 report
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 report
General and administrative expenses increased by $1.3 million and $3.7 million during the three and nine months ended March 31, 2024, respectively, as compared to the same periods in the prior fiscal year. The increase during the three months ended March 31, 2024, was primarily due to a $0.6 million increase in both consulting costs and additional amortization expenses related to the implementation of our enterprise resource planning system in the first quarter of fiscal year 2024, and a $0.6 million increase primary due to the recovery of credit losses in the prior year period. The increase during the nine months ended March 31, 2024, was primarily due to a $3.6 million increase in both consulting costs and additional amortization expenses related to the implementation of our enterprise resource planning system in the first quarter of fiscal year 2024, a $1.2 million increase in facility expenses, which were partially offset by a $2.4 million in lower compensation and benefit costs.
Previous report
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 report
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.
Reworded paragraphs (33)
Previous 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.
Current wording
The following discussion and analysis of our financial condition as of September 30, 2024, and results of operations for the three months ended September 30, 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; our expectations regarding backlog, age-ins 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 the market in China for radiation oncology systems; expectations regarding the effects of the global macroeconomic conditions, such as 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; 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 convertible notes and credit facility; 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 differ materially from the results expressed or implied by these forward-looking statements. These risks and uncertainties include, those d…
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. 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.
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, 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; geopolitical concerns, such as the Russian-Ukraine and the Middle East conflicts and increasing tension between China and the U.S., including with respect to Taiwan; uncertainty caused by the China anti-corruption campaign and timing of the China stimulus program; changes in the U.S. presidential administration; as well as 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. 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.
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. 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 fiscal year 2025. In addition, the Company expects inflation and the ongoing supply chain challenges and logistics costs to impact its cash from operations through fiscal year 2025. 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 net revenue since fiscal year 2024, and we expect this will continue to have an impact through 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
In the United States, we primarily market directly to customers, including hospitals and stand-alone treatment facilities, through our sales organization and we also market to customers through sales agents and group purchasing organizations. Outside the United States, we market to customers directly and through use of distributors and sales agents. In addition to our offices in the United States, we have international offices in Morges, Switzerland; Hong Kong, China; Shanghai, China and Tokyo, Japan and direct sales staff in most countries in Western Europe, Japan, India and Canada. In addition, we have distributors in Eastern Europe, Russia, the Middle East, the Asia Pacific region, and Latin America.
Current wording
In the United States, we primarily market directly to customers, including hospitals and stand-alone treatment facilities, through our sales organization we also market to customers through sales agents and group purchasing organizations. Outside the United States, we market to customers directly and through use of distributors and sales agents. In addition to our offices in the United States, we have international offices in Morges, Switzerland; Hong Kong, China; Shanghai, China and Tokyo, Japan and direct sales staff in most countries in Western Europe, Japan, India and Canada. In addition, we have distributors in Europe, Russia, the Middle East, Africa, the Asia Pacific region, and Latin America.
Previous wording
With the receipt of the necessary permits and licenses to operate, the JV has begun selling products in China, much like a distributor. In the long term, we anticipate that the JV will manufacture and sell a locally branded “Made in China” radiotherapy device in the Class B license category, or Class B device, which would replace our current offering in that category. We believe this strategy will allow us to best maximize both near and longer-term opportunities in China. In September 2023, we received approval for our Class B device from the National Medical Products Administration.
Current wording
With the receipt of the necessary permits and licenses to operate, the JV has begun selling products in China, much like a distributor. The JV has begun to manufacture and sell a locally branded “Made in China” radiotherapy device, the Tomo C radiation therapy system, in the Class B license category. We believe this strategy will allow us to best maximize both near and longer-term opportunities in China. In September 2023, we received approval for our Class B device from the National Medical Products Administration (“NMPA”) and our Accuray Precision Treatment Planning System for the Class B device was approved by the NMPA in June 2024. The JV also distributes other Accuray treatment delivery systems like the Radixact and CyberKnife treatment delivery systems.
Previous wording
Orders include amounts not denominated in U.S. Dollars and therefore, fluctuations in the U.S. Dollar as compared to other currencies will impact revenue. Generally, strengthening of the U.S. Dollar will negatively impact revenue. Backlog is stated at historical foreign currency exchange rates, and revenue is released from backlog at current exchange rates, with any difference recorded as a backlog adjustment.
Current wording
Orders include amounts not denominated in U.S. Dollars and therefore, fluctuations in the U.S. Dollar as compared to other currencies will impact revenue. Generally, the strengthening of the U.S. Dollar will negatively impact revenue. Backlog is stated at historical foreign currency exchange rates, and revenue is released from backlog at current exchange rates, with any difference recorded as a backlog adjustment.
Previous 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.
Current wording
Gross orders decreased by $8.4 million primarily due to a $9.2 million decrease in CyberKnife System gross orders and upgrades, partially offset by a $0.8 million increase in TomoTherapy System gross orders and upgrades during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year. System gross orders primarily decreased in the Americas region and Japan and were partially offset by an increase in system gross orders from the EIMEA region during three months ended September 30, 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 1.6 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.
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 1.1 during the three months ended September 30, 2024, respectively, as compared to 1.2 during the three months ended September 30, 2023, respectively. A book-to-bill ratio greater than 1.2 generally 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 are defined as gross orders less cancellations, age-outs net of age-ins, foreign currency impacts and other adjustments during the period.
Current wording
Net orders are defined as gross orders less cancellations, age-outs net of age-ins, foreign currency impacts and other adjustments during the period. Net orders decreased by $2.1 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to a decrease in gross orders as described above partially offset by lower cancellations in first quarter of fiscal year 2025 as compared to the same period in the prior fiscal year.
Previous wording
Results of Operations — Three and nine months ended March 31, 2024 and 2023
Current wording
Results of Operations — Three months ended September 30, 2024 and 2023
Previous 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.
Current wording
Includes sales of products to the joint venture, an equity method investment, of $28,644 and $21,952 during the three months ended September 30, 2024 and 2023, respectively. See Note 13.
Previous 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.
Current wording
Includes sales of services to the joint venture, an equity method investment, of $4,058 and $2,854 during the three months ended September 30, 2024 and 2023, respectively. See Note 13.
Previous 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.
Current wording
Products net revenue decreased $5.0 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, mostly driven by a lower volume of shipments of system units of our TomoTherapy System and CyberKnife System. Services net revenue increased $2.6 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to an increase in our installed base and an increase in prices for certain of our service contracts.
Previous wording
Net revenue decreased $16.9 million during the three months ended March 31, 2024, as compared to the same period in the prior fiscal year, primarily due to a lower volume of shipments to the Americas and China regions, and a decrease in service revenue in the Americas region. During the three months ended March 31, 2024, Japan net revenue included a $1.5 million unfavorable impact from foreign exchange. Additionally, revenues from the Americas region for the three months ended March 31, 2024 was negatively impacted by reduced budgets and lower capital deployment priority for radiotherapy equipment, along with longer customer installation timelines, which we expect will continue to have an impact through at least fiscal year 2026.
Current wording
Net revenue decreased $2.3 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to a lower volume of shipments to the EIMEA region, partially offset by a higher volume of shipments to China and the APAC region. This decrease was partially offset by higher service revenues in the EIMEA region and China due to an increase in our installed base in each region. Additionally, revenues from the Americas region are being negatively impacted by reduced budgets and lower capital deployment priority for radiotherapy equipment, along with longer customer installation timelines which we expect will continue to have an impact on net revenue through fiscal year 2026.
Previous wording
Research and development expenses decreased by $3.3 million and $2.7 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 lower compensation and benefit costs of $2.4 million and $1.5 million, respectively, as a result of lower headcount from the 2024 restructuring initiative in the second quarter of fiscal year 2024.
Current wording
Research and development expenses decreased by $1.9 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to lower compensation and benefit costs of $1.6 million as a result of lower headcount from the 2024 restructuring initiative in the second quarter of fiscal year 2024.
Previous wording
Income on equity method investment, net
Current wording
Income (loss) on equity method investment, net
Previous 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.
Current wording
Income (loss) from equity method investment, which relates to our JV, decreased by $0.5 million during the three months ended September 30, 2024, as compared to the same period in the prior fiscal year, primarily due to a decrease in the sale of systems.
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 $0.1 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.
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 $1.3 million during the three months ended September 30, 2024, primarily due to an additional expense in the prior year period relating to higher deferred tax liability on unremitted foreign earnings.
Previous 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.
Current wording
At September 30, 2024, we had $59.2 million in cash and cash equivalents. Cash from operations could be affected by various risks and uncertainties, including, declines in our revenue, particularly without a corresponding decrease in our expenses, the timing of payments from our customers and our expenditures, as well as but not limited to, macroeconomic conditions, inflation, actions taken to counter inflation, foreign currency exchange rate fluctuations, and the risks included in Part I, Item 1A titled “Risk Factors.” In particular, we expect inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through fiscal year 2025. 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.
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, 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.
Current wording
Our liquidity and cash flows have been and could continue to be materially impacted by factors other than our cash from operations and factors that are not in our control, such as current macroeconomic factors, including facility closures, supply chain disruptions, inflation, foreign currency exchange rate fluctuations, increased volatility in the financial markets, uncertainty caused by the China anti-corruption campaign and timing of the China stimulus program changes in the U.S. presidential administration, tightening of credit markets which could impact debt availability. 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. There remain uncertainties as to how 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 September 12, 2024, we entered into the Fourth Amendment to (i) change the requirements of certain financial maintenance covenants under the Credit Agreement for the fiscal quarter ending September 30, 2024, (ii) add a minimum liquidity covenant to the Credit Agreement and (iii) reduce the available revolving commitments available under the Credit Agreement to no more than $20.0 million through the end of the agreement.
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 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.
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 September 30, 2024, we had an outstanding balance under the Term Loan Facility of $62.0 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 September 30, 2024.
Previous 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.
Current wording
Additionally, the undistributed earnings of our foreign subsidiaries at September 30, 2024, for all countries except Japan, France, Switzerland and the United Kingdom 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 September 30, 2024, we had $11.9 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 nine months ended March 31, 2024 and 2023 are summarized as follows (in thousands):
Current wording
Our cash flows for the three months ended September 30, 2024 and 2023 are summarized as follows (in thousands):
Previous 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.
Current wording
Net cash used in operating activities during the three months ended September 30, 2024 was from a net loss of $4.0 million and a decrease from the net changes from assets and liabilities of $12.2 million, partially offset by an increase from non-cash items of $8.9 million.
Previous 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.
Current wording
Non-cash items primarily consisted of $3.6 million in profit margin deferred on sales to the JV, share-based compensation expense of $2.4 million, depreciation and amortization expense of $1.5 million, and the provision for write-down of inventories of $0.9 million.
Previous 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.
Current wording
The major contributors to the decrease from the net changes of assets and liabilities during the three months ended September 30, 2024 were as follows: a $17.0 million increase in inventories that was primarily due to increased purchases of materials to meet expected demand; a $3.9 million decrease in accrued compensation and accrued liabilities primarily due to the payment of value added tax payables, partially offset by a $6.8 million increase in deferred revenue primarily due to an increase in billings and deliveries where the timing of revenue recognition was deferred.
Previous 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.
Current wording
Net cash used in investing activities was $1.1 million during the three months ended September 30, 2024 and was for the purchase of property and equipment.
Previous 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.
Current wording
Net cash used in financing activities during the three months ended September 30, 2024 was due to the scheduled payment of $2.0 million for the principal amount outstanding on our Term Loan Facility. In addition, we borrowed and repaid $10.0 million on our Revolving Credit Facility during the first quarter of fiscal year 2025.
Previous wording
The unpredictable impact of the macroeconomic environment and the ongoing recovery from the COVID-19 pandemic, including on collections, supply chain, and logistics.
Current wording
The impact of the macroeconomic environment, including on collections, supply chain, and logistics.
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 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.
Current wording
We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. 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 three months ended September 30, 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, 2024.
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 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.
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 years 2023 and 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 in fiscal year 2025 as we are unable to pass all of these increased costs to our customers. In addition, we expect inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through fiscal year 2025. 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
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. The economic uncertainty in the current environment caused by the ongoing recovery from the COVID-19 pandemic however, could limit our ability to accurately make and evaluate our estimates and judgments. Actual results could therefore differ materially from those estimates if actual conditions differ from our assumptions.
Current wording
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. The economic uncertainty in the current environment however, could limit our ability to accurately make and evaluate our estimates and judgments. Actual results could therefore differ materially from those estimates if actual conditions differ from our assumptions.
Previous 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.
Current wording
During the three months ended September 30, 2024, there were 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 19, 2024.