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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________
FORM 10-Q
___________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
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: 001-37725
___________________________
vray-20220930_g1.jpg
ViewRay, Inc.
(Exact Name of Registrant as Specified in its Charter)
___________________________
Delaware42-1777485
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1099 18th Street, Ste 3000
Denver, CO
80202
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (440) 703-3210
2 Thermo Fisher Way, Oakwood Village, OH, 44146
(Former name, former address and former fiscal year, if changed since last report)
___________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01VRAYThe Nasdaq Global Market
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      No  
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      No  
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 the 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
Accelerated filerNon-accelerated filer
Smaller reporting company
Emerging growth company
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. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  
As of October 28, 2022, the registrant had 181,415,780 shares of common stock, $0.01 par value per share, outstanding.


VIEWRAY, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”), contains forward-looking statements, including, without limitation, in the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “will”, “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of products, (ii) a projection of revenue, cash usage, income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.
The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation:
disruptions in the supply or changes in the costs of raw materials, labor, product components, or transportation services, including as a result of inflation;
delays in business operations and installation caused by the concerns in connection with the COVID-19
pandemic;
the effect or impact of market consolidation;
market acceptance of magnetic resonance imaging (“MRI”) guided radiation therapy;
the benefits of MR Image-Guided radiation therapy;
our ability to obtain and maintain regulatory approval in targeted markets for MRIdian;
our ability to successfully sell and market MRIdian® in our existing and expanded geographies;
the performance of MRIdian in clinical settings;
competition from existing technologies or products or new technologies and products that may emerge;
the pricing and reimbursement of MR Image-Guided radiation therapy;
the implementation of our business model and strategic plans for our business and MRIdian;
the scope of protection we are able to establish and maintain for intellectual property rights covering MRIdian;
our future revenue, expenses, capital requirements and our need for additional financing;
our financial performance;
our expectations related to the MRIdian linear accelerator technology (“MRIdian Linac”);
developments relating to our competitors and the healthcare industry; and
other risks and uncertainties, including those listed under the section titled “Risk Factors.”
Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, titled “Risk Factors” and discussed elsewhere in this Report, and in Part I, Item 1A, titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events or circumstances or otherwise, except as required by law.
3

This Report may also contain estimates, projections and other information concerning our industry, our business, and the markets for certain devices, including data regarding the estimated size of those markets. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
4

PART I—FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
VIEWRAY, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
September 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$142,276 $218,348 
Accounts receivable, net of allowance $234 and none, respectively
28,698 21,659 
Inventory, net of allowance of $2,049 and $3,071, respectively
30,915 29,617 
Deposits on purchased inventory9,422 4,778 
Deferred cost of revenue5,175 3,342 
Prepaid expenses and other current assets5,400 5,803 
Total current assets221,886 283,547 
Property and equipment, net20,024 20,242 
Restricted cash4,596 1,460 
Intangible assets, net40 44 
Right-of-use assets6,480 9,661 
Other assets7,185 6,853 
TOTAL ASSETS$260,211 $321,807 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$19,665 $9,199 
Accrued liabilities18,891 26,555 
Customer deposits18,489 20,784 
Operating lease liability, current2,783 2,561 
Current portion of long-term debt 3,222 
Deferred revenue, current23,373 13,920 
Total current liabilities83,201 76,241 
Deferred revenue, net of current portion3,471 4,232 
Long-term debt58,629 54,031 
Warrant liabilities3,123 6,795 
Operating lease liability, noncurrent5,946 8,066 
Other long-term liabilities1,586 2,647 
TOTAL LIABILITIES155,956 152,012 
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, par value of $0.01 per share; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
  
Common stock, par value of $0.01 per share; 300,000,000 shares authorized at September 30, 2022 and December 31, 2021; 181,073,499 and 179,206,456 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
1,800 1,782 
Additional paid-in capital919,101 905,145 
Accumulated deficit(816,646)(737,132)
TOTAL STOCKHOLDERS’ EQUITY104,255 169,795 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$260,211 $321,807 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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VIEWRAY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended September 30,
2022202120222021
Revenue:
Product$20,865 $14,126 $50,748 $36,422 
Service5,507 4,933 16,411 12,954 
Distribution rights118 118 356 356 
Total revenue26,490 19,177 67,515 49,732 
Cost of revenue:
Product16,798 12,707 46,758 35,572 
Service5,238 4,576 15,118 13,616 
Total cost of revenue22,036 17,283 61,876 49,188 
Gross profit (loss)4,454 1,894 5,639 544 
Operating expenses:
Research and development8,100 8,370 24,381 22,783 
Selling and marketing7,335 4,296 21,764 10,196 
General and administrative12,935 12,519 38,858 42,016 
Impairment charges  1,816  
Total operating expenses28,370 25,185 86,819 74,995 
Loss from operations(23,916)(23,291)(81,180)(74,451)
Interest income540 4 628 9 
Interest expense(1,509)(1,061)(2,765)(3,179)
Other (expense) income, net(1,222)(913)3,803 (5,359)
Loss before provision for income taxes$(26,107)$(25,261)$(79,514)$(82,980)
Provision for income taxes    
Net loss and comprehensive loss$(26,107)$(25,261)$(79,514)$(82,980)
Net loss per share, basic and diluted$(0.14)$(0.15)$(0.44)$(0.51)
Weighted-average common shares used to compute net loss per share attributable to common stockholders, basic and diluted
181,045,785 164,244,972 180,460,490 162,278,489 
The accompanying notes are an integral part of these condensed consolidated financial statements
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VIEWRAY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share and per share data)
(Unaudited)
Common Stock
SharesAmountAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at December 31, 2021179,206,456 $1,782 $905,145 $(737,132)$169,795 
Issuance of common stock from option exercises19,292 — 56 — 56 
Stock-based compensation— — 5,032 — 5,032 
Issuance of common stock from releases of restricted stock units1,216,278 12 (12)—  
Tax withholding paid on behalf of employees for stock-based awards— — (1,604)— (1,604)
Net loss— — — (25,774)(25,774)
Balance at March 31, 2022180,442,026 $1,794 $908,617 $(762,906)$147,505 
Issuance of common stock from option exercises4,916 — 11 — 11 
Stock-based compensation— — 5,101 — 5,101 
Issuance of common stock from releases of restricted stock units406,895 4 (4)—  
Tax withholding paid on behalf of employees for stock-based awards— — (490)— (490)
Issuance of common stock from employee stock purchase plan143,706 2 322 — 324 
Net loss— — — (27,633)(27,633)
Balance at June 30, 2022180,997,543 $1,800 $913,557 $(790,539)$124,818 
Issuance of common stock from option exercises3,252 — 9 — 9 
Stock-based compensation— — 5,536 — 5,536 
Issuance of common stock from releases of restricted stock units72,704  (1)— (1)
Net loss— — — (26,107)(26,107)
Balance at September 30, 2022181,073,499 $1,800 $919,101 $(816,646)$104,255 
The accompanying notes are an integral part of these condensed consolidated financial statements
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VIEWRAY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share and per share data)
(Unaudited)
Common Stock
SharesAmount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at December 31, 2020
148,615,351 $1,476 $755,874 $(627,084)$130,266 
Issuance of common stock from option exercises6,021 — 19 — 19 
Stock-based compensation— — 8,494 — 8,494 
Issuance of common stock from releases of restricted stock units1,209,870 12 (12)—  
Tax withholding paid on behalf of employees for stock-based awards— — (1,473)— (1,473)
Issuance of common stock upon public offering (net of offering cost of $3,991)
11,856,500 119 53,394 — 53,513 
Issuance of common stock from warrant exercises42,621 — 2 — 2 
Reclassification of warrant liability to additional paid-in capital upon warrant exercises— — 327 — 327 
Net loss— — — (26,743)(26,743)
Balance at March 31, 2021161,730,363 $1,607 $816,625 $(653,827)$164,405 
Issuance of common stock from option exercises37,630 — 165 — 165 
Stock-based compensation— — 6,455 — 6,455 
Issuance of common stock from releases of restricted stock units1,738,516 17 (17)—  
Tax withholding paid on behalf of employees for stock-based awards— — (1,286)— (1,286)
Issuance of common stock from warrant exercises2,431 — — — — 
Reclassification of warrant liability to additional paid-in capital upon warrant exercises— — 24 — 24 
Issuance of common stock from employee stock purchase plan81,804 — 264 — 264 
Net loss— — — (30,976)(30,976)
Balance at June 30, 2021163,590,744 $1,624 $822,230 $(684,803)$139,051 
Issuance of common stock from option exercises84,262 3 424 — 427 
Stock-based compensation— — 4,634 — 4,634 
Issuance of common stock from releases of restricted stock units707,027 7 (7)—  
Tax withholding paid on behalf of employees for stock-based awards— — (1,103)— (1,103)
Net loss— — — (25,261)(25,261)
Balance at September 30, 2021
164,382,033 $1,634 $826,178 $(710,064)$117,748 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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VIEWRAY, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(79,514)$(82,980)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization3,779 4,644 
Stock-based compensation15,668 19,583 
Accretion on asset retirement obligation70 83 
Change in fair value of warrant liabilities(3,672)5,577 
Inventory lower of cost or net realizable value adjustment 417 
Impairment of right-of-use asset and related fixed assets1,816  
Amortization of debt discount and interest accrual777 694 
Product upgrade reserve(1,600)1,000 
Changes in operating assets and liabilities:
Accounts receivable(7,039)(10,209)
Inventory(1,181)8,349 
Deposits on purchased inventory(4,644)(2,642)
Deferred cost of revenue(1,833)616 
Prepaid expenses and other assets(283)(5,126)
Accounts payable10,224 (1,934)
Accrued expenses and other long-term liabilities(7,675)(278)
Customer deposits and deferred revenue6,397 5,817 
Net cash used in operating activities(68,710)(56,389)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(3,616)(839)
Net cash used in investing activities(3,616)(839)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock public offering, gross 57,385 
Payment of offering costs related to common stock public offering (3,991)
Proceeds from term loan modification2,000  
Payment of debt issuance costs(914) 
Proceeds from the exercise of stock options75 611 
Proceeds from the exercise of warrants 2 
Proceeds from employee stock purchase plan322 264 
Payments for taxes related to net share settlement of equity awards(2,093)(3,863)
Net cash (used in) provided by financing activities(610)50,408 
NET DECREASE IN CASH DURING THE PERIOD(72,936)(6,820)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — BEGINNING OF PERIOD219,808 158,180 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD$146,872 $151,360 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest$2,904 $2,485 
Cash paid for income taxes$ $ 
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fair value of common stock warrants reclassified from liability to additional paid-in capital upon exercise$ $351 
Transfer of property and equipment from inventory and deferred cost of revenue$117 $ 
Purchases of property and equipment in accounts payable and accrued liabilities$235 $134 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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VIEWRAY, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1.    BACKGROUND AND ORGANIZATION
ViewRay, Inc. (“ViewRay” or the “Company”), and its wholly-owned subsidiary ViewRay Technologies, Inc., designs, manufactures and markets MRIdian, an MR Image-Guided radiation therapy system to simultaneously image and treat cancer patients.
Since inception, ViewRay Technologies, Inc. has devoted substantially all of its efforts towards research and development, selling and marketing activities, raising capital and the manufacturing, shipment and installation of MRIdian systems. In May 2012, ViewRay Technologies, Inc. was granted clearance from the U.S. Food and Drug Administration (“FDA”), to sell MRIdian with Cobalt-60. In November 2013, ViewRay Technologies, Inc. received its first clinical acceptance of a MRIdian with Cobalt-60 at a customer site, and the first patient was treated with that system in January 2014. ViewRay Technologies, Inc. has had the right to affix the CE mark to MRIdian with Cobalt-60 in the European Economic Area ("EEA") since November 2014. In September 2016, the Company received the rights to affix the CE mark to MRIdian Linac, and in February 2017, the Company received 510(k) clearance from the FDA to market MRIdian Linac. In February 2019, the Company received 510(k) clearance from the FDA for advancements in MRI, 8 frames per second cine, and Functional imaging (T1/T2/DWI) and High-Speed MLC. In December 2019, we received the CE mark for these advancements in the EEA. In December 2021, the Company received 510(k) clearance from the FDA on its recent submission for new MRIdian features (MRIdian A3i) focused on enhancing on-table adaptive workflow efficiency and expanding clinical utility. In September 2022, the Company received approval to market the MRIdian system in China from the National Medical Products Administration (“NMPA”).
The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for a reasonable period of time. The Company’s principal sources of liquidity are cash flows from public and private offerings and available borrowings under its term loan agreement, as well as cash receipts from its sales of MRIdian systems. These have historically been sufficient to meet working capital needs, capital expenditures, operating expenses, and debt service obligations. During the nine months ended September 30, 2022, the Company incurred a net loss from operations of $79.5 million and net cash used in operations of $68.7 million. The Company believes that its existing cash balance of $142.3 million as of September 30, 2022, together with anticipated cash proceeds from sales of MRIdian systems, will be sufficient to provide liquidity to fund its obligations for at least the next 12 months.
NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements include the accounts of ViewRay, Inc. and its wholly-owned subsidiary, ViewRay Technologies, Inc. All inter-company accounts and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements, have been included. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period. These unaudited condensed consolidated financial statements and their notes should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements are disclosed in the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 25, 2022, and have not changed significantly since that filing.
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NOTE 3.    BALANCE SHEET COMPONENTS
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands): 
September 30,
2022
December 31, 2021
Prototype$17,810 $17,730 
Machinery and equipment19,213 17,701 
Leasehold improvements14,005 14,088 
Furniture and fixtures1,540 1,295 
Software1,389 1,389 
Construction in progress2,975 1,397 
Property and equipment, gross56,932 53,600 
Less: accumulated depreciation and amortization(36,908)(33,358)
Property and equipment, net$20,024 $20,242 
Depreciation and amortization expense related to property and equipment was $1.0 million and $1.5 million during the three months ended September 30, 2022 and 2021, and $3.8 million and $4.6 million during the nine months ended September 30, 2022 and 2021, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
September 30,
2022
December 31, 2021
Accrued payroll and related benefits$13,039 $17,080 
Accrued accounts payable1,656 3,740 
Payroll withholding tax, sales and other tax payable1,681 1,094 
Accrued legal, accounting and professional fees427 230 
Product upgrade reserve900 2,500 
Other1,188 1,911 
Total accrued liabilities$18,891 $26,555 
Deferred Revenue
Deferred revenue consisted of the following (in thousands):
September 30,
2022
December 31, 2021
Deferred revenue:
Product$8,573 $1,322 
Service17,182 15,385 
Distribution rights1,089 1,445 
Total deferred revenue26,844 18,152 
Less: current portion of deferred revenue(23,373)(13,920)
Noncurrent portion of deferred revenue$3,471 $4,232 



Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
September 30,
2022
December 31, 2021
Accrued interest, noncurrent portion$223 $704 
Asset retirement obligation1,032 962 
Other accrued costs331 981 
Total other-long term liabilities$1,586 $2647 
NOTE 4.    FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3—Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
The assets’ or liabilities’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s financial instruments that are carried at fair value mainly consist of Level 1 assets and Level 3 liabilities. Level 1 assets include highly liquid bank deposits and money market funds, which were not material at September 30, 2022 and December 31, 2021. Level 3 liabilities that are measured on a recurring basis relate to the 2017 and 2016 Placement Warrants, as described in Note 9. Placement warrant liabilities are valued using the Black-Scholes option-pricing model. Generally, increases (decreases) in the fair value of the underlying stock, volatility, and estimated term would result in a directionally similar impact to the fair value of the warrants (see Note 9). During the nine months ended September 30, 2022, no warrants were exercised. During the nine months ended September 30, 2021, warrants to purchase 119,420 shares of common stock were exercised and the aggregate fair value upon exercise of $0.4 million was reclassified from liabilities to additional paid-in-capital.
The gains and losses from re-measurement of Level 3 financial liabilities are recorded as part of other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss. During the three months ended September 30, 2022 and 2021, the Company recorded a loss of $1.2 million and a loss of $0.9 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. During the nine months ended September 30, 2022 and 2021, the Company recorded a gain of $3.7 million and a loss of $5.6 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. There were no transfers between Level 1, Level 2 and Level 3 in any periods presented.
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The following table sets forth the fair value of the Company’s financial liabilities by level within the fair value hierarchy (in thousands):
At September 30, 2022
Level 1Level 2Level 3Total
2017 Placement Warrants Liability$ $ $2,349 $2,349 
2016 Placement Warrants Liability  774 774 
Total$ $ $3,123 $3,123 
At December 31, 2021
Level 1Level 2Level 3Total
2017 Placement Warrants Liability$ $ $5,030 $5,030 
2016 Placement Warrants Liability  1,765 1,765 
Total$ $ $6,795 $6,795 
The following table sets forth a summary of the changes in fair value of the Company’s Level 3 financial liabilities (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Fair value, beginning of period$1,910 $9,212 $6,795 $4,864 
Change in fair value of Level 3 financial liabilities1,213 876 (3,672)5,577 
Fair value of 2016 Placement Warrants at exercise   (2)
Fair value of 2017 Placement Warrants at exercise   (351)
Fair value, end of period$3,123 $10,088 $3,123 $10,088 
Non-Financial Assets and Liabilities
The Company’s non-financial instruments, which primarily consist of intangible assets, right-of-use (“ROU”) assets, and property and equipment, are measured at fair value on a non-recurring basis and are reported at carrying value. These assets are subject to fair value adjustments when events or changes in circumstances indicate a significant adverse effect on the fair value of the asset. Impairment charges are recorded to reduce the carrying amount of the assets to their fair value.
During 2022, the Company recorded impairment charges of $1.5 million on its ROU asset for one of the Mountain View, California office spaces and $0.3 million on the related furniture and fixtures to reduce the carrying value to their estimated fair value in connection with the sublease discussed in Note 6.
The fair value of ROU asset and related furniture and fixtures was determined based on Level 3 measurements. Inputs to this fair value measurements included a valuation model that measures the present value of remaining lease payments less estimated sublease income at a discount rate that captures the risk associated with the future cash flows.
NOTE 5.    DEBT
SVB Term Loan
In December 2018, the Company entered into a term loan agreement with Silicon Valley Bank (the “SVB Term Loan”). On December 31, 2019, the Company entered into the First Amendment to the SVB Term Loan. On October 30, 2020, the Company entered into the Second Amendment to the SVB Term Loan. On October 29, 2021, the Company entered into the Third Amendment to the SVB Term Loan.
On May 31, 2022, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to SVB Term Loan. The Fourth Amendment, among other things, amended the SVB Term Loan to: (i) increase the term loan agreement principal amount from $58.0 million to $60 million, (ii) revise the maturity date to October 1, 2027, and (iii) revise the payment schedule for the outstanding principal balance to 37 equal payments of principal to begin on October 1, 2024. The amendment was treated as a debt modification.
As of September 30, 2022, the Company had $60 million outstanding under the SVB Term Loan.
Borrowings under the SVB Term loan bear interest at the greater of (i) a floating rate of 2.4% above the Prime Rate; or (ii) a fixed rate of 5.65%, and is payable monthly.
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The SVB Term Loan requires that the Company maintain a minimum cash balance in accounts at Silicon Valley Bank or one of its affiliates or else comply with a liquidity ratio and/or a minimum revenue financial covenant. The SVB Term Loan is secured by substantially all assets of the Company, except that the collateral does not include any intellectual property held by the Company, provided, however, the collateral does include all accounts and proceeds of such intellectual property.
The SVB Term Loan contains customary representations and warranties and customary affirmative and negative financial and nonfinancial covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, dividends and other distributions and transactions with affiliates.
The SVB Term Loan is subject to prepayment premiums of 3.0% for the first 28 months of the term and 2.0% thereafter for the remaining term, for amounts prepaid under the SVB Term Loan prior to the maturity date thereof, subject to certain exceptions.
The SVB Term Loan includes standard events of default, including, among other things, subject in certain cases to customary grace periods, thresholds and notice requirements, the Company’s failure to fulfill its obligations under the SVB Term Loan or the occurrence of a material adverse change in the Company's business, operations, or condition (financial or otherwise). In the event of default by the Company under the SVB Term Loan, Silicon Valley Bank would be entitled to exercise its remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the SVB Term Loan, which could harm the Company's financial condition.
The Company’s scheduled future payments on the SVB Term Loan at September 30, 2022 are as follows (in thousands):
Year Ended December 31,
The remainder of 2022
$ 
2023 
20246,486 
202519,460 
202619,460 
Thereafter14,594 
Total future principal payments60,000 
Less: unamortized debt discount(1,371)
Carrying value of long-term debt58,629 
Less: current portion 
Long-term portion$58,629 
NOTE 6.    COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company entered into agreements to lease office space in Oakwood Village, Ohio, Mountain View, California and Denver, Colorado under noncancelable operating lease agreements.
In recognition of the ROU assets and the related lease liabilities, the options to extend the lease term have not been included as the Company is not reasonably certain that it will exercise any such option.
In March 2022, the Company entered into an agreement to sublease all 24,600 rentable square feet of one of its Mountain View office spaces to a subtenant to offset its cash outflow. The sublease commenced on May 2, 2022 and will expire on March 31, 2024, unless earlier terminated in accordance with the sublease agreement.
Sublease income is recognized on straight-line basis over the term of the sublease agreement and is recorded separately from the related rent expense from the Mountain View office space within interest and other income, net in the condensed consolidated statements of operations and comprehensive loss. The sublease provides for annual base rent of approximately $0.5 million in the first year (subject to an abatement of base rent for the first two months of the sublease) and approximately $0.6 million in the second year. The sublessee is responsible for its pro rata share of certain costs, taxes and operating expenses related to the subleased space, the consideration for which is variable and recorded net of the Company’s operating costs in the office space. Variable lease consideration that does not depend on an index or rate is allocated to a non-lease component and is recognized over time in accordance with the pattern of transfer. The variable
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consideration relates exclusively to non-lease components representing such services and will be recognized as incurred. For the three and nine months ended September 30, 2022, gross sublease income of $0.1 million and $0.3 million, respectively, was recognized.
Legal Proceedings
In the normal course of business, the Company may become involved in legal proceedings. The Company will accrue a liability for legal proceedings when it is 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. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.
Class Action Litigation
On September 13, 2019, a class action complaint for violation of federal securities laws was filed in U.S. District Court for the Northern District of Ohio against the Company, its chief executive officer, chief scientific officer, and former chief financial officer. On September 2, 2020, the lead plaintiff, Plymouth County Retirement Association, filed a second amended complaint asserting securities fraud claims against the Company and certain current and former officers. The second amended complaint alleged that the Company violated federal securities laws by issuing materially false and misleading statements that failed to disclose adverse facts concerning the Company’s business, operations, and financial results. On August 25, 2021, the District Court dismissed the second amended complaint with prejudice. The lead plaintiff appealed. On September 1, 2022, the Sixth Circuit Court of Appeals affirmed the District Court’s dismissal; the mandate dismissing the case was issued on September 22, 2022. The matter is closed.
Stockholder Derivative Lawsuit
On July 22, 2020, a stockholder derivative lawsuit, captioned Gile derivatively on behalf of ViewRay, Inc. v. ViewRay Inc. et al., was filed against ViewRay (as a nominal defendant) and certain of its current and former officers and directors in the U.S. District Court for the Northern District of Ohio. Based on factual assertions substantially similar to those in the class action complaint described above, this derivative action alleged violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, wasted corporate assets, and unjust enrichment. Following the Sixth Circuit’s opinion affirming the dismissal of the class action complaint, the parties agreed to voluntarily dismiss the derivative case. On September 26, 2022, the District Court entered an order dismissing the derivative case without prejudice and the matter is closed.
Purchase Commitments
The Company has various manufacturing contracts with vendors as part of the normal course of its business. In order to manage future demand for its product, the Company enters into agreements with manufacturers and suppliers to procure inventory based upon backlog and estimated delivery of systems. Some of the parts used for the production of the MRIdian system have lead times of several months to over a year, as such it is necessary to order such inventory in advance to ensure the demands from the market are covered. As of September 30, 2022, the Company had $17.8 million of non-cancelable purchase commitments for inventory.
NOTE 7.    REVENUE
The Company derives revenue primarily from the sale of MRIdian systems and related services as well as support and maintenance services on sold systems. Revenue is categorized as product revenue, service revenue and distribution rights revenue.
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The following table presents revenue disaggregated by type and geography (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
U.S.
Product$10,495 $6,097 $20,956 $21,304 
Service3,198 2,795 9,480 7,497 
Total U.S. revenue$13,693 $8,892 $30,436 $28,801 
Outside of U.S. ("OUS")
Product$10,370 $8,029 $29,792 $15,118 
Service2,309 2,138 6,931 5,457 
Distribution rights118 118 356 356 
Total OUS revenue$12,797 $10,285 $37,079 $20,931 
Total
Product$20,865 $14,126 $50,748 $36,422 
Service5,507 4,933 16,411 12,954 
Distribution rights118 118 356 356 
Total revenue$26,490 $19,177 $67,515 $49,732 
Arrangements with Multiple Performance Obligations
The Company frequently enters into sales arrangements that include multiple performance obligations. Such performance obligations mainly consist of (i) sale of MRIdian systems, which generally includes installation and embedded software, and (ii) product support, which includes extended service and maintenance. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The standalone selling price (“SSP”), is determined based on observable prices at which the Company separately sells the products and services. If an SSP is not directly observable, the Company will estimate the SSP considering market conditions or internally approved pricing guidelines related to the performance obligations.
Product Revenue
Product revenue is derived primarily from the sales of MRIdian systems. The system contains both software and non-software components that together deliver essential functionality.
For contracts in which control of the system transfers upon delivery and inspection, the Company recognizes revenue for the systems at the point in time when delivery and inspection by the customer has occurred. For these same contracts, the Company recognizes installation revenue over the period of installation as the installation services are performed and control is transferred to the customer. For all contracts in which control transfers upon post-installation customer acceptance, revenue for the system and installation are recognized upon customer acceptance.
Certain customer contracts with distributors do not require ViewRay to complete installation at the ultimate user site, and the distributors may either perform the installation themselves or hire another party to perform the installation. For sales of MRIdian systems for which the Company is not responsible for installation, revenue recognition generally occurs when the entire system is shipped, which is when the control of the system is transferred to the customer.
Service Revenue
Service revenue is derived primarily from maintenance services. The maintenance and support service is a stand-ready obligation which is performed over the term of the arrangement and, as a result, service revenue is recognized ratably over the service period as the customers benefit from the service throughout the service period.
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Distribution Rights Revenue
In December 2014, the Company entered into a distribution agreement with Itochu Corporation pursuant to which it appointed Itochu as its exclusive distributor for the promotion, sale and delivery of its MRIdian products within Japan. In consideration of the exclusive distribution rights granted, the Company received $4.0 million, which was recorded as deferred revenue. Starting in August 2016, the distribution rights revenue is recognized ratably over the remaining term of the distribution agreement of approximately 8.5 years. A time-elapsed method is used to measure progress because control is transferred evenly over the remaining contractual period.
Contract Balances
The timing of revenue recognition, billings and cash collections results in short-term and long-term trade receivables, customer deposits, deferred revenues and deferred cost of revenue on the condensed consolidated balance sheets.
Trade receivables are recorded at the original invoiced amount, net of an estimated allowance for doubtful accounts. Trade credit is generally extended on a short-term basis. The Company occasionally provides for long-term trade credit for its maintenance services so that the period between when the services are rendered to its customers and when the customers pay for that service is within one year. Thus, the Company’s trade receivables do not bear interest or contain a significant financing component. Long-term trade receivables of $5.4 million was reported within other assets on the condensed consolidated balance sheets at September 30, 2022 and at December 31, 2021. These amounts are billed in accordance with the terms of the customer contracts to which they relate and are expected to be collected two to three years from the date of invoice as the underlying maintenance services are rendered. At times, billing occurs subsequent to revenue recognition, resulting in an unbilled receivable which represents a contract asset. This contract asset is recorded as an unbilled receivable and reported as part of accounts receivable on the consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the contract asset was $11.1 million and $10.6 million, respectively.
Trade receivables are periodically evaluated for collectability based on past credit history of the respective customers and their current financial condition. Changes in the estimated collectability of trade receivables are included in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the estimated allowance for credit losses. The Company generally does not require collateral for trade receivables. There were $0.2 million and nil of estimated allowances for credit losses recorded at September 30, 2022 and December 31, 2021, respectively.
Customer deposits represent payments received in advance of system installation. For domestic and international sales, advance payments received prior to inventory shipments are recorded as customer deposits. Advance payments are subsequently reclassified to deferred revenue upon inventory shipment. All customer deposits, including those that are expected to be a deposit for more than one year, are classified as current liabilities based on consideration of the Company’s normal operating cycle (the time between acquisition of the inventory components and the final cash collection from customers on these inventory components) which is in excess of one year.
Deferred revenue consists of deferred product revenue and deferred service revenue. Deferred product revenue arises from timing differences between the fulfillment of contract obligations and satisfaction of all revenue recognition criteria consistent with the Company’s revenue recognition policy. Deferred service revenue results from the advance billing for services to be delivered over a period of time. Deferred revenues expected to be realized within one year or normal operating cycle are classified as current liabilities.
Deferred cost of revenue consists of cost for inventory items that have been shipped, but revenue recognition has not yet occurred. Deferred cost of revenue is included as part of current assets as the corresponding deferred product revenue is expected to be realized within one year or the Company’s normal operating cycle.
During the three months ended September 30, 2022 and 2021, the Company recognized $3.9 million and $1.6 million of revenue that was included in the deferred revenue balance at the beginning of the reporting period, respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized $9.6 million and $8.5 million of revenue that was included in the deferred revenue balance at the beginning of the reporting period, respectively.
Variable Consideration
The Company records revenue from customers in an amount that reflects the transaction price it expects to be entitled to after transferring control of those goods or services. The Company estimates the transaction price at contract inception, including any variable consideration, and updates the estimate each reporting period for any changes. There were no
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amounts recognized during the three and nine months ended September 30, 2022 from performance obligations satisfied in the prior period.
NOTE 8.    EQUITY FINANCING
Public Offering of Common Stock
On January 4, 2021, the Company entered into an underwriting agreement with Piper Sandler & Co., as representative of the several underwriters named therein, with respect to the issuance and sale of 11,856,500 shares of our common stock, which included the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $4.85 per share. The Company completed the offering on January 7, 2021 and received net proceeds of approximately $53.5 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company.
On November 16, 2021, the Company entered into an underwriting agreement with Piper Sandler & Co. and Stifel, Nicolaus & Company, Incorporated, as representatives of the several underwriters named therein, with respect to the issuance and sale by the Company of 14,375,000 shares of our common stock, which included the full exercise of the underwriters' option to purchase additional shares, at a price to the public of $5.60 per share. The Company completed the offering on November 18, 2021, and received net proceeds of approximately $75.1 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company.
NOTE 9.    WARRANTS
Equity Classified Common Stock Warrants
In connection with a March 2018 direct registered offering (the “March 2018 Direct Registered Offering”), the Company issued (i) 4,090,000 shares of its common stock; (ii) 3,000,581 shares of its Series A convertible preferred stock and (iii) warrants to purchase 1,418,116 shares of common stock at an exercise price of $8.31 per share (the “2018 Offering Warrants”). Effective April 19, 2018, all outstanding shares of Series A convertible preferred stock were converted into shares of common stock at a conversion ratio of 1 to 1, after which time no shares of Series A convertible preferred stock were outstanding. The Company had no outstanding preferred stock as of September 30, 2022.
As separate classes of securities were issued in a bundled transaction, the gross proceeds from the March 2018 Direct Registered Offering of $59.1 million were allocated to common stock, Series A convertible preferred stock and the 2018 Offering Warrants based on their respective relative fair value upon issuance. The aggregate fair value of the 2018 Offering Warrants of $7.4 million was estimated using the Black-Scholes option-pricing model with the following assumptions:
Upon Issuance
Common Stock Warrants:
Expected term (in years)7.0
Expected volatility (%)62.5%
Risk-free interest rate (%)2.8%
Expected dividend yield (%)0%
The allocated proceeds from the 2018 Offering Warrants of $6.6 million were recorded in additional paid-in-capital.
Liability Classified Common Stock Warrants
In connection with private placement offerings in 2016 and 2017 (the “2016 and 2017 Private Placements”), the Company issued warrants that provide the warrant holder the right to purchase 1,720,512 and 1,380,745 shares of common stock (the “2017 and 2016 Placement Warrants”, respectively). The 2017 and 2016 Placement Warrants contain protection whereby the warrant holders will have the right to receive cash in the amount equal to the Black-Scholes value of the warrants upon the occurrence of a change of control, as defined in the warrant agreement. The 2017 and 2016 Placement Warrants were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date, with the change in fair value recorded as a component of other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss.
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The key terms of the 2017 and 2016 Placement Warrants are as follows:
Issuance DateTermExercise Price
Per Share
Warrants Exercised
during the nine months
ended September 30, 2022
Warrants
Outstanding at
September 30, 2022
2017 Placement WarrantsJanuary 20177 years$3.17  1,500,022 
2016 Placement WarrantsAugust and September 20167 years$2.95  536,711 
Total 2,036,733 
During the nine months ended September 30, 2022 and 2021, the Company recorded a gain of $3.7 million and a loss of $5.6 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. The fair value of the 2017 and 2016 Placement Warrants at September 30, 2022 and December 31, 2021, respectively, was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions:
2017 Placement Warrants2016 Placement Warrants
September 30, 2022