Varex Imaging Corporation (NASDAQ:VREX) Q3 2022 Results Conference Call August 2, 2022 5:00 PM ET Company Participants Christopher Belfiore - Director of Investor Relations Sunny Sanyal - President and Chief Executive Officer Shubham Maheshwari - Chief Financial Officer Conference Call Participants Larry Solow - CJS Securities James Sidoti - Sidoiti & Company Suraj Kalia - Oppenheimer& Co Operator Greetings. Welcome to the Varex Third Quarter Fiscal Year 2022 Earnings Call. At this time, all participants ar ...

[Part I. Financial Information](index=2&type=section&id=Part%20I.%20Financial%20Information) This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the period ended April 1, 2022, reflect year-over-year growth in revenues and net income, alongside changes in cash, inventory, and debt [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenues and net income attributable to Varex significantly increased for both the three and six-month periods ended April 1, 2022 | Financial Metric | Three Months Ended April 1, 2022 | Three Months Ended April 2, 2021 | Six Months Ended April 1, 2022 | Six Months Ended April 2, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenues, net** | $214.7M | $203.5M | $413.5M | $380.6M | | **Gross Profit** | $70.8M | $64.6M | $135.6M | $121.8M | | **Operating Income** | $26.6M | $15.8M | $40.6M | $21.9M | | **Net Income (Loss) attributable to Varex** | $7.6M | $3.1M | $9.0M | ($3.3M) | | **Diluted EPS attributable to Varex** | $0.18 | $0.08 | $0.21 | ($0.09) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of April 1, 2022, the balance sheet reflects a slight decrease in total assets, a reduction in cash, an increase in inventory, and a decrease in total liabilities | Balance Sheet Item | April 1, 2022 | October 1, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $115.1M | $144.6M | | Inventories | $269.2M | $224.8M | | Total current assets | $569.2M | $554.2M | | Total assets | $1,142.6M | $1,147.5M | | Long-term debt, net | $408.4M | $431.7M | | Total liabilities | $628.2M | $651.0M | | Total stockholders' equity | $514.4M | $496.5M | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly declined for the six months ended April 1, 2022, primarily due to increased inventory investments and debt repayments | Cash Flow Activity (Six Months Ended) | April 1, 2022 | April 2, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2.5M | $19.9M | | Net cash used in investing activities | ($6.6M) | ($8.4M) | | Net cash used in financing activities | ($25.4M) | ($1.0M) | | **Net (decrease) increase in cash** | **($29.6M)** | **$10.5M** | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the company's business segments, revenue disaggregation by region, segment performance, and debt structure - The company operates through two reportable segments: Medical (X-ray tubes, digital detectors, software for medical applications) and Industrial (components for security, inspection, and non-destructive testing)[26](index=26&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) Revenue by Region (Six Months Ended) | Revenue by Region (Six Months Ended) | April 1, 2022 | April 2, 2021 | | :--- | :--- | :--- | | Americas | $128.9M | $132.8M | | EMEA | $137.0M | $125.6M | | APAC | $147.6M | $122.2M | | **Total** | **$413.5M** | **$380.6M** | Segment Performance (Six Months Ended) | Segment Performance (Six Months Ended) | April 1, 2022 | April 2, 2021 | | :--- | :--- | :--- | | **Revenues** | | | | Medical | $326.1M | $295.8M | | Industrial | $87.4M | $84.8M | | **Gross Profit** | | | | Medical | $99.4M | $89.8M | | Industrial | $36.2M | $32.0M | - As of April 1, 2022, total debt outstanding, net of unamortized costs, was **$411.0 million**, comprised mainly of **$200.0 million** in Convertible Senior Unsecured Notes and **$243.0 million** in Senior Secured Notes[89](index=89&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the impact of ongoing supply chain disruptions and inflation on operations, alongside revenue growth, debt reduction, and liquidity management [Impact of COVID-19 and Economic Environment](index=29&type=section&id=Impact%20of%20COVID-19%20and%20Economic%20Environment) The company faces persistent supply chain disruptions, including material shortages and inflationary pressures, despite recovering product demand - The company continues to experience logistics, supply chain, and manufacturing challenges that are expected to persist throughout 2022[128](index=128&type=chunk) - Shortages of materials, particularly micro-controller chips and associated electronic components, have caused and may continue to cause delays in manufacturing products for customers[128](index=128&type=chunk) - The company has experienced inflationary increases in raw materials, logistics, transportation, and labor costs, and has raised prices on certain products in response[129](index=129&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Revenues increased for both the quarter and six-month period, driven by the Medical segment, with improved gross margins and reduced SG&A expenses boosting operating income Revenue Change (Q2'22 vs Q2'21) | Revenue Change (Q2'22 vs Q2'21) | Amount | % Change | | :--- | :--- | :--- | | Medical | +$13.8M | +8.8% | | Industrial | -$2.6M | -5.5% | | **Total** | **+$11.2M** | **+5.5%** | Revenue Change (H1'22 vs H1'21) | Revenue Change (H1'22 vs H1'21) | Amount | % Change | | :--- | :--- | :--- | | Medical | +$30.3M | +10.2% | | Industrial | +$2.6M | +3.1% | | **Total** | **+$32.9M** | **+8.6%** | - Selling, general and administrative (SG&A) expenses decreased by **$5.3 million (17.3%)** in Q2 and **$6.6 million (10.2%)** in H1, primarily due to lower compensation costs[151](index=151&type=chunk)[159](index=159&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased due to inventory investments and debt repayment, while the company maintains liquidity through its undrawn ABL facility - Net cash from operating activities decreased to **$2.5 million** from **$19.9 million** year-over-year, primarily due to increased purchases of inventory[165](index=165&type=chunk) - Net cash used in financing activities increased to **$25.4 million** from **$1.0 million**, mainly due to the redemption of **$27 million** of Senior Secured Notes in March 2022[167](index=167&type=chunk)[95](index=95&type=chunk) - As of April 1, 2022, the company had **$96 million** available under its ABL Facility, which remained undrawn[162](index=162&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies market risks including foreign currency fluctuations, interest rate volatility on debt, and commodity price changes for raw materials - The company is exposed to foreign currency exchange rate risk as a significant portion of customers are outside the U.S., and a strong U.S. Dollar may result in pricing pressure[178](index=178&type=chunk) - Interest rate risk is present as borrowings under the ABL Facility bear floating interest rates, although there were no such borrowings as of April 1, 2022[182](index=182&type=chunk) - The company faces commodity price risk related to raw materials such as tungsten, lead, and copper, with price volatility impacting product margins[183](index=183&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of April 1, 2022[186](index=186&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[187](index=187&type=chunk) [Part II. Other Information](index=38&type=section&id=Part%20II.%20Other%20Information) This section covers legal proceedings, risk factors, equity sales, and exhibits [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any pending litigation expected to have a material adverse effect on its operations or financial position - The company is subject to various claims and legal actions in the normal course of business but is not aware of any pending litigation that could have a material adverse effect[189](index=189&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include ongoing supply chain disruptions, customer concentration, trade tariffs, and substantial debt obligations - Supply chain disruptions, including shortages of important components like micro-controller chips, have increased costs, impacted manufacturing, and caused product delivery delays, with these challenges expected to continue[190](index=190&type=chunk)[192](index=192&type=chunk) - The company has a high concentration of OEM customers, with one customer accounting for **18% of revenue** in the quarter. The loss of a major customer could materially reduce sales[198](index=198&type=chunk) - Changes in import/export regulations and tariffs, particularly between the U.S. and China, have increased costs, forced price concessions, and could limit market share growth in China[255](index=255&type=chunk)[256](index=256&type=chunk) - The company has significant debt obligations (approximately **$451.6 million** as of April 1, 2022) that could limit operational flexibility and affect its ability to meet obligations[291](index=291&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - None reported[313](index=313&type=chunk) [Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including credit agreement amendments and certifications - Exhibits filed include a LIBOR Transition Amendment to the credit facility, CEO/CFO certifications (Rule 13a-14(a) and Section 906), and Inline XBRL documents[318](index=318&type=chunk)

Revenue Performance - Total revenues for the three months ended December 31, 2021, were $198.8 million, an increase of $21.7 million or 12.3% compared to $177.1 million for the same period in 2021[135]. - Medical segment revenues increased by $16.5 million to $155.7 million, primarily driven by higher sales of digital detectors and CT X-ray tubes, with strong growth in CT, Oncology, and Dental modalities[135]. - Industrial segment revenues rose by $5.2 million to $43.1 million, reflecting a 13.7% increase compared to the prior year[135]. - Industrial revenues increased by $5.2 million, driven by higher sales of digital detectors, X-ray tubes, and service revenues[136]. Supply Chain and Operational Challenges - The company continues to face supply chain challenges, particularly shortages of micro-controller chips and other electronic components, which may impact product delivery in the upcoming quarters[118]. - The ongoing COVID-19 pandemic has led to increased demand for imaging equipment used to diagnose respiratory diseases, partially offsetting declines in elective procedures[125]. - The company is expanding manufacturing capabilities in China, Germany, and the Philippines to mitigate the impact of tariffs and enhance local sourcing strategies[127]. - The company anticipates continued pricing adjustments throughout fiscal year 2022 due to rising costs and supply chain disruptions[118]. Research and Development - Approximately 500 employees are dedicated to research and development, focusing on innovation and product performance to maintain competitive advantage in the X-ray imaging market[115]. - Research and development expenses were $17.7 million, accounting for 8.9% of total revenues, down from 9.4% in the prior year[139][140]. Financial Performance - Total gross profit increased to $64.8 million, reflecting a 13.3% growth compared to $57.2 million in the previous year[138]. - Gross profit for the Industrial segment rose to $18.8 million, a 43.5% increase from $13.1 million in the prior year[138]. - Selling, general and administrative expenses decreased by $1.3 million to 16.6% of total revenues, down from 19.4%[141]. - Net cash provided by operating activities was $10.8 million, up from $7.1 million in the prior year[147]. - Cash and cash equivalents increased to $157.8 million, up by $13.2 million from $144.6 million[145]. - Total debt outstanding, net, was $436.5 million, an increase of $2.0 million from the previous quarter[146]. - Interest expense decreased to $9.9 million, down from $10.3 million, due to partial redemption of Senior Secured Notes[142]. Market and Risk Management - The company aims to become the partner of choice for OEMs in the growing Chinese market for diagnostic X-ray imaging systems[126]. - The industrial segment benefits from economies of scale and research investments from the medical side, allowing for higher gross profit margins[128]. - The company may enter into foreign currency forward and option contracts to hedge against foreign exchange risks associated with existing assets and liabilities[161]. - A cross-currency swap between the Euro and U.S. Dollar is held as a Net Investment Hedge for the acquisition of Direct Conversion[161]. - The company performs ongoing credit evaluations of customers and maintains strong credit controls, including letters of credit and down payments for certain industrial customers[163]. - Borrowings under the ABL Facility bear interest at floating rates, with no borrowings subject to floating rates as of December 31, 2021[164]. - The company is exposed to market risks related to volatility in raw material prices, which can affect product margins and profitability[165]. - No commodity derivative instruments were in place to manage exposure to price changes during the three months ended December 31, 2021[165]. Backlog - Total backlog as of December 31, 2021, was approximately $289 million[156].

Manufacturing and Production - Varex Imaging Corporation produced over 27,000 X-ray tubes and 20,000 X-ray detectors annually, with a worldwide installed base of more than 150,000 X-ray tubes and detectors [27]. - Varex is expanding manufacturing capabilities in China, Germany, and the Philippines to mitigate the impact of tariffs and enhance local sourcing strategies [30]. - Varex's manufacturing facilities are certified under ISO standards, ensuring quality and enabling the company to leverage production scale for cost advantages [42]. - Supply chain disruptions and increased costs have adversely impacted Varex's manufacturing capacity and ability to deliver products, with potential material shortages expected to continue throughout fiscal year 2022 [96]. - Shortages and price increases of raw materials like tungsten and copper have negatively impacted Varex's manufacturing capabilities and profit margins [136]. - Varex's manufacturing capacity must align with product demand; failure to do so could adversely affect financial results due to excess capacity or inability to fulfill orders [139]. Revenue and Customer Base - The company's top five customers accounted for approximately 39% of total revenue in fiscal year 2021, with Canon Medical Systems being the largest, contributing about 18% [35]. - Varex's largest customer accounted for 18% of its revenue in fiscal year 2021, with the top ten customers collectively representing approximately 51% of total revenue [98]. - International sales comprised approximately 68% of Varex's total revenues in fiscal year 2021, indicating a strong reliance on global markets [111]. Research and Development - The company employs around 500 individuals in research and development to drive innovation and product performance, which is critical for maintaining competitive advantage [22]. - Varex maintains a research and development staff focused on product design and engineering, essential for competitive market performance [44]. - Research and development activities are conducted in multiple locations, including Salt Lake City, San Jose, and internationally in the Netherlands, UK, Sweden, and Germany, focusing on imaging component technology [45]. - Current development areas include smaller footprint linear accelerators and improvements in tube life and stability, aiming to reduce dose delivered while improving image resolution [45]. - The company benefits from synergies between medical and industrial product development, allowing for shared technology and operational efficiencies [46]. Market Conditions and Competition - The COVID-19 pandemic initially reduced demand for X-ray imaging components, but there has been a recovery in demand, particularly for imaging systems used to diagnose respiratory diseases [28]. - Varex faces competition from in-house manufacturing by major OEMs and must continually invest in R&D to maintain its market position [36][37]. - Varex faces intense competition in the market, with competitors potentially having greater resources and capabilities to develop more effective technologies [102]. - The company must continually innovate and introduce new products to meet customer demands, as failure to do so could result in loss of customers and adverse financial impacts [108]. Regulatory and Compliance - Compliance with extensive U.S. regulations, including FDA and NRC, is required for the marketing and sale of medical devices, ensuring safety and effectiveness [49]. - The FDA's 510(k) pre-market notification clearance is generally required for new medical devices, which can take at least six months to obtain [50]. - The company is certified under ISO 13485 for its medical devices, ensuring compliance with international quality management standards [64]. - International marketing requires obtaining clearances and approvals, including the CE mark for sales in EU member countries, which involves rigorous quality system certification [64]. - Varex's products are subject to extensive regulation by U.S. governmental authorities, including the FDA and NRC, which can be costly and time-consuming to comply with [190]. Financial Position and Liabilities - Varex's total combined indebtedness was approximately $480.6 million as of October 1, 2021 [203]. - The interest rate on Varex's unsecured convertible senior notes due 2025 is fixed at 4.00%, while the senior secured notes due 2027 bear interest at 7.875% [203]. - Varex's ability to generate sufficient cash to service its indebtedness may be adversely impacted by economic conditions and customer demand [210]. - A breach of covenants under the indenture governing Varex's Senior Secured Notes could result in an event of default, allowing creditors to accelerate debt repayment [209]. Employee Relations and Workplace Culture - Approximately 90% of eligible employees participate in the 401(k) plan, positioning the company as a top performer among similar companies [82]. - The company reinstated 401(k) matching contributions and tuition reimbursement programs during the second half of fiscal year 2021 after modifications due to COVID-19 [83]. - The company emphasizes diversity and inclusion initiatives, including scholarships and pay equity analysis, to promote a respectful workplace [86]. - The company is committed to ongoing safety training and providing personal protective equipment to ensure employee safety in manufacturing locations [84]. Risks and Challenges - Varex faces potential product liability claims due to the nature of its products, which involve radiation delivery and hazardous materials [48]. - The company is subject to increased scrutiny and potential liability when expanding into higher-risk countries, which may delay market entry and affect business operations [71]. - Varex's reliance on limited or sole-source suppliers poses risks; losing any could lead to increased costs and delays in product delivery [135]. - Increased warranty claims due to product quality issues could materially affect Varex's financial results and market reputation [126]. - Varex's limited product liability insurance coverage may prove inadequate, exposing the company to substantial damages [132]. Environmental and Compliance Costs - The company anticipates an existing environmental liability of approximately $0.6 million related to CERCLA sites, net of expected insurance proceeds [76]. - Future changes in environmental laws could significantly increase Varex's operating costs, particularly in the EU where manufacturers may bear disposal costs [199]. - Varex may incur significant environmental costs and liabilities due to compliance with global environmental laws, which could adversely affect its business [198]. - The company may face penalties for failure to comply with environmental regulations, impacting its financial performance [198].

Varex Imaging Corporation (NASDAQ:VREX) Q4 2021 Earnings Conference Call November 16, 2021 5:00 PM ET Company Participants Chris Belfiore - Director of Investor Relations Sunny Sanyal - President and CEO Sam Maheshwari - CFO Conference Call Participants Frank Pinal - Jefferies Larry Solow - CJS Securities Jim Sidoti - Sidoti and Company Suraj Kalia - Oppenheimer Operator Greetings. Welcome to the Varex Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen only mode. A qu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________ FORM 10-Q ____________________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37860 _____________ ...

Financial Data and Key Metrics Changes - Revenues reached $211 million, a 4% sequential increase and a 23% year-over-year increase, driven by strong demand in both Medical and Industrial segments [9][10] - Non-GAAP gross margin improved to 36%, while non-GAAP operating margin increased to 14% of revenues, resulting in non-GAAP EPS of $0.40, exceeding guidance [11][29] - GAAP gross margin was 35%, up over 300 basis points sequentially, with operating income increasing by $10 million compared to the previous quarter [31][32] Business Line Data and Key Metrics Changes - Medical segment revenues increased 7% sequentially and 22% year-over-year, with strong demand for CT tubes and other modalities returning to pre-COVID levels [10][11] - Industrial segment revenues decreased 6% sequentially but increased 31% year-over-year, attributed to timing of sales [14][29] Market Data and Key Metrics Changes - Revenue levels in the Americas decreased by 7% sequentially, while EMEA grew by 13% and APAC grew by 6% [30] - China is identified as a significant growth opportunity, with expected revenues exceeding $100 million by fiscal year-end 2021, representing 25% to 30% year-over-year growth [18][19] Company Strategy and Development Direction - The company is focusing on establishing relationships with local OEMs in China to drive growth, with nine out of twelve CT projects already brought to market [16][22] - New product development efforts include the launch of the LUMEN 4336W detector and advancements in nanotube technology [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand for CT tubes and other medical modalities, indicating that the demand is not solely a catch-up from the pandemic [98][101] - Supply chain challenges are acknowledged, particularly regarding raw materials and semiconductors, but management believes they are managing these issues effectively [26][50] Other Important Information - R&D spending was $19 million, or 9% of revenues, reflecting continued prioritization towards innovation and new product development [35][60] - Cash flow from operations improved to $22 million, with cash on hand increasing to $128 million [40][41] Q&A Session Summary Question: Can you provide insights on the demand dynamics for CT tubes in China and supply chain issues? - Management indicated strong demand for CT tubes and acknowledged supply chain issues related to commodities and semiconductors, but they are not currently demand constrained [49][50][51] Question: How much of the gross margin benefit was from sales volume versus cost savings? - Management confirmed that gross margin benefits were primarily driven by higher sales volume and successful cost reduction initiatives, particularly from the migration of manufacturing [56][57] Question: What is the outlook for revenue guidance in Q4? - Management provided guidance for Q4 revenues between $205 million and $225 million, indicating confidence in demand despite potential supply chain constraints [45][121] Question: How is the company performing in comparison to local and global OEMs in China? - Management stated that local OEMs are gaining market share in CTs, and the company is also gaining share in tubes, indicating a positive trend [73][74] Question: What are the expectations for new product contributions to revenue growth? - Management expects future growth from new products developed through increased R&D investments, which have been accelerated due to prior tax savings [82][86]

Q3 FY21 Financial Performance - Revenue reached $211 million[9] - Non-GAAP gross margin was 36%[10] - Non-GAAP EPS was $0.40[10] - Cash reserves totaled $128 million[10] Revenue Trends and Mix - Medical segment revenue was $167 million[20] - Industrial segment revenue was $44 million[20] - Revenue distribution by region: Americas $66 million, EMEA $76 million, and APAC $69 million[22] China Market - FY21 revenues from China are expected to exceed $100 million[15] - Over half of China revenues are from Medical Tubes[15] Q4 FY21 Outlook (Non-GAAP) - Revenue is projected to be between $205 million and $225 million[35] - EPS is expected to be between $0.25 and $0.40[35] - Gross margin is anticipated to be between 35% and 36%[37] - Operating expenses are estimated to be between $46 million and $47 million[37]

VAREX Solutions in Sight™ Q2 FY21 Earnings Presentation May 4, 2021 Proprietary and Confidential Information Forward Looking Statements / Non-GAAP Measures Forward Looking Statements Certain statements in this supplement contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements concerning industry or market outlook; addressable market, market size; the potential be ...

[Financial Information](index=2&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q2 2021 and Q2 2020, highlighting a net income of $3.2 million for the quarter [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2021 revenues increased 3.3% to $203.5 million, achieving a net income of $3.2 million from a prior-year loss | Indicator (In millions, except EPS) | Three Months Ended April 2, 2021 | Three Months Ended April 3, 2020 | Six Months Ended April 2, 2021 | Six Months Ended April 3, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Revenues, net** | $203.5 | $197.0 | $380.6 | $397.1 | | **Gross Profit** | $64.6 | $57.6 | $121.8 | $118.7 | | **Operating Income** | $15.8 | $1.4 | $21.9 | $6.0 | | **Net Income (Loss)** | $3.2 | $(1.8) | $(3.1) | $(3.0) | | **Diluted EPS** | $0.08 | $(0.05) | $(0.09) | $(0.08) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets were $1,132.6 million as of April 2, 2021, with cash increasing and total liabilities decreasing | Balance Sheet Item (In millions) | April 2, 2021 | October 2, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $529.8 | $522.0 | | Cash and cash equivalents | $111.1 | $100.6 | | Inventories | $248.2 | $271.9 | | **Total Assets** | $1,132.6 | $1,139.5 | | **Total Current Liabilities** | $146.3 | $160.6 | | **Total Liabilities** | $663.7 | $673.7 | | **Total Stockholders' Equity** | $468.9 | $465.8 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $19.9 million for the six months ended April 2, 2021, with a $10.5 million increase in cash | Cash Flow Activity (In millions) | Six Months Ended April 2, 2021 | Six Months Ended April 3, 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $19.9 | $23.9 | | **Net cash used in investing activities** | $(8.4) | $(17.3) | | **Net cash used in financing activities** | $(1.0) | $(12.1) | | **Net increase (decrease) in cash** | $10.5 | $(5.7) | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, segment reporting, revenue by geography, debt structure, and related party transactions - The company operates through two reportable segments: Medical (X-ray tubes, digital detectors for medical applications) and Industrial (components for security, inspection, and non-destructive testing)[27](index=27&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk) - A single customer, Canon Medical Systems Corporation, accounted for **17.8% of revenues** for the three months and **17.2%** for the six months ended April 2, 2021, representing a significant concentration of risk[34](index=34&type=chunk) | Revenue by Geography (In millions) | Three Months Ended April 2, 2021 | Six Months Ended April 2, 2021 | | :--- | :--- | :--- | | Americas | $70.5 | $132.8 | | EMEA | $67.7 | $125.6 | | APAC | $65.3 | $122.2 | | **Total** | **$203.5** | **$380.6** | | Segment Performance (In millions) | Three Months Ended April 2, 2021 | Six Months Ended April 2, 2021 | | :--- | :--- | :--- | | **Revenues** | | | | Medical | $156.6 | $295.8 | | Industrial | $46.9 | $84.8 | | **Gross Profit** | | | | Medical | $45.7 | $89.8 | | Industrial | $18.9 | $32.0 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2021 financial results, noting demand recovery, 3.3% revenue growth, improved gross margin, and sufficient liquidity [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Q2 2021 revenues grew 3.3% to $203.5 million, driven by Industrial segment growth and an improved gross margin of 31.7% | Revenue by Segment (In millions) | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Medical | $156.6 | $155.4 | 0.8% | | Industrial | $46.9 | $41.6 | 12.7% | | **Total** | **$203.5** | **$197.0** | **3.3%** | | Gross Profit & Margin by Segment | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | **Medical** | $45.7M (29.2%) | $43.2M (27.8%) | | **Industrial** | $18.9M (40.3%) | $14.4M (34.6%) | | **Total** | **$64.6M (31.7%)** | **$57.6M (29.2%)** | - Operating expenses for Q2 2021 decreased by **$7.4 million (13.2%)** year-over-year, primarily due to lower external audit and consulting fees and cost reduction actions[150](index=150&type=chunk)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is sufficient with **$111.1 million cash** and an undrawn **$100 million ABL facility**, despite **$460.9 million net debt** - The company believes its operating cash flow, cash on hand, and availability under its ABL facility are sufficient to meet operating needs for at least the next 12 months[163](index=163&type=chunk) | Key Liquidity Metrics (In millions) | April 2, 2021 | | :--- | :--- | | Cash and cash equivalents | $111.1 | | Total debt outstanding, net | $460.9 | | ABL Facility Availability | $100.0 (undrawn) | | Net cash from operations (6 months) | $19.9 | - The company has a fixed cost commitment of **$11.6 million** to its supplier dpiX for calendar year 2021, with **$8.7 million** remaining as of April 2, 2021[171](index=171&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Varex faces market risks including foreign currency, interest rate, and commodity price fluctuations, with some hedging strategies - The company faces significant foreign currency exchange risk as a large portion of its customers are outside the United States, while products are generally priced in U.S. Dollars[180](index=180&type=chunk) - Interest rate risk is present due to the floating-rate nature of the ABL Facility, although there were no borrowings as of April 2, 2021[184](index=184&type=chunk) - The company is exposed to commodity price volatility for raw materials such as tungsten, lead, iridium, and copper, which can impact product margins[185](index=185&type=chunk)[242](index=242&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were ineffective as of April 2, 2021, due to ongoing material weaknesses in internal financial controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of April 2, 2021, due to ongoing material weaknesses in internal control over financial reporting[187](index=187&type=chunk) - Remediation efforts are underway to address deficiencies in the Control Environment, Risk Assessment, Inventory and cost of revenues, and Financial Reporting processes[189](index=189&type=chunk) - The material weaknesses will not be considered remediated until the new controls have operated effectively for a sufficient period and have been tested by management[190](index=190&type=chunk) [Other Information](index=44&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to routine legal actions but is unaware of any material litigation impacting its financial position - The company is not aware of any currently pending litigation that could have a material adverse effect on its operations or financial position[192](index=192&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including COVID-19 impacts, customer concentration, supply chain issues, competition, international trade, and financial control weaknesses - **Business & Operational Risks:** The company's operations and demand have been and could continue to be adversely impacted by the COVID-19 pandemic. It also faces risk from its dependence on a limited number of OEM customers, with one customer accounting for **18% of revenue** in the quarter[196](index=196&type=chunk)[199](index=199&type=chunk) - **Financial & Control Risks:** The company has identified material weaknesses in its internal control over financial reporting, which could result in a loss of investor confidence. It also has significant debt obligations (approx. **$512.3 million**) that could adversely affect its business and flexibility[300](index=300&type=chunk)[302](index=302&type=chunk) - **Market & Regulatory Risks:** The company faces intense competition, risks from changes in import/export regulations and tariffs (particularly with China), and potential supply chain disruptions for critical components from sole-source suppliers like dpiX LLC[203](index=203&type=chunk)[258](index=258&type=chunk)[239](index=239&type=chunk) - **Debt-Related Risks:** Conversion of the company's Convertible Notes could dilute stockholder ownership. The company's ABL Credit Facility and indentures impose significant operating and financial restrictions that may limit flexibility[320](index=320&type=chunk)[307](index=307&type=chunk) [Other Part II Items (Items 2, 3, 4, 5, 6)](index=82&type=section&id=Other%20Part%20II%20Items) This section covers standard SEC filing items, reporting no unregistered equity sales, no defaults, and no other material disclosures - The company reported no activity under Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information)[328](index=328&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk)