Varex Imaging(US:VREX)2025-08-07 20:26Part I. Financial Information Unaudited Financial Statements The unaudited financial statements for July 4, 2025, reflect a net loss driven by a $93.9 million goodwill impairment, decreased assets and equity, but positive operating cash flow Condensed Consolidated Statements of Operations The statements show a Q3 2025 net loss of $89.1 million due to a $93.9 million goodwill impairment, despite a slight revenue increase for the nine-month period Condensed Consolidated Statements of Operations | Indicator | Three Months Ended July 4, 2025 | Three Months Ended June 28, 2024 | Nine Months Ended July 4, 2025 | Nine Months Ended June 28, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $203.0M | $209.1M | $615.7M | $605.3M | | Gross Profit | $67.5M | $66.9M | $212.7M | $189.8M | | Impairment of goodwill | $93.9M | $0M | $93.9M | $0M | | Operating (loss) income | ($80.7M) | $9.3M | ($47.4M) | $21.2M | | Net (loss) income attributable to Varex | ($89.1M) | $1.4M | ($82.5M) | $2.3M | | Diluted Net (loss) income per share | ($2.15) | $0.03 | ($2.00) | $0.06 | Condensed Consolidated Balance Sheets The balance sheets as of July 4, 2025, indicate a decrease in total assets and stockholders' equity, primarily due to a reduction in goodwill and lower long-term debt Condensed Consolidated Balance Sheets | Account | July 4, 2025 | September 27, 2024 | | :--- | :--- | :--- | | Total current assets | $619.5M | $649.9M | | Goodwill | $198.5M | $291.0M | | Total assets | $1,073.4M | $1,213.6M | | Total current liabilities | $176.7M | $195.9M | | Long-term debt, net | $366.0M | $397.1M | | Total liabilities | $603.9M | $670.4M | | Total stockholders' equity | $469.5M | $543.2M | Condensed Consolidated Statements of Cash Flows For the nine months ended July 4, 2025, operating cash flow increased to $33.8 million, investing activities provided $11.0 million, while financing activities used $77.0 million primarily for debt repayment Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Nine Months Ended July 4, 2025 | Nine Months Ended June 28, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $33.8M | $21.4M | | Net cash provided by (used in) investing activities | $11.0M | ($13.5M) | | Net cash used in financing activities | ($77.0M) | ($4.1M) | | Net (decrease) increase in cash | ($31.9M) | $3.8M | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies, a prior period financial statement revision, a $93.9 million goodwill impairment, debt structure changes, and significant customer concentration - The company identified and corrected an accounting error related to deferred tax assets and liabilities in prior periods, necessitating a revision of prior period balance sheets and statements of stockholders' equity due to the cumulative effect being material to the current year27 - A goodwill impairment charge of $93.9 million was recorded for the Medical reporting unit during the third quarter of fiscal 2025, triggered by a sustained decline in market capitalization, stock price, and downward revisions to the long-term forecast, including impacts from tariffs and MOFCOM investigations in China47109110 - On June 1, 2025, the company's $200.0 million 4.00% Convertible Senior Unsecured Notes matured and were settled in cash, facilitated by the issuance of an additional $125.0 million of Senior Secured Notes in December 2024121125 - Canon Medical Systems Corporation was a significant customer, accounting for 17.8% of revenues for the nine months ended July 4, 2025, and 13.5% of accounts receivable as of that date39 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of trade challenges, including a $93.9 million goodwill impairment, Q3 2025 revenue decline, nine-month revenue growth driven by the Industrial segment, improved gross margins, and sufficient liquidity - The company recorded a goodwill impairment charge of $93.9 million related to the Medical reporting unit due to macroeconomic challenges, including tariffs, MOFCOM investigations in China, a sustained decline in stock price, and a downward revision of its long-term forecast178 - Management highlights ongoing risks from the trade environment, including US-China tariffs and two investigations initiated by China's Ministry of Commerce (MOFCOM) related to medical X-ray products imported into China, with sales of such products representing about 10% of total revenue in fiscal 2024163165 Segment Revenues (in millions) - Three Months Ended | Segment Revenues (in millions) | Three Months Ended July 4, 2025 | Three Months Ended June 28, 2024 | % Change | | :--- | :--- | :--- | :--- | | Medical | $142.1 | $148.6 | (4.4)% | | Industrial | $60.9 | $60.5 | 0.7% | | Total | $203.0 | $209.1 | (2.9)% | Segment Revenues (in millions) - Nine Months Ended | Segment Revenues (in millions) | Nine Months Ended July 4, 2025 | Nine Months Ended June 28, 2024 | % Change | | :--- | :--- | :--- | :--- | | Medical | $440.5 | $437.3 | 0.7% | | Industrial | $175.2 | $168.0 | 4.3% | | Total | $615.7 | $605.3 | 1.7% | Quantitative and Qualitative Disclosures About Market Risk The company identifies market risks including foreign currency, credit, interest rate, and commodity price volatility, with a 10% foreign exchange rate decrease potentially impacting annual earnings by $14.1 million - Primary market risks identified are foreign currency exchange rate risk, credit and counterparty risk, interest rate risk, and commodity price risk222 Estimated Annual Impact of Market Risk (in millions) | Market Risk Category | Hypothetical Change | Estimated Annual Impact (in millions) | | :--- | :--- | :--- | | Foreign Currency - Revenue | 10% decrease in foreign exchange rates | $14.1 | | Interest Rate - Marketable Securities | 100 basis point decrease in interest rate | $1.0 | | Commodity Price | 10% increase in commodity prices | $3.1 | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 4, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report232 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls233 Part II. Other Information Legal Proceedings The company is involved in routine legal actions but anticipates no material adverse effect on its operations or financial position from current or pending litigation - The company states that it does not currently have any pending litigation for which the outcome is expected to have a material adverse effect on its financial position or operations234 Risk Factors The company highlights significant risks including customer concentration, geopolitical and trade challenges (tariffs, MOFCOM investigations), supply chain disruptions, and potential future goodwill impairment - A single customer accounted for approximately 18% of revenue in the first nine months of fiscal 2025, highlighting significant customer concentration risk236 - The company's business is negatively impacted by tariffs, trade wars, and national policies, especially the bilateral U.S.-China tariffs and the MOFCOM investigations into medical products imported into China238241 - The company faces risks from supply chain disruptions and reliance on a limited group of or sole-source suppliers for key components like transistor arrays and specialized integrated circuits270272 - The company warns that its financial condition could suffer from future goodwill impairments, following the $93.9 million charge recorded in Q3 2025, if key assumptions in its analysis are not realized322 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - The company reported no unregistered sales of equity securities or use of proceeds from such sales327 Other Information The Chief Human Resources Officer adopted a Rule 10b5-1 trading plan on June 17, 2025, for the sale of vested and soon-to-vest common stock shares - On June 17, 2025, Chief Human Resources Officer Karen Aranki adopted a Rule 10b5-1 trading plan for the sale of 3,174 vested shares and 6,665 shares scheduled to vest in December 2025331 Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data files - The report includes standard exhibits such as the Certificate of Incorporation, Bylaws, CEO and CFO certifications (Rule 13a-14(a) and Section 906), and Inline XBRL documents332