Q4 2022 Varex Imaging Corp Earnings Call
[music].
Hello, and welcome to the very tough fourth quarter fiscal year 2022 earnings call. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
My pleasure to turn the call over to Christopher Belfiore Director of Investor Relations. Please go ahead.
Good afternoon, and welcome to Barrick's Imaging Corporation's earnings conference call for the fourth quarter of fiscal year 2022.
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 barracks imaging that forward Slash news.
<unk> and supplemental slide presentation will be archived on <unk> website <unk>.
To simplify our discussion unless otherwise stated all references to the quarter or for the fourth quarter of fiscal year 2022.
In addition, unless otherwise stated quarterly comparisons are made sequentially from the fourth quarter of fiscal year 2022 to the third quarter of fiscal year 2022, rather than to the same quarter of the prior year.
Finally, all references to the year or the two this fiscal year and not calendar year, unless otherwise stated.
Please be advised that during this 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.
The 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 one a risk factors of our quarterly reports on Form 10-Q, and our annual report on Form 10-K. The information in this discussion speaks as of todays date, and we assume no.
<unk> to update 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 provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website.
I will now I'll turn the call over to Sunny.
Thank you, Chris and good afternoon, everyone.
I'm pleased to announce a strong finish to another fiscal year with revenues, reaching $231 million in the quarter, a new quarterly record for vertex.
Global demand for our products were solid during the quarter and a slowly improving supply chain and our supplier diversification efforts allowed us to convert more orders to sales.
As we start a new fiscal year I feel good about <unk> prospects to grow despite a high degree of uncertainty in the upcoming year.
Revenue in the fourth quarter increased 8% sequentially and 2% year over year.
Revenue in medical increased 9% sequentially, while industrial revenue increased 6%.
non-GAAP gross margin in the quarter was 33% at the low end of our expectations, primarily due to highest semiconductor procurement costs.
Adjusted EBITDA was $36 million and non-GAAP EPS was <unk> 42 cents.
Our cash position, including marketable securities was solid at $113 million at the end of the quarter up $3 million sequentially.
Yeah.
Let me give you some high level insights into the market environment based on qualitative assessment of demand for different modalities and applications during the quarter.
Medical segment revenues increased 9% sequentially and were flat year over year.
Global demand for Cte tubes remained solid.
Saw some softness in Asia Pacific has some customers experienced delays with their other suppliers.
Demand across our other medical modalities was solid led by fluoroscopy radiography dental and mammography.
Oncology shipments were soft in the quarter, primarily due to timing of shipments to one customer.
Revenues in our industrial segment increased 5% sequentially and 9% year over year.
During the quarter, we saw broad based demand across various non destructive inspection applications, including high energy sources for our cargo screening at ports and borders.
In the past, we have highlighted various products across our medical and industrial segments that we expect to drive future growth.
Today I wanted to take some time to reflect on the progress that we've made over the last year on these products.
As well as other fronts and our expectations moving forward.
The global <unk> market remains a significant driver of sales for <unk>. This includes new system installations as well as demand for replacement tubes from our growing installed base.
During fiscal 2022, we had several new design wins with our city customers, including local Oems in China.
These new design wins represent future sales opportunities as well as 10 to 15 years of subsequent demand for replacement tubes.
We continue to expect China to be a key driver of growth for both <unk> and <unk> as our local OEM partners continue to gain market share.
Turning to nanotubes.
To further expand our position in nanotubes in September we entered into a technology collaboration with <unk> a leader in carbon nanotube based X Ray systems for our medical and security markets.
This includes an exclusive global license, enabling <unk> to use microeconomics technology in the field of multi beam X ray tubes.
<unk> believes in the future importance of cold cathode X Ray sources, and we're excited to invest in additional nanotube technology to diversify our product portfolio.
Earlier this year, we highlighted our high performance X ray tubes used for cardiovascular applications.
During the year, we continued to ship samples of our new liquid metal bearing base C T and cardiovascular tubes for evaluation by potential customers.
Over the upcoming quarters, we expect to receive additional feedback on the products and move towards being included in their future system designs.
These tubes offer a long life noise free operation and increased throughput for certain applications.
Moving to detectors, we were happy to see that our dynamic detect our platform called Azure continues to receive high interest from our customers.
In fiscal 2022, a number of customers began to design as your detectors into their systems and we continue to receive positive feedback.
We expect to see further adoption of ours your platform as our customers launch their product offerings.
We have converted the majority of our radio graphic customers to our alumina detectors.
This is a highly competitive radiographic detector platform targeted at the low end of the market, where we have historically had lower market share.
We will be showcasing our current lumen detectors as well as a new detector for advanced radiographic applications at <unk> later this November .
We also continue to make progress with our photon counting technology on both medical and industrial side.
In medical our photon counting detectors are being used in various applications.
Further, we're making progress with our <unk> customers and are working closely with them to firm up design specifications for integration into their systems.
As we have noted in the past, we do not have an offering in the Cta detector market space today, making this an entirely incremental market for <unk>.
Finally, we have been working to establish a local presence in India.
We took a similar approach in China, where we have seen our revenue grow to nearly $140 million in fiscal 2022.
We believe India and Southeast Asia region will be on a similar growth trajectory and this investment in India will establish a new local presence in the region.
Later this month, along with many of our customers we will be attending the Radiological Society of North America RSA conference in Chicago.
<unk> will be highlighting its product portfolio, including some of the products, we have talked about today.
Turning to industrial we expect our cargo security market for ports and borders to continue to be strong end market for <unk> industrial.
Our security business is experiencing growth as a result of increased demand worldwide for cargo screening systems and our partnership with established Oems in this space.
We expect to see continued growth here as we head into fiscal 2023 building on the success. We saw this past year.
Our industrial customers continued to praise the high frame rate imaging capability of photon counting detectors and as a result, we are seeing increased adoption across various non destructive inspection applications, such as electronics battery and food inspection.
These photon counting detectors enabled faster inspection rates and better image quality through enhanced material discrimination compared to other technologies and thus enabled factories to meet increased demand in these growth industries.
Last quarter, we highlighted an exciting area within our industrial market.
Specifically I'm, referring to the use of X ray or E beam technologies to sterilize consumer facing products.
This is not a new market outside of Eric's.
But one that we have historically had limited exposure to.
We expect irradiation to be a growing market and which are high power X Ray sources can be used to irradiate food and other consumer facing products.
These solutions are in development and introduction stages, but we expect to have more details in fiscal 2023, as we receive feedback from our customers.
At the recent American Society for non destructive testing conference <unk> held in Nashville. During the early November our OEM systems integration partners indicated strong backlog and future demand for their inspection solutions in the aerospace defense and automotive markets.
Our customers see value in our ability to integrate new technologies like photon counting detectors. So.
Porting system components.
Image acquisition workflow software and AI capabilities for automated inspection.
We continue to be excited about the prospect of providing more integrated solutions to our industrial customers.
We expect this new approach to be a key growth driver for <unk> across several industrial verticals.
As we move into a new fiscal year, we're happy with the progress that we've made with supply chain initiatives I look forward to our prospects in fiscal 2023 and beyond.
With that let me hand over the call to Sam.
Thanks, Sunny and Hello, everyone. As a reminder, unless otherwise indicated I will provide sequential comparison of our results for the fourth quarter of fiscal year 2022, with those off over third quarter of fiscal 2022.
We are pleased with our ability to grow both revenues and earnings this year, despite supply chain challenges that constrained our sales and inflationary pressure from raw materials and logistics that compressed gross margins revenues for the year grew 5% year over year to $859 million and non-GAAP EPS.
Adjusted EBITDA increased 5% year over year to $140 million and we finished the year with cash and securities of $113 million.
Turning now to the fourth quarter.
Our supply chain initiatives enabled us to ship more in the quarter, leading to sales of $231 million above the midpoint of guidance non-GAAP gross margin was 33% non-GAAP EPS was near the top of our guidance at 42.
Fourth quarter revenues increased 8% compared to the third quarter Medicare.
Medical revenues were $181 million and industrial revenues were $50 million sequentially medical sales increased 9% in industrial sales increased 6% medical revenues were 78% and industrial revenues were 22% of our total revenues for the quarter.
Looking at revenue by region Americas increased 26% sequentially, while EMEA increased 5% in APAC declined 4% the increase in the Americas was primarily driven by sales into our radio graphic and Florida markets. While the decline in APAC was primarily the result of some.
Softness in C T as customers are delays with their other suppliers.
Sales to China finished strong at approximately $140 million in revenue or 16% of total sales.
Let me now cover our results on a GAAP basis.
Fourth quarter gross margin was 32% down 200 basis points from the previous quarter operating expenses held steady at $50 million and operating income was $25 million up $2 million sequentially.
Net earnings were $13 million and GAAP EPS was <unk> <unk> based on fully diluted 41 million shares.
Moving on to non-GAAP results for the quarter.
Gross margin of 33% was down 200 basis points from the previous quarter and at the low end of our guidance.
There were two primary drivers of the lower gross margin first higher semiconductor related material costs, which we expect to continue through fiscal 2023 and second our industrial business mix was somewhat unfavorable.
R&D spending in the fourth quarter was $20 million flat compared to the prior quarter and represented 9% of revenues.
SG&A was $27 million.
So flat compared to the prior quarter and represented 12% of revenues.
As a result operating expenses were $47 million in line with the prior quarter and represented 20% of revenue.
Operating income was $29 million and operating margin was 13% of revenue similar to the previous quarter.
Tax expense in the fourth quarter was $4 million or 17% of pre tax income compared to $6 million or 29% in the previous quarter.
Your tax rate in the fourth quarter was primarily the result of favorable U S tax items and international valuation allowances.
Net earnings were $17 million or <unk> 42 per diluted share up five from the third quarter average diluted shares for the quarter on a non-GAAP basis were <unk> 40 million.
Please note that ASU 2000, Twenty's zero six related to the accounting for convertible instruments became effective for us from Q1 of fiscal 2023 onwards.
Under this accounting standard the EPS calculation adds back the after tax convertible loan interest expense to net income and add shares underlying our convertible notes and associated bond hedge to the diluted shares outstanding.
While <unk> on an annual basis, we add back approximately $6 million after tax interest expense to net income and approximately 8 million shares to otherwise outstanding diluted shares.
Brian illustrative view on potential scenarios. Please see the appendix of our Q4 earnings slide deck.
Now turning to the balance sheet.
Accounts receivable increased by $16 million in DSO increased one day to 68 days in the quarter, primarily due to higher sales in the second half of the quarter.
Inventory increased modestly by $3 million as we target to improve inventory turns.
While balancing supply chain risk.
As a result days of inventory decreased to 176 days.
Accounts payable decreased by $5 million.
Now moving to debt and cash flow information cash flow from operations was $17 million in the fourth quarter and we ended the quarter with cash and securities of $113 million, an increase of $3 million from the prior quarter.
Gross debt outstanding at the end of the quarter was $450 million and debt net of $113 million of cash and securities was $337 million.
Adjusted EBITDA for the quarter was $36 million and adjusted EBITDA margin was 16% of sales.
Our net debt leverage ratio was two four times at quarter end.
Now moving to outlook for Q1 of 'twenty three.
We see demand pattern is running higher than pre COVID-19 levels, but lower than what we experienced six months ago.
Given our strong backlog and supply chain initiatives, we expect to grow sales in fiscal 2023 or 22.
However, we expect inflation driven higher material and labor costs to keep our gross margin around 33% level.
Moving to guidance for the first quarter of fiscal 2003 as a reminder, the first fiscal quarter is generally a seasonally low quarter for shipments for us.
With that in mind, our guidance for the first quarter is as follows.
Revenues are expected between 195 and $215 million.
At the midpoint of $205 million. This is up 3% from Q1 of fiscal 'twenty two.
non-GAAP earnings per diluted share are expected between Tencent and <unk>.
Our expectations are based on non-GAAP gross margin of about 33% non-GAAP operating expenses in a range of $46 million to $47 million tax rate tax rate of about 28% to 30% for Q1 and fiscal 2023.
non-GAAP diluted share count of about 41 million shares.
Please see slide 22, with the title illustrative impact of ASU 2000, Twenty's due to six in our earnings presentation for more details on the various scenarios one non-GAAP diluted shares under this accounting standard.
With that we will now open the call for your questions.
Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad. One moment. Please while we pull for questions. Our first question today is coming from Larry Solow from CJS. Your line is now live.
Great. Thanks, guys.
Just to clarify just on the guidance real fast, but the key I know you only give one quarter guidance.
In light of the new convertible tax law tax law accounting rules, it's essentially put the Q1, you're still assuming a 41 million shares. So it's essentially only the lack of add back of that interest expense right that non cash interest expense is that correct just for Q1.
Yes. So so Larry this is Sam good to talk to you.
The way this accounting standard works it makes EPS calculation, a little bit more complicated.
But what happens on a non-GAAP basis.
You know if your model is saying.
Then 'twenty one 'twenty two you are still using 41 million shares for the diluted share count.
But if you are looking at more than 9 million and non-GAAP net income or say about more than 'twenty, one 'twenty two.
Then you add back $1 4 million of interest expense, which is after tax interest expense to the numerator.
And then add 8 million shares to the denominator so essentially.
Beyond 'twenty, one 'twenty two cents of non-GAAP diluted EPS you are mentally assuming as if the convertible is converted so you know no longer have to pay the interest expense and then the share count goes up by $8 million. So so that's that's the way to think about it hope that clears for you or.
Yes.
It does I guess and I looked at some of your charts.
I'm just trying to simplify it because I know I get how it kind of skews up so your guidance is kind of then.
It's kind of taking in a range of those.
Scenario, yes, right, yes, our guidance is 10 210 to 30 as we just guided so towards the higher end of that guidance between say, 22% and <unk>.
It would go towards the scenario, where we add back the interest expense and add the dilutive shares.
And below running one train two sites were not so so like in theory hypothetically. If you just had on operating basis.
The high end of your operating profit right, which would in theory put you at the high end, you're operating a P. P F.
Nothing else changes.
Youre actually impacting yourself on a.
Quarter to quarter basis, it's like an eight.
Quench all different right, because youre not youre, adding back.
You're adding back the three sense of interest expense and like five six sense of Youre, adding your your your share count's, increasing 20% right so that simple math.
I'm 36 cents right and then.
Sure.
Yeah, Larry on them and then you have to make.
Paul You know does this tour that you can look at they don't do anything there just I know you put them out there, but there's so many numbers I'm just trying to make it simple so on a high end scenario your guidance could have been 38 cents isn't that right 39 cents.
That's a little bit hi, Larry.
Yes, that's a little bit hi, Larry.
This guy didn't close to that right Directionally I feel like that's right right I mean.
Right.
Let's ask it this way if you if you had the impact in Q4 of this 8 million shares then you couldn't add back interest expense you would've done 50 that you would've done 34 cents correct 33.
No the impact is about four cents a quarter Larry.
Because the numerator is a positive thing in the denominator as a negative thing okay.
Okay, So you're taking out yeah.
Okay. So annualized impact is 12, 13 and 14 in that range.
So for a given quarter, it's about three to four.
Okay I gotcha.
Okay, that's fair.
Okay, and then just a question for Sunday, just switching gears everything sounds pretty good obviously, you had some supply chain more macro issues and some higher.
But semi cap.
The costs and stuff.
But just in general it sounds like things are pretty good I realize that the macro headwinds.
In general the economy is not great, but just trying to see specifically for you what else kind of concerns you is it just macro these macro supply issues that are maybe not impacting you by your customers. Then hospital budget spending look I know I think there was some concern a few weeks ago I think somebody omnicell maybe.
Reported and they talked about our capital, but hospital budgets are or not looking as good as maybe some people thought. So can you just give us sort of a broad brush on you know you mentioned just some some a tough environment and I get the macro is tough, but I'm trying to figure out Barak, specifically, what kind of on a concerns here. Thanks.
Yeah, So Larry our customers had very strong bookings in.
In both our fiscal 'twenty, one and fiscal 'twenty two so that all had a very strong year and they are sitting on quite a bit of orders that they have taken that are in their backlog. So as you know for us than.
That represents the call offs that we would get to the extent that they.
We have deliveries in this year so.
Hum.
As I look forward and just look looking at where we are from a supply chain perspective, I feel good about that we've made quite a bit of progress with our supply chain initiatives you might recall, we jumped on them early we got going really fast we all find a lot of supplier. So I feel good about our ability and.
Progressively have a good year going forward I think the risk for me is sitting here not quite fully understanding the situation that our customers might be in with their supply chains.
Other there'll be able to get the products out as you know.
As we would want them to so thats the risk that we're looking at and that's the unknown here to be fair.
Okay. So your concerns on the revenue side, whether it be the medical side or even maybe industrial some custom it sounds like industrial up until now is doing great for you guys or a lot better than you know sequentially.
Sequentially the last few quarters, so as the slowing economy necessarily.
You would think that would curb spending a little bit does that concern you.
Yes, it does but.
You used the example of Omnicell I believe Omnicell makes.
Pharmacy cabinets and products like that bear theyre selling directly to end users and then.
Our situation is different from ours in the sense that our customers have longer shipment cycles, and so given the volume of business. That's already in their backlog I feel like we're in a different place or uncertainty is if the if the economy starts to slow down and.
Order intake by our customer softens then.
That impact is likely to be at the tail end of the year or next year and so we don't quite know how to model that and this year. This year, where we feel good about at least the.
The current the current position.
Q1.
Is Q1 tends to be.
Historically soft quarter for us because you know of the fiscal year and of our customers they've already.
Bought a lot of things that they need for this quarter. So Q1 is a cyclically Q1's, a little soft, but then we improve as the year goes by and you would've seen that from last year as well we had a soft Q1, and then progressively got better during the year.
And does the C. T concerned that's obviously one of your big your bigger growth drivers.
Sounds like that's more of a timing issue, but also I guess a supply chain issue.
Do you have I.
Assume in your guidance that you make up most of that through the year or are you kind of holding that back a little bit because of continuing supply chain issues.
Sure.
We're expecting to.
Make that up during the year, but the thing you asked what else could could.
It could be on our minds on from a risk perspective.
In this type of an environment or mix might move to.
The more of the Lora and <unk> products.
People look at what it is that they're going to buy during the year and then a tough recessionary environment that tends to happen. So we're not quite sure exactly what the mix will look like in the second half of the year for <unk>.
Got it okay, great appreciate all that color. Thanks Sunny.
Yeah.
Thank you next question is coming from Suraj Kalia from Oppenheimer. Your line is now live.
Hello, Suraj Hi, Sunny.
Sam Chris can you hear me alright.
Yes, we do.
Perfect ill hope, everyone is safe and healthy day Sunny.
One question for you to for Sam.
Let me start out with the partnership with micro X Sunny.
Maybe you could talk to us about the complementarity that micro X.
Carbon nanotube.
First.
But your platform, especially the multi beam.
The implications and what gap.
Are you trying to fill with this partnership.
Yeah. So suraj. So first of all the our technology work has made good progress as you know that we've talked a lot about that and we are where we feel fairly good in very I believe in the future prospects of Cole capital technology. So our conviction there remains strong and I wanted to.
To make sure that you know.
That comes across pretty clearly now. This these are new technologies as you know and there are many different kinds of cold cathode technologies and there are different ways to make these emitters and so what we wanted to make sure that we were one there are two things here. One we wanted to make sure that we had access to a couple of different emitter technologies one of them is through our joint.
Venture V C and then the second one we wanted to make sure that we do.
We had it ourselves as well. So this was in addition to our joint venture having them at our technology, and we're making multi beam tubes with that technology. We wanted to also for the long term and make sure that we had access to.
A slightly different type of carbon nanotube based <unk> technology that we could also continue to evolve on our own. So this was mostly a diversification play for us and where we get to own the technology ourselves.
In addition to through our JV partner.
Okay got it and Sam I'll throw a couple of things your way and I'll close both of these together if I could so some cross margins right and I'm, specifically, referring to GAAP gross margins they seem to be sort of stuck in 32 ish 34 ish right.
<unk> I'll be in a position to sort of compartmentalize. Okay. Here is the impact of supply chain. These many beeps. These many beaches FX. These many beaches.
Inflationary cost our product mix, just help us walk us through you know.
Yeah.
What is the more acute impact you are seeing.
And.
Any efforts to mitigate that.
And.
Sam if I could also throw it in there maybe if you could just walk us through how cargo costs.
Are currently shaping up.
Presumably embedded in your in your Opex any color would be great gentlemen, Thank you for taking my questions.
Yes, Thanks, Suraj. So yes in terms of specifically answering on the from the GAAP gross margin perspective, and actually these impacts pretty much applied to non-GAAP gross margin results as well. So the effect is the same for GAAP and non-GAAP . So I would say compared to pre Covid times of our freight.
Is running high.
Great.
<unk> costs higher freight costs are impacting our gross margin by.
Hundreds even 150 basis points.
In terms of costs you know they are up quite a bit cost is up 7% to 10%. If you look at say three or four quarters ago costs versus where we are now so essentially we are looking at 200 to 300 basis points cost increases.
Which is impacting the gross margin. So that gets you to say, 35% 36 percentage gross margin. If these were not there. But then we've also been increasing prices and we have been slowly realizing increase prices to offset this but so far because the price improve.
And efforts have been slow and we have not been fully able to mitigate.
The cost increases are the freight increase to price realization. So slowly we are trying to defray that and we have been somewhat successful in that but not fully.
So from a price perspective, we are looking at you know 100 to 200 basis points improvement back towards the higher end of the gross margin. So that is how the bridge is working in terms of freight and material costs and then.
Throwing it back through price increases so that's that.
And then your second question related to freight as I said.
Trade is impacting 100 to 150 basis points. Currently it has been that way for last 369 months I would say.
Lately, we are beginning to see some improvement in freight.
But given the current supply chain situation in many areas. We are still very tight in terms of I would not say, we are hand to mouth anymore, but things are still tight and so we are leveraging or utilizing higher cost oriented freight modes. So freight probably will take another quarter or maybe.
One to two quarters for us to normalize in terms of having its effect begin to show up on gross margin.
Thank you for the additional color.
Thanks Suraj.
As a reminder, that star one to be placed in the question queue. Our next question today is coming from Anthony patrolling from Mizuho Group. Your line is now live.
Thanks, gentlemen, and congrats on a good execution during the quarter I'll start with a few demand questions.
Hum Sunny.
Sam you have T T. As you know sort of listed as neutral demand.
In the quarter, just the backdrop in the environment I mean, how much of that geographically.
Is linked to the United States Europe , how much of that is linked to China.
And then when you sort of look at dental that's actually more of a tailwind in.
In <unk>, we're hearing some mixed data points just on the backdrop.
Of dental volumes still being impacted from.
Labor shortages from some of the other publicly traded companies that have solutions in dental.
So do you see any risk to dental.
Slowing down in the next couple of quarters and I'll have a few follow ups. Thanks.
Thanks, Anthony and good to hear your voice back and will come back on a call. Thank you. So yeah, what I would say in terms of Cte Cte demand is still high the <unk>.
Graphic color that we provide Israeli compared how we see the saw the business this quarter versus the last quarter, you know <unk> has been.
Has been a growing business for us for quite quite a few number of quarters here and so we it's still from a historical perspective.
This line is still running towards the higher end, it's just that it is not as high as what it was last quarter or the prior quarter. So we feel good about the CV business.
As we've talked about.
We have been.
We have qualified a number of new Oems in China, and so where demand for <unk> from China, Japan et cetera is quite strong.
So overall <unk> is good but compared to the prior quarter, it's a little bit down and and.
And as we look forward into the remaining quarters of the year that Sunny was mentioning we need to think about in terms of the product mix weather.
Any.
Any recessionary pressure forces forces of our customers to shift down on the product mix in terms of.
Saving dollars yet the quantities remained good so we just need to watch out for that going forward in <unk>, but overall, we feel pretty good about C T.
Your next question comes on dental maybe send you one.
Yeah I wasn't.
Anthony if it wasn't clear to me what you meant by labor pressures what are you, saying that.
And your other calls or you have been hearing that.
Jim pressure due to continued labor pressures at the.
Side of care clinic.
Correct some of the dental companies that have exposure to procedures, they talked about a slowed down.
Through this current quarter.
Yeah sure.
Blitz back we have.
We have strong.
Good market share in dental we're fairly diversified across many geographies. So we haven't felt that yet.
Not seeing any specific softness in any.
Any way that I can call out specifically.
Europe continues to be strong for us in dental.
So.
You really don't have a.
How about any way of verifying and validating what would too.
What are you, saying there's.
No worries no worries.
A couple of follow ups would be one on currency.
The dollar here.
Here is obviously strong year over year.
Elevated now for almost six months it hasnt appeared to have any impact.
In demand on various solutions, just just wondering what the latest is on.
On the currency discussion.
You know as as.
We're just dealing with an elevated dollar here.
Yes, So let me provide some color on that Anthony.
Our business on an annual basis about 25% is in foreign currencies sales comes in and 75% is in U S dollars.
And so we've looked at it and the top line impact.
<unk>.
Compared to how we started this last fiscal year 'twenty two it's been about $18 million to $20 million. Obviously dollar has strengthened across every major currency, whether it whether it's the yuan Japanese yen or the euro so that impact on the top line to us has been about $20 million.
But at the same time from a margin and the bottom line perspective as you know we do have operations in Europe in terms of our R&D facilities as well as production facilities and we also do have production in China.
So what ends up happening for us is that the topline has been compressed by say for the full year by about $18 million to $20 million, but the gross margin it becomes a little bit more difficult for us I would say we are more somewhat less impacted because our costs also go down along with the revenue impact.
So I would say we are reasonably buffeted I would say probably.
Less than 50 basis points impact on gross margin percentage for the full year due to the dollar strengthening.
I would probably guess towards that it's it's probably not more than that whether it is really a <unk> basis points or 50 basis points I do not have that level of accuracy.
But I do have good clarity around topline impact don't know if that is exactly what you were looking for or you are looking or your question from a different perspective.
No that's clear and then last one for me just on capital allocation the company has done.
Tuck in M&A.
You know in the past several years, we haven't seen anything on the activity front, although prices in public and private markets have shifted here a bit. So just the latest thoughts on tuck in M&A activity. Thanks again.
Anthony we've still been focused on strengthening our balance sheet paying down debt and.
And we expect to continue to do that to get to our target.
Average levels, so far fiscal 'twenty three we'll continue down that track of supporting the investments that we need to make.
And in India, and our factories in cat.
Capital budget deployed at that direction, No particular specific plans for for moving off of that trajectory at this time.
Yes, I would just add Anthony a little bit more color to what just said he said that first priority for us is to keep on.
To keep on.
Investing in our business organically, which would be through investing in working capital and fully funding R&D and other priorities, but at the same time as we look forward to this upcoming year. We are we would need to invest a little bit more capex than what we have traditionally done in the past.
We are looking at high capacity utilization for our tubes factory here in Salt Lake City. So we are investing a little bit more in tubes factory here in salt Lake as well as elsewhere.
Elsewhere in the world. So Capex, we expect to run a little bit higher in fiscal 'twenty three than what it was for fiscal 'twenty two for us and you know them.
Anthony we've always had.
A fairly good visibility to prospects and opportunities inorganic opportunities. We have as you know we stay in touch with a lot of the companies in this space. So we will continue to stay you know stay.
Stay connected in touch with.
With the opportunities but.
Yeah.
Yeah.
Well.
If something doesn't materialize then of course, we're not going to look away from it but at this point, we're not actively.
Pursuing.
Any particular M&A opportunities.
Thanks.
Okay.
Yeah.
The next question today is coming from Jim Sidoti from Sidoti and company. Your line is now live.
Hi, good afternoon. Thanks for taking the questions can you talk a little bit more about.
Can you talk a little bit more about pricing.
The price increases you've put in earlier this year you seem to be good.
King.
Do you think that there is room to.
Increased pricing again in fiscal 2023 of your costs continue to rise.
So.
Hi, Jim So we have rolled out we rolled out price increases.
And.
And they have they have had some effect that they have offset some of the cost increases however.
The cost increases the input material cost increases that we've seen have outpaced our ability to realize.
To offset fully the price increases that we've realized during the year and are part of the reason for that is our.
Many of our customers have multi year contracts and.
And some of them also place.
The large frame orders without so until those those run out and we get to a renewal point, we're not able to realize the benefit of those price increases. So we will continue to roll out price increases in fiscal 'twenty three as well.
And the timing of when they go into effect will impact how much we can realize.
And then on the balance sheet a couple of questions first one.
<unk> was up about $5 million from the June quarter is that the investments to increase capacity.
Or what else.
No.
Jim It was mostly lumpiness in terms of when the payments go out and stuff like that if you remember last year. We had highlighted to you that this fiscal year and 'twenty two that we just completed we are looking at capex of around $25 million.
But it was not straight line throughout through every quarter of fiscal 'twenty, two but overall, we came out a little bit we ended fiscal 'twenty two with around 21 $22 million. So we were we did not spend as much capex as we had hoped to partly because of supply chain and continued delays.
Equipment providers. So we were not able to execute all the capex plans that we had.
Planned to complete in 'twenty, two 'twenty, three we will be higher than $25 million, we just have to see.
How what kind of progress we are able to make in a number of make in terms of a number of initiatives that we have for US mostly these are growth initiatives in terms of adding new machines are adding higher productivity machines in and mostly around our two.
Factory.
Alright, and then just.
A quick one on cash.
Ported in your presentation of $113 million in cash and equivalents, you always showing $89 million on the balance sheet. So it.
Is that other $24 million in other assets.
Yes, Jim Thanks, a lot for asking that question yes.
So all of our cash is really $113 million, but one of the GAAP rules for presenting cash on the balance sheet is that any investments say in fixed deposits or Cds or other securities that we do which is more than 90 days then we need to presented elsewhere in the balance sheet.
Given the interest rate environment, obviously, we want to.
Generate some interest income from our cash portfolio. So the balance sheet presented cash is 89, but once you add all the other call it securities or fixed deposits and stuff like that that we have invested in commercial paper and all of that added up that $113 million. So from.
My perspective, I look at it.
100 <unk>.
Understood. Thank you.
Thanks, Jim.
Thank you we reached out of our question and answer session I'd like to turn the call.
Back over to Chris for any further or closing comments.
Great. Thank you for your questions Sunny any final comments.
Yeah. Thank you Chris.
Look in closing, we're very happy with the solid results, which we have posted for a second consecutive year with both topline and earnings growth.
Internal efforts to diversify our supply chain was a key enabler for these results and I'm very proud of the effort that our 'twenty 300 employees globally, you make on a daily basis to make these results possible.
And I feel that we are well positioned to grow our topline again in fiscal 2023.
And what's expected to be a very dynamic environment.
Thank you for your continued interest in <unk>.
Thank you Sunny.
Thank you all for participating in our earnings conference call for the fourth quarter of fiscal year 2020 to the webcast and supplemental slide presentation will be archived on <unk> website. A replay of this quarterly conference call will be available through November 29th and can be accessed at the company's website or by calling 870 6606 to 853 from <unk>.
Anywhere in the U S or 201, 612, 70, 170 415 from non U S locations. The replay conference call access code is 13733 76, one thank you and goodbye.
Thank you you may now disconnect your lines.