What changed in this filing

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Item 1A. Risk Factors

2024-05-02 compared with 2024-02-06 · 23 added, 18 removed, 412 unchanged (9% of the section changed)

3 unchanged sentences

We sell our products and services to a limited number of OEM customers, many of which are also our competitors, and a reduction in or loss of business of one or more of these customers may materially reduce our sales.

We had one customer during the three months ended December 29, 2023 that accounted for 15% of our revenue.

Our ten largest customers as a group accounted for approximately 52% and 55% of our revenue for the three months ended December 29, 2023 and December 30, 2022, respectively.

We had one customer during the three months ended March 29, 2024 that accounted for 22% of our revenue.

Our ten largest customers as a group accounted for approximately 55% and 53% of our revenue for the three months ended March 29, 2024 and March 31, 2023, respectively.

Our ten largest customers as a group accounted for approximately 53% and 51% of our revenue for the six months ended March 29, 2024 and March 31, 2023, respectively.

Because we often take significant time to replace lost business, in the past our operating results have been, and in the future it is likely that our operating results would be, materially and adversely affected if one or more of our major OEM customers were to cancel, delay, or reduce orders in the future.

Furthermore, we generate significant accounts receivables from the sale of our products and the provision of services directly to our major customers.

One customer accounted for 8.2% of our accounts receivables as of December 29, 2023.

One customer accounted for 13.9% of our accounts receivables as of March 29, 2024.

If one or more of these customers were to cancel a product order or service contract, become insolvent, or otherwise be unable or fail to pay for our products and/or services in a timely manner, our operating results and financial condition could be materially and adversely affected.

41 unchanged sentences

More than half of our revenue is generated from customers located outside the United States, and is subject to global, regional, and country-specific economic instability, shifting political environments, changing tax treatment, and other risks associated with international manufacturing, operations, and sales.

Revenues generated from customers located outside the United States accounted for approximately 68% and 68% of our total revenues for the three months ended December 29, 2023 and December 30, 2022, respectively.

Revenues generated from customers located outside the United States accounted for approximately 69% and 71% of our total revenues for the three months ended March 29, 2024 and March 31, 2023, respectively and approximately 69% and 70% of our total revenues for the six months ended March 29, 2024 and March 31, 2023, respectively.

We intend to continue to expand our presence in international markets and expect to expend significant resources in doing so.

29 unchanged sentences

If these companies do not succeed, we could lose some or all of our investment in these companies.

In addition, we may incur significant costs and management resources to enforce our rights, protect our intellectual property and other assets, address disputes or legal claims that have arisen, are ongoing, or may arise in the future, and/or unwind, dispose of or terminate our arrangements with respect to these

In addition, we may incur significant costs and management resources to enforce our rights, protect our intellectual property and other assets, address disputes or legal claims that

have arisen, are ongoing, or may arise in the future, and/or unwind, dispose of or terminate our arrangements with respect to these investments.

There is no guarantee that the time and money invested by us in these projects, developed intellectual property, or product or product enhancements, will yield the expected returns on the anticipated timeline or at all.

8 unchanged sentences

If either party is successful, the prevailing party would be required to purchase the non-prevailing party’s interest in the joint venture for an amount equal to 75% of the fair market value thereof, which amount is in dispute.

In February 2024, Varex Imaging Deutschland AG filed another lawsuit to enforce its version of similar shareholder resolutions passed in January 2024.

Product defects or misuse may result in material product or other liability or professional errors and omissions claims, litigation, investigation by regulatory authorities, or product recalls.

95 unchanged sentences

As a result, our sales in China have also slowed.

We expect the investigations to continue into fiscal year 2024, and this could continue to adversely impact revenues in our China business.

We expect the investigations to continue during fiscal year 2024, and this could continue to adversely impact revenues in our China business.

Increasing tensions between China and Taiwan may cause the United States and/or China to impose higher tariffs, commence trade wars, move more quickly to reduce their dependence on each other’s goods, or enact boycotts against each other’s goods, which could cause significant disruptions in the markets and industries we serve, and in our supply chain, decrease demand from customers for the ultimate products using our solutions, and materially harm our business, financial condition and results of operations.

In response to Russia's ongoing aggression against Ukraine, as substantially enabled by Belarus, the United States Department of Commerce strengthened its existing sanctions under the Export Administration Regulations against Russia and Belarus.

The enhanced sanctions would require Bureau of Industry and Security export licenses in order to export our products, including for medical, health and safety, or humanitarian purposes, to Russia and Belarus.

The enhanced sanctions require Bureau of Industry and Security export licenses in order to export our products, including for medical, health and safety, or humanitarian purposes, to Russia and Belarus.

Applications for the export of products to Russia or Belarus will be reviewed under a policy of denial and reviewed on a case-by-case basis.

157 unchanged sentences

Risks Relating to Our Indebtedness

The ABL Facility and the indenture governing our Senior Secured Notes impose significant operating and financial restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests and may limit our ability to make payments on the notes.

The Revolving Credit Facility and the indenture governing our Senior Secured Notes impose significant operating and financial restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests and may limit our ability to make payments on the notes.

Because our Convertible Notes mature in June 2025, failure to maintain sufficient liquidity and/or to refinance our Convertible Notes could result in a material adverse effect on our results of operations and financial position.

As of December 29, 2023, our total combined indebtedness was approximately $447.8 million of principal, including our 4.00% Convertible Senior Unsecured Notes due 2025 (the "Convertible Notes") and our 7.875% Senior Secured Notes due 2027 (the “Senior Secured Notes”).

As of March 29, 2024, our total combined indebtedness was approximately $447.3 million of principal, including our 4.00% Convertible Senior Unsecured Notes due 2025 (the "Convertible Notes") and our 7.875% Senior Secured Notes due 2027 (the “Senior Secured Notes”).

For more information regarding our borrowings, see Note 9, Borrowings of the Notes to the Condensed Consolidated Financial Statements of this report.

Our $100.0 million ABL Facility and the indenture governing our Senior Secured Notes impose significant operational and financial restrictions on us that include, but are not limited to our ability to:

Our $155.0 million Revolving Credit Facility and the indenture governing our Senior Secured Notes impose significant operational and financial restrictions on us that include, but are not limited to our ability to:

• incur, assume, or permit to exist additional indebtedness (including guarantees thereof);

17 unchanged sentences

• unable to compete effectively or to take advantage of new business opportunities.

A breach of the covenants under the indenture governing our Senior Secured Notes or the ABL Facility could result in an event of default under the applicable indebtedness.

Such a default, if not cured or waived, may allow the creditors to accelerate the related debt, may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision, and would permit the lenders under the ABL Facility to terminate all commitments to extend further credit under the ABL Facility.

Furthermore, if we were unable to repay the amounts due and payable under the ABL Facility, those lenders could proceed against the collateral securing such indebtedness.

A breach of the covenants under the indenture governing our Senior Secured Notes or the Revolving Credit Facility could result in an event of default under the applicable indebtedness.

Such a default, if not cured or waived, may allow the creditors to accelerate the related debt, may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision, and would permit the lenders under the Revolving Credit Facility to terminate all commitments to extend further credit under the Revolving Credit Facility.

Furthermore, if we were unable to repay the amounts due and payable under the Revolving Credit Facility, those lenders could proceed against the collateral securing such indebtedness.

In the event our lenders or holders of the notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

1 unchanged sentence

Our Convertible Notes mature in June 2025, and the conversion price is currently above the trading price of our common stock.

If the holders of the Convertible Notes have not converted their notes into our common stock, we currently anticipate we will need to refinance the Convertible Notes through a combination of borrowings under our ABL Facility, the entry into an expanded credit facility or the issuance of additional debt or equity securities, and cash.

Any future refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations.

1 unchanged sentence

As a result, the indenture may prevent us from using the proceeds from such dispositions to satisfy our debt service obligations.

Our ability to continue to have the necessary liquidity to operate our business may be adversely impacted by a number of factors, and a deterioration of our results of operations and cash flow resulting from decreases in consumer spending, could, among other things, impact our ability to comply with the fixed charge coverage ratio contained in our ABL Facility.

Our ability to continue to have the necessary liquidity to operate our business may be adversely impacted by a number of factors, and a deterioration of our results of operations and cash flow resulting from decreases in consumer spending, could, among other things, impact our ability to comply with the consolidated fixed charge coverage ratio and the consolidated total net leverage ratio contained in our Revolving Credit Facility.

Our historical sources of liquidity to fund ongoing cash requirements include cash flows from operations, cash and cash equivalents, borrowings through our previous credit facility, and debt offerings.

4 unchanged sentences

the level of our cash flows, which will be impacted by customer demand for our products;

compliance with a fixed charge coverage ratio that is included in our ABL Facility;

compliance with a fixed charge coverage ratio that is included in our Revolving Credit Facility;

and interest rate fluctuations.

1 unchanged sentence

We cannot be certain that any additional required financing, whether debt or equity, will be available in amounts needed or on terms acceptable to us, if at all.

The ABL Facility contains a minimum Fixed Charge Coverage Ratio of 1.00 to 1.00 that is tested when excess availability under the ABL is less than the greater of (i) 10.0% of the Loan Cap (the lesser of (a) the aggregate commitments under the ABL Facility and (b) the aggregate borrowing base) and (ii) $7.5 million.

Adverse developments in the economy in the past have led and in the future could lead to reduced spending by our customers and end-users which could adversely impact our net sales and cash flow, which could affect our ability to comply with the fixed charge coverage ratio.

The Revolving Credit Facility contains a minimum consolidated fixed charge coverage ratio of 1.25 to 1.00 and a maximum consolidated total net leverage ratio (the “CTNL Ratio”).

For the period from March 26, 2024 to the fiscal quarter ending June 27, 2025, the CTNL Ratio may not exceed 4.25:1.00, for the period from the fiscal quarter ending September 26, 2025 to June 26, 2026, the CTNL Ratio may not exceed 3.75:1.00, and for the period from the fiscal quarter ending September 25, 2026 and thereafter, the CTNL Ratio may not exceed 3.50:1.00.

Each ratio is tested on the last day of each fiscal quarter.

We entered into certain hedging positions that may affect the value of the Convertible Notes and the volatility and value of our common stock.

27 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 1A. Risk Factors