Q2 2021 Varex Imaging Corp Earnings Call
Greetings and welcome to the Barrick two Q FY 'twenty one earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being.
Recorded I will now turn the conference over to your host Howard Goldman Director of Investor Relations Howard you may begin.
Good afternoon, and welcome to <unk> Imaging Corporation's earnings conference call for the second quarter of fiscal year, 2020 one.
With me today are sunny Sanyal, our president and CEO and Sam Maheshwari our CFO.
Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at <unk> website at investors Dot and barrick's imaging dot com.
The webcast and a supplemental slide presentation will be archived on <unk> website.
To simplify our discussion unless otherwise stated all references to the quarter or for the second quarter of fiscal year, 2020 one and.
In addition, unless otherwise stated quarterly comparisons are made sequentially from the second quarter of fiscal year, 2020 one.
First quarter and fiscal year, 2020, one rather than to the same quarter of the prior year.
Please be advised that during this call we will be making forward looking statements, which are predictions or projections about future events.
These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.
Risks relating to our business are described in our quarterly earnings release, and our filings with the.
Additional information concerning factors that could cause actual results to materially differ from those anticipated and it seems.
And in our SEC filings, including item one a risk factors of our quarterly reports on form 10-Q, and our annual report on form 10-K.
The information and this discussion speaks as of today, and we assume no obligation to update or revise the forward looking statements and this discussion.
On today's call, we will discuss certain non-GAAP financial measures.
These non-GAAP financial measures are not presented in accordance with nor are they a substitute for GAAP financial measures.
We provided a reconciliation of each non-GAAP financial measure to the.
And most directly comparable GAAP financial measure and our earnings press release.
Which is posted on our website and.
And now I'll turn the call over to Sun.
Thank you Howard and good afternoon, everyone and welcome.
And I'm pleased to report that our financial results for the second quarter were stronger than our expectations and revenue exceeded pre COVID-19 levels.
Continued strong global TT tube sales and higher sales of industrial digital detectors drove this growth.
Demand for our other medical imaging products related to certain elective medical procedures also increased.
Our revenues and the second quarter increased 15% sequentially due to gains in both medical and industrial segments revenues.
Revenues increased 3% year over year.
Our non-GAAP gross margin increased to 35% due to higher volume and a favorable product mix.
Our non-GAAP operating expense declined sequentially and year over year.
Selecting benefits from previous cost reduction actions.
Our non-GAAP operating margin improved to 13% of revenues.
As a result, non-GAAP EPS was <unk> 35.
And exceeded the top end of our guidance range.
Next let me give you some high level insights into how our different modalities and applications trended during the quarter.
Medical segment revenues increased 13% sequentially and 1% year over year.
Momentum and C. T tube sales, which has been building over a number of quarters remained strong and Q2.
Many of these tubes were for new systems, which are also expected to result in future sales of replacement tubes.
And our other medical modalities oncology mammography and radiography also saw growth, while a fluoroscopy and dental remained flat.
We believe this growth is due to demand that had been deferred over the past year as well as from expansion of health care services and some markets.
Revenues and our industrial segment increased 24% sequentially and 13% year over year.
In Q2 demand for digital detectors for non destructive inspection increased across several of our industrial verticals.
However, demand for our imaging products for security screening at ports and borders as well as baggage screening and airports continue to lag.
Now I'd like to take a few minutes to highlight the great work, we're doing and our extra tubes fitness.
And future I'll highlight other areas of our business and the same way.
Yeah.
Demand for new <unk> systems in China, and upgrades of <unk> systems globally are driving growth and our tubes business.
And China, we believe demand is likely to grow and approximately 10% a year for the next several years due to increased installations at fever clinics and a focus on making rural health systems more self reliant.
Our strategy and China has been to establish relationships with local Oems I'm happy to say that of the initial 12 <unk> projects, we have been working on with eight local Oems nine.
Nine projects have been brought to market and three are still in process.
We believe that local Chinese Oems have made very good progress and currently account for approximately 40% of C T cells and China.
Based on our experience new Oems tend to initially focus on gaining market share through launching entry level systems.
This has occurred in China for the <unk> modality.
We are now seeing that the local Oems sorry, ready to expand into 64, 128, and higher slice Cte system projects and order to provide greater diagnostic imaging capabilities, including systems that are needed for cardiac procedures.
These projects are potential future opportunities for us and the relationships that we have built with these Oems over the past five years will play a significant role and our continued success and the China market.
As part of our local for local strategy, our Wuxi facility continued to scale up loading of extra tubes for the China market.
By loading tubes, we mean assembling the extra tube inner core into locally sourced housings for Oems and specific customization and final testing before shipping to our customers.
Over the past year, while most of our customers maintained momentum with their current R&D projects.
Any of them had slowed down their commitments to new R&D projects, while they assess the market situation.
During the quarter, we saw an increase and momentum in new product development activity within our customer base across their X Ray imaging product lines, which we interpret as a reflection of their confidence and the markets that they serve.
Our own R&D activity on the other hand did not slow down.
Later this fiscal year, we plan to introduce two new Cte tubes, specifically for high and $2 56, and $3 20 slides <unk> systems.
During the quarter, our software business received FDA five 10-K clearance for an enhanced version of our <unk> lung screening application, which uses artificial intelligence for automated detection of suspicious nodules.
And at the same time during the past few quarters, we have continued to make progress with our investments and innovation focused on nanotube technology.
Now I'd like to share some additional details about this exciting new technology being developed through our joint venture <unk> imaging.
Simplicity throughout this nanotubes discussion my use of the word our refers to our joint venture where we own 50%.
First let me start by outlining the differences between conventional exit X ray tubes that use term ionic filament technology, and our cold cathode nanotubes technology.
On the left hand side of the slide you will see that conventional X ray tubes require and electric power source to heat up a filament.
Operating temperatures can get up to 2400 degree Celsius.
In addition, the ability to place conventional emission sources close to each other is limited a term that we call packing density.
And contrast, our nanotube technology uses a localized electric field to extract electrons from solid state emitters.
This technology operates at room temperature and has very high switching speeds.
Due to its form factor and high packing density are nanotubes technology enables us to design extra tubes were many meters can be sequentially arranged and turned on or off at high speeds.
These multi beam X ray tubes can offer increased design flexibility to build lighter mechanically simpler and more compact imaging systems.
We believe that our nanotubes technology will provide many benefits over conventional X ray sources.
First and foremost we believe that systems designed using NAV two based X Ray sources will significantly lower the total cost of ownership for hospitals and imaging centers.
For example, and a Cta application.
The lower TCE could be realized by eliminating the very heavy rotating gantry along with numerous interconnected parts pieces and components that are needed to support the complex mechanical design.
These electromechanical components add cost complexity and weight and.
And requires significant downtime and expenses to maintain repair and replace over the life of the system.
In contrast systems designed unit using our nanotube technology could have very few if any moving parts and would be much simpler and design.
On a significantly smaller footprint and way much less.
Simplicity is expected to result, and lower maintenance costs and significantly reduced system downtime.
In addition, the next generation systems would be smaller lighter and portable and could give health care organizations additional flexibility and their care delivery process.
We believe the combination of our nanotube technology and <unk> multi decade long experience with designing and manufacturing X Ray sources will enable our customers to redefine medical imaging in the coming years.
To give you a status update our R&D efforts with nanotube technology is progressing well.
X Ray sources are characterized by energy and mission and a few other parameters.
We have achieved our intended energy output of 40 to 180 kilovolt at different emission levels measured and <unk>.
We are now conducting accelerated life testing of different configurations of tubes.
Well I liked testing is ongoing to date, we have completed over 1 billion projections per emitter and 160 <unk>.
We believe this is the equivalent of several years of emitter of life for our typical <unk> application.
We are encouraged by these results and are continuing to move forward with our product development efforts.
With that let me hand over the call to Sam.
Thanks, Tony and Hello, everyone before getting to our numbers I would like to acknowledge net on March 31, Our audit committee appointed Deloitte as our new external auditor.
There were no disagreements with over prior auditors' on any matter of accounting principles and practices financial statement disclosures are auditing scope on procedures, we look forward to working with Deloitte.
And as a reminder, unless otherwise indicated I will provide sequential comparison of our results for the second quarter of fiscal year 2021 with those of our first quarter of fiscal 'twenty one.
Well go next day Leawood excellent results for the quarter driven by broad based strengthening of our business across both of our segments for the quarter, both revenue and non-GAAP earnings per share well above the top end of the guidance range.
Second quarter revenues were $204 million, a sequential increase of 15% from the first quarter.
Medical revenues were $157 million and industrial revenues were 47 million on us this translated to 77% medical and 23% industrial sales sequentially medical sales grew 13%, while industrial sales saw a strong 24% growth.
On a regional basis, all three avs saw robust sequential growth.
<unk> grew 15% overall with higher growth and the industrial segment.
EMEA grew 17%, while APAC grew 14%.
Let me now, Colorado and results on a GAAP basis second quarter gross margin was 32% and flat sequentially with the previous quarter operating expenses were down $2 million.
Compared to the first quarter and interest expenses were $10 million.
Earnings per diluted share on <unk> compared to a loss of <unk> 16, and the prior quarter.
Moving on to non-GAAP results for the quarter gross margin was 35% a sequential improvement of 100 basis points from the first quarter driven by higher sales volume and a favorable product mix.
Freight and logistics costs and high and we expect them to remain high until the ocean freight related delays and uncertainties subside and the air freight volume normalize it.
And I want to remind you that our gross margin can fluctuate from quarter to quarter due to segment mix between medical and industrial product mix within each segment customer concentration and cost performance and factory utilization levels driven by sales volume.
Our gross margin has improved sequentially from 28% and the last quarter of fiscal 'twenty to 34% and Q1 and now to 35% and Q2.
This performance is due to increased and sales volume favorable mix and through our initiatives to improve efficiencies and our manufacturing and servicing activities.
R&D spending and the second quarter was $18 million on 9% of revenues R&D was 41% of operating expenses in Q2, as compared to 37% and Q1, reflecting our spending prioritization towards innovation and new products.
SG&A was $26 million and Q2 as compared to $29 million and the prior quarter and then.
Result, operating expenses were $45 million and down approximately $1 million sequentially due to a decline and SG&A offset by increase in R&D.
And I've kept operating expenses and control while successfully meeting increased customer demand in these challenging times, leading to a significant improvement and product sales in the last six months.
Overall, our strategy to deliver higher earnings through improved operating leverage is on track and working well.
Operating earnings increased significantly to $26 million on 13% of revenue as compared to $14 million on 8% of revenue and the previous quarter.
Tax expense and the second quarter was less and $1 million as compared to $2 million and the previous quarter.
During Q2, we had two large favorable items and taxes that drove a $2 million benefit and resulted in an unusually low tax expense for Q2.
One item was related to German taxes, and the other was related to the Netherlands R&D tax credits as a result, there was a onetime benefit to EPS of <unk> <unk> per share in Q2.
Net earnings more than quadrupled from Q1 to $14 million on <unk> <unk> per diluted share.
This compares to net earnings of $3 million on <unk> per diluted share in Q1.
Now turning to the balance sheet.
Accounts receivables increased by $8 million due to higher sales. However, our collection efforts on efficient with DSO down by four days to 58 days.
Our efforts to reduce inventory and materialized in Q2 with inventory down by a healthy $22 million.
This is a priority for us and as a reminder, we are targeting a total inventory and reduction of $25 million to $30 million during the current fiscal year.
For the first half, we've got inventory down by about $24 million.
Accounts payable decreased by $16 million to minimize supply chain and the uncertainties and improve efficiencies of our overall operations and the result days payables dropped to 34 days.
Now moving to debt and cash flow information cash flow from operations improved to $13 million, while no interest related coupon payment was due in Q2, we did paid $9 million and taxes and Germany for fiscal year 17 through 20.
We ended the quarter with cash of $111 million on the balance sheet and increase of $6 million in the quarter.
Gross debt outstanding was $512 million and debt net of cash came down to $401 million, reflecting our priority to continue to de lever on a net debt basis.
Adjusted EBITDA was $33 million and the second quarter, a significant improvement from $22 million and the prior quarter.
And I'm pleased to note that if you were to annualize our first half fiscal 'twenty, one EBITDA performance the net debt leverage ratio at the end of Q2 would be three seven times.
This reflects excellent progress towards our goal of a leverage ratio of three times.
In summary, our previously stated financial strategy of improving capital leverage and operating leverage is working well I want to take a moment to tack on robotics colleagues worldwide for their tremendous efforts to enable these results and such challenging times.
Now moving on to our business outlook for Q3.
<unk> demand environment continues to remain strong for us and allows us to provide the following guidance for Q3.
Revenues between $195 million to $215 million and non-GAAP earnings per diluted share between 15 and 35.
Our expectations are based on non-GAAP gross margin and a range of 33% to 35% and non-GAAP operating expenses and a range of 44% to $45 million.
With that we will now open the call for your questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two if he would like to remove your questions on the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star.
Our first question is from Larry Solow with CJS Securities. Please proceed with your question.
Thank you and.
Good evening, I guess or good afternoon.
I guess a couple questions on <unk>.
Perhaps on a you can just a quick order and it sounds like.
Certainly sequentially Youre seeing some improvement on the medical side and some of your markets, but it sounds like not everything has come back and perhaps on the same on the industrial side. It looks like incrementally certain things on doors are opening more for you, perhaps but not fully there yet, but yet your <unk> numbers.
Quantitatively were high.
Hi, I'm, even above on your on your revenue expectations and yet you kept your operating expenses in line. Despite that higher revenue. So perhaps you could just give us a little color qualitatively on the different markets and sequential improvements.
Hey, Larry Thanks.
So we had a very strong quarter and even sequentially Larry medical grew 13% so that was pretty strong performance sequentially.
What we saw was fairly broad based demand on the medical side.
As we've highlighted CPE, whereas Cte stood out in terms of its demand and it has been strong for the past several quarters, but beyond that we saw broad based demand across most of our modalities and as you know a couple of other modalities where demand was.
And that's a neutral sequentially was we pointed out a couple.
Laura and.
Florida and dental.
But those were those have been consistent over the last 12 months, so theres nothing really.
Nothing that stood out there.
This.
Modalities have their natural cycles, but what was encouraging for us was to see very strong broad based demand.
On the industrial side was very similar very strong broad based demand with.
And with electronics strength and electronics, we saw very good performance there and.
But again it wasn't a one off we have seen that trending up over the last several quarters and there is general strength and.
And so and some of those verticals so on and only segment only vertical within industrial that didn't.
Didn't grow much was.
Security cargo and airport that's it so I would characterize as Larry that demand and strength was broad based and we and Ken.
And at the same time, the going into the next quarter, we continue to see that type of strength as well.
And as you look into the next quarter and your guidance relative to what your numbers you just put up in Q2.
It seems like you'd have to sort of get to the high end of your guidance again to just match, what you put up and this quarter. So is there some hesitation on your part or are there certain things that you think might.
That was timing related that benefited you in Q2 that might not benefit you in Q3.
No there werent timing issues, we continue to see.
Rod based strength and broad based demand going into going forward also into the next quarter.
We've been we've tempered it a little bit looking at some of the supply chain challenges that are that are out there and.
We do not and we know at this point I can't put a finger on anything in particular other than there are challenges with freight, they're constrains and delays and freight and transportation. There are some shortages and materials that we're contending with and working through so on.
Cautiously we gave we gave the range that reflects some amount of.
Caution built into it and its all supply chain related there is no capacity constraint and the factory.
The equipment people those resources. So it's really it's going to come down to making sure that we have the parts and everything to deliver against that demand.
Got it and then just just one question on just on the China outlook, Obviously, you know a big demand, China, obviously wants to make everything internally.
And as you mentioned I think you said the local <unk> local Oems are providing 40% now of the <unk> business.
Over time and is there any outlook on that.
And the local Oems continued to build up.
Are these outside Oems I mean, typically at Siemens and GE, a day still selling considerably into this market or does it come a point, where it's only going to become you guys and I think Philips has provided to the local Oems.
Greater opportunity.
So look we had anticipated five years ago. When we went down this path we had anticipated that the local Chinese Oems will who at that time had virtually no share we had anticipated that they will grow in share and and.
And capture market share and they have done that now will they go from where they are to approximately 40% share to a lot higher than that.
To be seen but what we are seeing is that these local Oems are very successful and both.
Designing and bringing systems to market and they have also been commercially successful. These systems are working very well, there and providing service and support and so they have matured fairly rapidly that said the global Oems are also strong players in those markets and but.
They've benefited from the overall growth and the market, but we've also seen a shift and market share towards the local Oems and.
Our our play and this continues to remain strong and these Oems have continued on with their projects you'll recall, we've said eight eight.
And out of the 10 Oems had been working on projects with US we haven't lost a single project I mean these projects have continued on and these Oems on Advair.
Tenacity to continue and we have learned from it there were some just non nominal delays like you would expect out of any complex projects like this but they are continuing on and we've got three more projects that are moving forward of the initial 12 that had been started and then now we're encouraged to see more projects.
Starting to take shape. These are now driven by their desire to move into more of the higher tier and and.
And.
And <unk> systems, and what we anticipate is that the bread and butter cities and <unk> systems, and China will end up being the 64 and 128 slice systems.
So our expectation is that growth will continue from ongoing sales of new sockets into China and at the same time than the older <unk> systems and 16 slice systems that were sold and some of the newer systems will get into the higher tiers. So.
We're encouraged by it.
Excellent I appreciate that color thanks, Tony.
Thank you. Our next question is from Anthony Petrone with Jefferies. Please proceed with your question.
Hi, good afternoon, and then.
Hope everyone's doing well a couple of questions backlog and then and then a few follow ups on China on on backlog Sonny's, Norway actually to sort of quantify the security cargo screening backlog.
It's certainly been lagging through the pandemic, we'll expect it to continue to do so on the flip side. This is I believe the highest margin business for <unk>. So is there a way to sort of quantify what the backlog of orders looks like and.
Security cargo screening and then may be just timing as to when you can see and reversal and I'll have a few follow ups on China.
Yes, So let me answer this question Anthony Sam here.
In terms on the security high security cargo business that business.
Our industrial business overall for our sales runs around 20% and out of that 20% less than a third of.
The industrial business goes through the security cargo and port inspection et cetera, so for a number of quarters.
That business has been lagging and soft.
So you could see how much the backlog might be building up out there.
But for all of this to come back, particularly on the travel and baggage inspection side, we need to see.
Travel resume and then airports.
Leasing capex, so that should help us don't really have a good idea in terms of how much of the backlog is out there a pent up demand might be there when travel resumes in terms of poured and cargo inspection et cetera.
It is somewhat lumpy and.
And it can come in and a quarter and then it can remain soft for a couple of quarters, we expect that dynamic on the cargo and poured inspection side to continue.
We are encouraged by what's happening in terms of the oil and.
And customer demand in terms of the port inspection and cargo inspection, so that should pick up sooner than travel that's our current and current expectation.
Great and then that Port just a quick follow up there on the port side.
You mentioned on the 20% of overall industrial one third of that is airport screening.
And when should we assume net one third is is cargo port screening is that the right math on that piece of it.
And if industrial is cargo plus port plus airport back and what we call on security.
Got it okay and shifting.
China and maybe.
A little bit on the OEM contracts, specifically that you announced and you announced some some some new contracts for newer systems, just maybe an idea of of how many of those systems are and clinical trial development. How many are gearing up for commercial installation and so that would be.
The first question and then.
Lastly, on China, just an update on the Wuxi manufacturing plant, where that plant sits in terms of its capacity today and.
And over time, we'll wuxi exclusively be supplying into China. Thanks.
And secondly, the Sunny let me start with the latter part of the question.
So wishy has been scaling up nicely and.
To do both.
Manufacturing and detector manufacturing the tube manufacturing side is what we call us.
Might characterize it as light manufacturing and there we can we.
And we started out with aftermarket tubes, but now we're making we're doing like manufacturing and OEM tubes, as well so and that we will continue to scale and as we're renewing contracts with our OEM partners.
Many of them are switching to local local contracts, so we're going to supply them.
Through local commercial agreements and handle all of the service support repairs et cetera from Wuxi that said all of the core the and search are being manufactured and Salt Lake we ship those weaker we buy local housing and local kits and.
Customize them test them locally and ship them, the detector side and <unk> and by that we'll continue to do that and that is at this point largely a local for local operation and even in the future.
There are no plans at this point to turn that into a local for global.
On the other hand, the detector side of the different different story, we have now we can manufacture radiographic detectors dental detectors oncology detectors fluoroscopy and some models of Florida detectors out there.
And here is to do too is twofold, one it's not just assembling of kits. We're also sourcing local parts local.
Materials and.
Essentially there is a stronger supply chain infrastructure. That's been built there that we're using to build detectors at a lower cost in China.
Initially it was you may recall, a couple of years ago. We started this too as a response to the tariffs and I had said that we will initially do that to make sure that we fulfill the local what we need for the local market, but the intent for our operations and Wuxi is to continue on expanding it and.
And for detectors, we will end up there's no reason why we should not able be able to.
On.
Ship those detectors to any other markets and any other part of the world because they're not being customized in any specific way, they're equally applicable for any other customers customers detectors tend to get customized and mostly superficially labels and stickers and things like that.
So the capacity currently I'll just give you orders of magnitude. So you know as we can do several thousand detectors, a year and China, we have that kind of capacity. So we don't feel capacity constrained at this point, so that scaling up on Wuxi operation is going well and it will it will continue.
In terms of the local Oems your question about.
Contracts renewals and how I think you on.
Asked about how the newer projects are going what phase of probably develop and RNA and.
They are there and all stages of product development and so as you can imagine the initial projects.
The 12 initial projects three are and more advanced stages.
Product development and the newer projects.
128, slide 64 slides, they're in various stages, so hard to for me to give a lot.
A lot of details on that but they are typically and the exact same sort of phase like we've seen earlier now we don't expect these projects to take five years.
And the initial startups feasible now these new projects have been based on initial infrastructure of Cts that these customers and Oems have built.
And so those are moving forward. In addition to that we've also started projects with other newer other modalities like current like.
Cardiovascular systems, and so there are new projects within those existing Oems and we're picking up and other modalities and.
As you can imagine these Oems have.
Business plans and aspirations to be broad based.
Modality suppliers. So they are they started with many of them started they all started and different places, but many of them focused on Cte and Ah.
Very heavy way initially and now they're expanding into other modalities and.
US having the relationships that we've built over the last five years with these customers gives us.
Front row seat at the table and and.
We're certainly going to take commercial advantage of it.
Very helpful. Thank you.
Thank you. Our next question is from Jim Sidoti with Sidoti <unk> Company. Please proceed with your <unk> Jim.
Hi, good afternoon. So.
Yeah.
And you've talked about new products on the last couple of calls you talked about the high and detectives ordered with the last time the net on two technology. This time.
Can you give us a sense on how soon these projects turn to revenue.
So Jim.
Sure.
New products based on existing platforms generally move faster and because we can put those out in a couple of years, our Oems already have the established infrastructure and interfaces and they can absorb them faster and there they are fairly well understood.
And to applications.
So.
Let's use detector and I'll separate our detectors from tubes.
<unk>, new detector will go in and fairly quickly and new model, a new platform like <unk> that we've talked about there it's mostly.
When we launched new products and detectors, we try to maintain as much.
As much of the previous interface as possible. So they can be dropped and into our customers design and into their environment, and we try and do that as far as feasible and practical so the uptake by our customers is really mostly gated by the start of their new projects. They don't they typically don't take a new detector.
Sure.
Model and drop it into an old system build they'll time it with the introduction of new launches. So I'll generalize by saying it typically takes us three years to start seeing revenues from the point, where we start.
And are working on a new detector. Initially the volumes are low then once our customer launches and second year of their launch expenses.
And that's new detectors, whether it's.
Significant platform enhancements on existing.
Morpheus Silicon platform.
However, when we launch something brand new like when there is a completely new platform like a cmos platform for something which and customers have to shift gears completely that can take longer so.
So let me give you as an example photon counting detectors.
You cant simply throw out a photon counting detector and.
And.
And.
Make it backward compatible so that can fit right in and do an existing <unk>.
Implication because the completely different technology, and its scans and images and a very different way those are aware it takes a lot longer because even if we bring a product to market. It may take us two to three years. It takes our customers and another two to three years to redo their applications and build them into new applications. So.
It's a little frustrating thing for all of us, but our time to revenues or long. Once these are done and then they stay and for the lifetime. So newer platforms completely new technologies like photon counting takes time to revenue is very long the same way when we bring a new city tube market, let's talk about the Chinese Oems as an example, there.
They've taken on our 16 slide 64 slice <unk> tubes, now we bring on Youtube with new capability. They just take it and stride and take it on and either put it in their next.
T system that they're bringing to market, but now and here comes nanotube technology. This is like the photon counting example, nanotubes completely different platform new technology very different model of very different.
Application needs to be.
Overhauled mechanically electric electrically electronics everything has to be redone. So that takes a lot longer. So what we anticipate is that the time to revenue for something like nanotubes can be as much as five plus years five to seven years. So we're that's why we're very careful in how much we count on and the near term.
Revenues from some of these brand new technologies, which are which are really a sea change for.
And for imaging.
Okay. So it sounds like we should see maybe a small contribution to revenue and perhaps and.
Fiscal 'twenty, two and 'twenty three but those those game changing technologies those are out another three or four years after that.
That's correct and.
Yeah.
Okay, Alright, and then you talked a lot about China.
India has been and the news a lot the last couple of weeks and opinions that materially started too.
Two seven.
And I have an impact here do you have customers and India and is there a potential to.
And to grow sales there as well.
Yes.
We do have customers and India, there isn't that.
Same type of.
Strong OEM base and India local OEM base, there are a few and we're by the way we know them we are working like.
And like we did with China, we're working with them and I think five years from now three years from now we'll see more of these Oems start to mature. So there are some local Oems and we are working with them and we do get some business with them now most of the market and India actually is served by.
International and global Oems, So our current customers.
The reason I said, we're seeing strength and not just in China, but also globally is because those some of those products are also ending up in India.
We just we don't control.
How are customers distribute their products, it's hard for me and say, what's going to India, and what's not but we do business to summarize we do business directly and India through Indian Oems and we also do business in India through global Oems.
And then last one for me.
Are you seeing any significant increases and material costs right now or are you able to manage that.
And often it to somebody other cost savings initiatives you put through.
Let me, let Sam respond to that yes, yes.
Yes.
Currently we are seeing a little bit higher material costs on input costs I talked about freight so freight and input cost definitely a little bit of a headwind to the gross margin currently.
So far we have not seen a big impact and we are managing through it and my expectation is we will manage through it and.
And hopefully it remains a minor impact, but we are seeing higher input costs too.
Okay alright, thank you.
Yeah.
Thank you thanks, Jim.
Our next question is from Mike <unk> with Oppenheimer. Please proceed with your question.
Congrats on a nice quarter and thanks for taking my questions and for all the color thus far guys.
And medical if youre, continuing to see higher utilization and harbinger for future capital demand that you mentioned on your last call.
And generally is and because higher utilization for us means two things one.
More replacement components.
Components.
We have several components have wear and tear like tubes connectors et cetera and.
So so that's one.
One positive impact of that for us and secondly, higher utilization also means.
Replacement of entire systems. So so it's.
So we're encouraged both ways I mean, we've seen utilization levels grow and grow and that's why we've seen such broad based demand in many modalities. So that's that's a positive.
It gives us.
A lot of good optimism.
That's great to hear as Tony. Thank you and then just a quick housekeeping one first day.
When you gave the fiscal second quarter sequential revenue growth rates by geography, and I confirm EMEA was that up 17%.
Yes, they were all up double digit percentages I, just don't remember exactly right now, but yes all of the three regions went up quite strongly.
Okay. Thanks, so much guys.
Thank you.
Thank you. Our final question is a follow up from Larry Solow with CJS Securities. Please proceed with your question.
Great. Thanks, I appreciate taking a quick follow up just on funding.
And you mentioned the photon counting.
Technology I'm just curious if you can sort of take a step back and I think when you bought.
Two questions I guess, when you bought direct conversion and a couple of years ago, I remember correctly, it was around $20 million and sales and.
I think there was a pretty good backlog there on I guess on the existing platform.
So you had a pretty good runway for growth.
Two question has that been interrupted at all because of COVID-19 is that still kind of out there and then second question on the photon counting is I think you had mentioned and your last presentation on our last call potentially getting into the Cte detector space or I guess that sort of the data acquisition right space, where analogic kind of dominated as that.
Correct and is there any timing on that.
Thanks, so much.
On.
First part existing.
Existing photon counting component sales it did take a dip during the COVID-19 period, because just like.
Those are those products day had both medical and industrial applications on the customers using them for both medical and industrial and medical side.
There were some.
It slowed down during during COVID-19, both and both areas, where we've seen since then is activities picked up and.
And it's continuing to grow.
The pipeline that we had the backlog didn't go away.
Some of those Oems that we're bringing products to market.
And they fell short during the COVID-19 period.
In terms of.
We bought them for the option value and long term getting into the.
One getting a hold of the technology, but also getting into a market market expansion and do Cte detectors that project and from a technology development perspective has been going well, we now have modules.
And we're working with so there is OEM interest we are working with Oems to.
And.
We can ship modules to them they are testing them, they're validating them, so thats moving forward.
Okay.
Great. Thanks, I appreciate that.
Thank you.
Ladies and gentlemen, we have reached the end of the question answer session I will now turn the call over to Howard Goldman for closing remarks.
Okay.
Thank you for your questions and participating in our earnings conference call for the second quarter of fiscal year, 2020 one.
The webcast and supplemental slide presentation will be archived on <unk> website.
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And goodbye.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great day.