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, 2020

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

 

ViewRay, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

42-1777485

(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 $0.01

 

VRAY

 

The 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 filer

 

 

 

 

 

 

 

 

Non-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 April 23, 2020, the registrant had 147,399,273 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 


VIEWRAY, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

3

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

5

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

21

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

Item 4.

Controls and Procedures

 

29

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

30

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

31

 

 

 

 

Item 4.

Mine Safety Disclosures

 

31

 

 

 

 

Item 5.

Other Information

 

31

 

 

 

 

Item 6.

Exhibits

 

32

 

 

 

 

 

Signatures

 

33

 


2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or 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 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, or 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:

 

the effect of COVID-19 on our business operations and financial condition;

 

market acceptance of magnetic resonance imaging (“MRI”) guided radiation therapy;

 

the benefits of MR Image-Guided radiation therapy;

 

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 ability to obtain regulatory approval in targeted markets for MRIdian;

 

our ability to procure materials and components in connection with the manufacture and installation of 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, or 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, 2019. 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.

This Report also contains 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.

3


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, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

190,208

 

 

$

226,783

 

Accounts receivable

 

 

21,490

 

 

 

16,817

 

Inventory

 

 

55,031

 

 

 

55,031

 

Deposits on purchased inventory

 

 

4,235

 

 

 

6,457

 

Deferred cost of revenue

 

 

3,554

 

 

 

3,466

 

Prepaid expenses and other current assets

 

 

5,849

 

 

 

3,310

 

Total current assets

 

 

280,367

 

 

 

311,864

 

Property and equipment, net

 

 

23,570

 

 

 

23,399

 

Restricted cash

 

 

1,860

 

 

 

1,404

 

Intangible assets, net

 

 

54

 

 

 

55

 

Right-of-use assets

 

 

11,175

 

 

 

11,720

 

Other assets

 

 

1,717

 

 

 

1,577

 

TOTAL ASSETS

 

$

318,743

 

 

$

350,019

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,232

 

 

$

13,739

 

Accrued liabilities

 

 

16,310

 

 

 

21,390

 

Customer deposits

 

 

16,307

 

 

 

9,662

 

Operating lease liability, current

 

 

2,332

 

 

 

2,264

 

Current portion of long-term debt

 

 

6,222

 

 

 

1,556

 

Deferred revenue, current

 

 

9,861

 

 

 

10,457

 

Total current liabilities

 

 

58,264

 

 

 

59,068

 

Deferred revenue, net of current portion

 

 

3,193

 

 

 

3,553

 

Long-term debt

 

 

49,375

 

 

 

53,995

 

Warrant liabilities

 

 

2,504

 

 

 

5,373

 

Operating lease liability, noncurrent

 

 

9,865

 

 

 

10,479

 

Other long-term liabilities

 

 

1,528

 

 

 

1,377

 

TOTAL LIABILITIES

 

 

124,729

 

 

 

133,845

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, par value of $0.01 per share; 10,000,000 shares authorized

   at March 31, 2020 and December 31, 2019; no shares issued and outstanding

   at March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, par value of $0.01 per share; 300,000,000 shares authorized at

   March 31, 2020 and December 31, 2019; 147,396,985 and 147,191,695 shares

   issued and outstanding at March 31, 2020 and December 31, 2019

 

 

1,464

 

 

 

1,462

 

Additional paid-in capital

 

 

739,258

 

 

 

733,888

 

Accumulated deficit

 

 

(546,708

)

 

 

(519,176

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

194,014

 

 

 

216,174

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

318,743

 

 

$

350,019

 

 

 

 

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

4


VIEWRAY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Product

 

$

11,470

 

 

$

18,874

 

Service

 

 

2,661

 

 

 

1,291

 

Distribution rights

 

 

119

 

 

 

119

 

Total revenue

 

 

14,250

 

 

 

20,284

 

Cost of revenue:

 

 

 

 

 

 

 

 

Product

 

 

13,129

 

 

 

22,033

 

Service

 

 

3,228

 

 

 

3,615

 

Total cost of revenue

 

 

16,357

 

 

 

25,648

 

Gross margin

 

 

(2,107

)

 

 

(5,364

)

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

6,337

 

 

 

5,031

 

Selling and marketing

 

 

5,823

 

 

 

4,885

 

General and administrative

 

 

15,788

 

 

 

15,109

 

Total operating expenses

 

 

27,948

 

 

 

25,025

 

Loss from operations

 

 

(30,055

)

 

 

(30,389

)

Interest income

 

 

695

 

 

 

220

 

Interest expense

 

 

(1,038

)

 

 

(759

)

Other income (expense), net

 

 

2,866

 

 

 

(2,433

)

Loss before provision for income taxes

 

$

(27,532

)

 

$

(33,361

)

Provision for income taxes

 

 

 

 

 

 

Net loss and comprehensive loss

 

$

(27,532

)

 

$

(33,361

)

Net loss per share, basic and diluted

 

$

(0.19

)

 

$

(0.34

)

Weighted-average common shares used to compute net loss per

   share attributable to common stockholders, basic and diluted

 

 

147,457,116

 

 

 

96,741,309

 

 

 

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

 

5


VIEWRAY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

147,191,695

 

 

$

1,462

 

 

$

733,888

 

 

$

(519,176

)

 

$

216,174

 

Issuance of common stock from option exercises

 

 

2,870

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,501

 

 

 

 

 

 

5,501

 

Issuance of common stock from releases of restricted stock units

 

 

202,420

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

Tax withholding paid on behalf of employees for stock-based awards

 

 

 

 

 

 

 

 

(131

)

 

 

 

 

 

(131

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(27,532

)

 

 

(27,532

)

Balance at March 31, 2020

 

 

147,396,985

 

 

$

1,464

 

 

$

739,258

 

 

$

(546,708

)

 

$

194,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

96,332,023

 

 

$

952

 

 

$

565,334

 

 

$

(398,977

)

 

$

167,309

 

Issuance of common stock from option exercises

 

 

588,120

 

 

 

7

 

 

 

2,877

 

 

 

 

 

 

2,884

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,552

 

 

 

 

 

 

4,552

 

Issuance of common stock from warrant exercises

 

 

12,955

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of warrant liability to additional paid-in capital upon warrant exercises

 

 

 

 

 

 

 

 

92

 

 

 

 

 

 

92

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(33,361

)

 

 

(33,361

)

Balance at March 31, 2019

 

 

96,933,098

 

 

$

959

 

 

$

572,855

 

 

$

(432,338

)

 

$

141,476

 

 

 

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

6


VIEWRAY, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(27,532

)

 

$

(33,361

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,463

 

 

 

946

 

Stock-based compensation

 

 

5,501

 

 

 

4,552

 

Accretion on asset retirement obligation

 

 

20

 

 

 

7

 

Change in fair value of warrant liabilities

 

 

(2,869

)

 

 

3,120

 

Loss on disposal of property and equipment

 

 

12

 

 

 

 

Amortization of debt discount and interest accrual

 

 

177

 

 

 

141

 

Product upgrade reserve

 

 

(1,260

)

 

 

5,601

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,673

)

 

 

9,435

 

Inventory

 

 

 

 

 

(15,795

)

Deposits on purchased inventory

 

 

2,222

 

 

 

500

 

Deferred cost of revenue

 

 

(952

)

 

 

4,628

 

Prepaid expenses and other assets

 

 

(2,680

)

 

 

(3,009

)

Accounts payable

 

 

(6,415

)

 

 

7,048

 

Accrued expenses and other long-term liabilities

 

 

(3,702

)

 

 

1,278

 

Customer deposits and deferred revenue

 

 

5,689

 

 

 

(8,744

)

Net cash used in operating activities

 

 

(34,999

)

 

 

(23,653

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(451

)

 

 

(1,249

)

Net cash used in investing activities

 

 

(451

)

 

 

(1,249

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of offering costs related to common stock public offering

 

 

(539

)

 

 

 

Payment of debt issuance cost

 

 

 

 

 

(168

)

Proceeds from the exercise of stock options

 

 

2

 

 

 

2,884

 

Payments for taxes related to net share settlement of equity awards

 

 

(132

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(669

)

 

 

2,716

 

NET (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(36,119

)

 

 

(22,186

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — BEGINNING OF PERIOD

 

 

228,187

 

 

 

169,365

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — END OF PERIOD

 

$

192,068

 

 

$

147,179

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,070

 

 

$

750

 

Cash paid for taxes

 

$

 

 

$

7

 

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Fair value of common stock warrants reclassified from liability to additional paid-in capital upon exercise

 

$

 

 

$

92

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

 

 

$

492

 

Transfer of property and equipment from inventory and deferred cost of revenue

 

$

864

 

 

$

246

 

Purchases of property and equipment in accounts payable and accrued liabilities

 

$

986

 

 

$

615

 

Offering costs included in accounts payable and accrued expenses

 

$

191

 

 

$

 

 

 

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

 


7


VIEWRAY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Background and Organization

ViewRay, Inc., or 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, or 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 since November 2014. In September 2016, the Company received the rights to affix the Conformité Européene, or 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 and Functional imaging (T1/T2/DWI and 8 FPS cine) and High-Speed MLC.

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, 2020, the Company incurred a net loss from operations of $27.5 million and used cash in operations of $35.0 million. The Company believes that its existing cash balance of $190.2 million as of March 31, 2020, 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.

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, or U.S. GAAP, and pursuant to the rules and regulations of the Securities and Exchange Commission, or the 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, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 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, 2019.

Effective January 1, 2020, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820), which is intended to improve fair value and defined benefit disclosure requirements by removing disclosures that are not cost-beneficial, clarifying disclosures' specific requirements, and adding relevant disclosure requirements. No significant changes were made to our fair value disclosures in the notes to the consolidated financial statements in order to comply with ASU 2018-13.

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, 2019 filed with the SEC on March 12, 2020, and have not changed significantly since that filing.

8


Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes".  Topic 740 reduces complexity in certain areas of accounting for income taxes and makes minor improvements to the codification. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The amendments in this ASU will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this update on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

Effective January 1, 2020, the Company adopted FASB ASU 2018-13, Fair Value Measurements (Topic 820). Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The standard eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information, and modifies some disclosure requirements. As the result of the adoption the Company is no longer required to disclose (1) the amount of and the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation process for Level 3 fair value measurements. Additionally, the Company is required to disclose (1) the changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. No significant changes were made to our fair value disclosures in the notes to the consolidated financial statements in order to comply with ASU 2018-13. Refer to Note 4, Fair Value of Financial Instruments.

3.

Balance Sheet Components

Property and Equipment, Net

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

 

 

March 31, 2020

 

 

December 31, 2019

 

Prototype

 

$

16,525

 

 

$

16,419

 

Machinery and equipment

 

 

15,891

 

 

 

15,816

 

Leasehold improvements

 

 

6,720

 

 

 

6,718

 

Furniture and fixtures

 

 

1,295

 

 

 

1,284

 

Software

 

 

1,389

 

 

 

1,389

 

Construction in progress

 

 

5,598

 

 

 

4,176

 

Property and equipment, gross

 

 

47,418

 

 

 

45,802

 

Less: accumulated depreciation and amortization

 

 

(23,848

)

 

 

(22,403

)

Property and equipment, net

 

$

23,570

 

 

$

23,399

 

 

Depreciation and amortization expense related to property and equipment were $1.5 million and $0.9 million during the three months ended March 31, 2020 and 2019, respectively.

 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

March 31, 2020

 

 

December 31, 2019

 

Accrued payroll and related benefits

 

$

6,134

 

 

$

9,577

 

Accrued accounts payable

 

 

4,716

 

 

 

4,764

 

Payroll withholding tax, sales and other tax payable

 

 

1,070

 

 

 

1,066

 

Accrued legal, accounting and professional fees

 

 

1,276

 

 

 

1,175

 

Product upgrade reserve

 

 

2,534

 

 

 

3,794

 

Other

 

 

580

 

 

 

1,014

 

Total accrued liabilities

 

$

16,310

 

 

$

21,390

 

9


Deferred Revenue

Deferred revenue consisted of the following (in thousands):

 

 

March 31, 2020

 

 

December 31, 2019

 

Deferred revenue:

 

 

 

 

 

 

 

 

Product

 

$

3,026

 

 

$

3,141

 

Service

 

 

7,751

 

 

 

8,473

 

Distribution rights

 

 

2,277

 

 

 

2,396

 

Total deferred revenue

 

 

13,054

 

 

 

14,010

 

Less: current portion of deferred revenue

 

 

(9,861

)

 

 

(10,457

)

Noncurrent portion of deferred revenue

 

$

3,193

 

 

$

3,553

 

 

Other Long-Term Liabilities

Other long-term liabilities consisted of the following (in thousands):

 

 

March 31, 2020

 

 

December 31, 2019

 

Accrued interest, noncurrent portion

 

$

647

 

 

$

516

 

Other

 

 

881

 

 

 

861

 

Total other-long term liabilities

 

$

1,528

 

 

$

1,377

 

 

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, 2020 and December 31, 2019. 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, 2020, no warrants were exercised. During the three months ended March 31, 2019, warrants to purchase 21,571 shares of common stock were exercised and the aggregate fair value upon exercise of $0.1 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 income (expense), net in the condensed consolidated statements of operations and comprehensive loss. During the three months ended March 31, 2020 and 2019, the Company recorded a gain of $2.9 million and a loss of $3.1 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, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

2017 Placement Warrants Liability

 

$

 

 

$

 

 

$

1,896

 

 

$

1,896

 

2016 Placement Warrants Liability

 

 

 

 

 

 

 

 

608

 

 

 

608

 

    Total

 

$

 

 

$

 

 

$

2,504

 

 

$

2,504

 

10


 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

2017 Placement Warrants Liability

 

$

 

 

$

 

 

$

1,330

 

 

$

1,330

 

2016 Placement Warrants Liability

 

 

 

 

 

 

 

 

4,043

 

 

 

4,043

 

    Total

 

$

 

 

$

 

 

$

5,373

 

 

$

5,373

 

 

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,

 

 

 

2020

 

 

2019

 

Fair value, beginning of period

 

$

5,373

 

 

$

11,844

 

Change in fair value of Level 3 financial liabilities

 

 

(2,869

)

 

 

3,120

 

Fair value of 2016 Placement Warrants at exercise

 

 

 

 

 

(66

)

Fair value of 2017 Placement Warrants at exercise

 

 

 

 

 

(26

)

Fair value, end of period

 

$

2,504

 

 

$

14,872

 

 

5.

Debt

SVB Term Loan

In December 2018, the Company entered into a term loan agreement, or the SVB Term Loan, with Silicon Valley Bank, for a principal amount of $56.0 million. The SVB Term Loan has a maturity date of December 1, 2023 and bears interest at a rate of 6.30% per annum to be paid monthly over the term of the loan. Beginning on December 1, 2020 (or June 1, 2021, if the Company achieves a trailing twelve-month revenue of at least a specified amount and elects to apply such later date), the Company will make thirty-six equal monthly payments of principal (or thirty equal payments, if the Company so elects). In addition, upon repayment of the SVB Term Loan in full, the Company will make a final payment equal to 3.15% of the original aggregate principal amount of the SVB Term Loan.

The Company used the proceeds of the SVB Term Loan and cash on hand to repay in full its outstanding obligations under its then outstanding term loan, or the CRG Term Loan, and to pay fees and expenses related thereto. The Company accounted for the termination of the CRG Term Loan as a debt extinguishment and recorded a debt extinguishment loss of $2.4 million from the difference between the net carrying amount of debt and the amount paid. The debt extinguishment loss includes $0.3 million in write-offs of unamortized debt discount and debt issuance costs associated with the CRG Term Loan.

The Company received net proceeds of $55.4 million after related legal and consulting fees totaling $0.6 million. Such fees are accounted for as debt discount and issuance costs and presented as a direct deduction from the carrying amount of debt on the Company’s consolidated balance sheets. Debt discount, issuance costs and the final payment are amortized or accreted as interest expense over the term of the loan using the effective interest method.

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. On December 31, 2019, we entered into the First Amendment (the Amendment) to the SVB Term Loan. The Amendment, among other things, amended the SVB Term Loan to (i) suspend testing of the minimum revenue financial covenant for the fiscal quarter ended December 31, 2019, (ii) provide for the minimum trailing twelve-month revenue thresholds under the minimum revenue financial covenant for periods ending on the last day of fiscal quarters in fiscal years subsequent to 2020 to be determined annually at the greater of (a) a 25% cushion to revenue forecasts provided by the Company to SVB and (b) 10% year-over-year annual growth, unless otherwise agreed, (iii) increase the minimum liquidity ratio financial covenant from 1.50:1.00 to 1.75:1.00 and (iv) increase the prepayment premium from 1.00% to 2.00% for amounts prepaid under the SVB Term Loan prior to the maturity date thereof, subject to certain exceptions.

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 shall include all accounts and proceeds of such intellectual property.

The SVB Term Loan contains customary representations and warranties and customary affirmative and negative 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 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.

11


The Company’s scheduled future payments on the SVB Term Loan at March 31, 2020 are as follows (in thousands):

 

Year Ended December 31,

 

 

 

 

The remainder of 2020

 

$

1,555

 

2021

 

 

18,667

 

2022

 

 

18,667

 

2023

 

 

17,111

 

2024

 

 

 

Total future principal payments

 

 

56,000

 

Less: unamortized debt discount

 

 

(403

)

Carrying value of long-term debt

 

 

55,597

 

Less: current portion

 

 

(6,222

)

Long-term portion

 

$

49,375

 

 

6.

Commitments and Contingencies

Operating Leases

The Company leases office space in Oakwood Village, Ohio, Mountain View, California and Denver, Colorado under noncancelable operating lease agreements. The Company leases and occupies approximately 19,800 square feet of office space in Oakwood Village, Ohio, which expires in October 2021.

In June 2014, the Company entered into an office lease agreement to lease approximately 25,500 square feet of office space located in Mountain View, California, with an original expiration date of November 2019. In June 2018, the Company entered into an amendment to extend the term of the lease agreement through July 2025.

In April 2018, the Company entered into a lease agreement to lease approximately 24,600 square feet of additional office space located in Mountain View, California. The lease commenced in December 2018 and will expire in December 2025. The Company has the option to extend the term of the lease for a period of up to five years.

In May 2019, the Company entered into a sub-lease agreement to lease approximately 19,800 square feet of office space located in Denver, Colorado. The sub-lease commenced in June 2019 and will expire in May 2021.  

In recognition of the right-of-use 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. At March 31, 2020, the weighted-average remaining lease term in years is 5.1 years and the weighted-average discount rate used is 7.7%.

The Company recognized the following lease costs arising from lease transactions (in thousands):  

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating lease cost

 

$

781

 

 

$

626

 

 

The Company recognized the following cash flow transactions arising from lease transactions (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

783

 

 

$

514

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

 

 

 

492

 

 

12


At March 31, 2020, the future payments and interest expense for the operating leases are as follows (in thousands):

 

Year Ending December 31,

 

Future Payments

 

The remainder of 2020

 

$

2,364

 

2021

 

 

2,831

 

2022

 

 

2,497

 

2023

 

 

2,571

 

2024

 

 

2,604

 

2025

 

 

1,924

 

Total undiscounted cash flows

 

$

14,791

 

Less: imputed interest

 

 

(2,594

)

Present value of lease liabilities

 

$

12,197

 

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.

Patent Litigation

On September 10, 2019, a complaint for patent infringement was filed by Varian Medical Systems, Inc., in U.S. District Court for the Northern District of California against the Company. Captioned Varian Medical Systems, Inc., v. ViewRay, Inc., the complaint alleges that the Company infringes two related patents, U.S. Patent Nos. 8,637,841 (the “’841 Patent”) and 9,082,520 (the “’520 Patent”) and seeks injunctive relief and monetary damages. The Company filed its answer on November 1, 2019. The matter is presently in discovery. The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.

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 ViewRay, our chief executive officer, chief operating officer, chief scientific officer, and our former chief executive officer and former chief financial officer. Now captioned Plymouth County Retirement Assoc. v. ViewRay, Inc., et al, the amended complaint, purportedly brought on behalf of all purchasers of the Company’s common stock between March 10, 2018 until January 13, 2020, 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. The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.

Given the early stage of each of the litigation matters described above, at this time we are 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 us could have a material adverse effect for the period in which they are resolved and on our 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 our reputation, even if resolved in our favor.

Purchase Commitments

At March 31, 2020, the Company had $2.7 million in outstanding firm purchase commitments.

13


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,

 

 

2020

 

 

2019

 

U.S.

 

 

 

 

 

 

 

Product

$

1,618

 

 

$

 

Service

 

1,466

 

 

 

634

 

Total U.S. revenue

$

3,084

 

 

$

634

 

 

 

 

 

 

 

 

 

Outside of U.S. ("OUS")

 

 

 

 

 

 

 

Product

$

9,852

 

 

$

18,874

 

Service

 

1,195

 

 

 

657

 

Distribution rights

 

119

 

 

 

119

 

Total OUS revenue

$

11,166

 

 

$

19,650

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Product

$

11,470

 

 

$

18,874

 

Service

 

2,661

 

 

 

1,291

 

Distribution rights

 

119

 

 

 

119

 

Total revenue

$

14,250

 

 

$

20,284

 

 

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, or 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.

 

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.

14


 

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 credit losses. 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 $0.3 million and $0.2 million were reported within other assets in the condensed consolidated balance sheets at March 31, 2020 and at December 31, 2019, 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, 2020 or December 31, 2019.

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, 2020, the Company recognized $3.3 million of revenues that was included in the deferred revenue balance at the beginning of the reporting period. During the three months ended March 31, 2019, the Company recognized $7.9 million of revenues that were included in the deferred revenue balance at the beginning of the reporting period.

 

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, 2020 from performance obligations satisfied in the prior period. For the three months ended March 31, 2019, the Company recognized $0.9 million in revenue from performance obligations satisfied in the prior period.

8.

Equity Financing

Public Offering of Common Stock

On August 14, 2018, the Company entered into an underwriting agreement with Morgan Stanley & Co. LLC and Jefferies LLC, as representatives of several underwriters, or the August 2018 Underwriters, in connection with the issuance and sale of 16,216,217 shares of the Company’s common stock at a public offering price of $9.25 per share. In addition, the Company granted the August 2018 Underwriters a 30-day option to purchase up to 2,432,432 additional shares of common stock on the same terms, which the August 2018 Underwriters exercised in full. The Company completed the offering on August 17, 2018 and received aggregate net proceeds of approximately $161.9 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

On December 3, 2019, the Company entered into an underwriting agreement with Piper Jaffray & Co., as representatives of several underwriters, or the December 2019 Underwriters, in connection with the issuance and sale of 41,550,000 shares of our common stock at a public offering price of $3.13 per share. In addition, the Company granted the December 2019 Underwriters a 30-day option to

15


purchase up to 6,232,500 additional shares of common stock on the same terms, which the December 2019 Underwriters exercised in full. The Company completed the offering on December 6, 2019 and received aggregate net proceeds of approximately $138.4 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

Direct Registered Offerings

In February 2018, the Company entered into a securities purchase agreement pursuant to which it sold (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 its common stock, or the 2018 Offering Warrants, for total gross proceeds of $59.1 million, or the March 2018 Direct Registered Offering. The March 2018 Direct Registered Offering was closed on March 5, 2018. The 2018 Offering Warrants have an exercise price of $8.31 per share, became exercisable upon issuance and expire in March 2025.

Private Placements

In September 2016, the Company completed the final closing of a private placement offering, or the 2016 Private Placement, through which it sold (i) 4,602,506 shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,380,745 shares of common stock, or the 2016 Placement Warrants, and raised total gross proceeds of $13.8 million. The 2016 Placement Warrants have an exercise price of $2.95 per share, are exercisable at any time at the option of the holder and expire seven years from the date of issuance.

In January 2017, the Company completed the final closing of a private placement offering, or the 2017 Private Placement, through which it sold (i) 8,602,589 shares of its common stock and (ii) warrants that provide the warrant holders the right to purchase 1,720,512 shares of its common stock, or the 2017 Placement Warrants, and raised total gross proceeds of $26.1 million. The 2017 Placement Warrants have an exercise price of $3.17 per share, became exercisable in July 2017 and expire in January 2024.

At-The-Market Offering of Common Stock

In January 2019, the Company filed a registration statement with the SEC which covers the offering, issuance and sale of up to a maximum aggregate offering price of $250.0 million of our common stock, preferred stock, debt securities, warrants, purchase contracts and/or units, including up to $100.0 million of the Company’s common shares that may be sold pursuant to the Company’s at-the-market offering program with FBR Capital Markets & Co. (“FBR”). The shares in the December 2019 Public Offering of Common stock were sold pursuant to the January 2019 registration statement and did not impact the $100.0 million of our common shares pursuant to our at-the-market offering program with FBR. The Company has not sold any securities under the 2019 registration statement pursuant to its at-the-market offering program.

9.

Warrants

Equity Classified Common Stock Warrants

In connection with a debt financing in December 2013, the Company issued warrants to purchase 128,231 shares of its common stock with an exercise price of $5.84 per share. These warrants are exercisable any time at the option of the holder until December 16, 2023. In August 2019, the Company issued 36,457 shares of its common stock upon the net exercise of 128,231 2013 Placement Warrants. All of the December 2013 Placement Warrants have been exercised and none of the warrants are outstanding at March 31, 2020.

In connection with the merger of the Company and ViewRay Technologies, Inc. in July 2015, or the Merger, in July and August 2015, the Company conducted a private placement offering as part of which the Company issued warrants, or the 2015 Placement Warrants, that provide the warrant holder the right to purchase 198,760 shares of common stock at an exercise price of $5.00 per share. The 2015 Placement Warrants are exercisable at any time at the option of the holder until the five-year anniversary of its date of issuance. During the year ended December 31, 2018, the Company issued 92,487 shares of its common stock upon the net exercise of 159,010 shares of the 2015 Placement Warrants. The remaining 39,750 shares of the 2015 Placement Warrants have not been exercised and remained outstanding at March 31, 2020.

In connection with the March 2018 Direct Registered Offering, the Company issued warrants to purchase 1,418,116 shares of common stock at an exercise price of $8.31 per share. 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, 2020.

16


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%