Varex Imaging(VREX) - 2025 Q4 - Annual Report

Revenue Concentration and Customer Dependence - In fiscal year 2025, one customer accounted for 18.0% of the company's revenue, all from the Medical segment, while the top ten customers collectively represented approximately 52% of total revenue[95] - The company generated significant accounts receivables, with one customer representing 14.0% of accounts receivables as of October 3, 2025, indicating potential risks if this customer defaults[96] - More than half of the company's revenue is generated from international customers, accounting for approximately 70%, 68%, and 69% of total revenues in fiscal years 2025, 2024, and 2023 respectively[106] Market and Competitive Challenges - The company faced significant challenges due to tariffs imposed by the United States, which increased costs and lowered gross margins, particularly affecting competitiveness against non-imported products[87] - The company has experienced pricing pressures and margin erosion due to intense competition, with major OEM customers also manufacturing their own components[98] - Changes in customer order forecasts have led to excess inventory and slowdowns in sales, complicating demand predictions[97] - The company has faced challenges in meeting customer needs and demands, particularly when the U.S. Dollar is strong against international currencies, impacting revenue and market share[101] Operational Risks and Supply Chain Issues - Supply chain disruptions and inflation have impacted the company's ability to manufacture products, leading to increased costs and potential delays in product delivery[120] - Material shortages and delays have caused the company to temporarily stop production of certain products, affecting sales opportunities[121] - The company is vulnerable to natural disasters and other disruptions that could significantly affect operations and product shipments[124] Regulatory and Compliance Challenges - Compliance with FDA regulations is critical; failure to do so could result in production shutdowns and financial penalties[134] - Obtaining regulatory clearances for new products is time-consuming and uncertain, impacting market introduction[137] - International regulatory compliance is costly and can delay product marketing, affecting business operations[141] - The company faces substantial litigation risks related to intellectual property rights, which could divert management resources[132] - The company must file timely reports with regulatory authorities to avoid sanctions and maintain market authorizations[144] Financial and Economic Factors - Total combined indebtedness as of October 3, 2025, was approximately $369.9 million, primarily consisting of 7.875% Senior Secured Notes due 2027[166] - Changes in tax laws, including a new requirement effective in 2023 for capitalization of research expenditures, significantly increased cash tax expense, expected to continue until normalizing in fiscal year 2027[153] - The company’s ability to respond to economic changes is limited by significant operational and financial restrictions imposed by its Credit Agreement and Senior Secured Notes[166] - The company may face challenges in raising additional debt or equity financing, which could restrict its operational flexibility and ability to compete effectively[168] - Adverse economic developments could lead to reduced customer spending, impacting net sales and cash flow[171] Environmental and Social Governance - Compliance with environmental laws may impose significant costs and liabilities, including cleanup obligations related to hazardous substances[162] - Future changes in environmental laws could increase operational costs, particularly in the EU where manufacturers may bear disposal costs for products at the end of their useful life[164] - The company is subject to evolving environmental, social, and governance regulations that could expose it to various risks and affect its reputation[176] - The company faces risks related to compliance with customer procurement policies that require adherence to social and environmental provisions[177] Internal Controls and Management Challenges - The company may incur substantial costs related to legal proceedings, which could disrupt operations and adversely impact financial results[113] - The company faces challenges in developing and introducing new products due to complex quality assurance processes, which could delay customer orders[104] - The company may face challenges in maintaining effective internal controls, which could negatively impact financial reporting and investor confidence[172] - The competitive labor market has led to increased compensation-related costs, impacting the company's ability to attract and retain key personnel[175] Goodwill and Impairment Issues - As of October 3, 2025, the company's goodwill was $198.4 million, with a recorded goodwill impairment charge of $93.9 million during the three months ended July 4, 2025[174] - The company’s goodwill impairment analysis is sensitive to key assumptions, and further impairment charges may be necessary in the future[174]