Accuray
Annual Report 2022

Plain-text annual report

#AccurayExpandRT UNITED STATES ASIA EUROPE Accuray Corporate Headquarters Accuray Corporate Headquarters Accuray Incorporated Accuray Incorporated Accuray Incorporated Accuray Incorporated Accuray Incorporated Accuray Japan K.K. Accuray Japan K.K. Accuray Japan K.K. Accuray Japan K.K. Accuray Japan K.K. Accuray Asia Ltd. Accuray Asia Ltd. Accuray Accelerator Accuray Accelerator Accuray International Sarl Accuray International Sarl Accuray International Sarl 1310 Chesapeake Terrace 1310 Chesapeake Terrace 1240 Deming Way 1240 Deming Way 1240 Deming Way 1240 Deming Way 1240 Deming Way Shin Otemachi Building 7F Shin Otemachi Building 7F Shin Otemachi Building 7F Shin Otemachi Building 7F Shin Otemachi Building 7F 16/F, Tower 5, The Gateway 16/F, Tower 5, The Gateway Technology (Chengdu) Co., Ltd. Technology (Chengdu) Co., Ltd. Route de la Longeraie 9 Route de la Longeraie 9 Sunnyvale, CA 94089 Sunnyvale, CA 94089 Madison, WI 53717 Madison, WI 53717 Madison, WI 53717 Madison, WI 53717 Madison, WI 53717 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku Harbour City Harbour City No. 8, Kexin Road No. 8, Kexin Road CH – 1110 Morges CH – 1110 Morges USA USA USA USA Tokyo 100-0004 Tokyo 100-0004 Tokyo 100-0004 Tokyo 100-0004 Tokyo 100-0004 15 Canton Road, T.S.T 15 Canton Road, T.S.T Hi-Tech Zone (West Area) Hi-Tech Zone (West Area) Switzerland Switzerland Tel: +1.408.716.4600 Tel: +1.408.716.4600 Tel: +1.608.824.2800 Tel: +1.608.824.2800 +1.608.824.2800 +1.608.824.2800 +1.608.824.2800 Japan Japan Japan Toll Free: 1.888.522.3740 Toll Free: 1 888.522.3740 Toll Free: 1.888.522.3740 Fax: +1.608.824.2996 Fax: +1.608.824.2996 +1.608.824.2996 +1.608.824.2996 Fax: Tel: +81.3.6265.1526 +81.3.6265.1526 +81.3.6265.1526 Tel: Tel: Fax: +1.408.716.4601 Fax: +1.408.716.4601 408.716.4601 408.716.4601 Fax: Fax: Fax: +81.3.3272.6166 Fax: +81.3.3272.6166 Fax: +81.3.3272.6166 Hong Kong Hong Kong Tel: +852.2247.8688 Tel: +852.2247.8688 Tel: +852.2247.8688 Fax: : +852.2175.5799 Fax: : +852.2175.5799 Fax: : +852.2175.5799 Chengdu Chengdu 611731 Sichuan 611731 Sichuan 611731 Sichuan China China China Tel: +41.21.545.9500 Tel: +41.21.545.9500 Fax: +41.21.545.9501 Fax: +41.21.545.9501 Fax: +41.21.545.9501 © 2022 Accuray Incorporated. All Rights Reserved. © 2022 Accuray Incorporated. All Rights Reserved. © 2022 Accuray Incorporated. All Rights Reserved. © 2022 Accuray Incorporated. All Rights Reserved. Important Safety Information: Important Safety Information: Important Safety Information: Important Safety Information: Important Safety Information: Important Safety Information: Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. www.accuray.com 2 0 2 2 A N N U A L R E P O R T SENIOR MANAGEMENT SENIOR MANAGEMENT BOARD OF DIRECTORS BOARD OF DIRECTORS BOARD OF DIRECTORS BOARD OF DIRECTORS STOCK MARKET INFORMATION STOCK MARKET INFORMATION INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC Suzanne Winter Suzanne Winter President, Chief Executive Offi cer and Director Ali Pervaiz Senior Vice President, Chief Financial Offi cer Sandeep Chalke Senior Vice President, Chief Commercial Offi cer Jean- Philippe Pignol, M.D., Ph.D. Senior Vice President, Chief Medical and Technology Offi cer Jesse Chew Senior Vice President, General Counsel and Corporate Secretary Michael Hoge Senior Vice President, Global Operations Patrick Spine Senior Vice President, Chief Administrative Offi cer Jim Dennison Senior Vice President, Global Quality and Regulatory Affairs Joseph E. Whitters (Chairperson of the Board) Joseph E. Whitters (Chairperson of the Board) (Chairperson of the Board) (Chairperson of the Board) Joseph E. Whitters Joseph E. Whitters Advisor/Consultant Frazier Healthcare Elizabeth Dávila Former Chairman and Chief Executive Offi cer VISX, Incorporated James M. Hindman Former Executive Vice President and Chief Financial Offi cer Allergan, Inc. Beverly A. Huss Former Chief Executive Offi cer Pagonia Medical, Inc. Anne B. Le Grand Consultant IBM Watson Health Mika Nishimura Operational Partner Gilde Healthcare Partners Richard R. Pettingill Former President and Chief Executive Offi cer Allina Hospitals and Clinics Byron C. Scott, M.D. Adjunct Faculty University of Massachusetts, Amherst, Isenberg School of Management & Thomas Jefferson University, Jefferson College of Population Health Suzanne Winter President, Chief Executive Offi cer and Director Accuray Incorporated Accuray common stock is traded on the Accuray common stock is traded on the NASDAQ stock market under symbol “ARAY”. CORPORATE HEADQUARTERS ACCOUNTING FIRM ACCOUNTING FIRM ACCOUNTING FIRM ACCOUNTING FIRM ACCOUNTING FIRM Grant Thornton LLP San Jose, CA 95113 INQUIRIES 1310 Chesapeake Terrace Sunnyvale, CA 94089 (408) 716-4600 (phone) (408) 716-4601 (fax) www.accuray.com www.cyberknife.com www.tomotherapy.com LEGAL COUNSEL Wilson Sonsini Goodrich & Rosati, P.C. Palo Alto, CA 94304 TRANSFER AGENT Mailing Address: Accuray Incorporated c/o Computershare Investor Services P.O. Box 50500 Louisville, KY 40233-5005 Communications concerning stock transfer requirements, lost certifi cates and changes of address should be directed to the Transfer Agent. Inquiries regarding company fi nancial information should be directed to: Accuray Incorporated Attn: Investor Relations 1310 Chesapeake Terrace Sunnyvale, CA 94089 E-mail: investorrelations@accuray.com ANNUAL REPORT AND FORM 10-K A copy of the company’s 2022 Annual Report on Form 10-K is fi led with the Securities and Exchange Commission and is available, without charge, by calling or writing the company at the address under Inquiries. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (cid:1409)(cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2022 or (cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-33301 ACCURAY INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE (State or Other Jurisdiction of Incorporation or organization) 20-8370041 (I.R.S. Employer Identification No.) 1310 Chesapeake Terrace Sunnyvale, California 94089 (Address of Principal Executive Offices) (Zip Code) Registrants’ telephone number, including area code: (408) 716-4600 Securities registered pursuant to section 12(b) of the Act: Title of Each Class Common Stock, $0.001 par value per share Trading Symbol(s) ARAY Name of Each Exchange on Which Registered The Nasdaq Stock Market LLC Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1407) No (cid:1409) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:1407) No (cid:1409) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:1409) No (cid:1407) Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:1409) No (cid:1407) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:1407) Accelerated filer (cid:1409) Non-accelerated filer (cid:1407) Smaller reporting company (cid:1407) Emerging growth company (cid:1407) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407) Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:1409) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1409) The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based on the last sale price for such stock on December 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter was: $365,403,546. Shares of the registrant’s common stock held by each executive officer, director and 5% stockholder have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of August 9, 2022, the number of outstanding shares of the registrant’s common stock, $0.001 par value, was 93,499,500. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant’s 2022 Annual Meeting of stockholders (the “2022 Proxy Statement”) are incorporated by reference in Part III of this Form 10-K. ACCURAY INCORPORATED YEAR ENDED JUNE 30, 2022 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS 2  PART I Page No Item 1. Business .......................................................................................................................................................... 6 Item 1A. Risk Factors ................................................................................................................................................. 31 Item 1B. Unresolved Staff Comments ........................................................................................................................ 72 Item 2. Properties ........................................................................................................................................................ 72 Item 3. Legal Proceedings ........................................................................................................................................... 72 Item 4. Mine Safety Disclosures ................................................................................................................................. 72 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities …………………………………………………………………………………………………………….. 73 Item 6. [RESERVED] .................................................................................................................................................. 74 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................... 75 Item 7A. Quantitative and Qualitative Disclosure About Market Risk ........................................................................ 93 Item 8. Financial Statements and Supplementary Data ................................................................................................ 95 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......................... 139 Item 9A. Controls and Procedures ................................................................................................................................ 139 Item 9B. Other Information .......................................................................................................................................... 140 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .......................................................... 140 PART III Item 10. Directors, Executive Officers and Corporate Governance ............................................................................ 142 Item 11. Executive Compensation ............................................................................................................................... 142 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ..... 142 Item 13. Certain Relationships and Related Transactions, and Director Independence .............................................. 142 Item 14. Principal Accountant Fees and Services ........................................................................................................ 142 Item 15. Exhibits and Financial Statement Schedules ................................................................................................. 143 Item 16. Form 10 K Summary ..................................................................................................................................... 151 Signatures ....................................................................................................................................................... 152 PART IV 3 We own or have rights to various trademarks and tradenames used in our business in the United States or other countries, including the following: Accuray®, Accuray Logo®, CyberKnife®, Hi-Art®, RoboCouch®, Synchrony®, TomoTherapy®, Xsight®, Accuray Precision®, AutoSegmentation™, CTrue™, H™ Series, iDMS®, InCise™, Iris™, CyberKnife M6™ Series, Accuray OIS Connect™, PreciseART®, PreciseRTX®, Treatment Planning System™, TomoDirect™, TomoEDGE™, TomoH®, TomoHD®, TomoHDA™, TomoHelical™, TomoTherapy Quality Assurance™, Radixact®, Onrad ™, S7™, and VoLO™. 4 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding expectations and beliefs regarding the effect of the COVID-19 pandemic and the related responses of governments and private industry on our operations and financial results as well as the markets and industry in general; future revenues and expenses; our sales, distribution and marketing efforts; reimbursement rates and its effects on our business; regulatory requirements, including our compliance with applicable regulations; future orders; the radiation therapy market; expectations regarding the economic impact of cancer; our strategy; our products and offerings, including their capabilities and benefits and anticipated benefits to patients and physicians; the factors that contribute to the long-term success of our products; our suppliers and manufacturing facilities; our intellectual property rights; the expected impact of changes in laws and regulations, including regulatory and tax laws; our expectations regarding litigation matters; our expectations regarding future capital requirements; our expectations regarding our liquidity and capital resources; our earnings or other financial results; our expectations regarding new products and features; our expectations regarding our joint venture with CNNC High Energy Equipment (Tianjin) Co., Ltd (the “JV”); our expectations regarding our debt, including our outstanding convertible notes and credit facility; our expectations regarding the effects of foreign currency fluctuations; and other statements using words such as “anticipates,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “seek,” “should,” “will” and “would,” and words of similar import and the negatives thereof. Accuray Incorporated (“we,” “our,” or the “Company”) has based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Factors that could contribute to such differences include, but are not limited to, those discussed under “Risk Factors” in Part I, Item 1A of this report. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to business and economic risks. We undertake no obligation to update or revise any forward-looking statements to reflect any event or circumstance that arises after the date of this report except as required by applicable law. 5 Item 1. BUSINESS The Company PART I Accuray Incorporated is 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 solutions are designed to advance patient care: during each individual treatment, throughout the treatment process, and at each stage of the cancer treatment journey, from curative to palliative treatments. Our solutions: • Novel artificial intelligence driven radiation therapy systems that automatically adapt treatment delivery for targets that move, synchronizing the radiation beam with the target’s motion in real-time throughout treatment delivery. • Powerful treatment planning software and optimizer reduces the time to create high quality treatment plans and the time it takes to deliver patient treatments as compared to the prior planning software, so clinicians can treat more patients each day. • One-of-a-kind imaging solution designed to produce exceptional diagnostic-like quality CT images, quickly and cost-effectively. • Automated tools help to identify the interfraction changes for which re-planning is clinically beneficial and facilitate adaptation of the radiation dose precisely to the patient’s tumor. • Distinctive software accelerates and automates the re-planning process to make re-treatment of a previously irradiated area more efficient for practices and more effective for patients. 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 neurosurgeons specializing in radiosurgery to treat patients with tumors in the brain and spine, and neurologic disorders. 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. We were incorporated in California in 1990 and commenced operations in 1992. We reincorporated in Delaware in 2007. Our principal offices are located at 1310 Chesapeake Terrace, Sunnyvale, CA 94089, and our telephone number is (408) 716-4600. 6 In March 2020, the World Health Organization declared the outbreak of a strain of coronavirus, SARS-CoV-2, which causes novel coronavirus disease 2019 (“COVID-19”) pandemic. The COVID-19 pandemic has had, and continues to have widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. Federal and state governments implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of non-essential businesses, and, while there has been some reopening and reduction of restrictions, the emergence of new variants and increased cases has led to the reimplementation of restrictions in many areas. To protect the health and well-being of our employees, suppliers, and customers, we have 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 calendar year 2022. The COVID-19 pandemic has impacted and may continue to impact our business operations, including our employees, customers and partners, and there is substantial uncertainty in the nature and degree of its continued effects over time. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part II, Item 7 of this Form 10-K) for further discussion regarding the impact of the COVID-19 pandemic on our fiscal year 2021 and 2022 financial results. Market Overview Despite significant improvements in cancer diagnosis and treatment, cancer rates continue to increase globally and remain a leading cause of death. According to the World Health Organization, cancer is one of the leading causes of death globally and was responsible for nearly 10 million deaths in 2020. Globally, about 1 in 6 deaths are due to cancer, and the economic impact of cancer is significant and is expected to increase. The total annual economic cost of cancer in 2017 was estimated at approximately $1.16 trillion. In addition, while the real impact of the COVID-19 pandemic on cancer prevention, diagnosis and treatment will not be known for many years, the American Cancer Society (“ACS”) anticipates that decreased resources and access to care will result in “lower incidence (in 2020), higher mortality and decreased survival in the future.” Cancers can be broadly divided into two groups: solid tumor cancers, which are characterized by the growth of malignant tumors within the body in areas such as the brain, lung, liver, breast or prostate, and hematological, or blood-borne cancers, such as leukemia. The most common causes of cancer deaths are cancers of lung, liver, colorectal, stomach and breast. The ACS estimates that solid tumor cancers will account for approximately 1.6 million, or approximately 92% of new cancer cases diagnosed annually. Traditional methods for the treatment of solid tumor cancers include chemotherapy, surgery and radiation therapy. The most common type of radiation therapy is external beam radiation therapy, in which patients are treated with high-energy radiation generated by medical equipment external to the patient. The global radiotherapy equipment and software market has three main segments: Linear Accelerators (linacs), Treatment Planning Systems, and Radiation Therapy Simulators. Approximately 50% to 60% of cancer patients worldwide will undergo some form of radiation therapy during the course of their treatment. While radiation therapy is widely available in the United States and Western Europe, many developing countries currently do not have a sufficient number of linacs to adequately treat their domestic cancer patient populations. We believe increasing demand for advanced medical treatments in many international markets and growth in cancer incidences worldwide will continue to drive demand for linacs with more sophisticated capabilities in the coming years. Emerging markets are especially underequipped with external beam radiation therapy systems. According to a publication called the Lancet Oncology Commission in 2015, radiation therapy is required in more than half of the newly diagnosed cancer patients. There was an estimated shortage of over 15,000 linacs globally in 2015, expected to grow to over 21,000 by 2035. This gap is most pronounced in low and middle income countries, where only 10% of patients have access to radiotherapy. China alone is estimated to have a shortfall of over 5,000 systems because of increasing cancer incidence and an aging population that is estimated to more than double by 2040. 7 Radiation Therapy Radiation therapy uses high-energy X-rays (photons) to destroy cancer cells and shrink or control the growth of tumors. Radiation therapy works by exposing clusters of cancer cells, or tumors, to a dose of high energy radiation sufficient to cause cell death and prevent cells from multiplying. During external beam radiation therapy, the clinician’s goal is to target radiation delivery to the tumor as precisely as possible in order to maximize the radiation dose delivered to cancerous tissue and minimize the exposure of healthy tissue. Recent advances in radiation therapy technologies have allowed clinicians to further improve the ability to target the radiation dose more precisely at cancer cells while minimizing the exposure of healthy tissue. These advances include the following: Intensity-modulated radiation therapy. Intensity-modulated radiation therapy (IMRT) involves varying, or modulating, the radiation beam intensity across the treatment area. This technique aims to conform the high dose region of the radiation beam more closely with the shape of the tumor, enabling the delivery of higher doses of radiation to tumors with a reduced impact on surrounding healthy tissue. Image-guided radiation therapy. Image-guided radiation therapy (IGRT) involves delivering radiation guided by images of the treatment area taken shortly before and/or during treatment using CT scan, X-ray, ultrasound or other imaging technologies. By combining imaging with radiation treatment, clinicians can adjust the patient’s position relative to the radiation source prior to each treatment to target the tumor more precisely. Today, IGRT is very often combined with IMRT. Stereotactic Radiosurgery and Stereotactic Body Radiation Therapy. Radiosurgery is a form of radiation therapy that uses precisely targeted high doses of radiation to destroy tumors. Radiosurgery is non-invasive; there is no incision involved. Stereotactic radiosurgery (SRS) and stereotactic body radiation therapy (SBRT) both provide a high degree of targeting accuracy with very high doses of extremely precise, externally delivered radiation, thereby maximizing the cell-killing effect on the tumor(s) while minimizing the radiation dose to nearby healthy tissue. SRS and SBRT are advanced external beam radiation treatment techniques used to deliver (ultra) hypofractionated radiation therapy. SRS is used to treat conditions within the brain, while SBRT is commonly used to treat tumors outside the brain. SRS and SBRT typically involve the delivery of a single high-dose radiation treatment or a few fractionated radiation treatments (usually up to five) to ablate (destroy) the tumor. To achieve the accuracy and precision required for both SRS and SBRT, image guidance during treatment, the ability to adjust the aim of the beam in real-time to correct for tumor motion, and a wide range of beam angles, are critical for treatment. Adaptive radiation therapy. Adaptive radiation therapy (ART) involves adjusting a patient’s radiation therapy plan during or between fractions to account for changes in the patient’s anatomy, the amount and location of the radiation received by the patient, and the size, shape and location of the tumor. While there is no widely accepted definition of adaptive radiation therapy, it has been characterized to include as little as an adjustment to the physical position of the patient relative to the radiation source prior to treatment, as occurs during IGRT, rather than an adjustment to the treatment plan. Our approach is based on the belief that adaptive radiation therapy requires monitoring and adjustments to the treatment plan facilitated by both the regular acquisition of updated quantitative images showing the location, size, and shape of the tumor, and verification of the radiation dose received by the patient throughout the entire course of treatment. Hypofractionation. Hypofractionation involves the delivery of higher doses of radiation per fraction over fewer total fractions than are used in conventional radiation therapy. Hypofractionated radiation therapy has been proven to deliver clinical outcomes as good as conventional fractionation, while dramatically reducing both the number of treatments and the total cost of care. The advent of innovative technological features in radiation therapy treatment planning and delivery has enabled clinicians to maximize the radiation dose administered to tumors in the patient, improving local tumor control and, in some cases, improving patient survival rates. Patients, too, benefit from the efficiency of hypofractionated radiation therapy. Fewer treatments mean fewer clinical visits and a faster return to family, friends and other aspects of life. Hypofractionation is used most frequently in clinical applications where the radiobiology is appropriate for fewer fractions of higher doses, including the breast. 8 Despite advances in radiation therapy techniques, most commercially available radiation therapy systems from other manufacturers still present significant limitations that restrict clinicians’ ability to provide the most precise treatment possible. These limitations include: (cid:120) Limited versatility and precision. The C-arm configuration of traditional radiation therapy systems has limitations because of its size and mechanical structure. C-arm linac architecture is constrained to delivering radiation in a single plane (coplanar) and a single isocenter thus limiting its radiation delivery capability for complex and advanced cases. Additionally, most previously existing multi-leaf collimators (MLCs), which modulate or shape the radiation beams, have mechanical limitations that reduce their beam-shaping ability and the speed at which they operate. These design elements limit the motion and dynamic range of IMRT intensities capable of being delivered by traditional radiation therapy systems and often make it challenging to achieve the precision needed to maximize dose to the tumor while minimizing damage to surrounding healthy tissue and potential associated side effects. Such imprecision may prevent clinicians from treating tumors near sensitive anatomic structures, such as the eye or the spinal cord, or from re-treating patients in an area of the body that was previously exposed to radiation and may be unable to tolerate additional exposure. (cid:120) Limited ability to provide high-fidelity images. Precise radiation therapy requires frequent images that accurately depict the size, shape and location of the tumor with no or little distortion of anatomic shapes. Many traditional radiation therapy systems use imaging technologies that are not able to generate a quantitative assessment of the patient’s and/or target volume’s position. The lack of quantitative imaging prevents clinicians from understanding the actual amount of radiation that was received by tissue within the patient’s body. Since it is common for internal organs to shift and for the size of the tumor to change during the course of treatment, failure to adapt the plan throughout the course of treatment may result in a portion, or potentially all, of the radiation dose missing the tumor and instead being absorbed by healthy tissue. (cid:120) Failure to integrate multiple functions. The basic architecture for traditional radiation therapy systems pre-dates many recent advances that enable integrated imaging, treatment planning, dose verification or quality assurance capabilities necessary for more advanced treatment protocols. Some conventional systems have been subsequently adapted to include certain elements of this functionality by incorporating modular add-on devices to legacy linac designs. These separate modular components can provide imaging, treatment planning, quality assurance procedures or post-treatment analysis functionality. However, this add-on architectural approach can have safety, accuracy, and workflow implications because of the manual methods used for checking proper system operation. Development of Radiosurgery Advanced radiation therapy systems designed to deliver radiosurgery or stereotactic body radiation therapy differ from traditional radiation therapy systems in that they are designed to deliver a very high cumulative dose of radiation, in a single or a small number of treatments precisely targeted at the tumor rather than at a region that consists of the tumor plus healthy tissue that surrounds the tumor area. The more accurate delivery of radiation allows higher doses to be delivered, increasing the probability of tumor cell death and better local control. In addition, radiosurgery can be administered to patients who have inoperable or surgically complex tumors, or who may prefer a clinically effective, non-surgical treatment option. Our Strategy Our goal is to develop equipment and technology that enable physicians to deliver precise and accurate, customized, leading-edge treatments that help patients with cancerous or benign tumors, or neurologic disorders, get back to living their lives, faster. We endeavor to achieve this goal by expanding the clinical options for healthcare providers, helping them offer the best radiation treatment for each patient and by providing patients with treatment tailored to their specific needs. Our vision is to expand the curative power of radiation therapy to improve as many lives as possible. We believe our current technologies and our future innovations can help to achieve this. Some of the key elements of our strategy include the following: 9 Increase physician adoption and patient awareness to drive utilization. We are continually working to increase adoption and awareness of our systems and demonstrate their advantages over other treatment methods, including more conventional approaches. We hold and sponsor symposia and educational meetings and support clinical studies to demonstrate the clinical benefits of our systems. We regularly meet with clinicians to educate them on the expanded versatility that our systems offer in comparison to more traditional radiation therapy products or surgery. We are continuously expanding our digital and social presence to reach and educate a broader audience of physicians and patients. To support awareness of all our product offerings, we assist our customers with increasing patient awareness in their communities by providing them with tools to develop marketing and educational campaigns. Continue to expand the radiosurgery market. The CyberKnife System is a robotic radiosurgery system capable of treating tumors throughout the body. There are now over 1,900 peer reviewed publications supporting use of the CyberKnife System in the treatment of various targets, including cancers, benign tumors, or functional diseases. Radiosurgery is a commonly used procedure among neurosurgeons, specializing in radiosurgery, who require the high level of precision found with surgery yet want to offer their brain tumor patients a non-invasive option. With more than two decades of clinical evidence, the CyberKnife System offers distinct advantages in the treatment of diseases in the head, base of the skull, and spine. These areas of the body require extremely accurate treatment because of the proximity of the tumors to critical structures that may impact a person’s ability to perform basic functions and to think, see, hear and walk. Continue to innovate through clinical development and collaboration. The clinical success of our products is largely the result of the collaborative partnerships we have developed over the last decade with clinicians, researchers and patients. We proactively seek out and rely on constructive feedback from system users to learn what is needed to enhance the technology. As a result of this collaborative process, we continually refine and upgrade our systems, thereby improving our competitive position in the radiation therapy and radiosurgery markets. Upgrades to our systems are designed to address customer needs in the areas of improving the ease of use and accuracy of treatment, decreasing treatment times, and improving utilization for specific types of tumors. Expand sales in international markets. We intend to continue to increase our sales and distribution capabilities outside of the United States to take advantage of the large international opportunity for our products. Outside of the United States, we currently have regional offices in Morges, Switzerland, Hong Kong, China, Shanghai, China and Tokyo, Japan and direct sales staff in most countries in Western Europe, Japan, India and Canada. Combined with distributors in Eastern Europe, Russia, the Middle East, the Asia Pacific region, and Latin America. However, many of these countries are not highly developed at this time and therefore sales opportunities may be limited. We intend to increase our international revenue by focused additions of direct sales personnel in targeted areas to further penetrate our most promising international markets, and additional distributors strategic partnerships, or joint ventures, where opportune. 10 Strategic partnerships and joint ventures. . We intend to pursue strategic partnerships and joint ventures we believe will allow us to complement our growth strategy, increase sales in our current markets and expand into adjacent markets, broaden our technology and intellectual property, and strengthen our relationships with our customers. In fiscal 2016, we signed an agreement with RaySearch Laboratories AB, which led to the integration of treatment planning support for the TomoTherapy, Radixact and CyberKnife Systems in the RayStation treatment planning system (TPS). In fiscal 2017, we signed an agreement with Photo Diagnostic Systems, Incorporated to enhance image quality of our TomoTherapy System through an enhanced tomographic reconstruction software. In fiscal 2019, our 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. Ltd. (the “JV”), to manufacture and sell radiation oncology systems in China. In fiscal 2021, we announced a collaboration with Brainlab to enhance and expand the CyberKnife platform’s capabilities for the neuro- radiosurgery market. In fiscal 2022, we signed an agreement with C-RAD to provide customers with a solution for deep inspiration breath hold (DIBH) using the C-RAD Catalyst+ HD and Radixact System and with Limbus AI to augment Accuray adaptive radiotherapy capabilities by leveraging Limbus’ artificial intelligence (AI)-driven autocontouring algorithms, which is expected to enable automated contouring to further streamline the treatment planning process. Our Products From oncology to radiosurgery and beyond, our solutions enable clinicians to deliver shorter, more personalized, and more effective treatments. Our suite of radiation delivery devices includes the CyberKnife System and our next generation TomoTherapy platform, the Radixact System. In addition, our portfolio includes comprehensive software solutions to enable and enhance the precise and efficient radiotherapy treatments with our advanced delivery systems. The CyberKnife Platform The CyberKnife platform is the only robotic, full-body stereotactic radiosurgery (SRS) and stereotactic body radiation therapy (SBRT) delivery device on the market. The latest generation is the CyberKnife S7 System, which combines speed, advanced precision, and real-time artificial intelligence (AI)-driven motion tracking and synchronized treatment delivery for all SRS and SBRT treatments, in as little as 15 minutes. The platform is designed to treat cancerous and benign tumors throughout the body, as well as neurologic disorders. 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 are performed on an outpatient basis in a limited number of treatment sessions - typically 1-5 fractions. They enable the treatment of patients who might not otherwise be treated with radiation, who may not be good candidates for surgery, or who desire a non-surgical treatment option. The CyberKnife S7 System is available for sale in most major markets globally. The system includes disease- specific tracking and treatment delivery solutions for brain, spine, lung and prostate tumors, improvements in treatment speed as compared to earlier systems, more options to configure the treatment room, and expanded number of nodes leading to more coverage and minimizing dose to healthy tissue. The CyberKnife S7 System has the option of fixed collimators plus the Iris Variable Aperture Collimator and/or InCise MLC. With the addition of the InCise MLC, the system enables the treatment of larger tumors that were previously thought untreatable with radiosurgery and SBRT. The InCise MLC and IMRT planning tools enable expansion of indications that can be treated with a CyberKnife platform to include many IMRT indications. Using our Synchrony® real-time target tracking with dynamic delivery technology and computer controlled robotic mobility, the CyberKnife platform is designed to deliver radiation from a wide array of beam angles and autonomously track, detect and correct for even the slightest tumor and patient movement in real-time throughout the entire treatment. This design is intended to enable the CyberKnife platform to deliver high-dose radiation with precision and accuracy, which minimizes damage to surrounding healthy tissue and eliminates the need for invasive head or body immobilization frames. 11 We believe the CyberKnife platform offer clinicians and patients the following benefits: The only truly robotic system in the market. The CyberKnife platform features a compact linear accelerator mounted on a highly maneuverable robotic arm that moves around the resting patient while delivering isocentric or non-isocentric, non coplanar treatment radiation beams from potentially thousands of unique angles, tailoring radiation delivery to minimize dose to healthy tissue while maintaining sub millimeter accuracy and precision even for targets that move during treatment. We believe the CyberKnife platform is the clinical solution to choose when accuracy, flexibility, speed, and patient comfort are essential. Treatment of inoperable or surgically complex tumors. The CyberKnife platform may be used to target tumors that cannot be easily treated with traditional surgical techniques because of their location, number, size, shape or proximity to vital tissues or organs, or because of the age or health of the patient. The CyberKnife platform’s intelligent robotics enable the precise targeting of a tumor, while at the same time minimizing damage to surrounding healthy tissue. Treatment of tumors throughout the body. The CyberKnife platform has been cleared by the FDA to provide treatment planning and image-guided radiation treatment for tumors anywhere in the body where radiation treatment is indicated. By comparison, traditional frame-based radiosurgery systems are generally limited to treating brain tumors and use cobalt 60 radioactive material, which decays over time and is difficult to replace. The CyberKnife platform is being used for the treatment of primary and metastatic tumors outside the brain, including tumors on or near the spine and in the breast, kidney, liver, lung, pancreas and prostate, in addition to tumors in the brain, with the same sub-millimeter accuracy in every disease site. Real-time tracking of tumor movement. The CyberKnife platform is designed to accommodate all forms of patient and tumor motion, even while the treatment is being delivered. With the Accuray-exclusive Synchrony® artificial intelligence (AI)-driven tumor tracking with dynamic delivery technology, the CyberKnife platform enables smaller treatment margins around the tumor, minimizing the amount of healthy tissue exposed to high-dose radiation. Significant patient benefits. The CyberKnife platform maximizes patient comfort. Patients may be treated with the CyberKnife platform on an outpatient basis without anesthesia and without the risks and complications inherent in traditional surgery. Patients do not require substantial pretreatment preparation, and typically there is little to no recovery time or hospital stay associated with CyberKnife platform’s treatments. In addition, the CyberKnife platform eliminates the need for an invasive rigid frame to be screwed into the patient’s skull or affixed to other parts of the body, or for trained breath holding or gating instruments. Additional revenue generation through increased patient volumes. We believe clinical use of the CyberKnife platform allows our customers to effectively treat patients where extreme precision and ability to account for motion are important, and patients who otherwise would not have been treated with radiation or who may not have been good candidates for surgery. 12 Upgradeable modular design. The CyberKnife platform has a modular design that facilitates the implementation of upgrades that often do not require our customers to purchase an entirely new system to gain the benefits of new features. We continue to work to develop and offer new clinical capabilities enhancing ease of use, reducing treatment times, improving accuracy and improving patient access. The main components and options of the CyberKnife platform include: compact X-band linear accelerator; robotic manipulator, real-time image-guidance system with continuous target tracking and correction; X-ray sources; image detectors. Key features of the main components include: Robotic manipulator arm. The robotic manipulator arm, with six-degrees-of-freedom range of movement, is designed to move around the patient to position the linac and direct the radiation with an extremely high level of precision and repeatability. The manipulator arm provides what we believe to be a unique method of positioning the linac to deliver doses of radiation from nearly any direction and position, without the limitations inherent in gantry-based systems, creating a non-isocentric composite dose pattern with a high level of conformance to the shape of each treated tumor. This flexibility enhances the ability to diversify beam trajectories and beam entrance and exit points, helping to minimize risks of radiation damage to healthy cells near the tumor. Furthermore, the rapid response time of the manipulator arm allows tracking of tumors that move with respiration. Real-time image-guidance system with continuous target tracking and correction. Without the need for clinician intervention or treatment interruption, Synchrony is designed to enable continuous monitoring and correction for patient and tumor movements throughout each treatment as it is being delivered. Our patented image guidance technology correlates low dose, real time treatment X-rays with images previously taken with a CT scan of the tumor and surrounding tissue to direct each beam of radiation with increased precision versus treatments without this real time feedback. This, in turn, enables delivery of a highly conformal, non-isocentric dose of radiation to the tumor, minimizing radiation delivered to surrounding healthy tissue. Synchrony is the only technology that uses artificial intelligence, through image guidance, to automatically adapt and synchronize the treatment delivery beam position to the target location precisely and accurately during the delivery of a treatment fraction. The beams of radiation are delivered continuously throughout the treatment session as the patient behaves naturally. The Synchrony technology provides what we believe is unsurpassed clinical accuracy for tumors that move with respiration without the need for implanted fiducials. It makes it possible and practical for clinicians to deliver radiation dose with sub-millimeter precision and accuracy, even for tumors that move with respiration. X-ray sources. The low-energy X-ray sources generate the X-ray images that help determine the location of bony or other anatomic landmarks, or implanted fiducials, which are used for tracking throughout the entire treatment. Image detectors. The image detectors capture high-resolution anatomical images throughout the treatment. These live images are continually compared to the patient’s CT scan to determine real-time patient positioning. Based on this information, the robotic manipulator automatically corrects for detected movements. In addition to the main components listed above, we also offer the following components and options: Lung Optimized Treatment; Synchrony Fiducial Tracking with the InTempo Imaging System; RoboCouch Patient Positioning System; Xchange Robotic Collimator Changer; Iris Variable Aperture Collimator; and the InCise MLC. Key features of some of these components are as follows: Synchrony Skull, Spine and Lung Tracking Systems. The Synchrony Skull, Spine and Lung Tacking Systems allow for tracking of tumors without the need for implanted markers in the skull, spine and the lung. Lung Optimized Treatment. An integrated suite of tools that provides a complete fiducial-free clinical solution for lung cancer patients and optimizes non-invasive lung SBRT treatments. InTempo Imaging System. The InTempo Imaging System with the Synchrony Fiducial Tracking System is designed to optimize imaging frequency during prostate treatments, for example, using time-based image guidance to assist with tracking and correcting non-predictable intrafraction target motion. 13 Iris Variable Aperture Collimator. The Iris Variable Aperture Collimator enables delivery of beams in 12 unique sizes with a single collimator, which significantly reduces treatment times and the total radiation dose delivered to the patient. Fixed Collimators. The Fixed Collimators enables delivery of beams in 12 unique sizes with 12 different collimators, usually used for radiosurgery. InCise Multileaf Collimator. The InCise MLC, originally designed for the CyberKnife M6 Series, is also available on the CyberKnife S7 System. It is designed to deliver the same precise SRS and SBRT treatments clinicians expect from the CyberKnife platform, while significantly reducing treatment times. With the InCise MLC, the CyberKnife S7 Series can be used to treat larger and irregular tumors more efficiently. The Radixact System, the Next-Generation TomoTherapy Platform The Radixact System, the next generation TomoTherapy platform, allows for fully integrated radiation treatment planning, delivery and data management, enabling clinicians to deliver ultra-precise treatments to more than 50 patients per day. Additionally, the Radixact System offers two treatment delivery modes - TomoHelical™ and TomoDirect™ - providing flexibility in the types of indications that can be treated with radiation - from the simplest to the most complex cases, multiple tumors and recurrent tumors. The system seamlessly integrates with ClearRT helical kVCT high-fidelity imaging, providing clinicians with an option to produce exceptional diagnostic-like quality CT images, quickly and cost-effectively, to improve patient care. Synchrony on the Radixact System tracks and automatically adapts radiation delivery for targets that move, offering the possibility to decrease margins and hypofractionate treatments while efficiently delivering truly personalized care. We believe the TomoTherapy platform offers clinicians and patients the following benefits: Versatile treatment capabilities. The TomoTherapy platform’s ring gantry architecture enables precise and efficient treatments with a high degree of dose conformity. The high-speed binary MLC is integrated with the linac and consists of 64 individual low leakage tungsten leaves that move across the beam to either block or allow the passage of radiation, effectively modulating and shaping the beam as it is emitted. The combination of the ring gantry and the high-speed MLC enable treatment to be delivered continuously in a 360-degree helical pattern around the patient’s body (which we refer to as TomoHelical). Additionally, the TomoDirect feature provides the TomoTherapy platform with added versatility, enabling the delivery of high quality, fixed angle beams for those cases suited to simple tangential beam radiation delivery. All TomoTherapy platform systems enable an operator to provide non-isocentric 3D conformal radiotherapy (3D CRT), IG- IMRT, or stereotactic treatments within a typical cylindrical volume of 40 centimeters in diameter and up to 135 centimeters in length. This expansive treatment field allows single or multiple tumors, located anywhere in body, to be treated in a single session. The TomoTherapy platform’s versatility, efficiency and precision offer clinicians an extensive range of effective treatment possibilities. Real-time tracking of tumor movement. The Accuray proprietary Synchrony® artificial intelligence (AI)-driven tumor tracking with dynamic delivery technology is a collection of unique hardware and software technologies that enables personalized real-time adaptive delivery of radiation treatment to targets while they are in motion by synchronizing the treatment delivery beam position to the target location precisely and accurately during the delivery of a treatment fraction. Synchrony is the only technology that uses artificial intelligence, through image guidance, to automatically adapt and synchronize the radiation beam to the position of the tumor if and when it moves during treatment. The beams of radiation are delivered continuously throughout the treatment session as the patient behaves naturally. Synchrony can be used on the Radixact System to adapt treatment delivery for tumors that move as a result of bodily processes, including respiration and digestion, as well as patient movement. Synchrony treatments are truly personalized, as delivery is adapted to the individual’s unique movements throughout treatment delivery. If movement changes during treatment, delivery is adapted for that unique change. The Synchrony technology makes it possible and practical for clinicians to deliver radiation dose with accuracy and precision, even for tumors that move. Synchrony helps to maximize treatment effectiveness and minimize dose to surrounding healthy tissue because it accounts for the current and changing conditions of the patient during treatment delivery. 14 Diagnostic-like quality kVCT images enable better identification of tumors, dose verification and treatment planning We recently launched 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. ClearRT delivers enhanced imaging capabilities compared to conventional linear accelerator systems that rely on cone-beam CT (CBCT) imaging and as an alternative to MR-based radiation therapy systems that can be complex and cost prohibitive to use. ClearRT offers excellent uniformity and low noise across the entire image, improved soft tissue visualization and exceptional spatial resolution, which is intended to enhance the versatility and efficiency of the Radixact System in the radiation therapy department. Integrated treatment system for precise radiation delivery. We believe the integration of our proprietary imaging technologies, treatment planning and helical radiation delivery mode enables highly accurate and precise radiation therapy. Our planning software allows clinicians to establish the contours of a tumor and any normal radio- sensitive structures in close proximity to the treatment beam. The TomoTherapy platform uses an intelligent dose optimization algorithm to ensure the radiation beam conforms to the patient’s tumor and minimizes exposure to surrounding healthy tissue structures, providing a highly-targeted and effective dose distribution. These features significantly benefit patients by increasing the radiation delivered to cancerous tissues while minimizing damage to nearby healthy tissues, thus also minimizing side effects. Efficient clinical workflow for Image-Guided Radiation Therapy, or IGRT, and adaptive radiation therapy. The TomoTherapy platform integrates into a single system all of the key elements for radiation therapy, including treatment planning, CT image-guided patient positioning, treatment delivery, quality assurance and adaptive planning. The imaging and treatment planning capabilities of many traditional systems are more modular or require cumbersome add-ons or separate treatment planning systems that result in clinicians taking more steps between scanning, planning and treatment of patients. Conversely, the integrated imaging and treatment features of the Radixact System allows clinicians to scan, plan and treat cancer patients efficiently. Treatment plans as well as daily images can be easily accessed remotely, enabling clinical teams to collaboratively work together, regardless of location, ensuring high quality plan development and delivery. Additionally, ClearRT provides clear, high-fidelity images that is designed to reduce the time required for patient imaging and registration, a crucial part of the treatment delivery process, thereby enabling clinical staff to serve more patients. Also, ClearRT helical kVCT images will be available within the Accuray PreciseART® automated dose trending tool for clinicians to evaluate if plan adaptation would be beneficial, enabling the most personalized patient care. Low barriers to installation and implementation. All external beam radiation systems must be housed in rooms that have special radiation shielding to capture any radiation not absorbed by the patient. The TomoTherapy platform’s size and self-contained design allow customers to retrofit them into existing treatment rooms previously used for legacy radiation therapy systems and avoid, or reduce, the significant construction costs that can be associated with building new, larger treatment rooms, which are often required of other radiation therapy systems. With both imaging and radiation delivery capabilities integrated on a ring gantry, the Radixact System requires less space than other linac systems, which use large moving arms to position the linac or incorporate adjacent imaging equipment used for treatment planning. In addition, because the Radixact System has an integrated radiation beam stop, which shields radiation that passes through the patient, they require less radiation shielding in treatment room walls as compared to traditional systems. We also preassemble, test and commission each Radixact System at our manufacturing facility, and ship the system almost fully assembled. This process typically allows radiation “beam on” within four days after delivery and first patient treatments to begin within 14 to 28 days after delivery. Platform for further technological advancements in adaptive radiation therapy. We believe the Radixact System is uniquely positioned to enable truly adaptive radiation therapy because of its ability to provide daily, quantitative images, high speed delivery of radiation from fixed beam angles or helically from 360 degrees around the body and real time verification of the dose received by the patient. We believe the combination of these design features and our integrated treatment planning and optimization software will allow us to continue to enhance the Radixact System’s adaptive capabilities to enable clinicians to routinely and easily adjust a patient’s treatment as needed, thereby remaining true to the intent of the original treatment plan. 15 In addition to the functionality listed above, the Radixact System may be enhanced with the following product options: TomoDirect Mode and TomoEDGE Delivery. Key capabilities of these options are as follows: TomoDirect Mode. TomoDirect is standard on the Radixact X7 and X9 models. The TomoDirect mode is a discrete angle, non-rotational delivery mode that enables the user to create a treatment plan that defines target-specific gantry angles. Treatment delivery is quickly completed for each beam angle. The TomoDirect mode enables users to plan and treat routine cases with greater efficiency, while achieving the quality of the TomoTherapy platform’s unique beamlet-based delivery. TomoEDGE Delivery. TomoEDGE is standard on the Radixact X7 and X9 models. By dynamically varying the width of the collimator jaws during treatment delivery, dose to normal healthy tissues immediately adjacent to the tumor is reduced, helping to minimize the risk of radiation side effects. Additionally, overall treatment time is shortened because the jaws opening can be effectively tailored to the size of the tumor, enabling more efficient dose coverage. The resulting gains in treatment quality and speed expand the Radixact Systems’ clinical and market reach within the conventional and stereotactic radiotherapy spaces. Our Software Solutions Our Accuray Precision Treatment Planning with iDMS Data Management Systems provide fully integrated treatment planning and data management systems for use with all compatible Accuray delivery platforms. Accuray Precision Treatment Planning. With a streamlined and intuitive interface, Accuray Precision Treatment Planning System enables clinicians to efficiently generate high quality radiation therapy treatment plans for all case types. It is a complete planning solution, including multi-modality image fusion with proprietary deformable image registration algorithm, comprehensive suite of contouring tools, AutoSegmentation auto-contouring options for head and neck, brain, and prostate, side-by-side treatment plan comparison, plan summation and evaluation. It supports treatment plan creation for all case types with TomoHelical, TomoDirect IMRT and 3D CRT planning mode on both Radixact and TomoTherapy Systems enabled with iDMS Data Management Systems. It also supports planning for all case types on CyberKnife platforms, including Frameless Intracranial Radiosurgery, Fiducial-Free Lung Tracking with Dynamic Motion Synchronization, SBRT, for the skull, spine, abdomen and pelvis, as well as IMRT. It provides fast and accurate dose computation engines for both Accuray platforms, including Monte Carlo dose calculation for the CyberKnife InCise Multileaf Collimator and VOLO™ Technology for the CyberKnife, Radixact and TomoTherapy Systems. The VOLO solution features high-speed parallel processing for both dose calculation and optimization that empowers clinicians to create highly customized treatment plans in less time, with greater flexibility to work interactively and in real time to efficiently develop the best IMRT treatment plans for even the most complex cases. The Accuray Precision Treatment Planning System can be further enhanced with optional advanced capabilities described below: PreciseART Adaptive Radiation Therapy Option. The PreciseART Radiation Therapy Option extends adaptive radiotherapy possibilities, delivering an entirely new level of system integration and workflow automation for Radixact and other TomoTherapy Systems compatible with iDMS. The PreciseART Option enables clinicians to monitor patient treatment and efficiently adapt plans, helping clinics of all sizes deliver more precise treatments to more patients. It offers automated processing of daily imaging to enable clinicians to monitor all patients and set protocol-specific action levels to flag cases for review and possible plan adaptation. The PreciseART software's streamlined re-planning capabilities leverage full integration of treatment delivery, planning and database systems to allow clinicians to efficiently generate new treatment plans based on previous plan data. It also maintains the integrity of original treatment plans to ensure tumor coverage, preserve Organ-At-Risk (OAR) doses and reduce toxicity. We believe our PreciseART software is the only practically usable adaptive therapy solution available to the mainstream radiation therapy market. PreciseRTX Retreatment Option. The PreciseRTX Retreatment Option makes retreatment planning more efficient and effective. The option helps to accelerate and enhance the process of creating new treatment plans for patients who have received previous irradiation. The workflow includes importation of patient dose data, from either Accuray or non Accuray planning systems, automatic deformation of original plan contours onto a new treatment planning CT, automatic deformation of previously delivered dose onto a new planning CT, generation of the re- 16 treatment plan based on the information from existing plan and summation of the original and new treatment plans to review the total dose. Accuray iDMS Data Management System. Accuray iDMS creates a centralized platform for storing and managing all patient and treatment plan data. Designed to integrate with a wide range of technologies and systems, iDMS enables users and applications to securely and seamlessly access the data they need to drive efficient, informed, effective treatment. Information for patients to be treated or previously treated on any iDMS compatible Accuray platform will be maintained as a single treatment record, providing the flexibility to treat patients on any available Accuray platform compatible with iDMS. It can manage users and privileges to control patient data access. It supports the Storage Vault option, which can safely maintain years of encrypted patient data. It also offers customizable report generation of patient, plan and treatment system with Report Administration Application. In addition, the Accuray iDMS enables connectivity between Accuray platforms with other systems in radiation oncology departments, encompassing the entire radiotherapy workflow. iDMS offers several key capabilities: OIS Connect Option. The OIS Connect software option is a DICOM standard-based solution that provides the ability to interface all iDMS enabled Accuray platform to a compatible Oncology Information System (OIS). This integration with electronic medical record generates a comprehensive export of the radiotherapy treatment history delivered using Accuray platforms. Total Quality Assurance (TQA™) package. The TQA application offers trending and reporting of many systems and dosimetric parameters that allow physicians to monitor the performance of their TomoTherapy platforms. Delivery Analysis™. Delivery Analysis is a software option for the TomoTherapy platform that enables easy pretreatment patient QA. The software also offers an innovative capability to monitor doses throughout the patient treatment using detector signals to ensure that the patient is receiving the expected dose from treatment to treatment. Delivery Analysis provides both high level analytics for summary display as well as detailed analysis capability. Sales and Marketing In the United States, we primarily market to customers directly through our sales organization, and we also market to customers through sales agents and Integrated Delivery Networks (IDNs). Outside the United States, we market to customers directly and through distributors. We have sales and service offices in Europe, Japan, China, and other countries in Asia, Latin America, and throughout the world. In direct sales markets, we employ a combination of territory sales managers, product specialists, training specialists and marketing managers. Territory sales managers and product specialists are responsible for selling the systems to hospitals and stand-alone treatment facilities. Our marketing managers help market our current products and work with our engineering group to identify and develop upgrades and enhancements for our suite of products. Our training specialists train radiation oncologists, surgeons, physicists, dosimetrists and radiation therapists. We market our products to radiation oncologists, neurosurgeons, general surgeons, oncology specialists and other referring physicians in hospitals and stand-alone treatment facilities. We intend to continue to increase our focus on marketing and education efforts to surgical specialists and oncologists responsible for treating tumors throughout the body and are also working closely with hospital administrators to demonstrate the economic benefits of our offering. Our marketing activities also include efforts to inform and educate patients with cancerous or benign tumors, or neurologic disorders, about the benefits of the CyberKnife and TomoTherapy platforms. Under our standard distribution agreement, we generally appoint a distributor for a specific country. We typically also retain the right to distribute the CyberKnife and TomoTherapy platforms in such territories, though we remain bound by certain agreements entered into by TomoTherapy prior to our acquisition that did not retain such rights in certain jurisdictions. In most territories, our distributors generally provide the full range of service and sales capabilities, although we may provide installation and service support for certain distributors. In China, our joint venture in China (the “JV”) has begun selling our products, much like a distributor. In the long term, we anticipate that the JV will manufacture and sell a locally branded “Made in China” radiotherapy device in the Class B license category, which would replace our current offering in that category. We believe this strategy will allow us to best maximize both near and longer-term opportunities in China. 17 Manufacturing We purchase major components for each of our products from outside suppliers, including the robotic manipulator, treatment couches, gantry, magnetrons and computers. We closely monitor supplier quality, delivery performance and conformance to product specifications, and we also expect suppliers to contribute to our efforts to improve our manufacturing cost and quality. Some of the components are obtained from single-source suppliers. These components include the couch, magnetron and solid state modulator for the TomoTherapy platform and the robot, couch, and magnetron for the CyberKnife platform. In most cases, if a supplier was unable to deliver these components, we believe we would be able to find other sources for these components subject to any regulatory qualifications, if required. In the event of a disruption in any of these suppliers’ ability to deliver a component, we would need to secure a replacement supplier. Additionally, any disruption or interruption of the supply of key subsystems could result in increased costs and delays in deliveries of our treatment systems, which could adversely affect our reputation and results of operations. To help mitigate these risks, we negotiate long-term supply contracts or submit long-term orders and forecasts to our single-source suppliers with the goal that our demand can be satisfied and any capacity problem can be mitigated. Currently, we manufacture our CyberKnife and TomoTherapy platforms in Madison, Wisconsin. We manufacture the linear accelerator for our CyberKnife and TomoTherapy platforms at our Chengdu, China facility. Our facilities employ state-of-the-art manufacturing techniques and equipment. The components manufactured at our Chengdu facility are produced under the International Standard Organization (ISO), 13485:2016 certified quality management systems. The completed medical devices are designed, manufactured, installed, serviced and distributed at our Sunnyvale, Madison and Morges facilities under quality management systems which are compliant to the internationally recognized quality system standard for medical devices ISO, 13485:2016, and the Quality System regulations enforced by the FDA. We believe our manufacturing facilities will be adequate for our expected growth and foreseeable future demands for at least the next three years. The manufacturing processes at our facilities include fabrication, subassembly, assembly, system integration and final testing. Our manufacturing personnel consist of fabricators, assemblers and technicians supported by production engineers as well as planning and supply chain managers. Our quality assurance program includes various quality control measures from inspection of raw material, purchased parts and assemblies through on-line inspection. We have also incorporated lean manufacturing techniques to improve manufacturing flow and efficiency. Lean manufacturing techniques include reducing wasteful and extraneous activities, balancing assembly and test flow, as well as better utilizing production assets and resources. Intellectual Property The proprietary nature of, and protection for, our products, product components, processes and know-how are important to our business. We seek patent protection in the United States and internationally for our systems and other technology where available and when appropriate. We may also in-license the technology, inventions and improvements that we consider important to the development of our business. In addition, we also rely upon trade secrets, know-how, trademarks, copyright protection, as well as confidentiality agreements with employees, consultants and other third parties, to protect our proprietary rights and to develop and maintain our competitive position. As of June 30, 2022, we held exclusive field of use licenses or ownership of approximately 392 U.S. and foreign patents, and approximately 162 U.S. and foreign patent applications. These patents and applications cover various components and techniques incorporated into the CyberKnife and TomoTherapy platforms, or which may be incorporated into new technologies under current development, all of which we believe will allow us to maintain a competitive advantage in the field of radiation therapy systems. We cannot be certain that any patents will be issued from any of our pending patent applications, nor can we be certain that any of our existing patents or any patents that may be granted to us in the future will provide us with protection. We periodically monitor the activities of our competitors and other third parties with respect to their use of intellectual property. 18 Research and Development Continued innovation is critical to our future success. Our current product development activities include projects expanding clinical applications, driving product differentiation, and continually improving the usability, interoperability, reliability, and performance of our products. We continue to seek to develop innovative technologies so that we can improve our products and increase our sales. Some of our product improvements have been discussed above under the heading “Our Products.” Our research activities strive to enable new product development opportunities by developing new technologies and advancing areas of existing core technology such as next generation linear accelerators, adaptive therapy, patient imaging, motion management, or treatment planning capabilities. The modular design of our systems supports rapid development for new clinical capabilities and performance enhancements by generally allowing each subsystem to evolve within the overall platform design. Access to regular product upgrades protects customer investment in the system, facilitates the rapid adoption of new features and capabilities among existing installed base customers, and drives increasing value in our multiyear service plans. These upgrades will generally consist of software and hardware enhancements designed to increase the ease of use of our systems, improve the speed and accuracy of patient treatment and meet other customer needs. A key component of our research and development program is our collaboration with research programs at selected hospitals, cancer treatment centers, academic institutions and research institutions worldwide. Our agreements with these third-party collaborators generally require us to make milestone-based payments during the course of a particular project and often also require that we make up-front payments to fund initial activities. Generally, we obtain non-exclusive worldwide rights to commercialize results from the collaboration with an option to negotiate an exclusive license. For inventions resulting from the collaboration that we own or exclusively license, we generally grant a royalty-free license for the purpose of continuing the institution’s research and development, and from time to time, we also grant broader licenses. Our research collaboration programs include work on clinical protocols and hardware and software developments. We also work with suppliers to develop new components in order to increase the reliability and performance of our products and seek opportunities to acquire or invest in the research of other parties where we believe it is likely to benefit our existing or future products. We have entered into collaboration agreements with a variety of industrial partners within the fields of radiation oncology and medical imaging to provide us with opportunities to accelerate our innovation capability and bring complimentary products and technologies to market. We continue to seek out new partnerships to complement our internal developments and implement our product strategies. Competition The medical device industry in general and the non-invasive cancer treatment field in particular, are subject to intense and increasing competition and rapidly evolving technologies. Because our products often have long development and regulatory approval cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer demands. To compete successfully, we will need to continue to demonstrate the advantages of our products and technologies over well-established alternative procedures, products and technologies, and convince physicians and other healthcare decision makers of the advantages of our products and technologies. Traditional surgery and other forms of minimally invasive procedures, brachytherapy, chemotherapy, immunotherapy, and other drugs remain alternatives or are complementary to treatments delivered with the CyberKnife and TomoTherapy platforms. New product sales in this competitive market are primarily dominated by two companies: Elekta AB (Elekta) and Varian, a Siemens Healthineers company. Some manufacturers of standard linac systems, including Varian and Elekta, have products that can be used in combination with body and/or head frame systems and image-guidance systems to perform both radiosurgical and radiotherapy procedures. Our other competitors include ViewRay Inc. (ViewRay), RefleXion Medical Inc., ZAP® Surgical Systems, and other companies in the radiosurgical and radiation therapy markets. Furthermore, many government, academic and business entities are investing substantial resources in research and development of cancer treatments, including surgical approaches, radiation treatment, MRI-guided radiotherapy 19 systems, proton therapy systems, drug treatment, immunotherapy, gene therapy, and other approaches. Successful developments that result in new approaches for the treatment of cancer could reduce the attractiveness of our products or render them obsolete. Our future success will depend in large part on our ability to establish and maintain a competitive position in current and future technologies. Rapid technological development may render the CyberKnife and TomoTherapy platforms and their technologies obsolete. Many of our competitors have or may have greater corporate, financial, operational, sales and marketing resources, and more experience in research and development than we have. We cannot assume that our competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products or that would render our technologies and products obsolete or less useful. We may not have the financial resources, technical expertise, marketing, distribution or support capabilities to compete successfully in the future. Our competitive position also depends, among other things, on: (cid:120) Widespread awareness, acceptance and adoption of our products by the radiation oncology, cancer therapy and neurosurgery markets; (cid:120) Innovations that improve the effectiveness and productivity of our systems’ treatment processes and enable them to address emerging customer needs; (cid:120) Availability of reimbursement coverage from third-party payors (including insurance companies, governments, and/or others) for procedures performed using our platforms; (cid:120) Inclusion of radiotherapy in countries’ cancer treatment policies as an effective treatment modality; (cid:120) Published, peer-reviewed data supporting the efficacy and safety of our platforms; (cid:120) Limiting the time required from proof of feasibility to routine production; (cid:120) Limiting the time period and cost of regulatory approvals or clearances; (cid:120) The manufacture and delivery of our products in sufficient volumes on time, and accurately predicting and controlling costs associated with manufacturing, installation, warranty and maintenance of the products; (cid:120) Our ability to attract and retain qualified personnel; (cid:120) The extent of our intellectual property protection or our ability to otherwise develop and safeguard proprietary products and processes; (cid:120) Our ability to successfully expand into new and developing markets; (cid:120) Securing sufficient capital resources to expand both our continued research and development, and sales and marketing efforts; and (cid:120) Obtaining and maintaining any necessary United States or foreign regulatory approvals or clearances. Our customers’ equipment purchase considerations typically include reliability, treatment quality, service capabilities, patient throughput, price, payment terms and equipment supplier viability. We believe we compete favorably with our competitors on price and value based upon the technology offered by our platforms. We strive to provide technologically superior products that covers substantially all aspects of radiation therapy to deliver precise treatments with high-quality clinical outcomes that meet or exceed customer expectations. 20 In addition to competition from technologies performing similar functions as our platforms, competition also exists for the limited capital expenditure budgets of our customers. For example, our platforms may compete with other equipment required by a radiation therapy department for financing under the same capital expenditure budget, which is typically limited. A purchaser, such as a hospital or cancer treatment center, may be required to select between the two items of capital equipment. Our ability to compete may also be adversely affected when purchase decisions are based solely upon price, since our products are premium-priced systems due to their higher level of functionality and performance. U.S. Reimbursement In the United States, healthcare providers that purchase capital equipment such as the CyberKnife and TomoTherapy platforms generally rely on government and private third-party payors for reimbursement for the healthcare treatment and services they provide. Examples of these types of payors include Medicare, Medicaid, private health insurance plans, and health maintenance organizations, which reimburse all or a portion of the cost of treatment, as well as related healthcare services. Reimbursement involves three components: coverage, coding and payment. Coverage There are currently no National Coverage Determinations in place under Medicare for treatments provided on a CyberKnife, TomoTherapy, or Radixact platform. Medicare coverage criteria for treatments performed on a CyberKnife, TomoTherapy, or Radixact platform is outlined in Local Coverage Determinations or, in the absence of a formal policy, treatment is covered as long as it is considered reasonable and necessary. The most common indications covered by Medicare in Local Coverage Determinations for radiotherapy are primary and metastatic tumors in the brain, spine, lung, liver, kidney, pancreas, adrenal gland, head and neck, breast, prostate, abdominal and retroperitoneal regions, as well as other cancers that have failed previous treatment. Commercial payor policies vary with respect to coverage for radiotherapy including many of the indications covered by Medicare, though coverage criteria may differ. Coding The codes that are used to report radiosurgery treatment delivery in 2022 for the hospital outpatient department are Current Procedural Terminology (CPT) codes 77372 and 77373 for single fraction intracranial radiosurgery and single fraction extracranial/multi-session radiosurgery/stereotactic body radiation therapy. For freestanding centers, robotic radiosurgery is billed with robotic radiosurgery Healthcare Common Procedural Codes (HCPCs) G0339 and G0340. The non-robotic SRS/SBRT codes 77372 and 77373 are also payable codes in the freestanding site of service for non-robotic SRS/SBRT. In 2022, in the hospital outpatient department, IMRT delivery is billed under CPT code 77385 for simple IMRT and 77386 for complex IMRT. For 3D CRT three codes are used to report simple, intermediate, and complex treatments. 3D-CRT treatments delivered using the TomoTherapy and Radixact Systems are considered complex treatments and reported under the complex 3D-CRT code 77412. In December 2015, the Patient Access and Medicare Protection Act (PAMPA) stopped the IMRT and 3D CRT delivery codes from being implemented and prevented reimbursement reductions in the freestanding center setting through calendar year 2019. Although the payment freeze was set to expire on December 31, 2019, the Centers for Medicare and Medicaid Services (CMS) has continued to recognize these temporary HCPCS G codes in this setting. We expect all valid delivery codes will be recognized by commercial payers. Other codes are used to report treatment planning, dosimetry, treatment management, and other procedures routinely performed for treating radiosurgery or radiotherapy patients. Payment In the United States, most procedures using the CyberKnife, TomoTherapy, and Radixact Systems are performed in the hospital outpatient department. Payment rates under the Medicare fee-for-service methodology are established based on cost data submitted by hospitals. CMS pays separately for ancillary procedures in addition to the delivery of IMRT, 3D CRT, and SRS/SBRT as well as a Comprehensive APC that bundles delivery and some ancillary services for single session cranial radiosurgery. 21 Payment for treatment with CyberKnife and TomoTherapy platforms are also available in the freestanding center setting. In 2022, the primary treatment delivery codes for robotic radiosurgery are priced by the regional Medicare Administrative Contractors. In 2022, it is expected the robotic SRS/SBRT delivery codes will remain contractor priced for providers paid under the traditional fee-for-service methodology. Payment rates for IMRT and 3DRT procedures are set by CMS with adjustments to account for geographic market variations. In July 2019, CMS released a proposed rule titled Medicare Program; Specialty Care Models to Improve Quality of Care and Reduce Expenditures, which includes a new, alternative payment model for radiation oncology services. However, due to several COVID-19 related delays and failure to gain stakeholder consensus, CMS has indefinitely delayed the implementation until future rulemaking. It is unclear as to when or if CMS will implement an alternative payment model for radiation oncology. The federal government reviews and adjust rates annually, and from time to time consider various Medicare and other healthcare reform proposals that could significantly affect both private and public reimbursement for healthcare services, including radiotherapy and radiosurgery, in hospitals and free-standing clinics. In the past, we have seen our customers’ decision-making process complicated by the uncertainties surrounding reimbursement rates for radiotherapy and radiosurgery in the United States. State government reimbursement for services is determined pursuant to each state’s Medicaid plan, which is established by state law and regulations, subject to requirements of federal law and regulations. Foreign Reimbursement Internationally, reimbursement and healthcare payment systems vary from country to country and include single-payor, government-managed systems as well as systems in which private payors and government-managed systems exist side-by-side. In general, the process of obtaining coverage approvals has been slower outside of the United States. Our ability to achieve adoption of our treatment systems, and significant sales volume in international markets, will depend in part on the availability of reimbursement for procedures performed using our products. Regulatory Matters Domestic Regulation Our products and software are medical devices subject to regulation by the FDA, as well as other regulatory bodies. FDA regulations govern the following activities that we perform and will continue to perform to ensure medical products distributed domestically or exported internationally are safe and effective for their intended uses: (cid:120) Product design and development; (cid:120) Document and purchasing controls; (cid:120) Production and process controls; (cid:120) Labeling and packaging controls; (cid:120) Product storage; (cid:120) Recordkeeping; (cid:120) Servicing; (cid:120) Corrective and preventive action and complaint handling; 22 (cid:120) Pre-market clearance or approval; (cid:120) Advertising and promotion; and (cid:120) Product sales and distribution. FDA pre-market clearance and approval requirements. Unless an exemption applies, each medical device we wish to commercially distribute in the United States will require either 510(k) clearance or pre-market approval from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risks are placed in either class I or II, which requires the manufacturer to submit to the FDA a pre-market notification requesting permission to commercially distribute the device, known as 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) devices, are placed in class III, requiring pre-market approval. All of our current products are class II devices requiring 510(k) clearances. 510(k) clearance pathway. When a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device is substantially equivalent to a previously cleared and legally marketed 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for the submission of pre-market approval applications (PMA). By statute, the FDA has targets to clear or deny a 510(k) pre-market notification after 90 days of review from submission of the application. Clearance generally takes longer as the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence. In January 2002, we received 510(k) clearance for the TomoTherapy Hi Art System intended to be used as an integrated system for the planning and delivery of IMRT for the treatment of cancer. In August 2008, we received 510(k) clearance for our TomoDirect System. In June 2016, we received 510(k) clearance for the Radixact Treatment Delivery Platform. We also received 510(k) clearance for our new treatment planning and data management systems, Accuray Precision Treatment Planning System and iDMS Data Management System. In November 2018, we received 510(k) clearance for Synchrony Motion Synchronization and Real-Time Adaptive Radiotherapy Technology for the Radixact System. In July 1999, we received 510(k) clearance for the CyberKnife System for use in the head and neck regions of the body. In August 2001, we received 510(k) clearance for the CyberKnife System to provide treatment planning and image guided stereotactic radiosurgery and precision radiotherapy for lesions, tumors and conditions anywhere in the body where radiation treatment is indicated. In April 2002, we received 510(k) clearance for the Synchrony Motion Tracking System as an option to the CyberKnife System, intended to enable dynamic image guided stereotactic radiosurgery and precision radiotherapy of lesions, tumors and conditions that move under influence of respiration. In October 2012, we received 510(k) clearance for the InCise MLC with clearance from the FDA on July 1, 2015. Pre-market approval (PMA) pathway. A PMA must be submitted to the FDA if the device is not eligible for the 510(k) clearance process. A PMA must be supported by extensive data including, but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate reasonable evidence of the device’s safety and efficacy to the FDA’s satisfaction. Currently, no device we have developed and commercialized has required pre-market approval. Product modifications. After a device receives 510(k) clearance or a PMA approval, it may be changed or modified. Any modification that could significantly affect its safety or effectiveness, or that would constitute a significant change in its intended use, will require a new clearance or approval. Regulations provide that the manufacturer initially determines when a specific modification requires notification to FDA. The FDA has issued draft guidance that, if finalized and implemented, will result in manufacturers needing to seek a significant number of new clearances for changes made to legally marketed devices. The FDA reviews the manufacturer’s decision to file a 510(k) or PMA for modifications during facility audits. 23 We have modified aspects of our CyberKnife and TomoTherapy platforms since receiving regulatory clearance, and we have applied for and obtained additional 510(k) clearances for these modifications when we determined such clearances were required. The FDA may review our 510(k) filing decision, and can disagree with our initial determination. FDA may take regulatory action from requiring new filings to injunction if it disagrees with our determinations not to seek a new 510(k) clearance or PMA approval for modifications. The FDA reviewed and cleared the most recent versions of the CyberKnife System and TomoTherapy platforms, including the Radixact System, in this fiscal year. Pervasive and continuing regulation. After a device is placed on the market, numerous regulatory requirements apply. These include: (cid:120) Quality System Regulation (QSR), which require manufacturers, including third-party manufacturers, to follow stringent design, testing, documentation and other quality assurance procedures during product design and throughout the manufacturing process; (cid:120) Labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses; and (cid:120) Medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Health Services to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of some of our subcontractors. Our Madison facility, where we manufacture the finished TomoTherapy and CyberKnife Systems, was most recently inspected by the FDA in August 2017. The August 2017 inspection resulted in no observations. We believe we are in substantial compliance with the QSR. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions: (cid:120) Fines, injunctions, consent decrees and civil penalties; (cid:120) Recall or seizure of our products; (cid:120) Operating restrictions, partial suspension or total shutdown of production; (cid:120) Refusing our requests for 510(k) clearance or pre-market approval of new products or new intended uses; (cid:120) Withdrawing 510(k) clearance or pre-market approvals that are already granted; and (cid:120) Criminal prosecution. The FDA also has the authority to require us to repair, replace or refund the cost of any medical device that we have manufactured or distributed. If any of these events were to occur, they could have a material adverse effect on our business. Radiological health. Because our CyberKnife and TomoTherapy platforms contain both laser and X-ray components, and because we assemble these components during manufacturing and service activities, we are also regulated under the Electronic Product Radiation Control Provisions of the United States Federal Food, Drug, and Cosmetic Act. This law requires laser and X-ray products to comply with regulations and applicable performance standards, and manufacturers of these products to certify in product labeling and reports to the FDA that their products comply with all such standards. The law also requires manufacturers to file new product reports, and to file annual reports and maintain manufacturing, testing and sales records, and report product defects. Various warning labels must be affixed. Assemblers of diagnostic X-ray systems are also required to certify in reports to the FDA, equipment purchasers, and where applicable, to state agencies responsible for radiation protection, that diagnostic 24 and/or therapeutic X-ray systems they assemble meet applicable requirements. Failure to comply with these requirements could result in enforcement action by the FDA, which can include injunctions, civil penalties, and the issuance of warning letters. Fraud and abuse laws. We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Violations of these laws are punishable by significant criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid. Because of the far-reaching nature of these laws, there can be no assurance that we would not be required to alter one or more of our practices to be in compliance with these laws. Evolving interpretations of current laws or the adoption of new federal or state laws or regulations could adversely affect many of the arrangements we have with customers and physicians. In addition, there can be no assurance that the occurrence of one or more violations of these laws or regulations would not result in a material adverse effect on our financial condition and results of operations. Anti-kickback laws. Our operations are subject to broad and changing federal and state anti-kickback laws. The Office of the Inspector General of the Department of Health and Human Services (OIG) is primarily responsible for enforcing the federal Anti-Kickback Statute and generally for identifying fraud and abuse activities affecting government programs. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration directly or indirectly to induce either the referral of an individual, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. “Remuneration” has been broadly interpreted to include anything of value, including such items as gifts, discounts, the furnishing of supplies or equipment, credit arrangements, waiver of payments, and providing anything of value at less than fair market value. Penalties for violating the federal Anti-Kickback Statute include criminal fines of up to $25,000 and/or imprisonment for up to five years for each violation, civil monetary penalties, which could result in treble damages plus fines of up to $50,000 for each violation, and possible exclusion from participation in federal healthcare programs such as Medicare and Medicaid. Many states have adopted prohibitions similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not only by the Medicare and Medicaid programs, and do not include comparable exceptions. The OIG has issued safe harbor regulations which set forth certain activities and business relationships that are deemed safe from prosecution under the federal Anti-Kickback Statute. There are safe harbors for various types of arrangements, including, without limitation, certain investment interests, leases and personal services and management contracts. The failure of a particular activity to comply in all regards with the safe harbor regulations does not mean that the activity violates the federal Anti-Kickback Statute or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. The OIG has identified the following arrangements with purchasers and their agents as ones raising potential risk of violation of the federal Anti-Kickback Statute: (cid:120) Discount and free good arrangements that are not properly disclosed or accurately reported to federal healthcare programs; (cid:120) Product support services, including billing assistance, reimbursement consultation and other services specifically tied to support of the purchased product, offered in tandem with another service or program (such as a reimbursement guarantee) that confers a benefit to the purchaser; (cid:120) Educational grants conditioned in whole or in part on the purchase of equipment, or otherwise inappropriately influenced by sales and marketing considerations; (cid:120) Research funding arrangements, particularly post-marketing research activities, that are linked directly or indirectly to the purchase of products, or otherwise inappropriately influenced by sales and marketing considerations; and 25 (cid:120) Other offers of remuneration to purchasers that are expressly or impliedly related to a sale or sales volume, such as “rebates” and “upfront payments,” other free or reduced-price goods or services, and payments to cover costs of “converting” from a competitor’s products, particularly where the selection criteria for such offers vary with the volume or value of business generated. We have a variety of financial relationships with physicians who are in a position to generate business for us. For example, physicians who own our stock also provide medical advisory and other consulting or collaboration services. Similarly, we have a variety of different types of arrangements with our customers. In the case of our former placement program, certain services and upgrades were provided without additional charge based on procedure volume. In the past, we have also provided loans to our customers. We also provide research or educational grants to customers to support customer studies related to, among other things, our CyberKnife and TomoTherapy platforms. If our past or present operations are found to be in violation of the federal Anti-Kickback Statute or similar government regulations to which we or our customers are subject, we or our officers may be subject to the applicable penalty associated with the violation, including significant civil and criminal penalties, damages, fines, imprisonment, and exclusion from the Medicare and Medicaid programs. The impact of any such violation may lead to curtailment or restructuring of our operations. Any penalties, damages, fines, or curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that some of these laws are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation. If an enforcement action were to occur, our reputation and our business and financial condition could be harmed, even if we were to prevail or settle the action. Similarly, if the physicians or other providers or entities with which we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on our business. Transparency laws. The Physician Payment Sunshine Act (the Sunshine Act), which was enacted by Congress as part of the Patient Protection and Affordable Care Act on December 14, 2011, requires each applicable manufacturer, which includes medical device companies such as Accuray, to track and report to the federal government on an annual basis all payments and other transfers of value from such applicable manufacturer to U.S. licensed physicians and teaching hospitals as well as physician ownership of such applicable manufacturer’s equity, in each case subject to certain statutory exceptions. Such data will be made available by the government on a publicly searchable website. Failure to comply with the data collection and reporting obligations imposed by the Sunshine Act can result in civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum of $150,000 per reporting period) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum of $1 million per reporting period). In addition, we are subject to similar state and foreign laws related to the tracking and reporting of payments and other transfers of value to healthcare professionals. These laws require or will require that we implement the necessary and costly infrastructure to track and report such payments and transfers of value. Failure to comply with these new tracking and reporting laws could subject us to significant civil monetary penalties. Physician self-referral laws. We are also subject to federal and state physician self-referral laws. The federal Ethics in Patient Referrals Act of 1989, commonly known as the Stark Law, prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member has any financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing any good or service furnished pursuant to an unlawful referral. In addition, in July 2008, CMS issued a final rule implementing significant amendments to the regulations under the Stark Law. The final rule, which was effective October 1, 2009, imposes additional limitations on the ability of physicians to refer patients to medical facilities in which the physician or an immediate family member has an ownership interest for treatment. Among other things, the rule provides that leases of equipment between physician owners that may refer patients and hospitals must be on a fixed rate, rather than a per use basis. Prior to enactment of the final rule, physician owned entities had increasingly become involved in the acquisition of medical technologies, including the CyberKnife platform. In many cases, these entities entered into arrangements with hospitals that billed Medicare for the furnishing of medical services, and the physician owners were among the 26 physicians who referred patients to the entity for services. The rule limits these arrangements and could require the restructuring of existing arrangements between physicians owned entities and hospitals and could discourage physicians from participating in the acquisition and ownership of medical technologies. The final rule also prohibits percentage-based compensation in equipment leases. As a result of the finalization of these regulations, some existing CyberKnife platform operators have modified or restructured their corporate or organizational structures. In addition, certain customers that planned to open CyberKnife centers in the United States involving physician ownership have restructured their legal ownership structure. Certain entities were not able to establish viable models for CyberKnife platform operation and therefore canceled their CyberKnife platform purchase agreements. Accordingly, these regulations have resulted in cancellations of CyberKnife platform purchase agreements and could also reduce the attractiveness of medical technology acquisitions, including CyberKnife platform purchases, by physician owned joint ventures or similar entities. As a result, these regulations have had, and could continue to have, an adverse impact on our product sales and therefore on our business and results of operations. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $100,000 for each such arrangement or scheme. In addition, any person who presents or causes to be presented a claim to the Medicare or Medicaid programs in violations of the Stark Law is subject to civil monetary penalties of up to $15,000 per bill submission, an assessment of up to three times the amount claimed, and possible exclusion from federal healthcare programs such as Medicare and Medicaid. Various states have corollary laws to the Stark Law, including laws that require physicians to disclose any financial interest they may have with a healthcare provider to their patients when referring patients to that provider. Both the scope and exceptions for such laws vary from state to state. Federal False Claims Act. The federal False Claims Act prohibits the knowing filing or causing the filing of a false claim or the knowing use of false statements to obtain payment from the federal government. When an entity is determined to have violated the False Claims Act, it may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $11,181 and $22,363 for each separate false claim. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. In addition, certain states have enacted laws modeled after the federal False Claims Act. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action, pay fines or be excluded from Medicare, Medicaid or other federal or state healthcare programs as a result of an investigation arising out of such action. We have retained the services of a reimbursement consultant, for which we pay certain consulting fees, to provide us and facilities that have purchased a CyberKnife or TomoTherapy platform, with general reimbursement advice. While we believe this will assist our customers in filing proper claims for reimbursement, and even though such consultants do not submit claims on behalf of our customers, the fact that we provide these consultant services could expose us to additional scrutiny and possible liability in the event one of our customers is investigated and determined to be in violation of any of these laws. HIPAA. The Health Insurance Portability and Accountability Act of 1996 (HIPAA), created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment. As a participant in the healthcare industry, we are also subject to extensive federal and state laws and regulations protecting the privacy and integrity of patient medical information, including privacy and security standards required under HIPAA. The HIPAA privacy standard was amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), enacted as part of the American Recovery and Reinvestment Act of 2009. HITECH significantly increases the civil money penalties for violations of patient privacy rights protected under HIPAA. Although we are not a covered entity under HIPAA, we have entered into agreements with certain covered entities under which we are considered to be a “business associate” under HIPAA. As a business associate, we are required to implement policies, procedures and reasonable and appropriate security measures to protect individually 27 identifiable health information we receive from covered entities. Furthermore, business associates are directly subject to regulations under HIPAA including the new enforcement scheme, criminal and civil penalties for certain violations, and inspection requirements. Foreign Corrupt Practices Act. The United States and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical device industry, including increased United States government oversight and enforcement of the Foreign Corrupt Practices Act. Whenever the United States or another foreign governmental authority concludes that we are not in compliance with applicable laws or regulations, such governmental authority can impose fines, delay or suspend regulatory clearances, institute proceedings to detain or seize our products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against us or our officers or employees, and can recommend criminal prosecution to the Department of Justice. Moreover, governmental authorities can ban or request the recall, repair, replacement or refund of the cost of any device or product we manufacture or distribute. In addition, our third party agents in foreign countries can also subject us to prosecution under Foreign Corrupt Practices Act. We are also subject to the UK Bribery Act, which could also lead to the imposition of civil and criminal fines and other similar anti-bribery and anti-corruption laws. Any of the foregoing actions could result in decreased sales as a result of negative publicity and product liability claims, and could have a material adverse effect on our financial condition, results of operations and prospects. International Regulation International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements are often different. The primary regulatory environment in Europe is that of the European Union and the three additional member states of the European Economic Area (EEA), which have adopted similar laws and regulations with respect to medical devices. The European Union has adopted numerous directives and the European Committee for Standardization has promulgated standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of the relevant directive will be entitled to bear CE conformity marking, indicating that the device conforms to the essential requirements of the applicable directives and, accordingly, may be commercially distributed throughout the member states of the EEA. The method of assessing conformity to applicable standards and directives depends on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a notified body, an independent and neutral institution appointed by a European Union member state to conduct the conformity assessment. This relevant assessment may consist of an audit of the manufacturer’s quality system (currently ISO 13485), provisions of the Medical Devices Directive, and specific testing of the manufacturer’s device. Our facilities were first awarded the ISO 13485 certification in September 2002 and has been subsequently maintained through periodic assessments, and we are currently authorized to affix the CE mark to our products, allowing us to sell our products throughout the European Economic Area. The Medical Device Regulation (MDR) came into effect in the European Union in May 2021. We are required to obtain certification against the MDR to CE mark new products or to make significant changes to existing products. There are fewer notified bodies authorized under the MDR to qualify businesses and products. This may result in additional time for initial product reviews and to obtain authorization to apply the CE mark. We are also currently subject to regulations in Japan. Under the Pharmaceutical Affairs Law in Japan, a pre-market approval necessary to sell, market and import a product (Shonin) must be obtained from the Ministry of Health, Labor and Welfare (MHLW), for our products. A Japanese distributor received the first government approval to market the CyberKnife System from MHLW in November 1996. We received and maintain Shonin approval from MHLW for CyberKnife Treatment Delivery Systems, M6 Series with InCise MLC, TomoTherapy Treatment Delivery Systems, Radixact Treatment Delivery Systems, and associated Precision and iDMS software products. Additionally, our products are subject to regulations in China. The China Supervision and Regulation of Medical Devices (No. 680) requires licensing from the National Medical Products Administration (NMPA) to market, sell, 28 and import our product type. The NMPA licenses require testing by the Beijing Institute for Medical Devices Testing (BIMT) specifically related to China variations of global safety and performance standards. We received and maintain NMPA licenses for various configurations of Radixact Treatment Delivery Systems, CyberKnife Treatment Delivery Systems, TomoTherapy Treatment Delivery Systems, and associated Precision and iDMS software products. We are subject to additional regulations in other foreign countries, including, but not limited to, Canada, Taiwan, Korea, and Russia in order to sell our products. We expect that either we or our distributors will receive any necessary approvals or clearance prior to marketing our products in those international markets. State Certificate of Need Laws In some states, a certificate of need or similar regulatory approval is required prior to the acquisition of high-cost capital items or the provision of new services. These laws generally require appropriate state agency determination of public need and approval prior to the acquisition of such capital items or addition of new services. Certificate of need regulations may preclude our customers from acquiring one of our systems, and from performing stereotactic radiosurgery procedures using one of our systems. Several of our prospective customers currently are involved in appeals of certificate of need determinations. If these appeals are not resolved in favor of these prospective customers, they may be precluded from purchasing and/or performing services using one of our systems. Certificate of need laws are the subject of continuing legislative activity, and a significant increase in the number of states regulating the acquisition and use of one of our systems through certificate of need or similar programs could adversely affect us. Backlog For a discussion of our fiscal 2022 backlog, please refer to the section entitled “Backlog,” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Employees and Human Capital Resources Our employees are critical to the success of our business. As of June 30, 2022, we had 1044 full-time employees, including 388 employees employed outside of the United States. We also engage part-time employees and independent contractors to supplement our workforce. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have never experienced any employment related work stoppages and we believe our relationship with our employees is good. Our human capital resources objectives include recruiting, retaining, training, and motivating our personnel. The principal purposes of our incentive compensation policies are to attract, retain, and reward personnel through the granting of equity-based and cash-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives. We strive to foster a diverse and inclusive culture and environment which encourages active dialogue and robust engagement on the issues most salient to employee satisfaction and believe our employees are empowered to play a significant role in shaping the direction and success of the company. Geographic Information For financial reporting purposes, net sales and long-lived assets attributable to significant geographic areas are presented in Note 17, Segment Disclosure, to the consolidated financial statements, which are incorporated herein by reference. Available Information Our main corporate website address is www.accuray.com. We make available on this website, free of charge, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our proxy statements, and any amendments to those reports, as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission, the SEC. All SEC filings are also available at the SEC’s website at www.sec.gov. 29 We also use our investor relations website as a channel of distribution for important company information. For example, webcasts of our earnings calls and certain events we participate in or host with members of the investment community are on our investor relations website. Additionally, we announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events, and our press and earnings releases, on our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts and RSS feeds. Further corporate governance information, including our corporate governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website under the heading “Governance.” The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 30 Item 1A. RISK FACTORS Risk Factors Summary Our business is subject to numerous risks and uncertainties, including those highlighted in Part II, Item 1A titled “Risk Factors.” These risks include, but are not limited to, the following: Risks related to our business and results of operations (cid:120) We face risks related to the current global economic environment, which could adversely affect our business, financial condition and results of operations. (cid:120) The effect of the COVID-19 pandemic could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows. (cid:120) If our products do not achieve widespread market acceptance, we will not be able to generate the revenue necessary to support our business. (cid:120) Our ability to achieve profitability depends in part on maintaining or increasing our gross margins on product sales and services. (cid:120) We have outstanding indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results. (cid:120) Our operating results, including our quarterly orders, revenues and margins fluctuate from quarter to quarter and may be unpredictable, which may result in a decline in our stock price. (cid:120) Our industry is subject to intense competition and rapid technological change. If we are unable to anticipate or keep pace with changes in the marketplace and the direction of technological innovation and customer demands, our products may become obsolete or less useful and our operating results will suffer. (cid:120) International sales of our products account for a significant portion of our revenue, which exposes us to risks inherent in international operations. (cid:120) Enhanced international tariffs that affect our products or components within our products, other trade barriers or a global trade war could increase our costs and materially and adversely affect our business operations and financial condition. (cid:120) The ongoing military action between Russia and Ukraine, and the global response to it, could adversely affect our business, financial condition and results of operations. (cid:120) We face risks related to the current global economic environment, which could adversely affect our business, financial condition and results of operations. (cid:120) (cid:120) If we encounter manufacturing problems, or if our manufacturing facilities do not continue to meet federal, state or foreign manufacturing standards, we may be required to temporarily cease all or part of our manufacturing operations, which would result in delays and lost revenue. If we are unable to develop new products or enhance existing products to meet our customers’ needs and compete favorably in the market, we may be unable to attract or retain customers. (cid:120) If we do not effectively manage our growth, our business may be significantly harmed. (cid:120) We could become subject to product liability claims, product recalls, other field actions and warranty claims that could be expensive, divert management’s attention and harm our business. 31 (cid:120) Our reliance on single-source suppliers for critical components of our products could harm our ability to meet demand for our products in a timely and cost effective manner. (cid:120) The inflationary environment could materially adversely impact our business and results of operations. (cid:120) We depend on key employees, the loss of whom would adversely affect our business. (cid:120) Disruption of critical information technology systems, infrastructure and data or cyberattacks could harm our business and financial condition. (cid:120) Any actual or perceived failure by us to comply with legal or regulatory requirements related to privacy, cyber security and data protection in one or multiple jurisdictions could result in proceedings, actions or penalties against us. (cid:120) The safety and efficacy of our products for certain uses is not yet supported by long-term clinical data, and our products may therefore prove to be less safe and effective than initially thought. (cid:120) Third parties may claim we are infringing their intellectual property or that we are operating outside the scope of or violating a license or other agreement relating to their intellectual property, and we could suffer significant audit, litigation or licensing expenses, incur liabilities associated with indemnification obligations to customers, experience disruptions in the supply for components of our product or related services, or be prevented from selling our product or components of our product. (cid:120) It is difficult and costly to protect our intellectual property and our proprietary technologies and we may not be able to ensure their protection. (cid:120) Because the majority of our product revenue is derived from sales of the CyberKnife and TomoTherapy platforms, which have a long and variable sales and installation cycle, our revenues and cash flows may be volatile and difficult to predict. Risks related to the regulation of our products and business (cid:120) Modifications, upgrades, new indications and future products related to our products may require new FDA 510(k) clearances or premarket approvals and similar licensing or approvals in international markets. Such modifications, or any defects in design, manufacture or labeling may require us to recall or cease marketing the affected systems or software until approvals or clearances are obtained. (cid:120) We are subject to federal, state and foreign laws and regulations applicable to our operations, the violation of which could result in substantial penalties and harm our business. (cid:120) If we or our distributors do not obtain and maintain the necessary regulatory approvals in a specific country, we will not be able to market and sell our products in that country. (cid:120) Healthcare reform legislation could adversely affect demand for our products, our revenue and our financial condition. (cid:120) Regulations related to “conflict minerals” may force us to incur additional expenses, may result in damage to our business reputation and may adversely impact our ability to conduct our business. Risks related to our common stock (cid:120) The price of our common stock is volatile and may continue to fluctuate significantly, which could lead to losses for stockholders. (cid:120) The conditional conversion features of the Notes, if triggered, may adversely affect our financial condition and operating results. 32 (cid:120) Provisions in the indenture for the Notes, the credit agreement for our New Credit Facility, our certificate of incorporation and our bylaws could discourage or prevent a takeover, even if an acquisition would be beneficial in the opinion of our stockholders. General Risks (cid:120) Our operations are vulnerable to interruption or loss because of natural disasters, global or regional health pandemics or epidemics, terrorist acts and other events beyond our control, which would adversely affect our business. Risk Factors We operate in a rapidly changing environment that involves significant risks, a number of which are beyond our control. In addition to the other information contained in this Form 10-K, the following discussion highlights some of these risks and the possible impact of these factors on our business, financial condition and future results of operations. If any of the following risks actually occur, our business, financial condition or results of operations may be adversely impacted, causing the trading price of our common stock to decline. In addition, these risks and uncertainties may impact the “forward-looking” statements described elsewhere in this Form 10-K and in the documents incorporated herein by reference. They could affect our actual results of operations, causing them to differ materially from those expressed in “forward-looking” statements. Risks Related to Our Business and Results of Operations We face risks related to the current global economic environment, including risks arising in connection with the COVID-19 pandemic, inflation or recession, which could adversely affect our business, financial condition and results of operations by, among other things, delaying or preventing our customers from obtaining financing to purchase the CyberKnife and TomoTherapy platforms and implement the required facilities to house our systems. Our business and results of operations are materially affected by conditions in the global markets and the economy generally. Concerns over economic and political stability, inflation levels and related efforts to mitigate inflation, a potential recession, the level of U.S. national debt, currency fluctuations and volatility, the rate of growth of Japan, China and other Asian economies, unemployment, the availability and cost of credit, trade relations, including the imposition of various sanctions and tariffs, the duration and severity of the COVID-19 pandemic, energy costs and geopolitical uncertainty and conflict have contributed to increased volatility and diminished expectations for the economy and the markets in general. In turn, periods of economic slowdown or recession could lead to a reduction in demand for our products and services, which in turn would reduce our revenues and adversely affect our results of operations and our financial position. Thus, if general macroeconomic conditions deteriorate, our business and financial results could be materially and adversely affected. Further, the U.S. federal government has called for, or enacted, substantial changes to healthcare, trade, fiscal, and tax policies, which may include changes to existing trade agreements and may have a significant impact on our operations. For example, of the United States has imposed tariffs on certain foreign products, including from China, that have resulted in and may result in future retaliatory tariffs on U.S. goods and products. We cannot predict whether these policies will continue, or if new policies will be enacted, or the impact, if any, that any policy changes could have on our business. If economic conditions worsen or new legislation is passed related to the healthcare system, trade, fiscal or tax policies, customer demand may not materialize to levels we require to achieve our anticipated financial results, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, uncertain credit markets and concerns regarding the availability of credit, including concerns related to the COVID-19 pandemic, inflation or a recession, could impact consumer and customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. If the current situation deteriorates or does not improve, our business could be negatively affected by factors such as reduced demand for our products resulting from a slow-down or volatility in the general economy, supplier or customer disruptions and/or temporary interruptions in our ability to conduct day-to-day transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers, and delays associated with the ongoing COVID-19 pandemic. For example, in 33 the United States, some of our customers have been delayed in obtaining, or have not been able to obtain, necessary financing for their purchases of the CyberKnife or TomoTherapy platforms. In addition, some of our customers have been delayed in obtaining, or have not been able to obtain, necessary financing for the construction or renovation of facilities to house CyberKnife or TomoTherapy platforms, the cost of which can be substantial. These delays have in some instances led to our customers postponing the shipment and installation of previously ordered systems or cancelling their system orders and may cause other customers to postpone their system installation or to cancel their agreements with us. An increase in delays and order cancellations of this nature would adversely affect our product sales, backlog and revenues, and therefore harm our business and results of operations. In addition, the ongoing global COVID-19 pandemic and other events that affect the global economy, has caused, and may continue to cause, uncertainty in the global markets. The risks related to the COVID-19 pandemic are discussed in more detail in our risk factor entitled “The effect of the COVID-19 pandemic, or the perception of its effects, on our operations and the operations of our customers and suppliers, could have a material adverse effect on our business, financial condition, results of operations, or cash flows.” The effect of the COVID-19 pandemic, or the perception of its effects, as well as the responses of governments and private industry on our operations and the operations of our customers and suppliers, have and could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows. In fiscal year 2020, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China and was subsequently declared a pandemic, which has affected, and continues to affect, the worldwide economy, global operations and global supply chains. In addition, new variants of COVID-19 that are more contagious have also spread throughout the world. The COVID-19 pandemic continues to be prevalent and related government and private sector responsive actions have impacted and will likely continue to adversely affect our business operations. It is impossible to predict the full extent of the effects of the COVID-19 pandemic on our business, operations, financial condition or the economy. Governments, public institutions, and other organizations have taken and are taking certain preventative or protective measures to combat the spread of the pandemic. While we are unable to predict the full impact of the pandemic, we are closely monitoring the trends in the COVID-19 pandemic and are continually assessing its current and potential effects on our business. As a result of timing delays caused by the COVID-19 pandemic, we have and are continuing to experience disruptions in our sales and revenue cycle as well as declines in deliveries and installations of our products, which has adversely impacted the pace at which our backlog converts to revenue. These timing delays have been a result of various factors driven by the COVID-19 pandemic, including disruptions in the operations of our customers that have redirected customer resources to the COVID-19 response and away from purchases of capital equipment such as our products, disruptions and restrictions on our ability to travel to customer sites, disruptions in our supply chain, and manufacturing interruptions. We have also experienced delays in payment and planned installations as a result of the changes to and redirection of customer resources to the response to the COVID-19 pandemic and closures of customer facilities. A few customers have also requested 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, as the pandemic and its effects continue, more customers may ask for the same, particularly, if the effects of the COVID-19 pandemic deepen or worsen. In addition, the COVID-19 pandemic and other factors continue to impact the global supply chain, causing disruptions to service providers, logistics and the flow and availability of supplies and products. In particular, we have experienced disruptions in parts of our supply chain that have resulted in delays in the receipt of certain components for our products as well as increased pricing pressure for such parts. These ongoing supply chain challenges and heightened logistics costs have affected our gross margins and net income (loss), and our current expectations are that gross margins and net income (loss) will continue to be adversely affected by increased material costs and freight and logistic expenses at least through the remainder of the calendar year of 2022, if not longer. Furthermore, certain parts required for the manufacture and servicing of our products are scarce and becoming increasingly difficult to source even at increased prices. If such parts become unavailable to us, we would not be able to manufacture or service our products, which would adversely impact revenue, gross margins, and net income (loss). Additionally, to protect the health and well-being of our employees, suppliers, and customers, we have also made modifications to employee travel and limited non-essential work travel, implemented remote work arrangements as most employees are advised to work from home, and cancelled or shifted some of our conferences 34 and other marketing events to virtual through the calendar year of 2022. In addition, other impacts of the COVID-19 pandemic have included and could include significant and unpredictable reductions in the demand for our products, a deepening of the changes to the operations and workflows of our customers that could result in increased customer defaults or delays in payment; additional delays, cancellations and redirection of planned capital expenditures and installations of our system by our customers to focus resources on COVID-19; disruptions in our supply chain or a reduction or interruption in any of our manufacturing processes resulting in our inability to meet demand for our products or services; or closures of our key facilities or the facilities of our customers or suppliers. For example, our cancellations of orders have increased due to the COVID-19 pandemic. Further, a lack of coordinated response on or compliance with risk mitigation with respect to the COVID-19 pandemic could result in significant increases to the duration and severity of the pandemic and could have a corresponding negative impact on our business. In addition, there has been ongoing disruption and uncertainty in the economy related to the pandemic, including supply chain disruption, labor shortages and uncertainty in the financial markets, which has adversely impacted our revenue, net income (loss) and cash flow. We have also incurred additional expenses required to mitigate such impacts. These impacts could continue to affect our business as the COVID-19 pandemic progresses. The impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. In addition, 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 the spread, severity and potential resurgence of COVID-19, the impact of new COVID-19 variants, vaccination deployment efforts, and how long pandemic and associated health measures will last, among others. The situation is developing rapidly and additional impacts may arise that we are not aware of currently, however, the COVID-19 pandemic or the perception of its effects could have a material adverse effect on our business, financial condition, results of operations, or cash flows. In addition, the COVID-19 pandemic and the various responses to it, may also have the effect of heightening many of the other risks discussed in this “Risk Factors” section. If the CyberKnife or TomoTherapy platforms do not achieve widespread market acceptance, we will not be able to generate the revenue necessary to support our business. Achieving physician, patient, hospital administrator and third-party payor acceptance of the CyberKnife and TomoTherapy platforms as preferred methods of tumor treatment is crucial to our continued success. Physicians will not begin to use or increase the use of the CyberKnife or TomoTherapy platforms unless they determine, based on experience, clinical data and other factors, that the CyberKnife and TomoTherapy platforms are safe and effective alternatives to traditional treatment methods. Further, physicians may be slow to adopt new or updated versions of our CyberKnife and TomoTherapy platforms because of the perceived liability risks arising from the use of new products and the uncertainty of reimbursement from third-party payors, particularly in light of ongoing health care reform initiatives and the evolving U.S. health care environment. If we are not able to expand market acceptance of our products and maintain and increase our base of installed systems, or installed base, then sales of our products may not meet expectations. Any failure to expand and protect our existing installed base could adversely affect our operating results. We often need to educate physicians about the use of stereotactic radiosurgery, image guided radiation therapy (IGRT) and adaptive radiation therapy, convince healthcare payors that the benefits of the CyberKnife and TomoTherapy platforms and their related treatment processes outweigh their costs, and help train qualified physicians in the skilled use of these systems. In addition, we also must educate prospective customers regarding the entire functionality of our radiation therapy systems and their relative benefits compared to alternative products and treatment methods. We must also increase awareness among potential patients, who are increasingly educated about treatment options and therefore impact adoption of new technologies by clinicians. We have expended and will continue to expend significant resources on marketing and educational efforts to create awareness of stereotactic radiosurgery and robotic intensity-modulated radiotherapy (IMRT) as well as adaptive radiation therapy and IGRT generally and to encourage the acceptance and adoption of our products for these technologies. We cannot be sure that our products will gain significant market acceptance among physicians, patients and healthcare payors, even if we spend significant time and expense on their education. 35 In addition to achieving market acceptance of our products and the need to educate physicians and others about the benefits of our products, the CyberKnife and TomoTherapy platforms are major capital purchases, and purchase decisions are greatly influenced by hospital administrators who are subject to increasing pressures to reduce costs. In addition, hospitals and other health professionals have reduced staffing and reduce or postpone meetings with potential suppliers in response to the spread of an infectious disease, such as COVID-19, effectively delaying the decision on potential purchases of new products such as ours. These and other factors, including the following, may affect the rate and level of market acceptance of the CyberKnife and TomoTherapy platforms: (cid:120) (cid:120) (cid:120) (cid:120) the CyberKnife and TomoTherapy platforms’ price relative to other products or competing treatments; our ability to develop new products and enhancements and receive regulatory clearances and approval, if required, to such products in a timely manner; increased scrutiny by state boards when evaluating certificates of need requested by purchasing institutions; perception by patients, physicians and other members of the healthcare community of the CyberKnife and TomoTherapy platforms’ safety, efficacy, efficiency and benefits compared to competing technologies or treatments; (cid:120) willingness of physicians to adopt new techniques and the ability of physicians to acquire the skills necessary to operate the CyberKnife and TomoTherapy platforms; (cid:120) extent of third-party coverage and reimbursement rates, particularly from Medicare, for procedures using the CyberKnife and TomoTherapy platforms; and (cid:120) development of new products and technologies by our competitors or new treatment alternatives. If the CyberKnife or TomoTherapy platforms are unable to achieve or maintain market acceptance, new orders and sales of our systems would be adversely affected, our revenue levels would decrease and our business would be harmed. Our ability to achieve profitability depends in part on maintaining or increasing our gross margins on product sales and services, which we may not be able to achieve. As of June 30, 2022, we had an accumulated deficit of $492.5 million. We may incur net losses in the future, particularly as selling and marketing activities increase ahead of any expected revenue. Our ability to achieve and sustain long-term profitability is largely dependent on our ability to successfully market and sell the CyberKnife and TomoTherapy platforms, control our costs, and effectively manage our growth. We cannot assure you that we will be able to achieve profitability and even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. In the event we fail to achieve profitability, our stock price could decline. 36 Our ability to achieve profitability also depends on our ability to maintain or increase our gross margins on product sales and services. A number of factors may adversely impact such gross margins, including: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) lower than expected manufacturing yields of high cost components leading to increased manufacturing costs; low production volume, which will result in high levels of overhead cost per unit of production; lower selling pricing, which we have recently experienced; our ability to sell products and services, recognize revenue from our sales and the timing of revenue recognition and revenue deferrals; increased labor costs or other costs as a result of increased inflation and supply chain constraints; delays in receipt of or increased costs related to critical components parts, including as a result of supply chain disruptions; increased inventory costs and liabilities for excess inventory resulting from inventory held in excess of forecasted demand; increased service or warranty costs or the failure to reduce service or warranty costs; increased price competition; variation in the margins across products installed in a particular period; changes to U.S. and foreign trade policies, including enactments of tariffs on goods imported into the U.S. and any retaliatory tariffs imposed by other countries on U.S. goods, including our products; and (cid:120) how well we execute on our strategic and operating plans. If we are unable to maintain or increase our gross margins on product sales and service, our results of operations could be adversely impacted, we may not achieve profitability and our stock price could decline. We have outstanding indebtedness in the form of Convertible Senior Notes and a credit facility and may incur other debt in the future, which may adversely affect our financial condition and future financial results. In August 2017, we issued $85.0 million aggregate principal amount of our 3.75% Convertible Senior Notes due 2022 (the “3.75% Convertible Notes due 2022”). In May 2021, we issued $100.0 million aggregate principal amount of our 3.75% Convertible Senior Notes due 2026 (the “3.75% Convertible Notes due 2026” and collectively, with the 3.75% Convertible Notes due 2022, the “Notes”). As our debt matures, we anticipate having to expend significant resources to either repay or refinance the Notes. For example, in May 2021, in connection with the issuance of the 3.75% Convertible Notes due 2026, we (i) exchanged approximately $82.1 million aggregate principal amount of our 3.75% Convertible Notes due 2022 for approximately $97.1 million aggregate principal amount of 3.75% Convertible Notes due 2026 and (ii) sold approximately $2.9 million aggregate principal amount of 3.75% Convertible Notes due 2026 for cash. If we decide to, or are required to, refinance the Notes in the future, we may be required to do so on different or less favorable terms or we may be unable to refinance the Notes at all, both of which may adversely affect our financial condition. In May 2021, we entered into a credit agreement that provided us with a five-year $80.0 million term loan (the “Term Loan Facility”) and $40.0 million revolving credit facility (the “Revolving Credit Facility” and together with the “Term Loan Facility”, the “Credit Facilities”). The proceeds from the Credit Facilities, plus available cash on hand, were used to repay all outstanding borrowings under our prior credit facility. 37 As of June 30, 2022, we had total consolidated liabilities of approximately $419.7 million; including $100.5 million of Notes of which $2.9 million is classified as short-term, the Revolving Credit Facility of $5.0 million and the Term Loan Facility of $75.0 million, of which $5.7 million is classified as a short-term loan. Our existing and future levels of indebtedness could have important consequences to stockholders and note holders and may adversely affect our financial conditions and future financial results by, among other things: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) affecting our ability to satisfy our obligations under the Notes and New Credit Facilities; requiring a substantial portion of our cash flows from operations to be dedicated to interest and principal payments, which may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes; impairing our ability to obtain additional financing in the future; limiting our flexibility in planning for, or reacting to, changes in our business and industry; and increasing our vulnerability to downturns in our business, our industry or the economy in general, including any such downturn related to the impact of the COVID-19 pandemic. The credit agreement governing the Credit Facilities also include certain restrictive covenants that limit, among other things, our ability and our subsidiaries’ ability to (i) incur indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets, (v) make certain loans or investments, (vi) merge or consolidate, (vii) voluntarily repay or prepay certain indebtedness and (viii) enter into transactions with affiliates, in each case, subject to certain exceptions. In addition, such agreements require us to meet certain financial covenants, including a consolidated fixed charge coverage ratio and consolidated senior net leverage ratio, as defined in the credit agreement governing the Credit Facilities. These restrictions could adversely affect our ability to finance our future operations or capital needs, withstand a future downturn in our business or the economy in general, engage in business activities, including future opportunities that may be in our interest, and plan for or react to market conditions or otherwise execute our business strategies. Our ability to comply with the covenants and other terms governing the Credit Facilities will depend in part on our future operating performance. If we fail to comply with such covenants and terms, we may be in default and the maturity of the related debt could be accelerated and become immediately due and payable. In addition, because substantially all of our assets are pledged as a security under the Credit Facilities, if we are not able to cure any default or repay outstanding borrowings, such assets are subject to the risk of foreclosure by our lenders. From time to time, we may not be in compliance with such covenants or other terms governing the Credit Facilities and we may be required to obtain waivers or amendments to the credit agreement from our lenders 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 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. Additionally, a default on indebtedness could result in a default under the terms of the indenture governing the Notes. There is no guarantee that we would be able to satisfy our obligations if any of our indebtedness is accelerated. Our operating results, including our cash flows quarterly orders, revenues and margins fluctuate from quarter to quarter and may be unpredictable, which may result in a decline in our stock price. We have experienced and expect in the future to experience fluctuations in our operating results, including gross orders, revenues and margins, from period to period. Drivers of orders include the introduction and timing of new product or product enhancement announcements by us and our competitors, the timing of regulatory approvals, changes in price by us and our competitors as well as changes or anticipated changes in third-party reimbursement amounts or policies applicable to treatments using our products. The availability of economic stimulus packages or other government funding, or reductions thereof, may also affect timing of customer purchases. Our products have a high unit price and require significant capital expenditures by our customers. Accordingly, we experience long sales and implementation cycles, which is of greater concern during a volatile economic environment where we have had customers delay or cancel orders. The timing of when orders are placed, when installation, delivery or shipping, as applicable, is accomplished and when revenue is recognized affect our quarterly results. Further, because of the high unit price of the CyberKnife and TomoTherapy platforms and the relatively small number of units sold or installed each quarter, each sale or installation of a CyberKnife or TomoTherapy platform can represent a significant percentage of our net orders, backlog or revenue for a particular quarter and shifts in sales or installation from one quarter to another may have significant effects. For example, multi-system sales or sales involving negotiations with integrated delivery networks involve additional complexities to the transaction and require a longer timeline to 38 finalize the sale, which make it more difficult to predict the quarter in which the sale will occur. In addition, we have experienced and are continuing to experience delays in orders and installations due to the impact of the COVID-19 pandemic at our customer sites. To protect the health and well-being of our employees, suppliers, and customers, we have also made modifications to employee travel and limited non-essential work travel. The COVID-19 pandemic has impacted and may continue to impact our business operations, including our employees, customers and partners, and there is substantial uncertainty in the nature and degree of its continued effects over time. Once orders are received and booked into backlog, there is a risk that we may not recognize revenue in the near term or at all. The COVID-19 pandemic has adversely impacted the pace at which the backlog converts to revenue. This is primarily the result of delays in the timing of deliveries and installations in fiscal 2020 and 2021 caused by the COVID-19 pandemic, which resulted in decreased revenue for these periods. We expect that such delays in deliveries and installations will continue to some degree through the remainder of calendar year of 2022, which would have a negative impact on our revenue during such period. Factors that may affect whether these orders become revenue (or are cancelled or deemed aged-out and reflected as a reduction in net orders) and the timing of revenue include: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) economic or political instability, including volatility related to the COVID-19 pandemic; delays in the customer obtaining or inability of a customer to obtain funding or financing; delays in construction at the customer site and delays in installation; delays in the customer obtaining or inability of such customer to obtain local or foreign regulatory approvals such as certificates of need in certain states or Class A or Class B user licenses in China; the terms of the applicable sales and service contracts of the CyberKnife and TomoTherapy platforms; and the proportion of revenue attributable to orders placed by our distributors, which may be more difficult to forecast due to factors outside our control. Our operating results may also be affected by a number of other factors, some of which are outside of our control, including: (cid:120) (cid:120) (cid:120) delays in business operations of our customers or vendors, construction at customer sites and installation, including such delays caused by the impact of the COVID-19 pandemic or supply chain delays; timing and level of expenditures associated with new product development activities; regulatory requirements in some states for a certificate of need prior to the installation of a radiation device or foreign regulatory approvals, such as Class A or Class B user licenses in China; 39 (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) delays in shipment due to, for example, unanticipated construction delays at customer locations where our products are to be installed, cancellations by customers, natural disasters, global or regional health pandemics or epidemics, or labor disturbances; delays in our manufacturing processes or unexpected manufacturing difficulties, including due to COVID-19 related supply chain and logistics challenges; the timing of the announcement, introduction and delivery of new products or product upgrades by us and by our competitors; timing and level of expenditures associated with expansion of sales and marketing activities such as trade shows and our overall operations; the timing and level of expenditures associated with our financing activities; the effects of foreign currency adjustments; changes in accounting principles, such as those related to revenue recognition, or in the interpretation or the application thereof; and fluctuations in our gross margins and the factors that contribute to such fluctuations, as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the risk factor entitled, “Our ability to achieve profitability depends in part on maintaining or increasing our gross margins on product sales and services, which we may not be able to achieve.” Because many of our operating expenses are based on anticipated sales and a high percentage of these expenses are fixed for the short term, a small variation in the timing of revenue recognition can cause significant variations in operating results from quarter to quarter. If our financial results fall below the expectation of securities analysts and investors, the trading price of our common stock would almost certainly decline. We report our orders and backlog on a quarterly and annual basis. Unlike revenues, orders and backlog are not defined by U.S. GAAP, and are not within the scope of the audit conducted by our independent registered public accounting firm. Also, for the reasons discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations, our orders and backlog cannot necessarily be relied upon as accurate predictors of future revenues. Order cancellation or significant delays in installation date will reduce our backlog and future revenues, and we cannot predict if or when orders will mature into revenues. In addition, we have experienced an increase in cancellations beyond historical levels due to the uncertainties surrounding the effects of the COVID-19 pandemic. Particularly high levels of cancellations or age-outs in one or more periods may cause our revenue and gross margins to decline in current or future periods and will make it difficult to compare our operating results from quarter to quarter. We cannot assure you that our backlog will result in revenue on a timely basis or at all, or that any cancelled contracts will be replaced. 40 Our industry is subject to intense competition and rapid technological change, which may result in products or new tumor treatments that are superior to the CyberKnife and TomoTherapy platforms. If we are unable to anticipate or keep pace with changes in the marketplace and the direction of technological innovation and customer demands, our products may become obsolete or less useful and our operating results will suffer. The medical device industry in general and the non-invasive cancer treatment field in particular are subject to intense and increasing competition and rapidly evolving technologies. Because our products often have long development and government approval cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer demands. To compete successfully, we will need to continue to demonstrate the advantages of our products and technologies over well-established alternative procedures, products and technologies, and convince physicians and other healthcare decision makers of the advantages of our products and technologies. Traditional surgery and other forms of minimally invasive procedures, brachytherapy, chemotherapy or other drugs remain alternatives to the CyberKnife and TomoTherapy platforms. We consider the competition for the CyberKnife and TomoTherapy platforms to be existing radiation therapy systems, primarily using C-arm linacs, which are sold by large, well-capitalized companies with significantly greater market share and resources than we have. Several of these competitors are also able to leverage their fixed sales, service and other costs over multiple products or product lines. In particular, we compete with a number of existing radiation therapy equipment companies, including Varian, a Siemens Healthineers company, Elekta AB (“Elekta”), ViewRay, Inc., RefleXion Medical Inc. and Zap Surgical Systems. Varian has been the leader in the external beam radiation therapy market for many years and has the majority market share for radiation therapy systems worldwide. In general, because of aging demographics and attractive market factors in oncology, we believe that new competitors will enter the radiosurgery and radiation therapy markets in the years ahead. In addition, some manufacturers of conventional linac based radiation therapy systems, including Varian and Elekta, have products that can be used in combination with body and/or head frames and image guidance systems to perform both radiosurgical and radiotherapy procedures. In May 2017, Varian launched a radiation therapy product called Halcyon which they have positioned against our TomoTherapy platform. Additionally, in September 2019, Varian introduced a related device called Ethos, designed to allow on-couch adaptation and treatment monitoring. Furthermore, many government, academic and business entities are investing substantial resources in research and development of cancer treatments, including surgical approaches, radiation treatment, MRI-guided radiotherapy systems, proton therapy systems, drug treatment, gene therapy (which is the treatment of disease by replacing, manipulating, or supplementing nonfunctional genes) and other approaches. Successful developments that result in new approaches for the treatment of cancer could reduce the attractiveness of our products or render them obsolete. Our future success will depend in large part on our ability to establish and maintain a competitive position in current and future technologies. Rapid technological development may render the CyberKnife and TomoTherapy platforms and their technologies obsolete. Many of our competitors have or may have greater corporate, financial, operational, sales and marketing resources, and more experience and resources in research and development than we have. We cannot assure you that our competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products or that would render our technologies and products obsolete or less useful. We may not have the financial resources, technical expertise, marketing, distribution or support capabilities to compete successfully in the future. In addition, some of our competitors may compete by changing their pricing model or by lowering the price of their products. If we are unable to maintain or increase our selling prices, our revenue and gross margins may suffer. Our success will depend in large part on our ability to maintain a competitive position with our technologies. In addition to competition from technologies performing similar functions as our platforms, competition also exists for the limited capital expenditure budgets of our customers. For example, our platforms may compete with other equipment required by a radiation therapy department for financing under the same capital expenditure budget, which is typically limited. A purchaser, such as a hospital or cancer treatment center, may be required to select between the two items of capital equipment. Our ability to compete may also be adversely affected when purchase decisions are based solely upon price, since our products are premium-priced systems due to their higher level of functionality and performance. 41 We are subject to risks arising from our international operations, which may adversely affect our business, financial condition, and results of operations. We derive a majority of our revenue from our international operations, and we plan to continue expanding our business in international markets in the future. In addition, we have employees engaged in R&D, manufacturing, administration, manufacturing, support and sales and marketing activities. (cid:120) As a result of our international operations, in addition to similar risks we face in our U.S. operations, we are affected by economic, business, regulatory, social, and political conditions in foreign countries, including the following: economic or political instability in the world or in particular regions or countries in which we do business, including the market volatility resulting from the COVID-19 pandemic and, conflicts or war, such as the war in Ukraine; (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) import delays; changes in foreign laws and regulations governing, among other matters, the clearance, approval and sales of medical devices; compliance with differing foreign regulatory requirements to sell and market our products; longer payment cycles associated with many customers outside the United States; inability of customers to obtain requisite government approvals, such as customers in China, including customers of the JV, obtaining one of the limited number of Class A or Class B user licenses available in order to purchase our products; effective compliance with privacy, data protection and information security laws, such as the European Union General Data Protection Regulation (the “GDPR”) and new regulations in China; adequate coverage and reimbursement for the CyberKnife and TomoTherapy platform treatment procedures outside the United States; failure of local laws to provide the same degree of protection against infringement of our intellectual property; (cid:120) protectionist laws and business practices that favor local competitors; (cid:120) U.S. trade and economic sanctions policies that are in effect from time to time and the possibility that foreign countries may impose additional taxes, tariffs or other restrictions on foreign trade; (cid:120) (cid:120) trade restrictions that are in effect from time to time, including U.S. prohibitions and restrictions on exports of certain products and technologies to certain nations and customers; the unfamiliarity of shipping companies and other logistics providers with U.S. export control laws, which may lead to their unwillingness to ship or delays in shipping, our products to certain nations and customers despite such shipments being permitted under such laws; (cid:120) U.S. relations with the governments of the foreign countries in which we operate; (cid:120) (cid:120) the inability to obtain required export or import licenses or approvals; risks relating to foreign currency, including fluctuations in foreign currency exchange rates possibly causing fewer sales due to the strengthening of the U.S. Dollar; 42 (cid:120) (cid:120) (cid:120) effects of and uncertainties caused by the United Kingdom’s withdrawal from the European Union; contractual provisions governed by foreign laws; and natural disasters, such as earthquakes and fires, and global or regional health pandemics or epidemics, such as COVID-19, or data privacy or security incidents, that may have a disproportionate effect in certain geographies resulting in decreased demand or decreased ability of our employees or employees of our customers and partners to work and travel. Our inability to overcome these obstacles could harm our business, financial condition and operating results. Even if we are successful in managing these obstacles, our partners internationally are subject to these same risks and may not be able to manage these obstacles effectively. In addition, our partners internationally are subject to these same risks. If we or our partners are impacted by any of these factors, our business, financial condition and operating results could be adversely affected. Enhanced international tariffs, including tariffs imposed by the United States and China that affect our products or components within our products, other trade barriers or a global trade war could increase our costs and materially and adversely affect our business operations and financial condition. Our global business could be negatively affected by trade barriers and other governmental protectionist measures, any of which can be imposed suddenly and unpredictably. For example, following Russia’s invasion of Ukraine, the United States and other countries imposed economic sanctions and severe export control restrictions against Russia and Belarus, and the United States and other countries could impose wider sanctions and export restrictions and take other actions should the conflict further escalate. Any exports or sales of our products into Russia and Belarus may be impacted by these restrictions. There is currently significant uncertainty about the future relationship between the U.S. and various other countries, most significantly China, with respect to trade policies, treaties, government regulations and tariffs. Since the beginning of 2018, there has been increasing public threats and, in some cases, legislative or executive action, from U.S. and foreign leaders regarding instituting tariffs against foreign imports of certain materials. During the last half of calendar year 2018, the federal government imposed a series of tariffs ranging from 10% to 25% on a variety of imports from China. These tariffs affect certain components, including the linear accelerator for our CyberKnife platforms, which we manufacture in China and import into the U.S., as well as other components that we import into the U.S. from our suppliers. China has responded to these tariffs with retaliatory tariffs ranging from 5% to 25% on a wide range of products from the U.S., which include certain of our products. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by the U.S. and Chinese leaders. Although the U.S. and China signed an initial trade deal in January 2020 and China announced a one year tariff exemption for medical linear accelerators in September 2019 (which was further extended through May 31, 2022 and we have submitted documentation in support of a longer-term extension), there has been a change in the U.S. presidential administration and, for that, and other reasons, there is no assurance that the trade deal will be signed or that the exemption on medical linear accelerators will continue beyond the extended term or that we will continue to qualify for such exemption. If these tariffs continue, if additional tariffs are placed on certain of our components or products, or if any related counter-measures are taken by China, the U.S. or other countries, our business, financial condition and results of operations may be materially harmed. The imposition of tariffs could also increase our costs and require us to raise prices on our products, which may negatively impact the demand for our products in the affected market. If we are not successful in offsetting the impact of any such tariffs, our revenue, gross margins and operating results may be adversely affected. These tariffs are subject to a number of uncertainties as they are implemented, including future adjustments and changes. The ultimate reaction of other countries and the impact of these tariffs or other actions on the U.S., China, the global economy and our business, financial condition and results of operations, cannot be predicted at this time, nor can we predict the impact of any other developments with respect to global trade. Further, the imposition of additional tariffs by the U.S. could result in the adoption of additional tariffs by China and other countries, as well as further retaliatory actions by any affected country. Any resulting trade war could negatively impact the global market for medical devices, including radiation therapy devices, and could have a significant adverse effect on our business. These developments may have a material adverse effect on global economic conditions and the stability of global financial markets, and they may significantly reduce global trade and, in particular, trade between China and the U.S. Any of these factors could depress economic activity, restrict our access to customers and have a material adverse effect on our business, financial condition and results of operations. 43 The ongoing military action between Russia and Ukraine, and the global response to it, could adversely affect our business, financial condition and results of operations. On February 24, 2022, Russian military forces commenced military operations in Ukraine, and sustained conflict and disruption in the region is likely. The length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable and could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. The military conflict in Ukraine has led to an unprecedented expansion of sanction programs imposed against Russia by the United States, Canada, the EU, the United Kingdom, Switzerland, and Japan, among others, that in relevant part, impose sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system) and certain Russian businesses, some of which have significant financial and trade ties to the EU, making it increasingly difficult to transfer money from Russia to other countries. In response to new international sanctions, and as part of measures to stabilize and support the volatile Russian financial and currency markets, the Russian authorities imposed significant currency control measures aimed at restricting the outflow of foreign currency and capital from Russia, imposed various restrictions on transacting with non-Russian parties, banned exports of various products and imposed other economic and financial restrictions. If we are unable to receive payment from customers in Russia or transfer money outside of Russia, it could affect our ability to convert backlog from that region into revenue. The situation is rapidly evolving, and the United States, the EU, the United Kingdom and other countries may implement additional sanctions, export controls or other measures against Russia and other countries, regions, officials, individuals or industries in the respective territories. Such sanctions and measures, as well as existing and potential further responses from Russia or other countries, could adversely affect the global economy and financial markets, as well as our business, financial condition and results of operations, which may also magnify the impact of other risks described in this “Risk Factors” section. We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our business partners and customers, although our business operations involving Russia and Ukraine do not constitute a material portion of our business. However, the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. If we encounter manufacturing problems, or if our manufacturing facilities do not continue to meet federal, state or foreign manufacturing standards, we may be required to temporarily cease all or part of our manufacturing operations, which would result in delays and lost revenue. The CyberKnife and TomoTherapy platforms are complex and require the integration of a number of components from several sources of supply. We must manufacture and assemble these complex systems in commercial quantities in compliance with regulatory requirements and at an acceptable cost. Our linear accelerator components are extremely complex devices and require significant expertise to manufacture, and we may encounter difficulties in scaling up production of the CyberKnife or TomoTherapy platforms, including problems with quality control and assurance, component supply shortages, increased costs, shortages of qualified personnel, the long lead time required to develop additional radiation shielded facilities for purposes of testing our products and/or difficulties associated with compliance with local, state, federal and foreign regulatory requirements. In addition, the COVID- 19 pandemic has and may continue to impact the supply of key components such that we may not receive them in a timely manner, in sufficient quantities, or at a reasonable cost. We may also experience limitations in the availability of qualified personnel as a result of shelter-in-place rules, quarantine requirements, or illness. If component supply or our manufacturing capacity does not keep pace with demand, we will not be able to fulfill product orders or service our products in a timely manner, which in turn may have a negative effect on our financial results and overall business. Conversely, if demand for our products decreases, the fixed costs associated with excess manufacturing capacity may adversely affect our financial results. Our manufacturing processes and the manufacturing processes of our third-party suppliers are required to comply with the FDA’s Quality System Regulations (“QSR”) for any products imported into, or sold within, the U.S. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, production process and controls, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. 44 Furthermore, we are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality requirements. We are also subject to state licensing and other requirements and licenses applicable to manufacturers of medical devices, and we are required to comply with International Organization for Standardization (“ISO”), quality system standards in order to produce products for sale in Europe and Canada, as well as various other foreign laws and regulations. Because our manufacturing processes include the production of diagnostic and therapeutic X-ray equipment and laser equipment, we are subject to the electronic product radiation control provisions of the Federal Food, Drug and Cosmetic Act, which requires that we file reports with the FDA, applicable states and our customers regarding the distribution, manufacturing and installation of these types of equipment. The FDA enforces the QSR and the electronic product radiation control provisions through periodic inspections, some of which may be unannounced. We have been and anticipate in the future being subject to such inspections. FDA inspections usually occur every two to three years. During such inspections, the FDA may issue Inspectional Observations on Form FDA 483, listing instances where the manufacturer has failed to comply with applicable regulations and procedures, or warning letters. If a manufacturer does not adequately address the observations, the FDA may take enforcement action against the manufacturer, including the imposition of fines, restriction of the ability to export product, total shutdown of production facilities and criminal prosecution. If we or a third-party supplier receive a Form FDA 483 with material or major observations that are not promptly corrected, fail to pass a QSR inspection, or fail to comply with these, ISO and other applicable regulatory requirements, our operations could be disrupted and our ability to generate sales could be delayed. Our failure to take prompt and satisfactory corrective action in response to an adverse inspection or our failure to comply with applicable standards could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our products, civil or criminal penalties, or other sanctions, which would cause our sales and business to suffer. In addition, because some foreign regulatory approvals are based on approvals or clearances from the FDA, any failure to comply with FDA requirements may also disrupt our sales of products in other countries. We cannot assure you that the FDA or other governmental authorities would agree with our interpretation of applicable regulatory requirements or that we or our third-party suppliers have in all instances fully complied with all applicable requirements. If any of these events occur, our reputation could be harmed, we could lose customers and there could be a material adverse effect on our business, financial condition and results of operations. If we cannot achieve the required level and quality of production, we may need to outsource production or rely on licensing and other arrangements with third parties who possess sufficient manufacturing facilities and capabilities in compliance with regulatory requirements. Even if we could outsource needed production or enter into licensing or other third-party arrangements, this could reduce our gross margin and expose us to the risks inherent in relying on others. We also cannot assure you that our suppliers will deliver an adequate supply of required components on a timely basis or that they will adequately comply with the QSR. Failure to obtain these components on a timely basis would disrupt our manufacturing processes and increase our costs, which would harm our operating results. 45 If we are unable to develop new products or enhance existing products to meet our customers’ needs and compete favorably in the market, we may be unable to attract or retain customers. Our success depends on the successful development, regulatory clearance or approval, introduction and commercialization of new generations of products, treatment systems, and enhancements to and/or simplification of existing products that will meet our customers’ needs provide novel features and compete favorably in the market. The CyberKnife and TomoTherapy platforms, which are currently our principal products, are technologically complex and must keep pace with, among other things, the products of our competitors and new technologies. We are making significant investments in long-term growth initiatives. Such initiatives require significant capital commitments, involvement of senior management and other investments on our part, which we may be unable to recover. Our timeline for the development of new products or enhancements may not be achieved and price and profitability targets may not prove feasible. Commercialization of new products may prove challenging, and we may be required to invest more time and money than expected to successfully introduce them. Once introduced, new products may adversely impact orders and sales of our existing products or make them less desirable or even obsolete. Compliance with regulations, competitive alternatives, and shifting market preferences may also impact the successful implementation of new products or enhancements. Our inability to develop, gain regulatory approval for or supply competitive products to the market as quickly and effectively as our competitors could limit market acceptance of our products and reduce our sales. Our ability to successfully develop and introduce new products, treatment systems and product enhancements and simplifications, and the revenues and costs associated with these efforts, will be affected by our ability to: (cid:120) (cid:120) (cid:120) (cid:120) properly identify and address customer needs; prove feasibility of new products in a timely manner; educate physicians about the use of new products and procedures; comply with internal quality assurance systems and processes timely and efficiently; (cid:120) manage the timing and cost of obtaining regulatory approvals or clearances; (cid:120) accurately predict and control costs associated with inventory overruns caused by phase-in of new products and phase-out of old products; (cid:120) price new products competitively; (cid:120) manufacture and deliver our products in sufficient volumes on time and accurately predict and control costs associated with manufacturing, installation, warranty and maintenance of the products; (cid:120) meet our product development plan and launch timelines; (cid:120) enter into collaborations with third parties. For example, a key component of our research and development program is our collaboration with research programs at selected hospitals, cancer treatment centers, academic institutions and research institutions worldwide; (cid:120) improve manufacturing yields of components; and (cid:120) manage customer demands for retrofits of both old and new products. Even if customers accept new products or product enhancements, the revenues from these products may not be sufficient to offset the significant costs associated with making them available to customers. We cannot be sure that we will be able to successfully develop, obtain regulatory approval or clearance for, manufacture or introduce new products, treatment systems or enhancements, the roll-out of which involves compliance with complex quality assurance processes, including QSR. Failure to obtain regulatory approval or clearance for our products or to complete these processes in a timely and efficient manner could result in delays that 46 could affect our ability to attract and retain customers, or could cause customers to delay or cancel orders, causing our backlog, revenues and operating results to suffer. If we do not effectively manage our growth, our business may be significantly harmed. In order to implement our business strategy, we expect continued growth in our infrastructure requirements, particularly as we expand into new and growing markets as well as expand our manufacturing capacities and sales and marketing capabilities. To manage our growth, we must expand our facilities, augment our management, operational and financial systems, hire and train additional qualified personnel, scale-up our manufacturing capacity and expand our marketing and distribution capabilities, all of which will be more difficult to accomplish the longer that our employees must work remotely from home. Our manufacturing, assembly and installation process is complex and occurs over many months and we must effectively scale this entire process to satisfy customer expectations and changes in demand. Further, to accommodate our growth and compete effectively, we will be required to make improvements to our business operations. We cannot be certain that our personnel, systems, procedures and internal controls will be adequate to support our future operations and any expansion of our systems and infrastructure may require us to commit significant additional financial, operational and management resources. If we cannot manage our growth effectively, our business will suffer. We could become subject to product liability claims, product recalls, other field actions and warranty claims that could be expensive, divert management’s attention and harm our business. Our business exposes us to potential liability risks that are inherent in the manufacturing, marketing, sale, installation, servicing, and support of medical device products. We may be held liable if one of our CyberKnife or TomoTherapy platforms or our Precision Treatment Planning with iDMS Data Management System software causes or contributes to injury or death or is found otherwise unsuitable during usage. Our products incorporate sophisticated components and computer software. Complex software can contain errors, particularly when first introduced. In addition, new products or enhancements may contain undetected errors or performance problems that, despite testing, are discovered only after installation. Because our products are designed to be used to perform complex surgical and therapeutic procedures involving delivery of radiation to the body, defects, even if small, could result in a number of complications, some of which could be serious and could harm or kill patients. Any alleged weaknesses in physician training and services associated with our products may result in unsatisfactory patient outcomes and product liability lawsuits. It is also possible that defects in the design, manufacture or labeling of our products might necessitate a product recall or other field corrective action, which may result in warranty claims beyond our expectations and may harm our reputation and create adverse publicity. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs that may not be covered by insurance and be time-consuming to defend. We may also be subject to claims for personal injury, property damage or economic loss related to, or resulting from, any errors or defects in our products, or the installation, servicing and support of our products, or any professional services rendered in conjunction with our products. Adverse publicity related to any product liability actions may cause patients to be less receptive to radiation therapy generally or our products specifically and could also result in additional regulation that could adversely affect our ability to promote, manufacture and sell our products. The coverage limits of our insurance policies may not be adequate to cover future claims. If sales of our products increase or we suffer future product liability claims, we may be unable to maintain product liability insurance in the future at satisfactory rates or with adequate amounts of coverage. A product liability claim, any product recalls or other field actions or excessive warranty claims, whether arising from defects in design or manufacture or labeling, could negatively affect our sales or require a change in the design, manufacturing process or the indications for which our systems or software may be used, any of which could harm our reputation and business and result in a decline in revenue. In addition, if a product we designed or manufactured is defective, whether because of design or manufacturing, supplied parts, or labeling defects, improper use of the product or other reasons, we may be required to notify regulatory authorities and/or to recall the product, possibly at our expense. We have voluntarily initiated recalls and other product corrections in the past. For example, although we have not initiated any product recalls that were reportable to the FDA in fiscal year 2022, in fiscal year 2021, we voluntarily initiated one recall related to the TomoTherapy platform and one recall on the CyberKnife platform, both of which were reported to the FDA. We are committed to the safety and precision of our products and while no serious adverse health consequences have been reported in connection with these recalls and the costs associated with each such recall were not material, we cannot ensure that the FDA will not require that we take additional actions to address problems that resulted in previous recalls or that similar or more significant product recalls will not occur in the future. A required notification of a correction or removal to a regulatory authority or recall could result in an investigation by regulatory authorities of 47 our products, which could in turn result in required recalls, restrictions on the sale of the products or other civil or criminal penalties. The adverse publicity resulting from any of these actions could cause customers to review and potentially terminate their relationships with us. These investigations, corrections or recalls, especially if accompanied by unfavorable publicity, patient injury or termination of customer contracts, could result in incurring substantial costs, losing revenues and damaging our reputation, each of which would harm our business. Our reliance on single-source suppliers for critical components of the CyberKnife and TomoTherapy platforms could harm our ability to meet demand for our products in a timely and cost effective manner. We currently depend on single-source suppliers for some of the critical components necessary to assemble the CyberKnife and TomoTherapy platforms, including, with respect to the CyberKnife platform, the robot, couch and magnetron and, with respect to the TomoTherapy platforms, the couch, solid state modulator and magnetron. In addition, as a result of global supply chain disruptions, we have experienced and continue to experience disruptions in parts of our supply chain, which has caused delays in the receipt of certain component parts for our products and increased pricing pressure for such parts, including with respect to parts purchased from our single-source suppliers, adversely affecting our gross margins in the near term, and increasing the risk that these supply chain disruptions could materially affect our ability to meet customer demand. Furthermore, as a result of the effects of the COVID-19 pandemic and associated supply chain challenges, some of our suppliers have limited or reduced the sale of such components to us or increased the cost of certain components to us. If these conditions worsen, or if these suppliers were to experience financial difficulties, additional supply chain or other problems that prevents them from supplying us with the necessary components, we could fail to meet product demand, which could have a material adverse effect on our business, financial condition and results of operations. These sole source and other suppliers could also be subject to quality and performance issues, materials shortages, excess demand, reduction in capacity and other factors that may disrupt the flow of goods to us; thereby adversely affecting our business and customer relationships. If any single-source supplier was to cease delivering components to us or fail to provide the components to our specifications and on a timely basis, we might be required to find alternative sources for these components. The disruption or termination of the supply of components, including as a result of global shortages in important components, have resulted in, and will continue to cause inflationary pressure on our supply chain and could cause a significant increase in the costs of these components, which could affect our results of operations. In some cases, alternative suppliers may be located in the same geographic area as existing suppliers, and are thus subject to the same economic, political and geographic factors that may affect existing suppliers to meet our demand. We may have difficulty or be unable to find alternative sources for these components. Difficulties in obtaining a sufficient supply of component materials continue to increase, and we expect such difficulties to persist at least through the remainder of the calendar year of 2022, if not longer. As a result, we may be unable to meet the demand for the CyberKnife or TomoTherapy platforms, which could harm our ability to generate revenue and damage our reputation. Even if we do find alternate suppliers, we will be required to qualify any such alternate suppliers and we would likely experience a lengthy delay in our manufacturing processes or a cessation in production, which would result in delays of shipment to end users. We cannot assure you that our single-source suppliers will be able or willing to meet our future demands. We generally do not maintain large volumes of inventory, which makes us even more susceptible to harm if a single-source supplier fails to deliver components on a timely basis, and maintaining our historical levels of inventory has been adversely impacted by the COVID-19 pandemic. Furthermore, if we are required to change the manufacturer of a critical component of the CyberKnife or TomoTherapy platforms, we will be required to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements and guidelines, which could further impede our ability to manufacture our products in a timely manner. If the change in manufacturer results in a significant change to the product, a new 510(k) clearance would be necessary, which would likely cause substantial delays. The disruption or termination of the supply of key components for the CyberKnife or TomoTherapy platforms could harm our ability to manufacture our products in a timely manner or within budget, harm our ability to generate revenue, lead to customer dissatisfaction and adversely affect our reputation and results of operations. Failures of components also affect the reliability and performance of our products, can reduce customer confidence in our products, and may adversely affect our financial performance. From time to time, we may receive components that do not perform according to their specifications, which could result in the inability of such customer utilize our systems in their practices until such components are replaced. Any future difficulty in obtaining reliable component parts could result in increased customer dissatisfaction and adversely affect our reputation, our ability to protect and retain our installed base of customers and results of operations. 48 The inflationary environment could materially adversely impact our business and results of operations. Our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors that impact customer confidence and spending, including capital spending. Changes in economic conditions, supply chain constraints, logistics challenges, the conflict between Russia and Ukraine and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation than previously experienced or expected, which has lead to an increase in costs. In an inflationary environment, we may be unable to raise the prices of our products and services sufficiently to keep up with the rate of inflation. Impacts from inflationary pressures could be more pronounced and materially adversely impact aspects of our business where revenue streams and cost commitments are linked to contractual agreements that extend many years into the future, as we may not be able to quickly or easily adjust pricing, reduce costs, or implement counter measures. We depend on key employees, the loss of whom would adversely affect our business. If we fail to attract and retain employees with the expertise required for our business, we may be unable to continue to grow our business. We are highly dependent on the members of our senior management, sales, marketing, operations and research and development staff. Our future success will depend in part on our ability to retain our key employees and to identify, hire and retain additional personnel. Competition for qualified personnel in the medical device industry is intense and finding and retaining qualified personnel with experience in our industry is very difficult. Further, the continuing or recurring restrictions placed on recruiting, training and retention by the ongoing COVID-19 pandemic may further exacerbate these conditions and interfere with our ability to find and retain qualified personnel. We believe there are only a limited number of individuals with the requisite skills to serve in many of our key positions and we face significant competition for key personnel and other employees, particularly in the San Francisco Bay Area where our headquarters is located, from other medical equipment and software manufacturers, technology companies, universities and research institutions. As a result, we may not be able to retain our existing employees or hire new employees quickly enough to meet our needs. Moreover, we have in the past conducted reductions in force in order to optimize our organizational structure and reduce costs, and certain senior personnel have also departed for various reasons. At the same time, we may face high turnover, requiring us to expend time and resources, including financial resources, to source, train and integrate new employees. The challenging markets in which we compete for talent may also require us to invest significant amounts of cash and equity to attract and retain employees. In addition, a significant portion of our compensation to our key employees is in the form of stock related grants. A prolonged depression in our stock price could make it difficult for us to retain our key and other employees and recruit additional qualified personnel and we may have to pay additional compensation to employees to incentivize them to join or stay with us. We do not maintain, and do not currently intend to obtain, key employee life insurance on any of our personnel. If we fail to hire and retain key personnel and other employees, we may be unable to continue to grow our business successfully. Disruption of critical information technology systems, infrastructure and data or cyberattacks or other security breaches or incidents could harm our business and financial condition. Information technology helps us operate more efficiently, interface with customers, maintain financial accuracy and efficiency and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build, sustain and secure the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions or the loss, unavailability of or damage to intellectual property through a cyberattack (including ransomware and other attacks) or other security breach or incident. While management is committed to identifying and improving data security risks through oversight of data security by our Chief Information Security Officer and implementation of various technical safeguards, procedural requirements and policies, regardless of the resources we allocate and the effectiveness with which we manage them, we face a risk of cyberattacks and other security breaches and incidents. Any cyberattacks or other security breaches or incidents we suffer could expose us to a risk of lost or corrupted information, unavailability of information, unauthorized disclosure of information, claims, litigation and possible liability to employees, customers and others, and investigations and proceedings by regulatory authorities. In addition, we have moved some of our data and information to a cloud computing system, where applications and data are hosted, accessed and processed through a third party provider over a broadband internet connection. Consequently, we are dependent on the security measures of the provider of this cloud computing system, and we may also utilize third- party providers for other services such as human resources, electronic communications and financial functions. There have been and may continue to be significant attacks on certain third-party providers, and we cannot guarantee that our or our third-party providers’ systems and networks have not been breached or that they do not 49 contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our platform. Further, we could be subject to outages, cyberattacks, and other security breaches and incidents suffered by the third party service provider. Currently, during the COVID-19 pandemic, more of our personnel and the personnel of our service providers are working remotely, which increases the risks of security breaches and cyberattacks. Additionally, cybersecurity researchers have observed increased cyberattack activity, and warned of heightened risks of cybersecurity attacks, in connection with the military conflict in Ukraine. In addition to potential exposure to cyberattacks, security incidents, or other actions that may compromise the security of or interfere with the function of our products, defects or vulnerabilities in the software or systems of our third party vendors may expose failures in our internal controls and risk management processes, which may adversely impact our business, financial condition, results of operations, or cash flows and may also harm our reputation, brand, and customer relationships If our data management systems or those of our third-party providers do not effectively collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, computer viruses, security breaches, cyberattacks, catastrophic events or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we internally and externally report our operating results. As a result, our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need to protect patient and customer information, and the information technology needs associated with our changing products and services. There can be no assurance that our process of consolidating the number of systems we operate, upgrading and expanding our information systems capabilities, continuing our efforts to build security into the design of our products, protecting and enhancing our systems and developing new systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues will not arise in the future, or that we will not suffer from disruptions or other systems issues even if we devote substantial resources and personnel to these efforts. 50 In addition, privacy and security breaches and incidents arising from errors, malfeasance or misconduct by employees, contractors or others with permitted access to our systems may pose a risk that sensitive data, including individually identifiable data, may be exposed to unauthorized person or to the public and may compromise our security systems. There can be no assurance that any efforts we make to prevent against such privacy or security breaches or incidents will prevent breakdowns or breaches or incidents in our systems or those of our third-party service providers that could adversely affect our business. Third parties may also attempt to fraudulently induce employees or customers into disclosing user names, passwords or other sensitive information, which may in turn be used to access our information technology systems. For example, our employees have received in the past and likely will continue to receive “phishing” e-mails attempting to induce them to divulge sensitive information. In addition, unauthorized persons may attempt to hack into our products or systems to obtain personal data relating to patients or employees, our confidential or proprietary information or confidential information we hold on behalf of third parties, which, if successful, could pose a risk of loss, unavailability, or corruption of, or unauthorized access to or acquisition of, data, risk to patient safety and risk of product recall. As the techniques used to obtain unauthorized access to our systems change frequently and may be difficult to detect, we may not be able to anticipate and prevent these intrusions or mitigate them when they occur. Third-party service providers store and otherwise process certain personal data and other confidential or proprietary information of ourselves and third parties on our behalf, and these service providers face similar risks. Moreover, we manufacture and sell hardware and software products that allow our customers to store confidential information about their patients. Both types of products are often connected to and reside within our customers’ information technology infrastructures. We do not have measures to configure or secure our customers’ equipment or any information stored in our customers’ systems or at their locations, which is the responsibility of our customers. Our customers are also continually updating their cybersecurity standards for the products that they purchase. While we have implemented security measures designed to protect our hardware and software products from unauthorized access and cyberattacks, these measures may not meet the standards set by our customers or be effective in securing these products, particularly since techniques used to obtain unauthorized access, or to sabotage systems, change frequently and may not be recognized until launched against a target. A network security or systems security breach or incident suffered by ourselves or our third-party service providers or other events that cause the loss or unauthorized use or disclosure of, or access by third parties to, sensitive information stored by us or our customers, or the perception that these events have occurred or that our security measures for our products are lacking, could have serious negative consequences for our business, including loss of information, indemnity obligations, possible fines, penalties and damages, reduced demand for our products and services, an unwillingness of our customers to use our products or services, harm to our reputation and brand, and time consuming and expensive litigation, any of which could have an adverse effect on our financial results. To date, we have not experienced any material impact to the business or operations resulting from data, cybersecurity attacks or other security breaches; however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, including the increasing use of tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence, all of which hinders our ability to identify, investigate, and recover from incidents, there is the potential that we could be adversely impacted. This impact could result in reputational, competitive, operational, or other business harm as well as financial costs and regulatory action. While we do maintain insurance coverage that is intended to address certain aspects of data security risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise. Any actual or perceived failure by us to comply with legal or regulatory requirements related to privacy, cyber security and data protection in one or multiple jurisdictions could result in proceedings, actions or penalties against us. There are numerous state, federal and foreign laws, regulations, decisions and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of personally identifiable information and other personal, customer or other data, the scope of which is continually evolving and subject to differing interpretations. Our worldwide operations mean that we are subject to privacy, cyber security and data protection laws and regulations in many jurisdictions to varying degrees, and that some of the data we process, store and transmit may be transmitted across countries. For example, in the U.S., Health Insurance Portability and Accountability Act (“HIPAA”) privacy and security rules require us as a business associate, in certain instances, to protect the confidentiality of patient health information, and the Federal Trade Commission has consumer protection authority, including regarding privacy and cyber security. In Europe, the General Data Protection Regulation (“GDPR”), which went into effect in May 2018, imposes several stringent requirements for controllers and processors of personal data that will increase our obligations and, in the event of violations, may impose significant 51 fines of up to the greater of 4% of worldwide annual revenue or €20 million. In the UK, the Data Protection Act of 2018 and the UK GDPR, which collectively implement material provisions of the GDPR and provide for penalties for noncompliance of up to the greater of £17.5 million or four percent of worldwide revenues. Data transfer and localization requirements also appear to be increasing and becoming more complex. With regard to transfers to the U.S. of personal data from our employees and European customers and users, both the EU- U.S. Privacy Shield and standard contractual clauses issued by the European Commission (the "EU SCCs") have been subject to legal challenge. In July 2020, the Court of Justice of the European Union (“CJEU”) released a decision in the Schrems II case (Data Protection Commissioner v. Facebook Ireland, Schrems) (the “CJEU Decision”), declaring the EU-U.S. Privacy Shield invalid and imposing additional obligations in connection with the use of the EU SCCs, another mechanism for cross-border personal data transfers from the European Economic Area (“EEA”). Although the EU SCCs remain a valid means to transfer personal data from the EEA, the CJEU imposed additional obligations in connection with their use and, on June 4, 2021, the European Commission issued revised the EU SCCs that address certain concerns of the CJEU. Existing data transfers relying on the old EU SCCs can continue to be in effect until December 27, 2022, after which the revised EU SCCs will be required for all data transfers. The United Kingdom also has issued new standard contractual clauses (the "UK SCCs") that became effective March 21, 2022, and which also are required to be implemented over time. The CJEU Decision, the revised EU SCCs and UK SCCs, regulatory guidance and opinions, and other developments relating to cross-border data transfer may require us to implement additional contractual and technical safeguards for any personal data transferred out of the EEA, Switzerland, and the United Kingdom, which may increase compliance costs, lead to increased regulatory scrutiny or liability, may require additional contractual negotiations, and may adversely impact our business, financial condition and operating results. Other jurisdictions have adopted laws and regulations addressing privacy, data protection, data security, or other aspects of data processing, such as data localization. For example, the People’s Republic of China and Russia have passed laws that require individually identifiable data on their citizens to be maintained on local servers and that may restrict transfer or processing of that data if certain data quantity thresholds are triggered. Additionally, the Personal Information Protection Law (“PIPL”) of the People’s Republic of China (“PRC”), was adopted on August 20, 2021, and went into effect on November 1, 2021. The PIPL shares similarities with the GDPR, including extraterritorial application, data minimization, data localization, and purpose limitation requirements, and obligations to provide certain notices and rights to citizens of the PRC. The PIPL allows for fines of up to 50 million Renminbi or 5% of a covered company’s revenue in the prior year. We may be required to modify our policies, procedures, and data processing measures in order to address requirements under these or other privacy, data protection, or cyber security regimes, and may face claims, litigation, investigations, or other proceedings regarding them and may incur related liabilities, expenses, costs, and operational losses. Further, the current U.S. administration is engaged in a comprehensive evaluation of national security concerns and other risks relating to the transfer of personally identifiable information from the United States to China, and on June 9, 2021, U.S. President Joseph Biden signed an executive order instituting a framework for determining national security risks of transactions that involve applications connected to governments or militaries of certain foreign adversaries or that collect sensitive personal data from U.S. consumers. In 2019, an executive order citing national security risks in the telecommunications sector served to block U.S. companies from buying Chinese-made Huawei and ZTE products. If our operations, including those involving the processing of U.S.-collected data such as medical imagery, through the JV in China, come to be perceived as a U.S. national security risk, those operations may become subject to executive orders, sanctions, or other measures. Any ban or other restriction on our transfer of data to the JV in China may increase costs as we seek operational and data processing alternatives. New and proposed privacy, cybersecurity, and data protection laws are also providing new rights to individuals and increasing the penalties associated with non-compliance. For example, the California Consumer Privacy Act (the “CCPA”), which became effective on January 1, 2020, imposes stringent data privacy and data protection requirements regarding the personal information of California residents, and provides for penalties for noncompliance of up to $7,500 per violation, as well as a private right of action from individuals in relation to certain security breaches. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), approved by California voters in November 2020, will go into effect on January 1, 2023. The CPRA, which amends the CCPA, creates additional obligations relating to California consumers' personal information beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. The CPRA, which significantly modifies the CCPA, could potentially result in further uncertainty and require us to incur additional 52 costs and expenses in an effort to comply. We will continue to monitor developments related to the CPRA and anticipate additional costs and expenses associated with CPRA compliance. The enactment of the CCPA, as modified by the CPRA, is prompting a wave of similar legislative developments in other states in the U.S., which could potentially create a patchwork of overlapping but different state laws. For example, in March 2021, Virginia enacted the Virginia Consumer Data Protection Act that will go into effect on January 1, 2023, in July 2021, Colorado enacted the Colorado Privacy Act that will take effect on July 1, 2023, in March 2022 Utah enacted the Utah Consumer Privacy Act that will take effect on December 31, 2023, and in May 2022, Connecticut enacted the Act Concerning Personal Data Privacy and Online Monitoring that will take effect on July 1, 2023. These new state laws share similarities with the CCPA, CPRA, and legislation proposed in other states. Additionally, the U.S. federal government is contemplating privacy legislation. We cannot fully predict the impact of the CCPA, CPRA, or other new or proposed legislation on our business or operations, but the restrictions imposed by these laws and regulations may require us to modify our data handling practices and impose additional costs and burdens, including risks of regulatory fines, litigation and associated reputational harm. In addition, U.S. and international laws that have been applied to protect consumer privacy (including laws regarding unfair and deceptive practices in the U.S. and GDPR in the EU) may be subject to evolving interpretations or applications in light of privacy developments. As a result, we may be subject to significant consequences, including penalties and fines, for any failure to comply with such laws, regulations and directives. Privacy, cyber security and data protection legislation around the world is comprehensive and complex and there has been a recent trend towards more stringent enforcement of requirements regarding protection and confidentiality of personal data. The restrictions imposed by such laws and regulations may limit the use and adoption of our products and services, reduce overall demand for our products and services, require us to modify our data handling practices and impose additional costs and burdens. With increasing enforcement of privacy, cyber security and data protection laws and regulations, there is no guarantee that we will not be subject to investigation, enforcement actions or other proceedings by governmental bodies or that our costs relating to privacy, data protection or cyber security laws and regulations will not increase significantly. Enforcement actions, investigations and other proceedings can be costly, require significant time and attention of management and other personnel and interrupt regular operations of our business. In addition, there has been a developing trend of civil lawsuits and class actions relating to breaches of consumer data held by large companies. While we have not been named in any such suits, we may be in the future, including if we were to suffer a security breach or incident. Any inability to adequately address concerns relating to privacy, data protection or cyber security, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business. Our actual or alleged failure to comply with applicable laws and regulations could result in investigation, enforcement actions or other proceedings against us, including fines and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could harm our business, results of operations and financial condition. 53 If third-party payors do not provide sufficient coverage and reimbursement to healthcare providers for use of the CyberKnife and TomoTherapy platforms or if the number of patients covered by health insurance reduces, demand for our products and our revenue could be adversely affected. Our customers rely significantly on reimbursement from public and private third-party payors for CyberKnife and TomoTherapy platform procedures. Our ability to commercialize our products successfully and increase market acceptance of our products will depend in significant part on the extent to which public and private third-party payors provide adequate coverage and reimbursement for procedures that are performed with our products and the extent to which patients that are treated by our products continue to be covered by health insurance. Third-party payors may establish or change the reimbursement for medical products and services that could significantly influence the purchase of medical products and services. In addition, actions by the government, downturns in the economy and other factors outside of our control could negatively affect the number of individuals covered by health insurance. For example, in connection with COVID-19-related layoffs, many individuals have lost their employer-covered health insurance and there is uncertainty as to when or if such coverage will be re-established. If reimbursement policies or other cost containment measures are instituted in a manner that significantly reduces the coverage or payment for the procedures that are performed with our products or if there is a prolonged reduction in the number of patients eligible to be treated by our products that are covered by health insurance, our revenue may decline, our existing customers may not continue using our products or may decrease their use of our products, and we may have difficulty obtaining new customers. Such actions would likely have a material adverse effect on our operating results. In addition, the Centers for Medicare and Medicaid Services (“CMS”) reviews reimbursement rates annually and may implement significant changes in future years, which could discourage existing and potential customers from purchasing or using our products. Further, outside of the U.S., reimbursement practices vary significantly by country. Market acceptance of our products may depend on the availability and level of coverage and reimbursement in any country within a particular time. The safety and efficacy of our products for certain uses is not yet supported by long-term clinical data, and our products may therefore prove to be less safe and effective than initially thought. Although we believe that the CyberKnife and TomoTherapy platforms have advantages over competing products and technologies, we do not have sufficient clinical data demonstrating these advantages for all tumor indications. In addition, we have only limited five-year patient survival rate data, which is a common long-term measure of clinical effectiveness in cancer treatment. We also have limited clinical data directly comparing the effectiveness of the CyberKnife platform to other competing platforms. Future patient studies or clinical experience may indicate that treatment with the CyberKnife platform does not improve patient survival or outcomes. Likewise, because the TomoTherapy platform have only been on the market since 2003, we have limited complication or patient survival rate data with respect to treatment using the systems. In addition, while the effectiveness of radiation therapy is well understood, there is a growing but still limited number of peer-reviewed medical journal publications regarding the efficacy of highly conformal treatment such as that delivered by the TomoTherapy platform. If future patient studies or clinical experience do not support our beliefs that the TomoTherapy platform offer a more advantageous treatment for a wide variety of cancer types, use of the systems could fail to increase or could decrease, and our business would therefore be adversely affected. Such results could reduce the rate of reimbursement by both public and private third-party payors for procedures that are performed with our products, slow the adoption of our products by physicians, significantly reduce our ability to achieve expected revenues and could prevent us from being profitable. In addition, if future results and experience indicate that our products cause unexpected or serious complications or other unforeseen negative effects, the FDA could rescind our clearances, our reputation with physicians, patients and others may suffer and we could be subject to significant legal liability. We rely on third parties to perform spare parts shipping and other logistics functions on our behalf. A failure or disruption at our logistics providers would adversely impact our business. Customer service is a critical element of our sales strategy. Third-party logistics providers store most of our spare parts inventory in depots around the world and perform a significant portion of our spare parts logistics and shipping 54 activities. Our logistics providers may terminate their relationship with us, suffer an interruption in their business, including as a result of COVID-19, significantly increase fees for services or experience delays, disruptions or quality control problems in their operations, or we may have to change and qualify alternative logistics providers for our spare parts. For example, we have experienced delays in shipment of parts to customers as well as increased freight and logistics expenses, which may intensify if the COVID-19 pandemic continues to disrupt the global supply chain. These delays and increased costs have adversely affected our gross margins and net income (loss) and we currently expect such delays and increased costs to continue through at least the remainder of the calendar year of 2022, if not longer. If this continues for longer than we expect or if any of the above occurs our customers may experience further delays and higher costs and our reputation, business, financial condition and results of operations, including our ability to recognize revenue, may be adversely affected. Third parties may claim we are infringing their intellectual property or that we are operating outside the scope of or violating a license or other agreement relating to their intellectual property, and we could suffer significant audit, litigation or licensing expenses, incur liabilities associated with indemnification obligations to customers, experience disruptions in the supply of components of our products or related services, or be prevented from selling our product or components of our product. The medical device industry is characterized by a substantial amount of litigation over patent and other intellectual property rights. In particular, the field of radiation treatment of cancer is well established and crowded with the intellectual property of competitors and others. We also expect that other participants will enter the field. A number of companies in our market, as well as universities and research institutions, have issued patents and have filed patent applications that relate to the use of radiation therapy and stereotactic radiosurgery to treat cancerous and benign tumors. Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of patent litigation actions is often uncertain. We have not conducted an extensive search of patents issued to third parties, and no assurance can be given that third-party patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed, or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas or fields, our competitors or other third parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware, and which may result in issued patents that our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the market for less invasive cancer treatment alternatives grows, and as the number of patents issued in this area grows, the possibility of patent infringement claims against us increases. Regardless of the merit of infringement claims, they can be time-consuming and result in costly litigation and diversion of technical and management personnel. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise funds, if necessary, to continue our operations. Also, because we purchase major components for each of our products from outside suppliers, we face the additional risk that infringement claims may be brought against us based on patents and other intellectual property rights that are embodied or contained in, or practiced by, those components (including software components) that we obtain from third parties, and any such claims against us, such as by our direct and indirect suppliers, may additionally allege that we are operating outside the scope of or violating a license or other agreement relating to their intellectual property. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the relevant patents or other intellectual property were upheld as valid and enforceable and we were found to infringe or violate the terms of a license or other agreement to which we are a party, we could be subject to third-party audit, experience disruptions in the supply of third-party components or related services, or be prevented from selling our 55 products (or components of our products) unless we obtain a license or are able to redesign the product to avoid infringement. Required licenses may not be made available to us on acceptable terms or at all. If we are unable to obtain a license or successfully redesign our system, we might be prevented from selling such system. If there is an allegation or determination that we have infringed the intellectual property rights of a competitor or other person, we may be required to pay damages, pay ongoing royalties or otherwise settle such matter upon terms that are unfavorable to us. In these circumstances, we may be unable to sell our products at competitive prices or at all, and our business and operating results could be harmed. We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. As is common in the medical device industry, we employ individuals who were previously employed at other medical equipment or biotechnology companies, including our competitors or potential competitors. We may be subject to claims that we or those employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against claims of this nature, litigation could result in substantial costs and be a distraction to management. It is difficult and costly to protect our intellectual property and our proprietary technologies and we may not be able to ensure their protection. Our success depends significantly on our ability to obtain, maintain and protect our proprietary rights to the technologies used in our products. Patents and other proprietary rights provide uncertain protections, and we may be unable to protect our intellectual property. For example, we may be unsuccessful in defending our patents and other proprietary rights against third-party challenges. As key patents expire, our ability to prevent competitors from copying our technology may be limited. In addition, patent reform legislation or precedent could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, nondisclosure agreements and other contractual provisions and technical security measures to protect our intellectual property rights. These measures may not be adequate to safeguard the technology underlying our products, including in case of a security breach involving our intellectual property. If these measures do not protect our rights adequately, third parties could use our technology, and our ability to compete in the market would be reduced. Although we have attempted to obtain patent coverage for our technology where available and appropriate, there are aspects of the technology for which patent coverage was never sought or never received. There also may be countries in which we sell or intend to sell the CyberKnife or TomoTherapy platforms but have no patents or pending patent applications. Our ability to prevent others from making or selling duplicate or similar technologies will be impaired in those countries in which we have no patent protection. Although we have several issued patents in the U.S. and in foreign countries protecting aspects of the CyberKnife and TomoTherapy platforms, our pending U.S. and foreign patent applications may not issue, may issue only with limited coverage or may issue and be subsequently successfully challenged by others and held invalid or unenforceable. In addition, many countries limit the enforceability of patents against certain third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. Similarly, our issued patents and those of our licensors may not provide us with any competitive advantages. Competitors may be able to design around our patents or develop products which provide outcomes comparable or superior to ours. Our patents may be held invalid or unenforceable as a result of legal challenges by third parties, and others may challenge the inventorship or ownership of our patents and pending patent applications. In addition, the laws of some foreign countries, such as China where the JV operates, may not protect our intellectual property rights to the same extent as do the laws of the United States and, even if they do, uneven enforcement and procedural barriers may exist in such countries. In the event a competitor or other third party infringes upon our patent or other intellectual property rights or otherwise misappropriates such rights, enforcing those rights may be difficult and time consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time consuming and could divert our management’s attention from our core business. Damage awards resulting from successful litigation in foreign jurisdictions may not be in 56 amounts commensurate with damage awards in the U.S. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against a challenge. In addition, we may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially valuable. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We also license patent and other proprietary rights to aspects of our technology to third parties in fields where we currently do not operate as well as in fields where we currently do operate. Disputes with our licensees may arise regarding the scope and content of these licenses. Further, our ability to expand into additional fields with our technologies may be restricted by our existing licenses or licenses we may grant to third parties in the future. Additionally, we have written agreements with collaborators regarding the ownership of intellectual property arising from our collaborations. These agreements generally provide that we must negotiate certain commercial rights with collaborators with respect to joint inventions or inventions made by our collaborators that arise from the results of the collaboration. In some instances, there may not be adequate written provisions to address clearly the resolution of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our use of a third-party collaborator’s materials where required, or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’s technology, we may be limited in our ability to utilize these intellectual property rights. In addition, we may face claims by third parties that our agreements with employees, contractors or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property or may lose our exclusive rights in that intellectual property. Either outcome could harm our business. The policies and procedures we have in place to protect our trade secrets may not be effective in preventing misappropriation of our trade secrets by others. In addition, confidentiality agreements executed by our employees, consultants and advisors may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. Litigating a trade secret claim is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge methods and know-how. If we are unable to protect our intellectual property rights, we may be unable to prevent competitors from using our own inventions and intellectual property to compete against us and our business may be harmed. Unfavorable results of legal proceedings could materially and adversely affect our financial condition. We are and may become a party to legal proceedings, claims and other legal matters in the ordinary course of business or otherwise including intellectual property, product liability, employment, class action, whistleblower and other litigation claims, and governmental and other regulatory investigations and proceedings. These legal proceedings, claims and other legal matters, regardless of merit, may be costly, time-consuming and require the attention of key management and other personnel. The outcomes of such matters are uncertain and difficult to predict. If any such matters are adjudicated against us, in whole or in part, we may be subject to substantial monetary damages, disgorgement of profits and injunctions that prevent us from operating our business, any of which could materially and adversely affect our business and financial condition. We cannot guarantee that our insurance coverage will be sufficient to cover any damages awarded against us. Further, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business. Because the majority of our product revenue is derived from sales of the CyberKnife and TomoTherapy platforms, which have a long and variable sales and installation cycle, our revenues and cash flows may be volatile and difficult to predict. Our primary products are the CyberKnife and TomoTherapy platforms. We expect to generate substantially all of our revenue for the foreseeable future from sales of and service contracts for the CyberKnife and TomoTherapy platforms. The CyberKnife and TomoTherapy platforms have lengthy sales and purchase order cycles because they are major capital equipment items and require the approval of senior management at purchasing institutions. In addition, sales to some of our customers are subject to competitive bidding or public tender processes. These approval and bidding processes can be lengthy. Selling our systems, from first contact with a potential customer to a 57 complete order, generally spans six months to two years and involves personnel with multiple skills. The sales process in the U.S. typically begins with pre-selling activity followed by sales presentations and other sales related activities. After the customer has expressed an intention to purchase a CyberKnife or TomoTherapy platform, we negotiate and enter into a definitive purchase contract with the customer. The negotiation of terms that are not standard for Accuray may require additional time and approvals. Typically, following the execution of the contract, the customer begins the building or renovation of a radiation-shielded facility to house the CyberKnife or TomoTherapy platform, which together with the subsequent installation of the CyberKnife or TomoTherapy platform, can take up to 24 months to complete. In order to construct this facility, the customer must typically obtain radiation device installation permits, which are granted by state and local government bodies, each of which may have different criteria for permit issuance. If a permit was denied for installation at a specific hospital or treatment center, our CyberKnife or TomoTherapy platform could not be installed at that location. In addition, some of our customers are cancer centers or facilities that are new, and in these cases, it may be necessary for the entire facility to be completed before the CyberKnife or TomoTherapy platform can be installed, which can result in additional construction and installation delays. Our sales and installations of CyberKnife and TomoTherapy platforms tend to be heaviest during the third month of each fiscal quarter. Under our revenue recognition policy, we recognize revenue attributable to a CyberKnife or TomoTherapy platform and related upgrades when control of a platform or upgrade is transferred, which generally happens when a system or upgrade is shipped, while an element of installation is deferred until performed. Events beyond our control may delay shipment or installation and the satisfaction of contingencies required to receive cash inflows and recognition of revenue associated with shipment or installation. Such events may include a delay in the construction at the customer site or customer delay in obtaining receipt of regulatory approvals such as certificates of need. In addition, as a result of the COVID-19 pandemic and the disruption to their operations, certain customers have experienced and may continue to experience delays in construction, shipment or installation and some have failed to timely pay their obligations when due. If the events which are beyond our control delay the customer from obtaining funding or financing of the entire transaction, we may not be able to recognize revenue for the sale of the entire system because the collectability of contract consideration is not reasonably assured. The long sales cycle, together with delays in the shipment of CyberKnife and TomoTherapy platforms or customer cancellations that could affect our ability to recognize revenue, could adversely affect our cash flows and revenue, which would harm our results of operations and may result in significant fluctuations in our reporting of quarterly revenues. As a result of these fluctuations, it is likely that in some future quarters, our operating results will fall below the expectations of securities analysts or investors. If that happens, the market price of our stock would likely decrease. These fluctuations also mean that you will not be able to rely upon our operating results in any particular period as an indication of future performance. We depend on third-party distributors to market and distribute our products in international markets. If our distributors fail to successfully market and distribute our products, our business will be materially harmed. We have strategic relationships with a number of key distributors for sales and service of our products in certain foreign countries, including the JV in China and other third-party distributors in other regions. We cannot control the efforts and resources our third-party distributors will devote to marketing the CyberKnife or TomoTherapy platforms. Our distributors may not be able to successfully market and sell the CyberKnife or TomoTherapy platforms, including as a result of concerns regarding the COVID-19 pandemic, may not devote sufficient time and resources to support the marketing and selling efforts and may not market the CyberKnife or TomoTherapy platform at prices that will permit the product to develop, achieve or sustain market acceptance. In some jurisdictions, we rely on our distributors to manage the regulatory process and oversee their activities such that they are in compliance with all laws that govern their activities, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), and we are dependent on their ability to do so effectively. If a distributor is terminated by us or goes out of business, it may take us a period of time to locate an alternative distributor, to seek appropriate regulatory approvals and to train its personnel to market the CyberKnife or TomoTherapy platforms, and our ability to sell and service the CyberKnife or TomoTherapy platforms in the region formerly serviced by such terminated distributor could be materially and adversely affected. Any of our distributors could become insolvent or otherwise become unable to pay amounts owed to us when due. If any of these distributor relationships end and are not replaced, our revenues from product sales or the ability to service our products in the territories serviced by these distributors could be adversely affected. Any of these factors could materially and adversely affect our revenue from international markets, increase our costs in those markets or damage our reputation. If we are unable to attract additional international distributors, our international revenue may not grow. If our distributors experience difficulties, do not comply with regulatory or 58 legal requirements that results in fines or penalties, do not actively market the CyberKnife or TomoTherapy platforms or do not otherwise perform under our distribution agreements, our potential for revenue from international markets may be dramatically reduced, and our business could be harmed. The high unit price of the CyberKnife and TomoTherapy platforms, as well as other factors, may contribute to substantial fluctuations in our operating results, which could adversely affect our stock price. Because of the high unit price of the CyberKnife and TomoTherapy platforms and the relatively small number of units shipped each quarter, each shipment of a CyberKnife or TomoTherapy platform can represent a significant percentage of our revenue for a particular quarter. Therefore, if we do not ship a CyberKnife or TomoTherapy platform when anticipated, we will not be able to recognize the associated revenue and our operating results will vary significantly from our expectations. This is of particular concern when the economic environment is volatile, such as the current economic environment. For example, during periods of severe economic volatility, such as during the COVID-19 pandemic, we have had customers cancel or postpone orders for our CyberKnife and TomoTherapy platforms and delaying any required build-outs. These fluctuations and other potential fluctuations mean that you should not rely upon our operating results in any particular period as an indication of future performance. As a strategy to assist our sales efforts, we may offer extended payment terms, which may potentially result in higher days sales outstanding, reduced cash flows in a particular period and greater payment defaults. We offer longer or extended payment terms for qualified customers in some circumstances. As of June 30, 2022, customer contracts with extended payment terms of more than one year amounted to approximately 6% of our current accounts receivable balance. While we qualify customers to whom we offer longer or extended payment terms, their financial positions may change adversely over the longer time period given for payment. In addition, as a result of the COVID-19 pandemic and the resulting disruption to the operations of our customers, we have experienced and may continue to experience increased requests by our customers for extended payment terms as well as temporary suspensions of service and the corresponding payment obligations. This may result in an increase in payment defaults, which would negatively affect our revenue. In addition, any increase in days sales outstanding could also negatively affect our cash flow. We have entered into certain relationships with collaborators, partnerships, strategic alliances, joint venture partners and other third parties, which are outside of our full control and may harm our existing business if we fail to realize the expected benefits of such relationships. We are a part of certain collaborations, partnerships, strategic alliances, joint ventures and other third-party relationships and depend in part on them to grow our business and market share. Reliance on these third parties subjects us to a number of risks, including that: (cid:120) (cid:120) (cid:120) we may be required to contribute significant amounts of capital or incur losses in the initial stages of a collaboration, partnership, alliance or joint venture, particularly as selling and marketing activities increase ahead of expected long-term revenue. For example, we completed our capital contributions to the JV in the second quarter of fiscal 2020 and one system upgrade in the quarter ended September 30, 2020. Further contributions may be necessary in the future as the JV expands its operations in China in order to achieve our long-term strategy in China; the failure of a collaboration, partnership, strategic alliance, joint venture or other third-party relationship to meet our performance and financial expectations, which could adversely impact our ability to meet internal forecasts and expectations. For example, in the second quarter of fiscal 2021, revenue recognized from the JV was lower than expected due to the JV not achieving its plan for the quarter, which adversely affected our revenue and adjusted EBITDA; the process for customers of the collaboration, partnership, alliance or joint venture to comply with local or foreign regulatory requirements that may be required to purchase our products may cause delays in the collaborator, partner, alliance partner or joint venture’s ability to conduct business. For example, any delays in the JV obtaining necessary regulatory clearances for a Class B device, in customers in China obtaining Class A or Class B user licenses or in the subsequent tender process to complete the sale could 59 (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) affect the JV’s expected ability to initiate sales, recognize revenue and achieve revenue and orders expectations in China; we may not be in a position to exercise sole decision making authority regarding any collaboration, partnership, alliance or joint venture, which could result in impasses on decisions or decisions made by our partners, and our partners in such collaborations, partnerships, alliances or joint ventures may have economic or business interests that are, or may become, inconsistent with our interests; collaborations, partnerships, alliances and joint ventures can be difficult to manage and may involve significant expense and divert the focus and attention of our management and other key personnel away from our existing businesses; with respect to joint ventures, we may not be able to attract qualified employees, acquire customers or develop reliable supply, distribution or other partnerships; we could face potential damage to existing customer relationships or lack of customer acceptance or inability to attract new customers as a result of certain collaborations, partnerships, alliances and joint ventures; collaborators, partners, alliance partners and joint ventures may also operate in foreign jurisdictions with laws and regulations with which we have limited familiarity, which could adversely impact our ability to comply with such laws and regulations and may lead to increased litigation risk; and foreign laws may offer us inadequate or less intellectual property protection relative to U.S. laws, which may impact our ability, as well as the ability of the collaborator, partner, alliance partner and joint venture, to safeguard our respective intellectual property from infringement and misappropriation. As a result of these and other factors, we may not realize the expected benefits of any collaboration, partnership, strategic alliance or joint venture or such benefits may not be realized at expected levels or within the expected time period. We may attempt to acquire new businesses, products or technologies, including forming joint ventures, and if we are unable to successfully complete these acquisitions or to integrate acquired businesses, products, technologies or employees, we may fail to realize expected benefits or harm our existing business. Our success will depend, in part, on our ability to expand our product offerings and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses, products or technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time consuming, and costly, and we may not be able to successfully complete identified acquisitions. Other companies may compete with us for these strategic opportunities. In addition, even if we successfully complete an acquisition, we may not be able to successfully integrate newly acquired organizations, products or technologies into our operations or timely and effectively commence operations because the process of integration could be expensive, time consuming and may strain our resources. Furthermore, the products and technologies that we acquire may not be successful or may require significantly greater resources and investments than we originally anticipated. Implementing or acquiring new lines of business or offering new products and services within existing lines of business can affect the sales and profitability of existing lines of business or products and services, including as a result of sales channel conflicts. With respect to any acquisition, we may be unable to retain employees of acquired companies, or retain the acquired company’s customers, suppliers, distributors or other partners who are our competitors or who have close relationships with our competitors. Future acquisitions could also result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities, or expenses or other charges, any of which could harm our business and affect our financial results or cause a reduction in the price of our common stock. Further, acquisition targets may also operate in foreign jurisdictions with laws and regulations with which we have limited familiarity, which could adversely impact our ability to comply with such laws and regulations and may lead to increased litigation risk. Such laws may also offer us inadequate or less intellectual property protection relative to U.S. laws, which may impact our ability, as well as the ability of the acquisition target, to safeguard our respective intellectual property from infringement and misappropriation. As a result of these and other factors, we may not realize the 60 expected benefits of any acquisition or such benefits may not be realized at expected levels or within the expected time period. The failure to successfully consummate such strategic transactions and effectively integrate and execute following such consummation may have an adverse impact on our growth, profitability, financial position and results of operations. We may not be able to fully utilize certain tax loss carryforwards. As of June 30, 2022, we had approximately $324.0 million and $131.1 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 2023 for state purposes. In addition, as of June 30, 2022, we had federal and state research and development tax credit carryforwards of approximately $25.5 million and $22.1 million, respectively. If not utilized, the California research credits have no expiration date, but the federal research credits and other non-California state research credits will begin to expire in 2023. The Tax Act legislation, as modified by the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), among other things, includes changes to the rules governing net operating losses. Net operating losses arising in tax years beginning after December 31, 2017 are subject to an 80% of taxable income limitation (as calculated before taking the net operating losses into account). It is uncertain if and to what extent various states will conform to the Tax Act or CARES Act. For state income tax purposes, there may be periods during which the use of net operating losses is suspended or otherwise limited. On February 9, 2022, California enacted 2022 CA SB11, which shortens the previously enacted suspension on the use of net operating losses and prior limits on the use of business tax credits, including the research and development credit. In addition, utilization of our net operating loss and credit carry forwards is subject to annual limitation due to the application of the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions to us. Future changes in our stock ownership, including future offerings, as well as changes that may be outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code. We are subject to the tax laws of various foreign jurisdictions, which are subject to unanticipated changes and interpretation and could harm our future results. The application of tax laws of various foreign jurisdictions is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of jurisdictions in which we operate may challenge our methodologies for valuing intercompany arrangements including our transfer pricing or determine that the manner in which we operate our business does not achieve the intended tax consequences. The application of tax laws can also be subject to conflicting interpretations by tax authorities in the various jurisdictions we operate. It is not uncommon for taxing authorities in different countries to have conflicting views, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes. Further, tax laws are subject to change, which could adversely impact our tax rate. For example, the current administration has proposed tax reform legislation to impose a global minimum tax, which could result in increased marginal corporate tax rates. A number of countries, as well as organizations such as the Organization for Economic Cooperation and Development, support the global minimum tax initiative. Such countries and organizations are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business, which could materially impact our results of operation. Our results may be impacted by changes in foreign currency exchange rates. Currently, the majority of our international sales are denominated in U.S. Dollars. As a result, an increase in the value of the U.S. Dollar relative to foreign currencies could require us to reduce our sales price or make our products less competitive in international markets. If the U.S. Dollar strengthens, it could cause potential delays in orders and we may see our sales decline. Also, if our international sales increase, we may enter into a greater number of transactions denominated in non-U.S. Dollars, which would expose us to foreign currency risks, including changes in currency exchange rates. If we are unable to address these risks and challenges effectively, our international operations may not be successful and our business would be materially harmed. If we fail to maintain an effective system of internal control over financial reporting, our ability to produce timely and accurate financial results could be impaired. As a result, current and potential stockholders could lose confidence in our financial reporting, which could have an adverse effect on our business and our stock price. 61 Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal, or unauthorized transactions. If we cannot maintain effective controls and provide timely and reliable financial reports, our business and operating results could be harmed. A failure to implement and maintain effective internal control over financial reporting could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our business and operating results and our stock price, and we could be subject to stockholder litigation. In addition, it may be difficult to timely determine the effectiveness of our financial reporting systems and internal controls because of the complexity of our financial model. We recognize revenue from a range of transactions including CyberKnife and TomoTherapy platform sales and services. The CyberKnife and TomoTherapy platforms are complex products that contain both hardware and software elements. The complexity of the CyberKnife and TomoTherapy platforms and of our financial model used to recognize revenue on such systems requires us to process a greater variety of financial transactions than would be required by a company with a less complex financial model. Accordingly, efforts to timely remediate deficiencies or weaknesses in our internal controls would likely be more challenging for us than they would for a company with a less complex financial model. Furthermore, if we were to find an internal control deficiency or material weakness, we may be required to amend or restate historical financial statements, which would likely have a negative impact on our stock price. Our liquidity could be adversely impacted by adverse conditions in the financial markets. At June 30, 2022, we had $88.7 million in cash and cash equivalents. The available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of cash in our operating accounts and cash invested in money market funds. To date, we have experienced no material realized losses on or lack of access to our invested cash, or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. At any point in time, we also have funds in our operating accounts that are with third-party financial institutions that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or become subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts. Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy. While we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months, the timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including the other risk factors described above and below. If our capital resources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or debt securities or obtain other debt financing, which could be difficult or impossible depending on the state of economic and capital markets environments at the time, as well as the state of our business, operating results and financial condition. For example, any sustained disruption in the capital markets from the global economic environment could negatively impact our ability to raise capital. Our debt levels may impair our ability to obtain additional financing in the future. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. We cannot assure that additional financing, if required or desired, will be available in amounts or on terms acceptable to us, if at all. Risks Related to the Regulation of our Products and Business Modifications, upgrades, new indications and future products related to the CyberKnife or TomoTherapy Systems or the Precision Treatment Planning and iDMS Data Management System software may require new FDA 510(k) clearances or premarket approvals and similar licensing or approvals in international markets. Such 62 modifications, or any defects in design, manufacture or labeling may require us to recall or cease marketing the affected systems or software until approvals or clearances are obtained. The CyberKnife and TomoTherapy platforms as well as the Precision Treatment Planning with iDMS Data Management System software are medical devices that are subject to extensive regulation in the United States by local, state and the federal government, including the FDA. The FDA cleared the latest imaging feature for the Radixact System, ClearRTTM, under K202412 on December 18, 2020. The FDA regulates virtually all aspects of a medical device design, development, testing manufacturing, labeling, storage, record keeping, adverse event reporting, sale, promotion, distribution and shipping. Before a new medical device, or a new intended use or indication or claim for an existing product, can be marketed in the United States, it must first receive either premarket approval or 510(k) clearance from the FDA, unless an exemption exists. Either process can be expensive, lengthy and unpredictable. The FDA’s 510(k) clearance process generally takes from three to twelve months, but it can last longer. The process of obtaining premarket approval is much more costly and uncertain than the 510(k) clearance process and it generally takes from one to three years, or even longer, from the time the application is filed with the FDA. Additionally, outside of the United States, our products are subject to clearances and approvals by foreign governmental agencies similar to the FDA. In order to market our products internationally, we must obtain licenses or approvals from these governmental agencies, which could include local requirements, safety standards, testing or certifications, and can be time consuming, burdensome and uncertain. Despite the time, effort and cost, there can be no assurance that a particular device or a modification of a device will be approved or cleared by the FDA or any foreign governmental agency in a timely fashion, if at all. Even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses of the product, which may limit the market for those products, and how those products can be promoted. Medical devices may only be marketed for the indications for which they are approved or cleared. The FDA and other foreign governments also may change their policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay approval or clearance of our device, or could impact our ability to market our currently approved or cleared device. We are also subject to medical device reporting regulations, which require us to report to the FDA and other international governmental agencies if our products cause or contribute to a death or a serious injury, or malfunction in a way that would likely cause or contribute to a death or a serious injury. We also are subject to the QSR in the U.S. and ISO 13485 certification in many international markets, compliance with which is necessary to receive FDA and other international clearances or approvals to market new products and is necessary for us to be able to continue to market a cleared or approved product in the United States or globally. After a product is placed in the market, we are also subject to regulations by the FDA and Federal Trade Commission related to the advertising and promotion of our products to ensure our claims are consistent with our regulatory clearances, that there is scientific data to substantiate our claims and that our advertising is not false or misleading. Our products are also subject to state regulations and various worldwide laws and regulations. A component of our strategy is to continue to upgrade the CyberKnife and TomoTherapy platforms as well as the Precision Treatment Planning with iDMS Data Management System software. Upgrades previously released by us required 510(k) clearance and international registration before we were able to offer them for sale. We expect our future upgrades will similarly require 510(k) clearance or approval; however, future upgrades may be subject to substantially more time-consuming data generation requirements and uncertain premarket approval or clearance processes. If we were required to use the premarket approval process for future products or product modifications, it could delay or prevent release of the proposed products or modifications, which could harm our business. The FDA requires device manufacturers to make their own determination of whether or not a modification requires an approval or clearance; however, the FDA can review a manufacturer’s decision not to submit for additional approvals or clearances. Any modification to an FDA approved or cleared device that would significantly affect its safety or efficacy or that would constitute a major change in its intended use would require a new premarket approval or 510(k) clearance. We cannot assure you that the FDA will agree with our decisions not to seek approvals or clearances for particular device modifications or that we will be successful in obtaining premarket approvals or 510(k) clearances for modifications in a timely fashion, if at all. We have obtained 510(k) clearance for the CyberKnife platform for the treatment of conditions anywhere in the body when radiation treatment is indicated, and we have obtained 510(k) clearance for the TomoTherapy platform to be used as integrated systems for the planning and delivery of IMRT for the treatment of cancer. We have made modifications to the CyberKnife and TomoTherapy platforms in the past and may make additional modifications in the future that we believe do not or will not require additional approvals or clearances. If the FDA disagrees, based on new finalized guidance and requires us to obtain additional premarket approvals or 510(k) clearances for any 63 modifications to the CyberKnife or TomoTherapy platforms and we fail to obtain such approvals or clearances or fail to secure approvals or clearances in a timely manner, we may be required to cease manufacturing and marketing the modified device or to recall such modified device until we obtain FDA approval or clearance and we may be subject to significant regulatory fines or penalties. The FDA and similar governmental authorities in other countries in which we market and sell our products have the authority to require the recall of our products in the event of material deficiencies or defects in design, manufacture or labeling. A government mandated recall, or a voluntary recall by us, could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling and user manuals. Any recall could divert management’s attention, cause us to incur significant expenses, generate negative publicity, harm our reputation with customers, negatively affect our future sales and business, require redesign of the CyberKnife or TomoTherapy platform, and harm our operating results. In these circumstances, we may also be subject to significant enforcement action. If any of these events were to occur, our ability to introduce new or enhanced products in a timely manner would be adversely affected, which in turn would harm our future growth. We are subject to federal, state and foreign laws and regulations applicable to our operations, the violation of which could result in substantial penalties and harm our business. In addition to regulation by the FDA and similar governmental authorities in other countries, our operations are subject to other laws and regulations, such as laws and rules governing interactions with healthcare providers, anti- corruption laws, privacy rules and transparency laws. In order to maintain compliance with these laws and requirements, we must continually keep abreast of any changes or developments to be able to integrate compliance protocols into the development and regulatory documentation of our products. Failure to maintain compliance could result in substantial penalties to us and harm our business. Laws and ethical rules governing interactions with healthcare providers. The Medicare and Medicaid “anti-kickback” laws, and similar state laws, prohibit soliciting, offering, paying or accepting any payments or other remuneration that is intended to induce any individual or entity to either refer patients to or purchase, lease or order, or arrange for or recommend the purchase, lease or order of, healthcare products or services for which payment may be made under federal and state healthcare programs, such as Medicare and Medicaid. Such laws impact our sales, marketing and other promotional activities by reducing the types of financial arrangements we may have with our customers, potential customers, marketing consultants and other service providers. They particularly impact how we structure our sales offerings, including discount practices, customer support, product loans, education and training programs, physician consulting, research grants and other service arrangements. Many of these laws are broadly drafted and are open to a variety of interpretations, making it difficult to determine with any certainty whether certain arrangements violate such laws, even if statutory safe harbors are available. In addition to such anti-kickback laws, federal and state “false claims” laws generally prohibit the knowing filing or causing the filing of a false claim or the knowing use of false statements to obtain payment from government payors. Although we do not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by providing inaccurate billing or coding information to customers, or through certain other activities, including promoting products for uses or indications that are not approved by the FDA. We are also subject to federal and state physician self-referral laws. The federal Ethics in Patient Referrals Act of 1989, commonly known as the Stark Law, prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member has any financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing any good or service furnished pursuant to an unlawful referral. Various states have corollary laws to the Stark Law, including laws that require physicians to disclose any financial interest they may have with a healthcare provider to their patients when referring patients to that provider. Both the scope and exceptions for such laws vary from state to state. If our past or present operations are found to be in violation of any of these “anti-kickback,” “false claims,” “self-referral” or other similar laws in foreign jurisdictions, we may be subject to the applicable penalty associated with the violation, which may include significant civil and criminal penalties, damages, fines, imprisonment and exclusion from healthcare programs. The impact of any such violations may lead to curtailment or restructuring of our operations, which could adversely affect our ability to operate our business and our financial results. 64 Anti-corruption laws. We are also subject to laws regarding the conduct of business overseas, such as the FCPA, the U.K. Bribery Act of 2010, the Brazil Clean Companies Act, and other similar laws in foreign countries in which we operate. The FCPA prohibits the provision of illegal or improper inducements to foreign government officials in connection with the obtaining of business overseas. Becoming familiar with and implementing the infrastructure necessary to ensure that we and our distributors comply with such laws, rules and regulations and mitigate and protect against corruption risks could be quite costly, and there can be no assurance that any policies and procedures we do implement will protect us against liability under the FCPA or related laws for actions taken by our employees, executive officers, distributors, agents and other intermediaries with respect to our business. Violations of the FCPA or other similar laws by us or any of our employees, executive officers, distributors, agents or other intermediaries could subject us or the individuals involved to criminal or civil liability, cause a loss of reputation in the market, and materially harm our business. Laws protecting patient health information. There are a number of federal and state laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use and disclosure of that protected information. In particular, the U.S. Department of Health and Human Services (“HHS”) has promulgated patient privacy rules under the HIPAA. These privacy rules protect medical records and other personal health information of patients by limiting their use and disclosure, giving patients the right to access, amend and seek accounting of their own health information and limiting most uses and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. The HIPAA privacy standard was amended by the Health Information Technology for Economic and Clinical Health Act, enacted as part of the American Recovery and Reinvestment Act of 2009. Although we are not a “covered entity” under HIPAA, we are considered a “business associate” of certain covered entities and, as such, we are directly subject to HIPAA, including its enforcement scheme and inspection requirements, and are required to implement policies, procedures as well as reasonable and appropriate physical, technical and administrative security measures to protect individually identifiable health information we receive from covered entities. Our failure to protect health information received from customers in compliance with HIPAA or other laws could subject us to civil and criminal liability to the government and civil liability to the covered entity, could result in adverse publicity, and could harm our business and impair our ability to attract new customers. Transparency laws. The Sunshine Act, which was enacted by Congress as part of the Patient Protection and Affordable Care Act on December 14, 2011, requires each applicable manufacturer, which includes medical device companies such as Accuray, to track and report to the federal government on an annual basis all payments and other transfers of value from such applicable manufacturer to U.S. licensed physicians and teaching hospitals as well as physician ownership of such applicable manufacturer’s equity, in each case subject to certain statutory exceptions. Furthermore, on October 25, 2018, President Trump signed into law the “Substance Use-Disorder Prevention that Promoted Opioid Recovery and Treatment for Patients and Communities Act” which in part (under a provision entitled “Fighting the Opioid Epidemic with Sunshine”) extends the reporting and transparency requirements for physicians in the Physician Payments Sunshine Act to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives (with reporting requirements going into effect in 2022 for payments made in 2021). Such data will be made available by the government on a publicly searchable website. Failure to comply with the data collection and reporting obligations imposed by the Sunshine Act can result in civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum of $150,000 per reporting period) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum of $1 million per reporting period). In addition, we are subject to similar state and foreign laws related to the tracking and reporting of payments and other transfers of value to healthcare professionals, the violation of which could, among other things, result in civil monetary penalties and adversely impact our reputation and business. Conflict minerals. The Dodd Frank Wall Street Reform and Consumer Protection Act and the rules promulgated by the SEC under such act require companies, including Accuray, to disclose the existence in their products of certain metals, known as “conflict minerals,” which are metals mined from the Democratic Republic of the Congo and adjoining countries. These rules require investigative efforts, which has and will continue to cause us to incur associated costs, could adversely affect the sourcing, availability and pricing of minerals used in our products and may cause reputational harm if we determine that certain of our components contain such conflict minerals or if we are unable to alter our processes or sources of supply to avoid using such materials, all of which could adversely impact sales of our products and results of operations. If we or our distributors do not obtain and maintain the necessary regulatory approvals in a specific country, we will not be able to market and sell our products in that country. To be able to market and sell our products in a specific country, we or our distributors must comply with applicable laws and regulations of that country. In jurisdictions where we rely on our distributors to manage the regulatory process, we are dependent on their ability to do so effectively. While the laws and regulations of some 65 countries do not impose barriers to marketing and selling our products or only require notification, others require that we or our distributors obtain the approval of a specified regulatory body. These laws and regulations, including the requirements for approvals, and the time required for regulatory review vary from country to country. The governmental agencies regulating medical devices in some countries, for example, require that the user interface on medical device software be in the local language. We currently provide user guides and manuals, both paper copies and electronically, in the local language but only provide an English language version of the user interface. Obtaining regulatory approvals is expensive and time-consuming, and we cannot be certain that we or our distributors will receive regulatory approvals in each country in which we market or plan to market our products. If we modify our products, we or our distributors may need to apply for additional regulatory approvals before we are permitted to sell them. We may not continue to meet the quality and safety standards required to maintain the authorizations that we or our distributors have received. It can also be costly for us and our distributors to keep up with regulatory changes issued or mandated from time to time. If we change distributors, it may be time-consuming and disruptive to our business to transfer the required regulatory approvals, particularly if such approvals are maintained by our third-party distributors on our behalf. If we or our distributors are unable to maintain our authorizations, or fail to obtain appropriate authorizations in a particular country, we will no longer be able to sell our products in that country, and our ability to generate revenue will be materially adversely affected. Within the EU, we are required under the Medical Device Directive to affix the Conformité Européene, or CE, mark on our products in order to sell the products in member countries of the EU. This conformity to the applicable directives is done through self-declaration and is verified by an independent certification body, called a Notified Body, before the CE mark can be placed on the device. Once the CE mark is affixed to the device, the Notified Body will regularly audit us to ensure that we remain in compliance with the applicable European laws or directives. CE marking demonstrates that our products comply with the laws and regulations required by the European Union countries to allow free movement of trade within those countries. If we cannot support our performance claims and/or demonstrate or maintain compliance with the applicable European laws and directives, we lose our CE mark, which would prevent us from selling our products within the European Union. In addition, the EU’s Medical Device Regulation (“MDR”), which replaced the existing Medical Device Directive, became effective in May 2021. The MDR establishes new requirements and oversight for maintaining the CE mark. The official guidance continues to be published for the implementation of these requirements and the number of Notified Bodies are still limited. There may be variability in review timeframes and requirements as both manufacturers and authorities navigate these new requirements. In addition, the EU and Switzerland failed to establish a Mutual Recognition Agreement (“MRA”) for medical devices to include Switzerland within the MDR and as a result, Switzerland has initiated its own medical device regulation similar to the EU MDR, which will require additional registrations for economic operators and products within Switzerland for our devices. Under the Pharmaceutical Affairs Law in Japan, a pre-market approval necessary to sell, market and import a product, or Shonin, must be obtained from the Ministry of Health, Labor and Welfare (“MHLW”), for our products. Before issuing approvals, MHLW examines the application in detail with regard to the quality, efficacy, and safety of the proposed medical device. The Shonin is granted once MHLW is content with the safety and effectiveness of the medical device. The time required for approval varies. A delay in approval could prevent us from selling our products in Japan, which could impact our ability to generate revenue and harm our business. In addition to laws and regulations regarding medical devices, we are subject to a variety of environmental laws and regulations around the world regulating our operations, including those relating to the use, generation, handling, storage, transportation, treatment and disposal of hazardous materials, which laws impose compliance costs on our business and can also result in liability to us. Although we follow procedures intended to comply with existing environmental laws and regulations, risk of accidental contamination or injury can never be fully eliminated. In the event of an accident, state or federal or other applicable authorities may curtail our use of these materials and interrupt our business operations. In addition, future changes in these laws and regulations could also increase our costs of doing business. We must continually keep abreast of these standards and requirements and integrate our compliance into the development and regulatory documentation for our products. Failure to meet these standards could limit our ability to market our products in those regions that require compliance to such standards. For example, the European Union has adopted directives that may lead to restrictions on the use of certain hazardous substances or other regulated substances in some of our products sold there, unless such products are eligible for an exemption. While we believe that certain of our products are exempt, there can be no guarantee that such determination would not be challenged or that the regulations would not change in a way that would subject our products to such regulation. These directives, along with other laws and regulations that may be adopted by other countries, could increase our operating costs in order to maintain access to certain markets, which could adversely affect our business. 66 Healthcare reform legislation could adversely affect demand for our products, our revenue and our financial condition. In March 2010, the Patient Protection and Affordable Care Act, as amended by Health Care and Education Reconciliation Act (collectively, the “ACA”) were signed into law. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. In particular, on December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On June 18, 2021, the United States Supreme Court upheld the ACA, holding that the individuals who brought the lawsuit did not have standing to challenge the law. It is unclear how this decision and the decisions of the current administration will impact the ACA and our business. Complying with any new legislation or reversing changes implemented under the ACA could be time-intensive and expensive, resulting in a material adverse effect on our business. The ACA includes a large number of health related provisions, including expanding Medicaid eligibility, requiring most individuals to have health insurance, establishing new regulations on health plans, establishing health insurance exchanges, requiring manufacturers to report payments or other transfers of value made to physicians and teaching hospitals, modifying certain payment systems to encourage more cost-effective care and a reduction of inefficiencies and waste and including new tools to address fraud and abuse. The laws also include a decrease in the annual rate of inflation for Medicare payments to hospitals and the establishment of an independent payment advisory board to suggest methods of reducing the rate of growth in Medicare spending. We do not yet know the full impact that the ACA will have on our business. The expansion in the government's role in the U.S. healthcare industry may result in decreased profits to us, lower reimbursement by third-party payors for our products, or reduced volume of medical procedures conducted with our products, all of which could have a material adverse effect on our business, financial condition and results of operations. The Tax Act was signed into law in December 2017, which, among other things, removed penalties for not complying with the individual mandate to carry health insurance. However, with any new administration, the federal government may take further action regarding the ACA, including, but not limited to, reversing the changes implemented by prior administrations and expanding or reducing access to coverage under the ACA. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us. In addition, since the adoption of the ACA, other legislation designed to keep federal healthcare costs down has been proposed or passed. For example, under the sequestration required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, Medicare payments for all items and services under Parts A and B incurred on or after April 1, 2013 have been reduced by up to 2%. In 2020 and 2021, during the COVID-19 pandemic, Congress passed several laws including the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and Consolidated Appropriations Act of 2021, that temporarily suspended the 2% sequestration. At the end of 2021, Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which extended the suspension on the 2% sequestration through March 31, 2022, and adjusted the sequester to 1% for the period between April 1, 2022 and June 30, 2022. Future federal legislation may impose further limitations on the coverage or amounts of reimbursement available for our products from governmental agencies or third-party payors. These limitations could have a negative impact on the demand for our products and services, and therefore on our financial position and results of operations. Since the enactment of the ACA, CMS continues its efforts to move away from fee for service payments for furnishing items and services in Medicare. As a result of actions taken in 2020 and 2021, CMS has finalized, but not implemented a radiation oncology alternative payment model (RO-APM). This model was designed to determine if a site neutral, modality agnostic, episode-based payment model would reduce Medicare expenditures and preserve beneficiary quality of care. However, due to several COVID-19 related delays and failure to gain stakeholder consensus, CMS has indefinitely delayed implementation of the model until future rule-making. As such, it remains unclear as to if or when CMS will introduce the RO-APM. If implemented, it is unclear what impact, if any, the RO- APM and other government payer initiatives will have on our business and operating results, but uncertainties surrounding the new payment model or other initiatives could pause or otherwise delay the purchase of our products by our customers and any resulting decrease in reimbursement to our customers may result in reduced demand for our services. Future legislative or policy initiatives directed at reducing costs could be introduced at either the federal or state level. We cannot predict what healthcare reform legislation or regulations, if any, including any potential repeal or 67 amendment of the ACA, will be enacted in the United States or elsewhere, what impact any legislation or regulations related to the healthcare system that may be enacted or adopted in the future might have on our business, or the effect of ongoing uncertainty or public perception about these matters will have on the purchasing decisions of our customers. However, the implementation of new legislation and regulation may materially lower reimbursements for our products, materially reduce medical procedure volumes and significantly and adversely affect our business. Risks Related to Our Common Stock The price of our common stock is volatile and may continue to fluctuate significantly, which could lead to losses for stockholders. The stock market in general has recently experienced relatively large price and volume fluctuations, particularly in response to new news on the COVID-19 pandemic. In addition, the trading prices of the stock of healthcare companies of our size can experience extreme price and volume fluctuations. These fluctuations often have been unrelated or out of proportion to the operating performance of these companies. Our stock price has experienced periods of volatility, including in recent quarters. Broad market fluctuations may also harm our stock price. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Any negative change in the public’s perception of the prospects of companies that employ similar technology or sell into similar markets could also depress our stock price, regardless of our actual results. 68 In addition to the other risk factors described above and below, factors affecting the trading price of our common stock include: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) impacts to our business, operations or financial condition caused by concerns in connection with the global economic environment, COVID-19 pandemic or supply chain disruptions; fiscal and monetary stimulus measures to counteract the impact of the COVID-19 pandemic; regulatory developments related to manufacturing, marketing or sale of the CyberKnife or TomoTherapy platform; political or social uncertainties, including the conflict between Russia and Ukraine; changes in product pricing policies; variations in our operating results, as well as costs and expenditures; announcements of technological innovations, new services or service enhancements, strategic alliances or significant agreements by us or by our competitors; changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ and our own estimates; recruitment or departure of key personnel; the performance of our competitors and investor perception of the markets and industries in which we compete; (cid:120) announcement of strategic transactions or capital raising activities; and (cid:120) market conditions in our industry, the industries of our customers and the economy as a whole, including the impact of increased inflation or a recession. Future issuances of shares of our common stock could dilute the ownership interests of our stockholders. Any issuance of equity securities could dilute the interests of our stockholders and could substantially decrease the trading price of our common stock. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions), to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding options or for other reasons. In August 2017, we issued $85.0 million aggregate principal amount of our 3.75% Convertible Notes due 2022 and in May 2021, we issued $100.0 million aggregate principal amount of our 3.75% Convertible Notes due 2026. $97.1 million aggregate principal amount of the 3.75% Convertible Notes due 2026 were issued to certain holders of the 3.75% Convertible Notes due 2022 in exchange for approximately $82.1 million aggregate principal amount of 3.75% Convertible Notes due 2022 and $2.9 million aggregate principal amount of the 3.75% Convertible Notes due 2026 were issued to certain other qualified new investors for cash. To the extent we issue common stock upon conversion of any outstanding convertible notes, that conversion would dilute the ownership interests of our stockholders. The conditional conversion features of the Notes, if triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion features of the Notes are triggered, holders of the Notes, as applicable, will be entitled to convert such notes at any time during specified periods at their option. If one or more holders elect 69 to convert such notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying solely cash in lieu of any fractional share), including if we have irrevocably elected full physical settlement upon conversion, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the applicable conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to convert such notes, if we have irrevocably elected net share settlement upon conversion we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of such notes as a current rather than long-term liability, which could result in a material reduction of our net working capital. Provisions in the indenture for the Notes, the credit agreement for our New Credit Facilities, our certificate of incorporation and our bylaws could discourage or prevent a takeover, even if an acquisition would be beneficial in the opinion of our stockholders. Provisions of our certificate of incorporation and bylaws could make it more difficult for a third-party to acquire us, even if doing so would be beneficial in the opinion of our stockholders. These provisions include: (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; establishing a classified board of directors, which could discourage a takeover attempt; prohibiting cumulative voting in the election of directors, which would limit the ability of less than a majority of stockholders to elect director candidates; limiting the ability of stockholders to call special meetings of stockholders; prohibiting stockholder action by written consent and requiring that all stockholder actions be taken at a meeting of our stockholders; and establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change of control of our company. Generally, Section 203 prohibits stockholders who, alone or together with their affiliates and associates, own more than 15% of the subject company from engaging in certain business combinations for a period of three years following the date that the stockholder became an interested stockholder of such subject company without approval of the board or 662/3% of the independent stockholders. The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of our common stock. A change of control will also trigger an event of default under the Credit Facilities. If an event of default occurs, the agent for the lenders under the Credit Facilities may, at its discretion, suspend or terminate any of the lenders’ loan obligations thereunder and/or declare all or any portion of the loan then-outstanding under the Credit Facilities, including all accrued but unpaid interest thereon, to be accelerated and immediately due and payable. Furthermore, if a “fundamental change” (as such term is defined in the applicable indenture of the Notes) occurs, holders of the Notes will have the right, at their option, to require us to repurchase all or a portion of their convertible notes. A “fundamental change” generally occurs when there is a change in control of Accuray (acquisition of 50% or more of our voting stock, liquidation or sale of Accuray not for stock in another publicly traded company) or trading of our stock is terminated. In the event of a “make-whole fundamental change” (as such term is defined in the applicable indenture of the Notes), we may also be required to increase the conversion rate applicable to the Notes surrendered for conversion in connection with such make-whole fundamental change. A “make-whole fundamental change” is generally a sale of Accuray not for stock in another publicly traded company. In addition, the applicable indentures for the Notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. General Risks 70 Our operations are vulnerable to interruption or loss because of natural disasters, global or regional health pandemics or epidemics, terrorist acts and other events beyond our control, which would adversely affect our business. We have facilities in countries around the world, including two manufacturing facilities, each of which is equipped to manufacture unique components of our products. Our manufacturing facilities are located in Madison, Wisconsin, and Chengdu, China. We do not maintain backup manufacturing facilities for any of our manufacturing facilities or for our IT facilities, so we depend on each of our current facilities for the continued operation of our business. In addition, we conduct a significant portion of other activities, including administration and data processing, at facilities located in California, which has experienced major earthquakes and fires in the past, as well as other natural disasters. Chengdu, China, where one of our manufacturing facilities is located, has also experienced major earthquakes in the past. We do not carry earthquake insurance. In addition, China has suffered health epidemics related to the outbreak of COVID-19 (including resurgences of COVID-19), avian influenza and severe acute respiratory syndrome, which could adversely affect our operations in China, including our manufacturing operations in Chengdu, as well as the operations of the JV and those of our customers. Furthermore, the COVID-19 pandemic has spread widely around the world, including in locations where we have facilities and operations. Unexpected events at any of our facilities or otherwise, including as a result of responses to epidemics or pandemics; fires or explosions; natural disasters, such as hurricanes, floods, tornados and earthquakes; war or terrorist activities (including the conflict between Russia and Ukraine); unplanned outages; supply disruptions; and failures of equipment or systems, including telecommunications systems, or the failure to take adequate steps to mitigate the likelihood or potential impact of such events, could significantly disrupt our operations, delay or prevent product manufacturing and shipment for the time required to repair, rebuild or replace our manufacturing facilities, which could be lengthy, result in large expenses to repair or replace the facilities, and adversely affect our results of operation. In particular, telecommunication system failures or disruptions could significantly disrupt our operations as a result of our increase remote work arrangements due to the COVID-19 pandemic. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil or an epidemic outbreak could have a negative effect on our operations and the operations of our suppliers and customers and the ability to travel, which could harm our business, financial condition and results of operations. Changes in interpretation or application of generally accepted accounting principles may adversely affect our operating results. We prepare our financial statements to conform to United States Generally Accepted Accounting Principles. These principles are subject to interpretation by the Financial Accounting Standards Board, American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the Securities and Exchange Commission and various other regulatory or accounting bodies. A change in interpretations of, or our application of, these principles can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Additionally, as we are required to adopt new accounting standards, our methods of accounting for certain items may change, which could cause our results of operations to fluctuate from period to period. For example, upon adoption of ASC 606, we now recognize system revenue upon transfer of control, which is generally at time of delivery. Under the previous accounting guidance, we recognized system revenue upon acceptance when and if we have installation responsibilities. If circumstances change over time or interpretation of the revenue recognition rules change, we could be required to adjust the timing of recognizing revenue and our financial results could suffer. We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future. We have never declared or paid cash dividends on our capital stock. We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our board of directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, and other factors our board of directors may deem relevant. If we do not pay dividends, a return on a stockholders’ investment will only occur if our stock price appreciates. 71 Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES Facilities We currently lease approximately 124,000 square feet of product development and administrative space in two buildings in Sunnyvale, California, as follows: (cid:120) A headquarters building that is approximately 74,000 square feet, which is leased to us until December 2023. We have the right to renew the lease term of our headquarters office building for two five-year terms upon prior written notice and the fulfillment of certain conditions; and (cid:120) A research and development facility totaling approximately 50,000 square feet, which is leased to us until December 2023. We also lease approximately 158,000 square feet of product development, manufacturing, administrative and warehouse space in four buildings in Madison, Wisconsin, as follows: (cid:120) An office building totaling approximately 61,000 square feet, which is leased to us until June 2025; (cid:120) A manufacturing facility totaling approximately 56,000 square feet, which is leased to us until June 2025; and (cid:120) Warehouse and office space in two buildings totaling approximately 41,000 square feet, which are leased to us through various dates until April 2023. Our wholly owned subsidiary, Accuray International Sàrl, leases one office building that consists of approximately 21,000 square feet of administrative space in Morges, Switzerland, which are leased to Accuray International until December 2024. In addition, our wholly-owned subsidiary, Accuray Accelerator Technology Company Limited, leases approximately 42,000 square feet of space in a manufacturing facility in Chengdu, China until July 2023. We, directly or through our subsidiaries, also maintain offices in: Pennsylvania; Durham, North Carolina; Solon, Ohio; China; Hong Kong; Japan; Spain; India; Russia; Germany; Brazil; and the United Arab Emirates. We believe our current facilities are adequate to meet our current needs, but additional space, including additional radiation shielded areas in which systems can be assembled and tested, may be required in the future to accommodate anticipated increases in manufacturing needs. Item 3. LEGAL PROCEEDINGS Refer to Note 9, Commitments and Contingencies, to the Consolidated Financial Statements for a description of certain legal proceedings currently pending against the Company. From time to time, we are involved in legal proceedings arising in the ordinary course of our business. Item 4. MINE SAFETY DISCLOSURES Not applicable. 72 PART II Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock Information Our common stock is traded on the Nasdaq Global Select Market under the symbol “ARAY.” We have never paid cash dividends on our common stock. Our Board of Directors intends to use any future earnings to support operations and reinvest in the growth and development of our business. There are no current plans to pay cash dividends to common stockholders in the foreseeable future. As of August 15, 2022, there were 176 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers or other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders and believe the number of stockholders of record underestimates our total number of stockholders. In May 2022, we granted 312,500 shares of restricted stock units (“RSUs”) to an employee, with a grant-date fair value of $2.08 per restricted stock unit. Each restricted stock unit represents the right to receive one share of our common stock upon vesting. One fourth of the aggregate RSUs vest annually over a period of four years. We did not receive any proceeds from this issuance. The issuance of such securities was exempt from registration under the Securities Act, in reliance upon Section 4(a)(2) of the Securities Act, for transactions by an issuer not involving a public offering. Other than as noted above and as previously reported to the Securities and Exchange Commission (SEC) on our Current Reports on Form 8-K, there were no sales of unregistered equity securities by us during the year ended June 30, 2022. Issuer Purchases of Equity Securities The Company had no repurchases of its common stock during the quarter ended June 30, 2022. 73 Stock Performance Graph The graph set forth below compares the cumulative total stockholder return on our common stock between June 30, 2017 and June 30, 2022, with the cumulative total return of (i) the S&P Healthcare Index and (ii) the Nasdaq Composite Index, over the same period. This graph assumes the investment of $100.00 on June 30, 2017 in our common stock, the S&P Healthcare Index and the Nasdaq Composite Index, and assumes the reinvestment of dividends, if any. COM PARI SON OF 5 YEAR CUMU LATIVE TOTAL RETURN * Amon g Accuray Incorporated, the NASDAQ Compo site Index and the S&P Health Care Index 6/14 6/15 6 /16 6 /17 6 /18 6/19 $0 $ 20 $40 $60 $8 0 $100 $120 $1 40 $16 0 $180 $200 Accuray Incorporated NASDAQ Compo site S&P Health Care *$100 inves ted on 6/30/14 in s tock or index, includ ing reinvestment of d ividend s. Fiscal year ending Ju ne 30. Copyrigh t© 20 19 Standard & Poor's, a division of S&P G lobal. A ll righ ts reserved. The comparisons shown in the graph above are based upon historical data. We caution that the stock price performance shown in the graph above is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock. Item 6. [RESERVED] 74 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our consolidated financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. 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.” Overview Company Accuray Incorporated is 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, our 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 neurosurgeons specializing in radiosurgery to treat patients with tumors in the brain and spine, and neurologic disorders. 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 Platform The CyberKnife platform is the only robotic, full-body stereotactic radiosurgery (SRS) and stereotactic body radiation therapy (SBRT) delivery device on the market. The latest generation is the CyberKnife S7 System, which combines speed, advanced precision, and real-time artificial intelligence (AI)-driven motion tracking and synchronized treatment delivery for all SRS and SBRT treatments, in as little as 15 minutes. The platform is designed to treat cancerous and benign tumors throughout the body, as well as neurologic disorders. 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 are performed on an outpatient basis in a limited number of treatment sessions - typically 1-5 fractions. They enable the treatment of patients who might not otherwise be treated with radiation, who may not be good candidates for surgery, or who desire a non-surgical treatment option. The CyberKnife S7 System includes disease-specific tracking and treatment delivery solutions for brain, spine, lung and prostate tumors, improvements in treatment speed as compared to earlier systems, more options to configure the treatment room, and expanded number of nodes leading to more coverage and minimizing dose to healthy tissue. The system has the option of fixed collimators plus the Iris Variable Aperture Collimator and/or InCise Multileaf Collimator (MLC). With the addition of the InCise MLC, the CyberKnife S7 System enables treatment of larger tumors previously thought untreatable with radiosurgery and SBRT. The InCise MLC and IMRT planning tools enable expansion of indications that can be treated with a CyberKnife platform to include many IMRT indications. 75 Using our Synchrony® real-time target tracking with dynamic delivery technology and computer controlled robotic mobility, the CyberKnife platform is designed to deliver radiation from a wide array of beam angles and autonomously track, detect and correct for even the slightest tumor and patient movement in real time throughout the entire treatment. This design is intended to enable the CyberKnife platform to deliver high dose radiation with precision and accuracy, which minimizes damage to surrounding healthy tissue and eliminates the need for invasive head or body immobilization frames. The Accuray Precision® Treatment Planning System (TPS) with the VOLO Optimizer software on the CyberKnife S7 System enables 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 this software. We believe the CyberKnife platform offers clinicians and patients significant benefits over other vendors’ radiation therapy systems in the market. The long-term success of the CyberKnife platform is dependent on a number of factors including the following: (cid:120) Continued adoption of our CyberKnife platform, including the CyberKnife M6 System and CyberKnife S7 System, in markets where they are available; (cid:120) Greater awareness among doctors and patients of the benefits of radiosurgery delivered with the CyberKnife platform, including its robotic architecture and Synchrony technology and VOLO optimizer; (cid:120) 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; (cid:120) Change in medical practice leading to utilization of stereotactic body radiation therapy more regularly as an alternative to surgery or other treatments; (cid:120) Continued advances in our technology that improve the quality of treatments and ease of use of the CyberKnife platform; (cid:120) Receipt of regulatory approvals in various countries which are expected to improve access to radiosurgery with the CyberKnife S7 System in such countries; (cid:120) Medical insurance reimbursement policies that cover CyberKnife platform treatments; and (cid:120) 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. The Radixact System, the Next-Generation TomoTherapy Platform The Radixact System, the next generation TomoTherapy platform, allows for fully integrated radiation treatment planning, delivery and data management, enabling clinicians to deliver ultra-precise treatments to more than 50 patients per day. The platform’s ring gantry architecture enables precise and efficient treatments with a high degree of dose conformity, while the high-speed binary MLC effectively modulates and shapes the radiation beam as it is emitted. The combination of the ring gantry and the MLC enable treatment to be delivered continuously in a 360 degree helical pattern around the patient’s body (TomoHelical). Additionally, the TomoDirect feature provides the TomoTherapy platform with added versatility, enabling the delivery of high quality, fixed angle beams. The two treatment delivery modes - TomoHelical and TomoDirect - provide flexibility in the types of indications that can be treated with radiation, from the simplest to the most complex cases, multiple tumors and recurrent tumors. 76 Our Synchrony real-time target tracking with dynamic delivery for the Radixact System adds intrafraction motion synchronization capabilities to this device, 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. Synchrony can be used on the Radixact System to adapt treatment delivery for tumors that move as a result of bodily processes, including respiration and digestion, as well as patient movement. Treatments are truly personalized, as delivery is adapted to the individual’s unique movements throughout treatment delivery. If movement changes during treatment, delivery is adapted for that unique change. The Radixact System seamlessly integrates with ClearRT helical kVCT high-fidelity imaging, providing clinicians with an option to produce exceptional diagnostic-like quality CT images, quickly and cost-effectively, to improve patient care. ClearRT imaging provides 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. ClearRT delivers enhanced imaging capabilities compared to conventional linear accelerator systems that rely on cone-beam CT (CBCT) imaging and as an alternative to MR-based radiation therapy systems that can be complex and cost prohibitive to use. The TomoTherapy platform integrates into a single system all of the key elements for radiation therapy, including treatment planning, CT image guided patient positioning, treatment delivery, quality assurance and adaptive planning. The imaging and treatment planning capabilities of many traditional systems are more modular or require cumbersome add ons or separate treatment planning systems that result in clinicians taking more steps between scanning, planning and treatment of patients. Conversely, the integrated imaging and treatment features of the Radixact System allows clinicians to scan, plan and treat cancer patients efficiently. Treatment plans as well as daily images can be easily accessed remotely, enabling clinical teams to collaboratively work together, regardless of location, ensuring higher quality plan development and delivery. We believe the TomoTherapy platform offers clinicians and patients significant benefits over other vendors’ radiation therapy systems in the market. The long-term success of the TomoTherapy platform is dependent on a number of factors including the following: (cid:120) Continued adoption of our TomoTherapy platform, including the Radixact System, in markets where it is available; (cid:120) 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; (cid:120) Advances in our technology that improve the quality of treatments and ease of use of TomoTherapy platform; (cid:120) Greater awareness among doctors of the now-established reliability of TomoTherapy platform; and (cid:120) 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 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. 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 platform. 77 In the United States, we primarily market directly to customers, including hospitals and stand-alone treatment facilities, through our sales organization we also market to customers through sales agents and group purchasing organizations. Outside the United States, we market to customers directly and through use of distributors and sales agents. In addition to our offices in the United States, we have sales and service offices in Europe, India, Asia, and South America. As of June 30, 2022, our systems were named in 100 out of 118 Class A user licenses awarded in the 13th five year plan by the China National Health Commission to purchase radiation therapy devices. 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. During the year ended June 30, 2022, we delivered Class A devices to China and recognized system revenue related to such devices of approximately $65.1 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 months. Despite the challenges and uncertainties in China and around the world, including those created by the COVID-19 pandemic, 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. Joint Venture In January 2019, our 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. Ltd. (the “JV”), to manufacture and sell radiation oncology systems in China. The JV aims to be uniquely positioned to serve China, which we believe is the world’s largest growth market for radiation oncology systems. 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 has a 49% ownership interest in the JV and the CIRC Subsidiary has a 51% ownership interest in the JV. In July 2019, the JV broke ground on its facility based in Tianjin, China, which serves as its headquarters and home of its manufacturing, sales organization and service operations. The JV has received its Radiation Safety License from the China Ministry of Environmental Protection, along with its license to do business in China and Medical Device Operating Permit, enabling the JV to sell, install and provide further service to our radiation therapy devices in China. The JV has also completed construction of its manufacturing facility and has obtained the Quality Management System certification with ISO13485 standard. With the receipt of the necessary permits and licenses to operate, the JV has begun selling products in China, much like a distributor. In the long term, we anticipate that the JV will manufacture and sell a locally branded “Made in China” radiotherapy device in the Class B license category, or Class B device, which would replace our current offering in that category. We believe this strategy will allow us to best maximize both near and longer-term opportunities in China. Required testing for the Class B device is ongoing and the National Medical Products Administration ("NMPA") submission is expected to finish in the fourth calendar quarter of 2022 as the due date has been extended as a result of the COVID-19 travel restrictions. We apply the equity method of accounting to our ownership interest in the JV as we have the ability to exercise significant influence over the JV but lack controlling financial interest and are not the primary beneficiary. We recognize revenue on sales to the JV in the current period, eliminating 49% of profit to the extent goods sold have not been sold through by the JV to an end customer at the end of such reporting period. We deferred $5.4 million and $2.1 million of intra-entity profit margin as of June 30, 2022 and June 30, 2021, respectively. During the year ended June 30, 2022, we recognized $1.4 million of previously deferred intra-entity profit margin from sales and recorded intra-entity profit margin deferral of $4.7 million from sales executed during the period. Our consolidated accumulated deficit includes $1.0 million of accumulated gains related to our equity method investment. 78 As of June 30, 2022, we had carrying value of $12.9 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 $14.6 million. The difference between the carrying value of the equity investment and our proportional share of the underlying equity in net assets of the JV of $1.7 million, adding back $5.4 million of eliminated intra-entity profit, constitutes equity method goodwill of $4.7 million at June 30, 2022 that is subject to impairment analysis. No impairment was identified as of June 30, 2022. COVID-19 and Economic Conditions In fiscal year 2020, an outbreak of a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) was surfaced in Wuhan, 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 at varying levels, 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, particularly in group settings. 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 operating procedures and workflow of our customers, particularly hospitals; our ability to continue to manufacture our products; and the reliability of our supply chain. Our financial results have also been affected by the COVID-19 pandemic in various ways. The COVID-19 pandemic has continued to adversely impact the pace at which our backlog converts to revenue in the near-term. This is primarily the result of pandemic-related delays in the timing of deliveries and installations which has adversely affected our revenue. We have experienced such delays in deliveries and installations since the third quarter of fiscal year 2020 and expect that such delays will continue to some degree , which could have a negative impact on our revenue. We have also experienced disruptions in sales and delays in customer payments as a result of changes to and redirection of customer resources to the response to the COVID-19 pandemic and closures of customer facilities. 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. In addition, the global supply chain is continuing to be affected by the COVID-19 pandemic as well as other geopolitical uncertainty as disruptions in parts of our supply chain have resulted in delays in the receipt of certain components for our products as well as increased pricing pressure for such parts. These ongoing supply chain challenges and heightened logistics costs have affected our gross margins and net income (loss), and our current expectations are that gross margins and net income (loss) will continue to be adversely affected by increased material costs and freight and logistic expenses at least through the remainder of the calendar year of 2022, if not longer. Furthermore, certain parts required for the manufacture and servicing of our products, such as electronic components, are scarce and becoming increasingly difficult to source even at increased prices. If such parts become unavailable to us, we would not be able to manufacture or service our products, which would adversely impact revenue, gross margins, and net income (loss). As a result, we are carefully monitoring the pandemic and related economic impact on our financial condition and results of operations. We intend to continue to execute on our strategic plans and operational initiatives. However, given the uncertainty regarding the spread, severity and potential resurgence of COVID-19, the impact of new COVID-19 variants, vaccination deployment efforts, how long the pandemic and associated health measures will last, as well as the related economic impacts, including supply chain issues and inflation, and other factors identified in Part I, Item 1A “Risk Factors” in this Form 10-K, the related financial impact cannot be reasonably estimated with any certainty at this time, although the impacts are expected to continue and may significantly affect our business. We expect that the impacts on our customers’ business and our business will continue through this period of economic uncertainty as supply chain issues, inflation and other factors continue to worsen or emerge. Accordingly, management is carefully evaluating our liquidity position, communicating with and monitoring the 79 actions of our customers and suppliers, and reviewing our near-term financial performance as the uncertainty related to these factors continues to unfold. Backlog As of June 30, 2022, backlog totaled $563.7 million, of which $0.2 million represented upgrades sold through service contracts. As of June 30, 2021, backlog totaled $616.4 million. In order for the product portion of a system sales agreement to be counted as backlog, it must meet the following criteria: (cid:120) The contract is properly executed by both the customer and us. A customer purchase order that incorporates the terms of our contract quote will be considered equivalent to a signed and executed contract. The contract has either cleared all its contingencies or contained no contingencies when signed; (cid:120) We have received a minimum deposit or a letter of credit; 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); (cid:120) The specific end customer site has been identified by the customer in the written contract or written amendment; and (cid:120) 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 our CyberKnife or TomoTherapy platforms, including the 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: cancellations, age-outs and foreign currency fluctuations. Orders could be cancelled for reasons including, without limitation, changes in customers’ needs, priorities or financial condition, changes in government or health insurance reimbursement policies, or changes to regulatory requirements. In addition to cancellations, after 2.5 years, if we have not been able to recognize revenue on a contract, we remove the revenue associated with the contract from backlog and the order is considered aged out. Contracts may age-out for many reasons, including but not limited to, inability of the customer to pay, inability of the customer to adapt their facilities to accommodate our products in a timely manner, or inability to timely obtain licenses necessary for customer facilities or operation of our equipment. Our backlog also includes amounts not denominated in U.S. Dollars and therefore fluctuations in the U.S. Dollar as compared to other currencies will impact revenue. Generally, strengthening of the U.S. Dollar will negatively impact revenue. Backlog is stated at historical foreign currency exchange rates, and revenue is released from backlog at current exchange rates, with any difference recorded as a backlog adjustment. 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 in the coming quarters as a result. 80 A summary of gross orders, net orders, and order backlog is as follows (in thousands): Gross orders Net age-outs Cancellations Currency impacts and other Net orders Order backlog at the end of the period Gross Orders and Book to Bill Ratio 2022 332,268 $ (148,869 ) (11,348 ) (4,735 ) 167,316 $ 563,684 $ Years Ended June 30, 2021 325,929 $ (122,132 ) (15,119 ) 3,203 191,881 $ 616,399 $ $ $ $ 2020 377,295 (81,073 ) (13,939 ) (1,746 ) 280,537 602,713 Gross orders are defined as the sum of new orders recorded during the period adjusted for any revisions to existing orders during the period. Our book to bill ratio is defined as gross orders for the period divided by product revenue for the period. Gross orders increased by $6.3 million for the year ended June 30, 2022, as compared to the year ended June 30, 2021. This was primarily due to an increase in CyberKnife platform orders and upgrades of $8.9 million and $2.0 million, respectively. TomoTherapy platform orders decreased by $5.8 million while upgrades increased by $2.1 million. 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. Our book to bill ratio for June 30, 2022 was 1.5 as compared to 1.8 for June 30, 2021. 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 for the year ended June 30, 2021 as compared to prior fiscal year where we experienced higher volumes of orders due to significant pent-up demand. Our book to bill ratio for June 30, 2021 was 1.8 as compared to 2.3 for June 30, 2020. Net Orders Net orders are defined as gross orders less cancellations, age-outs, foreign exchange and other adjustments during the period. Net orders decreased by $24.6 million for the year ended June 30, 2022, as compared to the year ended June 30, 2021, resulting from an increase in age-outs of $35.0 million and an unfavorable impact of foreign currency exchange rates of $7.9 million offset by an increase in age-ins of $8.2 million, an increase in gross orders of $6.3 million, and a decrease in cancellations of $3.8 million. (cid:120) The age-outs for the year ended June 30, 2022 were $183.8 million. There were $34.9 million of age-ins. Age-ins represent orders that previously aged-out but have been recognized as revenue in the current period, compared to $148.8 million of age-outs and $26.6 million of age-ins in the same period last fiscal year. (cid:120) There were $11.3 million of cancellations in year ended June 30, 2022 as compared to $15.1 million of cancellations in the year ended June 30, 2021. Cancellations are outside of our control and are difficult to 81 forecast; however, we continue to work closely with our customers to minimize the impact of cancellations on our business. (cid:120) Foreign currency impacts and other adjustments decreased net orders by $4.7 million for the year ended June 30, 2022 compared to an increase in net orders by $3.2 million for the year ended June 30, 2021. 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, partially offset by an increase in age-ins of $6.1 million and a favorable impact of foreign currency exchange rates of $4.9 million. (cid:120) 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. (cid:120) 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. (cid:120) 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. In recent years, the percentage of gross orders received from our distribution partners in the international markets represented 71%, 82%, and 76% of gross orders for fiscal year ended June 30, 2022, 2021 and 2020, respectively. We anticipate that distributor orders from international markets will continue to represent a significant portion of our gross orders in the foreseeable future. International orders are affected by foreign currency fluctuation as well as government programs that stimulate the purchase of healthcare products, both of which could affect the demand for our products and timing of orders from period to period. In addition, our order-to-revenue conversion cycle for international distributor orders has been generally longer compared to that of direct channel sales and could cause fluctuations in our age-outs from period to period. Results of Operations Fiscal 2022 results compared to 2021 (in thousands, except percentages) (Dollars in thousands) Products Services Net revenue (a) Gross profit Products gross profit Services gross profit $ $ $ Research and development expenses Selling and marketing expenses General and administrative expenses (Gain) loss on equity method investment Other expense, net Provision for income taxes Net income (loss) $ 2022 Amount %(*) 214,715 50 % 215,194 50 % 429,909 100 % 159,955 37 % 87,428 41 % 72,527 34 % 57,752 13 % 49,664 12 % 44,391 10 % (241 ) 10,391 3,345 (5,347 ) (0 )% 2 % 1 % (1 )% $ Years Ended June 30, 2021 change $ % %(*) Amount $ 176,647 45 % 219,642 55 % $ 396,289 100 % $ 159,507 40 % 74,547 42 % 84,960 39 % 52,729 13 % 42,820 11 % 41,723 11 % 0 % 7 % 0 % (2 )% (872 ) 27,666 1,752 (6,311 ) $ 38,068 22 % (2 )% (4,448 ) 8 % $ 33,620 0 % 448 $ 12,881 17 % (12,433 ) (15 )% 5,023 10 % 6,844 16 % 6 % 2,668 631 (72 )% (17,275 ) (62 )% 1,593 91 % 964 (15 )% (*) 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. 82 (a) Includes sales to the JV, an equity method investment of $55,877 and $24,393 for fiscal years ended June 30, 2022 and 2021, respectively. See Note 13. Net revenue Product Net Revenue Product net revenue increased by $38.1 million for the year ended June 30, 2022 or 22%, as compared to the year ended June 30, 2021, primarily due to an increase in unit volume sales due to strong performance in the Americas region due to pent-up demand post-COVID coupled with an increase in system average product revenue. The increase is driven by an increase in revenue from the Americas, EMEA, and China regions offset by a unit volume decline in the Japan region. Service Net Revenue Service net revenue decreased by $4.4 million, or 2%, as compared to the year ended June 30, 2021, primarily due to a decrease in service contract revenue of $3.6 million driven by the strong US dollar that reduced the dollar value of all foreign currency service contract revenue, primarily in Japan and Europe, slightly offset by an increase in installation revenue. Net revenue by geographic region, based on the shipping location of our customer, is as follows (in thousands, except percentages): Net revenue Americas Europe, Middle East, India and Africa Asia Pacific, excluding Japan and China Japan China Gross profit Years Ended June 30, 2022 2021 $ 429,909 $ 396,289 29 % 31 % 7 % 13 % 20 % 27 % 31 % 7 % 15 % 20 % The overall gross profit for the year ended June 30, 2022 increased by $0.4 million, relatively flat as compared to the year ended June 30, 2021, due to an increase in product gross profit of $12.9 million, or 17%, driven by an increase in product revenue as a result of higher shipments offset by a decrease in service gross profit of $12.4 million or 15% driven by $8.0 million increase in service cost mainly due to higher part consumption and $4.4 million lower service revenue. Research and development expenses Research and development expenses increased by $5.0 million, or 10%, for the year ended June 30, 2022, as compared to the year ended June 30, 2021. The increase was driven by an increase of $4.3 million in compensation and employee benefits expenses mainly due to additional headcount and an increase of $1.2 million in outside services offset by a decrease of $0.5 million in operational cost due to a decrease in materials costs for research and development projects. Selling and marketing expenses Selling and marketing expenses increased $6.8 million, or 16%, for the year ended June 30, 2022, as compared to the year ended June 30, 2021. The increase was primarily driven by an increase of $4.1 million in compensation and benefits cost due to an increase in headcount, an increase of $2.0 million in marketing expenses due to a greater number of in-person tradeshows as compared to virtual tradeshows in the previous year and an increase of $1.3 million in traveling expenses. 83 General and administrative expenses General and administrative expenses increased by $2.7 million, or 6%, for the year ended June 30, 2022, as compared to the year ended June 30, 2021. The increase was primarily due to an increase of $1.3 million in operating cost due to increases in insurance premiums and higher bad debt expense and an increase of $0.9 million in outside services related to consulting fees and our reinstatement of compensatory fees for our board of directors in fiscal 2022. Income on equity method investment, net Income (loss) on equity method investment was an income of $0.2 million as compared to an income of $0.9 million during the year ended June 30, 2021. Other expense, net Other expense, net decreased by $17.3 million for the year ended June 30, 2022, as compared to the year ended June 30, 2021. The decrease was primarily related to lower interest cost due to lower interest rates on our debt in fiscal 2022 and the loss on extinguishment of old convertible notes in fiscal 2021. The impact of these items was partially offset by higher foreign currency exchange gain. Provision for income taxes The provision for income taxes was higher in fiscal 2022 as compared to fiscal 2021 primarily driven by a change in our permanent reinvestment assertion with respect to undistributed earnings in France, Japan and Switzerland. Fiscal 2021 results compared to 2020 (in thousands, except percentages) 2021 Years Ended June 30, 2020 change Products Services Net revenue Gross profit Products gross profit Services gross profit Research and development expenses Selling and marketing expenses General and administrative expenses Loss on equity method investment Other expense, net Provision for income taxes Net loss $ Amount $ 176,647 219,642 $ 396,289 $ 159,507 74,547 84,960 52,729 42,820 41,723 (872 ) 27,666 1,752 (6,311 ) % change %(*) 45 % 55 % 100 % 40 % 42 % 39 % 13 % 11 % 11 % (0 )% 7 % — % (2 )% %(*) Amount 44 % $ 167,302 56 % 215,626 100 % $ 382,928 39 % $ 149,721 43 % 71,420 36 % 78,301 13 % 49,784 12 % 47,254 10 % 40,144 0 % 149 2 % 6,700 1,863 — % 1 % 3,827 $ $ $ 9,345 4,016 $ 13,361 9,786 $ 3,127 6,659 2,945 (4,434 ) 1,579 (1,021 ) 20,966 (111 ) $ (10,138 ) 6 % 2 % 3 % 7 % 4 % 9 % 6 % (9 )% 4 % (685 )% 313 % (6 )% (265 )% (*) 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. Net revenue Product Net Revenue 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 84 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 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): Net revenue Americas Europe, Middle East, India and Africa Asia Pacific, excluding Japan and China Japan China Gross profit Years Ended June 30, 2021 2020 $ 396,289 $ 382,928 27 % 31 % 7 % 15 % 20 % 34 % 31 % 8 % 19 % 8 % 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 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 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. 85 General and administrative expenses 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 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. 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. Share-Based Compensation Expense In fiscal 2022, 2021 and 2020, we recorded share-based compensation expense of $10.6 million, $9.3 million, and $8.2 million, respectively, related to awards under our stock incentive plans. Share-based compensation expense was recorded net of estimated forfeitures. As of June 30, 2022, we had approximately $14.5 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 0.6 to 2.4 years. Liquidity and Capital Resources At June 30, 2022, we had $88.7 million in cash and cash equivalents. Cash from operations could be affected by various risks and uncertainties, including, but not limited to supply chain disruptions, rising interest rates and inflation, world events, including the Russian-Ukraine war, continuing uncertainty associated with COVID-19 and 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, 2022. 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, we 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 86 the other lenders (the “Credit Agreement”), which provides for a new five-year $80 million term loan facility and a $40 million revolving credit facility (the “Revolving Credit Facility”). The initial borrowings under the Credit Agreement, including $25 million under the Revolving Credit Facility, were funded on May 14, 2021, and as of June 30, 2022 we had an outstanding balance under the Revolving Credit Facility of $5.0 million. 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 risk mitigation measures, facility closures, or other reasons related to the COVID-19 pandemic. There remain uncertainties as to how the COVID-19 pandemic is likely to materially impact our liquidity in the future. 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 Credit Facilities, including financial covenants regarding the fixed charge coverage ratio and the consolidated senior net leverage ratio. While we were in compliance with such covenants for the year ended June 30, 2022, 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. There is no guarantee that we would be able to satisfy our obligations if any of our indebtedness is accelerated. Additionally, the undistributed earnings of our foreign subsidiaries at June 30, 2022 for all countries except Japan, France and Switzerland are considered to be indefinitely reinvested and unavailable for distribution in the form of dividends or otherwise. Repatriation of the Company’s foreign earnings from Japan, France and Switzerland are subject to income taxes. As of June 30, 2022, we had approximately $55.1 million of cash and cash equivalents at our foreign subsidiaries. When such funds are repatriated, there will be additional foreign tax withholdings imposed depending on the country from which the funds were repatriated. In addition, the long sales cycle, together with delays in the shipment of CyberKnife and TomoTherapy platforms or customer cancellations that have increased in light of the COVID-19 pandemic have affected our ability to recognize revenue, which could adversely affect our cash flows. Cash Flows Net cash provided by (used in) operating activities Net cash used in investing activities 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 2022 Years Ended June 30, 2021 2020 $ (2,400 ) $ (4,717 ) (15,369 ) $ 38,512 (2,399 ) (28,805 ) (1,469 ) (3,728 ) 26,696 (5,561 ) 982 234 $ (28,047 ) $ 8,290 $ 21,733 The COVID-19 pandemic has negatively impacted the global economy, disrupted our global supply chains and created significant volatility and disruption of financial markets all of which could negatively impact our business operations and cash flows for the foreseeable future, including reductions in revenue and delays in payments from customers. The challenges posed by COVID-19 on our business are expected to evolve rapidly. An extended period of global supply chain and economic disruption and volatility in the financial markets, could materially affect our business, results of operations, access to sources of liquidity and financial condition. 87 Cash Flows From Operating Activities Net cash used in operating activities was $2.4 million in fiscal 2022, resulting primarily from changes in working capital of $22.6 million and a net loss of $5.3 million offset by $25.5 million of non cash items. (cid:120) The net change in working capital was primarily due to increases of $22.9 million in inventories, $12.5 million in accounts receivable, $6.0 million in prepaid expenses and other assets, and decreases of $0.8 million in operating lease liabilities and $1.4 million in deferred revenues, offset by increases of $11.7 million in accounts payable, $6.7 million in accrued liabilities, $1.2 million in customer advances and decrease of $1.5 million in deferred costs. (cid:120) Non-cash items primarily consisted of share-based compensation expense of $10.6 million, depreciation and amortization expense of $5.5 million, a write-down of inventory of $3.5 million, profit elimination in transactions with the JV of $3.3 million, and provision for deferred income tax of $1.8 million. 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. (cid:120) 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; (cid:120) 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. (cid:120) 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; (cid:120) 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. 88 Cash Flows From Investing Activities Net cash used in investing activities was $4.7 million in fiscal 2022, which primarily related to the purchase of property and equipment of $4.7 million. 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. Cash Flows From Financing Activities Net cash used in financing activities during fiscal 2022 was $15.4 million, which was primarily due to $15.0 million of repayments under Revolving Credit Facility and $4.0 million paydown in debt offset by $2.3 million in proceeds from employee stock plans and proceeds from options exercises. 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. Operating Capital and Capital Expenditure Requirements Our future capital requirements depend on numerous factors. These factors include but are not limited to the following: (cid:120) Revenue generated by sales of our products and service plans; (cid:120) Our ability to generate cash flows from operations; (cid:120) Costs associated with our sales and marketing initiatives and manufacturing activities; (cid:120) Facilities, equipment and IT systems required to support current and future operations; (cid:120) Rate of progress and cost of our research and development activities; (cid:120) Costs of obtaining and maintaining FDA and other regulatory clearances of our products; (cid:120) Effects of competing technological and market developments; (cid:120) Number and timing of acquisitions and other strategic transactions; (cid:120) Servicing and maturity of our current future indebtedness; (cid:120) The impact of inflation of our expenses; and 89 (cid:120) The unpredictable impact of the COVID-19 pandemic, including on collections, supply chains and logistics. We believe that our current cash and cash equivalents balance will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If these sources of cash and cash equivalents are insufficient to satisfy our liquidity requirements, or we believe market conditions are favorable, we may seek to sell additional equity or debt securities or enter into additional credit facilities. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned product development and marketing efforts. Operating and Capital Expenditure Requirements and Contractual Obligations 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. A majority of these purchase obligations are due within a year. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services. Our long-term material cash requirements include lease obligations. See Note 5. Leases. Off Balance Sheet Arrangements At June 30, 2022 we had open currency forward contracts to purchase or sell foreign currencies with a stated, or notional, value of approximately $68.3 million. The fair value of the underlying currency based upon the June 30, 2022 exchange rate was approximately $68.3 million. 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, 2022 exchange rate was approximately $54.2 million. We did not have any off balance sheet arrangements for the year ended June 30, 2020. Critical Accounting 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. GAAP). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. 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. Actual results could therefore differ materially from those estimates if actual conditions differ from our assumptions. 90 All of our significant accounting policies and methods used in the preparation of our consolidated financial statements are described in Note 1, The Company and its Significant Accounting Policies, to the consolidated financial statements. The methods, estimates and judgments that we use in applying our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Management believes the critical accounting policies and estimates are those related to revenue recognition, assessment of recoverability of goodwill, valuation of inventories, convertible notes, impairment of investments and allowance for credit losses. Concentration of Credit and Other Risks Our cash and cash equivalents are deposited with several major financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. 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 year ended June 30, 2022 there was one customer that represented 10% or more of total net revenue and for the years ended June 30, 2021 and 2020, there were one and no customers, respectively, that represented 10% or more of total net revenue. We had two customers as of June 30, 2022 and two customers as of June 30, 2021, 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. Accounts receivable are deemed past due in accordance with the contractual terms of the agreement. Accounts receivable balances are charged against the allowance for doubtful accounts once collection efforts are unsuccessful. Single-source suppliers presently provide us with several components. In most cases, if a supplier was unable to deliver these components, we believe that we would be able to find other sources for these components subject to any regulatory qualifications, if required. Revenue Recognition Our revenue is primarily derived from sales of CyberKnife and TomoTherapy platforms and services, which include PCS contracts (warranty period services and post-warranty services), installation services, training and other professional services. We record our revenue net of any value added or sales tax. We recognize revenue for certain performance obligations at the point in time when control is transferred, such as delivery of products. 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. We assess the probability of collection based on a number of factors, including past transaction history with the customer and creditworthiness of the customer. We generally do not request collateral from our customers. We frequently enter into sales arrangements that contain multiple performance obligations. For sale arrangements that contain multiple performance obligations, 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 relative its own or with other resources that are readily available to the customer. The stand-alone selling price (“SSP”). The SSP is determined based on observable prices at which we separately sell the products and services. If a 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 platforms, including Radixact Systems. 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. 91 We record revenue considering all discounts given to, or expected by, customers. As a result, management may make estimates of potential future product returns or trade ins and other allowances related to product revenue in the current period. 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 sales to the JV. Service Revenue Service revenue is generated primarily from PCS, 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 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. In those cases, the costs of such upgrades are recognized at the time control and benefit of the upgrade transfers to the customer. Assessment of Recoverability of Goodwill Goodwill represents the excess of the purchase price over the fair value of tangible and identified intangible net assets of businesses acquired. Goodwill is not amortized, but is evaluated for impairment on an annual basis and when impairment indicators are present. We have one operating segment and one reporting unit. Therefore, our consolidated net assets, including existing goodwill are considered to be the carrying value of the reporting unit. We estimate the fair value of the reporting unit based on the closing price of our common stock 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 we 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. Valuation of Inventories The valuation of inventory requires us to estimate obsolete or excess inventory as well as damaged inventory. The determination of obsolete or excess inventory requires us to estimate the future demand for our products. We regularly review inventory quantities on hand and adjust for excess and obsolete inventory based primarily on historical usage rates and our estimates of product demand to support future sales and service. If our demand forecast for specific products is greater than actual demand and we fail to reduce purchasing and manufacturing output accordingly, we could be required to write off inventory beyond the current reserve, which would negatively impact our gross margin. Convertible Notes 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 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. ASC 470-50, provides guidance on modifications to or exchanges of line-of-credit or revolving arrangements which should be evaluated based on borrowing. We adopted ASU 2020-06 in fiscal year 2022, using the modified retrospective method, which no longer accounts for the liability and equity component separately. Impairment of Investments We have an equity investment in CNNC Accuray (Tianjin) Medical Technologies Co. Ltd., the Company’s joint venture in China. The Company’s equity method investment is held at cost and adjusted for impairment when it would be deemed to be impaired. We monitor this investment for events or circumstances indicative of a potential 92 impairment, and we make appropriate reductions in carrying value if we determine that an impairment charge is required, based primarily on the financial condition or near term prospects of the investee. Allowance for Credit Losses We evaluate the creditworthiness of our customers prior to authorizing shipment for all major sale transactions. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If our evaluation of our customers’ financial conditions does not reflect our future ability to collect outstanding receivables, additional provisions may be needed and our operating results could be negatively affected. Item 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions. Foreign Currency Exchange Rate Risk A portion of our net sales are denominated in foreign currencies, most notably the Euro and the Japanese Yen. Future fluctuations in the value of the U.S. Dollar may affect the price competitiveness of our products outside the United States. For direct sales outside the United States, we sell in both U.S. Dollars and local currencies, which could expose us to additional foreign currency risks, including changes in currency exchange rates. Our operating expenses in countries outside the United States, are payable in foreign currencies and therefore expose us to currency risk. To the extent that management can predict the timing of payments under sales contracts or for operating expenses that are denominated in foreign currencies, we may engage in hedging transactions to mitigate such risks in the future. 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, 2022, we had open currency forward contracts to purchase or sell foreign currencies with stated, or notional value of approximately $68.3 million. The purpose of these forward contracts is to minimize the risk associated with foreign exchange rate fluctuations. We have developed a foreign exchange policy to govern our forward contracts. 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 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. Interest Rate Risk We maintain an investment portfolio of various holdings, types and maturities. These securities are generally classified as available for sale and consequently are recorded on the balance sheet at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income. At any time, a sharp rise or decline in interest rates could have a material adverse impact on the fair value of our investment portfolio. Likewise, increases and decreases in interest rates could have had a material impact on interest earnings for our portfolio. 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 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, 2022, 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 $5.0 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 $0.4 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. 93 Inflation Risk We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition. Equity Price Risk 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, 2022 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. 94 Item 8. FINANCIAL STATEMENTS 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 .................................................................................................. Page No. 96 98 99 100 101 102 95 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, 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, 2022, 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 17, 2022 expressed an unqualified opinion. 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. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Determination of standalone selling price As described further in note 1 to the financial statements, the Company’s contracts with customers often include multiple performance obligations. The Company applies the five steps of Financial Accounting Standards Board Topic 606, Revenue from Contracts with Customers, in the determination of revenue to be recognized, with step four related to the allocation of the transaction price to multiple performance obligations. The transaction price of each contract is allocated to individual performance obligations based upon relative stand-alone selling price (“SSP”). The 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, 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. We identified the determination of the SSP of performance obligations as a critical audit matter. 96 The principal consideration for our assessment that the determination of the SSP of performance obligations represents a critical audit matter is that the estimates made in determining SSP involve significant judgments. Evaluating the appropriateness of these estimates requires a high degree of auditor judgment and an increased extent of effort. Our audit procedures related to the determination of the SSP of performance obligations included the following, among others: (cid:120) We tested the design and operating effectiveness of internal controls over the Company’s determination of the SSP of performance obligations, including controls covering the validation of the completeness and accuracy of underlying data used in the analysis. (cid:120) We evaluated the appropriateness of the overall methodology used by management, including considering whether the methodology maximized the use of observable inputs available. (cid:120) For products and services where the SSP is directly observable, we evaluated the completeness and accuracy of the data used by management in determining the SSP. We recalculated the pricing inputs within the analysis and agreed selected data to executed sales agreements and considered the appropriateness of sales excluded from the analysis. (cid:120) We tested management’s process by evaluating key assumptions for performance obligations that do not include directly observable sales or for performance obligations that do not include sufficient directly observable sales. Specifically, we: (cid:82) (cid:82) (cid:82) (cid:82) (cid:82) (cid:82) considered how management determined the disaggregation of distinct customer groups; determined the appropriateness of discount rates applied to list prices based on the Company’s pricing strategy for customer groups, including comparing the discount rates to internal pricing policies; recalculated and validated the inputs used in the calculation; made inquiries of staff members outside of the accounting department to determine if there are factors that could have indicated a change in the Company’s go-to market strategy; compared the SSP indicated by management’s analysis to performance obligations within bundled arrangements for a sample of items; and compared SSP at the performance obligation level to the prior year and evaluated the reasons for significant relative fluctuations. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2006. San Jose, California August 17, 2022 97 Accuray Incorporated Consolidated Balance Sheets (in thousands, except share and per share amounts) June 30, 2022 June 30, 2021 ASSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivable, net of allowance for credit losses of $1,000 and $1,048 as of June 30, 2022 and June 30, 2021, respectively (a) Inventories Prepaid expenses and other current assets (b) Deferred cost of revenue Total current assets Property and equipment, net Investment in joint venture Operating lease right-of-use assets, net Goodwill Intangible assets, net Restricted cash Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued compensation Operating lease liabilities, current Other accrued liabilities Customer advances Deferred revenue Short-term debt 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: $ 88,737 204 $ $ $ 94,442 142,254 23,794 1,459 350,890 12,685 13,879 16,798 57,840 250 1,213 19,294 472,849 31,337 29,441 8,567 30,285 25,290 75,375 8,563 208,858 10,453 3,748 24,694 171,907 419,660 $ $ 116,369 560 85,360 125,929 21,547 3,008 352,773 12,332 15,935 22,522 57,960 435 1,272 16,869 480,098 19,467 26,865 8,169 27,471 24,937 81,660 3,790 192,359 17,441 7,766 23,685 170,007 411,258 Preferred stock, $0.001 par value; authorized: 5,000,000 shares; no shares issued and outstanding Common stock, $0.001 par value; authorized: 200,000,000 shares as of June 30, 2022 and June 30, 2021, respectively; issued and outstanding: 93,499,500 and 90,821,661 shares at June 30, 2022 and June 30, 2021, respectively Additional paid-in-capital Accumulated other comprehensive income Accumulated deficit Total stockholders' equity Total liabilities and stockholders’ equity — — 94 543,211 2,406 (492,522 ) 53,189 472,849 $ 91 554,680 2,093 (488,024 ) 68,840 480,098 $ (a) (b) Included accounts receivable from the China joint venture of $24,828 and $8,822 at June 30, 2022 and June 30, 2021, respectively. See Note 13 Included other receivable from the China joint venture of $861 at June 30, 2022 and $187 at June 30, 2021, respectively. The accompanying notes are an integral part of these consolidated financial statements 98 Accuray Incorporated Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share amounts) 2022 Years Ended June 30, 2021 2020 Net revenue: Products (a) Services (b) Total net revenue Cost of revenue: Cost of products Cost of services Total cost of revenue (c) Gross profit Operating expenses: Research and development (d) Selling and marketing General and administrative Total operating expenses Income from operations Income (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: Basic Diluted Net income (loss) Foreign currency translation adjustment Change in defined benefit pension obligation Comprehensive income (loss) $ $ $ $ $ $ $ 214,715 215,194 429,909 $ 176,647 219,642 396,289 127,287 142,667 269,954 159,955 57,752 49,664 44,391 151,807 8,148 241 (10,391 ) (2,002 ) 3,345 (5,347 ) $ (0.06 ) $ (0.06 ) $ 102,100 134,682 236,782 159,507 52,729 42,820 41,723 137,272 22,235 872 (27,666 ) (4,559 ) 1,752 (6,311 ) $ (0.07 ) $ (0.07 ) $ 167,302 215,626 382,928 95,882 137,325 233,207 149,721 49,784 47,254 40,144 137,182 12,539 (149 ) (6,700 ) 5,690 1,863 3,827 0.04 0.04 92,095 92,095 (5,347 ) $ (3,998 ) 4,311 (5,034 ) $ 92,031 92,031 (6,311 ) $ 1,705 872 (3,734 ) $ 89,874 90,623 3,827 (238 ) (236 ) 3,353 (a) (b) (c) (d) Includes sales to the China joint venture, an equity method investment of $45,545 for the year ended June 30, 2022, $12,033 for the year ended June 30, 2021 and $11,202 for the year ended June 30, 2020, respectively. See Note 13. Includes sales to the China joint venture, an equity method investment of $10,332 for the year ended June 30, 2022, $12,360 for the year ended June 30, 2021 and $7,851 for the year ended June 30, 2020, respectively. See Note 13. Includes cost of revenue from sales to the China joint venture, an equity method investment of $35,237 for the year ended June 30, 2022, $13,310 for the year ended June 30, 2021 and $13,174 for the year ended June 30, 2020, respectively. See Note 13. Includes chargeback to the China joint venture, an equity method investment related to research and development project of $2,336 and $430 for the year ending June 30, 2022 and June 30, 2021, respectively The accompanying notes are an integral part of these consolidated financial statements. 99 d e t a r o p r o c n I y a r u c c A y t i u q E ’ s r e d l o h k c o t S f o t n e m e t a t S d e t a d i l o s n o C ) s t n u o m a e r a h s t p e c x e , s d n a s u o h t n i ( l a t o T ’ s r e d l o h k c o t S d e t a l u m u c c A y t i u q E t i c i f e D d e t a l u m u c c A r e h t O e v i s n e h e r p m o C ) s s o L ( e m o c n I l a n o i t i d d A n i - d i a P l a t i p a C $ ) 0 4 5 , 5 8 4 ( $ ) 0 1 ( $ 2 3 3 , 5 3 5 $ ) 6 0 2 ( 1 7 8 , 9 4 1 5 4 , 2 6 6 1 , 8 — 7 2 8 , 3 ) 8 3 2 ( ) 6 3 2 ( — — — — — — 7 2 8 , 3 5 3 6 , 3 6 $ ) 3 1 7 , 1 8 4 ( $ 2 5 5 8 4 7 1 , 2 ) 1 8 0 , 4 1 ( 5 8 3 , 9 — ) 2 6 5 , 4 1 ( ) 1 1 3 , 6 ( 6 6 1 , 5 2 2 7 8 5 0 7 , 1 0 4 8 , 8 6 ) 7 5 2 ( 4 2 2 , 1 ) 4 8 7 , 4 2 ( 5 6 6 , 2 5 3 5 , 0 1 ) 7 4 3 , 5 ( ) 8 9 9 , 3 ( 1 1 3 , 4 9 8 1 , 3 5 — — — — — — — — $ ) 4 2 0 , 8 8 4 ( — — ) 1 1 3 , 6 ( 9 4 8 — — — — — ) 7 4 3 , 5 ( $ $ $ ) 2 2 5 , 2 9 4 ( $ — — — — — ) 8 3 2 ( ) 6 3 2 ( ) 4 8 4 ( — — — — — — — — — 2 7 8 5 0 7 , 1 3 9 0 , 2 — — — — — — ) 8 9 9 , 3 ( 1 1 3 , 4 6 0 4 , 2 ) 7 0 2 ( 0 5 4 , 2 6 6 1 , 8 — — — — $ 1 4 7 , 5 4 5 $ $ — 5 5 8 3 7 1 , 2 ) 8 7 0 , 4 1 ( 5 8 3 , 9 — ) 2 6 5 , 4 1 ( 6 6 1 , 5 2 — — — ) 8 5 2 ( 3 2 2 , 1 ) 3 3 6 , 5 2 ( 0 8 6 , 4 5 5 — — — 4 6 6 , 2 5 3 5 , 0 1 $ $ 1 1 2 , 3 4 5 $ 9 8 1 1 — — — — — 1 9 — 2 1 ) 3 ( — — — — — — — 1 9 — 1 1 1 — — — — 4 9 k c o t S n o m m o C t n u o m A s e r a h S $ 1 1 5 , 1 2 5 , 8 8 — — — 7 3 0 , 9 7 5 , 1 — 6 9 0 , 6 3 1 , 1 ) 6 3 5 , 8 5 ( $ 8 0 1 , 8 7 1 , 1 9 8 0 0 , 9 0 2 8 1 6 , 2 5 4 , 1 — 0 2 2 , 8 6 1 , 1 ) 9 6 3 , 8 0 1 , 3 ( ) 4 2 9 , 7 7 ( — — — — — $ 1 6 6 , 1 2 8 , 0 9 — — — — — 1 0 4 , 1 3 3 4 4 7 , 2 9 2 , 1 4 9 6 , 3 5 0 , 1 $ 0 0 5 , 9 9 4 , 3 9 e g n a h c x e e t o n e l b i t r e v n o c o t d e t a l e r t s o c d e t a c o l l a f o t n e m h s i u g n i t x E s e t o n e l b i t r e v n o c f o e c n a u s s i n o p u n o i t p o n o i s r e v n o c f o n o i t a c r u f i B 6 0 - 0 2 0 2 . o N U S A f o n o i t p o d a o t e u d t n e m t s u j d a e v i t a l u m u C n o i t a g i l b o n o i s n e p t i f e n e b d e n i f e d n i e g n a h C t n e m t s u j d a n o i t a l s n a r t e v i t a l u m u C 1 2 0 2 , 0 3 e n u J t a e c n a l a B s s o l t e N e e y o l p m e r e d n u k c o t s n o m m o c k c o t s d e t c i r t s e r t e n , s n o i t p o f o f o f o e s i c r e x E e c n a u s s I e c n a u s s I n o i t a s n e p m o c d e s a b - e r a h S n a l p e s a h c r u p k c o t s s s o l t e N n o i t a g i l b o n o i s n e p t i f e n e b d e n i f e d n i e g n a h C t n e m t s u j d a n o i t a l s n a r t e v i t a l u m u C 2 2 0 2 , 0 3 e n u J t a e c n a l a B e e y o l p m e r e d n u k c o t s n o m m o c k c o t s d e t c i r t s e r f o f o e c n a u s s I e c n a u s s I 9 1 0 2 , 0 3 e n u J t a e c n a l a B d e t c i r t s e r f o g n i t s e v n o p u g n i d l o h h t i w x a T n o i t a s n e p m o c d e s a b - e r a h S n a l p e s a h c r u p k c o t s s t i n u k c o t s e m o c n i t e N n o i t a g i l b o n o i s n e p t i f e n e b d e n i f e d n i e g n a h C t n e m t s u j d a n o i t a l s n a r t e v i t a l u m u C 0 2 0 2 , 0 3 e n u J t a e c n a l a B e e y o l p m e r e d n u k c o t s n o m m o c k c o t s d e t c i r t s e r t e n , s n o i t p o f o f o f o e s i c r e x E e c n a u s s I e c n a u s s I d e t c i r t s e r f o g n i t s e v n o p u g n i d l o h h t i w x a T s t i n u k c o t s k c o t s n o m m o c f o e s a h c r u p e R n o i t a s n e p m o c d e s a b - e r a h S n a l p e s a h c r u p k c o t s (cid:20)(cid:19)(cid:19) . s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m o c c a e h T Accuray Incorporated Consolidated Statements of Cash Flows (in thousands) 2022 Years Ended June 30, 2021 2020 $ (5,347 ) $ (6,311 ) $ 3,827 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 Accretion of interest on debt Provision for credit losses Non-cash revenue transactions related to joint venture Provision for write-down of inventories Loss on disposal of property and equipment (Income) loss on equity method investment Release (deferral) of equity method investment intra-entity profit on sales Loss on extinguishment of debt Gain on contribution to joint venture Provision (benefit) for deferred income taxes Changes in assets and liabilities: Accounts receivable, short and long-term Inventories 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 Additional investments in joint venture Net cash (used in) investing activities Cash flows from financing activities Proceeds from employee stock plans Proceeds from exercise of options Taxes paid related to net share settlement of equity awards Convertible senior notes exchange and issued, net of issuance costs Paydown and repayment of prior term loan and prior revolving credit facility Proceeds from New Debt, net of costs Repayments under the New Term loan Borrowings (repayments) under the New Revolving Credit Facility, net Stock repurchase 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 Prior convertible note exchanged New convertible note exchanged Unpaid purchase of property and equipment at end of year Transfers from inventory to property and equipment Equity method investment, in exchange for non-cash contributions of assets to China Joint Venture (including gain of $12,964) $ $ $ $ $ $ $ $ $ 5,513 10,600 817 — 266 — 3,478 28 (241 ) 3,300 — — 1,785 (12,519 ) (22,861 ) (6,042 ) 1,549 11,676 (880 ) 6,685 1,238 (1,445 ) (2,400 ) (4,717 ) — — (4,717 ) 2,341 1,548 (258 ) — — — (4,000 ) (15,000 ) — (15,369 ) (5,561 ) (28,047 ) 118,201 90,154 $ 1,398 7,462 — — — 813 — $ $ $ $ $ $ $ 6,389 9,332 1,356 4,887 133 (1,365 ) 6,914 106 (872 ) 310 9,948 — (114 ) 5,235 1,688 (951 ) (296 ) (3,978 ) (663 ) 8,089 2,237 (3,562 ) 38,512 (2,320 ) — (79 ) (2,399 ) 2,175 855 (343 ) (142 ) (115,924 ) 103,654 — (5,000 ) (14,080 ) (28,805 ) 982 8,290 109,911 118,201 $ 1,873 11,892 $ $ — $ (82,135 ) $ $ 97,148 $ 555 $ 564 7,541 8,152 1,348 4,168 1,797 — 4,184 9 149 1,847 — (12,964 ) 353 19,030 (23,178 ) 4,403 (2,441 ) (6,770 ) (235 ) (16,595 ) 2,159 1,747 (1,469 ) (3,558 ) (170 ) — (3,728 ) 2,450 — (207 ) — — 24,716 — (263 ) — 26,696 234 21,733 88,178 109,911 2,806 12,332 178 — — 226 2,594 — $ — $ 15,925 The accompanying notes are an integral part of these consolidated financial statements. 101 Accuray Incorporated Notes to Consolidated Financial Statements Note 1. The Company and its Significant Accounting Policies The Company Accuray Incorporated (together with its subsidiaries, the “Company” or “Accuray”) designs, develops and sells advanced radiosurgery and radiation therapy systems for the treatment of tumors throughout the body. The Company is incorporated in Delaware and has its principal place of business in Sunnyvale, California. The Company has primary offices in the United States, Switzerland, China, Hong Kong and Japan and conducts its business worldwide. Basis of Presentation 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 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 a novel strain of coronavirus, severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”) and has resulted in a worldwide 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, particularly as new COVID-19 variants emerge. The Company's customers are diverting resources to treat COVID-19 patients and deferring non-urgent and elective procedures. 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. These impacts on the Company's customers may adversely affect their ability to meet their financial and other contractual obligations, including to the Company. Furthermore, global economic uncertainty, including labor shortages and disruptions in the global supply chain, related to the COVID-19 pandemic may result in an incremental adverse impact on revenue, net income (loss) and cash flow and may require significant additional expenditures or cost-cutting 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 Company’s backlog converts to revenue. This is primarily the result of pandemic-related delays in the timing of deliveries and installations, which has adversely affected our revenue. The Company has experienced such delays in deliveries and installations since the third quarter of fiscal year 2020 and expects that such delays in will continue, which could have a negative impact on revenue. The Company has experienced disruptions in its sales cycle as well as delays in customer payments and service agreements. The Company has also received requests from a few customers to extend payment terms or temporarily suspend service and corresponding payment obligations. While the Company has only received a small number of requests thus far, there can be no guarantee that more customers will not ask for the same in the future. In addition, as the COVID-19 pandemic continues to impact the global supply chain, disruptions in parts of our supply chain have resulted in delays in the receipt of certain components for our products as well as increased pricing pressure for such parts. These ongoing supply chain challenges and heightened logistics costs have adversely affected the Company's gross margins and net income (loss), and the Company’s current expectations are that gross margins and net income (loss) will continue to be adversely affected by increased material costs and freight and logistic expenses through at least the remainder of the calendar year of 2022, if not longer. Furthermore, certain 102 parts required for the manufacture and servicing of the Company's products, such as electronic components, are scarce and becoming increasingly difficult to source even at increased prices. If such parts become unavailable to the Company, it would not be able to manufacture or service our products, which would adversely impact revenue, gross margins, and net income (loss). As a result, the Company is carefully monitoring the pandemic and the potential length and depth of the resulting economic impact on our financial condition and results of operations. There remain uncertainties around the spread, severity and potential resurgence of COVID-19, the impact of new COVID-19 variants, vaccination deployment efforts, and how long the pandemic and associated health measures will last, the related financial impact cannot be reasonably estimated at this time, although the impacts are expected to continue and may 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. However, the Company is unable to predict with certainty the impact of the COVID-19 pandemic, including its effect on global supply chain and logistics, will have on its ability to maintain compliance with the debt covenants contained in the credit agreement related to its Credit Facilities (as such terms are defined in Note 10 below), including financial covenants regarding the consolidated fixed charge coverage ratio and consolidated senior net leverage ratio. The Company was in compliance with such covenants at June 30, 2022. Failure to meet the covenant requirements in the future could cause the Company to be in default and the maturity of the related debt could be accelerated and become immediately payable. This may require the Company to obtain waivers or amendments to the credit agreement in order to maintain compliance and there can be no certainty that any such waiver or amendment will be available, or what the cost of such waiver or amendment, if obtained, would be. If the Company is unable to obtain necessary waivers or 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. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of the COVID-19 pandemic. Key estimates and assumptions made by the Company relate to revenue recognition and the assessment of stand-alone selling price (“SSP”), assessment of recoverability of goodwill, valuation of the Company's equity method investment in the JV, valuation of inventories, annual performance related bonuses, allowance for credit losses 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 income (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. 103 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 one customer that represented 10% or more of total net revenue for the year ended June 30, 2022 and one and no customer that represented 10% or more of total net revenue for the years ended June 30, 2021 and 2020, respectively. The Company had two customers as of June 30, 2022 and two customers as of June 30, 2021, respectively that each 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 credit losses 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 New 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 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. 104 Revenue Recognition 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 platforms and services, which include post-contract customer support (“PCS”), installation services, training and other professional services. The majority of the Company's revenue arrangements consist 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 reviews payment terms extending beyond one year. If it is determined that a material financing component exists, we recognized as interest income over time. 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 a discount off the purchase of a new system. The Company generally does not provide specific 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, implied trade-ins and upgrades discounts are not considered separate performance obligations in system sales agreements. When systems are traded in, historically, the Company was able to recondition (re-new) the traded-in systems and resell them. In such transactions, the Company would estimate the stand-alone selling price of the traded-in system and include such amount as additional transaction price in the new bundled system sale. During fiscal year 2020, however, demand for reconditioned systems decreased, and no fair value has been assigned to any of the systems that were traded-in during fiscal year 2021 and 2022. These trade-in systems may be used for spare parts harvesting in certain cases. Such spare parts generally require reconditioning. The 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 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 relative SSPs. Contract modifications typically add additional goods or services or change pricing. For such modifications, the most recent SSP is used for reallocation 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 that are not part of a service contract and performed on a time-and-materials basis are recognized when performed. Service contracts recognized over 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. 105 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 Company elected to use the practical expedient and expense as incurred commissions related to service renewals and upgrades because the amortization period be one year or less. 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 outside of the warranty period, 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. Customer Advances Customer advances represent payments made by customers in advance of product shipment. 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. 106 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 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 estimated 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 2019. There was no impairment of goodwill identified in the fiscal years ended June 30, 2022, 2021 and 2020. 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, $0.2 million and $0.2 million for the years ended June 30, 2022, 2021 and 2020, 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 share-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 exercise price of stock options granted is equal to the fair market value of the Company’s common stock on the date of grant. 107 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 grant date 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 vesting 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. 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. 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 the Company’s actual level of achievement compared to the corporate financial target performance targets. 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): Numerator: Net income (loss) used to compute basic and diluted loss per share Denominator: 2022 Years Ended June 30, 2021 2020 $ (5,347 ) $ (6,311 ) $ 3,827 Weighted average shares used to compute basic income (loss) per share Weighted average shares used to compute diluted income (loss) per share 92,095 92,031 89,874 92,095 92,031 90,623 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 outstanding 3.75% Convertible Notes due July 2022 (the “3.75% Convertible Notes due 2022”) and the 3.75% Convertible Notes due June 2026 (the “3.75% Convertible Notes due 2026” and together with the 3.75% Convertible Notes due 2022, the “Notes”) 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. 108 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): Stock options RSUs, PSUs and MSUs 2022 7,053 5,775 12,828 As of June 30, 2021 7,030 3,198 10,228 2020 5,956 3,761 9,717 Outstanding Convertible Notes—Diluted Share Impact 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 due 2022 and 3.75% Convertible Notes due 2026 outstanding as of June 30, 2022, totaling approximately 0.5 million shares and 17.1 million shares of the Company’s common stock, respectively, as of June 30, 2022, the effect of adding the shares were antidilutive and were not included in the basic and diluted net loss per common share table above. The shares of common stock issuable upon conversion of the outstanding principal amount of the 3.75% Convertible Notes due 2022 outstanding as of June 30, 2021 and 2020, totaled approximately 0.5 million and 14.9 million shares, respectively, of the Company’s common stock and the effect of adding the shares were antidilutive and were not included in the basic and diluted net income (loss) per common share table above. Leases 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 statements of operations. The Company determines the lease term by agreement with lessor, including lease renewal and extension. As the leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Equity Method Investment In 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 in the JV for which the Company has the ability to exercise significant influence over the JV but lacks a controlling financial interest in the JV. The equity method investment is measured at cost and adjusted for impairment, if any, for the Company’s share of the JV'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; 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 JV'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 JV. 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. 109 Income Taxes 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 there will be no material changes in uncertain tax positions in the next 12 months. Accumulated Other Comprehensive Income (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, whereas revenues and expenses are translated at average exchange rates in effect during the period. The resulting cumulative translation adjustments are recorded directly to the accumulated other comprehensive loss account in stockholders’ equity. Note 2. Recent Accounting Pronouncements Accounting Pronouncement Recently Adopted In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). Under ASU No. 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. The Company adopted this standard effective July 1, 2021, using a modified retrospective method, under which financial results reported in prior periods were not adjusted. The Company applied the provisions of this guidance to our 3.75% convertible senior notes due June 2026 (“2026 Notes”). Upon adoption, the Company recorded an increase to Accumulated deficit of $0.8 million, a decrease to Additional paid-in capital of $25.6 million and an increase to Debt of $24.8 million. There was no impact to diluted loss per share as the inclusion of potential shares of common stock related to the 2026 Notes would have been anti- dilutive. For further information, see Note 10, Debt. Accounting Pronouncements Not Yet Effective In March 2020, the FASB issued an update (ASU 2020-04) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company’s New Term Loan Facility and 110 New Revolving Credit Facility applies Eurodollar rate LIBOR to the variable component of the interest rate, if a Benchmark transition event, or an early opt-in election, as applicable occurred a transition to the use of the Secured Overnight Financing Rate ("SOFR") to replace such rate. This accounting standard update was effective upon issuance and may be applied prospectively through December 31, 2022. The Company is currently evaluating the impact of the guidance and our options related to the practical expedients. In April 2021, the FASB issued ASU 2021-04, which included Topic 260 “Earnings Per Share”. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity- classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendment addresses how to account for contract assets recognized under Topic 606 in a business combination. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact ASU 2021-08 will have on its financial statements. Note 3. Revenue Contract Balances The timing of revenue recognition, billings, and cash collections results in trade receivables, unbilled receivables, and deferred revenues on the 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) Assets: Unbilled accounts receivable – current (1) Interest receivable – current (2) Long-term accounts receivable (3) Interest receivable – non-current (3) Liabilities: Customer advances Deferred revenue – current Deferred revenue – non-current June 30, 2022 Amount June 30, 2021 Amount Change $ % $ 13,325 $ 493 5,301 683 25,290 75,375 24,694 12,354 512 4,970 1,083 24,937 81,660 23,685 971 (19 ) 331 (400 ) 353 (6,285 ) 1,009 8 (4 ) 7 (37 ) 1 (8 ) 4 (1) (2) (3) 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, 2022 and June 30, 2021, the Company recognized revenues of $81.2 million and $107.3 million, respectively, which were included in the deferred revenue balances at June 30, 2021 and June 30, 2020, respectively. 111 Remaining Performance Obligations Remaining performance obligations represent deferred revenue from open contracts for which performance has already started and the transaction price from executed contracts for which performance has not yet started. Service contracts in general are considered month-to-month contracts. As of June 30, 2022, total remaining performance obligations amounted to $1,104.4 million. Of this total amount, $69.1 million related to long-term warranty and service, such as non-cancellable post contract services and system warranty, which is expected to be recognized over the remaining service period and warranty period for systems that have been delivered, respectively. The following table represents the Company's remaining performance obligations related to long-term warranty and non-cancellable post warranty services as of June 30, 2022 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). The Company has elected the practical expedient to not disclose the unsatisfied performance obligations of contracts with an original expected duration of one year or less. (Dollars in thousands) Long-term warranty and service Fiscal years of revenue recognition 2023 2024 2025 Thereafter $ 30,741 $ 20,491 $ 9,071 $ 8,797 For the remaining $1,035.3 million of performance obligations (open systems sales, upgrades, training and other miscellaneous items), the Company estimates 25% 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. The Company anticipates a portion of its open contracts may never result in revenue recognition primarily due to the long sales cycle and factors outside of its control including changes in customers' needs or financial condition, changes in government or health insurance reimbursement policies or changes to regulatory requirements. Based on historical experience and management's best estimate, approximately 16% of the Company’s $983.2 million open system sales contracts may never result in revenue. Capitalized Contract Costs As of June 30, 2022 and 2021, the balance of capitalized costs to obtain a contract was $11.4 million and $8.9 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 $0.6 million and $0.6 million impairment loss for the years ended June 30, 2022 and 2021, respectively. During the years ended June 30, 2022 and 2021 the Company recognized $3.3 million and $2.8 million, respectively, in expense related to the amortization of the capitalized contract costs. 112 Note 4. Supplemental Financial Information Consolidated Balance Sheet Accounts receivable, net Accounts receivable, net consisted of the following (in thousands): Accounts receivable Unbilled fees and services Less: Allowance for credit losses Accounts receivable, net $ $ June 30, 2022 June 30, 2021 $ 82,117 13,325 95,442 (1,000 ) 94,442 $ 74,054 12,354 86,408 (1,048 ) 85,360 The Company received payment or had credits of $0.3 million, added $0.6 million and wrote off $0.3 million from the allowance for credit losses in fiscal 2022. The Company received payment or had credits of $0.8 million, added $0.7 million and wrote off $0.2 million from the allowance for credit losses in fiscal 2021. 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, with contractual maturities of more than one year, totaled $2.8 million and $3.4 million at June 30, 2022 and 2021, respectively, and are included in Other Assets in the consolidated balance sheets. The Company evaluates the credit quality of a customer at contract inception and monitors credit quality over the term of the underlying transactions. The Company performs a credit analysis for all new customers and reviews payment history, current order backlog, financial performance of the customers and other variables that augment or mitigate the inherent credit risk of a particular transaction. Such variables include the underlying value and liquidity of the collateral, the essential use of the equipment, the contract term and the inclusion of credit enhancements, such as guarantees, letters of credit or security deposits. The Company classifies accounts as high risk when it considers the financing receivable to be impaired or when management believes there is a significant near-term risk of non-payment. The Company performed an assessment of the allowance for credit losses related to its financing receivables. Based upon such assessment, the Company recorded adjustments of zero and $3.4 million to the allowance for credit losses related to such financing receivables during the years ended June 30, 2022 and 2021, respectively. A summary of the Company’s financing receivables is presented as follows (in thousands): Financing receivable Allowance for credit losses Total, net Reported as: Current Non-current Total, net June 30, 2022 June 30, 2021 $ $ $ $ 6,137 $ (943 ) $ 5,194 2,435 2,759 5,194 $ $ 7,102 (943 ) 6,159 2,772 3,387 6,159 The Company added and wrote off no amount from the allowance for credit losses in fiscal year 2022. The Company added $0.2 million and wrote off $3.6 million in fiscal year 2021. 113 Actual cash collections may differ from the contracted maturities due to early customer buyouts, refinancing, or defaults. Inventories Inventories consisted of the following (in thousands): Raw materials Work-in-process Finished goods Inventories Property and Equipment, net Property and equipment consisted of the following (in thousands): Furniture and fixtures Computer and office equipment Software Leasehold improvements Machinery and equipment Construction in progress Less: Accumulated depreciation Property and equipment, net $ $ $ $ June 30, 2022 June 30, 2021 61,871 16,367 64,016 142,254 $ $ 45,301 22,014 58,614 125,929 June 30, 2022 June 30, 2021 $ 1,766 8,605 5,344 26,659 46,522 2,999 91,895 (79,210 ) 12,685 $ 1,636 8,972 7,477 26,102 45,265 1,055 90,507 (78,175 ) 12,332 Depreciation and amortization expense related to property and equipment for the years ended June 30, 2022, 2021 and 2020 was $5.4 million, $6.2 million and $7.3 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, 2020 Other comprehensive loss Balance at June 30, 2021 Other comprehensive loss Balance at June 30, 2022 Foreign Currency Items Change in Defined Pension Benefit Obligation $ $ $ $ 752 1,705 2,457 $ (3,998 ) (1,541 ) $ (1,236 ) $ 872 (364 ) $ 4,311 3,947 $ Total (484 ) 2,577 2,093 313 2,406 114 Consolidated Statements of Operations Other expense, net consisted of the following (in thousands): (in thousands) Interest expense Foreign currency transaction loss Gain on contribution to joint venture Loss on Debt Extinguishment Other expense, net Total other expense, net Note 5. Leases 2022 Years Ended June 30, 2021 (8,129 ) $ (2,618 ) — — 356 (10,391 ) $ (16,893 ) (1,953 ) — (9,948 ) 1,128 (27,666 ) $ $ $ 2020 (18,080 ) (2,343 ) 12,964 — 759 (6,700 ) The Company has operating leases for corporate offices and warehouse facilities worldwide. Additionally, the Company leases cars, copy machines and laptops that are considered operating leases. Some of the Company's leases are non-cancellable operating lease agreements with various expiration dates through September 2026. 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, 2022 and 2021 were $9.2 million and $9.1 million, respectively, not including short-term operating lease costs for the twelve months ended June 30, 2022 and 2021 of $0.4 million and $0.2 million, respectively. For the twelve months ended June 30, 2022 and 2021, cash paid for amounts included in the measurement of operating lease liabilities was approximately $9.8 million and $9.7 million, respectively. Operating lease liabilities arising from obtaining operating right-of-use assets totaled $3.2 million and $1.1 million, respectively for the years ended June 30, 2022 and 2021. Operating lease right-of-use assets and operating lease obligation are represented in the table below (in thousands): Beginning balance operating lease right-of-use asset Lease asset added Amortization for the year Ending balance operating lease right-of-use asset Beginning balance operating lease obligation Lease liability added Repayment and interest accretion Ending balance operating lease obligation Current portion of operating lease obligation Noncurrent portion of operating lease obligation June 30, 2022 June 30, 2021 $ $ $ $ $ $ $ 22,522 3,522 (9,246 ) $ 16,798 $ 25,609 3,209 (9,798 ) $ 19,020 8,567 10,453 $ $ 28,647 1,069 (7,194 ) 22,522 32,397 1,069 (7,857 ) 25,609 8,169 17,441 Maturities of operating lease liabilities as of June 30, 2022 are presented in the table below (in thousands): 115 Year Ending June 30, 2023 2024 2025 2026 2027 Total operating lease payments Less: imputed interest Present value of operating lease liabilities Amount 9,554 6,770 3,631 354 197 20,506 (1,486 ) 19,020 $ $ The weighted average remaining lease term for the Company’s operating leases was 2.59 years and the weighted average discount rate was 6.07% as of June 30, 2022. Note 6. Goodwill and Purchased Intangible Assets Goodwill Goodwill as of June 30, 2022 and 2021 and changes in the carrying amount of goodwill for the respective periods are as follows (in thousands): Balance at the beginning of the period Currency translation adjustment Balance at the end of the period As of June 30, 2022 2021 $ $ 57,960 $ (120 ) 57,840 $ 57,717 243 57,960 In fiscal year 2022, the Company performed its annual goodwill impairment test and determined that there was no impairment to goodwill. 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, 2022 As of June 30, 2021 Patent license (920 ) $ 250 $ 1,170 $ (735 ) $ 435 Gross Carrying Amount Useful Lives (in years) 2 - 7 $ 1,170 $ Accumulated Amortization Net Amount Gross Carrying Amount Accumulated Amortization Net Amount During fiscal year 2017, the Company purchased a patent license with a useful life of seven years. During the fiscal year 2020, the Company purchased a patent license for $0.2 million 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, 2022 and 2021. Amortization expense related to purchased intangible assets was $0.1 million, $0.2 million and $0.2 million for the years ended June 30, 2022, 2021 and 2020, respectively. The estimated future amortization expense of purchased intangible assets as of June 30, 2022 is as follows (in thousands): Year Ending June 30, 2023 2024 $ $ Amount 143 107 250 116 Note 7. 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. Dollar. 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. The Company enters into forward currency exchange contracts to hedge its overseas operating expenses and other liabilities when deemed appropriate. As of June 30, 2022 and 2021, the Company had the following outstanding forward currency exchange contracts (in notional amount): (In thousands and U.S. dollars) Canadian Dollar Swiss Franc Chinese Yuan Euro British Pound Indian Rupee Japanese Yen As of June 30, 2022 2021 — $ 27,910 2,524 16,307 3,699 3,728 14,167 68,335 $ 527 8,891 1,927 19,037 3,191 7,825 12,803 54,201 $ $ The Company entered into the foreign exchange forward contracts on June 30, 2022 and June 30, 2021, respectively, and therefore, there was no amount recorded on the balance sheets. The following table provides information about gain (loss) associated with the Company’s derivative financial instruments (in thousands): Foreign currency exchange gain (loss) on forward contracts Foreign currency transactions gain (loss) $ (2,045 ) $ (887 ) (2,349 ) $ 396 2022 Years ended June 30, 2021 2020 744 (3,087 ) Note 8. 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: (cid:120) Quoted prices for similar assets or liabilities in active markets; (cid:120) Quoted prices for identical or similar assets in non-active markets; (cid:120) Inputs other than quoted prices that are observable for the asset or liability; and 117 (cid:120) 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. Assets and Liabilities That Are Measured at Fair Value At June 30, 2022, the Company had open currency forward contracts to purchase or sell foreign currencies with a stated, or notional, value of approximately $68.3 million. The fair value of the forward contract based upon the June 30, 2022 exchange rate was approximately $68.3 million, which it considers to be a Level 2 fair value measurement. At June 30, 2021, the Company 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 forward contract based upon the June 30, 2021 exchange rate was approximately $54.2 million, which it considers to be a Level 2 fair value measurement. The Company’s debt is measured on a recurring basis using Level 2 inputs based upon observable inputs of the Company’s convertible debt. The Revolving Credit Facility (as defined below) and the Term Loan (as defined below) reflects the bank quoted market, which the Company 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 and analyzed at quarter- end. The following table summarizes the carrying value and estimated fair value of the Term Loan, the Revolving Credit Facility, the 3.75% Convertible Notes due 2022 and the 3.75% Convertible Notes due 2026 (in thousands): June 30, 2022 June 30, 2021 Carrying Value Fair Value Carrying Value Fair Value 3.75% Convertible Notes Due 2022 3.75% Convertible Notes Due 2026 Term Loan Facility Revolving Credit Facility Total Note 9. Commitments and Contingencies Long-term Debt Commitments $ 2,863 $ 97,619 74,988 5,000 2,729 78,561 74,988 5,000 $ 180,470 $ 161,278 $ 2,712 $ 72,388 78,697 20,000 3,164 108,163 78,697 20,000 $ 173,797 $ 210,024 The Company is required to make semi-annual interest payments on the 3.75% Convertible Notes due 2022 and 3.75% Convertible Notes due 2026, and monthly interest payments on the New Revolving Credit Facility and New Term Loan Facility. See Note 10, Debt, for details. 118 Future minimum long-term principal and interest on the Notes and New Credit Facilities (as defined below), including short-term portion, as of June 30, 2022 are as follows (in thousands): Year Ending June 30, 2023 2024 2025 2026 Total Long-Term Debt (1) 16,266 13,138 14,827 116,777 161,008 $ $ (1) 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 Notes that 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, these purchase orders 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, 2022. Guarantees As of June 30, 2022 and June 30, 2021, the Company had various bank guarantees totaling approximately $1.2 million and $1.2 million, respectively, related to a bidding process with customers. Royalty Agreement The Company enters into software license agreements with third parties that may require royalty payments for each license used. In connection with such agreements, the Company recorded royalty costs of $1.9 million, $1.9 million and $2.5 million for the years ended June 30, 2022, 2021 and 2020, respectively, which were recorded in cost of revenue or deferred cost of revenue. The Company had approximately $2.4 million and $2.3 million accrued liabilities at June 30, 2022 and 2021, 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 119 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, 2022. Litigation 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. Note 10. Debt 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 due 2022”) 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 due 2022 were issued to certain holders of the Company’s then outstanding 3.50% Convertible Notes due 2018 and 3.50% Series A Convertible Notes due 2018 (together, the “Prior Existing Notes”) in exchange for approximately $47.0 million aggregate principal amount of the Prior Existing Notes and $32.0 million aggregate principal amount of the 3.75% Convertible Notes due 2022 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 Prior Existing Notes. Holders of the 3.75% Convertible Notes due 2022 did not convert their notes at any time and was repaid in cash subsequent to June 30, 2022. 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 due 2022 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 due 2022 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 due 2022, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. In May 2021, the Company exchanged approximately $82.1 million aggregate principal amount of 3.75% Convertible Notes due 2022 for approximately $97.1 million aggregate principal amount of 3.75% Convertible Notes due 2026 (as defined below). As of June 30, 2022 and June 30, 2021, $2.9 million aggregate principal amount of 3.75% Convertible Notes due 2022 remained outstanding. The exchange was treated as extinguishment of debt. The Company recorded a loss on the extinguishment of debt of $4.3 million, primarily comprised of the write-off of 120 deferred costs associated with the 3.75% Convertible Notes due 2022. The extinguishment of the equity component of $14.5 million was recognized as reduction to additional paid in capital. The $14.5 million is the difference between the settlement consideration paid of $96.0 million and the fair value of the liability component of $81.5 million. 3.75% Convertible Senior Notes due July 2026 In May 2021, the Company issued $100.0 million aggregate principal amount of its 3.75% Convertible Senior Notes due 2026 (the “3.75% Convertible Notes due 2026”) under an indenture between the Company 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 the Company’s outstanding 3.75% Convertible Notes due 2022 in exchange for approximately $82.1 million aggregate principal amount of 3.75% Convertible Notes due 2022 and $2.9 million of 3.75% Convertible Notes due 2026 were issued to certain other qualified new investors for cash (such transactions the “Exchange and Subscription Transactions”). Holders of the 3.75% Convertible Notes due 2026 may convert their notes at any time on or after March 6, 2026 until the close of the business day immediately preceding the maturity date. Prior to June 6, 2026, holders of the 3.75% Convertible Notes due 2026 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 170.5611 shares of the Company’s common stock per $1,000 principal amount (which represents an initial conversion price of approximately $5.86 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 due 2026 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 due 2026 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 due 2026, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. As of June 30, 2022 and June 30, 2021, $100.0 million aggregate principal amount of 3.75% Convertible Notes due 2026 was outstanding. The aggregate principal amount of $100.0 million, including $2.9 million which were issued to new qualified investors for cash in the 3.75% Convertible Notes due 2026, was allocated between liability component of $74.1 million and equity component of $25.9 million recognized as addition paid in capital, reduced by $0.7 million of 3.75% Convertible Notes due 2026 issuance cost allocated to additional paid in capital. Upon adoption of ASU No. 2020-06 on July 1, 2021, the Company recorded an increase to Accumulated deficit of $0.8 million, a decrease to Additional paid-in capital of $25.6 million, an increase to Debt, current of $24.8 million. There was no impact to diluted loss per share as the inclusion of potential shares of common stock related to the 3.75% Convertible Notes due 2026 would have been anti-dilutive. The Company reversed the separation of the debt and equity components and accounted for the 3.75% Convertible Notes due 2026 wholly as debt. The Company also reversed the amortization of the debt discount, with a cumulative adjustment to retained earnings on the adoption date. Debt issuance costs related to the 3.75% Convertible Notes due 2022 and the 3.75% Convertible Notes due 2026 were comprised of discounts, issuance costs and third party costs of $25.6 million. Prior to the adoption of ASU No. 2020-06, the Company allocated the total amount incurred to the liability and equity components of the 3.75% Convertible Notes due 2022 and the 3.75% Convertible Notes due 2026 based on their relative values. Issuance costs attributable to the liability component were $0.8 million and were amortized to interest expense using the effective interest method. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Upon adoption of ASU No. 2020-06 on July 1, 2021, the Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense for each of the respective terms of the 3.75% Convertible Notes due 2022 and the 3.75% Convertible Notes due 2026, respectively, with a cumulative adjustment to retained earnings on the adoption date. 121 As of June 30, 2022, the if-converted value of the 3.75% Convertible Notes due 2022 and the 3.75% Convertible Notes due 2026 did not exceed the outstanding principal amount. Prior Revolving Credit Facility On June 14, 2017, the Company entered into a credit and security agreement with a lender (the “Prior Credit Agreement”). The Prior Credit Agreement provided the Company with a revolving credit facility in the initial amount of $52.0 million (the “Prior Revolving Credit Facility”). Availability for borrowings under the Prior Revolving Credit Facility was subject to a borrowing base that was calculated as a function of the value of the Company’s eligible accounts receivable and eligible inventory, and the Company was required to maintain a minimum drawn balance of at least 30% of such availability. Interest on the borrowings under the Prior Revolving Credit Facility was 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 Prior Term Loan Agreement (as defined below), the Company entered into an amendment to the Credit Agreement (the “Prior Amendment” and, collectively with the Prior Credit Agreement, the “Amended Prior Credit Agreement”). The Prior Amendment reduced the maximum borrowings under the Prior Revolving Credit Facility to $32.0 million and extended the maturity date of the Prior Revolving Credit Facility to December 15, 2022. In May 2019, the Company amended the Amended Prior 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 Prior 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 remained 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. On May 6, 2021, the Company entered into an amendment to the Amended Prior Credit Agreement to amend the Prior Revolving Credit Facility to, among other things and subject to certain conditions, permit the Company to consummate the Exchange and Subscription Transactions and related agreements. On May 14, 2021, the initial borrowings under the New Credit Agreement (as defined below), plus available cash on hand, were used to repay all outstanding obligations and terminate all commitments under the Amended Prior Credit Agreement. The Prior Revolving Credit Facility was terminated on May 14, 2021. The Company incurred a loss on the extinguishment of debt as a result of repaying all amounts outstanding on the Prior Revolving Credit Facility. The loss on the extinguishment of debt of $1.4 million was primarily comprised of the write-off of deferred costs associated with the Prior Credit Facilities. Prior Term Loan In December 2017, the Company entered into a credit and security agreement with a lender (the “Prior Term Loan Agreement”). The Prior Term Loan Agreement provided 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 were met (the “Prior Term Loan”). In connection with the Prior Amendment, the Company used a portion of the net proceeds from the initial advance to repay a portion of the outstanding borrowings under the Prior Revolving Credit Facility. Interest on the Prior Term Loan was payable monthly in arrears at an annual interest rate of 6.75% plus 90- day LIBOR. The Prior Term Loan Agreement would have matured December 15, 2022 and, if prepaid, had fees equal to 3%, 2%, and 1% of the prepayment amount if such termination occurred within the first year, the second year, and the third year of funding, respectively. The term of the loan was 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 paid an annual administrative fee of 0.25% and a final payment of 4.0% of the Prior Term Loan amount. In December 2018, the Company drew an additional $5.0 million under the Prior Term Loan Agreement and in connection therewith entered into the second amendment to the Prior Term Loan Agreement (“Prior Amendment 2”) 122 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 Prior Amendment 2. In May 2019, the Company amended the Prior 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 Prior 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. On May 6, 2021, the Company entered into an amendment to the Prior Term Loan Agreement to amend the Prior Term Loan Facility to, among other things and subject to certain conditions, permit the Company to consummate the Exchange and Subscription Transactions and related agreements. On May 14, 2021, the initial borrowings under the New Credit Agreement (as defined below), plus available cash on hand, were used to repay all outstanding obligations and terminate all commitments under the Prior Term Loan Agreement. The Prior Term Loan Facility was terminated on May 14, 2021. The Company incurred a loss on the extinguishment of debt as a result of repaying all amounts outstanding on the Prior Term Loan Facility. The loss on the extinguishment of debt of $4.3 million was primarily comprised of the write-off of deferred costs associated with the Prior Credit Facilities. New Credit Facilities On May 6, 2021, the Company entered into a senior secured credit agreement (the “New Credit Agreement”) with Silicon Valley Bank, individually as a lender and agent (“Agent”), and the other lenders from time to time parties thereto (together with Silicon Valley Bank as a lender, the “Lenders”), which provides for a new five-year $80 million term loan (the “New Term Loan Facility”) and a $40 million revolving credit facility (the “New Revolving Credit Facility” and, together with the New Term Loan Facility, the “New Credit Facilities”). The initial borrowings under the New Credit Agreement, including $25 million under the New Revolving Credit Facility, were funded on May 14, 2021. Interest on the borrowings under the New Credit Facilities is payable in arrears on the applicable interest payment date at an annual interest rate of reserve-adjusted, 90-day LIBOR (subject to a 0.50% floor) plus, initially, 3.00% and after the Agent receives copies of the consolidated financial statements of the Company for the fiscal quarter ending June 30, 2021: 3.25% if the Consolidated Senior Net Leverage Ratio (as defined in the New Credit Agreement) is greater than or equal to 3.00:1.00; 3.00% if the Consolidated Senior Net Leverage Ratio is greater than or equal to 2.00:1.00 but less than 3.00:1.00; 2.75% if the Consolidated Senior Net Leverage Ratio is greater than or equal to 1.00:1.00 but less than 2.00:1.00; and 2.50% if the Consolidated Senior Net Leverage Ratio is less than 1.00:1.00. The New Credit Agreement requires the Company to pay the Lenders an unused commitment fee equal to, initially, 0.35% per annum of the average unused portion of the New Revolving Credit Facility and after the Agent receives copies of the consolidated financial statements of the Company for the fiscal quarter ending June 30, 2021: 0.40% per annum of the average unused portion of the Revolving Credit Facility if the Consolidated Senior Net Leverage Ratio is greater than or equal to 3.00:1.00; 0.35% per annum of the average unused portion of the New Revolving Credit Facility if the Consolidated Senior Net Leverage Ratio is greater than or equal to 2.00:1.00 but less than 3.00:1.00; 0.30% per annum of the average unused portion of the New Revolving Credit Facility if the Consolidated Senior Net Leverage Ratio is greater than or equal to 1.00:1.00 but less than 2.00:1.00; 123 and 0.25% per annum of the average unused portion of the New Revolving Credit Facility if the Consolidated Senior Net Leverage Ratio is less than 1.00:1.00. If all or a portion of the loans under the New Term Loan Facility are prepaid, then the Company will be required to pay a fee equal to 1% of the of the aggregate amount of the loans so prepaid, subject to certain exceptions. The New Credit Agreement contains restrictions and covenants applicable to the Company and its subsidiaries. Among other requirements, the Company may not permit the Fixed Charge Coverage Ratio (as defined in the New Credit Agreement) to be less than a certain specified ratio for each fiscal quarter during the term of the New Credit Agreement or the Consolidated Senior Net Leverage Ratio to be greater than a certain specified ratio for each fiscal quarter during the term of the New Credit Agreement. The New Credit Agreement also contains customary covenants that limit, among other things, the ability of the Company and its subsidiaries to (i) incur indebtedness, (ii) incur liens on their property, (iii) pay dividends or make other distributions, (iv) sell their assets, (v) make certain loans or investments, (vi) merge or consolidate, (vii) voluntarily repay or prepay certain indebtedness and (viii) enter into transactions with affiliates, in each case subject to certain exceptions. The New Credit Agreement contains customary representations and warranties and events of default. As of June 30, 2022, $5.0 million of aggregate principal amount was outstanding under the New Revolving Credit Facility, $76.0 million aggregate principal amount was outstanding under the New Term Loan Facility and $1.0 million of associated unamortized debt costs. As of June 30, 2021, $20.0 million of aggregate principal amount was outstanding under the New Revolving Credit Facility, $80 million aggregate principal amount was outstanding under the New Term Loan Facility and $1.3 million of associated unamortized debt costs. The following table presents the carrying value of the New Credit Facilities and the Notes as of June 30, 2022 (in thousands): Revolving Credit Facility 3.75% Convertible Notes Due 2022 3.75% Convertible Notes Due 2026 Term Loan Facility Total Principal amount of the Notes Unamortized debt costs Unamortized debt discount Net carrying amount $ $ 5,000 $ — — 5,000 $ Reported as: Short-term debt Long-term debt Total debt 2,865 $ 100,000 $ 76,000 $ 183,865 (3,395 ) — 2,864 $ 97,619 $ 74,987 $ 180,470 (2,381 ) — (1,013 ) — (1 ) — $ 8,563 171,907 $ 180,470 A summary of interest expense on the New Credit Facilities and the Notes is as follows (in thousands): Interest expense related to contractual interest coupon Interest expense related to amortization of debt discount Interest expense related to amortization of debt issuance costs Interest expense related to extinguishment of debt Total $ $ Note 11. Shareholders’ Equity 2022 Year ended June 30, 2021 2020 7,233 $ — 909 — 8,142 $ 10,590 $ 4,887 1,356 9,948 26,781 $ 12,373 4,168 1,350 — 17,891 At June 30, 2022, the Company had 1.6 million shares of common stock reserved for issuance under the stock incentive plans and the employee stock purchase plan. 124 Share Repurchase On May 5, 2021, the Board of Directors authorized a repurchase of an aggregate amount of the Company common stock not to exceed $18 million. On May 7, 2021, the Company completed a repurchase of 3,108,369 shares of its common stock for an aggregate amount of $14.1 million. The Company’s common stock is reduced by an amount equal to the number of shares being repurchased multiplied by the par value of such shares. The excess amount that is repurchased over its par value is first allocated as a reduction to additional paid-in capital based on the initial public offering price of the Company’s common stock. Note 12. Stock Incentive Plan and Employee Stock Purchase Plan As of June 30, 2022, the Company had two outstanding stock incentive plans: the 2016 Equity Incentive Plan, or the 2016 Plan and the 2007 Incentive Award Plan, or the 2007 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, 2022, the 2007 Plan 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): Cost of revenue Research and development Selling and marketing General and administrative Total 2022 Years ended June 30, 2021 2020 $ $ 1,584 $ 1,371 2,213 5,432 10,600 $ 1,296 $ 1,348 1,457 5,231 9,332 $ 1,244 1,457 1,159 4,292 8,152 The amount of capitalized share-based compensation costs as components of inventory was insignificant at June 30, 2022, 2021 and 2020. 125 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: Risk–free interest rate Dividend yield Expected term Expected volatility Determining Fair Value of Stock Options 2022 Years Ended June 30, 2021 2020 2.71% - 3.21% 0.59% - 1.27% 1.14% - 1.53% — % — % — % 7.30 - 8.94 54.1% - 57.3% 6.72 - 6.88 54.7% - 55.6% 5.63 - 5.64 47.3% - 48.9% 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. 126 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, 2019 Options granted Options exercised Options forfeited/expired Balance at June 30, 2020 Options granted Options exercised Options forfeited/expired Balance at June 30, 2021 Options granted Options exercised Options forfeited/expired Balance at June 30, 2022 Vested or Expected to vest at June 30, 2022 Exercisable at June 30, 2022 Weighted Average Remaining Contractual Life (In Years) Weighted Average Exercise Price Aggregate Intrinsic Value 4.50 2.64 — 4.36 3.82 4.48 4.09 4.40 3.93 2.05 3.69 4.05 3.73 3.73 4.00 7.97 $ 11 8.04 $ — 7.66 $ 5,036 7.05 $ 7.05 6.27 $ — — $ Options Outstanding 5,220 2,305 — (1,569) 5,956 1,526 (209) (243) 7,030 756 (331) (402) 7,053 7,053 4,576 $ 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, 2022 of $1.96 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, 2022). The total intrinsic value of options exercised in the years ended June 30, 2022, 2021 and 2020 was approximately $0.3 million, $0.2 million and $0 million, respectively. During the years ended June 30, 2022, 2021 and 2020, the Company recognized $2.6 million, $2.4 million and $2.0 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. 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, 2022, 2021 and 2020. As of June 30, 2022, there was approximately $3.1 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 2.4 years. 127 The following table summarizes information about outstanding and exercisable options at June 30, 2022 (in thousands, except years and exercise price): Options Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Outstanding 756 1,533 623 2,048 1,113 980 7,053 9.94 $ 7.34 6.42 6.42 8.42 4.51 7.05 2.05 2.60 3.52 4.10 4.46 5.36 3.73 Options Exercisable Number Outstanding Weighted Average Exercise Price — $ 1,022 500 1,835 441 778 4,576 $ — 2.60 3.65 4.10 4.46 5.44 4.00 Range of Exercise Prices $1.96 – 2.08 $2.60 – 2.60 $2.97 – 4.00 $4.10 – 4.10 $4.46 – 4.46 $4.52 – 6.96 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, 2019 Granted Vested Cancelled/Forfeited Unvested at June 30, 2020 Granted Vested Cancelled/Forfeited Unvested at June 30, 2021 Granted Vested Cancelled/Forfeited Unvested at June 30, 2022 Restricted Stock Units Performance Stock Units Market Stock Units Total Number of Shares Underlying Stock Awards Weighted Average Grant Date Fair Value Per Share 3,084 2,009 (1,579 ) (343 ) 3,171 1,738 (1,452 ) (539 ) 2,918 3,236 (1,341 ) (252 ) 4,561 - 419 — — 419 280 — (419 ) 280 937 — (642 ) 575 641 — — (470 ) 171 — — (171 ) — — — — — 3,725 $ 2,428 (1,579 ) (813 ) 3,761 2,018 (1,452 ) (1,129 ) 3,198 4,173 (1,341 ) (894 ) 5,136 $ 4.34 2.74 4.62 3.96 3.26 4.16 3.52 3.20 3.73 3.75 3.75 3.87 3.74 As of June 30, 2022, there was approximately $11.0 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 2.2 years. Restricted Stock Units The Company recognized $6.7 million, $5.4 million and $4.9 million of share-based compensation expense, net of estimated forfeitures, related to RSUs during the years ended June 30, 2022, 2021 and 2020. The weighted average grant date fair value per share of RSUs granted was $3.75, $4.16 and $2.74 for the years ended June 30, 2022, 2021 and 2020, respectively. The aggregate fair market value of RSUs that vested during the year ended June 30, 2022 was $6.4 million. 128 Performance Stock Units The Compensation Committee approved the grant of 937,000, 280,000 and 419,000 PSUs to select employees of the Company in the years ended June 30, 2022, 2021 and 2020, respectively. No PSUs vested in the years ended June 30, 2022 and June 30, 2021. During the years ended June 30, 2022, 2021 and 2020, 642,000, 419,000 and zero PSUs were cancelled, respectively. The Company recognized zero share-based compensation expense, net of estimated forfeitures, related to PSUs during the years ended June 30, 2022, 2021, and 2020. Market Stock Units The Compensation Committee approved the performance equity program, referred to as the Market Stock Unit (MSU) 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 no grants of MSUs in the years ended June 30, 2022 and 2021. Of these MSUs, no shares vested in the years ending June 30, 2022, 2021 and 2020, respectively, due to the non-achievement of the requisite performance target against the Russell 2000 index while zero, 0.2 million and 0.5 million MSUs were cancelled in the years ended June 30, 2022, 2021 and 2020, respectively. The Company recognized zero, $0.1 million and $0.2 million of share-based compensation expense, net of estimated forfeitures, related to MSUs during the years ended June 30, 2022, 2021 and 2020, respectively. There were no MSUs granted during the years ended June 30, 2022, 2020 and 2019. As of June 30, 2022, there was no unrecognized compensation cost 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. 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: Risk–free interest rate Dividend yield Expected term Expected volatility 2022 0.10% - 2.16% —% 0.5 - 1.0 Years Ended June 30, 2021 0.04% - 0.10% —% 0.5 - 1.0 35.49% - 54.33% 36.10% - 65.58% 2020 0.17% - 1.60% —% 0.5 - 1.0 45.46% - 75.21% 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, 2022, 2021 and 2020, the Company recognized $1.3 million, $1.4 million and $1.1 million, respectively, of compensation expense related to its ESPP. 129 The Company issued 1.1 million, 1.2 million and 1.1 million shares under the ESPP during fiscal 2022, 2021 and 2019, respectively, at a weighted average price per share of $4.33, $1.90 and $2.16, respectively. As of June 30, 2022, total unrecognized compensation cost related to the ESPP plan was $0.4 million, which the Company expects to recognize over a weighted average period of 0.6 years. Note 13. 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. Ltd. (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 of two full radiation oncology systems in the quarter ended December 31, 2019 and one system upgrade in the quarter ended September 30, 2020, all of which was not to be sold and only be used for training purposes by the JV. The investments are reported as an Investment in joint venture on the Company’s consolidated balance sheets. The Company applies 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 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 recognizes revenue on sales to the JV in the current period of control transfer, eliminating a portion of profit to the extent goods sold have not been sold through by the JV to an end customer by the end of each reporting period. During the years ended June 30, 2022 and 2021, respectively, the Company recognized $1.4 million and $1.8 million of previously deferred intra-entity profit margin from sales and recorded intra-entity profit margin deferrals of $4.7 million and $2.1 million from sales recognized during the period. The Company’s consolidated accumulated deficit at June 30, 2022 includes $1.0 million of cumulative income related to the Company’s equity method investment. As of June 30, 2022, 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 $14.6 million. Under the equity method of accounting, the carrying value of the investment is adjusted for the Company's proportional share of the investee's currency translation adjustment of $1.0 million. The difference between the carrying value of the equity investment and the Company’s proportional share of the underlying equity in net assets of the JV of $1.7 million adding back $5.4 million of eliminated intra-entity profit constitutes equity method goodwill of $4.7 million at June 30, 2022 that is subject to impairment analysis. No impairment was identified as of June 30, 2022. Summarized financial information of the JV is as follows (in thousands): Statement of Operations Data: Revenue Gross Profit Net income Net income attributable to the Company Twelve Months Ended March 31, 2022 Twelve Months Ended March 31, 2021 $ $ $ $ 55,190 15,915 422 241 $ $ $ $ 33,054 10,578 1,785 872 130 Summarized Balance Sheet Data: Assets Current assets Non current assets Liabilities and Stockholders' Equity Current liabilities Non current liabilities Stockholder's equity Note 14. Income Taxes As of March 31, 2022 As of March 31, 2021 $ $ $ $ 71,730 21,754 93,484 61,877 1,055 30,552 93,484 $ $ $ $ 24,703 23,089 47,792 16,854 1,467 29,471 47,792 Income (loss) before provision for income taxes on the accompanying statements of operations and comprehensive loss included the following components (in thousands): Domestic Foreign Total worldwide 2022 Years Ended June 30, 2021 2020 $ $ (14,092 ) $ 12,090 (2,002 ) $ (8,448 ) $ 3,889 (4,559 ) $ (1,811 ) 7,501 5,690 The provision for income taxes consisted of the following (in thousands): Current: Federal State Foreign Total current Deferred: Federal State Foreign Total deferred Total provision for income taxes 2022 Years Ended June 30, 2021 2020 $ $ $ — $ 25 1,535 1,560 $ — — 1,785 1,785 3,345 $ — $ 17 1,849 1,866 $ — — (114) (114) 1,752 $ — 15 1,495 1,510 — — 353 353 1,863 131 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): U.S. federal taxes (benefit): At federal statutory rate State tax, net of federal benefit Share-based compensation expense Debt extinguishment Other non-deductible permanent items R&D credits Foreign taxes Other Deferred Tax on foreign earnings Global Intangible Low-Taxed Income Change in valuation allowance Total $ $ 2022 Years Ended June 30, 2021 2020 (420 ) $ 25 592 — 252 (415 ) (948 ) (97 ) 1,730 2,124 502 3,345 $ (958 ) $ 17 879 898 155 (1,278 ) 918 (57 ) — 243 935 1,752 $ 1,195 15 810 — 418 (635 ) 273 (69 ) — 1,185 (1,329 ) 1,863 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 (liabilities) were as follows (in thousands): Deferred tax assets: Federal and state net operating losses Accrued expenses and reserves Lease liability Deferred revenue R&D Credits Share-based compensation expense Capitalized research and development Unicap Fixed assets/intangibles Section 163(j) interest Other Total deferred tax assets Deferred tax liabilities: Contract acquisition costs Right of use assets Debt Deferred tax on foreign earnings Total deferred tax liabilities Valuation allowance Net deferred tax assets (liabilities) June 30, 2022 2021 $ $ 75,450 $ 7,359 3,037 5,505 25,146 1,406 1,440 489 956 2,350 228 123,366 (1,521 ) (2,517 ) — (1,730 ) (5,768 ) (119,115 ) (1,517 ) $ 75,033 6,597 4,258 5,093 24,340 1,096 2,088 1,827 1,055 1,817 1,082 124,286 (1,174 ) (3,533 ) (5,612 ) — (10,319 ) (113,476 ) 491 As of June 30, 2022, the Company had approximately $324.0 million and $131.1 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 2023 for state purposes. 132 In addition, as of June 30, 2022, the Company had federal and state research and development tax credits of approximately $25.5 million and $22.1 million, respectively. If not utilized, the federal research credits will begin to expire in 2023, the California research credits have no expiration date and the other state research credits will begin to expire in 2023. 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 prior years, the carryovers should be available for utilization by the Company before they expire, provided the Company generates sufficient future taxable income. During the current period, an analysis of the impact of this provision through March 31, 2022 has been performed and it was determined that no ownership change has occurred after December 2009. Based on the available objective evidence and history of losses, the Company has established a 100% valuation allowance against its combined domestic net deferred tax assets because of uncertainty surrounding the realization of such 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. shareholder. 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 recorded income tax expense for fiscal year 2022 includes $1.7 million of Swiss withholding tax expected to be paid on the remittance of unrepatriated distributable reserves in France, Japan and Switzerland. At June 30, 2022, we have undistributed earnings of certain foreign subsidiaries of approximately $18.1 million that we have indefinitely invested, and on which we have not recognized deferred taxes. The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands): Balance at beginning of year Tax positions related to current year: Additions Tax positions related to prior years: Additions Reductions Balance at end of year 2022 Years Ended June 30, 2021 2020 $ 18,765 $ 16,996 $ 16,280 1,222 1,433 954 61 (238 ) 786 (450 ) 286 (524 ) $ 19,810 $ 18,765 $ 16,996 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. The Company anticipates there will be no material changes in uncertain tax positions in the next 12 months. As of June 30, 2022, the amount of gross unrecognized tax benefits was $19.8 million of which $19.6 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, 2022 and 2021, the Company had approximately $0.06 million and $0.05 million, respectively, of cumulative 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 2002 and forward. The statutes of limitation with 133 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. Currently, the Company is under the early stages of audit by the Japanese tax authorities for the fiscal periods 2019, 2020 and 2021. Note 15. 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 $2.3 million, $1.1 million and $2.0 million to the 401(k) Plan during the years ended June 30, 2022, 2021 and 2020, respectively. Note 16. 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 $0.1 million was recognized in long-term other liabilities in the accompanying balance sheet as of June 30, 2022. Actuarial gain of $4.3 million was recognized in other comprehensive loss in fiscal 2022. 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 Service cost 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: Assets Long-term other liabilities Net amount recognized 134 June 30, 2022 2021 18,705 $ 1,513 75 2,554 (699 ) (3,460 ) (577 ) (658 ) 17,453 $ 14,419 $ 1,225 374 2,554 (564 ) (658 ) 17,350 $ (103 ) $ — $ (103 ) (103 ) $ 18,426 1,766 38 1,676 25 (807 ) 281 (2,700 ) 18,705 13,958 1,117 199 1,676 169 (2,700 ) 14,419 (4,286 ) — (4,286 ) (4,286 ) $ $ $ $ $ $ $ The following table presents the amounts recognized in accumulated other comprehensive loss (before tax) for the defined benefit pension plan (in thousands): Net actuarial loss (gain) Prior service cost Accumulated other comprehensive income (loss) June 30, 2022 2021 $ $ 3,723 $ 224 3,947 $ (1,236 ) 872 (364 ) 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 June 30, 2022 2021 $ $ $ 17,453 $ 15,546 $ 17,350 $ 18,705 16,891 14,419 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): Net Periodic Benefit Costs: Service cost 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 $ 2022 Year ended June 30, 2021 2020 1,513 $ 75 (144 ) 54 — — 1,498 (3,584 ) (53 ) (678 ) — 4 (4,311 ) 1,766 $ 38 (142 ) 54 — — 1,716 (850 ) (54 ) 24 — 8 (872 ) 2,003 62 (151 ) (2 ) — 178 2,090 (593 ) 2 1,005 — (178 ) 236 $ (2,813 ) $ 844 $ 2,326 The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during fiscal year 2023 related to the Company’s defined benefit pension plan are as follows (in thousands): Net gain Prior service credit Accumulated other comprehensive income $ $ 2023 172 24 196 135 Assumptions 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 2022 Fiscal Years 2021 2020 1.90 % 1.75 % 1.00 % 0.40 % 1.50 % 1.00 % 0.25 % 1.50 % 1.00 % 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 June 30, 2022 2021 1.90 % 1.75 % 0.40 % 1.50 % The Company made contributions of approximately $1.2 million, $1.1 million and $1.3 million to the defined benefit pension plan during fiscal years 2022, 2021 and 2020 respectively. The Company expects total contributions to the defined benefit pension plan for fiscal year 2023 will be approximately $1.3 million. Estimated future benefit payments expected to be paid by the defined benefit pension plan at June 30, 2022 are as follows (in thousands): Year Ending June 30, 2023 2024 2025 2026 2027 Thereafter Total Plan Assets Future Benefits 1,001 1,015 1,212 1,054 1,218 8,605 14,105 $ $ The plan assets are invested in insurance contracts with Copré Collective Foundation based in Lausanne, Switzerland at the end of fiscal years 2022 and 2021, respectively. In fiscal 2022 and 2021, 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 fiscal 2022 and 2021 the guaranteed interest rate for mandatory retirement savings was 1.00% for both years. 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. 136 The contract of affiliation between the Company and the Copré Collective Foundation 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 Collective Foundation from all obligations. Note 17. 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): Americas Europe, Middle East, India and Africa Asia Pacific, excluding Japan and China Japan China Total 2022 126,005 $ 134,640 28,953 53,376 86,935 429,909 $ Years ended June 30, 2021 105,878 $ 121,568 26,425 62,636 79,782 396,289 $ $ $ 2020 128,562 119,989 31,297 72,688 30,392 382,928 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): Information regarding geographic areas in which the Company has long-lived tangible assets is as follows (in thousands): Americas Europe, Middle East, India and Africa Asia Pacific, excluding Japan and China Japan China Total June 30, 2022 June 30, 2021 11,251 228 272 265 669 12,685 $ $ 10,588 265 170 701 608 12,332 $ $ 137 Note 18. Restructuring Charges The Company incurred no restructuring charges for the years ended June 30, 2022 and 2021. 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. The remainder was paid in fiscal year 2021. Note 19. Subsequent Events The Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements. 138 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by our Annual Report on Form 10-K, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the guidelines established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) 2013. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2022. The effectiveness of our internal control over financial reporting as of June 30, 2022 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included herein. (c) Changes in Internal Control over Financial Reporting Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022, and has concluded that there was no change during such quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations of Internal Controls Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. 139 Item 9B. OTHER INFORMATION None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. 140 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Accuray Incorporated Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Accuray Incorporated (a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2022, based on criteria established in the 2013 Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended June 30, 2022, and our report dated August 17, 2022 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP San Jose, California August 17, 2022 141 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors, Executive Officers and Corporate Governance PART III The information in our 2022 Proxy Statement regarding directors and executive officers appearing under the headings “Proposal One—Election of Directors,” “Executive Officers” and “Delinquent Section 16(a) Reports” is incorporated herein by reference. In addition, the information in our 2022 Proxy Statement regarding the director nomination process, the Audit Committee financial expert and the identification of the Audit Committee members appearing under the heading “Corporate Governance and Board of Directors Matters” is incorporated herein by reference. There have been no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors. Item 11. EXECUTIVE COMPENSATION The information in our 2022 Proxy Statement appearing under the headings “Executive Compensation,” “Compensation Committee Report,” “Compensation Discussion and Analysis,” “Compensation of Non-Employee Directors” and “Corporate Governance and Board of Directors Matters—Compensation Committee Interlocks and Insider Participation” is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information in our 2022 Proxy Statement appearing under the heading “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information in our 2022 Proxy Statement appearing under the headings “Certain Relationships and Related Transactions” and “Corporate Governance and Board of Directors Matters—Director Independence” is incorporated herein by reference. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information in our 2022 Proxy Statement appearing under the headings “Proposal Five—Ratification of Appointment of Independent Registered Public Accounting Firm—Audit and Non-Audit Services” and “Proposal Five—Ratification of Appointment of Independent Registered Public Accounting Firm—Audit Committee Pre-Approval Policies and Procedures” is incorporated herein by reference. 142 PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) We have filed the following documents as part of this report: 1. Consolidated Financial Statements (as set forth in Item 8) Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID 248) .................................................. 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 ...................................................................................................... 96 98 99 100 101 102 2. Consolidated Financial Statement Schedules All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. 3. Exhibits The following exhibits are incorporated by reference or filed herewith. Exhibit No. 3.1 Exhibit Description Amended and Restated Certificate of Incorporation of Registrant. Filer (ARAY/ TOMO) ARAY Incorporated by Reference Form 8-K File No. 001-33301 Exhibit Filing Date 3.1 02/06/2013 Furnished or Filed Herewith 3.2 Amended and Restated Bylaws of ARAY 8-K 001-33301 3.1 03/23/2015 Registrant. 4.1 Indenture by and between ARAY 10-Q 001-33301 4.1 05/09/2013 Registrant and the Bank of New York Mellon Trust Company, N.A., dated as of February 13, 2013. 4.2 Indenture by and between ARAY 8-K 001-33301 4.1 04/25/2014 4.3 4.4 4.5 4.6 4.7 Registrant and the Bank of New York Mellon Trust Company, N.A., dated as of April 24, 2014. Indenture between Registrant and The Bank of New York Mellon Trust Company, N.A., as trustee, dated as of August 7, 2017. ARAY 8-K 001-33301 4.1 08/08/2017 Form of Common Stock Certificate. ARAY ARAY Form of 3.75% Convertible Senior Note due 2022 (included in Exhibit 4.3). S-1/A 8-K 333-138622 001-33301 4.3 02/05/2007 4.1 08/08/2017 ARAY 8-K 001-33301 4.1 12/04/2017 ARAY 8-K 001-33301 4.1 05/18/2021 First Supplemental Indenture, dated as of December 4, 2017, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as trustee. Indenture, dated as of May 13, 2021, between the Registrant and The Bank of New York Mellon Trust Company, N.A., as trustee. 143  ARAY 8-K 001-33301 4.1 05/18/2021 ARAY S-1 333-138622 10.1 11/13/2006 4.8 10.1 Form of 3.75% Convertible Senior Note due 2026 (included in Exhibit 4.7) Industrial Complex Lease by and between Registrant and MP Caribbean, Inc., dated July 9, 2003, as amended by the First Amendment to Industrial Complex Lease effective as of December 9, 2004 and the Second Amendment to Industrial Complex Lease effective as of September 25, 2006. 10.2 Third Amendment to Industrial ARAY 10-K 001-33301 10.1(a) 09/04/2007 Complex Lease dated January 16, 2007. 10.3 Fourth Amendment to Industrial ARAY 10-Q 001-33301 10.3 02/04/2010 Complex Lease by and between the Registrant and BRCP Caribbean Portfolio, LLC, dated September 18, 2007. 10.4 Fifth Amendment to Industrial ARAY 10-Q 001-33301 10.4 02/04/2010 Complex Lease by and between the Registrant and BRCP Caribbean Portfolio, LLC, dated April 1, 2008. 10.5 Sixth Amendment to Industrial ARAY 10-Q 001-33301 10.5 02/04/2010 10.6 10.7 10.8 10.9 10.10* 10.11* Complex Lease by and between the Registrant and I & G Caribbean, Inc., dated December 18, 2009. Seventh Amendment to Lease by and between the Registrant and DWF III Caribbean, LLC, dated June 20, 2014. Eighth Amendment to Lease by and between the Registrant and DWF III Caribbean, LLC, dated October 31, 2014. Ninth Amendment to Lease by and between Google LLC and Accuray Incorporated, dated March 4, 2019. Accuray Incorporated 1998 Equity Incentive Plan and forms of agreements relating thereto. Accuray Incorporated 2007 Incentive Award Plan. Form of Performance Stock Unit Grant Notice and Performance Stock Unit Agreement. ARAY 8-K 001-33301 10.1 06/24/2014 ARAY 10-Q 011-33301 10.1 02/06/2015 ARAY 10-Q 011-33301 10.1 05/09/2019 ARAY S-1 333-138622 10.4 11/13/2006 ARAY 10-K 001-33301 10.8 09/19/2011 ARAY 8-K 001-33301 99.2 09/02/2014 10.12* Form of Restricted Stock Unit ARAY 8-K 001-33301 99.1 09/02/2014 Grant Notice and Restricted Stock Unit Agreement. 10.13* Form of Stock Option Grant Notice ARAY 8-K 001-33301 99.3 11/23/2011 10.14* 10.15* and Stock Option Agreement. Form of Market Stock Unit Grant Notice and Award Agreement. Accuray Incorporated Amended and Restated 2016 Equity Incentive Plan and forms of award agreements thereunder. ARAY 8-K 001-33301 99.1 10/17/2012 ARAY 10-K 001-33301 10.15 08/18/2021 144  10.16* 10.17* Amended and Restated 2007 Employee Stock Purchase Plan. Accuray Incorporated Performance Bonus Plan, as amended on September 22, 2016. ARAY 8-K 001-33301 10.2 11/25/2020 ARAY DEF14A 001-33301 Appendix C 10/07/2016 10.18* Accuray Incorporated Company ARAY 10-Q 001-33301 10.6 11/06/2018 Bonus Plan. 10.19* Stand Alone Inducement Restricted ARAY S-8 333-220698 99.1 09/28/2017 Stock Unit Agreement between Registrant and Shigeyuki Hamamatsu, effective September 29, 2017. 10.20* Form of Accuray Incorporated ARAY S-8 333-224547 99.1 04/30/2018 Stand Alone Inducement Restricted Stock Unit Agreement for Patrick Spine. 10.21* Form of Accuray Incorporated ARAY S-8 333-224547 99.2 04/30/2018 10.22* Stand Alone Inducement Performance Unit Agreement for Patrick Spine. Form of Accuray Incorporated Stand Alone Inducement Stock Option Agreement for Patrick Spine. ARAY S-8 333-224547 99.3 04/30/2018 10.23* Form of Accuray Incorporated ARAY S-8 333-234412 99.1 10/31/2019 10.24* Stand Alone Inducement Restricted Stock Unit Agreement for Suzanne Winter. Form of Accuray Incorporated Stand Alone Inducement Stock Option Agreement for Suzanne Winter. ARAY S-8 333-234412 99.2 10/31/2019 10.25* Form of Accuray Incorporated ARAY S-8 333-251038 99.4 11/30/2021 10.26* Stand Alone Inducement Restricted Stock Unit Agreement for Jim Dennison. Form of Accuray Incorporated Stand Alone Inducement Stock Option Agreement for Jim Dennison. ARAY S-8 333-251038 99.5 11/30/2021 10.27* Form of Accuray Incorporated ARAY S-8 333-255701 99.1 04/30/2021 10.28* Stand Alone Inducement Restricted Stock Unit Agreement for J.P. Pignol. Form of Accuray Incorporated Stand Alone Inducement Stock Option Agreement for J.P. Pignol. ARAY S-8 333-255701 99.2 04/30/2021 10.29* Form of Accuray Incorporated ARAY S-8 333-265330 99.1 05/31/2022 10.30* Stand Alone Inducement Restricted Stock Unit Agreement for Sandeep Chalke. Form of Accuray Incorporated Stand Alone Inducement Stock Option Agreement for Sandeep Chalke. ARAY S-8 333-265330 99.2 05/31/2022 10.31* TomoTherapy Incorporated 2000 ARAY S-8 333-174952 99.1 06/17/2011 Stock Option Plan, as amended, and forms of option agreements thereunder. 10.32* TomoTherapy Incorporated 2002 ARAY S-8 333-174952 99.2 06/17/2011 Stock Option Plan, as amended, and forms of option agreements thereunder. 145  10.33* TomoTherapy Incorporated 2007 ARAY S-8 333-174952 99.3 06/17/2011 Equity Incentive Plan, as amended, and forms of option agreements thereunder. 10.34* Form of Indemnification ARAY 10-Q 001-33301 10.7 05/10/2011 Agreement by and between Registrant and each of its directors and executive officers. 10.35 Development and OEM Supply TOMO S-1/A 333-140600 10.11 04/16/2007 Agreement by and between TomoTherapy Incorporated and Analogic Corporation, dated January 27, 2003. 10.36* Amended and Restated Renewal ARAY 10-Q 001-33301 10.1 05/08/2020 10.37* 10.38* 10.39* Executive Employment Agreement by and between the Registrant and Joshua H. Levine, dated January 1, 2020. Executive Employment Agreement by and between Registrant and Shigeyuki Hamamatsu, dated January 1, 2021. Change in Control Agreement between Registrant and Shigeyuki Hamamatsu, dated September 21, 2017. Executive Employment Agreement by and Between Registrant and Patrick Spine, dated January 1, 2021. ARAY 10-Q 001-33301 10.1 02/01/2021 ARAY 10-Q 001-33301 10.4 11/03/2017 ARAY 10-Q 001-33301 10.3 02/01/2021 10.40* Executive Employment Agreement ARAY 10-Q 001-33301 10.4 02/01/2021 10.41* by and Between Registrant and Jesse Chew, dated January 1, 2021 Amended and Restated Executive Employment Agreement by and Between Registrant and Suzanne Winter, dated July 1, 2022. 10.42* Executive Employment Agreement ARAY 10-Q 001-33301 10.5 04/30/2021 by and between Registrant and Michael Hoge, dated January 1, 2021 10.43* Offer Letter by and between 10.44* 10.45* Registrant and Brandy Green, dated August 10, 2021. Retention Package Letter by and between Registrant and Brandy Green, dated April 27, 2022. Executive Employment Agreement by and between Registrant and Ali Pervaiz, dated May 9, 2022. 10.46* Executive Employment Agreement by and between Registrant and Sandeep Chalke, dated May 2, 2022. 10.47* Consulting Agreement by and between Registrant and Joshua H. Levine, dated July 1, 2022. 146 X X X X X X  10.48‡ Credit and Security Agreement by ARAY 10-K 001-33301 10.37 08/25/2017 and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Financial Trust, individually as a lender and as agent, and the other lenders from time to time parties thereto, dated June 14, 2017. 10.49 Form of Exchange/Repurchase ARAY 8-K 001-33301 10.1 07/28/2017 Agreement between Registrant and each signatory thereto, dated July 27, 2017. 10.50 Form of Subscription Agreement ARAY 8-K 001-33301 10.2 07/28/2017 between Registrant and each signatory thereto, dated July 27, 2017. 10.51‡ Credit and Security Agreement by ARAY 10-Q 001-33301 10.1 02/05/2018 and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Financial Trust, individually as a lender and as agent, and the other financial institutions or other entities from time to time parties thereto, dated December 15, 2017. 10.52‡ Amendment No. 1 to Credit and ARAY 10-Q 001-33301 10.2 02/05/2018 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding IV Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time parties thereto, dated December 15, 2017. 10.53‡ Amendment No. 1 to Credit and ARAY 10-K 001-33301 10.47 08/24/2018 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Financial Trust, individually as a lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated July 12, 2018. 10.54‡ Amendment No. 2 to Credit and ARAY 10-K 001-33301 10.48 08/24/2018 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding IV Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated July 12, 2018. Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding X Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated December 28, 2018. 147 ARAY 10-Q 001-33301 10.7 02/08/2019  10.55 Amendment No. 2 to Credit and ARAY 10-Q 001-33301 10.6 02/08/2019 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added reto, MidCap Financial Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated December 28, 2018. 10.56 Amendment No. 3 to Credit and ARAY 10-Q 001-33301 10.7 02/08/2019 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding X Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated December 28, 2018. 10.57† Amendment No. 3 to Credit and ARAY 10-K 001-33301 10.51† 08/23/2019 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Financial Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated May 30, 2019. 10. 58† Amendment No. 4 to Credit and ARAY 10-K 001-33301 10. 52† 08/23/2019 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding IV Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated May 30, 2019. 10. 59† Amendment No. 4 to Credit and ARAY 10-Q 001-33301 10.1 11/06/2019 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Financial Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated August 30, 2019. 148 10. 60† Amendment No. 5 to Credit and ARAY 10-Q 001-33301 10.2 11/06/2019 Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding IV Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated August 30, 2019. 10.61† Amendment No. 5 to Credit and ARAY 10-K 001-33301 10.52 08/25/2020 10.62† Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Financial Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated July 3, 2020. Amendment No. 6 to Credit and Security Agreement by and among the Registrant, TomoTherapy Incorporated, any additional borrowers that may be added thereto, MidCap Funding IV Trust, individually as lender and as agent, and the other financial institutions or other entities from time to time party thereto, dated July 3, 2020. ARAY 10-K 001-33301 10.53 08/25/2020 10.63† Credit Agreement among the ARAY 10-K 001-33301 10.56 08/17/2021 Registrant, as the Borrower, the several lenders from time to time party thereto, and Silicon Valley Bank, as administrative agent, lead arranger, issuing lender and swingline lender, dated as of May 6, 2021. 10.64 Form of Exchange Agreement, ARAY 8-K 001-33301 10.1 05/12/2021 10.65 21.1 23.1 24.1 dated as of May 6, 2021, between the Registrant and each signatory thereto. Form of Subscription Agreement, dated as of May 6, 2021, between the Registrant and each signatory thereto. List of subsidiaries. Consent of Grant Thornton LLP, independent registered public accounting firm. Power of Attorney (incorporated by reference to the signature page of this annual report on Form 10-K). 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ARAY 8-K 001-33301 10.2 05/12/2021 X X X X X 149  32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document— the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) 104 X X X X X X X * Management contract or compensatory plan or arrangement. ‡ Confidential treatment has been granted with respect to portions of this exhibit. † Certain portions of this exhibit have been omitted because they are both not material and would be competitively harmful if publicly disclosed. The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Accuray Incorporated under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. Form 10-K, irrespective of any general incorporation language contained in such filing. Item 16. FORM 10-K SUMMARY None. 150 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Sunnyvale, State of California, on the 17th day of August 2022. SIGNATURES ACCURAY INCORPORATED By: By: /s/ SUZANNE WINTER Suzanne Winter President and Chief Executive Officer /s/ ALI PERVAIZ Ali Pervaiz Senior Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Suzanne Winter and Ali Pervaiz, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys- in- fact and agents, and any of them or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 151 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following and on the dates indicated. Signature Title Date /s/ SUZANNE WINTER Suzanne Winter President, Chief Executive Officer and Director (Principal Executive Officer) August 17, 2022 /s/ ALI PERVAIZ Ali Pervaiz Chief Financial Officer (Principal Financial Officer) August 17, 2022 /s/ FRANCO PALOMBA Franco Palomba Chief Accounting Officer and Controller (Principal Accounting Officer) August 17, 2022 /s/ JOSEPH E. WHITTERS Joseph E. Whitters /s/ ELIZABETH DÁVILA Elizabeth Dávila /s/ BYRON C. SCOTT Byron C. Scott /s/ BEVERLY A. HUSS Beverly A. Huss /s/ RICHARD R. PETTINGILL Richard R. Pettingill /s/ ANNE B. LE GRAND Anne B. Le Grand /s/ JAMES M. HINDMAN James M. Hindman /s/ MIKA NISHIMURA Mika Nishimura Chairperson of the Board and Director August 17, 2022 Director Director Director Director Director Director Director August 17, 2022 August 17, 2022 August 17, 2022 August 17, 2022 August 17, 2022 August 17, 2022 August 17, 2022 152 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Senior Vice President, Chief Financial Offi cer Elizabeth Dávila SENIOR MANAGEMENT SENIOR MANAGEMENT Suzanne Winter Suzanne Winter President, Chief Executive Offi cer and Director Ali Pervaiz Sandeep Chalke Senior Vice President, Chief Commercial Offi cer Jean- Philippe Pignol, M.D., Ph.D. Senior Vice President, Chief Medical and Technology Offi cer Jesse Chew Senior Vice President, General Counsel and Corporate Secretary Senior Vice President, Global Operations Michael Hoge Patrick Spine Jim Dennison Senior Vice President, Global Quality and Regulatory Affairs Senior Vice President, Chief Administrative Offi cer BOARD OF DIRECTORS BOARD OF DIRECTORS BOARD OF DIRECTORS BOARD OF DIRECTORS Joseph E. Whitters (Chairperson of the Board) Joseph E. Whitters (Chairperson of the Board) (Chairperson of the Board) (Chairperson of the Board) Joseph E. Whitters Joseph E. Whitters Advisor/Consultant Frazier Healthcare Former Chairman and Chief Executive Offi cer VISX, Incorporated James M. Hindman Former Executive Vice President and Chief Financial Offi cer Allergan, Inc. Beverly A. Huss Former Chief Executive Offi cer Pagonia Medical, Inc. Anne B. Le Grand Consultant IBM Watson Health Mika Nishimura Operational Partner Gilde Healthcare Partners Richard R. Pettingill Former President and Chief Executive Offi cer Allina Hospitals and Clinics Byron C. Scott, M.D. Adjunct Faculty University of Massachusetts, Amherst, Isenberg School of Management & Thomas Jefferson University, Jefferson College of Population Health Suzanne Winter President, Chief Executive Offi cer and Director Accuray Incorporated STOCK MARKET INFORMATION STOCK MARKET INFORMATION Accuray common stock is traded on the Accuray common stock is traded on the NASDAQ stock market under symbol “ARAY”. CORPORATE HEADQUARTERS 1310 Chesapeake Terrace Sunnyvale, CA 94089 (408) 716-4600 (phone) (408) 716-4601 (fax) www.accuray.com www.cyberknife.com www.tomotherapy.com LEGAL COUNSEL Wilson Sonsini Goodrich & Rosati, P.C. Palo Alto, CA 94304 TRANSFER AGENT Mailing Address: Accuray Incorporated c/o Computershare Investor Services P.O. Box 50500 Louisville, KY 40233-5005 INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ACCOUNTING FIRM ACCOUNTING FIRM ACCOUNTING FIRM ACCOUNTING FIRM Grant Thornton LLP San Jose, CA 95113 INQUIRIES Communications concerning stock transfer requirements, lost certifi cates and changes of address should be directed to the Transfer Agent. Inquiries regarding company fi nancial information should be directed to: Accuray Incorporated Attn: Investor Relations 1310 Chesapeake Terrace Sunnyvale, CA 94089 E-mail: investorrelations@accuray.com ANNUAL REPORT AND FORM 10-K A copy of the company’s 2022 Annual Report on Form 10-K is fi led with the Securities and Exchange Commission and is available, without charge, by calling or writing the company at the address under Inquiries. #AccurayExpandRT UNITED STATES ASIA EUROPE Accuray Corporate Headquarters Accuray Corporate Headquarters 1310 Chesapeake Terrace 1310 Chesapeake Terrace Sunnyvale, CA 94089 Sunnyvale, CA 94089 USA USA Tel: +1.408.716.4600 Tel: +1.408.716.4600 Toll Free: 1.888.522.3740 Toll Free: 1.888.522.3740 Toll Free: 1 888.522.3740 Fax: +1.408.716.4601 Fax: +1.408.716.4601 408.716.4601 408.716.4601 Fax: Fax: Accuray Incorporated Accuray Incorporated Accuray Incorporated Accuray Incorporated Accuray Incorporated 1240 Deming Way 1240 Deming Way 1240 Deming Way 1240 Deming Way 1240 Deming Way Madison, WI 53717 Madison, WI 53717 Madison, WI 53717 Madison, WI 53717 Madison, WI 53717 USA USA Tel: +1.608.824.2800 +1.608.824.2800 +1.608.824.2800 +1.608.824.2800 Tel: +1.608.824.2800 +1.608.824.2996 +1.608.824.2996 Fax: +1.608.824.2996 Fax: +1.608.824.2996 Fax: Accuray Japan K.K. Accuray Japan K.K. Accuray Japan K.K. Accuray Japan K.K. Accuray Japan K.K. Shin Otemachi Building 7F Shin Otemachi Building 7F Shin Otemachi Building 7F Shin Otemachi Building 7F Shin Otemachi Building 7F 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku 2-2-1 Otemachi, Chiyoda-ku Tokyo 100-0004 Tokyo 100-0004 Tokyo 100-0004 Tokyo 100-0004 Tokyo 100-0004 Japan Japan Japan Tel: +81.3.6265.1526 +81.3.6265.1526 +81.3.6265.1526 Tel: Tel: Fax: +81.3.3272.6166 Fax: +81.3.3272.6166 Fax: +81.3.3272.6166 Accuray Asia Ltd. Accuray Asia Ltd. 16/F, Tower 5, The Gateway 16/F, Tower 5, The Gateway Harbour City Harbour City 15 Canton Road, T.S.T 15 Canton Road, T.S.T Hong Kong Hong Kong Tel: +852.2247.8688 Tel: +852.2247.8688 Tel: +852.2247.8688 Fax: : +852.2175.5799 Fax: : +852.2175.5799 Fax: : +852.2175.5799 Accuray Accelerator Accuray Accelerator Technology (Chengdu) Co., Ltd. Technology (Chengdu) Co., Ltd. No. 8, Kexin Road No. 8, Kexin Road Hi-Tech Zone (West Area) Hi-Tech Zone (West Area) Chengdu Chengdu 611731 Sichuan 611731 Sichuan 611731 Sichuan China China China Accuray International Sarl Accuray International Sarl Accuray International Sarl Route de la Longeraie 9 Route de la Longeraie 9 CH – 1110 Morges CH – 1110 Morges Switzerland Switzerland Tel: +41.21.545.9500 Tel: +41.21.545.9500 Fax: +41.21.545.9501 Fax: +41.21.545.9501 Fax: +41.21.545.9501 © 2022 Accuray Incorporated. All Rights Reserved. © 2022 Accuray Incorporated. All Rights Reserved. © 2022 Accuray Incorporated. All Rights Reserved. © 2022 Accuray Incorporated. All Rights Reserved. Important Safety Information: Important Safety Information: Important Safety Information: Important Safety Information: Important Safety Information: Important Safety Information: Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions Most side effects of radiotherapy, including radiotherapy delivered with Accuray systems, are mild and temporary, often involving fatigue, nausea, and skin irritation. Side effects can be severe, however, leading to pain, alterations in normal body functions (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side (for example, urinary or salivary function), deterioration of quality of life, permanent injury, and even death. Side effects can occur during or shortly after radiation treatment or in the months and years following radiation. The nature and severity of side effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your effects depend on many factors, including the size and location of the treated tumor, the treatment technique (for example, the radiation dose), and the patient’s general medical condition, to name a few. For more details about the side effects of your radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. radiation therapy, and to see if treatment with an Accuray product is right for you, ask your doctor. www.accuray.com 2 0 2 2 A N N U A L R E P O R T 

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