ViewRay, Inc.

Good day, my name is Melanie and I will be your conference operator today. At this time, I would like to welcome everyone to the ViewRay Inc. Q2 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star followed by the number one. Thank you. At this time, I'd like to turn the call over to Matt Harrison, Director for Investor Relations. You may begin your conference.

Thank you, Operator. Good afternoon, everyone, and welcome to ViewRay's second quarter conference call. Joining me today are Scott Drake, our President and Chief Executive Officer, Zach Stassen, our Chief Financial Officer, and Paul Ziegler, our Chief Commercial Officer. Earlier today, Viewrate issued a press release and presentation for today's call. The presentation can be viewed live on our webcast or downloaded from our website. Today's call is being broadcast and webcast live. A replay will be available on our website for 14 days. Before we begin, I would like to remind you that the discussion during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filing with the SEC. I will now turn the call over to Scott.

Thanks, Mac. Good afternoon, everyone, and welcome to our Q2 call. Today I'll begin by providing an update on key patient and financial metrics. We'll share how our strategy is working as designed and driving commercial traction. I'll reaffirm our commitment to significant P&L leverage and the path to cash flow break even with our current balance sheet. Zach will go into depth on our financials and provide an update to our 2022 guidance. As of the end of Q2, we've treated about 25,000 patients and the ramp is accelerating. We have several systems that will exceed 300 patients treated this year and a handful that are on track to do 400 plus. The vast majority of Meridian patients are treated with an ablative dose, no fiducials, in five or fewer fractions, with outstanding outcomes and very low to no grade three or higher toxicity. These metrics will be accelerated with A3I and stand in stark contrast to any other system in the market. We'll share more on A3I in a moment, but we are now the first and only system in the world that tracks in real time, in three planes, and automatically gates the beam. Workflow and throughput enhancements are exceeding expectation and the first brain treatments have been successfully delivered. We're excited about our innovation and clinical leadership and progress is accelerating. Meridian therapy is being delivered at 53 sites around the world with about 70 more in some stage of planning or installation. Please turn to slide four. In Q2, we added eight more orders and the backlog increased to $353 million, up 27% versus prior year. Revenue grew 47%, resulting in gross margin of roughly 5%, a 1600 basis point improvement versus last year. Gross margin expansion is simply a consequence of the backlog we built and the revenue growth we're committed to delivering. Cash used in the quarter was $22 million, a step down from Q1, and we expect to continue nice progression through the second half of the year. We finished the quarter with $161 million of cash on hand, which we believe gets us to cash flow breakeven. As previously stated, we expected the first half of 2022 to look a lot like 2021 and then ramp into the back half of the year. Results are unfolding as anticipated and position us well for the balance of the year and set us up for an exciting 2023. Let's pivot to slide five and discuss how our strategy is driving commercial traction. We said about four years ago that we would lead and differentiate with meaningful clinical data and lead the market in innovation. We also stated that our clinical and innovation pipelines would feed and fuel our commercial pipeline. This is happening as we speak. We and our customers also believe that market awareness is critical to our success. Patients deserve and demand shorter courses of highly effective treatment with fewer negative side effects. Patients travel for meridian therapy, and we now have the footprint to warrant modest but effective market awareness efforts. Let's break down each component of our strategy and provide a brief update. On slide six, on the clinical front, our mission is to treat and prove what others can't. We have a defined clinical beachhead strategy designed to prove value in both the toughest to treat and more common cancers alike. succinctly stated, in tough-to-treat cancers, we strive to extend survival, and in common cancers, we strive to enhance quality of life. Among others, tough-to-treat cancers include pancreas, liver, kidney, oligomets, central and ultracentral lung, known as the no-fly zone, for other forms of radiation therapy. In these tough-to-treat cancers, our goal is to meaningfully extend survival, increase local control, and have very low or no grade three or higher toxicity. We now have thousands of patients treated with compelling and consistent reported outcomes. These data are highlighted by Dr. Michael Chung's multicenter pancreas trial, where median survival was 26 months on meridian, or about double that versus conventional therapy. On more common cancers, such as breast and prostate, we strive to prove critical quality of life enhancements. The Mirage Prostate Study is a phase three randomized control trial directly comparing conventional therapy to Meridian. Meridian was so effective, enrollment was stopped early. Meridian cut margins in half, cut healthy tissue toxicity also by about half, reduced treatment volumes by about 30%, Treatments were completed in only five fractions with no fiducials, and patient and physician feedback is remarkable. Customers state that demand for Meridian therapy is, quote, skyrocketing. These data combined with the completely non-invasive nature of Meridian is causing patients to choose our therapy as frontline care versus robotic surgery. This is a powerful early indicator of future growth. The drumbeat of clinical data spanning the toughest to treat and more common cancers will continue. We look forward to the smart pancreas data release and the forthcoming results of LungStar, Fort, Shorter, and SmartOne, among others. We are the only company in the space leading with meaningful clinical data, and we are very happy we put this stake in the ground four years ago. Slide seven. On the innovation front, Henry Ford and the Miami Cancer Institute were the first two customers to upgrade their programs to Meridian A3i. Over 100 fractions have been completed with A3i's advanced workflow treating tumors in the pancreas, liver, prostate, lung, and brain. The feedback has been very positive on A3i improving treatment efficiencies, expanding techniques for delivering an ablative dose, enhancing patient experience, and increasing Meridian's clinical utility by treating cranial targets. These customers immediately experienced workflow enhancements and reduced treatment times, which will allow for incremental patient throughput. The broad technical complexity of Meridian is designed to enable one simple yet critical feature that sets us apart from all other radiation devices. With Meridian, the MRI controls the beam. The MRI acquires images multiple times per second and tracks the tumor and critical organs in real time. The beam stops automatically, faster than human hand-eye coordination, if the target moves out of position or healthy tissue is at risk. We just celebrated our 10th anniversary of these critically important features. We remain the only company in the world to offer them and A3I extends our lead. Let's turn to the importance of market awareness on slide eight. Despite the fact that radiation has been around for a long time, the therapy is perceived poorly as long course treatment and unwanted side effects are front of mind for patients. Meridian has and is breaking these paradigms, and this needs to be broadly understood. Given the success of Meridian programs globally, and the current footprint and forthcoming clinical data, we feel that this is the appropriate time for targeted market awareness efforts for the patient and physician communities. This includes going beyond radiation oncology and educating medical oncologists and surgeons as well. Our goal is to raise awareness so that patients who are told they have outdated or no treatment options may find hope and healing at Meridian Centers. We have engaged in a strategic multi-year partnership with Katie Couric Media to increase awareness of Meridian Smart Therapy. Katie is a passionate, trusted, and knowledgeable source for cancer patients. The KCM team has built a network of millions of subscribers, and Katie has founded and championed the Stand Up to Cancer movement. Throughout the engagement, KCM will be leveraging their reach to make patients aware that short course, highly effective, non-invasive, and low side effect therapy is available on Meridian today. On slide nine, these strategic pillars, clinical data, innovation, and market awareness drive our commercial pipeline. I would characterize our commercial funnel in the following way. Number one, it is ever increasing in size, Number two, the diversity of customers from academic hospitals to freestanding centers is also continuously increasing. And number three, our customers are more focused on speeding Meridian program launch. This is notably true in markets where Meridian is enabling competitive accounts to pull patients. This past quarter is a great example of commercial traction. Genesis Care placed their sixth order City of Hope is added to the Meridian family. We secured another VA at Ann Arbor. We announced a landmark account at Saitama in Japan and added two more sites in France. We're frequently asked if our order funnel will sustain long-term high levels of revenue growth. We firmly believe the answer is yes. We have clear line of sight to our back half of 2022 growth and increasing clarity on 23 and 24. Given our backlog and prospective customers, we believe our growth prospects are bullish and industry-leading. Let's take a look at how all of these efforts culminate in a market on slide 10. We've used Florida as an example previously. Today, let's take a look at California. A short time ago, we had three systems in the state, UCLA, an early Meridian adopter, and two community hospitals in the form of Enloe and Hogue. Successful Meridian programs prompted others to move. Stanford, a world-renowned cancer center, is now live and on a great trajectory. Bass, a freestanding center, has its first system treating patients. UC Irvine is preparing to launch as is City of Hope, and multiple programs are planning for second systems. All in, we'll go from three Meridian programs in California to double-digit systems in a short period of time, and these successful programs are pulling patients and creating more demand. This kind of activity is taking place in California, the Northeast Seaboard, the Upper Midwest, Florida, France, the UK, and Italy. This is our formula, this is our strategy, and it is working. On slide 11, we're often asked also about how does our strategy translate into an attractive, sustainable business model? The answer is simple. Chronologically, orders translate into higher backlog, which turns into higher revenue, which drives significant gross margin expansion, and when combined with tight OPEX control, yields P&L leverage, which drives our path to cash flow breakeven. We're looking forward to an investor day in Q4 of this year, and we'll provide further clarity on our long-term plans and projections. For 2022, Zach will provide more detail, but you can expect rapid revenue growth of about 40%, gross margin expansion of 750 to 1,000 basis points, and tight operating expense control. And very importantly, we believe we're in a position to get to cash flow breakeven with our current balance sheet. We're excited about this phase of our company and how quickly we will transform and grow in the next few years. I am equally, if not more, excited for the patient impact that we'll deliver in the years to come. With that, I'll turn it over to Zach.