Participants

Matt Harrison; Director of IR; ViewRay, Inc.

Scott William Drake; President, CEO & Director; ViewRay, Inc.

William P. Burke; Executive VP & CFO; ViewRay, Inc.

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the ViewRay Announcement Conference Call. (Operator Instructions) This call is being recorded today, Thursday, April 13, 2023.
I would now like to turn the conference over to Matthew Harrison, Head of Investor Relations. Please go ahead.

Matt Harrison

Thank you, operator, and welcome to ViewRay's preliminary first quarter conference call. Joining me today are Scott Drake, our President and Chief Executive Officer; and Bill Burke, our Chief Financial Officer.
Earlier this morning, ViewRay issued a press release and current report for today's call, both of which are available on 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 filings with the SEC. Also, the discussion will include certain non-GAAP financial measures.
Reconciliations to the most directly comparable GAAP financial measures can be found in our appendix, and exhibit of our current report on Form 8-K filed today with the SEC.
I will now turn the call over to Scott.

Scott William Drake

Thanks, Matt, and good morning, everyone, and thank you for joining us. The purpose for this call is to review our preliminary first quarter results and to provide an updated view on 2023. Bill will take you through our updated guidance and provide more color on cash usage and gross margin.
On the heels of a strong growth year in 2022, our innovation, clinical and commercial pipelines remain strong, and we added 13 orders in Q1. This is our first double-digit order quarter. However, while the evidence-based use case for MRIdian continues to expand, the timing of installations and the corresponding payment schedules have come under increasing pressure due to current market conditions. These concerns highlighted in our last earnings call, include the negative impact of inflation on materials and construction costs. This is also impacting our distributors and customers' ability to obtain financing.
Delays in payments to us from our international distributors, and our growing need to self-finance long lead time inventory items have all worsened throughout the first quarter and we believe will continue to elongate cash collection timing.
Two specific examples demonstrate the impact on our current estimates. In one instance, a much higher construction quote for the customer has caused that customer to evaluate alternative locations in their hospital network for MRIdian. In another, installation costs higher than planned have resulted in the customer resubmitting for additional capital. While we expect both systems to be installed, delays in the process have elongated cash collections.
In light of these current market conditions, as you would expect, we are focusing our operations on balancing cash conservation with revenue growth until there is an improvement in the expected timing of installations. We expect that is financing and construction costs decline or end users better adapt to the current market costs, we would return to a more traditional collection cycle, particularly from international distributors.
In the interim, we are redirecting operational focus and implementing a plan to reduce cash burn. We expect to improve our cash usage for the remainder of the year, and we expect to reduce our cash burn significantly in 2024. Our approach includes operating expense reductions, tightening our cash conversion cycle, and restricting investments in working capital.
Importantly, based on this challenging operating environment, we have also engaged Goldman Sachs to help us undertake a broad review and evaluation of strategic alternatives, including a corporate sale, merger or other business combination. No timetable has been established for the completion of our strategic review, and we do not intend to disclose further developments with respect to our strategic review process unless and until our board approves a specific transaction or action or otherwise concludes the strategic review.
Given the range of outcomes outlined, we must be and are prepared to pursue the path that is most favorable for our shareholders. As we highlight what has changed, it's also important to state what has not changed. Our customers are regularly treating patients that have no other treatment options. In prospective, even Phase III randomized controlled trials, they are driving survival value in the hardest-to-treat patients, and proving critical quality of life value in more common cancers.
Our customers are conducting dozens of groundbreaking trials, such as single fraction therapy and our clinical pipeline is more robust than ever. We are rolling out A3i and customer feedback is resoundingly positive. Our innovation pipeline holds significant paradigm changing power on our path to the complete personalization of radiation therapy.
Commercial interest in MRIdian continues to grow, and our backlog represents attractive levels of future revenue growth. Prospective customers across the globe are seeing more and more clearly how MRIdian stands apart in the competitive landscape. They see the clinical, strategic and economic value of our system. They appreciate the ease of our workflow and the resulting throughput.
Customers shared that MRIdian allows them to stand out in their competitive markets that it drives attractive top and bottom line impact and this is why so many of our customers are purchasing multiple systems. I believe that we will look back on conventional therapy as a thing of the past.
It is our job to put MRIdian on a strong, sustainable pathway, and we are laser-focused on these efforts.
With that, I'll turn it over to Bill for more financial and guidance detail.

William P. Burke

Thank you, Scott, and good morning, everyone. Today, I will review our preliminary first quarter 2023 results, and provide updates to our 2023 guidance. Full details of what we are discussing today can be found in today's press release. We will be filing our 10-Q no later than May 10.
We booked 13 new orders in the quarter, our first quarter of double-digit orders. Revenue in the first quarter grew 19%, compared to the same period in the prior year to nearly $23 million. Product revenue grew 18% and included 3 revenue units flat year-over-year. We grew service revenue by 22%, driven by our growing installed base.
Gross margin in the first quarter was approximately negative 6% compared to 0% in the same prior year period. The primary factors driving the gross margin decline were lost leverage due to lower sales volume, longer-than-expected installation times, higher freight costs, and a greater consumption of service parts in the current quarter.
Net loss for the first quarter was approximately $29 million or $0.16 per share, compared to a net loss of approximately $26 million or $0.14 per share in the same prior year period.
Adjusted EBITDA for the first quarter was a loss of approximately $25 million compared to a loss of approximately $21 million in the same prior year period. We ended the first quarter with $86 million in cash and cash equivalents, down $57 million from the prior fiscal year-end of $143 million.
I'd like to spend a few minutes on the details of the working capital change that Scott highlighted in his opening remarks. First, elongated collection time frames, particularly from our international distributors has impacted cash conversion and increased receivable balances. The accounts receivable balance increased by $6 million during the first quarter and was $48 million at the end of the quarter, as we experienced a higher-than-normal level of deferred payments of certain customer collections pushed into future periods.
In the first quarter, we collected $15 million from customers, including $9 million from customer balances at the end of 2022. Second, we have also previously mentioned that we are making significant outlays to inventory to secure raw materials for future system deliveries. The balances for inventory and related deposits on inventory increased by $12 million during the first quarter and was $51 million at the end of the quarter.
Finally, our accounts payable balance decreased by $3 million during the first quarter and was $25 million at the end of the quarter. We anticipate that 100% of this balance will be paid during the second quarter.
As a result of these changes in our business during the quarter. We are adjusting our fiscal '23 guidance. We now expect revenue to be in the range of 0% to 15% growth, revised downward from our previous guidance of 25% to 40%. The reduction in revenue guidance has been primarily driven by delays in installation of 4 to 5 units. One turnkey unit originally slated installation in the fourth quarter of 2023 has been moved into fiscal '24. As a result of reduced sales volume as well as lower service margins, we expect gross margin for fiscal 2023 to be in the high single digits compared to the mid- to high teens, as previously indicated.
Our adjusted EBITDA is now expected to be in the range of $75 million to $85 million loss, compared to our original estimate of $70 million to $80 million loss. The loss includes $7 million to $10 million of nonrecurring engineering costs related to our product cost down initiatives, which is a high return on investment projects that will improve gross margin beginning in late 2025 and beyond. We expect that the impact from lower revenue and lower gross margin will be partially offset by lower operating expenses.
Once again, as we have mentioned several times during our remarks today and previously, working capital is critical for the company and our greatest pressure point, particularly within our cash conversion and our supply chain. We anticipate that our cash balance will get us through 2023 and we anticipate cash usage in the range of $25 million to $50 million in 2024, inclusive of our operating expense initiatives. We believe the actions we will be taking to reduce operating expenses and to manage working capital as well as our existing installations scheduled for the second half of 2023 will enable us to dramatically reduce our quarterly cash utilization, allowing us to preserve cash entering 2024. We are working to manage the business within our existing resource base and navigating our challenging operating environment.
We are prepared to engage with analysts and investors following this call. However, those conversations will, of course, be limited to the information we provided on this call and in our press release. Please reach out to Matt Harrison to schedule a time, if interested.
Thank you for joining the call today.

Operator

Ladies and gentlemen, this does conclude our conference call for this morning. We would like to thank you all for your participation, and ask you to please disconnect your lines.