What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2024-02-06 · 102 added, 55 removed, 199 unchanged (44% of the section changed)

15 unchanged sentences

• 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;

• limitations imposed by operating and financial restrictions of our debt financing agreements that 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.

26 unchanged sentences

Impact of General Economic Environment

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

We remain cautious about the general economic environment 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.

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.

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.

We have experienced fewer supply chain, manufacturing, and logistics challenges in fiscal year 2024 than in fiscal year 2023.

However, shortages of certain materials and delivery delays from some suppliers have caused, and may in the future cause, delays in manufacturing products, as well as operational and customer order fulfillment challenges.

In addition, since late 2023 our Medical business has been negatively impacted by the China government initiated anti-corruption campaign related to the healthcare industry and more recently we have experienced cautious purchasing behaviors by our customers.

We expect these trends to continue through the remainder of fiscal year 2024.

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

61 unchanged sentences

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

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

The fiscal quarters ended March 29, 2024 and March 31, 2023 were both 13-week periods.

The two fiscal periods ended March 29, 2024 and March 31, 2023 were both 26-week periods.

Discussion of Results of Operations for the Three Months Ended March 29, 2024 Compared to the Three Months Ended March 31, 2023

Revenues, net

Three Months Ended

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

(In millions) March 29, 2024 March 31, 2023 $ Change % Change

Medical $ 148.8 $ 174.1 $ (25.3) (14.5) %

3 unchanged sentences

Industrial as a percentage of total revenues 27.8 % 23.7 %

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

Medical revenues decreased $25.3 million, primarily due to decreased sales of radiographic and dental, partially offset by increased sales in CT.

Industrial revenues increased $3.3 million, primarily due to increased sales of security inspection products, partially offset by decreased sales of digital detectors.

Three Months Ended

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

(In millions) March 29, 2024 March 31, 2023 $ Change % Change

Medical $ 44.7 $ 51.7 $ (7.0) (13.5) %

4 unchanged sentences

Total gross margin 31.9 % 31.9 %

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.

The decrease in Medical segment gross profit was primarily due to decreased sales volume and an unfavorable shift in product sales mix.

The Industrial segment gross profit remained flat, even though Industrial revenues increased by 6.1%, primarily due to an unfavorable shift in product sales mix.

Operating Expenses

Three Months Ended

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

(In millions) March 29, 2024 March 31, 2023 $ Change % Change

Research and development $ 22.6 $ 23.0 $ (0.4) (1.7) %

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 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.

Research and development costs increased to 11.0% of revenues for the second quarter of fiscal year 2024, primarily due to decreased sales.

Selling, General, and Administrative

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.

Selling, general, and administrative expenses for the second quarter of fiscal year 2024 increased $1.4 million, primarily due to increased fixed cost commitments to a supplier and increased litigation costs.

Interest and Other Expense, Net

1 unchanged sentence

Three Months Ended

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

(In millions) March 29, 2024 March 31, 2023 $ Change

Interest income $ 1.8 $ 0.7 $ 1.1

2 unchanged sentences

Interest and other expense, net $ (5.4) $ (7.8) $ 2.4

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 (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.

Interest expense increased in the second quarter of fiscal year 2024 compared to the second quarter of 2023.

Interest expense increased primarily due to the termination of the ABL facility which resulted in the recognition of $0.6 million of unamortized deferred issuance costs.

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

Taxes on Income

For the three months ended March 29, 2024, we recognized income tax expense of $0.7 million on $2.3 million of pre-tax income.

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.

Our tax expense for the three months ended March 29, 2024 decreased, primarily due to decreased pre-tax income in certain jurisdictions, partially offset by losses in certain foreign jurisdictions for which no benefit can be recorded.

Discussion of Results of Operations for the Six Months Ended March 29, 2024 Compared to the Six Months Ended March 31, 2023

Six Months Ended

(In millions) March 29, 2024 March 31, 2023 $ Change % Change

Medical $ 288.7 $ 334.2 $ (45.5) (13.6) %

Industrial 107.5 99.6 7.9 7.9 %

Total revenues $ 396.2 $ 433.8 $ (37.6) (8.7) %

Medical as a percentage of total revenues 72.9 % 77.0 %

Industrial as a percentage of total revenues 27.1 % 23.0 %

Medical revenues decreased $45.5 million, primarily due to decreased sales of radiographic, dental, fluoroscopic, and oncology, partially offset by increased sales in mammography.

Industrial revenues increased $7.9 million, primaril y due to increased sales of security inspection products, partially offset by decreased sales of digital detectors.

Six Months Ended

(In millions) March 29, 2024 March 31, 2023 $ Change % Change

Medical $ 83.6 $ 98.0 $ (14.4) (14.7) %

Industrial 39.3 38.0 1.3 3.4 %

Total gross profit $ 122.9 $ 136.0 $ (13.1) (9.6) %

Medical gross margin % 29.0 % 29.3 %

Industrial gross margin % 36.6 % 38.2 %

Total gross margin % 31.0 % 31.4 %

The decrease in Medical segment gross profit was primarily due to decreased sales volume and an unfavorable shift in product sales mix.

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

Operating Expenses

Six Months Ended

(In millions) March 29, 2024 March 31, 2023 $ Change % Change

Research and development $ 43.1 $ 43.0 $ 0.1 0.2 %

As a percentage of total revenues 10.9 % 9.9 %

Selling, general, and administrative $ 67.9 $ 64.4 $ 3.5 5.4 %

As a percentage of total revenues 17.1 % 14.8 %

Operating expenses $ 111.0 $ 107.4 $ 3.6 3.4 %

As a percentage of total revenues 28.0 % 24.8 %

Research and Development

Research and development costs increased to 10.9% of total revenues primarily due to decreased sales.

Selling, General, and Administrative

Selling, general, and administrative expenses for the six months ended March 29, 2024 increased to 17.1% of total revenues primarily due to increased fixed cost commitments to a supplier, increased litigation costs, and increased severance costs.

Interest and Other Expense, Net

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

Six Months Ended

(In millions) March 29, 2024 March 31, 2023 $ Change

Interest income $ 3.7 $ 1.2 $ 2.5

Interest expense (15.2) (14.8) (0.4)

Other income (expense), net 1.3 (1.8) 3.1

Interest and other expense, net $ (10.2) $ (15.4) $ 5.2

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

Interest expense increased during the six months ended March 29, 2024 primarily due to the termination of the ABL facility which resulted in the recognition of $0.6 million of the remaining unamortized deferred issuance costs.

During the six months ended March 29, 2024, we realized Other income (expense), net of $1.3 million compared to Other income (expense), net of $(1.8) million during the six months ended March 31, 2023, primarily due to a gain on business acquisition and decreased losses in certain investments in privately-held companies and equity investments, partially offset by increased foreign exchange expense.

Taxes on Income

For the six months ended March 29, 2024, we recognized an income tax expense of $0.5 million on $1.7 million of pre-tax income.

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

Our tax expense for the six months ended March 29, 2024 decreased, primarily due to decreased pre-tax income in certain jurisdictions, partially offset by 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, 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 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.

We believe that our operating cash flow, cash on our balance sheet, availability under our Revolving Credit 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.

The availability under our Revolving Credit Facility is $155.0 million.

As of March 29, 2024, our Revolving Credit Facility remains undrawn.

At March 29, 2024, we had total debt of $442.9 million, net of deferred issuance costs of $4.4 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 29, 2023 September 29, 2023 $ Change

(In millions) March 29, 2024 September 29, 2023 $ Change

Cash and cash equivalents $ 141.8 $ 152.6 $ (10.8)

Certificates of deposit not included in cash and cash equivalents

Marketable securities not included in cash and cash equivalents

52.2 41.3 10.9

Certificates of deposit 1.0 1.0 —

Marketable securities 47.1 41.3 5.8

$ 189.9 $ 194.9 $ (5.0)

The following table summarizes the changes in our debt outstanding:

December 29, 2023 September 29, 2023

March 29, 2024 September 29, 2023

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

12 unchanged sentences

Total debt outstanding, net $ 442.9 $ 442.6 $ 0.3

Three Months Ended

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

Six Months Ended

(In millions) March 29, 2024 March 31, 2023

Net cash flow (used in) provided by:

2 unchanged sentences

Financing activities (3.0) (0.9)

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 $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 (decrease) increase in cash and cash equivalents and restricted cash $ (10.8) $ 15.2

Net cash provided by operating activities.

Net cash provided by operating activities was $13.4 million and $23.6 million for the six months ended March 29, 2024 and March 31, 2023, respectively.

The decrease in cash provided by operating activities was primarily due to increased cash outflows related to accrued liabilities and other current and long-term liabilities and a decrease in non-cash adjustments to income when compared to the six months ended March 31, 2023, partially offset by reduced cash outflows related to accounts payable.

Net cash used in investing activities.

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 investing activities was $21.2 million and $7.5 million for the six months ended March 29, 2024 and March 31, 2023, respectively.

The increase in cash used in investing activities was primarily due to increased purchases of property, plant, and equipment and increased purchases of marketable debt securities, during the six months ended March 29, 2024, partially offset by the settlement of net investment hedges in the prior year.

Net cash used in financing activities.

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.

Net cash used in financing activities was $3.0 million and $0.9 million for the six months ended March 29, 2024 and March 31, 2023, respectively.

The increase in cash used in financing activities was primarily due to increased cash payments related to debt issuance costs and taxes for net share settlement of equity awards for the six months ended March 31, 2023.

Material Contractual Obligations

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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 March 29, 2024, the Company estimated it has $9.4 million related to this fixed cost commitment remaining for calendar year 2024.

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 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.

As of March 29, 2024, 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.

2 unchanged sentences

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

During the second quarter of fiscal year 2024, an additional milestone was achieved and the Company paid $1.0 million to the third-party company.

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

As of March 29, 2024, there was one milestone remaining of $1.0 million 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 December 29, 2023, our non-cancellable supplier purchase obligations totaled $8.2 million.

As of March 29, 2024, our non-cancellable supplier purchase obligations totaled $7.7 million.

Contingencies

2 unchanged sentences

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 29, 2023 and September 29, 2023.

We did not have any material contingent liabilities as of March 29, 2024 and September 29, 2023.

Legal expenses are expensed as incurred.

Days Sales Outstanding

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

Trade accounts receivable days sales outstanding (“DSO”) was 67 days at March 29, 2024 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.

3 unchanged sentences

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

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

Our estimated total backlog at March 29, 2024 was approximately $330 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