What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-08-17 compared with 2020-08-25 · 205 added, 1326 removed, 322 unchanged (83% of the section changed)

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Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report on Form 10‑K, particularly in “Risk Factors.” See “Special Note Regarding Forward‑Looking Statements.”

Products and Markets

We are a radiation oncology company that develops, manufactures, sells and supports precise, innovative treatment solutions that set the standard of care, with the aim of helping patients live longer, better lives.

Our leading-edge technologies, the CyberKnife and TomoTherapy Systems, including the Radixact Systems, the next generation TomoTherapy platform, are designed to deliver advanced radiation therapy including radiosurgery, stereotactic body radiation therapy, intensity modulated radiation therapy, image-guided radiation therapy and adaptive radiation therapy tailored to the specific needs of each patient.

The CyberKnife and TomoTherapy Systems are complementary offerings serving largely separate patient populations treated by the same medical specialty, radiation oncology.

Both systems have advanced capabilities that offer increased treatment flexibility to meet the needs of an expanding patient population including patients requiring retreatment with radiation therapy and palliative care.

We also offer comprehensive software solutions to enable and enhance the precise and efficient radiosurgery and radiotherapy treatment with our CyberKnife and TomoTherapy Systems.

In addition to these products, we also provide services, which include post-contract customer support (warranty period services and post warranty services), installation services, training, and other professional services.

The CyberKnife Systems

The CyberKnife Systems are robotic systems designed to deliver radiosurgery treatments to cancer tumors anywhere in the body.

The CyberKnife Systems are the only dedicated, full-body robotic radiosurgery systems on the market.

Radiosurgery is an alternative to traditional surgery for tumors and is performed on an outpatient basis in one to five treatment sessions.

It enables the treatment of patients who typically might not otherwise be treated with radiation, who may not be good candidates for surgery, or who desire non-surgical treatments.

The use of radiosurgery with CyberKnife Systems to treat tumors throughout the body has grown significantly in recent years, but currently only a small portion of the patients who develop tumors treatable with CyberKnife Systems are treated with these systems.

A determination of when it may or may not be appropriate to use a CyberKnife System for treatment is at the discretion of the treating physician and depends on the specific patient.

However, CyberKnife Systems are generally not used to treat (1) very large tumors, which are considerably wider than the radiation beam that can be delivered by CyberKnife Systems, (2) diffuse wide-spread disease, as is often the case for late stage cancers, because they are not localized (though CyberKnife Systems might be used to treat a focal area of the disease), and (3) systemic diseases, like leukemia and lymphoma, which are not localized to an organ, but rather involve cells throughout the body.

The CyberKnife Systems are the only robotic radiosurgery systems available today which deliver such high precision treatments for intra- and extra-cranial disease sites throughout the body, including prostate, lung, brain, spine, liver, pancreas and kidney.

The latest generation CyberKnife M6 Series System is available with the InCise Multileaf Collimator (InCise MLC), the world’s first multileaf collimator (MLC) to be available on a robotic platform.

Our CyberKnife M6 Series Systems have the option of:

fixed collimator, Iris Variable Aperture Collimator and/or multi-leaf collimator, or InCise MLC.

The InCise MLC is designed specifically for the M6 Series.

With the InCise MLC, clinicians can deliver the same precise radiosurgery treatments they have come to expect with the CyberKnife System, faster and for a wider range of tumor types than prior CyberKnife Systems.

The InCise MLC makes it faster and more efficient to treat a wider range of tumor types with the CyberKnife M6 Series System, including larger tumors and those with multiple sites of disease.

In 2018 , we introduced the VOLO Optimizer software upgrade for the CyberKnife System.

The VOLO facilitates the development of clinically optimal treatment plans up to 90 percent faster than before and the delivery of the treatment up to an estimated 50 percent faster than before, allowing CyberKnife treatments to typically be performed in 15 to 30 minutes.

We are a radiation therapy company that develops, manufactures, sells and supports market-changing solutions that are designed to deliver radiation treatments for even the most complex cases, while making commonly treatable cases even more straightforward, to meet the full spectrum of patient needs.

We believe in comparison to conventional linear accelerators, the company’s treatment delivery, planning, and data management solutions provide better accuracy, flexibility, and control;

fewer treatments with shorter treatment times;

and the technology to expand beyond cancer, making it easier for clinical teams around the world to provide treatments that help patients get back to living their lives, faster.

Our innovative technologies, the CyberKnife ® and TomoTherapy ® platforms, including the Radixact ® System, our next generation TomoTherapy platform, are designed to deliver advanced treatments, including stereotactic radiosurgery (SRS), stereotactic body radiation therapy (SBRT), intensity modulated radiation therapy (IMRT), image-guided radiation therapy (IGRT), and adaptive radiation therapy (ART).

The CyberKnife and TomoTherapy platforms have complementary clinical applications with the same goal:

to empower our customers to deliver the most precise and accurate treatments while still minimizing dose to healthy tissue, helping to reduce the risk of side effects that may impact patients’ quality of life.

Each of these systems serves patient populations treated by the same medical specialty, radiation oncology, with advanced capabilities.

The CyberKnife platform is also used by neuro-radiosurgeons to treat patients with tumors in the brain and neurologic disorders.

In addition to these platforms, we also provide services, which include post-contract customer support (warranty period services and post warranty services), installation services, training, and other professional services.

The CyberKnife Platform

The CyberKnife platform has evolved over the years reflecting innovation in its hardware and software.

The platform is comprised of the only full-body stereotactic radiosurgery (SRS) and stereotactic body radiation therapy (SBRT) robotic systems on the market - including the CyberKnife M6™ and S7™ Systems.

These systems have the option of fixed collimator, Iris™ Variable Aperture Collimator and the InCise™ Multileaf Collimator (MLC).

With the InCise MLC, clinicians can deliver the same precise SRS and SBRT treatments they have come to expect with the CyberKnife System, faster and for a wider range of tumor types than prior configurations of the CyberKnife System.

The use of SRS and SBRT with the CyberKnife platform to treat tumors throughout the body has grown significantly in recent years.

SRS and SBRT is performed on an outpatient basis in a limited number of treatment sessions - typically 1-5 fractions.

It enables the treatment of patients who might not otherwise be treated with radiation, who may not be good candidates for surgery, or who desire non-surgical treatments.

In 2018, we introduced the new release of our Precision® Treatment Planning System (TPS) with the VOLO Optimizer software upgrade for the CyberKnife M6 System, enabling customers to significantly improve operational efficiency by reducing both the time to create high quality treatment plans and the time it takes to deliver patient treatments.

The next-generation TPS with the optimizer facilitates the development of clinically optimal treatment plans up to 90 percent faster than before and the delivery of the treatment up to an estimated 50 percent faster than before the availability of the new software, allowing CyberKnife treatments to typically be performed in 15 to 30 minutes.

In June 2020, we launched the CyberKnife S 7 System, an innovative device combining speed, advanced precision, and real-time artificial intelligence-driven motion tracking and synchronization treatment delivery for all stereotactic radiosurgery (SRS) and stereotactic body radiation therapy (SBRT) treatments in as little as 15 minutes.

The CyberKnife S7 System is the next-generation CyberKnife platform, a robotic, non-invasive radiation therapy device capable of treating cancerous and benign tumors throughout the body, as well as neurologic disorders .

We believe the long-term success of the CyberKnife Systems is dependent on a number of factors including the following:

Continued adoption of our CyberKnife M6 Series Systems;

Greater awareness among doctors and patients of the benefits of radiosurgery conducted with the CyberKnife Systems;

Continued evolution in clinical studies demonstrating the safety, efficacy and other benefits of using the CyberKnife Systems to treat tumors in various parts of the body;

The CyberKnife S7 System, with Synchrony® Motion Synchronization and Real-Time Adaptive Radiotherapy Technology and the VOLO™ Optimizer, facilitates the delivery of accurate, sub-millimeter, (ultra) hypofractionated treatments to tumors throughout the body, and even to targets that move.

We believe the long-term success of the CyberKnife platform is dependent on a number of factors including the following:

Continued adoption of our CyberKnife platform, including the CyberKnife M6 System and CyberKnife S7 System, in markets where they are available;

Greater awareness among doctors and patients of the benefits of radiosurgery conducted with the CyberKnife platform;

Continued evolution in clinical studies demonstrating the safety, efficacy and other benefits of using the CyberKnife platform to treat tumors in various parts of the body;

Change in medical practice leading to utilization of stereotactic body radiosurgery more regularly as an alternative to surgery or other treatments;

Continued advances in our technology that improve the quality of treatments and ease of use of the CyberKnife Systems;

Receipt of regulatory approvals in various countries which are expected to improve access to radiosurgery with the CyberKnife Systems in such countries;

Medical insurance reimbursement policies that cover CyberKnife System treatments;

Our ability to expand sales of CyberKnife Systems in countries throughout the world where we do not currently sell or have not historically sold a significant number of CyberKnife Systems.

TomoTherapy Systems, including Radixact, the next generation TomoTherapy platform

The TomoTherapy Systems are advanced, fully integrated and versatile radiation therapy systems for the treatment of a wide range of cancer types.

The TomoTherapy Systems are specifically designed for image-guided intensity-modulated radiation therapy (“IG-IMRT”).

The TomoTherapy Systems include the TomoTherapy H Series Systems with configurations of TomoH, TomoHD, and TomoHDA.

Based on a CT scanner platform, the systems provide continuous delivery of radiation from 360 degrees around the patient, or delivery from clinician-specified beam angles.

These unique features, combined with daily 3D image guidance, enable physicians to deliver highly accurate, individualized dose distributions which precisely conform to the shape of the patient’s tumor while minimizing dose to normal, healthy tissue, resulting in fewer side effects for the patient.

The TomoTherapy Systems are capable of treating all standard radiation therapy indications including breast, prostate, lung, and head and neck cancers, in addition to complex and novel treatments such as total marrow irradiation.

The Radixact System, the next generation TomoTherapy platform, includes our integrated Accuray Precision treatment planning software and new iDMS Data Management System.

The Radixact System leverages the TomoTherapy System’s efficient daily low-dose fan beam MVCT image guidance and unique ring gantry architecture, delivering precise radiation treatments for more patients, faster, with simpler, more automated workflows.

Most recently, we introduced our Synchrony motion tracking and correction technology for the Radixact System.

This feature adds intrafraction motion synchronization capabilities to the Radixact System, enabling real-time tracking, visualization and correction for tumor motion during treatment, with the goal of improving dose accuracy and treatment times as compared to conventional radiation therapy systems.

In 2019, Synchrony for Radixact was shipped to selected clinical evaluation sites globally, with the broader commercial launch conducted in early calendar year 2020.

We believe the Radixact System and other TomoTherapy Systems offer clinicians and patients significant benefits over other radiation therapy systems in the market.

Continued advances in our technology that improve the quality of treatments and ease of use of the CyberKnife platform;

Receipt of regulatory approvals in various countries which are expected to improve access to radiosurgery with the CyberKnife S7 System in such countries;

Medical insurance reimbursement policies that cover CyberKnife platform treatments;

Our ability to expand sales of CyberKnife M6 and S7 Systems in countries throughout the world where we do not currently sell or have not historically sold a significant number of any CyberKnife platform configurations.

TomoTherapy Platform

The TomoTherapy platform consists of advanced, fully integrated and versatile radiation therapy systems designed to deliver IG-IMRT for the treatment of a wide range of cancer types.

The TomoTherapy platform includes the TomoTherapy H Series, with configurations of TomoH®, TomoHD®, and TomoHDA™.

Based on a CT scanner platform, the systems provide continuous delivery of radiation from multiple 360 degree rotations around the patient, or delivery from clinician-specified beam angles.

The TomoTherapy platform is capable of treating all standard radiation therapy indications including breast, prostate, lung, and head and neck cancers, in addition to complex and novel treatments such as total marrow irradiation.

The Radixact® System, the next-generation TomoTherapy platform, includes our integrated Accuray Precision® treatment planning software and iDMS® Data Management System.

The Radixact System leverages a unique ring gantry architecture to enable helical image acquisition and dose delivery, enabling precise radiation treatments for more patients, faster, with simpler, more automated workflows.

Our Synchrony Motion Synchronization and Real-Time Adaptive Radiotherapy Technology for the Radixact System adds intrafraction motion synchronization capabilities to the Radixact System, enabling real-time tracking, visualization and correction for tumor motion during treatment, with the goal of improving dose accuracy and treatment times as compared to conventional radiation therapy systems.

Most recently, we received FDA 510(k) clearance, Shonin approval from the Japanese Ministry of Health, Labor and Welfare (MHLW), and CE Mark certification for our uniquely innovative ClearRT™ helical kVCT imaging technology for the Radixact System.

ClearRT imaging brings low dose diagnostic-like kVCT imaging quality, the largest imaging field of view available on a radiation delivery system at 50 cm (diameter) by 135 cm (long), and speed, as evidenced by its ability to capture a 1-meter image in only 1 minute.

Furthermore, ClearRT helical kVCT imaging can be used directly in the adaptive dose monitoring process, and when required, ClearRT native image sets can be used for new plan creation.

We believe the Radixact System and other TomoTherapy Systems offer clinicians and patients significant benefits over other vendors’ radiation therapy systems in the market.

We believe our ability to capture more sales will be influenced by a number of factors including the following:

Continued adoption of our TomoTherapy Systems, including the adoption of Radixact Systems in markets where it is available;

Greater awareness among doctors and patients of the unique benefits of radiation therapy using TomoTherapy Systems because of their ring gantry architecture and ability to deliver treatment from 360 degrees around the patient;

Advances in our technology that improve the quality of treatments and ease of use of TomoTherapy Systems;

Greater awareness among doctors of the now-established reliability of TomoTherapy Systems;

Our ability to expand sales of TomoTherapy Systems in countries throughout the world where we do not currently sell or have not historically sold a significant number of TomoTherapy Systems.

Continued adoption of our TomoTherapy platform, including the Radixact System, in markets where it is available;

Greater awareness among doctors and patients of the unique benefits of radiation therapy using the TomoTherapy platform, including its ring gantry architecture that enables treatment delivery from multiple 360 degree rotations around the patient, and ClearRT helical kVCT imaging for the Radixact System, designed to produce exceptional diagnostic-like quality CT images, quickly and cost-effectively;

Advances in our technology that improve the quality of treatments and ease of use of TomoTherapy platform;

Greater awareness among doctors of the now-established reliability of TomoTherapy platform;

Our ability to expand sales of TomoTherapy platform in countries throughout the world where we do not currently sell or have not historically sold a significant number of any TomoTherapy platform configurations.

Sale of Our Products

Generating revenue from the sale of our systems is a lengthy process.

Selling our systems, from first contact with a potential customer to a signed sales contract that meets our backlog criteria (as discussed below) varies significantly and generally spans between six months and two years.

The length of time between receipt of a signed contract and revenue recognition is generally governed by the time required by the customer to build, renovate or prepare the treatment room for installation of the system.

Generating revenue from the sale of our platforms is a lengthy process.

Selling our platforms, from first contact with a potential customer to a signed sales contract that meets our backlog criteria (as discussed below) varies significantly and generally spans between six months and two years.

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.

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In addition to our offices in the United States, we have sales and service offices in Europe, Asia, and South America.

In October 2019, our systems were named in 50 out of 58 Class A user licenses awarded by the China National Health Commission.

As of June 30, 2021, our systems were named in 74 out of 90 Class A user licenses awarded by the China National Health Commission.

The Chinese Ministry of Health requires a tender process following the license awards for all participating end user hospitals prior to being able to take receipt of a Class A device.

This tender process defines the transactional terms and conditions related to each hospital’s equipment order and does not put us in a competitive bidding situation that would result in changes in the specific device for which the hospital has received the Class A user license.

The approximate value of revenue attributable to the Accuray systems subject to the 50 Class A licenses is expected to be $115.0 million.

As a result of delays in the tender process and other uncertainties caused by the COVID-19 pandemic, revenue recognition was delayed and while circumstances might change, we currently expect to start recognizing revenue for these systems in the first half of our fiscal 2021.

Further, our sales in China may be impacted by tariffs against foreign imports of certain materials.

While China announced a one year tariff exemption for medical linear accelerators in September 2019, there is no assurance that the exemption will continue beyond one year or that we will continue to qualify for such exemption.

During the year ended June 30, 2021, we delivered Class A devices to China and recognized system revenue related to such devices of approximately $54.2 million in the same period.

We currently anticipate system revenue related to the remaining Class A user licenses awarded to date in the next 12 to 18

Despite the challenges and uncertainties created by the COVID-19 pandemic in China and around the world, we continue to believe that China remains the world’s fastest growing market for radiation oncology systems and the pandemic does not affect the long-term demand for radiotherapy equipment in China.

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China represents a significantly underserved market for linacs based on the country’s population and cancer incidence rates on both an absolute and relative country basis.

Accuray Asia initially has a 49% ownership interest in the JV and the CIRC Subsidiary initially has a 51% ownership interest in the JV.

In exchange for the initial 49% equity interest in the JV, we, through Accuray Asia, made in-kind contributions consisting of two full radiation oncology systems from our inventory in the quarter ended December 31, 2019.

Accuray Asia has a 49% ownership interest in the JV and the CIRC Subsidiary has a 51% ownership interest in the JV.

In exchange for the 49% equity interest in the JV, we, through Accuray Asia, made in-kind contributions consisting of two full radiation oncology systems from our inventory in the quarter ended December 31, 2019.

The investment is reported as an Investment in unconsolidated joint venture on our condensed consolidated balance sheets.

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This gain was recorded as non-operating, other income for the quarter ended December 31, 2019.

In July 2019, the JV broke ground on its facility based in Tianjin, China, which is expected to serve as headquarters and home of its sales organization and service operations.

Also, in July 2019, the JV received the Radiation Safety License from the China Ministry of Environmental Protection.

This license, along with the license to do business in China received in April 2019 and the Medical Device Operating Permit received in June 2019, enables the JV to sell and install our radiation therapy devices in China.

As of June 30, 2020, the JV manufacturing facility construction is complete, with medical device approval process related to the manufacturing qualification and the required testing is expected to finish in the first calendar quarter of 2021.

In July 2019, the JV broke ground on its facility based in Tianjin, China, which is expected to serve as headquarters and home of its manufacturing, sales organization and service operations, and also received the Radiation Safety License from the China Ministry of Environmental Protection.

This license, along with the license to do business in China and the Medical Device Operating Permit, which were both received in 2019, enables the JV to sell, install and provide further service to our radiation therapy devices in China.

The JV manufacturing facility construction was completed in 2020, and Quality Management System certificated with ISO13485 standard.

The China made medical device type testing is on going and NMPA submission expected to finish in the fourth calendar quarter of 2021.

With the receipt of the necessary permits and licenses to operate, the JV has begun selling products in China, much like a distributor.

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We recognize revenue on sales to the JV in the current period, eliminating a portion of profit to the extent goods sold have not been sold through by the JV to an end customer at the end of each reporting period.

We will recognize the 49% proportionate share of the JV income or loss on a one-quarter lag due to the timing of the availability of the JV’s financial records.

We will recognize the 49% proportionate share of the JV income or loss from the JV on a one-quarter lag due to the timing of the availability of the JV’s financial records.

We deferred $2.1 million and $1.8 million of intra-entity profit margin as of June 30, 2021 and June 30, 2020, respectively.

During the year ended June 30, 2021, we recognized $1.8 million of previously deferred intra-entity profit margin from sales and recorded intra-entity profit margin deferral of $2.1 million from sales executed during the period.

Our consolidated accumulated deficit includes $0.9 million of accumulated income related to our equity method investment.

As of June 30, 2021, we had a carrying value of $15.9 million in the JV and owned a 49% interest in the entity.

Our proportional share of the underlying equity in net assets of the JV was approximately $13.7 million.

The difference of $2.2 million, increased by $2.1 million eliminated intra-entity profit, constitutes equity method goodwill of $4.4 million at June 30, 2021, including $0.1 million annual impact of foreign currency exchange gain, and is subject to impairment analysis annually during the quarter ending March 31, 2021.

No impairment was identified as of June 30, 2021.

COVID-19 Pandemic

In fiscal year 2020, an outbreak of a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) was identified in December 2019 in China and has subsequently been recognized as a pandemic by the World Health Organization.

The COVID-19 pandemic has severely restricted the level of economic activity around the world.

In response to this pandemic the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations, which has resulted in the temporary or permanent closure of certain businesses, as well as advising or requiring individuals to limit or forego their time outside of their homes.

While some businesses have been able to reopen, in some cases on a restricted basis, business activity remains at significantly lower levels than prior to the pandemic.

The COVID-19 pandemic has adversely impacted our business operations a as well as those of our customers and partners.

In fiscal year 2020, an outbreak of a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) was identified in December 2019 in China and was subsequently recognized as a pandemic by the World Health Organization.

The COVID-19 pandemic severely restricted the level of economic activity around the world and while conditions have improved, the pace and degree of recovery varies significantly.

In response to this pandemic, governments and private industry have taken preventative or protective actions, such as imposing restrictions on travel and business operations, which has resulted in the temporary or permanent closure of certain businesses, as well as advising or requiring individuals to limit or forego their time outside of their homes.

The COVID-19 pandemic has adversely impacted our business operations as well as those of our customers and partners.

In addition, across the healthcare industry, resources are being prioritized for the treatment and management of the pandemic and away from non-urgent or elective procedures.

Some of our customers, which include hospitals, major academic medical centers, and other related entities, have incurred losses during the COVID-19 pandemic due to significantly reduced patient volume.

The public health actions being undertaken to reduce the spread of the virus have created and may continue to create significant disruptions with

respect to demand for our products and services;

The public health actions being undertaken to reduce the spread of the virus have created and may continue to create significant disruptions with respect to demand for our products and services;

the operating procedures and workflow of our customers, particularly hospitals;

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The COVID-19 pandemic is adversely impacting the pace at which our backlog converts to revenue in the near-term.

This is primarily the result of delays in the timing of deliveries and installations in fiscal 2020 due to timing delays caused by the COVID-19 pandemic, which resulted in a decline to our revenue for the same period.

This is primarily the result of delays in the timing of deliveries and installations in fiscal 2021 caused by the COVID-19 pandemic, which resulted in a decline to our revenue for the same period.

We expect that such delays in deliveries and installations will continue into fiscal 2022, which could have a negative impact on our revenue during those periods.

As of the date of this Form 10-K, we have also experienced disruptions in our sales and revenue cycle as well as increases in customer defaults, delays in payment and planned installations and service agreements as a result of the effect of the COVID-19 pandemic on our customers as well as restrictions imposed on travel.

We have also received requests from a few customers to extend payment terms or temporarily suspend service and corresponding payment obligations and while we have only received a small number of requests thus far, there can be no guarantee that more customers will not ask for the same if the effects of the COVID-19 pandemic deepen or worsen.

As a result, we are carefully monitoring the pandemic and the resulting length and depth of the economic impact on our financial condition and results of operations, however, given the uncertainty regarding the spread and potential resurgence of COVID-19 and how long the pandemic will last, the related financial impact cannot be reasonably estimated at this time, although the impacts are expected to continue and may also significantly affect our business.

We have also experienced disruptions in our sales as well as declines in deliveries and installations of our products, which has adversely impacted the pace at which our backlog converts to revenue.

We have also experienced delays in customer payments and delays in planned installations as a result of changes to and redirection of customer resources to the response to the COVID-19 pandemic and closures of customer facilities.

As a result, we are carefully monitoring the pandemic and the potential length and depth of the resulting economic impact, as well as the timing and extent of an economic recovery, on our financial condition and results of operations.

However, given the uncertainty regarding the spread, severity and potential resurgence of COVID-19 and how long the pandemic and associated health measures will last, the related financial impact cannot be reasonably estimated at this time.

We expect that the impacts on our customers’ business and our business will continue until the pandemic subsides and related public health measures are reduced or eliminated.

We intend to continue to execute on our strategic plans and operational initiatives during the COVID-19 pandemic.

However, the extent to which our operations and financial condition are affected by COVID-19, including our ability to execute our business strategies and initiatives in the expected time frame, will largely depend on future developments that cannot be accurately predicted at this time and are uncertain, including new information that may emerge concerning the severity and scope of the COVID-19 pandemic (including whether there is a resurgence or other additional periods of increases or spikes in the number of COVID-19 cases in areas in which we operate), new or additional actions taken to contain COVID-19 or address its impact and the timing of global recovery and economic normalization, among other uncertainties and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-K, may result in delays or modifications to these plans and initiatives.

However, the extent to which our operations and financial condition are affected by the COVID-19 pandemic, including our ability to execute our business strategies and initiatives in the expected time frame, will largely depend on future developments that cannot be accurately predicted at this time and are uncertain, including new information that may emerge concerning the severity and scope of the COVID-19 pandemic (including whether there is a resurgence or other additional periods of increases or spikes in the number of COVID-19 cases in areas in which we operate), new or additional actions taken to contain COVID-19 or address its impact, the availability and effect of vaccines, the spread of variants, changes in economic consumer behavior and the timing of global recovery and economic normalization, among other uncertainties and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-K, may result in delays or modifications to these plans and initiatives.

Accordingly, management is carefully evaluating the Company’s 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 the pandemic continues to unfold.

Effective at the beginning of our fiscal year 2019, we updated our backlog policy to include certain upgrades sold through service contracts.

As a result, the portion of the order that is recognizable as product revenue and upgrades sold on service contracts are reported as backlog.

The portion of the order that is recognized as other service revenue (for example, Post-Contract Customer Support (PCS), installation, training and professional services) is not included in reported backlog.

As of June 30, 2021, backlog totaled $616.4 million, of which $2.0 million represented upgrades sold through service contracts.

As of June 30, 2020, backlog totaled $602.7 million.

The COVID-19 pandemic is adversely impacting the pace at which our backlog converts to revenue in the near-term.

Although the depth and extent to which the COVID-19 pandemic is impacting individual markets varies based on a number of factors, we expect to see a higher than normal level of age-outs in the coming quarters as a result.

In order for the product portion of a system sales agreement to be counted as backlog, it must meet the following criteria:

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or the sale is to a customer where a deposit is deemed not necessary or customary (i.e.

sale to a government entity, a large hospital, group of hospitals or

cancer care group that has sufficient credit, customers with trade-in of existing equipment, sales via tender awards, or indirect channel sales that have signed contracts with end-customers);

sale to a government entity, a large hospital, group of hospitals or cancer care group that has sufficient credit, customers with trade-in of existing equipment, sales via tender awards, or indirect channel sales that have signed contracts with end-customers);

The specific end customer site has been identified by the customer in the written contract or written amendment;

Less than 2.5 years have passed since the contract met all the criteria above.

Although our backlog includes only contractual agreements with our customers for the purchase of CyberKnife Systems, TomoTherapy Systems, including Radixact Systems and related upgrades, we cannot provide assurance that we will convert backlog into recognized revenue due primarily to factors outside of our control.

Although our backlog includes only contractual agreements with our customers for the purchase of our CyberKnife or TomoTherapy platforms, including Radixact Systems and related upgrades, we cannot provide assurance that we will convert backlog into recognized revenue due primarily to factors outside of our control.

The amount of backlog recognized into revenue is primarily impacted by three items:

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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.

The COVID-19 pandemic has adversely impacted the pace of new orders and the pace at which our backlog converts to revenue in the near-term and we expect this to continue.

Although the extent to which the COVID-19 pandemic will impact individual markets could vary based on a number of factors, we have seen and expect to continue to see a higher than normal level of age-outs as a result.

A summary of gross orders, net orders, and order backlog is as follows (in thousands):

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Gross orders are defined as the sum of new orders recorded during the period adjusted for any revisions to existing orders during the period.

Gross orders decreased by $51.4 million for the year ended June 30, 2021, as compared to the year ended June 30, 2020.

This was primarily due to a decline in China Class A system orders as the prior year order volume reflected significant pent-up demand from our end users and distributor, which was triggered by the announcement of the China Class A system quotas back in 2018.

In addition, gross order activity during the year ended June 30, 2021 was adversely impacted by the COVID-19 pandemic, particularly in the Americas region.

Accordingly, TomoTherapy platform order and upgrades order volume decreased by $48.3 million and $4.1 million, respectively, as compared to the prior year.

CyberKnife platform orders decreased by $5.9 million while upgrades increased by $1.4 million.

The decrease in CyberKnife platform orders was primarily due to the normalization of China Class A system orders this fiscal year as compared to prior fiscal year where we experienced higher volumes of orders due to significant pent-up demand.

Gross orders increased by $35.0 million for the year ended June 30, 2020, as compared to the year ended June 30, 2019.

This was primarily a result of an increase of $32.1 million in new system order volume compared to the same prior year period, primarily related to a $31.1 million increase of TomoTherapy System orders, a $1.0 million increase in CyberKnife System orders and an increase of $2.9 million in upgrade orders and other amendments to the terms of our contracts as compared to the same prior year period.

Gross orders increased by $37.4 million for the year ended June 30, 2019, as compared to the year ended June 30, 2018.

This was primarily a result of an increase of $31.6 million in new system order volume compared to the same prior year period, primarily related to a $17.5 million increase of TomoTherapy System orders, particularly Radixact System orders, a $14.1 million increase in CyberKnife System orders and an increase of $5.8 million in upgrade orders and other amendments to the terms of our contracts as compared to the same prior year period.

Net orders are defined as gross orders less cancellations, age-outs, foreign exchange and other adjustments during the period.

Net orders increased by $62.3 million for the year ended June 30, 2020, as compared to the year ended June 30, 2019, resulting from an increase in gross orders of $35.0 million, decreased net age-outs of $14.4 million and cancellations of $11.1 million, in addition to favorable impact of foreign currency exchange of $1.8 million as compared to same to the same prior year period.

The net age-outs for the year ended June 30, 2020 were $81.1 million.

There were $20.5 million age-ins, which represent orders that previously aged-out but have been taken to revenue in the current period.

Age-ins offset the gross amount of age-outs in a particular period.

There were $13.9 million and $25.0 million in cancellations in the year ended June 30, 2020 and June 30, 2019, respectively.

Net orders decreased by $88.7 million for the year ended June 30, 2021, as compared to the year ended June 30, 2020, resulting from a decrease of gross orders of $51.4 million, an increase in age-outs of $47.2 million, an increase in cancellations of $1.2 million, offset by an increase in age-ins of $6.1 million and a favorable impact of foreign currency exchange rates of $4.9 million.

The age-outs for the year ended June 30, 2021 were $122.1 million.

There were $6.1 million of age-ins.

Age-ins represent orders that previously aged-out but have been recognized as revenue in the current period, compared to $81.1 million of age-outs and $20.5 million of age-ins in the same period last fiscal year.

There were $15.1 million of cancellations in year ended June 30, 2021 as compared to $13.9 million of cancellations in the year ended June 30, 2020.

Cancellations are outside of our control and are difficult to forecast;

however, we continue to work closely with our customers to minimize the impact of cancellations on our business.

Additionally, there were $4.1 million cancellations recorded in fiscal year 2020 related to cancellations that occurred in fiscal 2019.

Other adjustments and foreign currency impacts decreased net orders by $1.7 million and by $3.6 million for the year ended June 30, 2020 and June 30, 2019, respectively.

Net orders increased by $8.7 million for the year ended June 30, 2019, as compared to the year ended June 30, 2018, resulting from an increase in gross orders of $37.4 million, offset by net age-outs of $27.0 million, and cancellations of $2.4 million.

Foreign currency impacts and other adjustments increased net orders by $3.2 million for the year ended June 30, 2021 compared to a decrease in net orders by $1.7 million for the year ended June 30, 2020.

The net age-outs for the year ended June 30, 2020 were $81.1 million.

There were $12.0 million age-ins, which represent orders that previously aged-out but have been taken to revenue in the current period.

There were $20.5 million age-ins, which represent orders that previously aged-out but have been taken to revenue in the current period, compared to $95.5 million of age-outs and $12.0 million of age-ins for the year ended June 30, 2019.

Age-ins offset the gross amount of age-outs in a particular period.

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however, we continue to work closely with our customers to minimize the impact of cancellations on our business.

Additionally, there were $4.1 million cancellations recorded in fiscal year 2020 related to cancellations that occurred in fiscal 2019.

Other adjustments and foreign currency impacts decreased net orders by $1.7 million and by $3.6 million for the year ended June 30, 2020 and June 30, 2019, respectively.

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General and administrative expenses

(Gain) loss on equity method investment

Other expense, net

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Expressed as a percentage of total net revenue, except for product and services gross profits which are expressed as a percentage of related product and services revenue.

Includes sales to the JV, an equity method investment of $19,054 for the year ended June 30, 2020 and $0 for both years ended June 30, 2019 and June 30, 2018, respectively.

Includes sales to the JV, an equity method investment of $24,393 and $19,054 for fiscal year ended June 30, 2021 and 2020, respectively.

Product Net Revenue

Product net revenue decreased by $29.4 million, or 15%, as compared to the year ended June 30, 2019.

The decrease was primarily due to a reduction in system sales of $35.7 million from lower unit volume offset by a $6.4 million increase in upgrades and other revenue as compared to the prior year.

Product net revenue increased by $9.3 million for the year ended June 30, 2021 or 6%, as compared to the year ended June 30, 2020, primarily due to an increase in unit volume sales coupled with an increase in system average product revenue of $18.8 million.

The increase is driven by an increase in revenue from China, offset by a unit volume decline in the Americas, EMEA and Japan regions partly as a result of the impact of COVID-19 pandemic on revenue conversion timing with our customers in those regions and a decrease in system upgrades of $9.5 million due to the timing of release of ClearRT that was anticipated by customers during the fourth quarter of fiscal 2021.

Service Net Revenue

Service net revenue decreased by $6.5 million, or 3%, as compared to the year ended June 30, 2019.

The decrease was primarily driven by a decrease of $4.7 million resulting from fewer upgrades purchased through our service agreements, a $2.7 million decrease of service contract revenue, a $0.5 million decrease in revenue from training, offset by $1.4 million increase in revenue from installations.

As the COVID-19 pandemic is expected to continue to cause strain on the resources of our customers, coupled with recommended deferrals of non-urgent or elective procedures, we have seen delays in the timing of deliveries and installations in fiscal year 2020 and expect that such delays will continue into fiscal year 2021, which is expected to have a negative impact on our revenue during those periods.

We cannot reliably estimate the extent or length to which the COVID-19 pandemic will impact deliveries and installations of our systems and as such we are unable to estimate the timing or extent of any such decline or the impact such decline will have on our revenue.

Service net revenue increased by $4.0 million, or 2%, as compared to the year ended June 30, 2020, primarily due to an increase in service contract revenue of $2.8 million, a reduced cost of service of $2.6 million, and an increase in upgrade and installation revenue of $1.8 million, offset by a decrease in training revenue and revenue from service parts.

Net revenue by geographic region, based on the shipping location of our customer, is as follows (in thousands, except percentages):

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Europe, Middle East, India and Africa

Asia Pacific (excluding Japan and India)

The overall gross profit margin was 39% for the years ended June 30, 2020 and 2019.

Product gross margin was 43% for the year ended June 30, 2020 as compared to 41% for the year ended June 30, 2019, driven by lower cost of revenue, primarily due to product sales mix.

Service revenue gross margin was 36% for the year ended June 30, 2020 as compared to 37% for the year ended June 30, 2019, primarily due to a higher service parts consumption and lower service revenue during fiscal year 2020 as compared to fiscal year 2019.

Asia Pacific, excluding Japan and China

The overall gross profit for the year ended June 30, 2021 increased by $9.8 million, or 7%, as compared to the year ended June 30, 2020, due to an increase in service gross profit of $6.7 million, or 9%, driven by an increase in service contract revenue of $4.0 million including, upgrades and installation services, from an increase in the number of installed systems, coupled with a reduced cost of service of $2.6 million and an increase in product gross profit of $3.1 million, or 4%, which was driven by higher revenue from system unit sales volume coupled with an increase in system average product revenue.

Research and development expenses

Research and development expenses decreased by $6.7 million, or 12%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

The decrease was primarily due to a decrease of $3.4 million in compensation and benefits expenses due to lower headcount and related costs, a decrease of $2.9 million in overall operational cost due to changes in the timing of project spend, a decrease of $1.4 million due to a reduction in outsourcing expenses and consultants engaged by the Company in response to uncertainties created by the COVID-19 pandemic and a decrease of $0.3 million in travel expenses, offset by an increase of $1.2 million in research and development facilities expenses.

Research and development expenses increased by $2.9 million, or 6%, for the year ended June 30, 2021, as compared to the year ended June 30, 2020.

The increase was driven by an increase of $2.5 million in compensation and employee benefits expenses mainly due to reinstatement of bonuses to employees in fiscal year 2021, which were suspended in fiscal year 2020 due to the COVID-19 pandemic and an increase of $2.2 million in outside services offset by a decrease of $0.7 million in travel expenses due to decreased travel as a result of travel restrictions in connection with the COVID-19 pandemic and a decrease of $0.5 million in facilities expenses.

Selling and marketing expenses

Selling and marketing expenses decreased $4.4 million, or 9%, for the year ended June 30, 2021, as compared to the year ended June 30, 2020.

The decrease was primarily due to a decrease of $4.7 million in compensation and employee benefits including a decrease in stock-based compensation driven by lower headcount and related costs, a decrease of $1.6 million in travel expenses due to the impact of the COVID-19 pandemic on travel, a decrease of $1.4 million in marketing expenses driven by postponement of tradeshows, a decrease of $0.7 million in facility cost due to consolidation of facilities and a decrease of $0.2 million driven by lower software service and maintenance expense.

The decrease was primarily driven by a decrease of $3.0 million due to the lower cost of key trade shows that were held virtually because of the COVID-19 pandemic, a decrease of $2.0 million in travel expenses, a decrease of $0.9 million in marketing promotion and materials and $0.2 million lower consulting expense, offset by an increase of $1.7 million in compensation and employee benefits mainly due to the reinstatement of bonuses to employees in fiscal year 2021, which were suspended in fiscal year 2020 due to the COVID-19 pandemic.

General and administrative expenses

General and administrative expenses decreased by $9.4 million, or 19%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

The decrease was primarily due to a decrease of $2.6 million related to lower compensation and employee benefits costs, a decrease of $2.6 million due to lower outside service costs related to establishment of the JV as compared to the same period last fiscal year, a benefit of $1.7 million as a result of the conclusion of a foreign indirect tax audit, a decrease in expense for allowance for doubtful accounts of $1.9 million, and a decrease of $0.6 million due to lower facility and IT service costs.

General and administrative expenses increased by $1.6 million, or 4%, for the year ended June 30, 2021, as compared to the year ended June 30, 2020.

The increase was primarily due to an increase of $2.6 million in compensation and employee benefits mainly due to the reinstatement of bonuses to employees in fiscal year 2021, which were suspended in fiscal year 2020 due to the COVID-19 pandemic, and an increase of $1.7 million this fiscal year compared to prior fiscal year due to the conclusion of a foreign indirect tax audit in fiscal year 2020 offset by a decrease in expense for allowance for credit losses of $1.6 million and a decrease in outside services and consulting of $1.2 million.

Income on equity method investment, net

Income (loss) on equity method investment was an income of $0.9 million as compared to a loss of $0.1 million during the year ended June 30, 2020.

Other expense, net

Other expense, net decreased by $8.1 million, or 54%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

The decrease was primarily due to a non-cash gain of $13.0 million related to the value of the Accuray systems contributed to the JV in exchange for 49% equity interest, offset by an increase of $2.9 million in net interest expense and an increase of $1.7 million in foreign exchange losses.

Other expense, net increased by $21.0 million for the year ended June 30, 2021, as compared to the year ended June 30, 2020.

The increase was primarily due to the non-cash gain of $13.0 million related to the value of the Accuray systems contributed to the JV in exchange for 49% equity interest that was recorded in fiscal year 2020, an increase of $5.7 million due to loss on extinguishment of debt and a $4.3 million due to loss on the exchange of our 3.75% Convertible Notes due 2022 that was treated as an extinguishment of old notes.

The impact of these items was offset by an increase of $0.4 million in net foreign currency exchange gain, a decrease of $1.2 million in interest expense and a $0.2 million payment received for building improvements to a facility that was vacated in 2020.

Provision for income taxes

The provision for income taxes was lower in fiscal 2021 as compared to fiscal 2020 due to lower foreign earnings in fiscal 2021.

In both fiscal 2020 and 2019, we released tax benefits related to final tax assessments from the Swiss tax authorities for the period from fiscal 2018 and 2017, respectively which decreased our foreign taxes for such periods.

We also released income tax benefits in fiscal 2020 related to final tax assessments from the Swiss tax authorities for the fiscal period 2018 that otherwise would have reflected a much higher income tax expense for us in fiscal 2020.

Fiscal 2020 results compared to 2019 (in thousands, except percentages)

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General and administrative expenses

Loss on equity method investment

Other expense, net

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Product Net Revenue

Product net revenue increased by $12.8 million, or 7%, as compared to the year ended June 30, 2018.

The increase was due to an increase of $34.0 million from higher unit volume sales of TomoTherapy Systems as compared to the prior year.

The increase in TomoTherapy System sales was partially offset by a decrease in CyberKnife System sales of $19.5 million and a decrease in upgrade and other revenue of $1.7 million.

Product net revenue decreased by $29.4 million, or 15%, as compared to the year ended June 30, 2019.

The decrease was primarily due to a reduction in system sales of $35.7 million from lower unit volume offset by a $6.4 million increase in upgrades and other revenue as compared to the prior year.

Service Net Revenue

Service net revenue increased by $1.1 million, or 1%, as compared to the year ended June 30, 2018.

The increase was primarily driven by a $3.1 million increase of service contract revenue offset by a decrease of $2.0 million in upgrade, installation, and spare parts revenue.

Service net revenue decreased by $6.5 million, or 3%, as compared to the year ended June 30, 2019.

Net revenue by geographic region, based on the shipping location of our customer, is as follows (in thousands, except percentages):

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Europe, Middle East, India and Africa

Asia Pacific (excluding Japan and India)

The overall gross profit margin for the year ended June 30, 2019 was 39% as compared to the gross profit of 40% for the year ended June 30, 2018, primarily due to a decrease in product gross profit.

Product gross margin was 41% for the year ended June 30, 2019 as compared to 44% for the year ended June 30, 2018, primarily due to increased sales of Radixact Systems, which have a lower profit margin than CyberKnife Systems.

Asia Pacific, excluding Japan and China

The overall gross profit margin was 39% for the years ended June 30, 2020 and 2019.

Product gross margin was 43% for the year ended June 30, 2020 as compared to 40% for the year ended June 30, 2019, driven by lower cost of revenue, primarily due to product sales mix.

Research and development expenses

Research and development expenses decreased $0.8 million, or 1%, for the year ended June 30, 2019 as compared to the year ended June 30, 2018.

The decrease was primarily due to a decrease of $2.6 million in compensation and benefits expenses due to lower headcount and a decrease in travel expenses of $0.3 million, partially offset by a $2.2 million expense related to a project that was terminated.

Research and development expenses decreased by $6.7 million, or 12%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

Selling and marketing expenses

Selling and marketing expenses decreased $8.7 million, or 16%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

The decrease was mainly due to a decrease of $3.0 million in compensation expense due to reduced headcount and a reduction in travel costs of $0.9 million.

General and administrative expenses

General and administrative expenses increased $1.4 million, or 3%, for the year ended June 30, 2019 as compared to the year ended June 30, 2018.

The increase was due to an increase of $3.6 million in bad debt expense, offset by a decrease of $2.2 million in compensation expense due to lower headcount.

General and administrative expenses decreased by $9.4 million, or 19%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

Other expense, net

Other expense, net decreased $4.3 million, or 22%, for the year ended June 30, 2019 as compared to the year ended June 30, 2018.

The decrease was primarily due to a $3.5 million decrease in loss on extinguishment of debt that occurred in fiscal 2018 as a result of the retirement of our 3.50% Convertible Notes and 3.50% Series A Convertible Notes, a $0.4 million increase in interest income, and a $0.3 million decrease in foreign exchange losses.

Other expense, net decreased by $8.1 million, or 54%, for the year ended June 30, 2020 as compared to the year ended June 30, 2019.

Provision for income taxes

T he provision for income taxes was higher in fiscal 2019 as compared to fiscal 2018 due to higher foreign earnings.

In both fiscal 2019 and 2018, we released tax benefits related to final tax assessments from the Swiss tax authorities for the period from fiscal 2011 through fiscal 2017, which decreased our foreign taxes.

T he provision for income taxes was lower in fiscal 2020 as compared to fiscal 2019 due to lower foreign earnings in fiscal 2020.

Share-Based Compensation Expense

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Share‑based compensation expense was recorded net of estimated forfeitures.

As of June 30, 2020, we had approximately $16.0 million of unrecognized compensation expense, net of estimated forfeitures, related to unvested stock options, shares under our Employee Stock Purchase Plan, or ESPP, restricted stock units, or RSUs, and market stock units, or MSUs, which we expect to recognize over a weighted average period from 0.5 to 2.89 years.

As of June 30, 2021, we had approximately $16.6 million of unrecognized compensation expense, net of estimated forfeitures, related to unvested stock options, shares under our Employee Stock Purchase Plan, or ESPP, stock options and restricted stock units, or RSUs, which we expect to recognize over a weighted average period from 0.5 to 2.57 years.

Liquidity and Capital Resources

At June 30, 2021, we had $116.4 million in cash and cash equivalents.

Cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks included in Part I, Item 1A titled “Risk Factors.” Also refer to Note 10, Debt to the consolidated financial statements for discussion of the Revolving Credit Facility, our 3.75% Convertible Notes and Term Loan outstanding as of June 30, 2020.

Cash from operations could be affected by various risks and uncertainties, including, but not limited to the risks included in Part I, Item 1A titled “Risk Factors.” Also refer to Note 10, Debt to the consolidated financial statements for discussion of the New Credit Facilities and the Notes as of June 30, 2021.

Based on our cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, we believe that we will have sufficient cash resources and anticipated cash flows to fund our operations for at least the next 12 months.

However, w e cont inue to critically review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 pandemic .

Our liquidity and cash flows have been materially impacted over the last several months by the diversion of customer resources to the response to the COVID-19 pandemic and delays in payments from customers and could be further impacted by additional and prolonged delays in payments from customers, the potential of extended "shelter in place" and social distancing orders or advisories, facility closures, or other reasons related to the COVID-19 pandemic.

As of the date of issuance of these consolidated financial statements, the extent to which COVID-19 is likely to materially impact our liquidity in the future remains uncertain.

As precautionary measures to increase our cash position and preserve financial flexibility in view of the ongoing uncertainty resulting from the COVID-19 pandemic, we (i) executed temporary salary reductions for our Chief Executive Officer and each of our Senior Vice Presidents, which was effective June 1, 2020, (ii) eliminated all Board and committee retainers for the period beginning July 1, 2020 through December 31, 2020, (iii) eliminated all awards under the Company Bonus Plan for the fiscal 2020 performance period, other than those that were contractually guaranteed, (iv) implemented a cost saving initiative designed to reduce operating costs through the elimination of approximately 3 percent of our global workforce, (v) amended the credit and security agreements related to our Revolving Credit Facility and Term Loan to modify certain financial covenant requirements and (vi) suspended the 401(k) match program for all employees from June 1, 2020 through December 31, 2020.

Additionally, to protect the health and well-being of our employees, suppliers, and customers, we have also made substantial modifications to employee travel and suspended non-essential work travel, implemented remote work arrangements as employees are advised to work from home, and cancelled or shifted most of our conferences and other marketing events to virtual through fiscal year 2021.

In addition, we are unable to predict with certainty the impact of the COVID-19 pandemic on our ability to maintain compliance with the debt covenants contained in the credit and security agreements related to our Revolving Credit Facility and Term Loan, including financial covenants regarding the fixed charge coverage ratio, minimum net revenue, minimum consolidated cash balance and minimum consolidated domestic cash balance tests.

While we were in compliance with such covenants for the quarter ended June 30, 2020, failure to meet the covenant requirements in the future could cause us to be in default and the maturity of the related debt could be accelerated and become immediately payable.

This may require us to obtain waivers or amendments to the applicable credit and security agreement in order to maintain compliance and there can be no certainty that any such waiver or amendment will be available, or what the cost of such waiver or amendment, if obtained, would be.

However, w e continue to critically review our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 pandemic.

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.

$97.1 million aggregate principal amount of the 3.75% Convertible Notes due 2026 were issued to certain holders of 3.75% Convertible Notes due 2022 in exchange for $82.1 million aggregate principal amount of 3.75% Convertible Notes due 2022 outstanding and $2.9 million aggregate principal amount were issued for cash.

Concurrently, 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 “New Credit Agreement”), which provides for a new five-year $80 million term loan facility and a $40 million revolving credit facility (the “New Revolving Credit Facility”).

The initial borrowings under the New Credit Agreement, including $25 million under the New Revolving Credit Facility, were funded on May 14, 2021.

Our liquidity and cash flows has been and could continue to be materially impacted by the diversion of customer resources to the response to the COVID-19 pandemic as well as delays in payments from customers and could be further impacted by additional and prolonged delays in payments from customers, the potential of extended "shelter in place" and social distancing orders or advisories, facility closures, or other reasons related to the COVID-19 pandemic.

As of June 30, 2021, there remain uncertainties as to how the COVID-19 pandemic is likely to materially

impact our liquidity in the future.

As precautionary measures to increase our cash position and preserve financial flexibility in view of the ongoing uncertainty resulting from the COVID-19 pandemic, we (i) implemented temporary salary reductions for our Chief Executive Officer and each of our Senior Vice Presidents, which was effective June 1, 2020 through December 31, 2020, (ii) eliminated all Board and committee retainers for the period beginning July 1, 2020 through December 31, 2020, (iii) eliminated all awards under the Company Bonus Plan for the fiscal 2020 performance period, other than those that were contractually guaranteed, (iv) implemented a cost saving initiative designed to reduce operating costs through the elimination of approximately 3 percent of our global workforce, (v) amended the credit and security agreements related to our Prior Revolving Credit Facility and Prior Term Loan to modify certain financial covenant requirements and (vi) suspended the 401(k) match program for all employees from June 1, 2020 through December 31, 2020.

As of January 1, 2021, our Chief Executive Officer and each of our Senior Vice Presidents ’ salaries were restored to the base salary levels that were in effect for such officer as of October 2019, all as disclosed in the Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on October 1, 2020 (the “Proxy Statement”).

In addition, as of January 1, 2021, the Board and Committee retainers for our Board were restored to the amounts in effect prior to their temporary elimination, as disclosed in the Proxy Statement.

Finally, we also reinstated the employer 401(k) match program for all eligible employees as of January 1, 2021.

In addition, we are unable to predict with certainty the impact of the COVID-19 pandemic on our ability to maintain compliance with the debt covenants contained in the credit and security agreements related to our New Credit Facilities, including financial covenants regarding the fixed charge coverage ratio, minimum consolidated cash balance and minimum consolidated domestic cash balance tests.

While we were in compliance with such covenants for the year ended June 30, 2021, failure to meet the covenant requirements in the future could cause us to be in default and the maturity of the related debt could be accelerated and become immediately payable.

This may require us to obtain waivers or amendments to the credit and security agreement in order to maintain compliance and there can be no certainty that any such waiver or amendment will be available, or what the cost of such waiver or amendment, if obtained, would be.

If we are unable to obtain necessary waivers or amendment and the debt under such credit facility is accelerated, we would be required to obtain replacement financing at prevailing market rates, which may not be favorable to us.

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Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

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Cash Flows From Operating Activities

Net cash provided by operating activities was $38.5 million in fiscal 2021, resulting primarily from non cash items of $39.4 million and changes in working capital of $7.6 million offset by, a net loss of $6.3 million.

Non-cash items primarily consisted of the loss on extinguishment of debt of $4.3 million related to the exchange of our 3.75% Convertible Notes due 2022 for our 3.75% Convertible Notes due 2026 and $5.7 million related to refinancing of our credit facilities with new lenders, depreciation and amortization expense of $6.4 million, share-based compensation expense of $9.3 million, inventories write-down of $6.9 million, non-cash interest expense on debt of $4.9 million, amortization of debt issuance cost of $1.4 million and intra-entity profit elimination from transactions with the JV of $0.3 million, offset by an in-kind system upgrade contribution to the JV of $1.4 million and an income on equity method investment of $0.9 million ;

The net change in working capital of $7.6 million was primarily due to an increase of $8.1 million in compensation related accrued liabilities due to bonus accrual, a decrease in accounts receivable of $5.2 million and a decrease of $1.7 million in inventories offset by a decrease of $4.0 million in accounts payable, a decrease of $1.6 million in customer advances, deferred revenue and deferred cost of revenue, an increase of $1.0 million in prepaid expenses and other assets and a decrease of $0.7 million in net operating lease liabilities.

Net cash used in operating activities was $1.5 million in fiscal 2020, resulting primarily from a net negative change in working capital of $21.2 million offset by non cash items of $15.9 million and a net income of $3.8 million.

Non-cash items primarily consisted of the gain on contribution to the JV of $13.0 million, offset by depreciation and amortization expense of $7.5 million, share-based compensation expense of $8.2 million, non-cash interest expense on debt of $4.2 million, inventories write-down of $4.2 million, provision of bad debt of $1.8 million, intra-entity profit elimination from transactions with the JV of $1.8 million, amortization of debt issuance cost of $1.3 million, and a loss on equity method investment of $0.1 million ;

Non-cash items primarily consisted of the gain on contribution to the JV of $13.0 million, offset by depreciation and amortization expense of $7.5 million, share-based compensation expense of $8.2 million, non-cash interest expense on debt of $4.2 million, inventories write-down of $4.2 million, provision of bad debt of $1.8 million, intra-entity profit elimination from transactions with the JV of $1.8 million, amortization of debt issuance cost of $1.3 million, deferred tax benefit of $0.4 million and a loss on equity method investment of $0.1 million;

The net change in operating assets and liabilities of $21.2 million was primarily due to an increase of 23.2 million in inventories due to slower than anticipated conversion of our order backlog to revenue, a decrease of $16.6 million in compensation related accrued liabilities and reduction in bonus accrual, a decrease of $6.8 million in accounts payable and a decrease of $0.2 million in net operating lease liabilities offset by receivable collection and a decrease in accounts receivable of $19.0 million, a decrease of $4.4 million in prepaid expense and other assets and an increase of $1.5 million in customer advances, deferred revenue and deferred cost of revenue.

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This was partially offset by an increase of $10.7 million in accrued liabilities and an increase of $9.5 million in accounts payable due to timing of payments.

Net cash provided by operating activities was $18.3 million in fiscal 2018, resulting primarily from a net change in operating assets and liabilities of $10.0 million and non‑cash items of $32.2 million that was offset by a net loss of $23.9 million.

Non‑cash items consisted primarily of stock‑based compensation expense of $12.3 million;

depreciation and amortization expense of $9.7 million;

non‑cash interest expenses on debt of $5.0 million, loss on extinguishment of debt of $3.5 million, and write down of inventories of $1.6 million.

The net change in operating assets and liabilities was primarily due to a decrease of $7.2 million in accounts receivable due to the timing of revenue transactions and cash collection, an increase of $6.2 million in customer advances due to the timing and new deposit receipts, and a decrease of $4.2 million in prepaid and

other assets.

This was partially offset by a n increase of $8.7 million in inventory to support anticipated product shipments in future periods and a net decrease of $2.5 million in deferred revenue.

Cash Flows From Investing Activities

Net cash used in investing activities was $2.4 million in fiscal 2021, which primarily related to the purchase of property and equipment of $2.3 million and an additional investment in the JV of $0.1 million.

Net cash used in investing activities was $3.7 million in fiscal 2020, which primarily consisted of purchases of property and equipment.

Net cash used in investing activities was $4.3 million in fiscal 2019, which primarily consisted of purchases of property and equipment.

Net cash provided by investing activities was $17.8 million in fiscal 2018, which primarily consisted of sales and maturities of short‑term investments of $30.3 million, offset by purchases of investments of $5.9 million, purchases of property and equipment of $6.3 million, and purchase of intangible assets of $0.3 million.

Cash Flows From Financing Activities

Net cash provided by financing activities during fiscal 2020 was $26.7 million, which was primarily due to a net draw of $24.7 million, net, drawn against our Term Loan and $2.5 million in proceeds from our employee stock purchase plan offset by $0.3 million, net repayments under our Revolving Credit Facility and $0.2 million in taxes paid related to the net share settlement of equity awards.

Net cash provided by financing activities during fiscal 2019 was $28.5 million, which was primarily due to $20.0 million of net debt proceeds related to a draw under the Term Loan, a net $4.6 million increase in borrowings under our Revolving Credit Facility, and $3.9 million in proceeds from employee stock plans.

Net cash used in financing activities during fiscal 2018 was $27.5 million, which was primarily due to $69.8 million paid to repurchase and retire our 3.50% Convertible Notes and 3.50% Series A Convertible Notes and $27.9 million used to pay down the Revolving Credit Facility.

These expenses were offset by $66.1 million of net debt proceeds related to the Term Loan and issuance of the 3.75% Convertible Notes and $4.1 million in proceeds from employee stock plans.

Net cash used in financing activities during fiscal 2021 was $28.8 million, primarily due to the repayment of all outstanding obligations and termination of the Prior Revolving Credit Facility and Prior Term Loan of $105.4 million, the prepayment during the year of $10.0 million of the principal amount outstanding on our Prior Term Loan, the amendment fee of $0.5 million related to our Prior Credit Facilities, the repurchase of our common stock of $14.1 million, the paydown on our New Revolving Credit Facility of $5.0 million, $0.1 million net cost related to the exchange of our 3.75% Convertible Notes 3.75% due 2022 for our 3.75% Convertible Notes due 2026 and $0.3 million in taxes paid related to net settlement of equity awards, offset by net proceeds from New Revolving Credit Facility and New Term Loan Facility of $103.7 million, proceeds from employee stock plans of $2.2 million and proceeds from exercises of stock options of $0.9 million.

Net cash provided by financing activities during fiscal 2020 was $26.7 million, which was primarily due to a net draw of $24.7 million, net, drawn against our Prior Term Loan Facility and $2.5 million in proceeds from our employee stock purchase plan offset by $0.3 million, net repayments under our Prior Revolving Credit Facility and $0.2 million in taxes paid related to the net share settlement of equity awards.

Net cash provided by financing activities during fiscal 2019 was $28.5 million, which was primarily due to $20.0 million of net debt proceeds related to a draw under our Prior Term Loan, a net $4.6 million increase in borrowings under our Prior Revolving Credit Facility, and $3.9 million in proceeds from employee stock plans.

Operating Capital and Capital Expenditure Requirements

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Servicing and maturity of our current future indebtedness;

We believe that, based on our cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, we will have sufficient cash resources and anticipated cash flows to fund our operations for

at least the next 12 months.

The unpredictable impact of the COVID-19 pandemic on collections.

If these sources of cash and cash equivalents are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities, enter into additional credit facilities or we may opportunistically seek to raise capital in debt of equity transactions.

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Payments due by period

3.75% Convertible Notes, Term Loan,

and Revolving Credit Facility(1)(3)

Interest on 3.75% Convertible Notes, Term Loan,

and Revolving Credit Facility(2)

3.75% Convertible Notes due 2022 and 2026, New Term Loan Facility, and New Revolving Credit Facility(1)

Interest on 3.75% Convertible Notes due 2022 and 2026, New Term Loan Facility and New Revolving Credit Facility(2)

Operating leases

Any conversion, redemption or purchase of our convertible notes would impact our cash payments noted in this table.

Any conversion, redemption or purchase of our outstanding convertible notes due 2022 and 2026 would impact our cash payments noted in this table.

Please see Note 10, Deb t, to the consolidated financial statements for further information.

Amounts presented are for principal only.

Interest on the Term Loan and Revolving Credit Facility are accrued at 7% and 6% per annum, respectively, which may vary in subsequent periods based upon LIBOR.

On July 3, 2020 the Company amended the Revolving Credit Facility Agreement and Term Loan Agreement which, among other things modified certain financial covenants related to the Fixed Charge Coverage Ratio, minimum consolidated Net Revenue and minimum consolidated cash balance.

Other significant terms remained unchanged.

In addition, the Company agreed to prepay $10.0 million principal with respect to the Term Loan as well as an amendment fee of $0.5 million, both of which were paid on July 3, 2020.

Interest on the New Term Loan Facility and New Revolving Credit Facility are accrued at 3.5% per annum, respectively, which may vary in subsequent periods based upon LIBOR and consolidated senior net leverage ratio.

Our purchase commitments and obligations include all open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which we have not received the goods or services and acquisition and licensing of intellectual property.

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Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements for the years ended June 30, 2020, 2019, or 2018.

At June 30, 2021 we had open currency forward contracts to purchase or sell foreign currencies with a stated, or notional, value of approximately $54.2 million.

The fair value of the underlying currency based upon the June 30, 2021 exchange rate was approximately $54.2 million.

We did not have any off balance sheet arrangements for the years ended June 30, 2020, or 2019.

Critical Accounting Policies and Estimates

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.

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.

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.

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.

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.

However, the economic uncertainty in the current environment caused by the COVID-19 pandemic could limit our ability to accurately make and evaluate our estimates and judgments .

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We have not experienced any losses in such accounts and do not believe that we are exposed to any significant risk of loss on these balances.

For the years ended June 30, 2020, 2019, and 2018, there were no customers that represented 10% or more of total net revenue.

We had one customer at June 30, 2020 and June 30, 2019, respectively that accounted for more than 10% of our total accounts receivable, net.

For the year ended June 30, 2021, there was one customer that represented 10% or more of total net revenue and for the years ended June 30, 2020 and 2019, there were no customers that represented 10% or more of total net revenue.

We had two customers as of June 30, 2021 and one customer as of June 30, 2020, respectively that each accounted for more than 10% of our total accounts receivable, net.

We perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses.

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Revenue Recognition

Our revenue is primarily derived from sales of CyberKnife and TomoTherapy Systems and services, which include PCS, installation services, training and other professional services.

Our revenue is primarily derived from sales of CyberKnife and TomoTherapy platforms and services, which include PCS, installation services, training and other professional services.

We record our revenue net of any value added or sales tax.

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We recognize revenue for certain other performance obligations over a period of time as control of the goods or services is transferred, such as PCS and construction contracts.

Payments received in advance of system shipment are recorded as customer advances and are deferred until product shipment when they are recognized in revenue.

Payments received in advance of system shipment are recorded as customer advances and are deferred until control is transferred at which point they are recognized in revenue.

We assess the probability of collection based on a number of factors, including past transaction history with the customer and credit-worthiness of the customer.

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We frequently enter into sales arrangements that contain multiple elements or deliverables.

For sale arrangements that contain multiple elements, we account for individual products and services separately if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

The stand-alone selling price (“SSP”) is determined based on observable prices at which we separately sell the products and services.

For sale arrangements that contain multiple elements, we account for individual products and services based on relative stand-alone selling price (“SSP”).

The SSP is determined based on observable prices at which we separately sell the products and services.

If an SSP is not directly observable, then we will estimate the SSP considering market conditions, entity-specific factors, and information about the customer or class of customer that is reasonably available.

Product Revenue

The majority of product revenue is generated from sales of CyberKnife and TomoTherapy Systems, including Radixact Systems.

The majority of product revenue is generated from sales of CyberKnife and TomoTherapy platforms, including the Radixact System.

Revenue is recognized once the performance obligations are satisfied by transferring control of the product to a customer, which is generally upon delivery.

We record revenue from sales of systems, product upgrades and accessories to our customers based on the general terms and conditions of the executed sales and distribution agreements as well as the specific terms and conditions executed for each sale, and once the performance obligations are satisfied by transferring control of the product to a customer.

We record revenue from sales of systems, product upgrades and accessories to our customers based on the general terms and conditions of the executed sales and distribution agreements.

We recognize revenue as the performance obligations are satisfied by transferring control of the product or service to our customer.

We record revenue considering all discounts given to, or expected by, customers.

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In general, we do not allow returns from customers and all discounts and allowances are clearly identified in the terms and conditions of each sale.

We derive some product revenue from sale to the JV.

We derive some product revenue from sales to the JV.

Service Revenue

Service revenue is generated primarily from PCS contracts (warranty period services and post warranty services), installation services, training and professional services.

Service revenue is recognized either ratably over the contractual period as control and benefit transfer to the customer or when service is performed, depending on specific terms and conditions in agreements with customers.

We derive some service revenue from sale to the JV.

Service revenue is recognized either over time ratably over the contractual period as control and benefit transfer to the customer or at a point in time when service is performed, depending on specific terms and conditions in agreements with customers.

We derive some service revenue from sales to the JV.

Costs associated with service revenue are expensed when incurred, except when those costs are related to system upgrades purchased within a service contract.

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We estimate the expected term of stock option by taking the average of the vesting term and the contractual term of the option, as illustrated by the simplified method.

We use the Monte‑Carlo simulation model to estimate the fair value of Market Stock Units (MSUs).

We use the Monte Carlo simulation model to estimate the grant date fair value of Market Stock Units, or MSUs.

With respect to Performance Stock Units that are based on our corporate financial performance targets, or PSUs, the number of PSUs that will ultimately be awarded is contingent on our actual level of achievement compared to the corporate financial target performance targets.

The assumptions used in calculating the fair value of share based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

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We account for convertible notes in accordance with applicable guidance which specifies that an issuer of such instruments should separately account for the liability and equity component of the conversion option.

The amount recorded as debt is based on the fair value of the debt component as a standalone instrument, determined using an average interest rate for similar nonconvertible debt issued by entities with credit ratings comparable to ours at the time of issuance.

The amount recorded as debt is based on the fair value of the debt component as a standalone instrument, determined based on an implied credit spread interest rate for nonconvertible debt.

This implied credit spread was derived from the trading history of our convertible notes and a range of estimated market volatility.

The difference between the debt recorded at inception and its principal amount is accreted to principal during the estimated life of the note.

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Our effective tax rate does not include the impact of undistributed foreign earnings for which we have not provided income taxes related to foreign tax withholdings because we plan to reinvest such earnings indefinitely outside the United States.

We have estimated whether there is a need for foreign earnings remittance amounts based

on projected cash flow needs as well as the working capital and long ‑term investment requirements of our foreign subsidiaries and our domestic operations.

We have estimated whether there is a need for foreign earnings remittance amounts based on projected cash flow needs as well as the working capital and long‑term investment requirements of our foreign subsidiaries and our domestic operations.

Material changes in our estimates of cash, working capital and long‑term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate.

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We review our reserves quarterly, and we may adjust such reserves because of proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, previously unavailable information obtained during the course of an examination, negotiations between tax authorities of different countries concerning our transfer prices, or the expiration of statutes of limitations.

Allowance for Doubtful Accounts

Allowance for Credit Losses

We evaluate the creditworthiness of our customers prior to authorizing shipment for all major sale transactions.

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We expect the changes in the fair value of the net foreign currency assets arising from fluctuations in foreign currency exchange rates to be materially offset by the changes in the fair value of the forward contracts.

As of June 30, 2020, we had no open forward contracts and all open positions had been settled.

As of June 30, 2021, we had open currency forward contracts to purchase or sell foreign currencies with stated, or notional value of approximately $54.2 million.

The purpose of these forward contracts is to minimize the risk associated with foreign exchange rate fluctuations.

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These foreign currency forward contracts do not qualify as cash flow hedges and all changes in fair value are reported in earnings as part of other expenses, net.

We have not entered into any other types of derivative financial instruments for trading or speculative

We have not entered into any other types of derivative financial instruments for trading or speculative purpose.

Our foreign currency forward contract valuation inputs are based on quoted prices and quoted pricing intervals from public data and do not involve management judgment.

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We do not currently carry investments that are sensitive to interest rate risk.

Our debt obligations consist of a variety of financial instruments that expose us to interest rate risk, including, but not limited to the Credit Facilities and the 3.75% Convertible Notes.

The interest rates on the 3.75% Convertible Notes are fixed and the interest rate on the Credit Facilities are at variable rates, which are tied to a “prime rate” and LIBOR.

As of June 30, 2020, borrowings under the Term Loan totaled $89.1 million with an annual interest rate of 6.75% plus 90-day LIBOR, and borrowings under the Revolving Credit Facility totaled $28.0 million with an annual interest rate of 4.50% plus 90-day LIBOR.

If the amount outstanding under the Credit Facilities remained at this level for the next 12 months and interest rates increased or decreased by 50 basis point change, our annual interest expense would increase or decrease, respectively, approximately $0.6 million.

Our debt obligations consist of a variety of financial instruments that expose us to interest rate risk, including, but not limited to the New Credit Facilities and Notes.

The interest rates on the Notes are fixed and the interest rate on the New Credit Facilities are at variable rates, which are tied to a “prime rate” and LIBOR.

As of June 30, 2021, borrowings under the New Term Loan Facility totaled $78.7 million net of issuance cost with an annual interest rate of 3.0% plus 90-day LIBOR, and borrowings under the New Revolving Credit Facility totaled $20.0 million with an annual interest rate of 3.0% plus 90-day LIBOR.

If the amount outstanding under the New Credit Facilities remained at this level for the next 12 months and interest rates increased or decreased by 50 basis point change, our annual interest expense would increase or decrease, respectively, approximately $0.5 million.

Refer to Note 10, Debt to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion regarding our debt obligations.

Equity Price Risk

On August 7, 2017, we issued approximately $85.0 million aggregate principal amount of 3.75% Convertible Notes.

Upon conversion, we can settle the obligation by issuing our common stock, cash or a combination thereof at an initial conversion rate equal to 174.8252 shares of common stock per $1,000 principal amount of the 3.75% Convertible Notes, which is equivalent to a conversion price of approximately $5.72 per share of common stock, subject to adjustment.

There is no equity price risk if the share price of our common stock is below $5.72 upon conversion of the 3.75% Convertible Notes.

For every $1 that the share price of our common stock exceeds $5.72, we expect to issue an additional $14.9 million in cash or shares of our common stock, or a combination thereof, if all of the 3.75% Convertible Notes are converted.

FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA

ACCURAY INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Accuray Incorporated

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Accuray Incorporated (a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of June 30, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated August 25, 2020 expressed an unqualified opinion.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers and for incremental costs to obtain contracts with customers effective July 1, 2018, due to the adoption of ASU No.

2014-09 – Topic 606, Revenue from Contracts with Customers .

The Company adopted this new standard using a modified retrospective approach.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2006.

San Jose, California

August 25, 2020

Accuray Incorporated

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

Current assets:

Cash and cash equivalents

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 1,268 and

$ 605 as of June 30, 2020 and June 30, 2019, respectively (a)

Inventories, net

Prepaid expenses and other current assets

Deferred cost of revenue

Total current assets

Property and equipment, net

Investment in joint venture

Operating lease right-of-use assets, net

Intangible assets, net

Restricted cash

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Accrued compensation

Operating lease liabilities, current

Other accrued liabilities

Customer advances

Deferred revenue

Total current liabilities

Long-term liabilities:

Operating lease liabilities, non-current

Long-term other liabilities

Deferred revenue

Long-term debt

Total liabilities

Commitments and contingencies (Note 9)

Stockholders’ equity:

Preferred stock, $ 0.001 par value;

5,000,000 shares;

issued and outstanding

Common stock, $ 0.001 par value;

200,000,000 shares as of

June 30, 2020 and June 30, 2019, respectively;

issued and outstanding:

91,178,108 and 88,521,511 shares at June 30, 2020 and June 30, 2019,

Additional paid-in-capital

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders’ equity

Include accounts receivable from the China joint venture of $ 3,039 and $ 0 at June 30, 2020 and June 30, 2019, respectively.

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

Accuray Incorporated

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

Years Ended June 30,

Total net revenue (a)

Cost of revenue:

Cost of products

Cost of services

Total cost of revenue (b)

Operating expenses:

Research and development

Selling and marketing

General and administrative

Total operating expenses

Income (loss) from operations

Loss on equity method investment

Other expense, net

Income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Net income (loss) per share - basic

Net income (loss) per share - diluted

Weighted average common shares used in computing net income

(loss) per share:

Net income (loss)

Foreign currency translation adjustment

Reclassification adjustments on available for sale

investments, net of tax

Change in defined benefit pension obligation

Comprehensive income (loss)

Includes sales to the China joint venture, an equity method investment of $ 19,054 for the year ended June 30, 2020 and $ 0 for both years ended June 30, 2019 and June 30, 2018, respectively.

Includes cost of revenue from sales to the China joint venture, an equity method investment of $ 13,174 for the year ended June 30, 2020 and $ 0 for both years ended June 30, 2019 and June 30, 2018, respectively.

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

Accuray Incorporated

Consolidated Statement of Stockholders’ Equity

(in thousands, except share amounts)

Comprehensive

Stockholders’

Income (Loss)

Balance at June 30, 2017

Exercise of options, net

Issuance of restricted stock

Issuance of common stock under employee

stock purchase plan

Share-based compensation

Tax withholding upon vesting of restricted

Retirement of Convertible Senior Notes

Allocated transaction cost in debt issuance

Cumulative translation adjustment

Reclassification adjustments on available for sale

investments, net of tax

Change in defined benefit pension obligation

Balance at June 30, 2018

Exercise of options, net

Issuance of restricted stock

Issuance of common stock under employee

stock purchase plan

Share-based compensation

Tax withholding upon vesting of restricted

Adoption of new revenue recognition standard

Cumulative translation adjustment

Change in defined benefit pension obligation

Balance at June 30, 2019

Issuance of restricted stock

Issuance of common stock under employee

stock purchase plan

Share-based compensation

Tax withholding upon vesting of restricted

Cumulative translation adjustment

Change in defined benefit pension obligation

Balance at June 30, 2020

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

Accuray Incorporated

Consolidated Statements of Cash Flows

(in thousands)

Years Ended June 30,

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

Share-based compensation

Amortization of debt issuance costs

Amortization and accretion of discount and premium on investments

Loss on sales of investments

Accretion of interest on debt

Provision for (recovery of) bad debt, net

Provision for write-down of inventories

(Gain) loss on disposal of property and equipment

Loss on equity method investment

Elimination of equity method investment intra-entity profit on sales

Loss on extinguishment of debt

Gain on termination of lease obligation

Gain on contribution to joint venture

Provision (benefit) for deferred income taxes

Changes in assets and liabilities:

Accounts receivable, short and long-term

Prepaid expenses and other assets

Deferred cost of revenue, short and long-term

Accounts payable

Operating lease liabilities, net

Accrued liabilities

Customer advances

Deferred revenues, short and long-term

Net cash provided by (used in) operating activities

Cash flows from investing activities

Purchases of property and equipment, net

Purchase of intangible assets

Purchases of investments

Sales and maturities of investments

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from employee stock plans

Taxes paid related to net share settlement of equity awards

Payments made to note and loan holders

Proceeds from debt, net of costs

Borrowings (repayments) under Revolving Credit Facility, net

Net cash provided by (used in) financing activities

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

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental Disclosure of Cash Flow Information

Cash paid for income taxes

Cash paid for interest

Supplemental non-cash disclosure:

Non-cash effect of pension settlement accounting

Exchange of Convertible Notes

Modification of Revolving Credit Facility

Unpaid purchase of property and equipment at end of year

Transfers from inventory to property and equipment

An equity method investment, in exchange for non-cash contributions of assets to China

Joint Venture (including gain of $ 12,964 )

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

Accuray Inc orporated

Notes to Consolidated Financial Statements

The Company and its Significant Accounting Policies

Accuray Incorporated (together with its subsidiaries, the “Company” or “Accuray”) designs, develops and sells advanced radiosurgery and radiation therapy systems for the treatment of tumors throughout the body.

The Company is incorporated in Delaware and has its principal place of business in Sunnyvale, California.

The Company has primary offices in the United States, Switzerland, China, Hong Kong and Japan and conducts its business worldwide.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All significant inter-company transactions and balances have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with United States accounting generally accepted accounting principles (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the coronavirus disease (“COVID-19”) pandemic.

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the effects of and response to the pandemic are rapidly evolving and new information is regularly coming to light.

The Company's customers are diverting resources to treat COVID-19 patients and deferring non-urgent and elective procedures, both of which are likely to impact customers' ability to meet their other financial obligations, including to the Company.

Some customers, which include hospitals, major academic medical centers, and other related entities, have incurred significant losses during the COVID-19 pandemic due to reduced patient volume.

Furthermore, the Company is also anticipating a global economic slowdown due to disruptions caused by the COVID-19 pandemic, which may result in an incremental adverse impact on revenue, net income and cash flow and may require significant additional expenditures to mitigate such impacts.

Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole.

The magnitude and overall effectiveness of these actions remain uncertain.

The Company’s financial results have also been affected by the COVID-19 pandemic in various ways.

The COVID-19 pandemic is adversely impacting the pace at which the backlog converts to revenue in the near-term.

The Company expects that such delays in deliveries and installations will continue into fiscal 2021, which could have a negative impact on the revenue during those periods.

As of the date of this Form 10-K, the Company experienced disruptions in the sales and revenue cycle as well as increases in customer defaults, delays in payment and planned installations and service agreements as a result of the effect of the COVID-19 pandemic on the Company’s customers as well as restrictions imposed on travel.

The Company also received requests from a few customers to extend payment terms or temporarily suspend service and corresponding payment obligations and while the Company have only received a small number of requests thus far, there can be no guarantee that more customers will not ask for the same if the effects of the COVID-19 pandemic deepen or worsen.

As a result, the Company is carefully monitoring the pandemic and the resulting length and depth of the economic impact on our financial condition and results of operations, however, given the uncertainty regarding the spread and potential resurgence of COVID-19 and how long the pandemic will last, the related financial impact cannot be reasonably estimated at this time, although the impacts are expected to continue and may also significantly affect the Company’s business.

The Company continues to critically review its liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 pandemic.

Based on the Company’s cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, the Company believes that it will have sufficient cash resources and anticipated cash flows to fund its operations for at least the next 12 months.

In addition, the Company is unable to predict with certainty the impact of the COVID-19 pandemic on its ability to maintain compliance with the debt covenants contained in the credit and security agreements related to its Revolving Credit Facility and Term Loan (as such terms are defined in Note 10 below), including financial covenants regarding the fixed charge coverage ratio, minimum net revenue, minimum consolidated cash balance and minimum consolidated domestic cash balance tests.

The Company was in compliance with such covenants for the quarter ended June 30, 2020, as amended.

Failure to meet the covenant requirements in the future could cause the Company to be in default and the maturity of the related debt could be accelerated and become immediately payable.

Refer to Note 19 Subsequent Events , for further details related to the change of financial covenants.

This may require the Company to obtain waivers or amendments to the applicable credit and security agreement in order to maintain compliance and there can be no certainty that any such waiver or amendment will be available, or what the cost of such waiver or amendment, if obtained, would be.

If the Company is unable to obtain necessary waivers or amendment and the debt under such credit facility is accelerated, the Company would be required to obtain replacement financing at prevailing market rates, which may not be favorable to the Company.

There is no guarantee that the Company would be able to satisfy its obligations if any of its indebtedness is accelerated.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements.

Key estimates and assumptions made by the Company relate to revenue recognition, assessment of recoverability of goodwill and intangible assets, valuation of our equity method investment in the JV, valuation of inventories, share‑based compensation expense, convertible notes, income taxes, allowance for doubtful accounts and loss contingencies.

Actual results could differ materially from those estimates.

Foreign Currency

The Company’s international subsidiaries use their local currencies as their functional currencies.

For those subsidiaries, assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expense accounts at the average exchange rate.

Resulting translation adjustments are excluded from the determination of net loss and are recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity.

Net foreign currency exchange transaction gains or losses are included as a component of other expense, net, in the Company’s consolidated statements of operations and comprehensive income (loss).

Fair Value Measurements

The carrying values of the Company’s financial instruments including cash equivalents, restricted cash, accounts receivable and accounts payable are approximately equal to their respective fair values due to the relatively short‑term nature of these instruments.

Also refer to Note 8, Fair Value Measurements, for further details.

Cash and Cash Equivalents

The Company considers currency on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents.

Cash and cash equivalents are held in various financial institutions in the United States and internationally.

Concentration of Credit Risk and Other Risks and Uncertainties

The Company’s cash and cash equivalents are mainly deposited with several major financial institutions.

At times, deposits in these institutions exceed the amount of insurance provided on such deposits.

The Company has not experienced any losses in such accounts and believes that it is not exposed to any significant risk on these balances.

The Company had no customer that represented 10 % or more of total net revenue for the years ended June 30, 2020, 2019 and 2018.

The Company had one customer at June 30, 2020 and June 30, 2019, respectively that accounted for more than 10 % of accounts receivable, net.

The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.

Accounts receivable are deemed past due in accordance with the contractual terms of the agreement.

Accounts are charged against the allowance for doubtful accounts once collection efforts are unsuccessful.

Historically, such losses have been within management’s expectations.

Single‑source suppliers presently provide the Company with several components.

In most cases, if a supplier was unable to deliver these components, the Company believes that it would be able to find other sources for these components subject to any regulatory qualifications, if required.

Restricted Cash

Restricted cash primarily consists of cash that is temporarily held in bank accounts which are under the control of the lender to the Revolving Credit Facility, certificates of deposit held as guarantees in connection with customer contracts and corporate leases as well as funds held as guarantees for Value‑Added Tax (VAT) obligations in a foreign jurisdiction.

Inventories are stated at the lower of cost (on a first‑in, first‑out basis) or net realizable value.

Excess and obsolete inventories are written down based on historical sales and forecasted demand, as judged by management.

Revenue Recognition

The Company adopted ASC Topic 606, Revenue from Contracts with Customers, on July 1, 2018.

The Company’s revenue consists of product revenue resulting from the sale of systems, system upgrades and service revenue.

The Company accounts for a contract with a customer when there is a legally enforceable contract between the Company and its customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable.

The Company’s revenues are measured based on the consideration specified in the contract with each customer, net of any discounts and taxes collected from customers that are remitted to government authorities.

The Company’s revenue is primarily derived from sales of CyberKnife and TomoTherapy Systems and services, which include post-contract customer support (“PCS”), installation services, training and other professional services.

The majority of the Company's revenue arrangements consists of multiple performance obligations, which can include system, upgrades, installation, training, services, construction, and consumables.

For bundled arrangements, the Company accounts for individual products and services separately if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

The Company’s products are generally sold without a right of return, and the Company’s contracts generally provide a fixed transaction price.

The Company may offer incentives in the form of discounts, including volume system discounts, which are included in the contract and used to calculate the final fixed price of the arrangement.

These discounts may pertain to all performance obligations in a specific contract or may be allocated to a specific performance obligation.

The Company also from time to time offers extended payment terms beyond one year and commissions or other forms of payment to customers.

The Company estimates a financing component in transactions with payment terms extending beyond one year.

This financing component is recognized as financing income at the time payment is received.

The Company applies the practical expedient to not adjust for a significant financing component if the gap between payment and delivery was expected, at the contract inception, to be less than one year.

The Company offers customers the opportunity to trade in their older systems for credit towards the purchase of a new system.

The Company generally does not provide specif i c trade-in prices or upgrade rights at the time of purchase of the original system.

Trade-in or upgrade transactions are based on the then fair value of the system and are separately negotiated taking into consideration circumstances existing at the time of the trade-in or upgrade.

Accordingly, trade-ins and upgrades are not considered separate performance obligations in system sales agreements.

Traded-in systems generally can be reconditioned and may be resold.

The Company accounts for the fair value of the traded-in system in the total consideration in the arrangement by including the net realizable value of the traded-in system less a normal profit margin.

The stand-alone selling price (“SSP”) of performance obligations is determined based on observable prices at which the Company separately sells the products and services.

If the SSP is not directly observable, then the Company will estimate the SSP considering market conditions, entity-specific factors, and information about the customer or class of customer that is reasonably available.

The SSP is generally assessed as a percentage of the list price.

The contract consideration allocation is based on the SSP at contract inception.

The consideration (net of any discounts) is allocated among separate products and services in a bundle based on their individual SSP.

For contract modifications that add additional goods or services or changes pricing, the most recent SSP is used for allocation to the remaining performance obligations.

The Company recognizes revenue for certain performance obligations at the point in time when control is transferred, such as delivery of products and upgrades.

Service revenue is recognized over the term of the service period as the customer benefits from the services throughout the service period.

Revenue related to services performed on a time-and-materials basis is recognized when performed.

Services recognized over a period of time comprise a single stand-ready performance obligation satisfied over time as our customers simultaneously receive and consume benefits from the Company's performance.

This performance obligation constitutes a series of services that are substantially the same and provided over time using the same measure of progress.

Revenues derived from these arrangements are recognized over time using an output method based upon the passage of time as this provides a faithful depiction of the pattern of transfer of control.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer when the Company expects to generate future economic benefits from the related revenue-generating contracts.

The Company capitalizes incremental contract acquisition costs, and amortizes such costs over a five year period, the period which the Company expects to benefit, based on historical service renewal rates, and expectations of future customer renewals.

Most of the Company’s contract costs are associated with its internal sales force compensation program and a portion of its employee bonus program.

The Company capitalizes and amortizes the incremental costs of obtaining a contract, primarily related to certain bonuses and sales commissions.

The capitalized bonuses and sales commissions are amortized over a period of five years commencing upon the initial transfer of control of the system to the customer.

The pattern of amortization is commensurate with the pattern of transfer of control of the performance obligations to the customer.

The amortization of these contract assets is included in cost of sales, research and development, sales and marketing, and general and administrative expenses based on department headcount allocations in the consolidated statements of operations.

The pattern of amortization is commensurate with the pattern of transfer of control of the performance obligations to the customer.

The Company elected to use the practical expedient and expense as incurred commissions related to service renewals and upgrades because the contract term is less than a year.

The Company invoices its customers based on the billing schedules in its sales arrangements.

Payment terms vary from 30 to 90 days, or longer, from the date of invoice.

Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms.

Deferred revenue for periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to services being performed.

The associated deferred revenue is generally recognized over the term of the service period.

The Company did not have any significant impairment losses on its contract assets for any period presented.

Deferred Revenue

Deferred revenue primarily consists of unfulfilled obligations from open contracts for which performance has already started including short-shipped items, deferred warranty, training, maintenance services and other unperformed or incomplete performance obligations.

Service contracts for maintenance services, in general, are considered month-to-month contracts.

Deferred revenue includes deferred warranty expected to be recognized over the remaining warranty period for system already installed.

The Company’s balance sheet may include the unbilled receivable for warranty included under the deferred revenue leading to a temporary gross up of the Company’s balance sheet.

The invoices for unbilled receivables are issued within period shorter than 12 months.

Customer Advances

Customer advances represent payments made by customers in advance of product shipment.

In general, customer advances are required for a contract to be recognized in our backlog.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight‑line method over the estimated useful lives of the related assets.

Leasehold improvements are depreciated on a straight‑line basis over the remaining term of the lease or the estimated useful life of the asset, whichever is shorter.

Machinery and equipment are depreciated over five years .

Furniture and fixtures are depreciated over four years .

Computer and office equipment and computer software are depreciated over three years .

Repairs and maintenance costs, which are not considered improvements and do not extend the useful life of the property and equipment, are expensed as incurred.

Software Capitalization Costs

Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized.

No costs associated with the development of software have been capitalized as the Company believes its current software development process is essentially completed concurrent with the establishment of technological feasibility.

Impairment of Long‑Lived Assets

The Company reviews long‑lived assets, including intangible assets, equity method investment in the JV, property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable using pretax undiscounted cash flows.

Impairment, if any, is measured as the amount by which the carrying value of a long‑lived asset exceeds its fair value.

Goodwill and Purchased Intangible Assets

Goodwill is not amortized, but is evaluated for impairment on an annual basis and when impairment indicators are present.

The Company has assessed that it has one operating segment and one reporting unit, and the consolidated net assets, including existing goodwill and other intangible assets, are considered to be the carrying value of the reporting unit.

The Company estimates the fair value of the reporting unit based on the Company’s closing stock price on the trading day closest to the annual review date multiplied by the outstanding shares on that date.

If the carrying value of the reporting unit is in excess of its fair value, an impairment may exist, and the Company must perform the second step of the analysis, in which the implied fair value of the goodwill is compared to its carrying value to determine the impairment charge, if any.

If the estimated fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and no further analysis is required.

The Company adopted the new accounting guidance that simplifies the testing for goodwill impairment in the first quarter of fiscal 2020.

There was no impairment of goodwill identified in the fiscal years ended June 30, 2020, 2019 and 2018.

Purchased intangible assets other than goodwill, including developed technology are amortized on a straight‑line basis over their estimated useful lives unless their lives are determined to be indefinite.

Purchased intangible assets are carried at cost, less accumulated amortization.

Amortization is computed over the estimated useful lives of the respective assets which range from approximately one to seven years .

Shipping and Handling

The Company’s billings for shipping and handling for product shipments to customers are included in cost of products.

Shipping and handling costs incurred for inventory purchases are capitalized in inventory and expensed in cost of products.

Advertising Expenses

The Company expenses the costs of advertising and promoting its products and services as incurred.

Advertising expenses were approximately $ 0.2 million, $ 0.5 million and $ 0.4 million for the years ended June 30, 2020, 2019 and 2018, respectively, and are included in selling and marketing expense in the consolidated statements of operations.

Research and Development Costs

Costs related to research, design and development of products are charged to research and development expense as incurred.

These costs include direct compensation, benefits, and other headcount related costs for research and development personnel;

costs for materials used in research and development activities;

costs for outside services and allocated portions of facilities and other corporate costs.

The Company has entered into research and clinical study arrangements with selected hospitals, cancer treatment centers, academic institutions and research institutions worldwide.

These agreements support the Company’s internal research and development capabilities.

Share‑Based Compensation

The Company issues stock‑based compensation awards to employees and directors in the form of stock options, restricted stock units (RSUs), performance units (PSUs), market stock units (MSUs) and employee stock purchase plan (ESPP) awards (collectively, awards).

The Company measures and recognizes compensation expense for all stock‑based awards based on the awards’ fair value.

Share‑based compensation for RSUs and PSUs is measured based on the value of the Company’s common stock on the grant date.

The Company uses the Monte‑Carlo simulation model to estimate the fair value of MSUs.

Share‑based compensation for employee stock options and ESPP awards are measured on the date of grant using a Black‑Scholes option pricing model.

Awards vest either on a graded schedule or in a lump sum.

The Company determines the fair value of each award as a single award and recognizes the expense on a straight‑line basis over the service period of the award, which is generally the vesting period.

The exercise price of stock options granted is equal to the fair market value of the Company’s common stock on the date of grant.

Stock options expire ten years from the date of grant.

Share‑based compensation expense for stock options, RSUs, PSUs and the ESPP awards is based on awards ultimately expected to vest, and the expense is recorded net of estimated forfeitures.

The Company recognizes expense for MSUs net of estimated forfeitures and does not adjust the expense for subsequent changes in the expected outcome of the market‑based vesting conditions.

Loss Contingencies

The Company is involved in various lawsuits, claims and proceedings that arise in the ordinary course of business.

The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be reasonably estimated.

Significant judgment is required to determine both probability and the estimated amount.

The Company reviews these provisions quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.

Net Income (Loss) Per Common Share

Basic and diluted net income (loss) per share is computed by dividing net income (loss) attributable to stockholders by the weighted average number of common shares outstanding during the year.

Potentially dilutive outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for loss periods presented because including them would have been antidilutive.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share attributable to stockholders follows (in thousands):

Years Ended June 30,

Net income (loss) used to compute basic and diluted loss

Weighted average shares used to compute basic income (loss)

Weighted average shares used to compute diluted income (loss)

The potentially dilutive shares of the Company’s common stock resulting from the assumed exercise of outstanding stock options, the vesting of Restricted Stock Units (RSU), Market Stock Units (MSU) and Performance Stock Units (PSU), and the purchase of shares under the Employee Stock Purchase Program (ESPP), as determined under the treasury stock method, are excluded from the computation of diluted net income (loss) per share when their effect would have been anti‑dilutive.

Additionally, the 3.75 % Convertible Notes due August 2022 (the “3.75% Convertible Notes”), the 3.50 % Convertible Senior Notes due February 1, 2018 (the “3.50% Convertible Notes”), the 3.50 % Series A Convertible Notes (the “3.50% Series A Convertible Notes”) due February 1, 2018 are included in the calculation of diluted net income per share only if their inclusion is dilutive for periods during which the notes were outstanding.

The following table sets forth all potentially dilutive securities excluded from the computation in the table above when their effect would have been anti‑dilutive (in thousands):

As of June 30,

Stock options

RSUs, PSUs and MSUs

Outstanding Convertible Notes—Diluted Share Impact

The 3.75% Convertible Notes and the 3.50% Series A Convertible Notes have an optional physical (share), cash or combination settlement feature and contain certain conditional conversion features.

The 3.50% Series A Convertible Notes were retired in February 2018.

Due to the optional cash settlement feature and management’s intent to settle the principal amount thereof in cash, the shares of common stock issuable upon conversion of the outstanding principal amount of the 3.75% Convertible Notes outstanding as of June 30, 2020, totaling approximately 14.9 million shares of our common stock, were not included in the basic and diluted net loss per common share table above.

On July 1, 2019, the Company adopted Accounting Standards Codification Topic 842, “Leases” (“ASC 842”) to replace the existing lease accounting guidance.

This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases.

Expenses associated with leases will continue to be recognized consistent with previous accounting guidance.

The Company adopted ASC 842 utilizing the current-period adjustment method added by the Financial Accounting Standards Board (“FASB”), which eliminates the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption.

The Company is the lessee in a lease contract when the Company obtains the right to use the asset.

Operating leases are included in the line items right-of-use asset, lease obligation, current, and lease obligation, long-term in the consolidated balance sheet.

Right-of-use asset represents the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term in the consolidated statement of operations.

The Company determines the lease term by agreement with lessor.

As the leases do not provide an implicit interest rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

Equity Method Investment

During the twelve months ended June 30, 2020, the Company adopted a new accounting policy related to equity method investments in connection with its equity investment in CNNC Accuray (Tianjin) Medical Technology Co.

Ltd., the Company’s joint venture in China (the “JV”).

The equity method investment that the Company holds is equity securities in investees for which the Company has the ability to exercise significant influence over, but lacks a controlling financial interest in the investee.

Equity method investment is measured at cost and adjusted for impairment, if any, for the Company’s share of the investee's income or loss and intra-entity profits.

The Company recognizes its proportionate share of income or loss from the JV on a one-quarter lag due to the timing of the availability of the JV’s financial records.

Profit earned by the Company from the JV is eliminated through cost of goods sold until it is realized and such profits would generally be considered realized when the inventory has been sold through to third parties .

Equity method goodwill is not amortized, but is evaluated for impairment on an annual basis and when impairment indicators are present.

Our impairment analysis considers qualitative and quantitative factors that may have a significant impact on the investee's fair value.

Qualitative factors include the investee's financial condition and business outlook, industry and sector performance, operational and financing cash flow activities, and other relevant factors affecting the investee.

When indicators of impairment exist, we prepare quantitative assessments of the fair value of our non-marketable equity investments, which require judgment and the use of estimates, including discount rates, investee revenue and costs, and comparable market data, among others.

The Company is required to estimate its income taxes in each of the tax jurisdictions in which it operates prior to the completion and filing of tax returns for such periods.

This process involves estimating actual current tax expense together with assessing temporary differences in the treatment of items for tax purposes versus financial accounting purposes that may create net deferred tax assets and liabilities.

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax bases of the Company’s assets and liabilities and their financial statement reported amounts.

In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses, research and development credit carryforwards and other deferred tax assets.

The Company records a valuation allowance to reduce its deferred tax assets to the amount the Company believes is more likely than not to be realized.

Because of the uncertainty of the realization of the deferred tax assets, the Company has recorded a full valuation allowance against its domestic and certain foreign net deferred tax assets.

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations.

Management regularly assesses the Company’s tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.

The Company anticipates that except for $ 0.01 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months.

Accumulated Other Comprehensive Loss

The components of comprehensive income (loss) consist of net income (loss), changes in foreign currency exchange rate translation and net changes related to a defined benefit pension plan.

The changes in foreign currency exchange rate translation and net changes related to the defined benefit pension plan are excluded from earnings and reported as a component of stockholders’ equity.

The foreign currency translation adjustment results from those subsidiaries not using the United States dollar as their functional currency since the majority of their economic activities are primarily denominated in their applicable local currency.

Accordingly, all assets and liabilities related to these operations are translated at the current exchange rates at the end of each period.

The resulting cumulative translation adjustments are recorded directly to the accumulated other comprehensive loss account in stockholders’ equity.

Revenues and expenses are translated at average exchange rates in effect during the period.

Recent Accounting Pronouncements

Accounting Pronouncement Recently Adopted

In August 2017, the FASB issued ASU No.

2017-12, Derivatives and Hedging, which simplifies the application and administration of hedge accounting.

The guidance amends the presentation and disclosure requirements and changes how companies assess effectiveness.

The guidance is intended to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.

The guidance was effective for the Company in the first quarter of fiscal 2020 and was adopted on a prospective basis.

The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets.

The Company adopted Topic 842 using the current period adjustment method as of July 1, 2019 and elected the transition option that allows the Company not to restate the comparative periods in its financial statements in the year of adoption.

As a result, the Company had not changed previously disclosed amounts or provided additional disclosures for comparative periods.

As of July 1, 2019, the right-of-use assets was $ 30.6 million and the respective lease liability was $ 34.5 million.

The difference between the total right-of-use assets and total lease liabilities recorded as of July 1, 2019 is primarily due to the derecognition of deferred rent liabilities that were included in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, in the consolidated balance sheet as of June 30, 2019.

The Company also elected the package of transition expedients available for expired or existing contracts, which allowed the Company to carryforward its historical assessment of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

The Company elected to account for lease and non-lease components in its facility and car leases as a single lease component.

As a policy election, for leases that, at commencement date, have a lease term of 12 months or less, the Company records expenses as incurred and does not recognize right-of-use assets and lease liabilities.

In February 2018, the FASB issued ASU No.

2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, that allows companies to reclassify from Accumulated Other Comprehensive Income to Retained Earnings stranded tax effects resulting from the enactment of the Tax Cuts and Jobs Act (the "Tax Act").

The Company adopted ASU No.

2018‑02 in the first quarter of fiscal year 2020.

The adoption of this ASU did not have any impact on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued a new accounting standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The Company will be required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments.

The Company will adopt the standard using the modified retrospective transition method on July 1, 2020 beginning of the first quarter of fiscal year 2021.

The Company does not currently believe it will have a material impact upon adoption.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) to clarify revenue accounting for collaborative arrangements entered into with customers.

The standard is effective for the Company beginning in the first quarter of fiscal year 2021.

Early adoption is permitted.

The Company is evaluating the impact of adopting this standard to its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

The amendments in ASU 2019-12 are intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for the Company beginning July 1, 2021 with early adoption permitted.

The Company is evaluating the impact of adopting this standard to its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

This standard addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities.

This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

Early adoption is permitted.

The Company is currently evaluating the impact of ASU 2020-01, which is effective for the Company in its fiscal year and interim periods beginning on July 1, 2021, to its consolidated financial statements and related disclosures.

Contract Balances

The timing of revenue recognition, billings, and cash collections results in trade, unbilled receivables, and deferred revenues on the consolidated balance sheets.

The Company may offer longer or extended payments of more than one year for qualified customers in some circumstances.

At times, revenue recognition occurs before the billing, resulting in an unbilled receivable, which represents a contract asset.

The contract asset is a component of accounts receivable and other assets for the current and non-current portions, respectively.

When the Company receives advances or deposits from customers before revenue is recognized, this results in a contract liability.

It can take up to two and half years from the time of order to revenue recognition due to the Company’s long sales cycle.

Changes in the contract assets and contract liabilities are as follows:

(Dollars in thousands)

Unbilled accounts receivable – current (1)

Interest receivable – current (2)

Long-term accounts receivable (3)

Interest receivable – non-current (3)

Customer advances

Deferred revenue – current

Deferred revenue – non-current

Included in accounts receivable on consolidated balance sheets

Included in prepaid expenses and other current assets on consolidated balance sheets

Included in other assets on consolidated balance sheets

During the years ended June 30, 2020 and June 30, 2019, the Company recognized revenues of $ 87.7 million and $ 78.6 million, respectively, which were included in the deferred revenue balances at June 30, 2019 and June 30, 2018, respectively.

Remaining Performance Obligations

Remaining performance obligations represent deferred revenue from open contracts for which performance has already started and the transaction price from executed non-cancelable contracts for which performance has not yet started.

Service contracts in general are considered month-to-month contracts, and the Company has elected the practical expedient to not disclose the unsatisfied performance obligations for contracts with an original expected duration of one year or less.

As of June 30, 2020, total remaining performance obligations amounted to $ 976.3 million.

Of this total amount, $ 78.5 million related to long-term warranty and service, which is expected to be recognized over the remaining warranty period for systems that have been delivered.

For systems that have been delivered but not yet installed, management estimates the timing of installation since warranty starts upon installation.

The following table represents the Company's remaining performance obligations related to long-term warranty and service as of June 30, 2020 and the estimated revenue expected to be recognized (the time bands reflect management’s best estimate of when the Company will transfer control to the customer and may change based on timing of shipment, readiness of customers’ facilities for installation, installation requirements, and availability of products):

Fiscal years of revenue recognition

(Dollars in thousands)

Long-term warranty and service

For the remaining $ 897.8 million of performance obligations, the Company estimates 21 % to 28 % will be recognized in the next 12 months, and the remaining portion will be recognized thereafter.

The Company’s historical experience indicates that some of its customers will cancel or renegotiate contracts as economic conditions change or when product offerings change during the long sales cycle.

Based on historical experience approximately 21 % of the Company’s open contracts may never result in revenue due to cancellation.

Capitalized Contract Costs

The Company capitalizes and amortizes the incremental costs of obtaining a contract, primarily related to certain bonuses and sales commissions.

The capitalized bonuses and sales commissions are amortized over a period of five years commencing upon the initial transfer of control of the system to the customer.

The pattern of amortization is commensurate with the pattern of transfer of control of the performance obligations to the customer.

As of June 30, 2020 and 2019, the balance of capitalized costs to obtain a contract was $ 7.9 million and $ 8.4 million, respectively.

The Company has classified the capitalized costs to obtain a contract as a component of prepaid expenses and other current assets and other assets with respect to the current and non-current portions of capitalized costs, respectively, on the consolidated balance sheets.

The Company incurred a $ 1.2 million and $ 0.5 million impairment loss for the years ended June 30, 2020 and 2019, respectively.

During the years ended June 30, 2020 and 2019 the Company recognized $ 1.9 million and $ 2.2 million, respectively, in expense related to the amortization of the capitalized contract costs.

Supplemental Financial Information

Consolidated Balance Sheet

Accounts receivable, net

Accounts receivable, net consisted of the following (in thousands):

Accounts receivable

Unbilled fees and services

Allowance for doubtful accounts

Accounts receivable, net

The Company received payment or had credits of $ 0.4 million, added $ 1.2 million and wrote off $ 0.1 million from the allowance for doubtful accounts in fiscal 2020.

The Company received payment or had credits of $ 0.2 million and added $ 0.6 million to the allowance for doubtful accounts in fiscal 2019.

Financing receivables

A financing receivable is a contractual right to receive money, on demand or on fixed or determinable dates, that is recognized as an asset in the Company’s balance sheet.

The Company’s financing receivables, consisting of its accounts receivable with contractual maturities of more than one year, totaled $ 3.8 million and $ 4.3 million at June 30, 2020 and 2019, respectively, and are included in Other Assets in the consolidated balance sheets.

The balance in financing receivables related to contractual maturities of more than one year.

The Company evaluates the credit quality of an obligor at contract inception and monitors credit quality over the term of the underlying transactions.

The Company performs a credit analysis for all new customers and reviews payment history, current order backlog, financial performance of the customers and other variables that augment or mitigate the inherent credit risk of a particular transaction.

Such variables include the underlying value and liquidity of the collateral, the essential use of the equipment, the contract term and the inclusion of credit enhancements, such as guarantees, letters of credit or security deposits.

The Company classifies accounts as high risk when it considers the financing receivable to be impaired or when management believes there is a significant near‑term risk of non‑payment.

The Company performed an assessment of the allowance for credit losses related to its financing receivables.

Based upon such assessment, the Company recorded adjustments of $ 0.8 million and $ 3.6 million to the allowance for credit losses related to such financing receivables during the years ended June 30, 2020 and 2019, respectively.

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

June 30, 2020

June 30, 2019

Unearned income

Allowance for credit loss

Actual cash collections may differ from the contracted maturities due to early customer buyouts, refinancing, or defaults.

Inventories, net

Inventories consisted of the following (in thousands):

Raw materials

Work-in-process

Finished goods

Inventories, net

Property and Equipment, net

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

Furniture and fixtures

Computer and office equipment

Leasehold improvements

Machinery and equipment

Construction in progress

Accumulated depreciation

Property and equipment, net

Depreciation and amortization expense related to property and equipment for the years ended June 30, 2020, 2019 and 2018 was $ 7.3 million, $ 8.1 million and $ 9.6 million, respectively.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component (in thousands):

Balance at June 30, 2018

Other comprehensive loss

Balance at June 30, 2019

Other comprehensive loss

Balance at June 30, 2020

Consolidated Statements of Operations

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

Years Ended June 30,

(in thousands)

Interest expense

Foreign currency transaction loss

Gain on contribution to joint venture

Other (expense) income

Total other expense, net

The Company adopted ASC 842 – Leases using the current period adjustment method beginning on July 1, 2019.

Under this approach, the Company did not restate its comparative amounts and recognized a right-of-use asset equal to the present value of the future lease payments.

The Company elected to apply the practical expedient that allows for not reassessing:

(1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases.

The practical expedient applied to transition contracts that were previously identified as leases and elected to not recognize right-of-use assets and lease obligations for leases of low value assets.

The Company has operating leases for corporate offices and warehouse facilities worldwide.

Additionally, the Company leases cars, copy machines and laptops through various operating leases.

For some leases the Company has entered into non-cancelable operating lease agreements with various expiration dates through June 2025.

Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments.

Operating lease costs for the twelve months ended June 30, 2020 were $ 9.5 million, not including short-term operating lease costs, which were not material.

For the twelve months ended June 30, 2020, cash paid for amounts included in the measurement of operating lease liabilities was approximately $ 9.5 million.

Operating lease liabilities arising from obtaining operating right-of-use assets totaled $ 5.2 million for the year ended June 30, 2020.

Operating lease right-of-use assets and operating lease obligation as of June 30, 2020 represented in the table below (in thousands):

Operating lease right-of-use asset - initial recognition

Lease asset added after initial recognition

Amortization for the year

Balance at June 30, 2020

Operating lease obligation - initial recognition

Lease liability added after initial recognition

Repayment and interest accretion

Balance at June 30, 2020

Current portion of operating lease obligation

Noncurrent portion of operating lease obligation

Finance lease assets included in property and equipment

Maturities of operating lease liabilities as of June 30, 2020 are presented in the table below (in thousands):

Year Ending June 30,

Total operating lease payments

imputed interest

Present value of operating lease liabilities

Weighted average remaining lease term (in years)

Weighted average discount rate

Goodwill and Purchased Intangible Assets

Goodwill as of June 30, 2020 and 2019 and changes in the carrying amount of goodwill for the respective periods are as follows (in thousands):

As of June 30,

Balance at the beginning of the period

Currency translation

Balance at the end of the period

In fiscal 2020, the Company performed its annual goodwill impairment test and determined that there was no impairment to goodwill.

In addition, d uring the third and fourth quarters of fiscal year 2020, the Company reviewed for possible triggering events due to circumstances surrounding the COVID-19 pandemic and no impairment loss was recorded as a result of such review.

The Company will continue to monitor its recorded goodwill for indicators of impairment.

Purchased Intangible Assets

The Company’s intangible assets associated with purchased patent license are as follows (in thousands):

As of June 30, 2020

As of June 30, 2019

Patent license

During fiscal 2017, the Company purchased a patent license with a useful life of seven years .

During the quarter ending March 31, 2020 the Company purchased a patent license for $ 170 thousand with a useful life of two years .

The Company did not identify any triggering events that would indicate potential impairment of its definite‑lived intangible and long‑lived assets as of June 30, 2020 and 2019.

Amortization expense related to purchased intangible assets was $ 0.2 million, $ 0.1 million and $ 0.1 million for the years ended June 30, 2020, 2019 and 2018, respectively.

The estimated future amortization expense of purchased intangible assets as of June 30, 2020 is as follows (in thousands):

Year Ending June 30,

Derivative Financial Instruments

The Company utilizes foreign currency forward contracts with reputable financial institutions to manage its exposure of fluctuations in foreign currency exchange rates on certain intercompany balances and foreign currency denominated cash, customer receivables and liabilities.

The Company does not use derivative financial instruments for speculative or trading purposes.

These forward contracts are not designated as hedging instruments for accounting purposes.

Principal hedged currencies include the Euro, Japanese Yen, Swiss Franc, and U.S.

The periods of these forward contracts range up to approximately three months and the notional amounts are intended to be consistent with changes in the underlying exposures.

The Company intends to exchange foreign currencies for U.S.

Dollars at maturity.

There were no outstanding foreign currency forward contracts at the end of fiscal years 2020 and 2019.

The following table shows the effect of forward contracts not designated as hedging instruments and foreign currency transactions gains and losses, which were included in “Other expense, net” on the consolidated statements of operations in fiscal years (in thousands):

Years ended June 30,

Foreign currency exchange gain (loss) on foreign contracts

Foreign currency transactions gain (loss)

Fair Value Measurements

Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The fair value hierarchy contains three levels of inputs that may be used to measure fair value, as follows:

Level 1— Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

Level 2— Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets in non-active markets;

Inputs other than quoted prices that are observable for the asset or liability;

Inputs that are derived principally from or corroborated by other observable market data.

Level 3— Unobservable inputs that cannot be corroborated by observable market data and require the use of significant management judgment.

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The Company had cash of $ 107.6 million and $ 76.8 million at June 30, 2020 and June 30, 2019, respectively.

Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis

The Company’s debt is measured on a non-recurring basis using Level 2 inputs based upon observable inputs of the Company’s underlying stock price and the time value of the conversion option, since an observable quoted price of the 3.75 % Convertible Notes (collectively the “Notes”) is not readily available.

The Revolving Credit Facility and the Term Loan (collectively, the “Credit Facilities”) are valued at market interest rates, which it considers to be a level 2 fair value measurement.

The Company believes that the carrying value of these financial instruments approximate its estimated fair value based on the effective interest rate compared to the current market rate available to the Company.

The following table summarizes the carrying value and estimated fair value of Credit Facilities and Notes (in thousands):

June 30, 2020

June 30, 2019

3.75% Convertible Notes

Term Loan Facility

Revolving Credit Facility

Commitments and Contingencies

Long‑term Debt Commitments

The Company is required to make semi‑annual interest payments on the 3.75 % Convertible Notes, and monthly interest payments on the Revolving Credit Facility and Term Loan.

See Note 10, Debt , for details.

Future minimum long‑term principal and interest on the 3.75% Convertible Notes and Credit Facilities as of June 30, 2020 are as follows (in thousands):

Year Ending June 30,

These amounts represent principal and interest cash payments over the contractual life of the debt obligations, including anticipated interest payments that are not recorded on the Company’s consolidated balance sheet.

Any conversion, premium, redemption or purchase of the 3.75 % Convertible Notes would impact cash payments noted in the preceding table.

Purchase Commitments

The Company’s purchase commitments and obligations include all open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which the Company has not received the goods or services and acquisition and licensing of intellectual property.

A majority of these purchase obligations are due within a year.

Although open purchase orders are considered enforceable and legally binding, the terms generally allows the Company the option to cancel, reschedule, and adjust its requirements based on the Company’s business needs prior to the delivery of goods or performance of services, and hence, have not been included in the table above.

Indemnities and Commitments

The Company enters into standard indemnification agreements with its landlords and all superior mortgagees and their respective directors, officers’ agents, and employees in the ordinary course of business.

Pursuant to these agreements, the Company will indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the landlords, in connection with any loss, accident, injury, or damage by any third‑party with respect to the leased facilities.

The term of these indemnification agreements is from the commencement of the lease agreements until termination of the lease agreements.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited;

however, historically the Company has not incurred claims or costs to defend lawsuits or settle claims related to these indemnification agreements.

The Company has not recorded any liability associated with its indemnification agreements as it is not aware of any pending or threatened actions that represent probable losses as of June 30, 2020.

As of June 30, 2020, the Company had three bank guarantees totaling approximately $ 1.0 million related to a bidding process with three customers.

As of June 30, 2019, the Company had bank guarantees totaling approximately $ 0.7 million related to a bidding process with two customers.

Royalty Agreement

The Company has an exclusive license agreement with the Wisconsin Alumni Research Foundation (WARF), to make, use, sell and otherwise distribute products under certain of WARF’s patents anywhere in the world.

The Company is required to pay WARF a royalty for each TomoTherapy System sold that includes the licensed technology.

The license agreement expires upon expiration of the patents and may be terminated earlier if the Company so elects.

The license agreement expired on August 6, 2019 as a result of the expiration of the patent.

The Company recorded royalty costs of $ 0.05 million, $ 0.6 million and $ 0.5 million for the years ended June 30, 2020, 2019 and 2018, respectively, which were recorded in cost of revenue or deferred cost of revenue.

The Company had no accrued liabilities and approximately $ 0.2 million at June 30, 2020 and 2019, respectively, related to this agreement.

Software License Indemnity

Under the terms of the Company’s software license agreements with its customers, the Company agrees that in the event the software sold infringes upon any patent, copyright, trademark, or any other proprietary right of a third‑party, it will indemnify its customer licensees against any loss, expense, or liability from any damages that may be awarded against its customer.

The Company includes this infringement indemnification in all of its software license agreements and selected managed services arrangements.

In the event the customer cannot use the software or service due to infringement and the Company cannot obtain the right to use, replace or modify the license or service in a commercially feasible manner so that it no longer infringes, then the Company may terminate the license and provide the customer a refund of the fees paid by the customer for the infringing license or service.

The Company has not recorded any liability associated with this indemnification, as it is not aware of any pending or threatened actions that represent probable losses as of June 30, 2020.

From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business.

The Company records a provision for a loss when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated.

Currently, management believes the Company does not have any probable and reasonably estimable losses related to any current legal proceedings and claims.

Although occasional adverse decisions or settlements may occur, management does not believe that an adverse determination with respect to any of these claims would individually or in the aggregate materially and adversely affect the Company’s financial condition or operating results.

Litigation is inherently unpredictable and is subject to significant uncertainties, some of which are beyond the Company’s control.

Should any of these estimates and assumptions change or prove to have been incorrect, the Company could incur significant charges related to legal matters that could have a material impact on its results of operations, financial position and cash flows.

3.75% Convertible Senior Notes due July 2022

In August 2017, the Company issued $ 85.0 million aggregate principal amount of its 3.75 % Convertible Senior Notes due 2022 (the “ 3.75 % Convertible Notes”) under an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee.

$ 53.0 million aggregate principal amount of the 3.75 % Convertible Notes were issued to certain holders of the Company’s outstanding 3.50 % Convertible Notes and 3.50 % Series A Convertible Notes (together, the “Existing Notes”) in exchange for approximately $ 47.0 million aggregate principal amount of the Existing Notes (the “Exchange”) and $ 32.0 million aggregate principal amount of the 3.75 % Convertible Notes were issued to certain other qualified new investors for cash.

The net proceeds of the cash issuance were used to repurchase approximately $ 28.0 million of Existing Notes (the “Repurchase”).

Holders of the 3.75 % Convertible Notes may convert their notes at any time on or after April 15, 2022 until the close of the business day immediately preceding the maturity date.

Prior to April 15, 2022, holders of the 3.75 % Convertible Notes may convert their notes only under certain circumstances.

Upon conversion, the Company will have the right to pay cash, or deliver shares of common stock of the Company or a combination thereof, at the Company’s election.

The initial conversion rate is 174.8252 shares of the Company’s common stock per $ 1,000 principal amount (which represents an initial conversion price of approximately $ 5.72 per share of the Company’s common stock).

The conversion rate, and thus the conversion price, is subject to adjustment as further described below.

Holders of the 3.75 % Convertible Notes who convert their notes in connection with a “make-whole fundamental change,” as defined in the indenture, may be entitled to a make-whole premium in the form of an increase in the conversion rate.

Additionally, in the event of a “fundamental change,” as defined in the indenture, holders of the 3.75 % Convertible Notes may require the Company to purchase all or a portion of their note at a fundamental change repurchase price equal to 100 % of the principal amount of the 3.75 % Convertible Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date.

As of June 30, 2020, $ 85.0 million aggregate principal amount was outstanding.

Revolving Credit Facility

On June 14, 2017, the Company entered into a credit and security agreement with a lender (the “Credit Agreement”).

The Credit Agreement provides the Company with a revolving credit facility in the initial amount of $ 52.0 million (the “Revolving Credit Facility”).

Availability for borrowings under the Revolving Credit Facility is subject to a borrowing base that is calculated as a function of the value of the Company’s eligible accounts receivable and eligible inventory, and the Company is required to maintain a minimum drawn balance of at least 30 % of such availability.

Interest on the borrowings under the Revolving Credit Facility is payable monthly in arrears at an annual interest rate of reserve-adjusted, 90-day LIBOR plus 4.50 % and had initial maturity date of June 14, 2021.

In December 2017, concurrently with the Term Loan Agreement (as defined below), the Company entered into an amendment to the Credit Agreement (the “Amendment” and, collectively with the Credit Agreement, the “Amended Credit Agreement”).

The Amendment reduced the maximum borrowings under the Revolving Credit Facility to $ 32.0 million and extended the maturity date of the Revolving Credit Facility to December 15, 2022.

In May 2019, the Company amended the Amended Credit Agreement to, among other things, decrease the interest rate from 90-day LIBOR plus 4.50 % to 90-day LIBOR plus 3.50 % and extend the maturity date to May 30, 2024 and update the calculation of the deferred revolving loan origination fee such that it is based on the amount of time elapsed from the effective date of the May 2019 amendment.

The Company accounted for the amendment as a modification of existing debt and deferred an insignificant amount of offering costs on the consolidated balance sheet as of June 30, 2019.

The Amended Credit Agreement was further amended in August 2019 to, among other things, revise or add financial covenants, including the fixed charge coverage ratio, minimum net revenue, minimum consolidated cash balance and minimum consolidated domestic cash balance tests.

Other significant terms remain unchanged.

The Company accounted for the amendment as a modification of existing debt and deferred an insignificant amount of offering costs on the consolidated balance sheet.

As of June 30, 2020, approximately $ 28.0 million of aggregate principal amount was outstanding under the Revolving Credit Facility, and $ 0.9 million of unamortized debt costs associated with the Revolving Credit Facility was included in other assets on the condensed consolidated balance sheet.

In December 2017, the Company entered into a credit and security agreement with a lender (the “Term Loan Agreement”).

The Term Loan Agreement provides for an initial term loan of $ 40.0 million with an additional tranche of $ 20.0 million undrawn and available through December 31, 2018, if specified conditions are met (the “Term Loan”).

In connection with the Amendment, the Company used a portion of the net proceeds from the initial advance to repay a portion of the outstanding borrowings under the Revolving Credit Facility.

Interest on the Term Loan is payable monthly in arrears at an annual interest rate of 6.75 % plus 90-day LIBOR .

The Term Loan Agreement matures December 15, 2022 and, if prepaid, has fees equal to 3 %, 2 %, and 1 % of the prepayment amount if such termination occurs within the first year, the second year, and the third year of funding, respectively.

The term of the loan is 60 months with interest only for the first 24 months followed by straight-line amortization of principal for the remaining months.

In addition, the Company will pay an annual administrative fee of 0.25 % and a final payment of 4.0 % of the Term Loan amount.

In December 2018, the Company drew an additional $ 5.0 million under the Term Loan Agreement and in connection therewith entered into the second amendment to the Term Loan Agreement (“Amendment 2”) which, among other things, (i) extended the term loan tranche 2 commitment termination date for the remaining $ 15.0 million unfunded commitment from December 31, 2018 to June 30, 2019 ;

(ii) provided that term loan tranche 2 may be drawn in two separate advances;

and (iii) updated the calculation of the prepayment fee such that it is based on the amount of time elapsed from the effective date of Amendment 2.

In May 2019, the Company amended the Term Loan Agreement to, among other things, increase the loan tranche 2 commitment by $ 0.5 million, extend the maturity date to May 30, 2024, decrease the annual interest rate from 6.75 % plus 90-day LIBOR to 5.50 % plus 90-day LIBOR , and modify the calculation prepayment fee such that it is based on the amount of time elapsed from the effective date of the May 2019 amendment.

The Company accounted

for the amendment as a modification of existing debt and recorded approximately $ 1.5 million of debt discount costs associated with the amendment against long-term debt on the consolidated balance sheets as of June 30, 2019.

In August 2019, the Company amended the Term Loan Agreement to, among other things, increase the loan commitment by $ 25 million in the form of a new tranche (“Tranche 3”), increase the annual interest rate from 5.50 % plus 90-day LIBOR to 6.75 % plus 90-day LIBOR , and revise or add financial covenants, including the fixed charge coverage ratio, minimum net revenue, minimum consolidated cash balance and minimum consolidated domestic cash balance tests.

Other significant terms remain unchanged.

The Company borrowed in full Tranche 3, or $ 25 million, on the date of the amendment.

The Company accounted for the amendment as a modification of existing debt, at the same time, the Company recorded approximately $ 1.6 million of debt discount costs associated with the amendment against long-term debt.

As of June 30, 2020, approximately $ 89.1 million aggregate principal amount was outstanding.

The following table presents the carrying value of all Credit Facilities and 3.75 % Convertible Notes (in thousands):

Carrying amount of equity conversion component

Principal amount

Unamortized debt costs

Unamortized debt discount

Net carrying amount

Unamortized debt costs of $ 0.9 million recorded in other assets on the consolidated balance sheet.

A summary of interest expense on the Credit Facilities and Notes is as follows (in thousands):

Year ended June 30,

Interest expense related to contractual interest coupon

Interest expense related to amortization of debt discount

Interest expense related to amortization of debt issuance costs

Shareholders’ Equity

At June 30, 2020, the Company had 9.7 million shares of common stock reserved for issuance under the stock incentive plans and the employee stock purchase plan.

Stock Incentive Plan and Employee Stock Purchase Plan

As of June 30, 2020, the Company had three outstanding stock incentive plans:

the 2016 Equity Incentive Plan, or the 2016 Plan;

the 2007 Incentive Award Plan, or the 2007 Plan;

and the 1998 Stock Incentive Plan, or the 1998 Plan.

The 2016 Plan permits the granting of stock options, stock appreciation rights, restricted stock awards, performance shares, performance units, and restricted stock units, or RSUs.

The vesting of RSUs granted under the 2016 Plan are primarily service‑based (over the requisite service period) while the vesting of performance units granted under the 2016 Plan are primarily performance‑based, or PSUs, or market‑based, or MSUs.

Only employees of the Company are eligible to receive incentive stock options.

Non‑employees may be granted non‑qualified stock options.

Stock options granted under the 2016 Plan have an exercise price of at least 100 % of the fair market value of the underlying stock on the grant date.

The stock options have 10 year contractual terms and generally become exercisable for 25 % of the option shares one year from the date of grant and then ratably over the following 36 months.

Service‑based RSUs granted under the equity plans generally vest 25 % of the share units covered by the grant on each of the first through fourth anniversaries of the date of the grant, subject to the continued service of the grantee through each such date.

However, certain of the outstanding RSUs under our equity plans vest 50 % upon the first anniversary year of the grant date, and 50 % upon the second anniversary year of the grant date.

The Board of Directors has the discretion to use different vesting schedules.

As of June 30, 2020, the 2007 Plan and the 1998 Plan each continued to remain in effect;

however, the Company can no longer grant equity awards under such plans.

The following table summarizes the share‑based compensation charges included in the Company’s consolidated statements of operations and comprehensive income (loss) (in thousands):

Years ended June 30,

Cost of revenue

Research and development

Selling and marketing

General and administrative

The amount of capitalized share‑based compensation costs as components of inventory was insignificant at June 30, 2020, 2019 and 2018.

Stock Options

The fair value of each option is estimated at the date of grant using the Black‑Scholes option pricing formula with the following assumptions:

Years Ended June 30,

Risk–free interest rate

1.14% - 1.53%

1.94% - 2.81%

Dividend yield

Expected term

Expected volatility

47.3% - 48.9%

47.0% - 47.1%

Determining Fair Value of Stock Options

The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below.

Each of these inputs is subjective and generally requires significant judgment to determine.

Valuation and Amortization Method —The Company estimates the fair value of its stock options using the Black‑Scholes option‑pricing model.

This fair value is then amortized over the requisite service periods of the awards.

Expected Term —The Company estimates the expected term of stock option by taking the average of the vesting term and the contractual term of the option, as illustrated by the simplified method.

Expected Volatility —The expected volatility is derived from the Company’s historical stock volatility over a period approximately equal to the expected term of the options.

Risk ‑Free Interest Rate —The risk ‑free interest rate is based on the U.S.

Treasury yield curve on the date of grant.

Dividend Yield —The dividend yield assumption is based on the Company’s history and expectation of no dividend payouts.

A summary of option activity under the Company’s incentive plan during the fiscal years is presented below (in thousands except per share and term amounts):

Balance at June 30, 2017

Options granted

Options exercised

Options forfeited/expired

Balance at June 30, 2018

Options granted

Options exercised

Options forfeited/expired

Balance at June 30, 2019

Options granted

Options exercised

Options forfeited/expired

Balance at June 30, 2020

Vested or Expected to vest at June 30, 2020

Exercisable at June 30, 2020

The aggregate intrinsic value in the table above represents the total pre‑tax intrinsic value (the difference between the fair value of the Company’s common stock on June 30, 2020 of $ 2.03 and the exercise price of the options that would have been received by option holders if all options exercisable had been exercised on June 30, 2020.

The total intrinsic value of options exercised in the years ended June 30, 2020, 2019 and 2018 was approximately $ 0 million, $ 0.1 million and $ 0.1 million, respectively.

During the years ended June 30, 2020, 2019 and 2018, the Company recognized $ 2.0 million, $ 1.4 million and $ 0.6 million, respectively, of share‑based compensation expense for stock options granted to employees.

Tax benefits from tax deductions for exercised options and disqualifying dispositions in excess of the deferred tax asset attributable to stock compensation costs for such options are credited to additional paid‑in capital.

Upon adoption of ASU 2016-09 on July 1, 2017, the benefits are recognized against income taxes.

Realized excess tax benefits related to stock options exercises was zero for each of the years ended June 30, 2020, 2019 and 2018.

As of June 30, 2020, there was approximately $ 6.7 million of unrecognized compensation cost net of estimated forfeitures, related to unvested stock options, which is expected to be recognized over a weighted average period of 2.89 years.

The following table summarizes information about outstanding and exercisable options at June 30, 2020 (in thousands, except years and exercise price):

Options Outstanding

Options Exercisable

Range of Exercise Prices

Total Outstanding

Restricted Stock

The following table summarizes the activity of RSUs, PSUs and MSUs (in thousands, except fair value per share):

Unvested Restricted Stock

Unvested at June 30, 2017

Cancelled/Forfeited

Unvested at June 30, 2018

Cancelled/Forfeited

Unvested at June 30, 2019

Cancelled/Forfeited

Unvested at June 30, 2020

As of June 30, 2020, there was approximately $ 8.7 million of unrecognized compensation cost, net of estimated forfeitures, related to restricted stock, which is expected to be recognized over a weighted average period of 1.76 years.

Restricted Stock Units

The Company recognized $ 4.9 million, $ 7.2 million and $ 7.8 million of share‑based compensation expense, net of estimated forfeitures, related to RSUs during the years ended June 30, 2020, 2019 and 2018.

The weighted average grant date fair value per share of RSUs was $ 2.74 , $ 3.68 and $ 4.57 for the years ended June 30, 2020, 2019 and 2018, respectively.

The aggregate fair market value of RSUs that vested during the year ended June 30, 2020 was $ 4.7 million.

Performance Stock Units

The Compensation Committee approved the grant of 419,000 , zero and 53,000 PSUs to select employees of the Company in the years ended June 30, 2020, 2019 and 2018, respectively.

Of these PSUs, 10,000 were vested in the year ended June 30, 2019 due to the achievement of the requisite performance targets.

No PSUs vested in the years ended June 30, 2020 and June 30, 2018.

There was no cancellations of PSUs during the year ended June 30, 2020 and for the years ended June 30, 2019 and 2018, 53,000 and no PSUs were cancelled, respectively.

The Company recognized no expense or benefit, a benefit of $ 0.1 million, and an expense of $ 0.1 million, of share‑based compensation expense, net of estimated forfeitures, related to PSUs during the years ended June 30, 2020, 2019, and 2018, respectively.

Market Stock Units

The Compensation Committee approved the performance equity program, referred to as the market stock unit program, or MSU program, in October 2012.

The Company’s MSU Program uses the Russell 2000 index as a performance benchmark and requires that the Company’s total stockholder return match or exceed that of the Russell 2000.

Based on a sliding scale of how much the Company’s total stockholder return outperforms the Russell 2000 benchmark, the participating executives can earn up to a maximum of 150 % of the target number of shares over two measurement periods.

The Company uses a Monte‑Carlo simulation to calculate the fair value of the award on the grant date.

The Compensation Committee approved the grant of 0.6 million MSUs to select employees of the Company in the year ended June 30, 2018 and none were granted for the years ended June 30, 2020 and 2019.

Of these MSUs, no shares vested in the years ending June 30, 2020, 2019 and 2018, respectively, due to the non-achievement of the requisite performance target against the Russell 2000 index while 0.5 million, 0.8 million and 0.6 million MSUs were cancelled in the years ended June 30, 2020, 2019 and 2018, respectively.

The Company recognized $ 0.2 million, $ 1.0 million and $ 2.6 million of share‑based compensation expense, net of estimated forfeitures, related to MSUs during the years ended June 30, 2020, 2019 and 2018, respectively.

There were no MSUs granted during the years ended June 30, 2020 and 2019.

The weighted average grant date fair value per share of MSUs was zero, and $ 4.11 for the years ended June 30, 2019 and 2018, respectively.

As of June 30, 2020, there was approximately $ 0.1 million of unrecognized compensation cost, net of estimated forfeitures, related to MSUs.

Employee Stock Purchase Plan

Under the Company’s Amended and Restated 2007 Employee Stock Purchase Plan, or ESPP, qualified employees are permitted to purchase the Company’s common stock at 85 % of the lower of the fair market value of the common stock on the commencement date of each offering period or the fair market value on the specified purchase date.

The ESPP is deemed compensatory and compensation costs are accounted for under ASC 718, Stock Compensation .

Employees’ payroll deductions may not exceed 10 % of their salaries.

Employees may purchase up to 2,500 shares per period provided that the value of the shares purchased in any calendar year may not exceed $ 25,000 , as calculated pursuant to the purchase plan.

The Company estimates the fair value of ESPP shares at the date of grant using the Black‑Scholes option pricing model.

The weighted average assumptions were as follows:

Years Ended June 30,

Risk–free interest rate

0.17% - 1.60%

2.11% - 2.72%

Dividend yield

Expected term

Expected volatility

45.46% - 75.21%

30.9% - 60.0%

31.3% – 51.1%

The risk‑free rate for the expected term of the ESPP option was based on the U.S.

Treasury Constant Maturity rate for each offering period;

expected volatility was based on the historical volatility of the Company’s common stock;

and the expected term was based upon the offering period of the ESPP.

For the years ended June 30, 2020, 2019 and 2018, the Company recognized $ 1.1 million, $ 1.1 million and $ 1.2 million, respectively, of compensation expense related to its ESPP.

The Company issued 1.1 million, 0.9 million and 0.9 million shares under the ESPP during fiscal 2020, 2019 and 2018, respectively, at a weighted average price per share of $ 2.16 , $ 3.31 and $ 3.62 , respectively.

As of June 30, 2020, total unrecognized compensation cost related to the ESPP plan was $ 0.6 million, which the Company expects to recognize over a weighted average period of 0.5 years.

Joint Venture

In January 2019, the Company’s wholly-owned subsidiary, Accuray Asia Limited (“Accuray Asia”), entered into an agreement with CNNC High Energy Equipment (Tianjin) Co., Ltd.

(the “CIRC Subsidiary”), a wholly-owned subsidiary of China Isotope & Radiation Corporation, to form a joint venture, CNNC Accuray (Tianjin) Medical Technology Co.

(the “JV”), to manufacture and sell radiation oncology systems in China.

In exchange for the 49 % equity interest in the JV, the Company, through Accuray Asia, made in-kind capital contributions consisting of two full radiation oncology systems from the Company’s inventory in the quarter ended December 31, 2019.

The investment is reported as an Investment in joint venture on the Company’s consolidated balance sheets.

The Company recognized a gain of $ 13.0 million related to the value of the capital contribution to the JV.

This gain was recorded as non-operating, other income in the three months ended December 31, 2019.

The Company is applying the equity method of accounting to its ownership interest in the JV as the Company has the ability to exercise significant influence over the JV but lacks controlling financial interest and is not the primary beneficiary.

The Company recognizes revenue on sales to the JV in the current period, eliminating a portion of profit to the extent goods sold have not been sold through by the JV to an end customer at the end of each reporting period.

The Company eliminated $ 1.8 million of such intra-entity profit from system sales executed during the year ended June 30, 2020 as the transfer of control to the final end user for these systems did not occur before the end of period.

The Company recognizes the 49 % proportionate share of the JV income or loss on a one-quarter lag due to the timing of the availability of the JV’s financial records.

The Company’s consolidated accumulated deficit includes $ 0.1 million of accumulated losses related to our equity method investment.

As of June 30, 2020, the Company had a carrying value of $ 13.9 million in the JV and owned a 49 % interest in the entity.

The Company’s proportional share of the underlying equity in net assets of the JV was approximately $ 10.9 million.

The difference represents equity method goodwill.

The carrying value of the Company’s investment in the JV was decreased by $ 1.8 million of intra-entity profit which is not considered in goodwill assessment.

The difference of $ 3.0 million increased by $ 1.8 million of eliminated profit constitutes equity method goodwill of $ 4.8 million which is subject to impairment analysis.

No impairment was identified as of June 30, 2020.

Income (loss) before provision for income taxes on the accompanying statements of operations and comprehensive loss included the following components (in thousands):

Years Ended June 30,

Total worldwide

The provision for income taxes consisted of the following (in thousands):

Years Ended June 30,

Total current

Total deferred

Total provision for income taxes

Income tax payable was $ 0.8 million, $ 1.6 million and $ 1.1 million at June 30, 2020, 2019 and 2018, respectively.

A reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying consolidated statements of operations and comprehensive loss is as follows (in thousands):

Years Ended June 30,

federal taxes (benefit):

At federal statutory rate

State tax, net of federal benefit

Share-based compensation expense

Debt extinguishment

Other non-deductible permanent items

Foreign taxes

Transition Tax

Tax Cuts and Jobs Act

Global Intangible Low-Taxed Income

Change in valuation allowance

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s net deferred tax assets were as follows (in thousands):

Deferred tax assets:

Federal and state net operating losses

Accrued expenses and reserves

Lease liability

Deferred revenue

Share-based compensation expense

Capitalized research and development

Fixed assets/intangibles

Section 163(j) interest

Total deferred tax assets

Deferred tax liabilities:

Contract acquisition costs

Right of use assets

Total deferred tax liabilities

Valuation allowance

Net deferred tax assets

As of June 30, 2020, the Company had approximately $ 322.1 million and $ 139.1 million in federal and state net operating loss carryforwards, respectively.

The federal and state carryforwards expire in varying amounts beginning in 2025 for federal and 2021 for state purposes.

In addition, as of June 30, 2020, the Company had federal and state research and development tax credits of approximately $ 22.0 million and $ 20.4 million, respectively.

If not utilized, the federal research credits will begin to expire in 2021, the California research credits have no expiration date, and the other state research credits will begin to expire in 2021.

Under the Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of our net operating loss and research tax credit carryforwards to offset taxable income may be limited based on cumulative changes in ownership.

Although ownership changes have occurred in the past, the carryovers should be available for utilization by the Company before they expire, provided the Company generates sufficient future taxable income.

There were no equity financings in the current fiscal year that would result in an ownership change under Section 382.

The Company will continue to monitor the changes in equity that would affect the tax attributes as reported.

Based on the available objective evidence and history of losses, the Company has established a 100 % valuation allowance against the combined domestic net deferred tax assets of Accuray and TomoTherapy because of uncertainty surrounding the realization of such deferred tax assets.

In December 2017, the Tax Cuts and Jobs Act of 2017 (Tax Act) was signed into law which significantly amends the Internal Revenue Code of 1986, among other things reduces the corporate tax rate from a top marginal rate of 35 % to a flat rate of 21 %, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are repatriated.

The Tax Act did not impact the Company's financial statements due to the Company's historical U.S.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law in the United States.

The provisions of the CARES Act did not have a material impact on the Company’s effective tax rate and consolidated financial statements given the Company's full valuation allowance against its net U.S.

deferred tax assets.

Beginning fiscal year 2019, for U.S.

federal tax purposes certain income earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC’s U.S.

The income required to be included in gross income is referred to as global intangible low tax income (“GILTI”) and is defined under IRC Section 951A as the excess of the shareholder’s net CFC tested income over the net deemed tangible income return.

The GILTI inclusion amount has been absorbed by net operating losses.

The Company has made a policy decision to record GILTI tax as a current-period expense when incurred.

The Tax Act also enacted the Base Erosion and Anti-Abuse Tax (“BEAT”).

The BEAT minimum tax under IRC Section 59A is applicable to the extent that the BEAT tax amount is greater than the regular corporate tax for a given year.

This tax is applicable to companies with prior 3-year average annual gross receipts exceeding $ 500 million.

The Company does not currently meet this threshold since its current average annual gross receipts is less than $500 million.

The Company continues to permanently re-invest its $ 45.2 million undistributed earnings of its foreign subsidiaries outside the U.S.

Future repatriation of the Company's foreign earnings are subject to income tax withholdings.

Any potential deferred tax liability would net with the Company’s valuation allowance.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):

Years Ended June 30,

Balance at beginning of year

Tax positions related to current year:

Tax positions related to prior years:

Balance at end of year

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations.

Management regularly assesses the Company’s tax positions with respect to legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business.

The reduction in prior year’s tax positions primarily relates to lapses of applicable statutes of limitations.

As of June 30, 2020, the amount of gross unrecognized tax benefits was $ 17.0 million of which $ 16.8 million would not affect income tax expense before consideration of any valuation allowance.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

As of June 30, 2020 and 2019, the Company had approximately $ 0.01 million and $ 0.06 million, respectively, of accrued interest and penalties related to uncertain tax positions.

The Company files income tax returns in the United States federal, various states and foreign jurisdictions.

Due to tax attributes being carried forward and utilized during open years, the statute of limitations remains open for the U.S.

federal jurisdiction and domestic states for tax years from 2000 and forward.

The statutes of limitation with respect to the foreign jurisdictions where the Company files income tax returns vary from jurisdiction to jurisdiction and range from 3 to 10 years , and the material foreign jurisdictions are France, Switzerland, and Japan.

The Company is also subject to examination of its income tax returns by the Internal Revenue Service (IRS) and other foreign tax authorities, and in some cases the Company has received additional tax assessments which have not been significant .

Employee Benefit Plan

The Company’s employee savings and retirement plan is qualified under Section 401(k) of the United States Internal Revenue Code.

Employees may make voluntary, tax‑deferred contributions to the 401(k) Plan up to the statutorily prescribed annual limit.

The Company makes discretionary matching contributions to the 401(k) Plan on behalf of employees up to the limit determined by the Board of Directors.

The Company contributed $ 2.0 million, $ 2.1 million and $ 2.2 million to the 401(k) Plan during the years ended June 30, 2020, 2019 and 2018, respectively.

Defined Benefit Pension Obligation

The Company has established a defined benefit pension plan for its employees in its Switzerland subsidiary.

The plan provides benefits to employees upon retirement, death or disability.

The Company uses June 30 as the year‑end measurement date for this plan.

The unfunded liability of $ 4.5 million was recognized in long‑term other liabilities in the accompanying balance sheet as of June 30, 2020.

Actuarial gain of $ 0.6 million was recognized in other comprehensive loss in fiscal 2020.

Obligations and Funded Status

The following table presents the funded status of the defined benefit pension plan (in thousands):

Change in benefit obligation:

Benefit obligation—beginning of fiscal year

Interest cost

Plan participants’ contributions

Plan amendment

Actuarial (gain)/loss

Foreign currency changes

Benefit and expense payments

Benefit obligation—end of fiscal year

Change in plan assets:

Plan assets—beginning of fiscal year

Employer contributions

Actual return on plan assets

Plan participants’ contributions

Foreign currency changes

Benefit and expense payments

Plan assets—end of fiscal year

Funded status

Amounts recognized within the consolidated balance sheets:

Long-term other liabilities

Net amount recognized

The following table presents the amounts recognized in accumulated other comprehensive loss (before tax) for the defined benefit pension plan (in thousands):

Total recognized in other comprehensive income (loss)

Accumulated other comprehensive loss

The following table presents the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for this defined benefit pension plan where accumulated benefit obligation exceeded the fair value of plan assets (in thousands):

Projected benefit obligation

Accumulated benefit obligation

Fair value of plan assets

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Loss

The following table shows the components of the Company’s net periodic benefit costs and the other amounts recognized in other comprehensive loss, before tax, related to the Company’s defined benefit pension plan (in thousands):

Year ended June 30,

Net Periodic Benefit Costs:

Interest cost

Expected returns on assets

Amortization of prior service cost

Amortization of net loss

Settlement charges

Net periodic benefit costs

Other Amounts Recognized in Other Comprehensive Loss:

Net (gain) loss arising during the year

Prior service cost

Amortization of prior service cost

Amortization of net gain

Effect of settlement

Total recognized in other comprehensive (gain) loss

Total recognized in net periodic benefit costs and other

comprehensive loss

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during fiscal year 2021 related to the Company’s defined benefit pension plan are as follows (in thousands):

Prior service credit

Accumulated other comprehensive loss

The assumptions used to determine net periodic benefit cost and to compute the expected long‑term return on assets for the Company’s defined benefit pension plan were as follows:

Net Periodic Benefit Costs:

Discount rate

Rate of compensation increase

Expected long-term return on assets

The assumptions used to measure the benefit obligation for the Company’s defined benefit pension plan were as follows:

Benefit Obligation:

Discount rate

Rate of compensation increase

Estimated Contributions and Future Benefit Payments

The Company made contributions of approximately $ 1.3 million, $ 1.4 million and $ 1.3 million to the defined benefit pension plan during fiscal years 2020, 2019 and 2018 respectively.

The Company expects total contributions to the defined benefit pension plan for fiscal year 2021 will be approximately $ 1.1 million.

Estimated future benefit payments expected to be paid by the defined benefit pension plan at June 30, 2020 are as follows (in thousands):

Year Ending June 30,

The plan assets are invested in insurance contracts with Copré Collective Foundation based in Lausanne, Switzerland and Swiss Life Foundation BVG (BVG) insurance company based in Zurich, Switzerland at the end of fiscal year 2020 and 2019, respectively.

In fiscal 2020, the risks of death and disability are reinsured with Zurich Life Insurance.

The Copré Foundation for Occupational Benefits defines and is responsible for the asset strategy and invests the plan assets for the Company.

In 2020, the guaranteed interest rate for mandatory retirement savings is 1.00 %.

The technical administration and management of the savings account are guaranteed by the Copré Foundation for Occupational Benefits.

Insurance benefits due are paid directly to the entitled persons by the Copré Foundation for Occupational Benefits.

Accuray International Sàrl has committed itself to pay the annual contributions and costs due under the pension fund regulations.

The contract of affiliation between the Company and the Copré C ollective F oundation can be terminated by either side.

In the event of a termination, recipients of retirement and survivors’ benefits would remain with the collective foundation.

The Company commits itself to transfer its active insured members and recipients of disability benefits to the new employee benefits institution, thus releasing the Copré C ollective F oundation from all obligations.

Segment Disclosure

The Company has one operating and reporting segment (oncology systems group), which develops, manufactures and markets proprietary medical devices used in radiation therapy for the treatment of cancer patients.

The Company’s Chief Executive Officer, its Chief Operating Decision Maker, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

The Company does not assess the performance of its individual product lines on measures of profit or loss, or asset based metrics.

Therefore, the information below is presented only for revenues and long‑lived tangible assets by geographic areas.

Revenues attributed to a country or region is based on the shipping addresses of the Company’s customers.

The following summarizes revenue by geographic region (in thousands):

Years ended June 30,

Europe, Middle East, India and Africa

Asia Pacific (excluding Japan and India)

Information regarding geographic areas in which the Company has long‑lived tangible assets is as follows (in thousands):

Europe, Middle East, India and Africa

Asia Pacific (excluding Japan and India)

Restructuring Charges

On May 27, 2020, the Company informed affected employees of a cost saving initiative designed to reduce operating costs through the elimination of approximately 3 percent of its global workforce.

These restructuring charges of $ 1.1 million were recorded in cost of goods sold and operating expenses in the consolidated statements of operations, of which $ 0.5 million was paid during fiscal 2020 and $ 0.6 million is accrued in the consolidated balance sheet as of June 30, 2020.

In October 2018, the Company informed affected employees of a cost savings initiative designed to reduce operating costs through the elimination of approximately 5 percent of its global workforce.

These restructuring charges of $ 1.5 million were recorded in cost of goods sold and operating expenses in the consolidated statements of operations, of which $ 1.0 million was paid during fiscal 2019 and $ 0.5 million is accrued in the consolidated balance sheet as of June 30, 2019, the remainder was paid in fiscal year 2020.

The Company incurred no restructuring charges for the year ended June 30, 2018.

Subsequent Events

On July 3, 2020 the Company further amended the Amended Credit Agreement and Term Loan Agreement which, among other things modified certain financial covenants related to the Fixed Charge Coverage Ratio, minimum consolidated Net Revenue and minimum consolidated cash balance.

Other significant terms remained unchanged.

In addition, the Company agreed to prepay $ 10.0 million in principal with respect to the Term Loan as well as an amendment fee of $ 0.5 million, both of which were paid on July 3, 2020.

Quarterly Financial Data (unaudited)

The following table provides the selected quarterly financial data for fiscal 2020 and 2019 (in thousands, except net income (loss) per share amounts:

Quarters ended

September 30, 2019

December 31, 2019

Net Income (loss)

Net income (loss) per share - basic

Net income (loss) per share - diluted

Weighted average common shares used in computing net

income (loss) per share:

Quarters ended

September 30, 2018

December 31, 2018

Net income loss

Net loss per share—basic and diluted

Shares used in basic and diluted per share calculation

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On August 7, 2017, we issued approximately $85.0 million aggregate principal amount of 3.75% Convertible Notes due 2022.

Upon conversion, we can settle the obligation by issuing our common stock, cash or a combination thereof at an initial conversion rate equal to 174.8252 shares of common stock per $1,000 principal amount of the 3.75% Convertible Notes due 2022, which is equivalent to a conversion price of approximately $5.72 per share of common stock, subject to adjustment.

There is no equity price risk if the share price of our common stock is below $5.72 upon conversion of the 3.75% Convertible Notes due 2022.

As of June 30, 2021 the remaining outstanding principal amount of 3.75% Convertible Notes due 2022 is $2.9 million for every $1 that the share price of our common stock exceeds $5.72, we expect to issue an additional $0.5 million in cash or shares of our common stock, or a combination thereof, if all of the 3.75% Convertible Notes due 2022 are converted.

On May 13, 2021, we issued approximately $100.0 million aggregate principal amount of 3.75% Convertible Notes due 2026.

Upon conversion, we can settle the obligation by issuing our common stock, cash or a combination thereof at an initial conversion rate equal to 170.5611 shares of common stock per $1,000 principal amount of the 3.75% Convertible Notes due 2026, which is equivalent to a conversion price of approximately $5.86 per share of common stock, subject to adjustment.

There is no equity price risk if the share price of our common stock is below $5.86 upon conversion of the 3.75% Convertible Notes due 2026.

For every $1 that the share price of our common stock exceeds $5.86, we expect to issue an additional $17.1 million in cash or shares of our common stock, or a combination thereof, if all of the 3.75% Convertible Notes due 2026 are converted.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis