Varex Imaging(VREX) - 2025 Q2 - Quarterly Report

Part I. Financial Information Unaudited Financial Statements This section presents the unaudited Condensed Consolidated Financial Statements for the quarter ended April 4, 2025, detailing the company's financial performance and position Condensed Consolidated Statements of Operations Highlights (In millions, except per share amounts) | Metric | Three Months Ended April 4, 2025 | Three Months Ended March 29, 2024 | Six Months Ended April 4, 2025 | Six Months Ended March 29, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $212.9 | $206.2 | $412.7 | $396.2 | | Gross profit | $76.7 | $65.8 | $145.2 | $122.9 | | Operating income | $22.1 | $7.7 | $33.3 | $11.9 | | Net income attributable to Varex | $6.9 | $1.4 | $6.6 | $0.9 | | Diluted EPS attributable to Varex | $0.17 | $0.03 | $0.16 | $0.02 | Condensed Consolidated Balance Sheets Highlights (In millions) | Metric | April 4, 2025 | September 27, 2024 | | :--- | :--- | :--- | | Total current assets | $683.8 | $649.9 | | Total assets | $1,357.6 | $1,217.0 | | Total current liabilities | $168.8 | $195.9 | | Total liabilities | $793.7 | $667.8 | | Total stockholders' equity | $563.9 | $549.2 | Condensed Consolidated Statements of Cash Flows Highlights (In millions) | Metric | Six Months Ended April 4, 2025 | Six Months Ended March 29, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $26.1 | $13.4 | | Net cash provided by (used in) investing activities | $11.7 | $(21.2) | | Net cash provided by (used in) financing activities | $124.2 | $(3.0) | | Net increase (decrease) in cash | $161.8 | $(10.8) | Notes to the Condensed Consolidated Financial Statements These notes detail the company's accounting policies, segment reporting, revenue recognition, debt structure, related-party transactions, and other financial data - The company operates in two reportable segments: Medical and Industrial. The Medical segment provides X-ray imaging components for various medical applications, while the Industrial segment focuses on security, inspection, and non-destructive testing markets[27][135][136] - Canon Medical Systems Corporation is a significant customer, accounting for 19.0% of revenues for the three months ended April 4, 2025, and 14.8% of accounts receivable as of that date[33] - In December 2024, the company issued an additional $125.0 million of Senior Secured Notes. The proceeds will be used to repay a portion of the $200.0 million Convertible Notes maturing in June 2025[114] - The company has a 40% ownership in dpiX Holding, a key supplier. Varex has a fixed cost commitment of $13.7 million to dpiX for calendar year 2025[70][74] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth, improved gross margin, US-China trade impacts, and liquidity for upcoming debt maturities Q2 2025 vs Q2 2024 Revenue and Gross Profit by Segment (In millions) | Segment | Q2 2025 Revenue | Q2 2024 Revenue | % Change | Q2 2025 Gross Profit | Q2 2024 Gross Profit | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Medical | $153.8 | $148.8 | 3.4% | $55.9 | $44.7 | 25.1% | | Industrial | $59.1 | $57.4 | 3.0% | $20.8 | $21.1 | (1.4)% | | Total | $212.9 | $206.2 | 3.2% | $76.7 | $65.8 | 16.6% | - The increase in Medical segment gross profit was primarily due to improved productivity and lower material costs of $8.6 million, along with favorable sales volume and product mix[169] - The company is exposed to risks from the US-China trade environment. On April 9, 2025, the US raised tariffs to at least 145% on Chinese imports, and China retaliated. Sales to China represented approximately 15% of total revenue in fiscal 2024[150] - China's Ministry of Commerce (MOFCOM) has initiated investigations into imported medical X-ray tubes, which represented about 10% of the company's total revenue in fiscal 2024. The outcome is uncertain and could impact business[152] - The company believes its liquidity is sufficient for at least the next 12 months. It plans to repay $200.0 million of Convertible Notes due in June 2025 using proceeds from the Senior Secured Notes Add On, its Revolving Credit Facility, and cash[189] - The company's estimated total backlog at April 4, 2025 was approximately $316 million[201] Quantitative and Qualitative Disclosures About Market Risk The company identifies primary market risks including foreign currency, credit, interest rate, and commodity price, using derivatives to hedge exposures and assessing potential earnings impacts - The company is exposed to four primary market risks: foreign currency exchange, credit/counterparty, interest rate, and commodity price[204] - A strong U.S. Dollar may create pricing pressure on international customers. The company uses foreign currency forward contracts and cross-currency swaps to mitigate some of this risk[205][206] Sensitivity Analysis (as of April 4, 2025) | Market Risk Category | Hypothetical Change | Estimated Annual Impact (In millions) | | :--- | :--- | :--- | | Foreign Currency - Revenue | 10% decrease in foreign exchange rates | $13.9 | | Interest Rate - Marketable Securities | 100 basis point decrease in interest rate | $2.9 | | Commodity Price | 10% increase in commodity prices | $3.2 | Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of April 4, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of April 4, 2025, providing reasonable assurance that required information is recorded, processed, and reported in a timely manner[214] - There were no changes in internal control over financial reporting during the quarter ended April 4, 2025, that have materially affected, or are reasonably likely to materially affect, these controls[215] Part II. Other Information Legal Proceedings The company is subject to various legal actions, including ongoing disputes with joint venture partners, though no material adverse effects are currently anticipated - The company states that it does not believe any current litigation will have a material adverse effect on its operations or financial position[216] - The company's German subsidiary is involved in multiple judicial proceedings with its partner in the VEC joint venture, with each party seeking to remove the other's management and exclude them from the venture[244] - An ongoing dispute exists with the joint venture partner in Varex Imaging Arabia LLC regarding the operation of the joint venture[245] Risk Factors This section details significant risks including high customer concentration, US-China trade impacts, supply chain vulnerabilities, and financial risks related to substantial debt - The company has high customer concentration risk. One customer accounted for approximately 19% of revenue in Q2 2025, and the ten largest customers accounted for about 55%[218] - The business is negatively impacted by tariffs and trade wars. Sales to China, which represented ~15% of FY2024 revenue, are at risk due to retaliatory tariffs and MOFCOM investigations into imported medical products[220][221][223] - The company relies on a limited group of or sole-source suppliers for key components like transistor arrays and X-ray tube targets, creating supply chain vulnerability[252] - Significant indebtedness of approximately $570.4 million imposes operating restrictions. The company must repay $200.0 million in Convertible Notes maturing in June 2025 and must comply with financial covenants in its Revolving Credit Facility[293][294][296] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[307] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[308] Mine Safety Disclosures This item is not applicable to the company - Not applicable[309] Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter - During the fiscal quarter ended April 4, 2025, no directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[310] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The report includes required exhibits such as CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL data files[311]