Varex Imaging(VREX) - 2021 Q2 - Quarterly Report

Financial Information Financial Statements 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 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 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 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 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][116][118] - 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] | 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) Management discusses Q2 2021 financial results, noting demand recovery, 3.3% revenue growth, improved gross margin, and sufficient liquidity Results of Operations 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][152] Liquidity and Capital Resources 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] | 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - The company is exposed to commodity price volatility for raw materials such as tungsten, lead, iridium, and copper, which can impact product margins[185][242] Controls and Procedures 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] - Remediation efforts are underway to address deficiencies in the Control Environment, Risk Assessment, Inventory and cost of revenues, and Financial Reporting processes[189] - 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] Other Information Legal Proceedings 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] Risk Factors 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][199] - 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][302] - 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][258][239] - 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][307] Other Part II Items (Items 2, 3, 4, 5, 6) 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][329][331]