Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

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

The following discussion and analysis of our financial condition as of December 31, 2025, and results of operations for the three and six months ended December 31, 2025 and 2024 should be read together with our unaudited condensed consolidated financial statements and related notes included in this report. Statements made in this Form 10-Q report that are not statements of historical fact are forward-looking statements that are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this report relate, but are not limited, to: our future results of operations and financial position, including the sufficiency of cash resources and expected cash flows to fund future operations, including the next 12 months; our expectations regarding backlog, age-ins and age-outs, cancellations of contracts and foreign currency impacts; the anticipated drivers of our future capital requirements; expectations regarding our strategy in China and our China joint venture as well as its expected impact on our business; expectations regarding the market in China for radiation oncology systems; expectations regarding the effects of the global macroeconomic conditions on our financial results and business as well as the business of our customers and suppliers; expectations regarding the impact of changes in government administration policy positions; expectations regarding delays in deliveries and installations and its impact on our business; expectations regarding inflation, supply chain challenges and heightened logistics costs and its impact on our business, including gross margins and net income (loss); expectations regarding revenue from the Americas region; expectations regarding the timing of deliveries and revenue conversion; our expectations regarding the adequacy of our manufacturing facilities; the anticipated risks associated with our foreign operations and fluctuations in the U.S. Dollar and foreign currencies as well as our ability to mitigate such risks; tariffs and trade policies; expectations related to the effect of the GILTI tax and the One Big Beautiful Bill Act on the company; expectations related to our convertible notes and credit facilities; expectations related to our leases; the amount of unrecognized tax amounts; the sufficiency of our cash, cash equivalents and investments to meet our anticipated cash needs for working capital and capital expenditures and our business strategy, plans and objectives. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "may," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements involve risks and uncertainties. If any of these risks or uncertainties materialize, or if any of our assumptions prove incorrect, actual results could differ materially from the results expressed or implied by these forward-looking statements. These risks and uncertainties include, those discussed in this quarterly report, in particular under the heading "Risk Factors" in Part II, Item 1A, and other filings we make with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statements are made and are based on information available to us at the time those statements are made and/or management's good faith belief as of that time with respect to future events. We assume no obligation to update forward-looking statements to reflect actual performance or results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. Accordingly, investors should not place undue reliance on any forward-looking statements.

In this report, "Accuray," the "Company," "we," "us," and "our" refer to Accuray Incorporated and its subsidiaries.

Overview

Company

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

Current Economic Conditions

We are subject to risks and uncertainties caused, directly or indirectly, by events with significant geopolitical and macroeconomic impacts, including, but not limited to, inflation; actions taken to counter inflation, including high interest rates; foreign currency exchange rate fluctuations; uncertainty and volatility in the banking and financial services sector; tightening credit markets; geopolitical concerns, such as the Russia-Ukraine and Middle East conflicts and tension between China and the U.S., including with respect to Taiwan; uncertainty caused by the China anti-corruption campaign and timing of the China stimulus program; changes in government administration policy positions; new tariffs on global imports and uncertainties regarding impact, retaliations and further escalation, including against other countries; and other factors that may emerge. We are also continuing to navigate supply chain and inflation challenges, both of which continues to be a significant headwind that affects the Company's results of operations.

We expect that the business of our customers and our own business will continue to be adversely impacted, directly or indirectly, by these macroeconomic and geopolitical issues. In addition, ongoing supply chain challenges and logistics costs, including difficulties in obtaining a sufficient supply of component materials and increased component costs, have adversely affected our gross margins and net income (loss), and we currently expects that gross margins and net income (loss) will continue to be adversely affected by increased material costs and freight and logistics expenses through at least fiscal year 2026, and potentially longer. In addition, we expect inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through at least fiscal year 2026. In addition, reduced budgets and lower capital deployment priority for radiotherapy equipment, along with longer customer installation timelines, in the United States have negatively impacted our net revenue since fiscal year 2024, and we expect this will continue to have an impact through fiscal year 2026. The extent of the ongoing impact of these macroeconomic events on our business, our markets and on global economic activity however, is uncertain and the related financial impact cannot be reasonably estimated with any certainty at this time.

As a global company, approximately 70% of our raw materials and product components are sourced within the U.S. and finished products are assembled and manufactured within the U.S. with over 80% exported throughout the world. There remains significant tariff uncertainty, including related to existing tariffs associated with U.S.-China trade, which we expect will continue to have incremental costs to the company. If existing tariffs increase, we would expect minimal shipments to China despite customer demand. We continue to work to implement mitigations to the tariff policy impacts, however, we cannot predict the full impact or timing of such efforts and expect that sales to China will be adversely impacted, and our financial results have been adversely impacted in the past and may continue to be adversely impacted in the future.

Our past results may not be indicative of our future performance, and historical trends including conversion of backlog to revenue, income (loss) from operations, net income (loss), net income (loss) per share and cash flows may differ materially. Accordingly, management is carefully evaluating our liquidity position, communicating with and monitoring the actions of our customers and suppliers, and reviewing our near-term financial performance as the uncertainty related to these factors continues to unfold. We also continue to evaluate our operating expenses to conserve cash in light of the uncertain macroeconomic environment due to tariffs, and to evaluate our real estate needs and continue to assess our operations and how and to what extent we will continue to utilize our current real estate assets. The risks related to our business, including further discussion of the impact and possible future impacts of current economic conditions on our business, are further described in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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 30 months. 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. We report our customer revenues in five geographic regions: the Americas, EIMEA, Japan, China and Asia Pacific. The Americas region includes the United States, Canada and Latin America. The EIMEA region includes Europe, India, the Middle East and Africa. The Asia Pacific region consists of Asia (excluding Japan and China), Australia and New Zealand.

In the United States, we primarily market directly to customers, including hospitals and stand-alone treatment facilities, through our sales organization we also market to customers through sales agents and group purchasing organizations. Outside the United States, we market to customers directly and through use of distributors and sales agents. In addition to our offices in the United States, we have international offices in Morges, Switzerland; Hong Kong, China; Shanghai, China and Tokyo, Japan and direct sales staff in most countries in Western Europe, Japan, India and Canada. In addition, we have distributors in Europe, Russia, the Middle East, Africa, the Asia Pacific region, and Latin America.

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., 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.

The JV sells our products in China, much like a distributor and also manufactures and sells a locally branded "Made in China" radiotherapy device, the Tomo C radiation therapy system, in the Class B license category. We believe this strategy will allow us to best maximize both near and longer-term opportunities in China. In September 2023, we received approval for our Class B device from the National Medical Products Administration ("NMPA") and our Accuray Precision Treatment Planning System for the Class B device was approved by the NMPA in June 2024. The JV also distributes other Accuray treatment delivery systems like the Radixact and CyberKnife treatment delivery systems, including the Radixact SynC and CyberKnife S7 Systems, which received NMPA approval in January 2025.

There remains significant tariff uncertainty, including related to existing tariffs associated with U.S.-China trade, which we expect will continue to have incremental costs to the company. We continue to work to implement mitigations to the tariff policy impacts, however, we cannot predict the full impact or timing of such efforts and expect that sales to China will be adversely impacted, and our financial results are expected to be adversely impacted through fiscal year 2026.

Restructuring

In fiscal year 2026, the Company implemented a comprehensive strategic, operational, and organizational, transformation plan ("FY26 Restructuring Plan"). The FY26 Restructuring Plan includes the elimination of approximately 3% of the global workforce during the three months ended September 30, 2025, and the elimination of approximately 15% of the global workforce during three months ended December 31, 2025. Certain employees notified during the three months ended December 31, 2025, have various termination dates during the quarterly periods ended March 31, 2026, and June 30, 2026. Restructuring charges also include implementation and other costs that were directly tied to the execution of the FY26 Restructuring Plan, as well as asset impairments for certain capitalized assets as a result of the FY26 Restructuring Plan. Total restructuring charges during the three and six months ended December 31, 2025, were $6.1 million and $8.9 million respectively. Restructuring charges for the FY26 Restructuring Plan are expected to be approximately $13 million in fiscal year 2026. The FY26 Restructuring Plan is expected to be substantially completed by June 30, 2026.

Backlog

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

●

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;

●

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);

●

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

●

Less than 30 months have passed since the contract met all the criteria above.

Our backlog includes contractual agreements with our customers for the purchase of our CyberKnife or TomoTherapy platforms, including the Radixact Systems and related upgrades. The amount of backlog recognized into revenue is primarily impacted by three items: cancellations, age-outs and age-ins, and foreign currency fluctuations. We cannot provide assurance that we will convert backlog into recognized revenue, primarily due to factors outside of our control, such as:

●

Orders could be cancelled for reasons such as, changes in customers' priorities or financial condition, changes in government or health insurance reimbursement policies, or changes to regulatory requirements. 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;

●

Orders are considered aged-out and removed from reported backlog if we have not been able to recognize revenue on an agreement after 30 months. Agreements may age-out for many reasons, including but not limited to, the inability of the customer to pay, the inability of the customer to adapt their facilities to accommodate our products in a timely manner, or the inability to timely obtain licenses necessary for customer facilities or operation of our equipment. Age-ins represent orders that previously aged-out but have been recognized as revenue in the current period; and

●

Orders include amounts not denominated in U.S. Dollars and therefore, fluctuations in the U.S. Dollar as compared to other currencies will impact revenue. Generally, the strengthening of the U.S. Dollar will negatively impact revenue. Backlog is stated at historical foreign currency exchange rates, and revenue is released from backlog at current exchange rates, with any difference recorded as a backlog adjustment.

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

		Three Months Ended December 31,								Six Months Ended December 31,
		2025				2024				2025				2024
Gross orders		$	66,064			$	76,762			$	105,634			$	132,127
Age-ins			-				11,840				-				15,842
Age-outs			(34,412	)			(27,023	)			(64,459	)			(53,368	)
Cancellations			-				(2,010	)			(2,480	)			(5,142	)
Currency impacts and other			959				(3,930	)			(169	)			(4,164	)
Net orders		$	32,611			$	55,639			$	38,526			$	85,295
Order backlog at the end of the period		$	383,332			$	463,056			$	383,332			$	463,056

Gross Orders and Book to Bill Ratio

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

Gross orders decreased by $10.7 million and $26.5 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to the timing of system gross orders from the EIMEA and China regions.

Our book-to-bill ratio is defined as gross orders for the period divided by product revenue for the period. Our book-to-bill ratio was 1.5 and 1.3 for the three and six months ended December 31, 2025, respectively, as compared to 1.3 and 1.2 for the three and six months ended December 31, 2024, respectively. A book-to-bill ratio greater than 1.2 generally indicates strong demand for our products. This metric allows management to monitor our business development efforts to ensure we grow our backlog and our business over time. Given that book-to-bill ratio is an operational measure and that our methodology for calculating book-to-bill ratio does not meet the definition of a non-GAAP measure, as that term is defined by the Securities and Exchange Commission, a quantitative reconciliation for book-to-bill ratio is not required nor provided.

Net Orders

Net orders are defined as gross orders less cancellations, age-outs net of age-ins, foreign currency impacts and other adjustments during the period. Net orders decreased by $23.0 million and $46.8 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to a decrease in gross orders, an increase in age-outs and no age-ins in fiscal year 2026.

Results of Operations - Three and Six Months Ended December 31, 2025 and 2024

Net revenue

Net revenue by sales classification is as follows:

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Products (a)		$	45,005			$	61,189				(26	)%		$	82,166			$	109,558				(25	)%
Services (b)			57,236				54,985				4	%			114,017				108,161				5	%
Net revenue		$	102,241			$	116,174				(12	)%		$	196,183			$	217,719				(10	)%
Products revenue as a percentage of net revenue			44	%			53	%							42	%			50	%
Service revenue as a percentage of net revenue			56	%			47	%							58	%			50	%

(a)

Includes sales of products to the joint venture, an equity method investment, of $12,786 and $21,633 during the three and six months ended December 31, 2025, and $29,722 and $58,366 during the three and six months ended December 31, 2024, respectively. See Note 12.

(b)

Includes sales of services to the joint venture, an equity method investment, of $4,922 and $10,437 during the three and six months ended December 31, 2025, and $5,179 and $9,237 during the three and six months ended December 31, 2024, respectively. See Note 12.

Products net revenue decreased by $16.2 million and $27.4 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the priorfiscal year, was primarily due to a lower volume of shipments to China, partially offset by a higher volume of shipments to the EIMEA region and Asia Pacific regions.

Services net revenue increased by $2.2 million and $5.8 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to higher contract revenues as a result of an increase in our installed base and revenues from training and installations.

Net revenue by geographic region, based on the shipping location of our customers, is as follows:

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Americas		$	16,786			$	17,135				(2	)%		$	41,712			$	38,005				10	%
EIMEA			43,346				38,924				11	%			77,618				64,818				20	%
China			17,669				35,974				(51	)%			32,898				69,950				(53	)%
Japan			11,437				14,983				(24	)%			20,745				24,848				(17	)%
Asia Pacific			13,003				9,158				42	%			23,210				20,098				15	%
Net revenue		$	102,241			$	116,174				(12	)%		$	196,183			$	217,719				(10	)%

Net revenue decreased $14.0 million and $21.5 million during the three and six months ended December 31, 2025, as compared to the same periods in the prior fiscal year, primarily due to a lower volume of shipments to China, partially offset by a higher volume of shipments to the EIMEA and Asia Pacific regions.

Gross Profit

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Gross profit		$	24,072			$	41,892				(43	)%		$	51,083			$	76,361				(33	)%
Total gross profit as a percentage of net revenue			23.5	%			36.1	%							26.0	%			35.1	%

Gross profit decreased by $17.8 million and $25.3 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to a decrease in product unit sales and product mix. The decrease in gross profit as a percentage of revenue during the three and six months ended December 31, 2025, as compared to the same periods in the prior fiscal year, was due to both geographic and product sales mix, and less shipments from our JV to its end customers.

Operating Expenses

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Research and development		$	10,650			$	13,644				(22	)%		$	21,868			$	25,760				(15	)%
Selling and marketing			8,848				11,114				(20	)%			20,547				22,796				(10	)%
General and administrative			10,065				12,427				(19	)%			22,661				25,247				(10	)%
Restructuring			6,075				-				-	%			8,886				-				-	%
Total operating expenses		$	35,638			$	37,185				(4	)%		$	73,962			$	73,803				0	%
Research and development as a percentage of net revenue			10	%			12	%							11	%			12	%
Selling and marketing as a percentage of net revenue			9	%			10	%							10	%			10	%
General and administrative as a percentage of net revenue			10	%			11	%							12	%			12	%
Restructuring as percentage of net revenue			6	%			0	%							5	%			0	%
Total operating expenses as a percentage of net revenue			35	%			32	%							38	%			34	%

Research and development expenses decreased by $2.9 million and $3.9 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to $1.5 million and $3.1 million in capitalized labor costs for software development projects during the three and six months ended December 31, 2025, respectively, and lower spending for research and development projects in fiscal year 2026.

Selling and marketing expenses decreased by $2.3 million during both the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to lower compensation and benefit costs as part of the FY26 Restructuring Plan, and reduced travel and trade show spending related to cost-saving initiatives.

General and administrative expenses decreased by $2.3 million and $2.5 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year primarily due to $3.0 million and $3.1 million in respective lower compensation and benefits costs as part of the FY26 Restructuring Plan, partially offset by higher consulting and legal costs for the debt refinancing.

Restructuring charges

The following table summarizes the restructuring charges (in thousands):

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2025				2024				2025				2024
Severance and employee related costs		$	4,073			$	-			$	5,584			$	-
Implementation and other costs			790				-				2,090				-
Asset impairment			1,212				-				1,212				-
Total restructuring charges		$	6,075			$	-			$	8,886			$	-

Income from equity method investment, net

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Income from equity method investment, net		$	471			$	1,604				(71	)%		$	910			$	1,532				(41	)%

Income from equity method investment, which relates to our JV, decreased by $1.1million and $0.6 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to decrease in revenue due to less shipments from our JV to its end customers.

Interest expense

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Contractual interest coupon payments		$	3,590			$	2,495				44	%		$	7,145			$	5,120				40	%
Interest paid-in-kind			2,383				-				-				4,691				-				-
Amortization of debt financing costs and discount for warrants issued to lenders			1,619				275				489	%			3,524				529				566	%
Other			117				113				4	%			401				189				112	%
Total interest expense		$	7,709			$	2,883				167	%		$	15,761			$	5,838				170	%

Interest expense increased $4.8 million and $10.0 million during the three and six months ended December 31, 2025, respectively, as compared to the same periods in the prior fiscal year, primarily due to our electing of non-cash interest-paid-in-kind during the current fiscal year and higher debt issuance costs as a result of debt financing costs and additional amortization costs related to issuance of warrants.

Gain from change in fair value of warrant liability

Our Penny Warrants are accounted for as a liability with the changes in the fair value of the warrants recognized in the statement of operations and comprehensive loss. During the three and six months ended December 31, 2025, we recorded a gain of $5.7million and $3.8 million, respectively, due to a decrease in the share price of our common stock during the periods.

Other (expense), income net

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Interest income		$	246			$	278				(12	)%		$	518			$	581				(11	)%
Foreign currency exchange gain			403				177				128	%			208				2,351				(91	)%
Costs for hedging activities			(397	)			(626	)			(37	)%			(733	)			(1,196	)			(39	)%
Other, net			(358	)			(25	)			1,332	%			(506	)			(85	)			495	%
Total other (expense) income, net		$	(106	)		$	(196	)			(46	)%		$	(513	)		$	1,651				(131	)%

Other (expense) income decreased during the three and six months ended December 31, 2025, as compared to the same periods in the prior fiscal year. The $2.1 million decrease during the six months ended December 31, 2025, as compared to the prior year was primarily due to a decrease in gains from foreign currency transactions and $0.4 million in asset write-offs, partially offset by a decrease in costs for hedging activities.

Provision for income taxes

		Three Months Ended December 31,												Six Months Ended December 31,
(Dollars in thousands)		2025				2024				Percent Change				2025				2024				Percent Change
Provision for income taxes		$	573			$	695				(18	)%		$	1,044			$	1,320				(21	)%

On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The provision for income taxes is primarily related to foreign income taxes.

Liquidity and Capital Resources

At December 31, 2025, we had $41.3 million in cash and cash equivalents, excluding restricted cash. Cash from operations could be affected by various risks and uncertainties, including declines in our revenue, particularly without a corresponding decrease in our expenses, the timing of payments from our customers and our expenditures, as well as but not limited to, macroeconomic conditions, inflation, actions taken to counter inflation, foreign currency exchange rate fluctuations, and the risks included in Part I, Item 1A titled "Risk Factors." In particular, we expect inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through at least fiscal year 2026. In addition, reduced budgets and lower capital deployment priority for radiotherapy equipment, along with longer customer installation timelines, in the United States have negatively impacted our net revenue since fiscal year 2024, and we expect this will continue to have an impact through fiscal year 2026. Based on our cash and cash equivalents balance, available debt facilities, current business plan and revenue prospects, we believe we will have sufficient cash resources and anticipated cash flows to fund our operations for at least the next 12 months. However, we continue to critically review our liquidity and anticipated capital requirements in light of the significant uncertainty created by macroeconomic conditions.

Our liquidity and cash flows have been and could continue to be materially impacted by factors other than our cash from operations and factors that are not in our control, such as current macroeconomic factors, including facility closures, supply chain disruptions, inflation, foreign currency exchange rate fluctuations, increased volatility in the financial markets, uncertainty caused by the China anti-corruption campaign and timing of the China stimulus program, changes in government administration policy positions, recent executive orders to impose new tariffs on global imports and uncertainties regarding impact, retaliations and further escalation, including against other countries, and tightening of credit markets which could impact debt availability. These factors have and could continue to negatively impact our business operations and cash flows for the foreseeable future, including reductions in revenue, decreases in gross margin and delays in payments from customers, as well as declines or delays in the conversion of backlog to revenue. Certain of our revenue may not be collectible to the extent our customers suffer financial difficulty. There remain uncertainties as to how the current macroeconomic environment will impact our business, results of operations, access to sources of liquidity and financial condition in the future. As a result, we are unable to predict with certainty the impact of these factors on our ability to maintain compliance with the financial covenants contained in the Financing Agreement (as defined below).

On June 6, 2025,we entered into a senior secured credit agreement (the "Financing Agreement") by and among the Company, as borrower (the "Borrower"), TCW Asset Management Company LLC, a leading global asset manager ("TCW"), as collateral agent for the lenders (in such capacity, together with its successors and assigns in such capacity, the "Collateral Agent") and as administrative agent for the lenders (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent", and together with the Collateral Agent, each an "Agent" and collectively, the "Agents"), and certain other parties signatory thereto. The Financing Agreement provides for (a) $150 million of new five-year term loan facility (the "Term Loan Facility"), (b) a new $20 million delayed draw term loan facility (the "Delayed Draw Facility") and (c) a new $20 million revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loan Facility and Delayed Draw Facility, the "Facilities"). The proceeds of the Delayed Draw Facility may be used to fund any future repurchases of outstanding 3.75% Convertible Senior Notes due 2026 ("2026 Notes"). In December 2025, we entered into amendments to the Financing Agreement. The first amendment to the Financing Agreement (the "First Amendment") provided for the inclusion of certain restricted cash balances in the liquidity covenant in the Financing Agreement. The second amendment to the Financing Agreement (the "Second Amendment") provided for (i) the removal of the leverage condition we must meet to draw down on the Delayed Draw Facility; (ii) the reduction of the capacity of the Delayed Draw Facility to $18.25 million; and (iii) the delay of the commencement of the requirement for us to meet the fixed charge coverage ratio and leverage ratio to December 31, 2026. In addition, we agreed to pay an additional $1.9 million in fees and amounts available to be drawn under the revolving credit facility were reduced to $15.0 million through December 31, 2026.

On June 6, 2025, concurrently with our entry into the Financing Agreement, we issued detachable warrants to purchase our common stock to certain of our lenders (the "Warrant Holders") under the Financing Agreement. The Warrant Holders were issued warrants to purchase (i) 17,180,710 shares of common stock with an exercise price of $1.68 per share, exercisable on and after December 7, 2025 and expiring on June 6, 2032 (the "June 2025 Premium Warrants") and (ii) 6,247,531 shares of common stock with an exercise price of $0.01 per share, which are exercisable immediately and expire June 6, 2032 (the "June 2025 Penny Warrants" and together with the June 2025 Premium Warrants, the " June 2025 Warrants"). On December 15, 2025, concurrently with our entry into the Second Amendment, we issued detachable warrants to purchase our common stock to the Warrant Holders under the Amended Financing Agreement. The Warrant Holders were issued warrants to purchase (i) 3,062,726 shares of common stock with an exercise price of $1.50 per share, exercisable on and after June 16, 2026 and expiring on December 15, 2032 (the "December 2025 Super Premium Warrants"), (ii) 2,187,661 shares of common stock with an exercise price of $1.25 per share, exercisable on and after June 16, 2026 andexpiring on December 15, 2032 (the "December 2025 Premium Warrants"), and (iii) 1,750,129 shares of common stock with an exercise price of $0.01 per share, which are exercisable immediately and expire on December 15, 2032 ( the "December 2025 Penny Warrants" and together with the December 2025 Premium Warrants and December 2025 Super Premium Warrants, the "December 2025 Warrants"). Pursuant to the terms of the Amended Financing Agreement if the Company uses the Delayed Draw Facility, the Company will be obligated to issue additional detachable warrants on terms substantially similar to the December 2025 Warrants to certain of its lenders under the Amended Financing Agreement. As of December 31, 2025, no warrants have been exercised.

Interest on the borrowings under the Facilities is payable in arrears on the applicable interest payment date at an interest rate equal to, at the Company's option, either: (i) a term SOFR-based rate (subject to a 2.00% per annum floor), plus an applicable margin of 8.50%, per annum or (ii) a base rate (subject to a 3.00% per annum floor), plus an applicable margin of 7.50% per annum. The agreement provides the option for payment-in-kind ("PIK") interest up to 6.00% per annum (subject to an increase in applicable margin of ¹/₃ of 1.00% per annum for each 1.00% per annum of interest elected to be paid in kind), which PIK interest will be capitalized on the applicable interest payment date and will be added to the then-outstanding principal amount of the term loan. In June 2025, we accrued $0.6 million in PIK interest and we elected the maximum PIK option for the first interest payment date of fiscal year 2026. The Financing Agreement requires the Borrower to pay the lenders with commitments under the Revolving Credit Facility an unused commitment fee equal to 0.50% per annum of the average unused portion of the Revolving Credit Facility. See Note 7. Commitments and Contingencies of our Annual Report on Form 10-K filed with the SEC on August 28, 2025 for future cash payments related to the Term Loan Facility.

As of December 31, 2025, $18.0 million aggregate principal amount of the 2026 Notes remain outstanding and will be due on June 1, 2026. We intend to use operating cash and proceeds from the Delayed Draw Facility to pay the remaining balance of the 2026 Notes. The 2026 Notes are classified as short-term debt on the consolidated balance sheets.

Additionally, the undistributed earnings of our foreign subsidiaries as of December 31, 2025, for all countries except Japan, France, Switzerland, Germany and the United Kingdom are considered to be indefinitely reinvested and unavailable for distribution in the form of dividends or otherwise. Future repatriation of our foreign earnings could be subject to income taxes. As of December 31, 2025, we had$13.5 million of cash and cash equivalents at our foreign subsidiaries. If such funds were repatriated, there will be additional foreign tax withholdings imposed depending on the country from which the funds were repatriated.

Our cash flows for the six months ended December 31, 2025 and 2024 are summarized as follows (in thousands):

		Six Months Ended
		December 31,
		2025				2024
Net cash used in operating activities		$	(3,806	)		$	(5,493	)
Net cash used in investing activities			(9,420	)			(2,690	)
Net cash (used in) provided by financing activities			(757	)			3,593
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(282	)			(414	)
Net decrease in cash, cash equivalents and restricted cash		$	(14,265	)		$	(5,004	)

Cash Flows from Operating Activities

Net cash used in operating activities during the six months ended December 31, 2025, was due to a net loss of $35.4 million, offset by $17.3 million from the net changes of assets and liabilities and $14.4 million from non-cash items.

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Non-cash items primarily consisted of $4.7 million for non-cash paid-in-kind interest expense, $3.8 million of depreciation and amortization expense, $3.5 million for the amortization of debt financing costs and the discount for warrants, and $3.4 million of share-based compensation expense, partially offset by a $3.8 million unrealized gain on the fair value of warrants.

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The major contributors to the increase from the net changes of assets and liabilities during the six months ended December 31, 2025 were as follows: a decrease of $19.4 million in accounts receivable due to increased collections from Chinaand a $10.6 million increase in accounts payable that was primarily due to the timing of payments, partially offset by a $11.6 million increase in inventories that was primarily due to increased purchases of materials to meet expected demand.

Cash Flows from Investing Activities

Net cash used in investing activities was $9.4 million during the six months ended December 31, 2025, due to spending $4.9 million for the purchase of property and equipment and $4.5 million for capitalized investments for software to be sold.

Cash Flows from Financing Activities

Net cash used in financing activities was $0.8 million during the six months ended December 31, 2025, was due to $0.8 million in payments on the outstanding principal of our Term Loan Facility and $0.4 million in debt financing costs paid for the amendments to the Financing Agreement in December 2025.

Operating Capital and Capital Expenditure Requirements

Our future capital requirements depend on numerous factors. These factors include but are not limited to the following:

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Revenue generated by sales of our products and service plans;

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Our ability to generate cash flows from operations;

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Costs associated with our sales and marketing initiatives and manufacturing activities;

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Facilities, equipment and IT systems required to support current and future operations;

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Rate of progress and cost of our research and development activities;

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Costs of obtaining and maintaining FDA and other regulatory clearances of our products;

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Effects of competing technological and market developments;

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Number and timing of acquisitions and other strategic transactions;

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Our ability to refinance our current indebtedness in a timely manner, and servicing and maturity of our current and future indebtedness, including interest rates;

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The implementation of our cost savings initiatives, including the reduction of our workforce;

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The impact of inflation on our expenses; and

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The impact of the macroeconomic environment, including on collections, supply chain, 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.

Contractual Obligations and Commitments

We presented our contractual obligations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025. Our contractual obligations consist of debt, operating leases, purchase commitments, and other contractual obligations. There have been no material changes to these obligations outside the ordinary course of business during the six months ended December 31, 2025 as compared to the contractual obligations disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Annual Report on Form 10-K for the year ended June 30, 2025.

Inflation

In recent years, we experienced rising costs for certain materials, including increased logistics and duties costs that adversely affected our gross margins and net income (loss), and had a material effect on our business, financial condition and results of operations. Gross margins and net income (loss) may continue to be adversely affected by increased material costs and freight and logistics expenses through at least fiscal year 2026, as we are unable to pass all of these increased costs to our customers. In addition, we expect inflation and the ongoing supply chain challenges and logistics costs to impact our cash from operations through at least fiscal year 2026. Continued pressure from inflationary factors, such as further increases in the cost of materials for our products, cost of labor, interest rates, overhead costs, logistics and duties costs could further exacerbate these effects and harm our business, operating results, and financial condition.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. The economic uncertainty in the current environment however, could limit our ability to accurately make and evaluate our estimates and judgments. Actual results could therefore differ materially from those estimates if actual conditions differ from our assumptions.

During the six months ended December 31, 2025, there were no material changes to the critical accounting policies and estimates, previously disclosed in Part II, Item 7, of our Annual Report on Form 10-K filed with the SEC on August 28, 2025.