Varex Imaging Corp

Previous wording

•limitations imposed by operating and financial restrictions of our debt financing agreements could harm our long-term interests, limit our ability to make payments on our debt obligations, and impact our ability to maintain sufficient liquidity and/or to refinance our debt obligations; and

Current wording

•limitations imposed by operating and financial restrictions of our debt financing agreements that could harm our long-term interests, limit our ability to make payments on our debt obligations, and impact our ability to maintain sufficient liquidity and/or to refinance our debt obligations; and

Previous wording

While there continues to be some improvement in the general economic environment, we remain cautious as many factors remain dynamic and unpredictable. The uncertain economic environment, supply chain and logistic challenges, and geopolitical tensions have contributed to, and may continue to contribute to, inflation, higher interest rates and capital costs, increased shipping costs, supply shortages, increased costs of labor and materials, exchange rate volatility, and other similar effects.

Current wording

We remain cautious about the general economic environment as many factors remain dynamic and unpredictable. The uncertain economic environment, supply chain and logistic challenges, and geopolitical tensions have contributed to, and may continue to contribute to, inflation, higher interest rates and capital costs, increased shipping costs, supply shortages, increased costs of labor and materials, exchange rate volatility, and other similar effects.

Previous wording

During 2023, we experienced some supply chain, manufacturing, and logistics challenges. Currently, we anticipate such challenges to have less of an impact in fiscal year 2024. Shortages of certain materials have caused, and may continue to cause, delays in manufacturing products for our customers. In some cases, raw material shortages and delivery delays from our suppliers have caused operational and customer order fulfillment challenges. In addition, since late 2023 our Medical business has been negatively impacted by the China government initiated anti-corruption measures related to the healthcare industry. We expect these actions to continue into fiscal year 2024, which could impact revenues in our China business.

Current wording

We have experienced fewer supply chain, manufacturing, and logistics challenges in fiscal year 2024 than in fiscal year 2023. However, shortages of certain materials and delivery delays from some suppliers have caused, and may in the future cause, delays in manufacturing products, as well as operational and customer order fulfillment challenges. In addition, since late 2023 our Medical business has been negatively impacted by the China government initiated anti-corruption campaign related to the healthcare industry and more recently we have experienced cautious purchasing behaviors by our customers. We expect these trends to continue through the remainder of fiscal year 2024.

Previous wording

The fiscal years of the Company as reported are the 52 or 53-week periods ending on the Friday nearest September 30. Fiscal year 2024 is the 52-week period ending September 27, 2024. Fiscal year 2023 was the 52-week period that ended on September 29, 2023. The fiscal quarters ended December 29, 2023 and December 30, 2022 were both 13-week periods.

Current wording

The fiscal years of the Company as reported are the 52 or 53-week periods ending on the Friday nearest September 30. Fiscal year 2024 is the 52-week period ending September 27, 2024. Fiscal year 2023 was the 52-week period that ended on September 29, 2023. The fiscal quarters ended March 29, 2024 and March 31, 2023 were both 13-week periods. The two fiscal periods ended March 29, 2024 and March 31, 2023 were both 26-week periods.

Previous wording

Industrial revenues increased $4.6 million, primarily due to increased sales of security inspection products, partially offset by decreased sales of digital detectors.

Current wording

Industrial revenues increased $3.3 million, primarily due to increased sales of security inspection products, partially offset by decreased sales of digital detectors.

Previous wording

The decrease in Medical segment gross profit was primarily due an unfavorable shift in product sales mix, partially offset by decreased material costs.

Current wording

The decrease in Medical segment gross profit was primarily due to decreased sales volume and an unfavorable shift in product sales mix.

Previous wording

We are committed to investing in the business to support long-term growth and believe long-term research and development expenses of approximately 8% to 10% of annual revenues is the appropriate range that will allow us to innovate and bring new products to market for our global OEM customers. Research and development costs increased to 10.8% of revenues for the first quarter of fiscal year 2024, primarily due to decreased sales and increased research and development costs.

Current wording

We are committed to investing in the business to support long-term growth and believe long-term research and development expenses of approximately 8% to 10% of annual revenues is the appropriate range that will allow us to innovate and bring new products to market for our global OEM customers. Research and development costs increased to 11.0% of revenues for the second quarter of fiscal year 2024, primarily due to decreased sales.

Previous wording

Selling, general, and administrative expenses for the first quarter of fiscal year 2024 increased $2.1 million, primarily due to increased fixed cost commitments to a supplier and increased compensation costs.

Current wording

Selling, general, and administrative expenses for the second quarter of fiscal year 2024 increased $1.4 million, primarily due to increased fixed cost commitments to a supplier and increased litigation costs.

Previous wording

Other income (expense), net increased due to a gain on business acquisition, partly offset with losses in certain investments in privately-held companies and equity investments and increased foreign exchange expense.

Current wording

Other income (expense), net increased due to gains in certain investments in privately-held companies and equity investments, partially offset by increased foreign exchange expense.

Previous wording

For the three months ended December 29, 2023 we recognized income tax benefit of $0.2 million on $0.6 million of pre-tax loss. For the three months ended December 30, 2022 we recognized income tax expense of $2.2 million on $5.4 million of pre-tax income. Our tax expense for the three months ended December 29, 2023 decreased, primarily due to decreased pre-tax income in certain jurisdictions and losses in certain foreign jurisdictions for which no benefit can be recorded.

Current wording

For the three months ended March 29, 2024, we recognized income tax expense of $0.7 million on $2.3 million of pre-tax income. For the three months ended March 31, 2023, we recognized income tax expense of $3.5 million on $7.8 million of pre-tax income. Our tax expense for the three months ended March 29, 2024 decreased, primarily due to decreased pre-tax income in certain jurisdictions, partially offset by losses in certain foreign jurisdictions for which no benefit can be recorded.

Previous wording

Medical revenues decreased $20.2 million, primarily due to decreased sales of fluoroscopic, dental, and CT, partially offset by increased sales in mammography.

Current wording

Medical revenues decreased $45.5 million, primarily due to decreased sales of radiographic, dental, fluoroscopic, and oncology, partially offset by increased sales in mammography.

Previous wording

The Industrial segment gross profit increased primarily due to increased sales in security inspection products, partially offset by an unfavorable shift in product sales mix.

Current wording

The Industrial gross profit increased primarily due to increased Industrial revenue, partially offset by an unfavorable shift in product sales mix.

Previous wording

We assess our liquidity in terms of our ability to generate cash to fund our operations, including working capital and investing activities. We believe that our operating cash flow, cash on our balance sheet, availability under our ABL Facility, and our ability to access the credit and capital markets are sufficient to meet our anticipated operating activities and cash commitments for at least the next 12 months and will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions, and manage our capital structure on a short-term and long-term basis. We are currently not aware of any trends or demands, commitments, events, or uncertainties that will result in or that are reasonably likely to result in a material change to our liquidity needs during or beyond the next 12 months, except our Convertible Notes that become due in June 2025 that we currently anticipate refinancing using some combination of future borrowings and cash. The maximum availability under our ABL Facility is $100.0 million; however, the borrowing base under the ABL Facility fluctuates from month to month depending on the amount of eligible accounts receivable, inventory, and real estate. As of December 29, 2023, the amount available under our ABL Facility was $71.9 million, and the ABL Facility remains undrawn. At December 29, 2023 we had total debt of $443.0 million, net of deferred issuance costs of $4.8 million.

Current wording

We assess our liquidity in terms of our ability to generate cash to fund our operations, including working capital and investing activities. We believe that our operating cash flow, cash on our balance sheet, availability under our Revolving Credit Facility, and our ability to access the credit and capital markets are sufficient to meet our anticipated operating activities and cash commitments for at least the next 12 months and will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions, and manage our capital structure on a short-term and long-term basis. We are currently not aware of any trends or demands, commitments, events, or uncertainties that will result in or that are reasonably likely to result in a material change to our liquidity needs during or beyond the next 12 months, except our Convertible Notes that become due in June 2025 that we currently anticipate refinancing using some combination of future borrowings under our Revolving Credit Facility and cash. The availability under our Revolving Credit Facility is $155.0 million. As of March 29, 2024, our Revolving Credit Facility remains undrawn. At March 29, 2024, we had total debt of $442.9 million, net of deferred issuance costs of $4.4 million.

Previous wording

Net cash provided by (used in) operating activities. Net cash provided by (used in) operating activities was $10.3 million and $(3.7) million for the three months ended December 29, 2023 and December 30, 2022, respectively. The increase in cash provided by operating activities was primarily due to increased collections from accounts receivable and a reduction in cash outflows for inventory and prepaid expenses, partially offset by a decrease in non-cash adjustments to income when compared to the three months ended December 30, 2022.

Current wording

Net cash provided by operating activities. Net cash provided by operating activities was $13.4 million and $23.6 million for the six months ended March 29, 2024 and March 31, 2023, respectively. The decrease in cash provided by operating activities was primarily due to increased cash outflows related to accrued liabilities and other current and long-term liabilities and a decrease in non-cash adjustments to income when compared to the six months ended March 31, 2023, partially offset by reduced cash outflows related to accounts payable.

Previous wording

Net cash used in investing activities. Net cash used in investing activities was $19.9 million and $3.7 million for the three months ended December 29, 2023 and December 30, 2022, respectively. The increase in cash used in investing activities was primarily due to increased purchases of marketable debt securities, along with increased purchases of property, plant, and equipment during the three months ended December 29, 2023, partially offset by the settlement of net investment hedges.

Current wording

Net cash used in investing activities. Net cash used in investing activities was $21.2 million and $7.5 million for the six months ended March 29, 2024 and March 31, 2023, respectively. The increase in cash used in investing activities was primarily due to increased purchases of property, plant, and equipment and increased purchases of marketable debt securities, during the six months ended March 29, 2024, partially offset by the settlement of net investment hedges in the prior year.

Previous wording

Net cash used in financing activities. Net cash used in financing activities was $1.7 million and $0.4 million for the three months ended December 29, 2023 and December 30, 2022, respectively. The increase in cash used in financing activities was primarily due to cash payments related to the taxes for net share settlement of equity awards for the three months ended December 30, 2022.

Current wording

Net cash used in financing activities. Net cash used in financing activities was $3.0 million and $0.9 million for the six months ended March 29, 2024 and March 31, 2023, respectively. The increase in cash used in financing activities was primarily due to increased cash payments related to debt issuance costs and taxes for net share settlement of equity awards for the six months ended March 31, 2023.

Previous wording

In October 2013, we entered into an amended agreement with dpiX and other parties that, among other things, provides us with the right to 50% of dpiX’s total manufacturing capacity produced after January 1, 2014. The amended agreement requires us to pay for 50% of the fixed costs (as defined in the amended agreement), as determined at the beginning of each calendar year. In January 2024, the Company's fixed cost commitment was determined to be $12.4 million for calendar year 2024. The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement).

Current wording

In October 2013, we entered into an amended agreement with dpiX and other parties that, among other things, provides us with the right to 50% of dpiX’s total manufacturing capacity produced after January 1, 2014. The amended agreement requires us to pay for 50% of the fixed costs (as defined in the amended agreement), as determined at the beginning of each calendar year. In January 2024, the Company's fixed cost commitment was determined to be $12.4 million for calendar year 2024. As of March 29, 2024, the Company estimated it has $9.4 million related to this fixed cost commitment remaining for calendar year 2024. The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement).

Previous wording

In fiscal year 2022, the Company entered into several agreements with a third-party company, whose stock is publicly traded on a foreign exchange. Under these agreements, the Company will make certain milestone payments of up to $5.0 million upon achievement of specified milestones. During fiscal year 2022, the first of these milestones was achieved and the Company paid $1.0 million to the third-party company. During fiscal year 2023, two more milestones were achieved and the Company paid an additional $2.0 million to the third-party company. No additional milestones were achieved nor were any payments made during the first quarter of fiscal year 2024. Payments made under this agreement are recorded in research and development in the Condensed Consolidated Statements of Operations. As of December 29, 2023, there were two milestones remaining of $1.0 million each under these agreements.

Current wording

In fiscal year 2022, the Company entered into several agreements with a third-party company, whose stock is publicly traded on a foreign exchange. Under these agreements, the Company will make certain milestone payments of up to $5.0 million upon achievement of specified milestones. During fiscal year 2022, the first of these milestones was achieved, and the Company paid $1.0 million to the third-party company. During fiscal year 2023, two more milestones were achieved, and the Company paid an additional $2.0 million to the third-party company. During the second quarter of fiscal year 2024, an additional milestone was achieved and the Company paid $1.0 million to the third-party company. Payments made under these agreements are recorded in research and development in the Condensed Consolidated Statements of Operations. As of March 29, 2024, there was one milestone remaining of $1.0 million under these agreements.

Previous wording

The Company enters into purchase agreements with its suppliers in the ordinary course of its business for the purchase of goods and services. Some of these purchase agreements are non-cancellable and thus contractually obligate the Company to future cash payments. As of December 29, 2023, our non-cancellable supplier purchase obligations totaled $8.2 million.

Current wording

The Company enters into purchase agreements with its suppliers in the ordinary course of its business for the purchase of goods and services. Some of these purchase agreements are non-cancellable and thus contractually obligate the Company to future cash payments. As of March 29, 2024, our non-cancellable supplier purchase obligations totaled $7.7 million.

Previous wording

Backlog is the accumulation of all orders for which revenues have not been recognized and are still considered valid. Backlog also includes a small portion of billed service contracts that are included in deferred revenue. Our estimated total backlog at December 29, 2023 was approximately $299 million.

Current wording

Backlog is the accumulation of all orders for which revenues have not been recognized and are still considered valid. Backlog also includes a small portion of billed service contracts that are included in deferred revenue. Our estimated total backlog at March 29, 2024 was approximately $330 million.