10-Q 1 vray-20220331.htm 10-Q vray-20220331
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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 March 31, 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-20220331_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.)
                              2 Thermo Fisher Way
Oakwood Village, OH
44146
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (440) 703-3210
___________________________
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 companyEmerging 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 April 29, 2022, the registrant had 180,458,495 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:
delays in business operations and installation caused by the concerns in connection with the COVID-19
pandemic;
disruptions in the supply or changes in the costs of raw materials, labor, product components, or transportation services as a result of inflation;
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;
estimates of 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)
March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$180,061 $218,348 
Accounts receivable28,002 21,659 
Inventory, net of allowance of $1,676 and $3,071, respectively
26,080 29,617 
Deposits on purchased inventory7,153 4,778 
Deferred cost of revenue5,439 3,342 
Prepaid expenses and other current assets5,285 5,803 
Total current assets252,020 283,547 
Property and equipment, net20,357 20,242 
Restricted cash4,596 1,460 
Intangible assets, net43 44 
Right-of-use assets9,080 9,661 
Other assets11,991 6,853 
TOTAL ASSETS$298,087 $321,807 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$9,252 $9,199 
Accrued liabilities18,427 26,555 
Customer deposits27,377 20,784 
Operating lease liability, current2,633 2,561 
Current portion of long-term debt8,056 3,222 
Deferred revenue, current13,879 13,920 
Total current liabilities79,624 76,241 
Deferred revenue, net of current portion7,507 4,232 
Long-term debt49,282 54,031 
Warrant liabilities3,965 6,795 
Operating lease liability, noncurrent7,373 8,066 
Other long-term liabilities2,831 2,647 
TOTAL LIABILITIES150,582 152,012 
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, par value of $0.01 per share; 10,000,000 shares authorized at March 31, 2022 and December 31, 2021; no shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
  
Common stock, par value of $0.01 per share; 300,000,000 shares authorized at March 31, 2022 and December 31, 2021; 180,442,026 and 179,206,456 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
1,794 1,782 
Additional paid-in capital908,617 905,145 
Accumulated deficit(762,906)(737,132)
TOTAL STOCKHOLDERS’ EQUITY147,505 169,795 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$298,087 $321,807 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

VIEWRAY, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended
March 31,
20222021
Revenue:
Product$13,426 $11,379 
Service5,331 4,027 
Distribution rights119 119 
Total revenue18,876 15,525 
Cost of revenue:
Product13,766 10,685 
Service5,016 4,518 
Total cost of revenue18,782 15,203 
Gross profit94 322 
Operating expenses:
Research and development7,870 6,510 
Selling and marketing6,884 2,848 
General and administrative12,814 15,639 
Total operating expenses27,568 24,997 
Loss from operations(27,474)(24,675)
Interest income5 2 
Interest expense(1,064)(1,058)
Other (expense) income, net2,759 (1,012)
Loss before provision for income taxes$(25,774)$(26,743)
Provision for income taxes  
Net loss and comprehensive loss$(25,774)$(26,743)
Net loss per share, basic and diluted$(0.14)$(0.17)
Weighted-average common shares used to compute net loss per share attributable to common stockholders, basic and diluted
179,740,732 160,138,327 
The accompanying notes are an integral part of these condensed consolidated financial statements
6

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 
Common Stock
SharesAmountAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at December 31, 2020148,615,351 $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 


The accompanying notes are an integral part of these condensed consolidated financial statements.
7

VIEWRAY, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(25,774)$(26,743)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,244 1,648 
Stock-based compensation5,032 8,494 
Accretion on asset retirement obligation23 33 
Change in fair value of warrant liabilities(2,830)947 
Amortization of debt discount and interest accrual246 239 
Product upgrade reserve 600 
Changes in operating assets and liabilities:
Accounts receivable(6,343)(4,800)
Inventory3,640 2,783 
Deposits on purchased inventory(2,375)(466)
Deferred cost of revenue(2,097)(356)
Prepaid expenses and other assets(4,739)420 
Accounts payable8 (2,391)
Accrued expenses and other long-term liabilities(8,247)(6,130)
Customer deposits and deferred revenue9,827 (585)
Net cash used in operating activities(32,385)(26,307)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(1,218)(336)
Net cash used in investing activities(1,218)(336)
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 the exercise of stock options56 19 
Proceeds from the exercise of warrants 2 
Payments for taxes related to net share settlement of equity awards(1,604)(1,473)
Net cash (used in) provided by financing activities(1,548)51,942 
NET (DECREASE) INCREASE CASH DURING THE PERIOD(35,151)25,299 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — BEGINNING OF PERIOD219,808 158,180 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD$184,657 $183,479 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest$819 $819 
Cash paid for income taxes$ $ 
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fair value of common stock warrants reclassified from liability to additional paid-in capital upon exercise$ $327 
Right-of-use assets obtained in exchange for new operating lease liabilities$ $ 
Transfer of property and equipment from inventory and deferred cost of revenue$(103)$ 
Purchases of property and equipment in accounts payable and accrued liabilities$161 $129 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

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, initial 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.
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 three months ended March 31, 2022, the Company incurred a net loss from operations of $27.5 million and net cash used in operations of $32.4 million. The Company believes that its existing cash balance of $180.1 million as of March 31, 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 months ended March 31, 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.
9

NOTE 3.    BALANCE SHEET COMPONENTS
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands): 
March 31,
2022
December 31, 2021
Prototype$17,730 $17,730 
Machinery and equipment17,701 17,701 
Leasehold improvements14,088 14,088 
Furniture and fixtures1,295 1,295 
Software1,389 1,389 
Construction in progress2,755 1,397 
Property and equipment, gross54,958 53,600 
Less: accumulated depreciation and amortization(34,601)(33,358)
Property and equipment, net$20,357 $20,242 
Depreciation and amortization expense related to property and equipment was $1.2 million and $1.5 million during the three months ended March 31, 2022 and 2021, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
March 31,
2022
December 31, 2021
Accrued payroll and related benefits$7,760 $17,080 
Accrued accounts payable4,420 3,740 
Payroll withholding tax, sales and other tax payable1,044 1,094 
Accrued legal, accounting and professional fees1,354 230 
Product upgrade reserve2,500 2,500 
Other1,349 1,911 
Total accrued liabilities$18,427 $26,555 
Deferred Revenue
Deferred revenue consisted of the following (in thousands):
March 31,
2022
December 31, 2021
Deferred revenue:
Product$1,721 $1,322 
Service18,338 15,385 
Distribution rights1,327 1,445 
Total deferred revenue21,386 18,152 
Less: current portion of deferred revenue(13,879)(13,920)
Noncurrent portion of deferred revenue$7,507 $4,232 



Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
March 31,
2022
December 31, 2021
Accrued interest, noncurrent portion$865 $704 
Asset retirement obligation985 962 
Other accrued costs981 981 
Total other-long term liabilities$2,831 $2,647 
NOTE 4.    FAIR VALUE OF FINANCIAL INSTRUMENTS
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 March 31, 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 three months ended March 31, 2022, no warrants were exercised. During the three months ended March 31, 2021, warrants to purchase 113,161 shares of common stock were exercised and the aggregate fair value upon exercise of $0.3 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 March 31, 2022 and 2021, the Company recorded a gain of $2.8 million and a loss of $0.9 million, respectively, related to the change in fair value of the 2017 and 2016 Placement Warrants. There were no transfers between Level 1, Level 2 and Level 3 in any periods presented.
The following table sets forth the fair value of the Company’s financial liabilities by level within the fair value hierarchy (in thousands):
At March 31, 2022
Level 1Level 2Level 3Total
2017 Placement Warrants Liability$ $ $2,957 $2,957 
2016 Placement Warrants Liability  1,008 1,008 
Total$ $ $3,965 $3,965 
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At December 31, 2021
Level 1Level 2Level 3Total
2017 Placement Warrants Liability$ $ $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 March 31,
20222021
Fair value, beginning of period$6,795 $4,864 
Change in fair value of Level 3 financial liabilities(2,830)947 
Fair value of 2016 Placement Warrants at exercise (2)
Fair value of 2017 Placement Warrants at exercise (325)
Fair value, end of period$3,965 $5,484 
    
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.
As of March 31, 2022, the Company had $58.0 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.
Beginning on November 1, 2022, borrowings under the SVB Term Loan amortize in thirty-six equal monthly payments. The final payment is equal to 3.7% of the aggregate principal amount. The maturity date of the SVB Term Loan is October 1, 2025.
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 3.5% for the first 30 months of the term and 2.50% 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.
12

The Company’s scheduled future payments on the SVB Term Loan at March 31, 2022 are as follows (in thousands):
Year Ended December 31,
The remainder of 2022
$3,222 
202319,333 
202419,333 
202516,112 
Total future principal payments58,000 
Less: unamortized debt discount(662)
Carrying value of long-term debt57,338 
Less: current portion(8,056)
Long-term portion$49,282 
NOTE 6.    COMMITMENTS AND CONTINGENCIES
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 December 19, 2019, the court appointed Plymouth County Retirement Association as the lead plaintiff, and on February 28, 2020 the lead plaintiff filed an amended complaint asserting securities fraud claims against the Company, its chief executive officer, chief operating officer, chief scientific officer, and former chief executive officer and former chief financial officer. Now captioned Plymouth County Retirement Association v. ViewRay, Inc., et al., the amended complaint alleges 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, and seeks damages, interest, and other relief. On August 25, 2021, the District Court dismissed the lead plaintiff’s second amended complaint, with prejudice. On September 17, 2021, the lead plaintiff filed notice of its intent to appeal the District Court’s opinion and order dismissing the complaint to the Sixth Circuit Court of Appeals. The appeal is fully briefed and pending before the Sixth Circuit Court of Appeals. The Company believes the appeal is without merit and intends to vigorously defend the litigation.
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. This action alleges, purportedly on behalf of ViewRay, that the officers and directors violated Section 14(a) of the Securities Exchange Act of 1934, as amended, breached their fiduciary duties, wasted corporate assets, and were unjustly enriched based on factual assertions substantially similar to those in the class action complaint described above. The complaint seeks, among other things, damages awarded to ViewRay, restitution and disgorgement of profits in an unspecified amount, and corporate reforms. Due to the overlap between the allegations in the derivative complaint and those in the putative securities class action complaint, this lawsuit is presently stayed, pending a decision on the appeal by the Sixth Circuit Court of Appeals.
Given the early stage of each of the litigation matters described above, at this time the Company is unable to reasonably estimate possible losses or form a judgment that an unfavorable outcome is either probable or remote. However, litigation is subject to inherent uncertainties, and one or more unfavorable outcomes in any claim or litigation against the Company could have a material adverse effect in the period in which they are resolved and on the Company’s business generally. In addition, regardless of their merits or their ultimate outcomes, lawsuits and legal proceedings are costly, divert management attention and may materially adversely affect the Company’s reputation, even if resolved in the Company’s favor.
13

Purchase Commitments
At March 31, 2022, the Company had $6.6 million in outstanding firm purchase commitments.
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.
The following table presents revenue disaggregated by type and geography (in thousands):
Three Months Ended
March 31,
20222021
U.S.
Product$432 $5,067 
Service3,099 2,367 
Total U.S. revenue$3,531 $7,434 
Outside of U.S. ("OUS")
Product$12,994 $6,312 
Service2,232 1,660 
Distribution rights119 119 
Total OUS revenue$15,345 $8,091 
Total
Product$13,426 $11,379 
Service5,331 4,027 
Distribution rights119 119 
Total revenue$18,876 $15,525 
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.
14

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.
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 $10.3 million and $5.4 million were reported within other assets in the condensed consolidated balance sheets at March 31, 2022 and at December 31, 2021, respectively. 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.
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 no estimated allowances for credit losses recorded at March 31, 2022 or December 31, 2021.
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 March 31, 2022 and 2021, the Company recognized $4.5 million and $4.2 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 amounts recognized during the three months ended March 31, 2022 from performance obligations satisfied in the prior period.
15

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”). The 2018 Offering Warrants became exercisable upon issuance and expire in March 2025. None of the 2018 Offering Warrants have been exercised to date and they all remained outstanding at March 31, 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.



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 March 31, 2022
Warrants
Outstanding at
March 31, 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 three months ended March 31, 2022 and 2021, the Company recorded a gain of $2.8 million and a loss of $0.9 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 March 31, 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
March 31, 2022December 31, 2021March 31, 2022December 31, 2021
Expected term (in years)1.82.01.41.6
Expected volatility85.0 %86.0 %84.6 %85.5 %
Risk-free interest rate2.2 %0.4 %1.9 %0.3 %
Expected dividend yield % % % %
NOTE 10.    STOCK-BASED COMPENSATION
As of March 31, 2022, the Company had an active stock-based incentive compensation plan, an employee stock purchase plan and an equity inducement plan: the 2015 Equity Incentive Award Plan (as amended and restated, the “2015 Plan”), the 2015 Employee Stock Purchase Plan (as amended and restated, the “ESPP”), and the 2018 Equity Inducement Award Program (the “2018 Plan”), respectively. All new equity compensation grants are issued under these three plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans.
The 2015 Plan and the 2018 Plan provide for the grant of stock and stock-based awards including stock options, restricted stock units (including deferred stock units), performance-based stock units, and stock appreciation rights. As of March 31, 2022, there were 2.6 million shares available for grant under the 2015 Plan and 2018 Plan. Subsequently, in April 2022, the Company's board of directors determined that the 2018 Plan was no longer required under ViewRay’s compensation program and terminated the 2018 Plan. No further awards will be granted under this plan and no such awards have been granted since August 16, 2021. As a result, all 1.5 million shares previously available for issuance under the 2018 Plan have been restored to the Company’s general authorized but unissued share reserve and are no longer set aside for grants under the 2018 Plan.
Stock-Based Compensation Expense
Total stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations and comprehensive loss is classified as follows (in thousands):
Three Months Ended
March 31,
20222021
Cost of revenue$176 $236 
Research and development724 637 
Selling and marketing693 295 
General and administrative3,439 7,326 
Total stock-based compensation expense$5,032 $8,494 
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The Company’s stock-based compensation expense is based on the value of the portion of share-based payment awards that are ultimately expected to vest, assuming estimated forfeitures at the time of grant. Stock-based compensation relating to stock-based awards granted to consultants was insignificant for the three months ended March 31, 2022 and 2021.
Restricted Stock Units, Deferred Stock Units and Performance Share Units (collectively “Incentive Stock Units” or “ISUs”)
The Company grants restricted stock units, deferred stock units, and performance stock units (collectively "Incentive Stock Units" or "ISUs").
Restricted Stock Units ("RSUs") are granted to the Company's board of directors and employees for their services. Deferred Stock Units ("DSUs") are granted to the Company's board of directors at their election in lieu of retainer and committee service fees. The DSUs granted to board members are either fully vested upon issuance or vest over a period of time from the grant date and will be released and settled upon termination of the board member’s services, the occurrence of a change in control event, or the tenth anniversary of the grant date. The RSUs and DSUs granted to employees and/or board members vest in equal annual or monthly installments over one to three years from the grant date and are subject to the participants continuing service to the Company over that period.
Performance share units (“PSUs”) are granted to the Company’s employees which vest based on the achievement of performance targets set by the Company based on a three-year performance period.
The grant date fair values of ISUs are based on the closing market price of our common stock on the grant date. Stock-based compensation expense, net of forfeitures, is recognized on a straight-line basis over the requisite service period. For PSUs, compensation expense is updated for the Company’s expected performance level against performance goals at the end of each reporting period, which involves judgment as to achievement of certain performance metrics. More specifically, achievement of a compound annual revenue growth rate will result in a percentage payout of the target PSUs awarded. If the Company’s compound annual revenue growth rate is between threshold and target or between target and maximum, payouts will be linearly interpolated.
The table below summarizes the Company’s activity and related information for its ISUs:
RSUs and DSUsPSUs
Number of SharesWeighted Average Grant Date Fair ValueNumber of SharesWeighted Average Grant Date Fair Value
Unvested at December 31, 20215,536,925 $4.04 707,088 $4.66 
ISUs granted1,847,172 $4.21 1,600,549 (1)$4.25 
ISUs vested(1,573,992)$4.05  $ 
ISUs forfeited(117,372)$4.01 (4,756)$4.66 
Unvested at March 31, 20225,692,733 $4.07 2,302,881 $4.38 
Vested and unreleased198,856  
Outstanding at March 31, 20225,891,589 2,302,881 
(1)     Includes PSUs granted in 2021 assuming a 150% payout.
The total grant date fair value of ISUs awarded was $12.9 million and $13.5 million for the three months ended March 31, 2022 and 2021, respectively. The total fair value of ISUs vested was $6.9 million, and $5.5 million during the three months ended March 31, 2022 and 2021, respectively.
At March 31, 2022, total unrecognized stock-based compensation cost related to ISUs, net of estimated forfeitures, was $23.4 million, which is expected to be recognized over a weighted-average period of 2.1 years. As of March 31, 2022, 6.9 million shares of ISUs are expected to vest.
Stock Options
Stock options awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant and with a four-year vesting schedule. Stock option awards generally expire 10 years from the date of grant.
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A summary of the Company’s stock option activity and related information is as follows:
Number
of Stock
Options
Outstanding
Weighted-
Average Exercise
Price
Weighted-
Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
(In thousands)
Options outstanding at December 31, 2021
7,156,776 $6.97 6.1$5,203 
Options granted  
Options exercised(19,292)$2.91 
Options cancelled or forfeited(133,995)$8.18 
Options outstanding at March 31, 2022
7,003,489 $6.96 5.9$2,651 
Options exercisable at March 31, 2022
6,117,485 $7.06 5.7$2,038 
Options vested and expected to vest at March 31, 2022
6,938,310 $6.99 5.8$2,560 
There were no options granted to employees for the three months ended March 31, 2022 and 2021.
Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The aggregate intrinsic value of options exercised was nominal for the three months ended March 31, 2022 and 2021.
At March 31, 2022, total unrecognized stock-based compensation cost related to stock options granted to employees, net of estimated forfeitures, was $2.9 million, which is expected to be recognized over a weighted-average period of 1.2 years.
The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the estimated fair value of the Company’s common stock, as well as assumptions regarding a number of complex and subjective variables. The variables used to calculate the fair value of stock options using the Black-Scholes option-pricing model include actual and projected employee stock option exercise behaviors, expected price volatility of the Company’s common stock, the risk-free interest rate and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine.
The risk-free interest rate is based on the zero-coupon U.S. Treasury notes, with maturities similar to the expected term of the options. The Company has not paid and does not anticipate paying cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero.
The forfeiture rate of stock options is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures have been estimated by the Company based upon historical and expected forfeiture experience.
Employee Stock Purchase Plan
In July 2015, the Company adopted the ESPP. Certain employees, as defined by the ESPP, are eligible to participate in the ESPP if employed by the Company for at least 20 hours per week during at least five months per calendar year. Participating employees may contribute up to the lesser of 15% of their eligible earnings or $30,000 during each offering period, provided that in no event shall a participating employee be permitted to purchase more than 3,000 shares of common stock during each offering period.
During 2022, the first offering period provided to eligible employees is January 1, 2022 through June 30, 2022. The purchase price of common stock purchased under the ESPP is currently equal to 85% of the lesser of the fair market value of a share of common stock on: (1) the first trading day of an offering period and (2) the last trading of each offering period. At March 31, 2022, 3.5 million shares were reserved for issuance under the ESPP. No more than 3.5 million shares of common stock may be issued under the ESPP. As of March 31, 2022, 0.3 million shares have been issued under the ESPP and 3.2 million shares remained available for future issuance under the ESPP. Purchase rights granted under the ESPP are valued using the Black-Scholes pricing model.
NOTE 11.    INCOME TAX
Due to the current operating losses, the Company recorded zero income tax expense during the three months ended March 31, 2022 and 2021, respectively. During these periods, the Company’s activities were limited to U.S. federal and state tax jurisdictions, as it does not have any significant foreign operations.
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Due to the Company’s history of cumulative losses and after considering all the available objective evidence, management concluded that it is not more likely than not that all of the Company’s net deferred tax assets will be realized in the future. Accordingly, the Company’s deferred tax assets, which include net operating loss (“NOL”), carryforwards and tax credits related primarily to research and development, continue to be subject to a valuation allowance as of March 31, 2022. The Company expects to continue to maintain a full valuation allowance until there is sufficient evidence to support recoverability of its deferred tax assets.
The Company had unrecognized tax benefits of $3.5 million and $3.4 million at March 31, 2022 and December 31, 2021, respectively. The reversal of the uncertain tax benefits would not affect the effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets. Unrecognized tax benefits may change during the next 12 months for items that arise in the ordinary course of business.  
Interest and/or penalties related to income tax matters are recognized as a component of income tax expense. At March 31, 2022 and December 31, 2021, there were no accrued interest and penalties related to uncertain tax positions.
NOTE 12.     NET LOSS PER SHARE
Diluted earnings per share (“EPS”) includes the dilutive effect of common stock equivalents and is computed using the weighted-average number of common stock and common stock equivalents outstanding during the reporting period. Diluted EPS for the periods ended March 31, 2022 and 2021 excluded common stock equivalents because the effect of their inclusion would be anti-dilutive or would decrease the reported loss per share. The following table sets forth securities outstanding that could potentially dilute the calculation of diluted earnings per share:
For the three months ended
March 31,
20222021
Stock options outstanding7,003,489 8,096,905 
Warrants to purchase common stock - liability classified2,036,733 2,042,992 
Warrants to purchase common stock - equity classified1,418,116 1,418,116 
Unvested restricted stock units7,995,614 9,217,496 
Total18,453,952 20,775,509 
NOTE 13.    RELATED PARTY TRANSACTIONS
Hudson Cooperation Agreement
Pursuant to the Cooperation Agreement with Hudson Executive Capital LP and certain of its affiliates (collectively, “Hudson”), the Company concurrently entered into a Consulting Agreement with Sai Nanduri, a Senior Investment Analyst and representative of Hudson, pursuant to which the Company expects to pay Mr. Nanduri $160,000 during 2022 and will consider Mr. Nanduri as a candidate for election to the Board at the 2023 annual meeting of shareholders.
License Agreement with University of Florida Research Foundation, Inc.
In December 2004, the Company entered into a licensing agreement with the University of Florida Research Foundation (“UFRF”) whereby UFRF granted the Company a worldwide exclusive license to certain of UFRF’s patents in exchange for 33,652 shares of common stock and a 1% royalty, with a minimum $0.1 million royalty payment per quarter, from sales of products developed and sold by the Company utilizing the licensed patents. Minimum royalty payments in any calendar year are credited against earned royalties for such calendar year. Royalty expenses based on 1% of net sales were nominal and $0.1 million during the three months ended March 31, 2022 and 2021, respectively, and were recorded as product cost of revenue.
Distribution Agreement with Chindex Shanghai International Trading Company Limited
In November 2019, the Company entered into a distribution agreement with Chindex Shanghai International Trading Company Limited (“Chindex”) which became effective in February 2020. Chindex is a subsidiary of Fosun International Limited (“Fosun”).
Under the distribution agreement, Chindex will act as the Company’s distributor and regulatory agent for the sale and delivery of its MRIdian products within the People’s Republic of China, excluding Hong Kong, Macau and Taiwan. The distribution agreement has an initial term of five years with an option to renew for an additional five years. Under the distribution agreement, the Company will supply its products and services to Chindex based on an agreed upon price
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between the Company and Chindex. In accordance with the agreement, Chindex agreed to pay ViewRay an upfront fee, portions of which may be refundable under certain conditions, of $3.5 million, payable in three installments: (i) the first installment of $1.5 million due approximately 60 days after the effectiveness of the distribution agreement; (ii) the second installment of $1.0 million due on the first anniversary from the effective date of the agreement; and (iii) the third installment of $1.0 million due on the second anniversary from the effective date of the agreement. The Company has received the first and second installments of this payment as of March 31, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The interim financial statements included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2021, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report filed with the SEC on February 25, 2022. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in this Quarterly Report and the Annual Report that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements.
Unless otherwise indicated, references in this section to “ViewRay,” “we,” “us,” “our” and the “Company” refer to ViewRay, Inc. and its consolidated subsidiary, ViewRay Technologies, Inc.
The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on our unaudited condensed consolidated financial statements contained in this Quarterly Report, which we have prepared in accordance with U.S. GAAP. You should read the discussion and analysis together with such condensed consolidated financial statements and the related notes thereto.
Company Overview
ViewRay, Inc. designs, manufactures, and markets the MRIdian® MRI-Guided Radiation Therapy System. MRIdian is built upon a proprietary high-definition magnetic resonance (“MR”) imaging system designed from the ground up to address the unique challenges and clinical workflow for advanced radiation oncology. Unlike MR systems used in diagnostic radiology, MRIdian's high-definition MR was purpose-built to address specific challenges, including beam distortion, skin toxicity, and other concerns that may arise when high magnetic fields interact with radiation beams. The MRIdian MR-Guided Radiation Therapy System integrates diagnostic-quality MR imaging with radiation therapy delivery to enable on-table adaptive treatments with real-time tissue tracking and automatic beam gating. MRIdian supports the delivery of ablative radiation doses in five or fewer fractions, without implantable markers resulting in lower toxicities in hard-to-treat cancers. There are two generations of the MRIdian: the first generation MRIdian with Cobalt-60 based radiation beams and the second generation MRIdian Linac, with more advanced linear accelerator or ‘linac’ based radiation beams. MRIdian with Cobalt-60 is no longer commercially available.
MRIdian was designed to address the key limitations of existing external-beam radiation therapy technologies. MRIdian employs MRI-based technology to provide real-time imaging that clearly defines the targeted tumor from the surrounding soft tissue and other critical organs, both before and during radiation treatment delivery. We believe this combination of enhanced anatomical visualization and accurate dose calculation and delivery will improve the safety and efficacy of radiation therapy, leading to better outcomes for patients suffering from cancer.
Both generations of the MRIdian have received 510(k) marketing clearance from the U.S. Food and Drug Administration, (“FDA”) and permission to affix the Conformité Européene, (“CE”) mark.
We received initial 510(k) marketing clearance from the FDA for our treatment planning and delivery software in January 2011.
We received 510(k) marketing clearance for MRIdian, with Cobalt-60 as the radiation source, in May 2012.
In August 2016, we received regulatory approval from the Japanese Ministry of Health, Labor and Welfare to market MRIdian with Cobalt-60 in Japan as well as from the China Food and Drug Administration to market MRIdian with Cobalt-60 in China.
In September 2016, we received the CE mark for the MRIdian Linac (with a linear accelerator as the radiation source) in the European Economic Area ("EEA").
In February 2017, we received 510(k) marketing clearance from the FDA to market MRIdian Linac in the United States (“U.S.”).
In June 2017, we received 510(k) marketing clearance to market RayZR™, our high-resolution beam-shaping multi-leaf collimator, or MLC. We also received MRIdian Linac regulatory approval in Taiwan and Canada in August 2017, and in Israel in November 2017. In March 2018, we received regulatory approval from the Japanese Ministry of Health, Labor and Welfare to market MRIdian Linac in Japan.

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In February 2019, we received 510(k) marketing clearance for advancements in MRI, 8 frames per second cine, 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 newest version of MRIdian, MRIdian A3i, received 510(k) marketing clearance from the FDA.
We are also seeking required regulatory approvals for MRIdian in other countries, including CE mark for the EEA.

MRIdian is the first radiation therapy solution that enables simultaneous radiation treatment delivery and real-time MRI imaging of a patient’s internal anatomy. It generates high-quality images that differentiate between the targeted tumor, surrounding soft tissue and nearby critical organs. MRIdian also records the level of radiation dose that the treatment area has received, enabling physicians to adapt the prescription between treatments, as needed. We believe this improved visualization and accurate dose recording will enable better treatment, improve patient outcomes and reduce side effects. Key benefits to users and patients include: improved imaging and patient alignment; the ability to adapt the patient’s radiation treatments to changes while the patient is still on the treatment table, or “on-table adaptive treatment planning”; MRI-based tissue tracking and automated beam gating; and an accurate recording of the delivered radiation dose. Physicians have already used MRIdian to treat a broad spectrum of radiation therapy patients with more than 65 different types of cancer, as well as patients for whom radiation therapy was previously not an option. Our customers have surpassed a significant milestone by treating approximately 21,000 patients on MRIdian systems to date.
At March 31, 2022, a total of 50 MRIdian systems, 2 MRIdian with Cobalt-60 systems and 48 MRIdian Linac systems, are in operation with 47 customers worldwide (22 in the United States and 25 outside the United States). In addition, 10 MRIdian Linacs have been delivered to customers that are in varying stages of deployment.
We currently market MRIdian through a direct sales force in the United States. In the rest of the world, we market MRIdian through a hybrid model of both a direct sales force and distribution network. We market MRIdian to a broad range of worldwide customers, including university research and teaching hospitals, community hospitals, private practices, government institutions and freestanding cancer centers. As with the traditional linac market, our sales and revenue cycles vary based on the particular customer and can be lengthy, sometimes lasting up to 18 to 24 months (or more) from initial customer contact to order contract execution. Following execution of an order contract, it generally takes nine to 15 months for a customer to customize an existing facility or construct a new vault. Upon the commencement of installation at a customer’s facility, it typically takes approximately 45 to 60 days for us to install MRIdian and perform on-site testing of the system, including the completion of acceptance test procedures.
We generated total revenue of $18.9 million and $15.5 million and had net losses of $25.8 million and $26.7 million, during the three months ended March 31, 2022 and 2021, respectively.
We expect to continue to incur significant expenses and operating losses for the foreseeable future, as we:
navigate our business activities through the impacts of the COVID-19 pandemic;
continue our research and development efforts;
seek regulatory approval for MRIdian in certain foreign countries; and
operate as a public company.
Accordingly, we may seek to fund our operations through public or private equity, debt financings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop enhancements to and integrate new technologies into MR Image-Guided radiation therapy systems.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic and its follow-on effects have impacted and will continue to impact business activity across industries worldwide, including ViewRay.
Due to pandemic-related factors like the delays in service from our global supply chain partners and travel and quarantine restrictions imposed by government agencies and our customers in response to the spread of COVID-19, we have experienced delays in installation of systems in the United States, Asia and Europe. Similarly, our ability to conduct commercial efforts with our customers has been and is likely to continue to be disrupted as customers are reintroducing in-person sales calls. If the economic effects and travel restrictions of the COVID-19 pandemic persist, our ability to conduct
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our business and access capital markets will be negatively impacted; and capital equipment sales, which make up the majority of our revenue, may take longer than other areas of the economy in a recovery, which may have a material impact on our business. The COVID-19 pandemic continues to evolve and its continued global economic impact may negatively impact our operations in areas that we are not aware of currently.
Impact of Inflation
In recent years, inflation has not had a significant impact on our operations. However, as inflation has increased over the past two quarters, we are monitoring the potential impact on our business, including product cost in connection with the parts used in our manufacturing process, freight and transportation costs, and wage pressure. Should the increase in inflation persist, it may increase the costs for conducting our operations, which could adversely impact our profitability.
New Orders and Backlog
New orders are defined as the sum of gross product orders, representing MRIdian contract price, recorded in backlog during the period. Backlog is the accumulation of all orders for which revenue has not been recognized and which we consider valid. Backlog includes customer deposits or letters of credit, except when the sale is to a customer where a deposit is not deemed necessary or customary. Deposits received are recorded in a customer deposit liability account on the balance sheet. Orders may be revised or cancelled according to their terms or upon mutual agreement between the parties. Therefore, it is difficult to predict with certainty the amount of backlog that will ultimately result in revenue. The determination of backlog includes objective and subjective judgment about the likelihood of an order contract becoming revenue. We perform a quarterly review of backlog to verify that outstanding orders in backlog remain valid, and based upon this review, orders that are no longer expected to result in revenue are removed from backlog. Among other criteria to consider for a transaction to be in backlog, we must possess both an outstanding and effective written agreement for the delivery of a MRIdian signed by a customer with a minimum customer deposit or a letter of credit requirement except when the sale is to a customer where a deposit is not deemed necessary or customary (i.e. sale to a government entity, a large hospital, group of hospitals or cancer care group that has sufficient credit, sales via tender awards, or indirect channel sales that have signed contracts with end-customers). We decide whether to remove or add back an order from or to our backlog by evaluating the following criteria: changes in customer or distributor plans or financial conditions; the customer’s or distributor’s continued intent and ability to fulfill the order contract; changes to regulatory requirements; the status of regulatory approval required in the customer’s jurisdiction, if any; the length of time the order has been on our backlog; and other reasons for potential cancellation of order contracts.
During the three months ended March 31, 2022, we received seven new orders for MRIdian systems, totaling $40.9 million. At March 31, 2022, we had total backlog of $331.0 million.
Components of Statements of Operations
Revenue
Product Revenue. Product revenue consists of revenue recognized from sales of MRIdian systems, as well as optional components, such as additional planning workstations and body coils.
Following execution of an order contract, it generally takes nine to 15 months for a customer to customize an existing facility or construct a new vault for the purchased system. Upon the commencement of installation at a customer’s facility, it typically takes approximately 45 to 60 days to complete the installation and on-site testing of the system, including the completion of customer test procedures. On-site training can take up to multiple weeks and can be conducted concurrently with installation and acceptance testing. Order contracts generally include customer deposits upon execution of the agreement, and in certain cases, additional amounts due at shipment or commencement of installation, and final payment due generally upon customer acceptance.
For new contracts in which control of the system transfers upon delivery and inspection, the Company recognizes revenue for the system at the point in time when delivery and inspection has occurred. For these same contracts, the Company recognizes installation revenue over a period of time as control of the installation services are transferred. For all contracts in which control continues to transfer upon post-installation customer acceptance, revenue for the system and installation will continue to be recognized upon customer acceptance. For sales of MRIdian systems for which we are not responsible for installation, revenue is recognized when the entire system is delivered, which is when the control of the system is transferred to the customer.
Service Revenue. Our contracts typically include service warranty at no additional costs for one year. In addition, we offer multi-year, post-installation maintenance and support contracts that provide various levels of service support, which enables our customers to select the level of on-going support services, including parts and labor, which they require. These
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post-installation contracts are for a period of one to five years and provide services ranging from on-site parts and labor, and preventative maintenance to labor only with a longer response time. We also offer technology upgrades to our MRIdian systems, when and if available, for an additional fee. Service revenue is recognized ratably over the term during which the contracted services are provided.
Distribution Rights Revenue.  In December 2014, we entered into a distribution agreement with Itochu Corporation (“Itochu”) pursuant to which we appointed Itochu as our exclusive distributor for the promotion, sale and delivery of MRIdian products within Japan. As consideration for the exclusive distribution rights granted, we received $4.0 million, which was recorded as deferred revenue and since August 2016, distribution rights revenue has been recognized ratably over the remaining term of the distribution agreement, which expires in December 2024. A time-elapsed method is used to measure progress because the control is transferred evenly over the contractual period.
Cost of Revenue
Product Cost of Revenue. Product cost of revenue primarily consists of the cost of materials, installation and services associated with the manufacturing and installation of MRIdian systems, and royalty payments to the University of Florida Research Foundation. Product cost of revenue also includes lower of cost or net realizable value inventory (“LCNRV”) adjustments if the carrying value of the inventory is greater than its net realizable value.
We expect our materials, installation and service costs to decrease as we continue to scale our operations, improve product designs and work with our third-party suppliers to lower costs.
Service Cost of Revenue. Service cost of revenue is comprised primarily of personnel costs, training and travel expenses to service and perform maintenance on installed MRIdian systems. Service cost of revenue also includes the costs of replacement parts under maintenance and support contracts.
Operating Expenses
Research and Development. Research and development expenses consist primarily of compensation and related costs for personnel, including stock-based compensation, employee benefits and travel expenses. Other significant research and development costs arise from third-party consulting services, laboratory supplies, research materials, medical equipment, computer equipment and licensed technology, and related depreciation and amortization. We expense research and development costs as incurred. We will continue to invest in improving MRIdian and developing new technologies.
Selling and Marketing. Selling and marketing expenses consist primarily of compensation and related costs for our direct sales force, sales management, and marketing and customer support personnel, and include stock-based compensation, employee benefits and travel expenses. Selling and marketing expenses also include costs related to trade shows and marketing programs. We expense selling and marketing costs as incurred.
General and Administrative. Our general and administrative expenses consist primarily of compensation and related costs for our operations, finance, human resources, regulatory, and other administrative personnel, and include stock-based compensation, employee benefits and travel expenses. In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, quality and regulatory functions and facilities costs, and gain or loss on the disposal of property and equipment.
Interest Income
Interest income consists primarily of interest income received on our cash and cash equivalents.
Interest Expense
Interest expense consists primarily of interest and amortization related to our SVB Term Loan.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of changes in the fair value of the 2017 and 2016 Placement Warrants and foreign currency exchange gains and losses.
The outstanding 2017 and 2016 Placement Warrants are re-measured to fair value at each balance sheet date with the corresponding gain or loss from the adjustment recorded as a component of other (expense) income, net.
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Results of Operations
The following tables set forth our results of operations for the periods presented:

Three Months Ended March 31,
20222021
(in thousands)
Revenue:
Product$13,426 $11,379 
Service5,331 4,027 
Distribution rights119 119 
Total revenue18,876 15,525 
Cost of revenue:
Product13,766 10,685 
Service5,016 4,518 
Total cost of revenue18,782 15,203 
Gross profit (loss)94 322 
Operating expenses:
Research and development7,870 6,510 
Selling and marketing6,884 2,848 
General and administrative12,814 15,639 
Total operating expenses27,568 24,997 
Loss from operations(27,474)(24,675)
Interest income
Interest expense(1,064)(1,058)
Other (expense) income, net2,759 (1,012)
Loss before provision for income taxes$(25,774)$(26,743)
Provision for income taxes— — 
Net loss$(25,774)$(26,743)
Comparison of the three months ended March 31, 2022 and 2021
Revenue
Three Months Ended March 31,
20222021Change
(in thousands)
Product$13,426 $11,379 $2,047 
Service5,331 4,027 1,304 
Distribution rights119 119 — 
Total revenue$18,876 $15,525 $3,351 
Total revenue during the three months ended March 31, 2022 increased by $3.4 million compared to the same period in 2021. The increase was due to a $1.3 million increase in service revenue and a $2.0 million increase in product revenue during the three months ended March 31, 2022 compared to the same period in 2021.
Product Revenue. Product revenue increased by $2.0 million for the three months ended March 31, 2022 compared to the same period in 2021. The Company recognized revenue for three MRIdian Linac systems in the three months ended March 31, 2022 as compared to two MRIdian Linac systems during the same period in 2021.
Service Revenue. Service revenue increased by $1.3 million during the three months ended March 31, 2022 compared to the same period in 2021 primarily due to the increase in installed base.



Cost of Revenue
Three Months Ended March 31,
20222021Change
(in thousands)
Product$13,766 $10,685 $3,081 
Service5,016 4,518 498 
Total cost of revenue$18,782 $15,203 $3,579 
Product Cost of Revenue. Product cost of revenue increased by $3.1 million during the three months ended March 31, 2022 compared to the same period in 2021, primarily attributable to one additional MRIdian Linac system recognized as revenue during the three months ended March 31, 2022.
Service Cost of Revenue. Service cost of revenue increased by $0.5 million during the three months ended March 31, 2022 compared to the same period in 2021, primarily due to the increase in installed base.
Operating Expenses
Three Months Ended March 31,
20222021Change
(in thousands)
Research and development$7,870 $6,510 $1,360 
Selling and marketing6,884 2,848 4,036 
General and administrative12,814 15,639 (2,825)
Total operating expenses$27,568 $24,997 $2,571 
Research and Development. Research and development expenses during the three months ended March 31, 2022 increased by $1.4 million compared to the same period in 2021. The increase was primarily attributable to increased personnel and consulting expenses.
Selling and Marketing. Selling and marketing expenses during the three months ended March 31, 2022 increased by $4.0 million compared to the same period in 2021. The increase was primarily attributable to an increase in personnel expenses, as well as travel and marketing related expenses for in person events during the three months ended March 31, 2022.
General and Administrative. General and administrative expenses during the three months ended March 31, 2022 decreased by $2.8 million when compared to the same period in 2021. During the three months ended March 31, 2022, there was a $4.2 million decrease in personnel, partially offset by an increase in legal expenses as well as office expenses.
Interest Income
Three Months Ended March 31,
20222021Change
(in thousands)
Interest income$$$
Interest income remained flat during the three months ended March 31, 2022 compared to the same period in 2021.
Interest Expense
Three Months Ended March 31,
20222021Change
(in thousands)
Interest expense$(1,064)$(1,058)$(6)
Interest expense related to the SVB Term Loan remained flat during the three months ended March 31, 2022 compared to the same period in 2021.
27

Other (Expense) Income, Net