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STOCK-BASED COMPENSATION
 9 Months Ended
Sep. 30, 2022
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
As of September 30, 2022, the Company had an active stock-based incentive compensation plan and an employee stock purchase plan: the 2015 Equity Incentive Award Plan (as amended and restated, the “2015 Plan”), and the 2015 Employee Stock Purchase Plan (as amended and restated, the “ESPP”), respectively. All new equity compensation grants are issued under these two 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. At the recommendation of the Company’s Board of Directors, the shareholders approved an amendment to the 2015 Plan on June 10, 2022, which increased the number of shares available for issuance under the 2015 Plan by 6,300,000 shares of Common Stock.

The Board determined the 2018 Inducement Program (“2018 Plan”) was no longer required under ViewRay’s compensation program and terminated it effective April 19, 2022. No further awards will be granted under this plan and no such awards have been granted since August 16, 2021. As a result, all 1,501,304 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.
The 2015 Plan provides 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 September 30, 2022, there were 6.7 million shares available for grant under the 2015 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
September 30,		Nine Months Ended
September 30,
2022202120222021
Cost of revenue$122 $238 $478 $870 
Research and development706 694 2,079 2,005 
Selling and marketing838 414 2,086 1,162 
General and administrative3,870 3,288 11,025 15,546 
Total stock-based compensation expense$5,536 $4,634 $15,668 $19,583 
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 nine months ended September 30, 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.
Each non-employee director is granted Deferred Stock Units (“DSUs”) at their election in lieu of a cash retainer and committee service fees. If the non-employee director elects to receive DSUs, the underlying shares of our common stock subject to such DSUs will not be issued to the non-employee director until the earlier of the date the nonemployee director separates from service with us or upon a change of control of the Company. In addition, each non-employee director receives an annual grant of RSUs (“Annual Grant”). This Annual Grant is made on the date of the annual meeting of stockholders or, if later, the date of the non-employee director’s appointment to the board. Nonemployee directors appointed after the annual meeting receive a pro-rated grant to reflect their partial year of service. The Annual Grants vest on the one year anniversary of the annual meeting, subject to the director’s continued service through such vesting date. Upon the director’s initial appointment or election to the board, each non-employee director received an initial equity grant either (i) 100% in the form of RSUs or (ii) at the director’s written election, 50% in the form of RSUs and 50% in the form of stock options (an “Initial Grant”). Unless a different vesting schedule is specified, an Initial Grant will vest as to 1/36th of the shares subject to the award on each monthly anniversary of the applicable grant date, subject to continued service through each applicable vesting date. RSUs granted to the Company’s employees vest in equal annual or monthly installments over 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, 2021
5,536,925 $4.04 707,088 $4.66 
ISUs granted2,488,810 $3.86 1,951,715 $4.33 
ISUs vested(2,267,173)$3.81 — $— 
ISUs forfeited(176,820)$4.23 (4,756)$4.66 
Unvested at September 30, 2022
5,581,742 $4.03 2,654,047 $4.42 
Vested and unreleased236,706 — 
Outstanding at September 30, 2022
5,818,448 2,654,047 
The total grant date fair value of ISUs awarded was $14.8 million and $16.1 million for the nine months ended September 30, 2022 and 2021, respectively. The total fair value of ISUs vested was $8.9 million, and $24.2 million during the nine months ended September 30, 2022 and 2021, respectively.
At September 30, 2022, total unrecognized stock-based compensation cost related to ISUs, net of estimated forfeitures, was $19.0 million, which is expected to be recognized over a weighted-average period of 1.6 years. As of September 30, 2022, 7.0 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.
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(27,460)$2.75 
Options cancelled or forfeited(331,784)$7.79 
Options outstanding at September 30, 2022
6,797,532 $6.95 5.5$2,277 
Options exercisable at September 30, 2022
6,362,900 $7.12 5.4$1,837 
Options vested and expected to vest at September 30, 2022
6,765,944 $6.97 5.5$2,230 
There were no options granted to employees for the nine months ended September 30, 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 nine months ended September 30, 2022 and 2021.
At September 30, 2022, total unrecognized stock-based compensation cost related to stock options granted to employees, net of estimated forfeitures, was $0.9 million, which is expected to be recognized over a weighted-average period of 1.1 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 was 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 September 30, 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 September 30, 2022, 0.5 million shares have been issued under the ESPP and 3.0 million shares remained available for future issuance under the ESPP. Purchase rights granted under the ESPP are valued using the Black-Scholes pricing model.