Q3 2023 Varex Imaging Corporation Earnings Call
Greetings and welcome to the <unk> third quarter full year 2023 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'll now turn the.
Conference over to your House, Christopher Belfiore, you may begin.
Good afternoon, and welcome to Barrick Imaging Corporation's earnings conference call for the third quarter of fiscal year 2023.
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 barrick's imaging Dot com.
The webcast and supplemental slide presentation 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 2023.
In addition, unless otherwise stated quarterly comparisons are made sequentially from the third quarter of fiscal year 2023 to the second quarter of fiscal year 2023.
Finally, all references to the year or to 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 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 today's date and we assume no.
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've provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measures in our earnings press release, which is posted on our website.
I will now turn the call over to Sunny.
Thank you, Chris and good afternoon, everyone I'm pleased to report another solid quarter for <unk> revenue of $232 million in the third quarter of fiscal 2023 is a new quarterly record for us.
non-GAAP gross margin of 34% exceeded our expectations and non-GAAP earnings per share of 37 cents was at the high end of our guidance.
These results were helped by continued strength in our industrial business.
In addition, we increased cash by $30 million in the quarter, primarily driven by diligent inventory management and increased profitability.
Revenue in the third quarter was up 2% sequentially and 8% year over year revenue in the medical segment increased 1% sequentially and 5% year over year.
While industrial revenue increased 5% sequentially and 20% year over year.
non-GAAP gross margin in the third quarter was 34%, which was better than our expectations and up 100 basis points compared to the second quarter.
This was primarily due to the higher portion of industrial sales.
Adjusted EBITDA in the third quarter was $38 million and non-GAAP EPS was <unk> 37.
We ended the third quarter with $152 million of cash cash equivalents and marketable securities on the balance sheet up $30 million from $122 million in the prior quarter.
This was primarily due to higher profitability and $13 million reduction in inventory in the quarter.
Let me give you some insights into sales detailed by modality in the quarter compared to a five quarter average, which we will refer to as the sales trend.
In our medical segment global sales of C. T tubes were solid in the quarter and remains above its sales trend.
Our fluoroscopy in oncology modalities improved in the quarter, but were flat compared to their respective sales trends.
Mammography was solid in the quarter and above its sales trend.
Dental, which can be lumpy from quarter to quarter remained down in the third quarter, but it's trending in a more positive direction and radio graphic continues to grow above its sales trend.
Global sales of our industrial products were robust for the second straight quarter and order intake remained solid.
<unk> strength was primarily in our non destructive inspection business across various applications, including cargo screening and oil and gas.
We also saw increased adoption of our photon counting technology with growth in food battery and electronics inspection in the quarter.
Taking a step back from the quarter I'd like to provide a brief update on some of our products we introduced over the last year.
Our dynamic detector platform as your continues to make solid progress with our customers who are integrating these detectors into various systems, including those for cardiovascular and surgery applications.
Does your platform is a cost effective high performance dynamic detector technology aimed at enabling us to secure design wins for dynamic applications.
These detectors are targeted at expanding our applications footprint in our new and existing customers. It offers high resolution and high performance at lower extra dose then it's amorphous silicon equivalent and is a cost effective alternative to Cmos detectors, which become expensive at larger sizes.
We expect to see continued adoption of as your unexpected at many new system launches by our customers in the coming years, we will design in our Azure detectors.
Since its launch in 2022, we have seen strong interest in this platform and we are happy with how this technology is performing in the field.
At the same time, we are seeing continued uptake of our alumina detectors. We now have a full portfolio of lumen detectors used across various modalities, including dental and fluoroscopy.
We recently also introduced lumen detector models made in our factory in China for sales in global markets, where there are no political or economic barriers to sell so products made in China.
We expect to see shipments of lumen detectors made in our factory in China, starting in October of this year.
Aluminum platform offers a U S designed detector for radio graphic applications at a globally competitive price and is targeted at expanding our coverage of these applications.
Our industrial business has seen solid growth this year, partly due to strength in our non destructive inspection applications, which utilized our linear accelerator products also referred to as Linux. These.
These are high power X Ray sources that are used in inspection of large objects, such as cargo containers automotive parts jet engines and rocket motors.
We're excited to say that this technology was used in the manufacturing of India's chance around three rocket, which is carrying a rover to the moon.
<unk> were used to inspect the integrity of the rocket motors propellant tanks, and detecting voids cracks and other abnormalities.
<unk> is a world leader in high energy linear accelerators for industrial applications, we worked with various rocket manufacturers in the U S Europe , and Japan and now we're proud to support India's growing space program.
In summary, we're very happy with our performance in the third quarter and now I will turn over the call to Sam to go over details of our financial results.
Thanks, Sunny and Hello, everyone. As a reminder, unless otherwise indicated I'll provide sequential comparisons of our results for the third quarter of fiscal 2023 with those of our second quarter of fiscal 2023.
I am pleased to report another strong quarter, we exceeded the midpoint of guidance for revenue gross margin was above the guided range and non-GAAP EPS was towards the high end of guidance. The primary driver of the strong performance was the continued execution in our industrial segment.
As a result, we reported sales of $232 million and non-GAAP gross margin of 34%.
non-GAAP EPS was <unk> 37 cents further we generated $38 million of operating cash flow in the quarter, our second highest cash generating quarter as a public company.
Third quarter revenues increased 2% compared to the second quarter of fiscal 2023.
Revenues increased 8% compared to third quarter of fiscal 2022.
Medical revenues were $175 million and industrial revenues were $57 million.
Due to the ongoing strength of the industrial segment industrial revenues climbed to 24% of total revenues for the quarter medical revenues were 76%.
Looking at revenue by region America increased 8% sequentially, while EMEA increased 10% in APAC decreased 10%.
China was 18% of the overall revenue for the quarter.
Let me now cover our results on a GAAP basis.
Third quarter gross margin was 33% 100 basis points higher sequentially operating expenses were $52 million down $5 million compared to the second quarter of fiscal 2023, and operating income was $24 million up $8 million net earnings was $9 million and GAAP EPS was <unk> 20.
One based on fully diluted 50 million shares.
Please note that GAAP and non-GAAP EPS for the third quarter reflect the adoption of ASU 2020 Dash zero six this involved an add back of $1 $4 million. After tax interest expense for that drove our net earnings and adds approximately 10 million shares to the diluted share count.
Moving onto the non-GAAP results for the quarter gross margin of 34% was up 100 basis points sequentially, driven primarily by higher pricing higher proportion of sales in higher margin industrial segment, and a favorable experience and freight expenses.
R&D spending in the third quarter was $20 million down $3 million compared to the second quarter.
This was due primarily to $2 million of payments related to technology milestones made to micro <unk> in the second quarter of fiscal 2023.
Well, we're all R&D was 9% of revenues within our targeted 8% to 10% range.
SG&A was approximately $29 million flat compared to the second quarter SG&A was 12% of revenues.
Operating expenses were $49 million or 21% of revenue overall, our operating expenses were slightly above our expectations.
Operating income was $29 million up $6 million sequentially operating margin was 13% of revenue compared to 10% in the second quarter of fiscal 2023.
Tax expense in the third quarter was $5 million or 21% of pretax income compared to $4 million or 28% in the second quarter of fiscal 'twenty three.
Net earnings were $17 million or 27 cents per diluted share up 11 sequentially non.
non-GAAP EPS of <unk> 37 cents is calculated by adding after tax interest expense of $1 $4 million to net earnings of $17 million and the result is then divided by 50 million shares.
Now turning to the balance sheet accounts receivable increased by $3 million from the prior quarter end DSO held steady at 64 days.
Inventory decreased $13 million in the third quarter and days of inventory decreased <unk> 274 days we.
We are pleased with the progress in reducing inventory and expect this to continue in the fourth quarter of fiscal 'twenty three.
Counts payable increased by $1 million and days payable stood at 44 days.
Now moving to debt and cash flow information net cash flow from operations was 38 was $38 million in the third quarter, due primarily to profitability and $13 million reduction in inventory.
We ended the quarter with cash cash equivalents in marketable securities of $152 million, an increase of $30 million from the second quarter of fiscal 'twenty three.
Gross debt outstanding at the end of the quarter was $449 million and debt net of $152 million of cash and marketable securities was $297 million.
Adjusted EBITDA for the quarter was $38 million or 16% of sales our net debt leverage ratio was two three times trailing 12 months adjusted EBITDA at quarter end.
Now moving onto guidance at the beginning of the second half of fiscal 'twenty. Three we provided guidance for sales growth for the year of 3% to 5% and we expect to be in that range.
Here is the guidance for the fourth quarter.
The news unexpected between 220 and $240 million and non-GAAP earnings per diluted share is expected between 20 and 40.
Our expectations are based on non-GAAP gross margin in a range of 33% to 34%.
non-GAAP operating expenses in the range of $49 million to $50 million tax rate of about 25% for the fourth quarter non-GAAP diluted share count of about 50 million shares but is 2020 zero six.
With that we'll now open the call for your questions.
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Okay.
Our first question comes from the line of Suraj Kalia.
With Oppenheimer and company.
Please proceed with your question.
Hi, Honey Sam can you hear me all right.
Yes, we cancer I was how are you.
Doing well gentlemen, congrats on a really nice quarter.
So sunny or.
Sam either one.
Specifically on medical Sunny one of the things that I know you have talked in the past numerous times and I know for.
For example, GE is also talking about photon counting detectors as it is a key thing.
Being viewed something if you could I'd love to understand how should we add.
G to keep photon counting adoption and competitive dynamics and maybe if you could.
Give us some real snapshot of way, where white photon counting sales are there they're experts in that pie.
Sure so photon counting as an emerging technology and it's in the process of of gaining.
Our reputation in the market and it's only the last I'd say 18 months or so that in the medical field. It has been.
Publicized quite a bit.
<unk> <unk> type of applications.
So for our from our perspective, where we were excited about it because we wanted to photon counting.
In anticipation of solid.
Solid capabilities that would bring value in medical <unk> and now we're seeing the industry also starting to move in that direction. We are we are.
Present, with photon counting into markets industrial and medical the adoption cycle in industrial is has been faster than in medical so far and so part of our strength in industrial. This quarter was also driven by use of photon counting detectors in a few applications like food processing.
Battery inspection et cetera. So we're excited to see photon counting get traction, it's getting traction and industrial faster we have some Oems who are engaged in in the use of photon counting and medical Oems medical applications and more recently we've started gaining.
Fairly good interest from the market with the use of <unk>. So that said this is a novel platform and we've said that our.
Our expected.
<unk> contribution to their growth in the medical side is still several years away while the market absorbs these technologies into their newer designs. So that's where we stand we're excited about the technology, it's moving forward and we're glad to see some of the major Oems also lining up behind it because that's what that makes the adoption.
Increase yeah.
And then there suraj I'll add that.
As of now our photon counting and charge integration combine that that business is right now generating about $20 million of sales annualized and we are seeing growth there.
So just wanted to give you that perspective on where we are with this technology and it's now revenue wise.
Perfect.
That was really helpful.
One more question for you and one for Sam Sunny.
Tony if you could status or the cold cathode and also I see China 2025, what are the dynamics. There currently are to the extent that you can share and some any updates and forgive me if I missed this with multiple calls going on just in terms of.
Inventory management and your gross margin your pace of growth of GAAP gross margins, how should we think about it as we exit this year and going into let's say first half of 'twenty four gentlemen, thank you for taking my questions and congrats again.
Okay. So suraj for with respect to coal cathodes I'm.
Just like I said with photon counting new technology.
Takes time to adopt an adoption curve there is.
Is further along than with a cold Cabo mono tube technologies nanotubes are much newer and the industry is trying to figure out.
What kinds of applications would be applied to it.
So again are pretty good from our perspective from a revenue contribution perspective, that's further out than photon counting wherever we are with that technology is that we're continuing to make progress on the product development and developing making tubes with that technology.
Our technology transfer from micro <unk> has gone very well, we are continuing to with that work and we're continuing to evolve that technology. We are we have continued to make prototypes with our joint venture partner and now we're working through some commercial aspects of our relationship.
In short you know from our perspective, we're making good progress with the technology, we're happy with the technology and we're seeing now customers starting to get engaged to get their head around how they might think about applications for this technology, Okay, and then coming back to your question Suraj on the inventory and gross margin so in terms of inventory.
As you know we've been trying to bring inventories down and we are very pleased with the progress that we've made in this last quarter, we brought inventories down by $13 million and a focus on that continues.
We are expecting inventories to come down further we are working in that direction. So in the next three months and six months, we shouldnt be bringing inventory further down we are not guiding by how much. The amount we are not guiding the amount that we are targeting to bring down but I think we have some room to bring it down from there and then.
In terms of gross margin we've made good progress in this last quarter I would say that gross margin has benefited through various initiatives of ours.
Manufacturing efficiencies have come back in.
The freight environment has generally been favorable in the last quarter.
And as I talked about.
Price caused the drag has been minimized.
But there are still.
We are still suffering through some continued price cost drag onto the P&L and we have some high cost components in our inventory and we are expecting them to.
Fully worked.
Worked their way through the system by December January timeframe. So at that point I'm thinking of a further pick up of say around 100 basis points in gross margin. Further so that is how gross margin picture is shaping up and we remain committed to our target of <unk>.
Getting to our non-GAAP gross margin somewhere between 34 and 35%.
You also asked about China 2025, I didn't understand the first word that you said with it might see it was ensure that what you meant by that.
But as far as China, 2025, and turn.
We began our journey to address the needs requirements for China in 2025, a few years ago and we're taking a.
Two different alright made in China.
In terms of our.
Our approach to it we started.
With our facility in Wuxi to make.
<unk> local for local in China and that has been.
We started with tubes, we've expanded to detectors and now we're making.
A very large number of tubes and detectors in China.
We are so the couple of things are happening work our strategy for China.
25 is too to get our products registered with.
And such.
Such that we can get the made in China label labeling, which is where we are currently and we're continuing to expand the portfolio of products that are two products that we sell in China to be do we made that way and have carried that kind of a label.
In addition, we've been expanding our local commercial relationships in China. So that we contract locally with our Wuxi office, we have wuxi facility to handle both shipment of new products, but then also a warranty service support and all the things that you would expect out of us supplier that spaced in China for the Chinese manufacturers and.
So.
Our expectation is by 2025, the vast majority of the products that we sell in China will be made will be will will be can be supplied from China. That's the approach we're taking.
We have validated this approach with our Glo global Oems and with the local Oems to see their level of comfort that what we're doing and we seem to be in alignment with with what they are expecting.
From us for China in 2025.
Thank you.
Our next question comes from the line of Larry Solow with CGS. Please proceed with your question.
Great. Thanks.
Couple of follow ups to Suraj is questionable football wall, new ones as well.
So you mentioned before I think Sam had mentioned on the photon counting it's about $20 million in sales.
So that's about 2% of sales just trying to get a little bit my hands. It's around like you have like.
Figure of sort of new products or products introduced in the last three years.
How much they represent a good total sales today I imagine it's still under 5%.
Fair to say.
Hum.
Larry This is Sam.
In terms of the revenue related to new products and.
And new products.
Over the last three years from that perspective, or whatever that you might have.
Whatever whatever that yeah, I don't know what how you guys look at that but I'm just trying to get at Samsung.
Products introduced over.
Some some new appeared whether that's one year three years five years and sort of how much revenue that that's.
Contributing today and maybe.
What that could be in five years.
So Larry I do not have that number off the top of my head here right now.
Right.
I do want to qualitatively say that in our business once we release the product it goes through a pretty reasonable.
A fairly long adoption cycles in the sense of the product has been released.
Customers are trying to make it into their product and then they released their product and when that customer's product picks up volume that is when we see volumes. So it is quite normal and natural.
Our business at for quite some time and that quite some time could easily be two years, one to two years easily where the product has been released and it is not generating a significantly higher amount of revenues. So from that perspective for the first three years of product release, we may not be seeing a whole lot of.
Revenues and so we do not track it that way, but we can yes, absolutely we can figure that out for some of the conversation in future.
And our business it'll make more sense in terms of thinking more from a five year horizon perspective, absolutely.
So we can talk about it some other later call Larry I don't have that right in local.
I can give you.
Yeah, because let me give you wanted to frame of reference yeah.
Go ahead, please sorry.
One frame of reference you may recall, when we when we spun off.
That time, there we had a lot of discussions about China, and Cte tubes in China and the contribution of revenues from those it's been now six years and at that time those tubes were designed and we recall, we said our Oems War.
We're implementing them designing them in we are now five six years into that journey and now Chuck you, you'll see what our China revenues are that sort of you can have.
Frame of reference what happens when we launch products, how long does it take and once we do what kind of volume sort of to expect an active market.
Yeah, No I appreciate that color I am sorry, yes, no I appreciate that while I've got you on that so the the 18%.
Reference or Sam reference as coming from China.
The vast majority of that today in C T tubes.
It's in tubes, and majority of tubes of Cte tubes for us there right. Okay alright, okay.
Did I cut you off there I know that you were going to say something else.
No that's it.
Okay, All right and then Okay and then just to follow up on the margin question I.
I guess the early in the year. Thank you guys sort of thought is price cost lag.
<unk> been or where I guess price cost lag maybe tie in with the place because we're trying to catch up with price raising but also supply chain.
Issues.
You sort of said you where you thought there was like a four to 500 basis point tailwind on EBIT adjusted EBIT margin.
<unk>.
How far along are you.
<unk> mentioned you have like another 100 bps on gross margin.
And if I just look at what you did this quarter versus what you did in Q1, you sort of 400 bps higher so does that kind of capture that four to 500 bps that you spoke about in Q1.
Can we get more as we look out.
Should we view that.
Yes, Larry so.
Six nine months ago, when we talked about it there were a number of things that were headwinds and slowly we have been working on it including freight and manufacturing efficiencies.
And supply chain, driven issues et cetera, a lot of them are now back back to back to the pre crisis, our pre COVID-19 crisis type of levels. So I wouldn't say at this point there is still 100 to 200 basis points of improvement possible from where we are.
I'd say more closer to 100 150 basis points.
Some noise here and there from quarter to quarter.
And we are working through it.
But a lot of these other factors have now actually been recovered or we have already we don't do that we were behind it and that is the cause of the margin improvement.
Yes fair enough.
Can you sort of said about 100 bps on gross margin. So it feels like once you hopefully get out some time, maybe by the end of the calendar year.
Maybe there's a little bit more on the operating in but going forward beyond that it would just have to be.
New products driving higher prices or operating leverage I guess right yes.
Yes, there will be three there will be three things Larry one is what you said exactly sales volume second will be the all of it and that will drive the operating leverage.
And then the new products will be a major factor in that and the third element. There is the segment mix as industrial to come at a higher portion of of the business than it has.
Positive gross margin effect on the overall margin.
Got it Okay I heard just squeezing one more question just on the guidance.
So I get the gross margin.
Maybe come down a little bit because you had a nice quarter mix this quarter and in.
And usually Q4 medical is usually stronger seasonally stronger.
That's a little bit low margin, but it's I'm just trying to figure out how come.
As we look out to Q4 I thought.
Seasonally and with medical being stronger and being the majority of revenue usually you have a better Q4 than Q3 and is there any reason why we're kind of at the same guidance range or anything.
Anything I'm missing there.
Yes, sure so Larry I'll, let me take that question for inventory. So if you look at our second half of the slide 23 versus the first half of the slide 23, we are up around 7%. If you looked at last year's second half to first half we were at about 8%. So I would say if you look at it.
A little bit broader than the quarter, we are pretty much showing the same same pattern, but within the quarter. What what can end up happening is 234 million dollar comes into this quarter versus the next quarter and so that can give that optics of quarter to quarter, but if you look at it.
From a half first half we are pretty much doing what we said and then also for the full year, we kind of guided 3% to 5% at the midpoint here, we're looking at for.
Four 3% or something for the full year growth. So essentially from our perspective, we are achieving what we set out to do for the FY2023.
But then a couple of millions here and there between the quarters can have that optics effect.
Got you fair enough I appreciate all the color. Thank you.
Thank you Larry.
Our next question comes from the line of Lee with Jefferies. Please proceed with your question.
Alright, great. Thanks, so much for taking our question.
Maybe to start on the <unk>.
<unk> is performing.
Good to see the continued growth and margin contribution there.
I guess I'm wondering if you can maybe talk a little bit about the sustainability of the growth trend.
Do you have visibility into the ordering patterns there and.
This sort of you know we used to.
The early innings of a multiyear growth cycle for industrials.
Industrial has been strong for us and it has been.
Post Covid it has come back and win consistently strong and it has been growing so we're very pleased with it. We're also at a point where there.
There are certain segments of the market that are that are adopting imaging fairly rapidly and so we continue to be a benefit from from that fact, so look our we're fairly optimistic about continued adoption of technology and industrial had it.
It seems to be.
There are parts of that.
Industry that our tender driven that can be lumpy lumpy, but non destructive inspection in general industrial areas are are fairly have been fairly steady and strong for us. So I'm optimistic about the long term prognosis, because it's largely a greenfield market.
It's also.
It's growing faster than medical as well as we've discussed in the past.
Mhm, Okay very helpful I.
I guess my follow up I'm just.
On China, 18% of Rev.
That implies I.
I guess low single to mid single digit growth year over year.
Although the historical growth trend.
Would be great. If you can provide some more color on the growth that you saw this quarter.
How did it perform relative to your expectation and you know what.
The outlook for growth.
China going forward.
Yeah sure it's young so.
So China performed as part of our expectations. There was neither a positive versus expectations at a negative in this last quarter.
And then coming back to your question of you know year over year over year growth I would say that the numbers for China are now becoming fairly fairly are becoming reasonably large for us. So the law of large numbers as well as.
Yes. It is.
Coming in as well as.
You know it's difficult for the region to continue to grow 15%, 20% ongoing basis, but even smaller percentages now reasonably modest size in terms of the dollar.
So you are seeing year over year.
Growth kind of moderate, but we are seeing strength in but in terms of percentages that strength is moderating.
Natural and we have talked about this in the past that over time, China growth will fall and fall back in line with the rest of the world, but there is still some more.
The room to go there in terms of China growing faster than the rest of the world. So in China is as if now China is behaving and our sales are happening like how we would expect it to do.
Alright, Thank you very much.
Okay.
Our next question comes from the line of James Sidoti with Sidoti <unk> Company. Please proceed with your question.
Hi, good afternoon, and thanks for taking the questions.
Can you talk a little bit about <unk>.
Inventory at your.
Medical Oems I know at the beginning of the year you were worried that.
Because they were having supply chain issues that they may be you had an oversupply of Europe components and might be cutting back now.
Now.
Six or eight months.
Road.
No supply chain issues subsided.
Subsided and you know where where is inventory of your product you know.
Yeah.
So I Jim this is sunny I'll generalize, yes, a couple of quarters ago, there was a.
There were some acute problems with some of our Oems with getting their factories to flow becomes.
Supply chain issues and they have huge backlogs and there was some amount of our products that were in inventory and you may recall, that's why our first quarter was.
Face a lot of stress as a result of that but since then the flow seems to have improved through the production environments of our customers and they're they're not declaring victory yet there is still supply chain issues body and we are seeing those as well while broad based supply chain issues have have been have eased.
We're still spots where we get.
No.
Our vendors, but they are there are situations, where things get caught up so it's not fully out of the woods, yet, but I would say that the overall.
Inventory levels of our product.
Sure.
Our customers are lower than where they were in I think a couple of quarters ago.
Okay, and then one of the other concerns you had two quarters ago was.
Hospital capital spending you thought it might slow down because of the economic uncertainty and you know again, you know six months down the road it seems like Oh.
The.
Recession may not be as bad as we thought initially.
Have you seen pressures there subsided as well have you seen.
Hospitals are more willing to.
To step up their capital spending.
No.
What we're seeing is that the labor related costs are easing up and increasingly we're hearing hospitals.
Doing better with their use of temporary labor. So we see that as a positive that <unk> improves profitability. We've also seen some.
Some amount of buying continued buying by hospitals. So it's.
I'd say it's.
More positive than it was before but beyond that it's hard for us to speculate what that environment looks like particularly on a generalized global basis. These things vary by by geography.
Okay, Alright, and then I'll just sneak in one more on our balance sheet.
<unk> expense in other current assets that was up about 15.
<unk> 15, and $16 million in the quarter is that with some of the cashes.
Yes.
Jim I just wanted to make sure I hear it correctly did you say prepaid and other current assets.
Right.
Yes, some of the cash because it is beyond 90 days is considered other current assets and that's where it is yes.
Okay. All right is there any other reason why that was up so so much in the quarter or is that just the.
Basically the cash equivalents.
That is basically the cash equivalents now it might be a few hundred K here on there a noise level change, but most of it is is the is the cash equivalents.
Okay, Alright, that's what I thought I just wanted to make sure alright. Thank you.
Thank you.
And our next question comes from the line of Anthony Petrone with Mizuho Securities. Please proceed with your question.
Thanks for slipping me in here.
Just manufacturing mix.
Kind of wanted to get an update on what what amount is actually being produced out of Wuxi.
Versus salt Lake.
And how that influences margin.
Overall gross margins and then as we look ahead over the next couple of years, where can that much trend and I'll have one follow up question.
Sure Anthony This is Sam good to hear your voice.
So in terms of our Wuxi production Wuxi in the overall scheme of things even as of now is a smaller site for us.
Would say about <unk>.
Those are 270% of that.
I knew our revenue volume is done through Salt Lake City, and the remaining is done through Germany, Philippines, Netherlands, and Wuxi. So that gives you a little bit of a perspective.
Would say it is still on an annualized basis less than 10% of overall revenue volume going through Wuxi. So that gives you a little bit of a perspective, there and then in terms of overall gross margin.
It just it just depends from what type of modality that we are shipping from there and it can change. So it is not something which is due to labor difference or anything else. It is it gets impacted largely depending upon which customer what modality that we are shipping from <unk>.
She wants to Salt Lake City, so it's a little bit of a hard question to answer it can vary from quarter to quarter.
And maybe just an update on the mix between tubes and flat panel detectors other components.
Last year.
Extending maybe even 18 months ago, there was pressure them.
And pricing on flat panel detectors, but C. T tubes in particular, we're holding price quite well so anything of note on the pricing side between tubes and flat panel detectors as we look into the back half of the year, maybe even into 2024.
But thanks again for taking the questions.
Yeah. So in general a few years ago, I would say our business used to be 45% sources, 45% panels and detector and 10% would be connect and control our CNC and software as if now I would say, we're around 10% C&C in software, but that the 90.
<unk> percent split which used to be equal between sources across industrial and medical.
All segments.
Used to be 45% and 45%, but now that has moved 50% towards tubes, and 40% towards panels driven by the factor the tubes. The sources side. The medical sources side has grown a bit faster than the panel side.
And so that is the overall distribution between panels and X.
X Ray sources and other components of the business.
What was the second question Anthony price.
In terms of pricing as you know 18 months ago 18, or so months ago, we are.
We had a broad initiative across the entire customer base for price increases I would say that we've been successful at that we've been getting prices.
And then it has been somewhat in phases for some time semiconductors, which largely go into panels those prices spiked up.
And that enabled us to ensure that helped us to increase prices on the panel side a bit more but then on the tube side since it's more of a mechanical and a hardware type of a product those metals and all those prices those costs go up and based on that we were able to increase prices on sources I would say as of now.
So as I look back at the last 12 to 18 months of experience of our price increases on the sources side has been a bit higher than on the panel side.
Thank you very much.
And we have reached the end of the question and answer session and I will turn the call back over to Chris for closing remarks.
Thank you. Thank you for your questions I'll now hand, the call back to standing in for some final comments. Thank you. Thank you Chris in closing, we're very pleased with the <unk>.
Solid third quarter results and on track to achieve our target growth rate for the year and as always I'm very proud of our global team of employees that will make a difference on a daily basis and thank you all for taking the time to join US today and for your continued interest in <unk>.
Thank you Sandy and thank you all for your questions and participating in our earnings conference call today, the webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through August 15th and can be accessed on our website.
Imaging Dot com forward Slash Investor relations, Thank you and goodbye.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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