Q3 2021 Varex Imaging Corp Earnings Call
Greetings and welcome to the Barrick third quarter fiscal year, 2021earnings call.
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Please note. This conference is being recorded I will now turn the call over to your host Howard Goldman. Please go ahead.
Good afternoon, and welcome to vertex Imaging Corporation earnings Conference call for the third quarter of fiscal year 2021.
With me today are sunny say and the all our president and CEO, Sam Maheshwari, our CFO and Chris Belfiore of New director of Investor Relations.
Before turning the call over to Chris as many of you know I will be retiring from the rocks.
And I think the verdict.
Team for the opportunity to head of Investor Relations mission.
And again several months prior to our spin off.
Good day and honor to work with all of you.
Of course.
Thank you Howard. Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed from our barrick's website at investors got barrick's imaging dot com and <unk>.
Webcast and supplemental slide presentation and will be archived on <unk> website.
To simplify our discussion unless otherwise stated all references to the quarter or for the third quarter of fiscal year 2021. In addition, unless otherwise stated quarterly comparisons are made sequentially from the third quarter of fiscal year 2021 to the second quarter of fiscal year 2021, rather than for the same quarter of the.
Prior year.
Please be advised the during the call we will be making forward looking statements, which are predictions and projections about future events. These statements are based on current expectations and assumptions that 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 SEC.
Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including item 1 a risk factors of our quarterly reports on form 10-Q, and our annual report on form 10-K. The information in this discussion and speaks as of today's date and we assume no obligation to.
Dates or revise the forward looking statements in this discussion on today's call. We will discuss certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with nor are they a substitute for GAAP financial measures. We've provided a reconciliation of each non-GAAP financial measure for the most directly comparable GAAP financial measure and our Earth.
Earnings press release, which is posted on our website.
I will now turn the call over to Sunny.
Thank you good afternoon, everyone and please join me in welcoming Chris Belfiore to the teams and Howard. Thank you very much for all of your contributions over the last for years.
Issue all of the best and your retirement.
I am pleased to report that sales momentum continued in the third quarter of fiscal 2021 with revenues, reaching $211 million driven by strong demand and both medical and industrial segments.
Higher sales volume and continued execution on expense management led to margin and profitability expansion in the quarter.
We continued to see strong demand for <unk> tubes of globally during the quarter as well as robust detector sales for both medical and industrial applications.
And the third quarter, all medical modalities, except dental and returned to pre COVID-19 sales levels or better.
Higher revenues and the third quarter increased 4% sequentially, driven mainly by gains and the medical segment.
Revenues increased 23% year over year.
Yeah.
By improvement in both medical and industrial segments.
Our non-GAAP gross margin increased to 36% due to higher volume and productivity, partially offset by unfavorable product mix, our non-GAAP operating margin improved to 14% of revenues.
As a result, non-GAAP EPS was <unk> 40, and exceeded the top end of our guidance range.
Yeah.
Let me give you some high level of insight into how different modalities and applications trended during the quarter.
Medical segment revenues increased 7% sequentially and 22% year over year.
The strong trend and the C. T tube sales continued during the third quarter, enabling our already large installed base to grow farther since many of these tubes were for new systems, and bodes well for our future fit yourselves related to replacement tubes.
And our other medical modalities oncology fluoroscopy, and mammography posted healthy sequential growth and are back to or above pre COVID-19 levels.
We believe growth and medical segment was driven in part by demand that had been deferred over the past year.
As well as expansion of health care services, and some markets and adoption of new technologies.
Revenues and our industrial segment decreased 6% sequentially and increased 31% year over year.
We attribute some of the sequential decline and the industrial segment to inter quarter timing of sales.
In Q3 demand for digital detectors for non destructive inspection increased across several of our industrial verticals, including battery inspection and oil and gas.
However demand for imaging products for security screening at ports and borders as well as baggage screening of airports continued to be soft.
I'd like to take a few minutes to provide and update on China.
As we have talked about in the past China represents a significant growth opportunity for <unk>.
It's been mainly driven by strong demand for <unk> systems.
Increased installations at fever clinics, and a focus on making rural health systems more self reliant are expanding and the need for Cts and China.
This growing installed base of the TS is expected to generate continued demand for replacement tubes.
Our strategy and China of establishing relationships with local Oems drives continued growth momentum.
And as we have said recently of the initial 12 P. T projects that we have been working on with 8 local Oems 9 projects have been brought to market and 3 are still in process.
In addition to the continued adoption of new C. T systems, we expect the previous generation of 16 slice of <unk> systems to be upgraded to <unk>, 64, and 128 and <unk> systems.
This upgrade cycle of the current installed base and China I should add another layer to an already strong growth story.
The system upgrades are expected to be driven by China's goal of building a more self reliant rural health care system that can handle the advanced diagnostic procedures, including cardiac applications.
We expect our revenues from China to exceed $100 million by fiscal year end, 2021, which would represent 25% to 30% year over year growth for the last 2 years.
Yeah.
Well the digital detectors had been a significant part of our early growth story and China year to date medical tubes represented over half of the revenues and China.
We think this is key to the future growth story of our business in China.
The majority of the installations of medical TT tubes is for new systems, which will contribute to future demand for replacement tubes.
Outside of the CD market, we see other avenues of potential growth and the region.
As we have pointed out in the past, our wuxi fab facilities capable of manufacturing several thousand detectors per year.
The detectors manufacturer and the Wuxi plant now span various modalities, including radiographic and dental oncology and fluoroscopy.
This broad set of local offerings, along with strong industrial detector sales have enabled our detector sales in China to reach levels of previously achieved in 2017 and 2018 prior to the onset of the trade war with China and associate of tariffs.
In addition, our local OEM relationships and China provide a platform to grow into other modalities. We are currently targeting expanding into cardiology dental and radiation therapy.
We are very excited about the opportunity that China represents and look forward to continuing to work with our OEM partners and delivering on the expansion and improvement and health care delivery system for the region.
Yeah.
Let me now give you a brief update on product development efforts.
First we recently launched the lumen and $43.36 W detector with IP 68 rating, which allows the detector to be immersed and liquids, which can help with the cleaning and disinfection.
This detect for as part of the new platform, which offers other advanced capabilities as well as increased durability and ease of use for end users.
And with Covid continuing to be of problem globally. We believe these detectors will be well received by Oems and health care providers.
Yeah.
Second on the Z platform front for dynamic digital detectors, our first new product is approaching formal product launch with 2 more following soon after all.
All 3 models are getting traction with Oems and are covered by a few multi year customer contracts.
Third in the area of Nanotube technology, our joint venture has continued to make progress with product life testing with good results and is now working on customer prototypes.
And lastly, during the quarter, we completed the acquisition of the outstanding minority stake and direct conversion, reflecting our continued belief and the potential for photon counting detector technology.
Before I turn it over of the call. The Sam I just wanted to spend a minute talking about global supply chain issues that you are all aware of.
During the second quarter, we highlighted supply chain constraints largely around the freight and logistics.
Supply chain challenges became more pronounced and the third quarter and is impacting the availability of some raw materials and semiconductors, and we have been able to work through the challenges so far, but we see potential for supply chain constraints and shipping disruptions in Q4 and beyond.
Our output may become challenged by the supply chain constraints and we are working very closely with our current and alternate suppliers to mitigate potential impacts.
With that let me handover the call to Sam.
Thanks, Sunny and Hello, everyone and the reminder, unless otherwise indicated and provide sequential comparison and afford itself for the.
The third quarter of fiscal year 2021, with those off of our second quarter of fiscal 'twenty 1.
Barrick's continued to deliver strong results in the quarter and we saw solid demand across all modalities.
For the quarter revenue was above the guidance midpoint and non-GAAP EPS was above the top end of the guidance range.
Third quarter revenues were $211 million and increase of 4% from the second quarter medical revenues were $167 million and industrial revenues were $44 million for.
For both of the Rx and total and the medical segment. This is the highest revenue level in 3 years.
This translated to 79% medical and 21% for all the industrial sales.
Sequentially medical sales grew 7%, while industrial sales declined 6% the decline and industrial sales was due to the timing of shipments, which is more of for quarter to quarter aberration.
Revenue levels and all 3 regions remained strong Americas was down 7% sequentially, while EMEA grew 13% and APAC grew 6%.
Let me now cover all of the results on the GAAP basis.
Third quarter gross margin was 35 per cent and up over 300 basis points sequentially from the previous quarter.
Operating and operating income increased $10 million compared to the second quarter and operating margin increased 400 basis points sequentially to 12%.
Net earnings increased $9 million compared to the previous quarter and earnings per diluted share was <unk> 29 cents compared to <unk> and the second quarter.
Moving on to non-GAAP results for the quarter.
Gross margin was 36% of sequential improvement of 150 basis points from the second quarter, driven by higher sales volume and improved productivity and manufacturing and service areas, partially offset by unfavorable product mix.
Our gross margin has improved sequentially from 28% and the last quarter of fiscal year 2022.
234% in Q1, 35% and Q2 and now to 36% in Q3.
As this year comes to and and we are achieving the gross margin target that we set earlier in the or the.
This performance over the last 4 quarters has been possible due to our continued increase in sales volume and timely completion of cost reduction goals favorable product mix and through our initiatives to improve efficiencies and our manufacturing and servicing activities.
Despite the ongoing freight and supply chain related challenges, we are very pleased with our gross margin performance.
R&D spending and the third quarter was $19 million or 9% of revenues, which is in the middle of the 8% to 10% range that we target for the R&D.
R&D was 42 per cent of operating expenses in Q3, as compared to 40, 41% and Q1 and Q2.
Reflecting our continued spending prioritization towards innovation and new product development.
As G&A was approximately $27 million and Q3 slightly higher than the prior quarter, but sequentially down 30 basis points as the percentage of sales.
Operating expenses of about $46 million and.
Sequentially up approximately $1 million due to increase and R&D.
We continue to keep operating expenses and control while successfully meeting increased customer demand, helping improve the quarterly profitability.
Well, we're all of our strategy to deliver Delaware Hydro and then through improved operating leverage is on track and working very well.
Operating earnings increased to $30 million or 14% of revenue as compared to $26 million.
Our 13% of revenue and the previous quarter.
Tax expense and the third quarter was $6 million as compared to less than $1 million and the previous quarter.
The recall during Q2, 2.1 time favorable items and taxes drove a 2 million dollar benefit and resulted in an unusually low tax expense for Q2.
Net earnings increased to $16 million or 40, <unk> per diluted share compared to $14 million or 35 per diluted share and Q2 <unk>.
Despite the higher tax rate in Q3 of 26%, we were able to grow EPS by <unk> <unk> compared to the second quarter.
Please note that due to our convertible notes related bond hedge and recently achieved GAAP income profitability and the associated trading range of of shares. There is the difference between diluted shares for GAAP and non-GAAP purposes, and we have provided a reconciliation between the 2 at the end of our earnings press release.
Yeah.
Now turning to the balance sheet.
Accounts receivables increased by $19 million, partially partially due to higher sales.
As a result, DSO increased by 6 days to 64 days.
Inventory declined $5 million and days of inventory declined 261 days.
Accounts payable increased by $14 million, mainly due to increase and raw material procurement to support higher demand.
As a result, these payable increased to 44 days.
Now moving to debt and cash flow information cash flow from operations improved to $22 million. We ended the quarter with cash of $128 million on the balance sheet and increase of $17 million in the quarter.
Gross debt outstanding at the end of the third quarter was $512 million.
And debt net of cash came down to $384 million, reflecting of a priority to continue to de lever on the net debt basis.
And we announced in early July of of cash generation and enabled us to pay down a portion of our debt on July 15th we redeemed $30 million of about $300 million senior secured notes.
And due to debt reduction on a go forward basis interest expense will be lower by approximately $2.4 million on an annualized basis on an annualized basis.
Adjusted EBITDA was $39 million and the third quarter of solid improvement from $33 million in the prior quarter.
I'm pleased to note that if you were to annualize over the last 6 months of performance. The net debt leverage ratio at the end of Q3 would be below 3 times.
In summary of our previously stated financial strategy of improving capital leverage and operating leverage is working very well I want to take a moment to tank of robotics colleagues worldwide for their tremendous efforts in achieving these results with that lets look at our expectations for the fourth quarter.
Yeah.
Revenues are expected between 205 and $225 million and non-GAAP earnings per diluted share unexpected between 25 and.
40.
Our expectations are based on non-GAAP gross margin and a range of 35% to 36% and non-GAAP operating expenses in the range of $46 million to $47 million.
And with that we will now open the call for your questions.
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Your first question comes from Anthony Petrone with Jefferies. Please go ahead.
Thanks, and congratulations on a strong quarter hope everyone is doing well and.
Maybe.
Tony and our Sam we can start with.
And just sort of the the the dynamic between the underlying.
Demand and and maybe that's mostly on the C T side, and China and just your comments on the.
The supply chain and it just seems that.
While on the 1 and we do have an elevated level of demand and that's perhaps linked to some level of backlog recapture out of the pandemic. There's there's still some uncertainties on the supply chain, so maybe a little bit more details on underlying.
C G tube and and and component demand.
And where you see the specific bottlenecks and supply chain and and and how do you think it sort of trends over the next 12 months. Thanks.
Hey, Anthony.
This is sonny so we're in a strong demand environment and at this point, we feel good about as we head into <unk> for the fourth quarter and looking into next year, we feel good about the demand side.
And the issues with supply chain are fairly similar to what you would have been hearing from other companies in that.
There's 2 categories of supply chain issues..1 we're just there is of the shortage of commodities and we have been we've been dealing with it for quite some time I mean, the you know you fine.
Sometimes koppers.
And it seems to be a shortage of copper of shortage of aluminum and castings and it's a daily it's of Delhi discussion with suppliers and making sure. We have a good handle on their delivery dates and what they're doing the they understand our demand side and were placed we're doing all of the right things, placing appropriate orders and lead times et cetera, and that's what Bob.
And we've been doing that but lately semiconductor side has also become a.
And you know has become an issue so.
The way I would summarize this is there are supply chain issues that are broader than what we faced and maybe a couple of quarters ago with more commodity is more materials and more suppliers that are and every now and then becoming delinquent and where you know the delayed in their shipments.
But going into the fourth quarter, we have accounted for that and we have tried to derisk that so.
We have visibility to our supplies.
And as we look forward to at least the next quarter, but as we look further out we just sense of that the risks are the risks are broader than they were a quarter ago.
And we're managing our way towards doing all of the things that we can win and aligning up alternate suppliers qualifying alternate sources.
But I just wanted to highlight that we're at this point given the strength of the demand side, we're not demand constrained right now and the near term.
And we will continue to work for the supply chain side.
That's helpful and just a couple of follow ups for for Sam If we can get it in your adjusted gross margin of 36%.
Even with the supply chain issues, you know having.
And impact in the quarter, how much of of.
Of that benefit was just sales volume related.
Versus cost savings on Santa Clara and then the last 1 for me would be on the R&D side, 9%.
Of the higher sales base was ahead of the recent trend I'm just wondering is that linked to additional tenders.
Or was it a pull forward on other R&D initiatives. Thanks again.
Yes, thanks, Anthony so.
Taking your first question related to gross margin yeah. It's definitely gross margin is benefiting from higher sales volume and it has continued to benefit over the last few quarters as we are increasing.
Increasing sales every quarter.
So that is definitely beneficial in terms of cost reduction and Santa Clara update.
We have completed.
All of that migration of all of the migration of manufacturing from Santa Clara to Salt Lake.
That is a pretty much that is fully done at this point and we are benefiting say around 14 and $15 million on an annualized basis. So that comes through at 1.3 and $5 million of quarter. So say 150 basis points. So that we are benefiting and that is fully flowing through.
The P&L at this time.
I would say that we.
We had previously committed.
100 basis point gross margin improvement towards the end of this fiscal year. So around Q4 for FY 'twenty, 1 related to streamlining our manufacturing and servicing activities and.
And I would say that we are pleased to say that.
We have achieved that a bit sooner we have achieved that in Q3. So that was a very big factor in terms of productivity improvement a bit sooner than the initial plan of our initial commit.
And so that is benefiting gross margin so that was about 100 basis points.
And.
The things that are hurting.
Hurting gross margin or what I would call headwinds for the gross margin and it's clearly freight related items freight is continuing to run high as you know.
There is uncertainty related to timeliness of ocean related trade and until all of that gets sorted out of those delays and those uncertainties. We are using a bit too much of what I call airfreight and that is definitely more expensive. So currently freight is a headwind of about 20 to 30 basis points ongoing.
But overall, the positives and negatives, but overall, we're very pleased with the gross margin performance and those are the puts and takes and they talked about.
Now moving onto your next question in terms of the R&D as a percentage of sales, yes, So we target 8% to 10% and we came in right around the middle of that of $9 million.
You know a lot of the R&D is driven by materials related spending and when the engineers order when that is delivered et cetera. So there can be a little bit of a fluctuation.
<unk> from quarter to quarter, but overall, we are investing in R&D, we are investing and delivering innovative products and there is a lot of need by R&D groups for more spending and actually accelerating the pipeline et cetera. So I would say right now.
We will be fully funding R&D and I don't think we are close to 10% of sales or anything like that at least at this time.
But we will guide you.
We come closer to it so right now I think 9% and I feel good about and.
And we feel good about releasing new products and all of the work that is going on and we know what teams.
Thank you.
Your next question, Larry Solow with CJS Securities.
Good afternoon, and thanks for taking the questions Howard Best of luck to you and the Crystal ball and board.
Just a follow up on any of these questions on just on the on the supply chain constraints and whatnot just as in terms of guidance and you mentioned that Q3 of the mix was a little bit of a headwind or a little bit down I'm just.
Just trying to.
Try and of course out with your guidance for Q4.
Just at the high level of itself. It seemed like you need to get to the high level of sales to kind of match the the Q3 EPS.
The more or less just the supply chain concerns and credit concerns or any other issues.
Issues, just as we look sequentially from Q3 Q4 that would you know.
Okay.
Yeah. So let me take this question Sam here.
So yes in terms of Q3, there was a little bit of and unfavorable mix and that is really driven by.
Less of an industrial sales as compared to the prior quarter. So that is what that related to.
So as you know industrial is the higher margin.
Segment for us so that is the unfavorable mix there okay and then in terms of gross margin you know I have.
Shared with you that I had shared with you maybe 2 or 3 or maybe even a year ago that our gross margins.
When we get back to pre Covid levels in terms of revenue say 205, 210 or something like that and that range. We are expecting gross margin 35 percentage plus -1 percentage point.
Because you know we have different customer concentration and different product concentration and.
And a number of other things and and and things can move from 1 quarter to another you know customer skinnier pushout shipments you know so we are still within that range and Q3, we came out at around 36 and.
And we instead of guiding 35, plus -1 we're guiding 35% to 36, so compared to what we had set expectations on and I think we're a little bit on the higher side there.
And there isn't really nothing else beyond that at this time Larry.
Okay, Alright fair enough.
Maybe a couple of just questions and in terms of China.
You guys are obviously.
Meeting or exceeding expectations that you know you've spoken about for years.
And just trying to figure out and is there any sort of clarity obviously in terms of.
Without getting into specifics.
Mm 100 million now this year it sounds like more of the 50% of that is from tubes and and.
In terms of market share gains or or or or not and I think.
And and the players who are sort of serving the local OEM and who is the just barracks and fill ups can you give us any more clarity or other GE Siemens and their and the mixed between you guys and Philips I don't know if you want to speak to that but.
You know the are they enjoying the same kind of numbers that you guys are you mean and how about that great visibility and not for any any color there would be great.
So Larry.
You can frame it.
1 way to frame it would be.
The local Oems are gaining share in <unk> and China in aggregate right. If you take all of the local Oems combined where they were a few years ago versus where they are today vis vis the local versus local Oems versus global Oems and local Oems of gained share we have.
A very large share of those local Oems consumption of tube. So from our perspective, we're gaining share and tubes and and are in a very nice way and China and I feel good about that so that's a that's 1 of them very good bap. Good trend and these are all going into new sockets. So the market share position to keep growing and we're book.
Wish about that.
On the detector side.
And I mentioned that I'm happy to say that our detectors business has come back to the the.
Pre trade war.
Levels, where the.
And remember a couple of years ago, when the trade War hit we we there were tariffs on both sides and we were hit by those and we pulled back and some areas and because we just couldn't compete with the extra cost. Since then our actions have allowed us to increase but that has been broad waste. It hasnt been and any 1 particular modality radiographic continues to be.
We are challenged with the pricing as we've talked about particularly the China markets low and but then theres dental there's oncology theres fluoroscopy, and so are our strength and growth and detectors in China has been broad based in terms of how we're doing versus overall market share of my.
I'd say, we're where.
We're keeping up with the <unk>.
Market growth rates, you know if not better but at this point I would I am not and a point to call out how we're doing versus others specifically.
I'll, just say that I'm really happy with the progress we've made with detectors and and particularly we've also seen of growth and industrial detectors in China.
Right is there any way to tell the other global Oems outside of China. They still providing you know China has this whole right on the ship of local local homegrown and.
Well the equipment.
G and Siemens or maybe I mentioned name for other although all of the global Oems still providing new equipment to the market or was it mostly.
Yeah and all.
Yep Yep.
Absolutely that's the.
The global Oems of.
Established global Oems are still.
Are still selling and China, and they're still selling their C. T systems and other modalities R. R.
Our revenues and China come mostly from the local players there, but also we also get our our share of our China sales through some of these global Oems, but the up there there there's still a significant.
And player and that market.
Okay and last question, maybe Sawhney for you Walt while you still got the platform here.
If I remember.
Look back I think it was.
And the early 18 and you guys when you got the.
The reduced tax outlook and you took some of that savings and get to reinvest in the business and you talked about sort of the investment into multiple price points on the C. T.
And.
From Teekay machines in China, and multiple different new detectors, and and you you'd certainly and the last couple of calls and calling out certainly on the qualitative basis, a lot of newer products coming out and and I.
And if I look back 3 years ago. We had spoke you had spoken about and it should be and we should see an acceleration in the revenue as we look out and sort of 3 years from now some of these new products sort of start maturing and you know from prototype and get it to commercialization.
And those with Covid and find the exact science, but you're still kind of feel of that over the next couple of years, we should see the acceleration of <unk>.
Hopefully revenue growth, but certainly the new product.
Contributions.
Yes, Joe.
<unk>.
If you recall, we took some of the benefits from.
The reduced tax rates and said, we would invest in R&D. So we put it and some additional money to R&D to accelerate development of some of the new platforms and what Youre seeing US talk about currently with our new detector platform. The lumen platform the XE platform.
The work, we're doing with the with with the photon counting there have been a number we accelerated some of that work I mean those of those products would have been otherwise.
What are the longer to bring to market. So we are we are expecting a.
Future growth out of those products and we.
I think we've pulled in the.
And the launch of those products by bringing those earlier investments. There were also of investments that went into.
Supply chain of qualification and validation to set up our presence in China and Youre seeing some of that play out and in the form of our growth in China. The.
The China <unk> was growth as and across multiple tiers. The 16 slice mid tier I and and so we invested and heavily and and the segments that we thought would play out the best and China haven't had.
For you to say that our our assessments and the feedback and input that we got from out of local Oems.
It served us well and we're hitting the sweet spot of the market. We knew that it was going to be 16 slides for mass adoption and that's how it's been there had been tremendous growth there and going forward as I said, we are expecting and addition to ongoing new sockets sales and penetration of C. T theres going to be and has already begun.
A wave of we will see the early 16 slice of <unk> systems get replaced by 64, 120th slice of the Ts the more and.
More feature rich ones and so all of that I'd say.
Larry has been enabled by us being at the right place at the right time with the products and Thats, what otherwise we would have probably had a more muted success and China.
Mhm.
Fair enough great. Thanks for the color appreciate it.
Yeah.
Operator.
Yeah.
Okay.
She lost your connection.
Yeah.
Yeah.
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Our operator loss share connection she's getting back on so just hang in there if there's additional questions. Please hold.
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Ladies and gentlemen, we do apologize for the technical difficulties.
The next question, which is kind of from the line of Suraj Kalia with Oppenheimer. Please proceed with your question.
Hi, Suraj.
And Sunny Sam hope, you're well congrats on the quarter.
Thank you. Thank you.
So some of the lot of questions of being as you.
And maybe if I can just phrase it differently.
Sunny day.
And obviously, there's the demand and the supply issues that you talked about on the demand side.
Is the pick up I mean, it just seems like the vertex is moving into into the next gear.
The demand pick up and more.
Sort of catch up in nature.
Or are you seeing any structural changes.
And what that would be more durable so to speak and I'm not talking about 2 quarters and I'm talking more.
You know from multiple multiple quarters.
Yeah. So.
It's a function of 3 different.
Vectors and there's a there's a little bit of of catch up.
That those and modalities, where there was a there was some pause. So for example, there was a quarter, where we had lower sales and oncology and there was some catch up on the of caught up.
Cte demand continues to be strong and it's not just the catch up there was no catch up and <unk>. It is just and expansion of health care services and and.
And it has been global.
People are buying <unk> and edible and <unk>.
The demand rate that is higher than that was expected and there does based on the forward looking views that we're getting from our customers. We as you know our customers give us.
Their annual plans and then they give us 6 months of <unk>.
Estimates.
We see continue to see strong demand for our for for Cts.
For an extended period of time this is not us trying to catch up on the backlog or not and not being able to deliver.
In other modalities like dental and the.
Yeah.
The the recovery has been in different.
And at different levels and different velocities at different points in time. So dental has been just ongoing still catching up and some markets and.
So I could go I mean, so every modality has that has its story right Rad has had tremendous.
Uptake during Covid there was a GAAP there there was a little bit of slowing down and then it's picking back up so it's hard to hard to pinpoint 1 thing down but as we look at it in aggregate, we see that the demand side, the strong and our expectation is that our customers who have taken a lot of orders during this time.
And they carry backlog, but they are also going to continue to have to deliver on what they've taken over the next 6 to 9 months. So as we look forward. We continue to feel strong about feel good about the demand side.
And then lastly, there was the technology side of it we've launched some new products and anytime you launch new products you get some.
You see.
And uptick in demand for some of those products and.
We should we expect that will continue into next year as well.
So Roger I would also like to the idea is that if you remember 696 months ago or so the added that our response to the pandemic might be that countries and communities would be spending on health care infrastructure.
And imaging and hence us would benefit through that as the result of that.
So we feel.
It's not just 1 country situation, it's broad based it's broad based across regions and modalities.
And it seems to have strong legs to it.
There is no 1 country that we can say that strong et cetera. So I think the strength in China, which is.
Somewhat new for us the strength.
Broad based which is driven by the health care response.
That is eating and then obviously the new products that sunny kind of just said to you know.
Add it all together and that makes makes the difference maybe that's to say and if you take the look of the industrial side a lot of the demand that we've seen has come from market expansion I mean expanded activity in the market like electronics inspection and battery inspection of the semiconductor inspection and that has driven.
Wholesale additional volumes and realize that we haven't yet caught up on the security and inspection side and the airports has still been soft. So there is some more.
Headroom there so as we look at the overall demand profile.
Feel good that the Theres, some theres theres real momentum there and.
And the market driven momentum.
Got it.
Guilty.
The.
Industrial side of the equation.
No.
Not particularly.
And the reason for that is if if at all.
Travel is an area that gets the impacted first as you know and and for us the <unk>.
The security related side of our business has been slow and then it.
Phil.
We're still waiting for.
Any significant recovery there so if at all and it'll be status quo for us on this on the cargo and security side on the industrial side, where the demand has been strong has.
And it has been strong despite COVID-19 after the initial blip of when the initial initially when Covid hit and there was just a shock to the whole system and all of the factories sort of stopped and people were frozen and we saw a couple of quarters of.
Of the industrial it's a pretty sharp slowdown in industrial and since then the recovery has been almost despite COVID-19.
Got it so I don't think that we will experience the same.
It would be hard to pin it down but the.
And the demand side of industrial and the particularly with the semiconductor inspections battery inspections.
Electronics inspection that is.
That doesn't seem to be COVID-19 related oil and gas did slow down but that was because of the peak oil prices more so than.
And then and Covid.
Got it and.
The final 2.
I'll just put both of them together.
And yet our ascending I'll be going to get to and update on the core castle.
Status and.
And maybe this is already been asked please forgive me. If this is redundant the components of the 2 of 5 to 225 guide.
How do you all of things through the medical and the industrial segments gentlemen, Thank you for taking my questions and congrats once again.
Let me answer the first 1.
And so on on the Cole capital technologies, what we are the our status is that we are continuing on with the foundational technology development and now we are.
We're past the validation of the meters and and strength of the meters were now into 2 of development and more of the validation of life testing there and we are in the mode next phase of our and.
New product introduction mode. When we start building products sample prototypes for our customers we're in that mode.
And he is only 2 months of couple of months away, So youre not going to hear anything significantly different.
Different you'll hear more of the same but we're working on customer and prototypes getting customers engaged and looking and looking at development agreements with customers.
And so the rich coming back to your question in terms of the industrial and medical.
Breakdown of the guide Gen.
Generally as you know industrial is 21% or somewhere around that of overall revenues for us and so I would say that is still our expectation, but stuff moves around here and there from quarter to quarter. So I would say, 21% of industrial plus -1% that would be the norm.
And will expectation.
So the guide and the growth is not necessarily pegged to medical only or industrial only.
Both of them are growing for us and it may not exactly and looked at we want to go from 1 quarter to another but as you look forward.
Multiple quarters, you would see that both are growing and we would expect book to grow and demand is pretty good on both sides.
Just come down to.
What we can supply through the factory.
And and really the enzyme, but but the main demand wise, we feel good about both of the segments.
Yes.
Once again, we would like to ask the question. Please press star 1 on your telephone keypad.
Your next question comes from Jim Sidoti with Sidoti and company. Please go ahead.
Hi, good afternoon good afternoon.
Well I'm going to try and.
And I asked the question I think it's been a couple of times of asking for a little bit different.
You just had 2 strong quarters over that 200 million Mark Youre guiding for the third bond over that 200 million Mark.
For the fourth quarter.
And is there anything for it.
And as supply constraints or any other kind of headwind out there.
Youre concerned about that would.
Cause you to dip below that 200 million per quarter Mark over the next you know year or so or no.
Or is there anything like that.
Aware of.
Let me try to address that Jim.
When it comes to Q4 and you know we only guide to the next quarter. So we are guiding on the Q4 right now and in terms of Q for the demand and of course on the supply side, we feel good about based on the visibility that we have so so that is how we have balanced of our guidance for Q4.
But as you know there can be a 100 year event or something can happen. So we would never say that it is 100% assured or anything like that there can be a chance that something happens, which is completely unforeseen to us and we dipped below 200 million that can happen to any business and we would we would never.
Say that but overall in terms of balancing the guidance balancing the numbers. That's how we are providing the guidance for Q4.
Beyond Q for the visibility becomes less from supply chain and all of those issues as well as the farther out we go the visibility is lower.
And currently we are operating and a supply constrained environment as opposed to of demand constrained environment.
And we feel good about our situation and position in terms of the 200 million low watermark that you kind of highlighted.
But there isn't anything that tells us that hey, there is a significant this thing or that the incoming but.
That doesn't mean that it may not happen it may happen, which may be unknown to us and as and when it happens we'll share with you, but so far.
Where we sit as of today, we feel good about.
Our guidance and good about of our business going forward would be on there.
I guess, that's as much as I can add I don't know us and if you'd like to add something else no I think.
Nothing more to add there Jim.
The.
The demand trajectories and the right direction and so let me just leave it at that.
Okay, Alright, and then.
And I want to detail and the balance sheet the accounts receivables ticked up.
And in the quarter the is that due to the timing of shipments or the king.
Can you just add.
And a little clearer for that yeah, I can add a little bit more color to that Jim good question and thank you, yes. So.
Obviously, the sales is growing so when sales growth.
Picks up that is just normal working capital Thats. There. There is 1 large customer of ours that decided for their own balance sheet dress of purposes to pay us.
Significant amount of cash just the 1 week after the quarter ended so and <unk> was a little bit higher.
In terms of DSO than I would have liked but.
This is just normal stuff that happens.
So there's that.
Beyond that there is nothing else to that.
Alright, that's it for me thank you.
Thank you Jim.
Thank you I would like to turn the floor over to Chris for closing remarks.
Thank you for your questions and participating in our earnings conference call for the third quarter of fiscal year 2021, the webcast and some supplemental slide presentation will be archived on <unk> website.
The replay of the quarterly conference call will be available through August 17th and can be accessed at the company's website or by calling 870.76606 to 853 from anywhere in the United States or 2 zero of 16127 for 1.5 from non U S locations. The replay of conference call access code is 137 to 1.6.
For 3.
And you and goodbye.
Thank you for todays teleconference. You may disconnect your lines at this time and thank you for your participation.
Yeah.
Yes.
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