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Item 2. Management’s Discussion and Analysis

2024-02-06 compared with 2023-08-01 · 80 added, 136 removed, 174 unchanged (55% of the section changed)

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

The following discussion and analysis of our 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.

The following discussion and analysis of our 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 29, 2023 ("Annual Report") 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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This Quarterly Report contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for statements about future events, products, and future financial performance that are based on the beliefs of, estimates made by, and information currently available to the management of Varex.

Actual results and the outcome or timing of certain events described in these forward-looking statements are subject to risk and uncertainties and may differ significantly from those projected in these forward-looking statements.

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.

Actual results and the outcome or timing of certain events described in these forward-looking statements are subject to risk and uncertainties and may differ significantly from those described.

Important factors that could cause our actual results and financial condition to differ significantly from those projections or expectations include, among other things, the following:

• reduction in or loss of business of one or more of our limited original equipment manufacturing (“OEM”) customers;

• loss of business to, and an inability to effectively compete with, competitors;

• pricing pressures and other factors that could result in margin erosion and loss of customers;

• failure to meet customers’ needs and demands;

• global, regional, and country-specific economic instability, shifting political environments, changing tax treatment, reactionary import/export regulatory regimes, and other risks associated with international manufacturing, operations, and sales;

• supply chain disruptions resulting in delayed product delivery, and increased costs as a result of reliance on a limited number of suppliers for certain key components;

• inability to maintain or defend our intellectual property rights, and high cost of protecting our intellectual property and defending against infringement claims;

• disruption of critical information systems or material breaches in the security of our systems;

• noncompliance with regulations applicable to marketing, manufacturing, labeling, and distributing our products and delays in obtaining regulatory clearances or approvals;

• limitations imposed by operating and financial restrictions of our debt financing agreements could harm our long-term interests, limit our ability to make payments on our debt obligations, and impact our ability to maintain sufficient liquidity and/or to refinance our debt obligations;

• other factors cited in Part I, Item 1A, " Risk Factors " in our Annual Report and in Part II, Item 1A, " Risk Factors " of this Quarterly Report.

Statements concerning supply chain and logistics challenges;

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industry or market segment outlook;

market acceptance of or transition to new products or technology such as advanced X-ray tube and digital flat panel detector products;

market acceptance of or transition to new products or technologies such as advanced X-ray tube and digital flat panel detector products;

growth drivers;

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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 X-ray tubes, digital detectors and accessories, 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, flat panel and photon counting 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.

Global original equipment manufacturers (“OEMs”) incorporate our X-ray imaging components into their systems to detect, diagnose, protect, irradiate and inspect.

Global OEMs incorporate our X-ray imaging components into their systems to detect, diagnose, protect, irradiate, and inspect.

Varex has approximately 2,300 full-time equivalent employees, located at engineering, manufacturing, and service center sites in North America, Europe, and Asia.

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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.

While there continues to be some improvement in the general economic environment, we remain cautious as many factors remain dynamic and unpredictable.

The uncertain economic environment, supply chain and logistic challenges, and geopolitical tensions 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 have experienced 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.

During 2023, we experienced some supply chain, manufacturing, and logistics challenges.

Currently, we anticipate such challenges to have less of an impact in fiscal year 2024.

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 have 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.

In addition, since late 2023 our Medical business has been negatively impacted by the China government initiated anti-corruption measures related to the healthcare industry.

We expect these actions to continue into fiscal year 2024, which could impact revenues in our China business.

For additional information on risks related to supply chain and logistics challenges, cost increases, changes in U.S.

and worldwide economic conditions, geopolitical tensions and other risks that could impact our results, see Part II, Item 1A “ Risk Factors ”.

and worldwide economic conditions, geopolitical tensions, and other risks that could impact our results, see Item 1A “ Risk Factors ”.

Operating Segments and Products

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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.

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

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

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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.

tariff exclusions are set to expire on May 31, 2024 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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This local-for-local strategy has been well received by both our local customers as well as global OEMs, and acts as a natural hedge against trade wars and other potential supply chain disruptions.

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.

Our mitigation efforts could prove less effective than anticipated if 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, 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.

Our industrial products include Linatron® X-ray linear accelerators, X-ray tubes, flat panel and photon counting detectors, computed radiography scanners, high voltage connectors, and coolers.

In addition, we license proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to our industrial customers.

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In addition, our Industrial business benefits from our long-term service agreements for our Linatron® products.

The security market primarily consists of cargo security for the screening of trucks, trains, and cargo containers at ports and borders as well as airport security for carry-on baggage, checked baggage and palletized cargo.

The security market primarily consists of cargo security for the screening of trucks, trains, and cargo containers at ports and borders as well as airport security for checked baggage and palletized cargo.

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.

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 aerospace, automotive, electronics, oil and gas, food packaging, metal castings, and additive manufacturing.

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

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We periodically review our accounting policies, estimates, and assumptions and make adjustments when facts and circumstances dictate.

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, 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.

Except for the change in certain policies upon adoption of the accounting standard described in Note 1, Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements of this report, there have been no material changes to the Company’s significant accounting policies, compared to the accounting policies described in Note 1, Summary of Significant Accounting Policies , in the Company’s Annual Report on Form 10-K for fiscal year 2022.

The fiscal years of the Company as reported are the 52 or 53-week period ending on the Friday nearest September 30.

Refer to our Annual Report on Form 10-K for the fiscal year ended September 29, 2023 filed with the SEC on November 16, 2023 and Note 1, Summary of Significant Accounting Policies, of the Notes to the 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.

Except for the changes in certain policies upon adoption of the accounting standard described in Note 1, Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements of this report, there have been no material changes to the Company’s significant accounting policies, compared to the accounting policies described in Note 1, Summary of Significant Accounting Policies , in the Company’s Annual Report on Form 10-K for fiscal year 2023.

The fiscal years of the Company as reported are the 52 or 53-week periods ending on the Friday nearest September 30.

Fiscal year 2024 is the 52-week period ending September 27, 2024.

Fiscal year 2023 was the 52-week period that ended on September 29, 2023.

The fiscal quarters ended June 30, 2023 and July 1, 2022 were both 13-week periods.

The three fiscal quarters ended June 30, 2023 and July 1, 2022 were both 39-week periods.

Discussion of Results of Operations for the Three Months Ended June 30, 2023 Compared to the Three Months Ended July 1, 2022

The fiscal quarters ended December 29, 2023 and December 30, 2022 were both 13-week periods.

Discussion of Results of Operations for the Three Months Ended December 29, 2023 Compared to the Three Months Ended December 30, 2022

Revenues, net

Three Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change % Change

(In millions) December 29, 2023 December 30, 2022 $ Change % Change

Medical $ 139.9 $ 160.1 $ (20.2) (12.6) %

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Industrial as a percentage of total revenues 26.4 % 22.1 %

Medical revenues increased $8.3 million, primarily due to increased sales of mammography X-ray tubes and digital detectors for radiographic, fluoroscopic, and dental modalities, partially offset by decreased sales in oncology modalities.

Industrial revenues increased $9.4 million, primarily due to increased sales of security inspection products and industrial X-ray tubes.

Medical revenues decreased $20.2 million, primarily due to decreased sales of fluoroscopic, dental, and CT, partially offset by increased sales in mammography.

Industrial revenues increased $4.6 million, primarily due to increased sales of security inspection products, partially offset by decreased sales of digital detectors.

Three Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change % Change

(In millions) December 29, 2023 December 30, 2022 $ Change % Change

Medical $ 38.9 $ 46.3 $ (7.4) (16.0) %

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Total gross margin 30.1 % 30.8 %

The increase in Medical segment gross profit was primarily due to increased pricing, partially offset by 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 an unfavorable shift in product sales mix.

The decrease in Medical segment gross profit was primarily due an unfavorable shift in product sales mix, partially offset by decreased material costs.

The Industrial segment gross profit increased primarily due to increased sales in security inspection products, partially offset by an unfavorable shift in product sales mix.

Operating Expenses

Three Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change % Change

(In millions) December 29, 2023 December 30, 2022 $ Change % Change

Research and development $ 20.5 $ 20.0 $ 0.5 2.5 %

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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 decreased to 8.6% of revenues for the third quarter of fiscal year 2023, primarily due to decreased spending on material costs supporting research and development initiatives.

Research and development costs increased to 10.8% of revenues for the first quarter of fiscal year 2024, primarily due to decreased sales and increased research and development costs.

Selling, General, and Administrative

Selling, general and administrative expenses for the third quarter of fiscal year 2023 increased $1.9 million, primarily due to increased compensation costs and fixed cost commitments to a supplier.

Selling, general, and administrative expenses for the first quarter of fiscal year 2024 increased $2.1 million, primarily due to increased fixed cost commitments to a supplier and increased compensation costs.

Interest and Other Expense, Net

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Three Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change

Interest income $ 0.9 $ 0.1 $ 0.8

Interest expense (7.3) (9.4) 2.1

Other expense, net (0.7) (0.2) (0.5)

Interest and other expense, net $ (7.1) $ (9.5) $ 2.4

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

Interest expense decreased due to 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 increased due to increased losses in certain investments in privately-held companies and equity investments and increased 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 June 30, 2023 we recognized income tax expense of $7.9 million on $17.1 million of pre-tax income.

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.

Our tax expense for the three months ended June 30, 2023 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 June 30, 2023 Compared to the Nine Months Ended July 1, 2022

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change % Change

Medical $ 509.6 $ 493.2 $ 16.4 3.3 %

Industrial 156.4 134.8 21.6 16.0 %

Total revenues $ 666.0 $ 628.0 $ 38.0 6.1 %

Medical as a percentage of total revenues 76.5 % 78.5 %

Industrial as a percentage of total revenues 23.5 % 21.5 %

Medical revenues increased $16.4 million, primarily due to increased sales of CT and mammography X-ray tubes and digital detectors for dental and radiographic modalities, partially offset by lower oncology and fluoroscopic modalities sales.

Industrial revenues increased $21.6 million, primaril y due to increased sales of security inspection products and industrial X-ray tubes.

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change % Change

Medical $ 152.7 $ 153.7 $ (1.0) (0.7) %

Industrial 59.6 55.3 4.3 7.8 %

Total gross profit $ 212.3 $ 209.0 $ 3.3 1.6 %

Medical gross margin % 30.0 % 31.2 %

Industrial gross margin % 38.1 % 41.0 %

Total gross margin % 31.9 % 33.3 %

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 as a result of increased sales in security inspection products and industrial X-ray tubes, partially offset by an unfavorable shift in product sales mix.

Operating Expenses

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change % Change

Research and development $ 63.0 $ 56.8 $ 6.2 10.9 %

As a percentage of total revenues 9.5 % 9.0 %

Selling, general and administrative $ 96.5 $ 88.6 $ 7.9 8.9 %

As a percentage of total revenues 14.5 % 14.1 %

Operating expenses $ 159.5 $ 145.4 $ 14.1 9.7 %

As a percentage of total revenues 23.9 % 23.2 %

Research and Development

Research and development costs increased to 9.5% 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 nine months ended June 30, 2023 increased to 14.5% 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:

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 $ Change

(In millions) December 29, 2023 December 30, 2022 $ Change

Interest income $ 1.9 $ 0.5 $ 1.4

Interest expense (7.3) (7.5) 0.2

Other expense, net (2.5) (3.0) 0.5

Other income (expense), net 0.6 (0.6) 1.2

Interest and other expense, net $ (4.8) $ (7.6) $ 2.8

Interest and other expense, net decreased during the nine months ended June 30, 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 nine months ended June 30, 2023 as compared to the nine months ended July 1, 2022, primarily due to decreased losses in certain investments in privately-held companies and equity investments as well as decreased foreign exchange expense when compared to prior year.

Interest and other expense, net decreased in the first quarter of fiscal year 2024 compared to the first quarter of 2023.

Interest expense decreased due to reduced fees on the ABL Facility and reduced outstanding other debt.

Other income (expense), net increased due to a gain on business acquisition, partly offset with losses in certain investments in privately-held companies and equity investments and increased foreign exchange expense.

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

Taxes on Income

For the nine months ended June 30, 2023, we recognized an income tax expense of $13.6 million on $30.3 million of pre-tax income.

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

Our tax expense for the nine months ended June 30, 2023 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.

We regularly evaluate the realizability of our net deferred tax assets.

As of June 30, 2023, substantially all of our U.S.

deferred tax assets, net of deferred tax liabilities, were subject to valuation allowance.

If our financial results continue to improve and we conclude that estimates of our future taxable income are objectively verifiable, our assessment of the realization of our net deferred tax assets could result in the release of the valuation allowance.

Such a release would result in a material non-cash income tax benefit in our Condensed Consolidated Statements of Operations in the period of release and an increase to deferred tax assets on our Condensed Consolidated Balance Sheets.

There is a reasonable possibility that within the next several quarters, sufficient positive evidence may become available to reach a conclusion that the valuation allowance against our U.S.

net deferred tax assets would no longer be required.

However, the exact timing and amount of valuation allowance releases are subject to change based on the level of profitability achieved in future periods.

Taxes on (Loss) income

For the three months ended December 29, 2023 we recognized income tax benefit of $0.2 million on $0.6 million of pre-tax loss.

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.

Our tax expense for the three months ended December 29, 2023 decreased, primarily due to decreased pre-tax income in certain jurisdictions 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 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, availability under our ABL Facility, and our ability to access the credit and capital markets are sufficient to meet our anticipated operating activities and cash commitments 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-term 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 a material change to our liquidity needs during or beyond the next 12 months, except our Convertible Notes that become due in June 2025 that we currently anticipate refinancing using some combination of future borrowings and cash.

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 June 30, 2023, the amount available under our ABL Facility was $87.8 million, and the ABL Facility remains undrawn.

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

At June 30, 2023 we had total debt of $442.9 million, net of discounts and deferred issuance costs of $5.8 million.

As of December 29, 2023, the amount available under our ABL Facility was $71.9 million, and the ABL Facility remains undrawn.

At December 29, 2023 we had total debt of $443.0 million, net of deferred issuance costs of $4.8 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) June 30, 2023 September 30, 2022 $ Change

(In millions) December 29, 2023 September 29, 2023 $ Change

Cash and cash equivalents $ 141.3 $ 152.6 $ (11.3)

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The following table summarizes the changes in our debt outstanding:

June 30, 2023 September 30, 2022

December 29, 2023 September 29, 2023

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

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$ 446.2 $ 446.5 $ (0.3)

Unamortized issuance costs and debt discounts

Unamortized discount - Convertible Notes (1)

$ — $ (28.7) $ 28.7

Unamortized issuance costs

Unamortized issuance costs - Convertible Notes $ (2.1) $ (2.5) $ 0.4

(2.8) (3.1) 0.3

Unamortized issuance costs - Senior Secured Notes (2.7) (2.9) 0.2

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Total debt outstanding, net $ 443.0 $ 442.6 $ 0.4

(1) In connection with the adoption of ASU 2020-06, the unamortized discount related to the Convertible Notes was derecognized and the carrying value of the issuance costs was adjusted in the first quarter of fiscal year 2023.

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

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022

Three Months Ended

(In millions) December 29, 2023 December 30, 2022

Net cash flow (used in) provided by:

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Financing activities (1.7) (0.4)

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

Net increase (decrease) in cash and cash equivalents and restricted cash $ 29.3 $ (45.2)

Net decrease in cash and cash equivalents and restricted cash $ (11.3) $ (7.8)

Net cash provided by (used in) operating activities.

Net cash provided by (used in) operating activities was $61.3 million and $(0.2) million for the nine months ended June 30, 2023 and July 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 nine months ended July 1, 2022.

Net cash provided by (used in) operating activities was $10.3 million and $(3.7) million for the three months ended December 29, 2023 and December 30, 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 and prepaid expenses, partially offset by a decrease in non-cash adjustments to income when compared to the three months ended December 30, 2022.

Net cash used in investing activities.

Net cash used in investing activities was $30.3 million and $20.9 million for the nine months ended June 30, 2023 and July 1, 2022, respectively.

The increase in cash used in investing activities was primarily due to increased purchases of property, plant, and equipment, along with increased purchases of marketable equity and debt securities during the nine months ended June 30, 2023, partially offset by the settlement of net investment hedges.

Net cash used in investing activities was $19.9 million and $3.7 million for the three months ended December 29, 2023 and December 30, 2022, respectively.

The increase in cash used in investing activities was primarily due to increased purchases of marketable debt securities, along with increased purchases of property, plant, and equipment during the three months ended December 29, 2023, partially offset by the settlement of net investment hedges.

Net cash used in financing activities.

Net cash used in financing activities was $1.6 million and $24.0 million for the nine months ended June 30, 2023 and July 1, 2022, respectively.

The decrease in cash used in financing activities was primarily due to the partial redemption of our Senior Secured Notes during the nine months ended July 1, 2022.

Contractual Obligations

Net cash used in financing activities was $1.7 million and $0.4 million for the three months ended December 29, 2023 and December 30, 2022, respectively.

The increase in cash used in financing activities was primarily due to cash payments related to the taxes for net share settlement of equity awards for the three months ended December 30, 2022.

Material Contractual Obligations

In October 2013, we entered into an amended agreement with dpiX and other parties that, among other things, provides us with the right to 50% of dpiX’s total manufacturing capacity produced after January 1, 2014.

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In January 2024, the Company's fixed cost commitment was determined to be $12.4 million for calendar year 2024.

As of June 30, 2023, the Company estimated it has $6.5 million remaining related to this fixed cost commitment.

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

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 June 30, 2023, 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 Medical an annual recurring net compensation of €0.95 per MeVis Medical 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 Medical.

As of December 29, 2023, noncontrolling shareholders together held approximately 0.5 million shares of MeVis Medical, representing 26.3% of the outstanding shares.

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

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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.

No additional milestones were achieved nor were any payments made during the third quarter of fiscal year 2023.

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

No additional milestones were achieved nor were any payments made during the first quarter of fiscal year 2024.

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

As of June 30, 2023, there were two milestones remaining of $1.0 million each under these agreements.

As of December 29, 2023, there were two milestones remaining of $1.0 million each under these agreements.

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 June 30, 2023, our non-cancellable supplier purchase obligations totaled $8.2 million.

As of December 29, 2023, our non-cancellable supplier purchase obligations totaled $8.2 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 June 30, 2023 and September 30, 2022.

We did not have any material contingent liabilities as of December 29, 2023 and September 29, 2023.

Legal expenses are expensed as incurred.

Days Sales Outstanding

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

Trade accounts receivable days sales outstanding (“DSO”) was 67 days at December 29, 2023 and 65 days at September 29, 2023.

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 June 30, 2023 was approximately $367 million.

Our estimated total backlog at December 29, 2023 was approximately $299 million.

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

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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