What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2023-01-31 · 132 added, 91 removed, 184 unchanged (55% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results should be read together with the unaudited condensed consolidated financial statements and notes thereto that are contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and our other filings, including the Current Reports on Form 8-K, that have been filed with the Securities and Exchange Commission (" SEC") through the date of this report.

The following discussion and analysis of the financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and notes thereto that are contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and our other filings, including the Current Reports on Form 8-K, that have been filed with the Securities and Exchange Commission (" SEC") through the date of this report.

In this Quarterly Report, unless otherwise specified or the context otherwise requires, the "Company," "Varex," "we," "us," and "our" refer to Varex Imaging Corporation.

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Important factors that could cause our actual results and financial condition to differ significantly from those projections or expectations include, among other things, the risks outlined in the Summary of Principal Risk Factors and further described in the Risk Factors listed in Part II, Item 1A – “ Risk Factors ” of this Quarterly Report.

Statements concerning:

supply chain and logistics challenges;

Statements concerning supply chain and logistics challenges;

cost increases;

the continuing impact of the ongoing COVID-19 pandemic on the global economy or the Company;

the effects of inflation;

changes in U.S.

and worldwide economic conditions, such as the impact of inflation, and fluctuations in foreign currency exchange rates;

geopolitical tensions;

the ongoing COVID-19 pandemic;

industry or market segment outlook;

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future orders, revenues, backlog, earnings or other financial results;

and any statements using the terms “believe,” “expect,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “may,” “intended,” “potential,” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations.

and any statements using the terms “believe,” “expect,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “may,” “intend,” “potential,” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations.

Any forward-looking statement made in this Quarterly Report (including in any exhibits or documents incorporated by reference) is based only on information currently available to Varex and its management and speaks only as of the date on which it is made.

We have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

Varex Imaging Corporation is a leading innovator, designer and manufacturer of X-ray imaging components including tubes, digital detectors, linear accelerators, image software processing solutions and stand-alone X-ray based systems in select application areas.

Varex Imaging Corporation is a leading innovator, designer and manufacturer of X-ray imaging components including X-ray tubes, digital detectors and accessories, linear accelerators, image software processing solutions and stand-alone X-ray based systems in select application areas.

Our components are used in medical diagnostic imaging, security inspection systems, and industrial quality inspection systems, as well as for analysis and measurement applications in industrial manufacturing applications.

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The Americas includes North America (primarily the United States) and Latin America.

EMEA includes Europe, Russia, the Middle East, India and Africa.

EMEA includes Europe, the Middle East, India and Africa.

APAC includes Asia (other than India) and Australia.

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We continue to work to improve the life and quality of our imaging components and leverage our scale as one of the largest independent X-ray imaging component suppliers to provide cost-effective solutions for our customers.

Impact of COVID-19, Inflation and the General Economic Environment

The unprecedented nature of the COVID-19 pandemic and its effect on the global economy began to significantly disrupt our business in fiscal year 2020 by initially reducing demand for our products followed by strong recovery in demand but increasing variability in supply of raw materials and manufacturing productivity.

During fiscal year 2022, demand for many of our products recovered to pre-pandemic levels and our business grew.

We believe that demand for our products has increased due to increased investments in healthcare and diagnostics coupled with end-users (such as hospitals) making capital purchases that were previously deferred due to the uncertainty surrounding COVID-19.

While we are encouraged by the recovery that we have seen, we remain cautious as many factors remain unpredictable and recent high rates of inflation have increased our costs and could negatively affect our future profit margins.

The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased shipping costs, supply shortages, increased costs of labor and materials, weakening exchange rates and other similar effects.

We continue to experience supply chain, manufacturing, and logistics challenges that we expect will continue into 2023.

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

During the latter half of fiscal year 2021 and throughout fiscal year 2022, we experienced shortages of certain materials and used more of our inventory on hand than we have used historically.

Shortages of materials, particularly micro-controller chips and associated electronic components, have caused and may continue to cause, delays in manufacturing products for our customers.

In some cases, raw material shortages and delivery delays from our suppliers are communicated to us with very little advanced warning, which has caused operational and customer order fulfillment challenges.

While we are dedicating significant resources to manage, mitigate, and resolve these issues, we currently expect supply chain, manufacturing, and logistics challenges to continue to impact our ability to deliver products to our customers over the next several quarters.

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

Impact of General Economic Environment

We are encouraged by the recent improvements that we have seen in the general economic environment but remain cautious as many factors remain unpredictable and recent high rates of inflation have increased our costs and could negatively affect our future profit margins.

The uncertain economic environment, geopolitical tensions, and the impacts from COVID-19 have contributed to, and may continue to contribute to, inflation, higher interest rates and capital costs, increased shipping costs, supply shortages, increased costs of labor and materials, exchange rate volatility, and other similar effects.

We continue to experience some supply chain, manufacturing, and logistics challenges that we expect will continue throughout 2023.

We have experienced and continue to experience shortages of certain materials.

Shortages of certain materials have caused, and may continue to cause, delays in manufacturing products for our customers.

In some cases, raw material shortages and delivery delays from our suppliers has caused operational and customer order fulfillment challenges.

Due to the rising cost environment, in addition to ongoing expense management, we began to raise prices on certain products in fiscal year 2022 and anticipate making further pricing adjustments throughout fiscal year 2023.

During the three months ended December 30, 2022, our manufacturing facilities continued to operate with minimal disruption.

Notwithstanding the foregoing, local government lockdowns, particularly in China, have impacted, and could continue to impact, our manufacturing operations in affected countries.

The full extent to which the COVID-19 pandemic and ensuing supply chain, manufacturing and logistics 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.

We will continue to actively monitor the situation and may take further actions we believe are in the best interest of the Company and our stockholders, which may include altering our business operations or other actions to benefit or protect our employees, customers or suppliers.

For additional information on risks related to the pandemic and other supply chain risks that could impact our results, see Part II, Item 1A – "Risk Factors".

During the three months ended March 31, 2023, our manufacturing facilities continued to operate with minimal disruption.

The full extent to which the COVID-19 pandemic and ensuing economic, inflationary, supply chain, manufacturing, and logistics 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.

For additional information on risks related to the pandemic and other supply chain, manufacturing and logistics risks that could impact our results, see Part II, Item 1A “ Risk Factors ”.

Operating Segments and Products

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Medical and Industrial.

The segments align our products and service offerings with customer use in medical and industrial markets.

In our Medical segment, we design, manufacture, sell and service X-ray imaging components, including X-ray tubes, digital detectors and accessories, ionization chambers and buckys, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, and heat exchangers.

These components are used in a range of medical imaging applications including CT, mammography, oncology, cardiac, surgery, dental, and other diagnostic radiography uses.

The segments align our products and services offerings with customer use in medical and industrial markets.

In our Medical segment, we design, manufacture, sell and service X-ray imaging components, including X-ray tubes, digital detectors and accessories, ionization chambers, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, and heat exchangers.

These components are used in a range of medical imaging applications including CT, mammography, oncology, cardiac, surgery, dental, fluoroscopy, and other diagnostic radiography uses.

Our X-ray imaging components are primarily sold to OEM customers.

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X-ray imaging software is a relatively small part of our business and includes maintenance revenue for software licenses.

The COVID-19 pandemic had a significant effect on hospitals, clinics and outpatient imaging centers as they encountered declines in elective procedures volume.

As a result, they reduced the capital purchases of imaging equipment from OEMs, which led to lower demand for X-ray imaging components for us.

Additionally, equipment installations were delayed, due to reduced access to healthcare institutions.

Partially offsetting this was an increased demand for imaging equipment used to diagnose respiratory diseases, such as radiographic X-ray imaging systems and CT imaging systems.

We have experienced growth in demand for our products as health systems globally have continued to address healthcare services gaps.

However, we have 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 through the fiscal year 2023.

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

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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 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.

While the governments of both the United States and China have granted tariff exclusions that temporarily eliminate the additional duties payable for specific commodities, providing partial relief, these exclusions are temporary and/or must be solicited and approved on a shipment-by-shipment basis.

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

There is no guarantee that such exclusions will be granted or extended by either government, and the U.S.

tariff exclusions are set to expire on September, 30, 2023 unless extended.

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.

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Our mitigation efforts could prove less effective than anticipated if rising tensions between China and Taiwan lead to worsening trade relations between China and the United States.

In our Industrial segment, we design, develop, manufacture, sell and service X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders and baggage screening at airports, and nondestructive testing, irradiation and inspection applications used in a number of other vertical markets.

In our Industrial segment, we design, develop, manufacture, sell and service X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders, baggage screening at airports, and nondestructive testing, irradiation and inspection applications used in a number of other vertical markets.

Our industrial products include Linatron® X-ray linear accelerators, X-ray tubes, digital detectors, high voltage connectors and coolers.

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The end customers for border protection systems are typically government agencies, many of which are in oil-based economies and war zones where there can be significant variation in buying patterns.

Non-destructive testing and inspection verticals utilize X-ray imaging to scan items for inspection of manufacturing defects and product integrity in a wide range of industries including the aerospace, automotive, electronics, oil and gas, food packaging, metal castings and 3D printing industries.

In addition, new applications for X-ray sources are being developed, such as sterilization of food and its packaging.

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

However, we have seen improved conditions in these markets, which continued during the three months ended December 30, 2022.

However, we have seen improved conditions in these markets, which continued during the three months ended March 31, 2023.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements and related disclosures in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

The preparation of our unaudited condensed consolidated financial statements and related disclosures in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances.

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Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed with the SEC on November 18, 2022 and Note 1, Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements of this report for further details.

Our critical accounting policies that are affected by accounting estimates include valuation of inventories, assessment of recoverability of goodwill and intangible assets, and income taxes.

Our critical accounting policies that are affected by accounting estimates include valuation of inventories, valuation of goodwill and intangible assets, and income taxes.

Such accounting policies require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates.

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Fiscal year 2022 was the 52-week period that ended on September 30, 2022.

The fiscal quarters ended December 30, 2022 and December 31, 2021 were both 13-week periods.

Discussion of Results of Operations for the Three Months Ended December 30, 2022 Compared to the Three Months Ended December 31, 2021

The fiscal quarters ended March 31, 2023 and April 1, 2022 were both 13-week periods.

The two fiscal periods ended March 31, 2023 and April 1, 2022 were both 26-week periods.

Discussion of Results of Operations for the Three Months Ended March 31, 2023 Compared to the Three Months Ended April 1, 2022

Revenues, net

Three Months Ended

(In millions) December 30, 2022 December 31, 2021 $ Change % Change

(In millions) March 31, 2023 April 1, 2022 $ Change % Change

Medical $ 174.1 $ 170.4 $ 3.7 2.2 %

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Industrial as a percentage of total revenues 23.7 % 20.6 %

Medical revenues increased $4.4 million, primarily due to increased sales of digital detectors for dental, radiographic, and fluoroscopic modalities, partially offset by lower oncology sales.

Industrial revenues increased $2.4 million, primarily due to increased sales of digital detectors for dynamic imaging applications, partially offset by lower sales of security inspection products.

Medical revenues increased $3.7 million, primarily due to increased sales of CT X-ray tubes and digital detectors for radiographic modalities, partially offset by lower oncology and fluoroscopic modalities sales.

Industrial revenues increased $9.8 million, primarily due to increased sales of security inspection products and industrial X-ray tubes, partially offset by lower sales of digital detectors for dynamic imaging applications.

Three Months Ended

(In millions) December 30, 2022 December 31, 2021 $ Change % Change

(In millions) March 31, 2023 April 1, 2022 $ Change % Change

Medical $ 51.7 $ 53.4 $ (1.7) (3.2) %

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Total gross margin 31.9 % 33.0 %

The increase in Medical segment gross profit was primarily due to the increased sales of digital detectors for dental, radiographic, and fluoroscopic modalities, partially offset by increased material costs.

The Industrial segment gross profit decreased primarily as a result of increased material costs, lower service revenue, and an unfavorable shift in product sales mix.

During the first quarter of fiscal year 2023, we experienced a more balanced operating environment driven by good demand for certain products, an improved supply chain, and our internal supply chain initiatives.

Our product sales mix for both segments, however, shifted during the quarter and we experienced a decrease in sales of higher margin, higher-end CT tubes and certain medical detectors, coupled with lower service revenue from Industrial, which typically also carries a higher margin profile.

We believe this shift was a result of our customers being cautious in response to an uncertain economic environment and difficulty in fulfilling backlog due to ongoing supply chain challenges they face for certain components.

These factors contributed to our lower total gross margin during the quarter.

The decrease in Medical segment gross profit was primarily due to increased material costs and an unfavorable shift in product sales mix.

The Industrial segment gross profit increased primarily as a result of increased sales in security inspection products, partially offset by increased material costs.

During the second quarter of fiscal year 2023, we experienced a more balanced operating environment driven by strong demand for certain products and an improved supply chain.

Our product sales mix, primarily in Medical, continued to be impacted by a shift to lower sales of higher margin, higher-end tubes and certain medical detectors.

We believe this shift was a result of our customers being cautious in response to an uncertain economic environment.

These factors contributed to some gross margin pressure during the quarter.

Operating Expenses

Three Months Ended

(In millions) December 30, 2022 December 31, 2021 $ Change % Change

(In millions) March 31, 2023 April 1, 2022 $ Change % Change

Research and development $ 23.0 $ 18.9 $ 4.1 21.7 %

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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 increased to 9.7% of revenues for the first quarter of fiscal year 2023, primarily due to increased spending on labor and material costs supporting research and development initiatives.

Research and development costs increased to 10.1% of revenues for the second quarter of fiscal year 2023, primarily due to increased spending on labor and material costs supporting research and development initiatives which includes $2.0 million in costs related to a development agreement with a third-party company.

Selling, General and Administrative

Selling, general and administrative expenses for the first quarter of fiscal year 2023 decreased $2.8 million and decreased to 14.7% of total revenues, primarily due to decreased restructuring costs and incentive compensation compared to the prior year.

Selling, general and administrative expenses for the second quarter of fiscal year 2023 increased $8.8 million and increased to 14.9% of total revenues, primarily due to increased compensation costs and environmental remediation costs, when compared to the prior year.

Interest and Other Expense, Net

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Three Months Ended

(In millions) December 30, 2022 December 31, 2021 $ Change

(In millions) March 31, 2023 April 1, 2022 $ Change

Interest income $ 0.7 $ 0.1 $ 0.6

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Interest and other expense, net $ (7.8) $ (13.0) $ 5.2

Interest and other expense, net decreased in the first quarter of fiscal year 2023 compared to the first quarter of 2022.

Interest and other expense, net decreased in the second quarter of fiscal year 2023 compared to the second quarter of 2022.

Interest expense decreased due to the redemption of $27 million of our Senior Secured Notes in March 2022, reduced fees on the ABL Facility agreement, and reduced interest expense due to the adoption of ASU 2020-06.

See Note 1, Summary of Significant Accounting Policies , “Recently Adopted Accounting Pronouncements” for further details concerning the adoption of ASU 2020-06.

Other expense, net decreased due to increased income in certain investments in privately-held companies and equity investments, partially offset by increased foreign exchange expense.

Other expense, net decreased due to increased losses in certain investments in privately-held companies and equity investments, partially offset by a decrease in foreign exchange expense.

Interest income increased primarily due to an increase in investments made into marketable debt securities.

Taxes on Income

For the three months ended December 30, 2022 we recognized income tax expense of $2.2 million on $5.4 million of pre-tax income.

For the three months ended December 31, 2021 we recognized income tax expense of $1.7 million on $3.3 million of pre-tax income.

Our tax expense for the three months ended December 30, 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.

For the three months ended March 31, 2023 we recognized income tax expense of $3.5 million on $7.8 million of pre-tax income.

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.

Our tax expense for the three months ended March 31, 2023 decreased primarily due to lower pre-tax income in certain jurisdictions, partially offset by 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 March 31, 2023 Compared to the Six Months Ended April 1, 2022

Six Months Ended

(In millions) March 31, 2023 April 1, 2022 $ Change % Change

Medical $ 334.2 $ 326.1 $ 8.1 2.5 %

Industrial 99.6 87.4 12.2 14.0 %

Total revenues $ 433.8 $ 413.5 $ 20.3 4.9 %

Medical as a percentage of total revenues 77.0 % 78.9 %

Industrial as a percentage of total revenues 23.0 % 21.1 %

Medical revenues increased $8.1 million, primarily due to increased sales of CT X-ray tubes and digital detectors for dental and radiographic modalities, partially offset by lower oncology and fluoroscopic modalities sales.

Industrial revenues increased $12.2 million, primarily due to increased sales of security inspection products, industrial X-ray tubes, and digital detectors for dynamic imaging applications.

Six Months Ended

(In millions) March 31, 2023 April 1, 2022 $ Change % Change

Medical $ 98.0 $ 99.4 $ (1.4) (1.4) %

Industrial 38.0 36.2 1.8 5.0 %

Total gross profit $ 136.0 $ 135.6 $ 0.4 0.3 %

Medical gross margin % 29.3 % 30.5 %

Industrial gross margin % 38.2 % 41.4 %

Total gross margin % 31.4 % 32.8 %

The decrease in Medical segment gross profit was primarily due to increased material costs and an unfavorable shift in product sales mix in digital detectors, partially offset by higher sales of CT X-ray tubes.

The Industrial gross profit increased primarily due to increased sales in security inspection products, partially offset by increased material costs.

Operating Expenses

Six Months Ended

(In millions) March 31, 2023 April 1, 2022 $ Change % Change

Research and development $ 43.0 $ 36.6 $ 6.4 17.5 %

As a percentage of total revenues 9.9 % 8.9 %

Selling, general and administrative $ 64.4 $ 58.4 $ 6.0 10.3 %

As a percentage of total revenues 14.8 % 14.1 %

Operating expenses $ 107.4 $ 95.0 $ 12.4 13.1 %

As a percentage of total revenues 24.8 % 23.0 %

Research and Development

Research and development costs increased to 9.9% of total revenues due to increased spending on labor and material costs supporting research and development initiatives which includes $2.0 million in costs related to a development agreement with a third-party company.

Selling, General and Administrative

Selling, general and administrative expenses for the six months ended March 31, 2023, increased to 14.8% of total revenues primarily due to increased compensation, marketing, and environmental remediation costs, when compared to the prior year.

Interest and Other Expense, Net

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

Six Months Ended

(In millions) March 31, 2023 April 1, 2022 $ Change

Interest income $ 1.2 $ 0.1 $ 1.1

Interest expense (14.8) (21.0) 6.2

Other expense, net (1.8) (2.8) 1.0

Interest and other expense, net $ (15.4) $ (23.7) $ 8.3

Interest and other expense, net decreased during the six months ended March 31, 2023 due to the redemption of $27.0 million of our Senior Secured Notes in March 2022, reduced fees on the ABL Facility agreement, and reduced interest expense due to the adoption of ASU 2020-06.

Other expense, net decreased during the six months ended March 31, 2023 as compared to the six months ended April 1, 2022, primarily due to increased losses in certain investments in privately-held companies and equity investments as well as increased foreign exchange expense.

Interest income increased primarily due to an increase in investments made into marketable debt securities.

Taxes on Income

For the six months ended March 31, 2023, we recognized an income tax expense of $5.7 million on $13.2 million of pre-tax income.

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

Our tax expense for the six months ended March 31, 2023 decreased, compared to the prior year, primarily due to lower pre-tax income in certain jurisdictions, partially offset by valuation allowance positions 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

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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.

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 a material change to our liquidity needs during the next 12 months.

The maximum availability under our ABL Facility is $100.0 million;

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 December 30, 2022 the amount available under our ABL Facility was $92.0 million, and the ABL Facility remains undrawn.

As of March 31, 2023, the amount available under our ABL Facility was $89.8 million, and the ABL Facility remains undrawn.

See Part II, Item 1A – “ Risk Factors ” for a further discussion.

At December 30, 2022 we had total debt of $442.9 million net of discounts and deferred issuance costs of $6.8 million.

At March 31, 2023 we had total debt of $443.0 million, net of discounts and deferred issuance costs of $6.4 million.

Cash and Cash Equivalents, Certificates of Deposit and Marketable Securities

The following table summarizes our cash and cash equivalents, certificates of deposit and marketable securities:

(In millions) December 30, 2022 September 30, 2022 $ Change

(In millions) March 31, 2023 September 30, 2022 $ Change

Cash and cash equivalents $ 104.4 $ 89.4 $ 15.0

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The following table summarizes the changes in our debt outstanding:

December 30, 2022 September 30, 2022

March 31, 2023 September 30, 2022

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

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Refer to Note 1, Summary of Significant Accounting Policies for further details.

Three Months Ended

(In millions) December 30, 2022 December 31, 2021

Six Months Ended

(In millions) March 31, 2023 April 1, 2022

Net cash flow (used in) provided by:

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Effects of exchange rate changes on cash and cash equivalents and restricted cash — (0.1)

Net (decrease) increase in cash and cash equivalents and restricted cash $ (7.8) $ 13.1

Net cash (used in) provided by operating activities.

Net cash (used in) provided by operating activities was $(3.7) million and $10.8 million for the three months ended December 30, 2022 and December 31, 2021, respectively.

The decrease in cash provided by operating activities was primarily due to reduced collections from accounts receivable in the quarter and reduced payments for accounts payable, partially offset by decreased purchases of inventory when compared to the three months ended December 31, 2021.

Net increase (decrease) in cash and cash equivalents and restricted cash $ 15.2 $ (29.6)

Net cash provided by operating activities.

Net cash provided by operating activities was $23.6 million and $2.5 million for the six months ended March 31, 2023 and April 1, 2022, respectively.

The increase in cash provided by operating activities was primarily due to increased collections from accounts receivable and a reduction in cash outflows for inventory, partially offset by increased payments for accounts payable when compared to the six months ended April 1, 2022.

Net cash used in investing activities.

Net cash used in investing activities was $3.7 million and $2.6 million for the three months ended December 30, 2022 and December 31, 2021, respectively.

The increase in cash used in investing activities was primarily due to the purchase of marketable equity and debt securities during the three months ended December 30, 2022, partially offset by the settlement of net investment hedges.

Net cash (used in) provided by financing activities.

Net cash (used in) provided by financing activities was $(0.4) million and $5.0 million for the three months ended December 30, 2022 and December 31, 2021, respectively.

The increase in cash used in financing activities was primarily due to no proceeds from the exercise of stock options during the three months ended December 30, 2022 when compared to the three months ended December 31, 2021.

Net cash used in investing activities was $7.5 million and $6.6 million for the six months ended March 31, 2023 and April 1, 2022, respectively.

The increase in cash used in investing activities was primarily due increased purchases of property, plant, and equipment, along with increased purchases of marketable equity and debt securities during the six months ended March 31, 2023, partially offset by the settlement of net investment hedges.

Net cash used in financing activities.

Net cash used in financing activities was $0.9 million and $25.4 million for the six months ended March 31, 2023 and April 1, 2022, respectively.

The decrease in cash used in financing activities was primarily due to the debt redemption during the six months ended April 1, 2022.

Contractual Obligations

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

In October 2015, pursuant to a Domination and Profit and Loss Transfer Agreement (the “MeVis Agreement”), we committed to pay the noncontrolling shareholders of MeVis an annual recurring net compensation of €0.95 per MeVis share.

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 December 30, 2022, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

In August 2015, pursuant to a Domination and Profit and Loss Transfer Agreement (the “DPLTA”), we committed to pay the noncontrolling shareholders of MeVis an annual recurring net compensation of €0.95 per MeVis share.

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

As of March 31, 2023, 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.

The total consideration to be paid by us for the acquired assets is expected to be ¥1,084.7 million, subject to potential decreases for costs incurred by the Company.

On April 14, 2022, we entered into a foreign currency hedge related to this Japanese Yen payment, which is expected to fix the purchase price of these assets at approximately $7.9 million.

As of December 30, 2022, the Company has made payments totaling $6.4 million and estimates that our remaining cash payments to be made total $1.5 million.

The total consideration to be paid was ¥1,084.7 million, subject to potential decreases for costs incurred by the Company.

On April 14, 2022, we entered into a foreign currency hedge related to this Japanese Yen payment, which fixed the purchase price of these assets at approximately $7.9 million.

As of March 31, 2023, the Company has recorded all assets related to this agreement and completed all payments to the supplier.

In fiscal year 2022, the Company entered into several agreements with a third-party company, whose stock is publicly traded on a foreign exchange.

Under these agreements, the Company will make certain milestone payments of up to $5.0 million upon achievement of specified milestones.

During fiscal year 2022, the first of these milestones was achieved and the Company paid $1.0 million to the third-party company, which was recorded in research and development in the Condensed Consolidated Statements of Operations.

During fiscal year 2022, the first of these milestones was achieved and the Company paid $1.0 million to the third-party company.

During the second quarter of fiscal year 2023, two more milestones were achieved and the Company paid an additional $2.0 million to the third-party company.

Payments made under this agreement are recorded in research and development in the Condensed Consolidated Statements of Operations.

The remaining milestones are expected to be achieved in fiscal year 2023.

2 unchanged sentences

The Company has recorded this investment as marketable equity securities, which is included in other assets on the Condensed Consolidated Balance Sheets.

The Company enters into purchase agreements with its suppliers in the ordinary course of its business for the purchase of goods and services.

Some of these purchase agreements are non-cancellable and thus contractually obligate the Company to future cash payments.

As of March 31, 2023, our non-cancellable supplier purchase obligations totaled $8.9 million.

Contingencies

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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.

We did not have any material contingent liabilities as of December 30, 2022 and September 30, 2022.

We did not have any material contingent liabilities as of March 31, 2023 and September 30, 2022.

Legal expenses are expensed as incurred.

Days Sales Outstanding

Trade accounts receivable days sales outstanding (“DSO”) was 70 days at December 30, 2022 and 68 days at September 30, 2022.

Trade accounts receivable days sales outstanding (“DSO”) was 64 days at March 31, 2023 and 68 days at September 30, 2022.

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.

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

Our estimated total backlog at December 30, 2022 was approximately $405 million.

Our estimated total backlog at March 31, 2023 was approximately $404 million.

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

5 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