SALT LAKE CITY, Utah – Varex Imaging (NASDAQ:VREX) Corporation (NASDAQ:VREX), a manufacturer of electronic components, announced today an amendment to its senior secured revolving credit agreement to increase its financial flexibility.
The amendment, effective as of today, was made to the credit agreement originally dated March 26, 2024, with Zions Bancorporation (NASDAQ:ZION), N.A. DBA Zions First National Bank, serving as the administrative and collateral agent.
The changes to the agreement include an adjusted definition of Payment Conditions, allowing the company to make restricted payments on its convertible notes when the Consolidated Net Leverage Ratio exceeds 2.50:1:00, up to the greater of 50% of Consolidated Net Income or $50 million. Previously, the limit was set strictly at 50% of Consolidated Net Income.
Additionally, the definition of Consolidated Fixed Charge Coverage Ratio (FCCR) has been modified to exclude payments on convertible notes from covenant measurement, accommodating for any prepayments or payment in full on these notes, which total to a cap of $200 million.
In terms of debt calculation, for the fourth quarter of fiscal 2024 and the first and second quarters of fiscal 2025, the definition of Consolidated Total Net Indebtedness will allow for a reduction by the lesser of the aggregate amount of unrestricted cash and cash equivalents or $150 million, an increase from the previous $100 million.
This adjustment pertains solely to the calculation of the Consolidated Total Net Leverage Ratio for financial covenant compliance and does not affect other determinations such as Payment Conditions or the Applicable Margin, which influences the interest rate, L/C fees, and the unused commitment fee.
In other recent news, Varex Imaging has been experiencing mixed financial results, with a 10% decline in revenue in the third quarter of fiscal year 2024, particularly in the Medical segment which saw a 15% decrease. However, the Industrial segment reported a 6% increase in revenue.
The company ended the quarter with a strong cash position of $192 million. Analyst firm B.Riley initiated coverage on Varex Imaging, highlighting the company's potential for growth and recovery, and set a price target of $21.00. The firm anticipates that the current challenges will turn into growth opportunities by 2025.
Varex Imaging is also considering refinancing options for convertible bonds maturing in June 2025. The company remains focused on navigating current challenges and capitalizing on future growth opportunities, including product innovation and market expansion.
Looking ahead, Varex anticipates gradual improvements in fiscal year 2025, particularly in the Industrial sector.
InvestingPro Insights
As Varex Imaging Corporation (NASDAQ:VREX) amends its credit agreement to enhance financial flexibility, it's important to consider the company's current financial position and market performance. According to InvestingPro data, Varex has a market capitalization of $464.59 million and is trading at a P/E ratio of 13.59, with an adjusted P/E ratio of 10.57 for the last twelve months as of Q3 2024. Despite a challenging market, with a revenue decline of 7.21% over the same period, the company maintains a gross profit margin of 32.16%, underscoring its ability to retain earnings efficiency amidst revenue fluctuations.
InvestingPro Tips indicate that while analysts have revised their earnings expectations downwards for the upcoming period, they also predict Varex will remain profitable this year. The company's strong free cash flow yield is a positive sign for investors, despite trading at a high P/E ratio relative to near-term earnings growth. Notably, Varex's liquid assets exceed its short-term obligations, providing a cushion for operational needs. However, it's worth noting that the company does not pay a dividend, which might be a consideration for income-focused investors.
For those seeking a deeper analysis, InvestingPro offers additional tips on Varex, revealing a comprehensive view of the company's financial health and market prospects. As Varex navigates the complexities of the current economic landscape, these insights could prove invaluable for investors making informed decisions.
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