What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-04 · 82 added, 80 removed, 218 unchanged (43% of the section changed)

34 unchanged sentences

While we are encouraged by the recovery, we remain cautious as many factors remain unpredictable.

We continue to experience logistics, supply chain, and manufacturing challenges that we expect will continue throughout 2022.

As economies around the world continue to recover, shortages in raw materials have become more widespread.

We continue to experience shortages of certain materials and have used more of our inventory on hand than we have used historically.

We continue to experience logistics, supply chain, and manufacturing challenges that we expect will continue throughout calendar year 2022.

The supply chain challenges related to certain components have become more pronounced, and shortages in raw materials have become more widespread, since the beginning of this calendar year.

We continue to experience shortages of certain materials and have used more of our inventory on hand of those materials than we have used historically.

In addition, we are purchasing more materials that are critical to our processes, often at higher costs.

4 unchanged sentences

In connection with these supply chain disruptions, we have experienced inflationary increases of certain raw materials, as well as increases in logistics, transportation and labor costs.

Increased freight charges and shipping delays have become more common during the pandemic and are expected to continue into the foreseeable future.

Increased freight charges and shipping delays became more common during the pandemic and subsequent periods, and are expected to continue into the foreseeable future.

Due to the rising cost environment, in addition to ongoing expense management, we have raised prices on certain products.

While we expect to make pricing adjustments throughout fiscal year 2022, our margins could be impacted by rising costs.

During the three months ended April 1, 2022, our manufacturing facilities continued to operate without significant disruption due to employee absences.

While we have from time to time take significant precautions to maintain employee safety, such as implementing mask requirements, encouraging vaccination, and periodically asking non-production related employees to work from home when possible, we have experienced and may in the future experience, COVID-19 related employee absences that make it more difficult to manufacture our products.

During the three months ended July 1, 2022, our manufacturing facilities continued to operate without significant disruption due to employee absences.

While we have from time to time taken significant precautions to maintain employee safety, such as implementing mask requirements, encouraging vaccination, and periodically asking non-production related employees to work from home when possible, we have experienced and may in the future experience, COVID-19 related employee absences that make it more difficult to manufacture our products.

The full extent to which the COVID-19 pandemic and ensuing supply chain challenges have and will directly or indirectly impact us, including our business, financial condition, and results of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted.

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We work very closely with our customers to create custom built components for their systems based on technology platforms that we have developed.

Because our products are

often customized for our customers' specific equipment, it can be costly and complex for our customers to switch to another provider.

Because our products are often customized for our customers' specific equipment, it can be costly and complex for our customers to switch to another provider.

Once our components are designed into our customers' equipment, our customers will typically continue to buy from us for any replacement components and for service and support for that equipment.

6 unchanged sentences

The Company has experienced growth in demand for its products as health systems globally have continued to address healthcare services gaps.

However, the Company is not able to convert all the demand into sales due to on-going supply chain related interruptions and uncertainties, particularly with the availability of micro-controller chips and other electronic components.

As a result, uncertainty in overall sales volume is expected to continue into calendar year 2022.

However, the Company has not been able to convert all the demand into sales due to on-going supply chain related interruptions and uncertainties, particularly with the availability of micro-controller chips and other electronic components.

As a result, uncertainty in overall sales volume is expected to continue at least for the remainder of calendar year 2022.

In China, the government is broadening the availability of healthcare services.

3 unchanged sentences

In recent years our business in China has been impacted by the trade war with the United States in three principal ways:

(1) importing raw materials from China to the United States has become more expensive, (2) importing of raw materials and sub-assemblies from the United States to China has become more expensive, and (3) importing finished U.S.

(1) importing raw materials from China to the United States has become more expensive, (2) importing raw materials and sub-assemblies from the United States to China has become more expensive, and (3) importing finished U.S.

manufactured products into China has become more difficult and expensive.

2 unchanged sentences

exclusions possess a calendar year-end expiration and Chinese exclusions must be solicited and approved on a shipment-by-shipment basis.

There is no guarantee that such exclusions will be granted nor extended by either government.

There is no guarantee that such exclusions will be granted or extended by either government.

In order to mitigate the impact of tariffs on materials imported from China, we have implemented changes to secure more non-China sources of materials used to manufacture our X-ray imaging products.

15 unchanged sentences

The economic downturn triggered by the COVID-19 pandemic reduced the demand for X-ray imaging equipment utilized in the non-destructive testing market as manufacturers focused on cash preservation and reduced spending for capital equipment.

During the three months ended April 1, 2022, we have continued to see improved conditions in this market.

However, we have seen improved conditions in this market, which continued during the three months ended July 1, 2022.

Critical Accounting Policies and Estimates

10 unchanged sentences

Fiscal year 2021 was the 52-week period that ended on October 1, 2021.

The fiscal quarters ended April 1, 2022 and April 2, 2021 were both 13-week periods.

The two fiscal quarters ended April 1, 2022 and April 2, 2021 were both 26-week periods.

Discussion of Results of Operations for the Three Months Ended April 1, 2022 Compared to the Three Months Ended April 2, 2021

The fiscal quarters ended July 1, 2022 and July 2, 2021 were both 13-week periods.

The three fiscal quarters ended July 1, 2022 and July 2, 2021 were both 39-week periods.

Discussion of Results of Operations for the Three Months Ended July 1, 2022 Compared to the Three Months Ended July 2, 2021

Revenues, net

Three Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change % Change

(In millions) July 1, 2022 July 2, 2021 $ Change % Change

Medical $ 167.1 $ 167.3 $ (0.2) (0.1) %

3 unchanged sentences

Industrial as a percentage of total revenues 22.1 % 20.8 %

Medical revenues increased $13.8 million, primarily due to increased sales of digital detectors for dynamic imaging applications and higher sales of CT X-ray tubes.

The increase in medical sales was particularly strong in CT, radiographic, and oncology modalities.

Industrial revenues decreased $2.6 million, primarily due to decreased sales of X-ray tubes and non-destructive inspection applications.

Medical revenues decreased $0.2 million, primarily due to decreased sales of digital detectors for dynamic imaging applications partially offset by higher sales of CT X-ray tubes.

Medical sales were particularly strong in CT, oncology, and dental modalities.

Industrial revenues increased $3.5 million, primarily due to increased sales of digital detectors for dynamic imaging applications and non-destructive inspection applications.

Three Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change % Change

(In millions) July 1, 2022 July 2, 2021 $ Change % Change

Medical $ 54.3 $ 56.5 $ (2.2) (3.9) %

4 unchanged sentences

Total gross margin 34.2 % 35.1 %

The increase in Medical gross profit was primarily due to the increased sales of CT X-ray tubes and oncology modalities partially offset by higher inbound freight and material costs.

The Industrial segment gross profit decreased primarily as a result of decreased sales of X-ray tubes, by higher inbound freight and material costs, and an unfavorable product mix in non-destructive inspection applications.

The decrease in Medical gross profit was primarily due to the decreased sales of digital detectors for dynamic imaging applications, higher freight, and increased material costs.

The Industrial segment gross profit increased primarily as a result of increased sales of digital detectors for dynamic imaging applications and non-destructive inspection applications, partially offset by higher freight and material costs.

Operating Expenses

Three Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change % Change

(In millions) July 1, 2022 July 2, 2021 $ Change % Change

Research and development $ 20.2 $ 19.2 $ 1.0 5.2 %

6 unchanged sentences

We are committed to investing in the business to support long-term growth and believe long-term research and development expenses of approximately 8% to 10% of annual revenues is the appropriate range that will allow us to innovate and bring new products to market for our global OEM customers.

Research and development costs decreased to 8.8% of revenues for the second quarter of 2022, primarily due to the relative increase in revenue as compared to research and development costs.

Research and development costs increased to 9.4% of revenues for the third quarter of 2022, primarily due to increased spending on material costs supporting research and development initiatives.

Selling, General and Administrative

Selling, general and administrative expenses for the second quarter of 2022 decreased $5.3 million and decreased to 11.8% of total revenues, primarily due to lower compensation costs compared to the prior year and higher revenue.

Selling, general and administrative expenses for the third quarter of 2022 increased $1.0 million and increased to 14.1% of total revenues, primarily due to increased legal costs compared to the prior year.

Interest and Other Expense, Net

1 unchanged sentence

Three Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change

(In millions) July 1, 2022 July 2, 2021 $ Change

Interest income $ 0.1 $ — $ 0.1

Interest expense (9.4) (10.6) 1.2

Other expense, net (2.0) (2.2) 0.2

Other (expense) income, net (0.2) 0.2 (0.4)

Interest and other expense, net $ (9.5) $ (10.4) $ 0.9

Interest expense increased due to expenses related to the redemption of $27 million of our Senior Secured Notes in March 2022.

Other expense, net decreased due to decreased foreign exchange expense during the three months ended April 1, 2022, compared to the three months ended April 2, 2021 and by losses in certain investments in privately-held companies being higher for the three months ended April 1, 2022 compared to the three months ended April 2, 2021.

Interest expense decreased due to the redemption of $27 million of our Senior Secured Notes in March 2022 and the redemption of $30 million of our Senior Secured Notes in July 2022, as well as reduced fees on the ABL agreement.

Other (expense) income, net increased due to losses in certain investments in privately-held companies being higher for the three months ended July 1, 2022, compared to the three months ended July 2, 2021, partially offset by reduced foreign exchange expense during the three months ended July 1, 2022 compared to the three months ended July 2, 2021.

Taxes on Income (Loss)

For the three months ended April 1, 2022, we recognized income tax expense of $6.0 million on $13.6 million of pre-tax income.

For the three months ended April 2, 2021, we recognized income tax expense of $0.0 million on $3.2 million of pre-tax loss.

Our tax expense for the three months ended April 1, 2022 increased primarily due to increased pre-tax income in certain jurisdictions, valuation allowance positions in the United States on deferred tax attributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

Discussion of Results of Operations for the Six Months Ended April 1, 2022 Compared to the Six Months Ended April 2, 2021

Six Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change % Change

For the three months ended July 1, 2022, we recognized income tax expense of $5.1 million on $13.5 million of pre-tax income.

For the three months ended July 2, 2021, we recognized income tax expense of $3.1 million on $15.3 million of pre-tax loss.

Our tax expense for the three months ended July 1, 2022 increased primarily due to increased pre-tax income in certain jurisdictions, valuation allowance positions in the United States on deferred tax attributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

Discussion of Results of Operations for the Nine Months Ended July 1, 2022 Compared to the Nine Months Ended July 2, 2021

Nine Months Ended

(In millions) July 1, 2022 July 2, 2021 $ Change % Change

Medical $ 493.2 $ 463.1 $ 30.1 6.5 %

3 unchanged sentences

Industrial as a percentage of total revenues 21.5 % 21.7 %

Medical revenues increased $30.3 million, primarily due to increased sales of digital detectors for dynamic imaging applications and higher sales of CT X-ray tubes.

The increase in medical sales was particularly strong in CT, radiographic, and oncology modalities.

Industrial revenues increased $2.6 million, primarily due to increased sales of digital detectors, connectors for security and service revenues.

Six Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change % Change

Medical revenues increased $30.1 million, primarily due to increased sales of CT X-ray tubes.

The increase in medical sales was particularly strong in CT and oncology modalities.

Industrial revenues increased $6.1 million, primarily due to increased sales of X-ray tubes, digital detectors for dynamic imaging applications, and non-destructive inspection applications.

Nine Months Ended

(In millions) July 1, 2022 July 2, 2021 $ Change % Change

Medical $ 153.7 $ 146.3 $ 7.4 5.1 %

4 unchanged sentences

Total gross margin % 33.3 % 33.1 %

The increase in Medical gross profit was primarily due to higher volumes compared to the prior year six-month period partially offset by increased inbound freight and raw materials costs.

The Industrial gross profit increased primarily due to a favorable mix of higher margin industrial detector products and service revenue partially offset by higher inbound freight and material costs.

The increase in Medical gross profit was primarily due to higher CT X-ray application volumes compared to the prior year nine-month period partially offset by increased freight and raw materials costs.

The Industrial gross profit increased primarily due to increased sales of X-ray tubes and digital detectors for dynamic imaging applications, partially offset by higher freight and material costs.

Operating Expenses

Six Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change % Change

Nine Months Ended

(In millions) July 1, 2022 July 2, 2021 $ Change % Change

Research and development $ 56.8 $ 54.1 $ 2.7 5.0 %

6 unchanged sentences

Research and development costs decreased to 8.9% of total revenues due to the relative increase in revenue as compared to research and development costs.

Research and development costs remained at 9.0% of total revenues due to the relative increase in revenue as compared to the increase in research and development costs.

Selling, General and Administrative

Selling, general and administrative expenses for the six months ended April 1, 2022, decreased to 14.1% of sales primarily due to lower compensation costs and higher revenue.

Selling, general and administrative expenses for the nine months ended July 1, 2022, decreased to 14.1% of sales primarily due to lower compensation costs, reduced external audit fees and higher revenue.

Interest and Other Expense, Net

The following table summarizes the Company’s interest and other income (expense), net:

Six Months Ended

(In millions) April 1, 2022 April 2, 2021 $ Change

Nine Months Ended

(In millions) July 1, 2022 July 2, 2021 $ Change

Interest income $ 0.2 $ — $ 0.2

Interest expense (30.4) (31.3) 0.9

1 unchanged sentence

Interest and other expense, net $ (33.2) $ (33.8) $ 0.6

Interest and other expense, net increased during the six months ended April 1, 2022.

Interest expense increased due to expenses related to the redemption of $27 million of our Senior Secured Notes in March 2022.

Other expense, net was flat during the six months ended April 1, 2022 as compared to the six months ended April 2, 2021.

Interest and other expense, net decreased during the nine months ended July 1, 2022 due to the redemption of $27 million of our Senior Secured Notes in March 2022 and the redemption of $30 million of our Senior Secured Notes in July 2021, as well as reduced fees on the ABL agreement.

Other expense, net increased during the nine months ended July 1, 2022 as compared to the nine months ended July 2, 2021, primarily due to losses related to foreign exchange impacts.

Taxes on Income (Loss)

For the six months ended April 1, 2022, we recognized an income tax expense of $7.7 million on $16.9 million of pre-tax income.

For the six months ended April 2, 2021, the Company recognized income tax expense of $1.6 million on $1.5 million of pre-tax loss.

Our tax expense for the six months ended April 1, 2022 increased, compared to the prior year, primarily due to pre-tax income in certain jurisdictions, valuation allowances in the United States on deferred tax attributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

For the nine months ended July 1, 2022, we recognized an income tax expense of $12.8 million on $30.4 million of pre-tax income.

For the nine months ended July 2, 2021, the Company recognized income tax expense of $4.7 million on $13.8 million of pre-tax loss.

Our tax expense for the nine months ended July 1, 2022 increased, compared to the prior year, primarily due to pre-tax income in certain jurisdictions, valuation allowances in the United States on deferred tax attributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operations, including working capital and investing activities.

We believe that our operating cash flow, cash on our balance sheet and availability under our Asset-Based Loan ("ABL") Facility are sufficient to meet our anticipated operating cash needs for at least the next 12 months and will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions and manage our capital structure on a short and long-term basis.

We believe that our operating cash flow, cash on our balance sheet and availability under our ABL Facility are sufficient to meet our anticipated operating cash needs for at least the next 12 months and will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions and manage our capital structure on a short and long-term basis.

We are currently not aware of any trends or demands, commitments, events, or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

1 unchanged sentence

however, the borrowing base under the ABL Facility fluctuates from month-to-month depending on the amount of eligible accounts receivable, inventory, and real estate.

As of April 1, 2022 the amount available under our ABL Facility was $96 million, and the ABL Facility remains undrawn.

As of July 1, 2022 the amount available under our ABL Facility was $97 million, and the ABL Facility remains undrawn.

See Part II, Item 1A.

“Risk Factors” for a further discussion.

At April 1, 2022 we had total debt of $411.0 million net of discounts and deferred issuance costs of $40.6 million.

Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:

(In millions) April 1, 2022 October 1, 2021 $ Change

At July 1, 2022 we had total debt of $412.6 million net of discounts and deferred issuance costs of $38.0 million.

Cash and Cash Equivalents and Marketable Securities

The following table summarizes our cash and cash equivalents and marketable securities:

(In millions) July 1, 2022 October 1, 2021 $ Change

Cash and cash equivalents $ 99.6 $ 144.6 $ (45.0)

Marketable securities not included in cash and cash equivalents

$ 110.0 $ 144.6 $ (34.6)

The following table summarizes the changes in our debt outstanding:

April 1, 2022 October 1, 2021

July 1, 2022 October 1, 2021

(In millions, except for percentages) Amount Amount $ Change

14 unchanged sentences

Total debt outstanding, net $ 412.6 $ 434.5 $ (21.9)

Six Months Ended

(In millions) April 1, 2022 April 2, 2021

Nine Months Ended

(In millions) July 1, 2022 July 2, 2021

Net cash flow provided by (used in):

4 unchanged sentences

Net (decrease) increase in cash and cash equivalents and restricted cash $ (45.2) $ 27.7

Net cash provided by operating activities.

Net cash provided by operating activities was $2.5 million and $19.9 million for the six months ended April 1, 2022 and April 2, 2021, respectively.

The decrease in cash provided by operating activities was primarily due to increased purchases of inventory, partially offset by an increase in accounts payable and a decrease in accrued liabilities and other current and long-term liabilities.

Net cash (used in) provided by operating activities.

Net cash (used in) provided by operating activities was $(0.2) million and $42.0 million for the nine months ended July 1, 2022 and July 2, 2021, respectively.

The decrease in cash provided by operating activities was primarily due to increased purchases of inventory, partially offset by an increase in accounts payable.

Net cash used in investing activities.

Net cash used in investing activities was $6.6 million and $8.4 million for the six months ended April 1, 2022 and April 2, 2021, respectively.

The decrease in cash used in investing activities was primarily due to proceeds received from sales of business and assets during the six months ended April 1, 2022.

Net cash used in investing activities was $20.9 million and $12.9 million for the nine months ended July 1, 2022 and July 2, 2021, respectively.

The increase in cash used in investing activities was primarily due to the purchase of marketable securities during the nine months ended July 1, 2022.

Net cash used in financing activities.

Net cash used in financing activities was $25.4 million and $1.0 million for the six months ended April 1, 2022 and April 2, 2021, respectively.

The increase in cash used in financing activities was primarily due to the redemption of $27 million of the Senior Secured Notes during the six months ended April 1, 2022.

Net cash used in financing activities was $24.0 million and $1.3 million for the nine months ended July 1, 2022 and July 2, 2021, respectively.

The increase in cash used in financing activities was primarily due to the redemption of $27 million of the Senior Secured Notes during the nine months ended July 1, 2022.

Contractual Obligations

1 unchanged sentence

The amended agreement requires us to pay for 50% of the fixed costs (as defined in the amended agreement), as determined at the beginning of each calendar year.

As of April 1, 2022, we estimate that we have fixed cost commitments of $9.9 million related to this amended agreement through the remainder of calendar year 2022.

As of July 1, 2022, we estimate that we have fixed cost commitments of $6.6 million related to this amended agreement through the remainder of calendar year 2022.

The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement).

1 unchanged sentence

The annual net payment will continue for the life of the MeVis Agreement, which we anticipate will continue for as long as we remain as the controlling shareholder of MeVis.

As of April 1, 2022, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

As of July 1, 2022, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

During the third quarter of fiscal year 2020, we entered into a purchase agreement with a supplier to acquire certain equipment and intellectual property from the supplier that is utilized to manufacture X-ray cables utilized in our products.

As of April 1, 2022, there has been no transfer of control of the underlying equipment.

As of July 1, 2022, there has been no transfer of control of the underlying equipment.

This acquisition is expected to be completed during the 2022 fiscal year and the total consideration to be paid by us for the acquired assets is expected to be ¥1,084.7 million or approximately $8.0 million, subject to potential decreases for costs incurred by the Company.

1 unchanged sentence

Contingencies

From time to time, the Company is a party to or otherwise involved in legal proceedings, government inspections, investigations, customs and duty audits, and other claims and contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise.

The Company accrues amounts for probable losses, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value).

From time to time, the we are a party to or otherwise involved in legal proceedings, government inspections, investigations, customs and duty audits, and other claims and contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise.

We accrue amounts for probable losses, to the extent they can be reasonably estimated, that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss (including, among other things, probable settlement value).

A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision.

The Company did not have any material contingent liabilities as of April 1, 2022 and October 1, 2021.

We did not have any material contingent liabilities as of July 1, 2022 and October 1, 2021.

Legal expenses are expensed as incurred.

Days Sales Outstanding

Trade accounts receivable days sales outstanding (“DSO”) was 65 days at April 1, 2022 and 62 days at October 1, 2021.

Trade accounts receivable days sales outstanding (“DSO”) was 67 days at July 1, 2022 and 62 days at October 1, 2021.

Our accounts receivable and DSO are impacted by a number of factors, including the timing of product shipments, collections performance, payment terms, the mix of revenues from different regions and the effects of economic instability.

3 unchanged sentences

Backlog also includes a small portion of billed service contracts that are included in deferred revenue.

Our estimated total backlog at April 1, 2022 was approximately $411 million.

Our estimated total backlog at July 1, 2022 was approximately $456 million.

Orders may be revised or canceled, either according to their terms or as customers' needs change.

In addition, the Company's ability to convert backlog into revenue may be impacted by on-going supply chain related interruptions and uncertainties.

In addition, our ability to convert backlog into revenue may be impacted by on-going supply chain related interruptions and uncertainties.

Consequently, it is difficult to predict with certainty the amount of backlog that will result in revenues.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis