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VRAY: 2017 Financial Highlights. What To Expect In 2018

01/16/2018
By Anita Dushyanth, PhD

NASDAQ:VRAY

On January 8, 2018 VRAY (NASDAQ:VRAY) announced preliminary financial results for Q4 and fiscal year 2017.

Management had guided for 2017 revenues in the $42 - $47 million range.  Commensurate with management’s guidance, we had modeled installation of five MRIdian systems for the fourth quarter and estimated revenues of $30 million and $44 million for Q4 and fiscal 2017, respectively.  Although the firm completed shipment of five systems during Q4 2017, they were able to record revenue for only four systems in the final quarter of the year, with the fifth system (~$7M) slipping to Q1 ’18.  Revenue cannot be recognized unless shipment or installation is completed prior to the end of that accounting period.  Since there is variability associated in completing the installation process, there is an intrinsic uncertainty associated with predicting the potential orders and resultant revenue for any quarter.  Consequently, the delay in installs resulted in lower than anticipated revenue for this period.  


VRAY exited the year 2017 with $57 million in cash. During the first nine months of 2017, the company had an average cash burn of about $13 million per quarter.  The current cash position is expected to be used primarily to support the ongoing commercialization of the MRIdian-Linac.  

We expect sales to more than double in 2018 as the company brings down the installation time (to less than 60 days) and increases the number of trained personnel on site to manage multiple installations in parallel.  Thus far, management has trained the team in Korea, Japan and China.  On average, we expect 4-5 systems to be installed per quarter this year.  As the installation time reduces to about 30 days, we think the placement rate increases to 5-6 per quarter.  Revenue growth could further accelerate as hospitals and other healthcare facilities improve their medical infrastructure and awareness builds among physicians.  ViewRay’s service revenue will also expand as system utilization increases.  

We expect expenses associated with anticipated expansion of VRAY’s sales and marketing team to increase incrementally.  The medical device excise tax (MDET) that is set at 2.3% of revenues was reinstated on January 1, 2018 after a two-year hiatus.  The first semi-monthly excise tax payment is due on January 29, 2018 and the first quarterly federal excise tax return is due end of April 2018.  As far as VRAY is concerned, since two-thirds of its market is OUS, sales to ex-U.S. territories are not subject to this excise tax.  For now, VRAY is minimally impacted by this change.  As the company continues to invest in developing and improving MRIdian we expect operational expenses to grow modestly through 2018.  The new business-friendly federal tax bill slashed the statutory tax rate from 35% to 21%, a 14% decrease and expires after 2025.  Currently, ViewRay is enjoying 0% tax payout due to their continuing NOLs; about $210 million, which begin to expire in 2024.  We think that the firm could achieve positive operating income in 2020 and positive net income as soon as 2021 if they are able to meet their goals discussed above.  

We remain bullish on ViewRay due to:  strong balance sheet, increasing order backlog and improving installation times.  While the share price is up ~200% since our initiation in August 2016, we believe there is additional upside in the stock.  We think fundamentals remain strong and maintain our price target of $11.00/share.

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