Q1 2024 Varex Imaging Corp Earnings Call
Hello.
Operator: Ninh Ly, www.ninh.co.uk, www.xmlpc.com The Ultimate Parody Site! www.microsoft.com Please see the complete disclaimer at H ingly.com, www.globalonenessproject.org Bye! Here. Greetings and welcome to the Varex Q1 2024 Earnings. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Christopher Belfort, Director of Investor Relations. Thank you, Chris.
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Greetings and welcome to be Barrick's, Q1, 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Any once you require operator assistance during the conference. Please press Star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Christopher Bell for director of Investor Relations. Thank you, Chris you may begin.
Christopher Belfort: You may begin. Good afternoon, and welcome to Varex Imaging Corporation's earnings conference call for the first quarter of fiscal year 2024. 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 on Varex's website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex's website.
Christopher Bell: Good afternoon, and welcome to Barrick's Imaging Corporation's earnings conference call for the first quarter of fiscal year 2024 with me today are Sunny Sanyal, our president and CEO and Sam Maheshwari our CFO.
Christopher Bell: Please note that the live webcast of this conference call included a supplemental slide presentation that can be accessed at barrick's website at barrick's imaging Dot com.
Christopher Bell: The webcast and supplemental slide presentation will be archived on <unk> website.
Christopher Belfort: To simplify our discussion, unless otherwise stated, all references to the quarter are for the first quarter of fiscal year 2024. In addition, unless otherwise stated, quarterly comparisons are made year over year from the first quarter of fiscal year 2024 to the first quarter of fiscal year 2023. This is a change compared to prior quarters, where we have compared results sequentially since COVID. We believe going forward, this will be a better representation of our results, given that the impacts of COVID are largely behind us. Finally, all references to the year are to the fiscal year and not the calendar year unless otherwise stated.
Christopher Bell: To simplify our discussion unless otherwise stated all references to the quarter or for the first quarter of fiscal year 2024. In addition, unless otherwise stated quarterly comparisons are made year over year from the first quarter of fiscal year 2024 to the first quarter of fiscal year 2012.
Christopher Bell: Three there.
Christopher Bell: This is a change compared to prior quarters, where since Covid, we have compared results sequentially. We believe going forward. This will be a better representation of our results given that the impacts of COVID-19 are largely behind us.
Christopher Bell: Finally, all references to the year or to the fiscal year and not calendar year, unless otherwise stated.
Christopher Belfort: Please be advised that during this call, we will be making forward-looking statements, which are predictions or projections about future events. These statements are based on current expectations and assumptions 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 1A, 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 obligation 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.
Speaker Change: Please be advised that during this call we will be making forward looking statements, which are predictions or projections about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated risks relating.
Speaker Change: Through our business are described in our quarterly earnings release, and our filings with the SEC.
Speaker Change: 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 two.
Speaker Change: Today's date.
Speaker Change: And we assume no obligation to update or revise the forward looking statements in this discussion.
Speaker Change: 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 measure in our earnings press release, which is posted on our website.
Sunny Sanyal: We provided 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 turn the call over to Chris. Good afternoon, everyone, and thank you for joining us for our first quarter earnings call. Revenue of $190 million in the first quarter of fiscal 2024 was in line with our expectations. Lower volumes and an unfavorable mix in both medical and industrial segments impacted profitability. As a result, non-GAAP gross margin was 31%, and non-GAAP earnings per share was 6 cents.
Speaker Change: I will now I'll turn the call over to Sunny.
Sunny Sanyal: Chris Good afternoon, everyone and thank you for joining us for our first quarter earnings call.
Sunny Sanyal: Revenue of $190 million in the first quarter of fiscal 2024 was in line with our expectations.
Chris: Lower volumes and unfavorable mix in both medical and industrial segments impacted profitability.
Sunny Sanyal: As a result, non-GAAP gross margin was 31% and non-GAAP earnings per share was six cents.
Sunny Sanyal: Revenue in the first quarter was down 8% year over year; revenue in the medical segment decreased 13% year-over-year, while revenue in the industrial segment increased 10% year-over-year. Non-GAAP gross margin in the first quarter was 31%, which was below our expectations and down approximately 100 basis points compared to the same quarter last year. Adjusted EBIT during the first quarter was $19 million, and non-GAAP EPS was $0.06.
Sunny Sanyal: Revenue in the first quarter was down 8% year over year revs.
Sunny Sanyal: Revenue in the medical segment decreased 13% year over year, while the industrial segment revenue increased 10% year over year.
Sunny Sanyal: non-GAAP gross margin in the first quarter was 31%, which was below our expectations and down approximately 100 basis points compared to the same quarter last year.
Sunny Sanyal: Adjusted EBITDA in the first quarter was $19 million and non-GAAP EPS was six cents.
Sunny Sanyal: We ended the first quarter with $195 million worth of cash, cash equivalents, and marketable securities on the balance sheet, up $87 million compared to the first quarter of fiscal 2020. Now, let me give you some insights into sales detail 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 CT tubes were seasonally softer than usual and below its sales trend. Fluoroscopy and oncology modalities were weaker in the quarter and were below their respective sales. The lower volumes in these three modalities contributed to the unfavorable mix in the quarter for medical. Dental improved slightly in the quarter but remained below its sales trend.
Sunny Sanyal: We ended the first quarter was $195 million worth of cash cash equivalence and marketable securities on the balance sheet up $87 million compared to the first quarter of fiscal 2023.
Speaker Change: 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.
Speaker Change: In our medical segment global sales of C. T tubes were seasonally softer than usual and below its sales trend.
Speaker Change: Fluoroscopy and oncology modalities were weaker in the quarter and were below their respective sales trends.
Speaker Change: The lower volumes in these three modalities contributed to the unfavorable mix in the quarter for our medical.
Speaker Change: Dental improved slightly in the quarter, but remained below its sales trend.
Sunny Sanyal: Mammography continued to be solid, with revenues above the sales trend in the quarter, while radiography was below its peak. Global sales of our industrial products in the quarter were solid, but below their sales trend in the quarter. We continue to see strong momentum in our cargo inspection business. However, outside of cargo, we're experiencing softness in industrial end markets, particularly semiconductor, automotive, and electronics. The lower than expected industrial revenue contributed to lower gross margin in the. At the end of November, we attended the Radiological Society of North America show, which is the world's largest imaging-focused event attended by radiology professionals and diagnostic imaging companies globally. We had over 150 meetings with our customers and prospects, and it was a very productive business development event for us.
Speaker Change: Hi, Margaret we continued to be solid with revenues above the sales trend in the quarter, while radio graphic was below its sales trend.
Speaker Change: Global sales of our industrial products in the quarter were solid but below its sales trend in the quarter.
Speaker Change: We continue to see strong momentum in our cargo inspection business.
Speaker Change: Outside of cargo, we're experiencing softness in industrial end markets, particularly in semiconductor automotive and electronics.
Speaker Change: The lower than expected industrial revenue contributed to lower gross margin in the quarter.
Speaker Change: At the end of November we attended the Radiological Society of North America show, which is the world's largest imaging focused event attended by radiology professionals and diagnostic imaging companies globally.
Speaker Change: We had over 150 meetings with our customers and prospects and it was a very productive business development event for us.
Sunny Sanyal: We displayed and discussed several new products across our entire portfolio, including a prototype of our Photon Counting Detector module. Unlike in the last couple of years, when supply chain-related matters dominated the agenda, nearly all discussions with our customers at this RS&A were focused on new product development, including for CT, mammography, surgery, interventional, and general x-ray systems. We also met with several new OEMs with novel technologies that would benefit from our Azure and photon counting detectors and our software applications. Photon counting continues to be at the forefront and center of many of our discussions.
Speaker Change: We displayed and discuss several new products across our entire portfolio, including a prototype of our photon counting detector module.
Speaker Change: Unlike in the last couple of years, where supply chain related matters dominated the agenda nearly all discussions with our customers at this our survey work focused on new product development, including four C. T mammography surgery, interventional and General X Ray systems.
Speaker Change: We also met with several new Oems with novel technologies that would benefit from our as you're in photon counting detectors and our software applications.
Speaker Change: Photon counting continue to be at the front and center in many of our discussions.
Sunny Sanyal: I'm happy to say that a major global OEM has expressed an interest inincorporating our photon counting technology into their next generation of CT scans. Discussions with others are ongoing. With the acute supply chain problems behind them, our customers' focus has returned to new product introductions, and so have our discussions with them. In summary, we continue to be excited about the prospects for new imaging products like Photon Counting CT and our unique position to support our customers in bringing innovative systems to market. With that, I will hand over the call to Sam. Thanks, honey.
Speaker Change: I'm happy to say that a major global OEM has expressed their interest to incorporate our photon counting technology into their next generation of <unk> scanners.
Speaker Change: Discussions with the others are ongoing.
Speaker Change: But the acute supply chain problems behind them, our customers focus has returned to new product introductions.
Speaker Change: And so have our discussions with them.
Speaker Change: In summary, we continue to be excited about the prospects for new imaging products like photon counting C T and our unique position to support our customers and bringing innovative systems to market.
Speaker Change: With that let me hand over the call to Sam.
Thanks, Sunny and Hello, everyone. As a reminder, the first quarter is generally a seasonally low quarter for us.
Sam Maheshwari: And hello everyone. As a reminder, the first quarter is generally a seasonally low quarter for us. Our revenues were at the midpoint of guidance, while gross margin was below the guided range, and non-GAAP EPS was lower than the guidance midpoint. During the quarter, we experienced unfavorable product mix in both medical and industrial segments, along with seasonally low volume. As a result, revenues were $190 million, non-GAAP cross-margin was 31%, and non-GAAP EPS was $6 million. In addition, operating cash flows were $10 million for the quarter. First quarter revenues decreased 8% compared to the first quarter of fiscal 2022.
Sam Maheshwari: Our revenues were at the midpoint of guidance, while gross margin was below the guided range and non-GAAP EPS was lower than the guidance midpoint.
Sam Maheshwari: During the quarter, we experienced unfavorable product mix in both medical and industrial segments.
Sam Maheshwari: Long with seasonally low volumes.
Sam Maheshwari: As a result revenues were $119 million non-GAAP gross margin was 31% and non-GAAP EPS was <unk> <unk>.
Sam Maheshwari: Further operating cash flows were $10 million for the quarter.
Sam Maheshwari: First quarter revenues decreased 8% compared to the first quarter of fiscal 2023 medical revenues were $140 million and industrial revenues about $50 million medical revenues were 74% and industrial revenues were 26% off of our total revenues for the quarter.
Sam Maheshwari: Medical revenues were $140 million, and industrial revenues were $50 million. Medical revenues accounted for 74%, and industrial revenues were 26% of our total revenues for the quarter. Looking at revenues by region, America's decreased 6% compared to the first quarter of fiscal 23, while MAR increased 1% and APAC decreased 16%. As highlighted last quarter, the decline in AIPAC was primarily the result of lower sales in our China business due to the government's anti-corruption campaign into its healthcare system.
Sam Maheshwari: Looking at revenues by region Americas decreased 6% compared to the first quarter of fiscal 2003, while EMEA increased 1% and APAC decreased 16%.
Sam Maheshwari: As highlighted last quarter the decline in APAC was primarily the result of lower sales in our China business due to the government's anti corruption campaign into its healthcare system, China accounted for 17% of overall revenues in the first quarter, even though sales in China declined approximately 10.
Sam Maheshwari: China accounted for 17% of overall revenues in the first quarter, even though sales in China declined approximately 10% compared to the same period last year. Let me now discuss our results on a gap basis. First quarter gross margin was 30%, 100 basis points lower year over year. Operating expenses were $53 million, up $3 million compared to the first quarter of fiscal 23, and operating income was $4 million, down $9 million. Gap's net loss was about half a million dollars, and EPS was a loss of one cent per share based on fully diluted 41 million shares.
Sam Maheshwari: And compared to the same period last year.
Sam Maheshwari: Let me now cover our results on a GAAP basis first quarter gross margin was 30% 100 100 basis points lower year over year.
Sam Maheshwari: Operating expenses were $53 million up $3 million compared to the first quarter of fiscal 'twenty, three and operating income was $4 million down $9 million.
GAAP net loss was about half a million dollars and EPS was a loss of one cents per share based on fully diluted 41 million shares.
Sam Maheshwari: Moving on to non-GAAP results for the quarter, gross margin of 31% was down 100 basis points compared to the first quarter of fiscal 2020. R&D spending was $20 million, flat compared to the first quarter of fiscal 2020.
Sam Maheshwari: Moving on to non-GAAP results for the quarter.
Sam Maheshwari: Gross margin of 31% was down 100 basis points compared to the first quarter of fiscal 2023.
Sam Maheshwari: R&D spending was $20 million flat compared to the first quarter of fiscal 'twenty. Three we're all R&D was 11% of revenues generally our target is 8% to 10% of revenues on an annual basis.
Sam Maheshwari: Overall, R&D was 11% of revenue. Generally, our target is 8-10% of revenues on an annual basis. SG&A was approximately $29 million, up $1 million compared to the first quarter of fiscal 2020. His DNA was 15% of revenue.
Sam Maheshwari: SG&A was approximately $29 million up $1 million compared to the first quarter of fiscal 'twenty three.
Sam Maheshwari: SG&A was 15% of revenues.
Sam Maheshwari: Operating expenses were $49 million or 26% of overall revenue. Overall, operating expenses were in line with our expectations. Operating income was $10 million, down $8 million compared to the same quarter last year. Operating margin was 5% of revenue compared to 9% in the first quarter of fiscal 2020. Tax expense was $1,000,000 or 20% of pre-tax income compared to $2,000,000 or 15% in the first quarter of the previous year.
Sam Maheshwari: Operating expenses of about $49 million or 26% of overall revenues.
Sam Maheshwari: Overall operating expenses were in line with our expectation.
Sam Maheshwari: Operating income was $10 million down $8 million compared to the same quarter last year.
Sam Maheshwari: Operating margin was 5% of revenue compared to 9% in the first quarter of fiscal 'twenty three tax.
Sam Maheshwari: Tax expense was $1 million or 20% of pretax income compared to $2 million or 15% in the first quarter of prior year.
Sam Maheshwari: We continue to expect a tax rate of 21 to 23% for full fiscal year 2024. Net earnings were $2 million, or $0.06 per diluted share, down $0.15 over a year. Average diluted shares for the quarter were 41 million on a non-GAAP basis.
Sam Maheshwari: We continue to expect a tax rate of 21% to 23% for full fiscal year 'twenty 'twenty four.
Sam Maheshwari: Net earnings were $2 million of six cents per diluted share down 15 cents year over year.
Sam Maheshwari: Average diluted shares for the quarter were 41 million on a non-GAAP basis.
Sam Maheshwari: Now turning to the balance sheet, accounts receivable decreased by $24 million from Q4 of Fiscal 23, primarily as a result of lower sales in the quarter. Day sales outstanding increased by two days to 67 days. Inventory increased by $12 million sequentially in the first quarter, and days of inventory increased to 198 days. This was the result of an increase in raw materials ahead of higher expected sales in subsequent quarters, as well as higher finished goods held in inventory during the quarter. Accounts payable increased by $9 million, and days payable increased 11 days to 50 days. Now moving to debt and cash flow information. Net cash flow from operations was $10 million, due primarily to higher collections.
Speaker Change: Now turning to the balance sheet.
Speaker Change: Accounts receivable decreased by $24 million from Q4 of fiscal 'twenty three primarily the result of lower sales in the quarter.
Speaker Change: Days sales outstanding increased by two days to 67 days.
Speaker Change: Inventory increased $12 million sequentially in the first quarter and days of inventory increased to 198 days.
Speaker Change: This was the result of an increase in raw materials ahead of higher expected sales in subsequent quarters.
Speaker Change: Realize higher finished goods held in inventory during the quarter.
Speaker Change: Accounts payable increased by $9 million and days payable increased 11 days to 50 days.
Speaker Change: Now moving to debt and cash flow information.
Speaker Change: Net cash flow from operations was $10 million due primarily to the higher collections.
Sam Maheshwari: We ended the quarter with cash, cash equivalents, and marketable securities of $195 million, up $87 million compared to the first quarter of the prior year, and flat compared to fiscal 23 year-end. Please note that $195 million includes $141 million of cash and cash equivalents shown on the balance sheet, $53 million of marketable securities, and $1 million of deposit certificates. Gross debt outstanding at the end of the quarter was $448 million, and debt... net of $195 million of cash in marketable securities was $253 million. Adjusted EBITDA for the quarter was $19 million, or 10% of sales.
Speaker Change: We ended the quarter with cash cash equivalence and marketable securities of $195 million.
Speaker Change: Up $87 million compared to the first quarter of prior year.
Speaker Change: And flat compared to fiscal 'twenty three at year end.
Speaker Change: Please note that $195 million include $141 million of cash and cash equivalents shown on the balance sheet $53 million of marketable securities and $1 million of deposits certificates.
Speaker Change: Gross debt outstanding at the end of the quarter was $448 million and debt.
Speaker Change: Net of $195 million of cash and marketable securities was $253 million.
Speaker Change: Adjusted EBITDA for the quarter was $19 million or 10% of sales.
Sam Maheshwari: Our trailing 12-month adjusted EBITDA was $125 million, and our net debt leverage ratio was approximately two times on a trailing 12-month basis. Now moving on to Outlook for the second quarter of fiscal 24, revenues are expected between $195 and $215 million, and non-GAAP earnings per diluted share are expected between $0.10 and $0.30.
Speaker Change: Our trailing 12 months adjusted EBITDA was $125 million and our net debt leverage ratio was approximately two times on a trailing 12 months basis.
Speaker Change: Now moving onto our outlook for the second quarter of fiscal 'twenty for.
Speaker Change: Revenues are expected between 195 and $215 million.
Speaker Change: And non-GAAP earnings per diluted share are expected between 10 cents and 30 cents.
Speaker Change: Our expectations are based on non-GAAP gross margin in a range of 32% to 33% non-GAAP operating expenses in the range of $49 million to $50 million tax rate of about 22% for the second quarter and non-GAAP diluted share count of about 41 million shares.
Operator: Our expectations are based on non-GAAP gross margin in a range of 32 to 33 percent, non-GAAP operating expenses in a range of $49 to $50 million, a tax rate of about 22 percent for the second quarter, and a non-GAAP diluted share count of about 41 million shares. With that, we'll now open the call to your questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: With that we'll now open the call for your questions.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: You would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, while we pull for questions. Thank you. Our first question comes from the line of James Sadati with Sadati and proceed with your question. Hi, good afternoon.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question comes from the line of James Sidoti with Sidoti and company. Please proceed with your question.
Sam Maheshwari: Thanks for taking the question. I just want to confirm with China. It sounds like revenue, but the quarter is about a little over $32 million this quarter, compared to a little over $36 million a year ago. Does that sound about right? Yeah, so Larry, this quarter, yeah, they were slightly above 32 million. And then last year, they were, you know, mid-30s, 34, 35, something like that. So, Tim, is that fine with you?
James Sidoti: Hi, good afternoon, thanks for taking the questions.
James Sidoti: To confirm.
James Sidoti: With China, it sounds like revenue.
James Sidoti: For the quarter was about a little over 32 million this quarter compared to a little over 36 million a year ago does that sound about right.
Speaker Change: Yeah. So Larry this quarter, yeah. They went above slightly above 32 million and then last year. They were you know make 30 to 34 35 something like that.
Speaker Change: So Jim its Oh I'm sorry.
Sam Maheshwari: Yeah. All right. I don't mind if you call me Larry.
Speaker Change: That's all.
Speaker Change: Sure.
Speaker Change: Alright, I no I don't mind, you could call me Larry.
Sam Maheshwari: He's a smart guy. It sounds like the decline was less than it was in the previous quarter. So are you starting to see things level off there? China continues to remain soft due to two reasons: the macroeconomic situation in China as well as the anti-corruption campaign there. But from quarter to quarter, you're going to see some variation, Jim, just because we're talking $1 or $2 million here or there. But overall, it is soft.
Speaker Change: [laughter].
Speaker Change: It sounds like the decline was less than it was in the previous quarter. So are you starting to see things level off there.
Speaker Change: So you know China continues to remain soft due to the due to two reasons the macroeconomic situation in China as well as the anti corruption campaign, there, but from quarter to quarter, you're going to see some variation Jim just because.
Speaker Change: You know, we are talking one or $2 million here or there, but overall it is soft and also we are hearing that the anti corruption campaign kind of moves from one province to another so you're going to see some variation or some fluctuations around that but overall, China is still continuing to two.
Sam Maheshwari: And also, we are hearing that the anti-corruption campaign kind of moves from one province to another. So you're going to see some variation or some fluctuation around that. But overall, China is still continuing to be. Right. And then on last quarter's call, you talked about some initiatives for some products, some non-organic infections and products. Can you give us an update on how that's going? I'm sorry.
Speaker Change: Below.
Speaker Change: Alright, and then on the on.
Speaker Change: On last quarters call you talked about some initiatives for some from our products.
Speaker Change: Non organic infection, and Oh excuse me their products can you give us an update how that's going to I'm sorry, It was I guess organic products things like cannabis.
Sam Maheshwari: Or it was, I guess, organic products, things like cannabis. Jim, so we did launch our irradiation product, and one of the first applications of that was in, cannabis irradiation.
Speaker Change: Oh, it's Jim So we did launch.
Speaker Change: Our irradiation product and Oh, the first applications of that was in a fork candidacy radiation. Yeah. That's that's that's going well the product showing well in a we've got a few customers on it.
Sam Maheshwari: Yeah, that's, that's going well, the product's showing well, and we've got a few customers on it. And it's moving forward. So, you know, if I look at the guidance.
Speaker Change: And it's moving forward.
Speaker Change: So if I look at the guidance.
Sam Maheshwari: You're expecting revenue to be down again in the second quarter, and I assume that it is largely due to the situation in China. Do you think that by the time you get to the second half of the year, those trends start to reverse, and you get back to top-line revenue growth in the second half of the year? Yes, Jim, as we mentioned in the prepared remarks, we are expecting a rebound in the second half.
Speaker Change: You, you're exactly 11, it'll be down again in the second quarter or not.
Speaker Change: That's.
Speaker Change: Largely due to the situation in China.
Speaker Change: Do you think that by the time you get to the second half of the year. You know youth you think those trends start to reverse and you get back to top line revenue growth.
Speaker Change: The second half of the year.
Speaker Change: Yeah, Jim as he mentioned in the prepared remarks, we are expecting a rebound in second half rebound in second half is.
Sam Maheshwari: The rebound in the second half is gated or is dependent upon China coming back, as well as somewhat of a pickup in the industrial segment. Right now, we are seeing softness in non-cargo domains of the industrial, particularly in semiconductors, automotive, and electronics-related applications where our product is sold in the industrial. So we are expecting both of them to pick up at this time, and that should drive the rebound in the second half for us. So that is what we are.
Speaker Change: Gated or it's dependent upon a China coming back as well as somewhat of a pickup in the industrial segment right. Now we are seeing softness in non cargo.
Speaker Change: Domains of industrial, particularly in semiconductor automotive and electronics related.
Speaker Change: Applications, we have a product is sold and in the industrial segment. So we are expecting both of them to pick up at this time and that should drive a rebound in second half for us. So that is what we are expecting at this point.
Sam Maheshwari: And you talked about new product launches on the medical side, you know, customers starting to talk about that. How long does that take to turn into a real product and real revenue for Varex? So, you know, a lot of the conversations revolve around successor products. If someone has got a CT scanner in the market, they want to bring out the next CT scanners. Those tend to be usually within a two to three year window. Yeah, those are; it's a fairly short cycle.
Speaker Change: And you talked about new product launches on the medical side. You know are your customers starting to talk about that how how long does that take it turned into a real product and real revenue for barracks.
Speaker Change: So you know a lot of the conversations around.
Speaker Change: So success successor products, if someone has got a C T scan or in the market and we're bringing the next few T scanners those tend to be in usually within a two to three year window. Yeah. Those are that's a fairly short cycle. So a lot of the conversations that we're having we're in that vein of the next next modality next version of it.
Sam Maheshwari: So a lot of the conversations that we've had were in that vein of the next version of the modality and the next market tier that they want to go after. And then, of course, in the longer cycle time. Cycle times are for the newer platforms like Photon County, nanotubes, or anything brand new. Those tend to be 5+.
Speaker Change: The modality and the next markets tier that they want to go after and then of course in the longer term site longer cycle time.
Speaker Change: Cycle times are for the newer platforms like photon counting and.
Speaker Change: Nanotubes or anything brand, new those tend to be five plus years.
Sam Maheshwari: Although photon counting is in, you know, we've been talking about it for some time; it's getting close. Okay. All right. That was it for me.
Speaker Change: Although photon counting is in.
Speaker Change: We've been talking about it for sometimes it's getting closer.
Speaker Change: Okay, Alright that was it for me.
James Sadati: Thanks, Jim. Thank you. Thank you. Our next question comes from the line of Anthony with Mizzou. Please proceed with your question. Thanks, Sonny, and Sam. I hope your afternoon is going well.
Speaker Change: Thanks, Jim.
Speaker Change: Thank you. Our next question comes from the line of Anthony Petrone with Mizuho Group. Please proceed with your question.
Anthony Charles Petrone: Alright, Thanks shiny Sam Hope your afternoon is going well, maybe revert back to China.
Sam Maheshwari: Maybe revert back to China, just a couple of questions there. You mentioned one, the anti-corruption headwind, but also the underlying economy. On anti-corruption, is there anything you're hearing on the ground as to when the program, you know, can be completed? Is it safe to assume that it can be completed by mid-year or could it extend further into the year? And when you talk about just underlying economic pressures? You know, that's a new one.
Anthony Charles Petrone: Just a couple of questions. There you mentioned one the anti corruption headwind, but also just just underlying economy.
Anthony Charles Petrone: On anti corruption.
Anthony Charles Petrone: There anything youre hearing on the ground as to when the program.
Anthony Charles Petrone: You know can be completed is it is it safe to assume that it can be completed by mid year or could it extend further into the year.
Anthony Charles Petrone: And when you talk about just underlying economic pressures.
Anthony Charles Petrone: That's a new one is that something that you're hearing most recently from.
Sam Maheshwari: Is that something that you're hearing most recently from your OEM partners in the region there, and then I'll have a couple follow-up questions. So, Anthony, this is Sonny.
Anthony Charles Petrone: OEM partners and are in the region. There and then I'll have a couple of follow ups.
Anthony Charles Petrone: So let me.
Anthony This is sunny I'll I'll get it started and then have some chime in and add on that.
Sunny Sanyal: I'll get it started and then have Sam chime in and add on. There were two, you know; there were always two parallel situations. One is the general health of the provinces, and the economic health of the provinces post-COVID after they spent a lot of money on their zero COVID policy. That was always in the backdrop. But however, the direct slowness, you know, we could attribute to the stop in purchasing due to the audit that was going on. What we're sensing now is that the audit's made substantial progress. And as Sam said, it's just, it's moving along through the provinces, and the expectation still is that it'll start to taper off towards the second half. Now, our understanding is that the audits don't necessarily end here. It's a new sort of way for the Chinese government to monitor and manage how the monies are handled by the public hospital system. I think, in general, what we're sensing is a slight... It's a loosening up of the environment.
Sunny Sanyal: There were two.
Speaker Change: There are always two parallel situations one is the general health of.
Speaker Change: The provinces economic health of the provinces post Covid. After they spent a lot of money on their zero a COVID-19 policy that was they're always in the backdrop, but however, the the.
Speaker Change: Direct slow slowness.
Speaker Change: Attribute too.
Speaker Change: The stop in purchasing due to the.
Speaker Change: Alright that was going on what we're sensing now is that the auditors. The audit has made substantial progress and as Sam said, it's just it's moving along through the provinces and the expectations still is that it'll start to taper off towards the second half now our understanding is that the audits that don't necessarily endear, it's it's a new <unk>.
Speaker Change: Sort of a way for the Chinese government to monitor and manage how their oh. The monies are are handled by the the Haas public hospital system. So.
Speaker Change: In general what percentage is it slight I'd say, a loosening up of the environment and so that's why we still continue to be a b of the belief that the second half, which we should expect to see things pick up in China.
Sam Maheshwari: And so that's why we still continue to be of the belief that the second half, which we should expect to see things pick up in China. And I can just add there, Anthony, that you know that there is no specific announcement, or there are no sharp cut-off dates or deadlines that are announced. It is generally what we perceive and hear from our sales force. So we just need to be open to that, and there can be various interpretations.
Speaker Change: Yeah.
Speaker Change: And I can just add there Anthony that you know that there is no specific announcements. So there are no sharp cutoff dates or deadlines.
Speaker Change: Our announced it as generally as we perceive and hear from our sales force. So so we just need to be open to that you know and there can be various interpretations, but in general we are thinking things will improve because the government does want to spend money on the infrastructure and provide better health care for.
Sam Maheshwari: But in general, we think things will improve because the government does want to spend money on infrastructure and provide better healthcare facilities and services to its citizens. So there is positive pressure there along with, we would say, taking care of the healthcare system for the long-term good of the system. So in that way, that's also positive for the long term. Maybe just a quick one there. I mean, is it safe to assume then just the lead time on new deals is maybe slightly longer here because this audit process may be continuously going on in the background, or are there certain, like, checks and balances up front before a deal is closed? whether that's in the provinces or major coastal cities.
Speaker Change: Ladies and services to its citizens.
Speaker Change: So there is the positive pressure there along with we would say.
Speaker Change: Taking care of the health care system for the long term goodness of the system so in that way.
Speaker Change: That's also a positive for the long term.
Speaker Change: And maybe just a quick one there I mean is it safe to assume then just the I guess the lead time on new deals.
Speaker Change: Maybe slightly longer here, because the audit process, maybe continuously going on in the background or.
Speaker Change: Or are there certain like checks and balances upfront before a deal is closed.
Speaker Change: Whether that's in the provinces or major coastal cities.
Sam Maheshwari: Just kind of the mechanics of what's going on behind the scenes there would be helpful. You know, since we don't have direct visibility into end-user hospital buying, I can't answer that very accurately for you, but the way we see it is that hospital purchasing just stopped at some point because they were in the middle of the audits. But once the audits are completed, the hospitals go back to their normal operating mechanisms.
Speaker Change: It's kind of the mechanics of what's going on behind the scenes there would be helpful.
Speaker Change: Since we don't have direct visibility too and the end user hospital buying I cannot answer that very accurately for you, but the way we see it is.
Speaker Change: The hospital purchasing.
Speaker Change: Just stopped at some point because they were in the middle of the audits, but once the audits are complete at the hospitals to go back to their normal operating mechanisms and so whatever was the deal cycles cycle times, we anticipate that that would come.
Sunny Sanyal: And so, whenever it was the deal cycles, the cycle times, we anticipated that that would come back for those particular hospitals. And for us, the lead times would then come back to what would be normal traditional lead times. As hospitals start taking orders, they might have – I'm sorry, as vendors start – OEMs start to take orders, they may have three to six-month delivery cycles, and that's when we get the, you know, indicators for our forecasts, and our factory will then build the components. So, I don't think anything gets extended. Once it turns on, it just comes back on in the way things were.
Speaker Change: Come back for those particular hospitals and for US the lead times then because.
Speaker Change: Then come back to what would be normal traditional lead times as hospitals start taking orders they might have I'm, sorry, as vendors start our Oems start to take orders. They may have three to six months of delivery cycles and that's when we get the indicators for a for the for our forecasts and Anna.
Speaker Change: And our factory will then build the components so.
Speaker Change: I don't think anything gets extended once it turns on it just comes back on and the way things work.
Sunny Sanyal: So the question is... you know, it's not all at the same time; it's going to start trickling in. And, and, you know, we're seeing early signs of a little bit of that happening. Thanks. And the last one for me? I'll hop back in.
Speaker Change: So the question is.
Speaker Change: It's not all at the same time, it's going to start trickling in in and we're seeing early signs of a little bit of that happening.
Speaker Change: Thanks, and then last one for me I'll hop back in is just an update on photon counting.
Sam Maheshwari: Maybe an update on photon counting on the CT detector side, you know, just maybe where we are in the cycle, what you're hearing in terms of Demand for Conversion, on into photon counting, and how you expect that to play out over the next couple of days. Yeah, so, you know, it's safe to say that the technology is here to stay, in the sense that, outside of the OEMs and the vendors like us making the noise around the technology itself, the broad-based radiology community has picked up on photon counting as a viable technology and clinically exciting for them.
Speaker Change: On the G T detector side.
Speaker Change: You know just maybe where we are in the cycle, what you're hearing in terms of.
Speaker Change: Demand for conversions.
Speaker Change: On into photon counting and and how you expect that to play out over the next couple of years. Thanks. Yeah. So you know it's safe to say that the technology is here to stay in the sense that there's outside of the Oems and the vendors like us, making the noise around the technology itself.
Speaker Change: The broad based radiology.
Speaker Change: Community has picked up on photon counting as a viable technology and clinically.
Speaker Change: Exciting for them so from that perspective, we believe it's here to stay and we are seeing that in the way our medical Oems are beginning to talk about their future products and the need to incorporate their desired and corporate photon counting technologies from a C. T perspective the initial.
Sunny Sanyal: So from that perspective, we believe photon counting technologies are here to stay, and we are seeing that in the way our medical OEMs are beginning to talk about their future products and the need for, and their desire to incorporate photon counting technologies. From a CT perspective, the initial introductions were at the high end of the spectrum of CTs, but the need in the market is for them to be more in the general tiers that are more broadly available. And we are targeting that type of market segment, and our products are geared towards CTs that would be in that not super ultra high end, but you know things that would be more broad-based. Our next question comes from the line of Suraj Kalia, with Oppenheimer. Please proceed with your question. Hi, Sonny and Sam, this is Seamus on behalf of Suraj.
Speaker Change: <unk> or at the high end of the spectrum of cities, but the need in the market is for it to be more in the.
Speaker Change: The general tiers that are you know that are more broadly available and we are we are targeting that type of a market segment and our applications our products are geared towards.
Speaker Change: Cts that would be in that not super Ultra high end, but you know things that would be more broad based.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Suraj Kalia.
Suraj Kalia: With Oppenheimer. Please proceed with your question.
Suraj Kalia: Hi, Sunny and Sam This is seamus on for <unk>. Thank you for taking our questions.
Seamus: Thank you for taking your question, stream. Hi, just looking, you know, kind of outside of China, what are you seeing in terms of the capital equipment environment? And then, you know, kind of more specifically, more specifically, I think you noted in the geographic mix that America's was down as well, and EMEA was pretty much flat. Now, I guess any color you could provide there as to, you know, what's happening in those regions as well.
Seamus: Hi, Shane.
Seamus: Hi.
Seamus: I'm just looking at you know kind of outside of China. What are you. What are you seeing in terms of the capital equipment environment, and then you know kind of more specific more specifically I think you noted in the geographic mix. The Americas was down as well in EMEA was pretty much flat no I guess any any color you can provide there.
Seamus: As to what's happening in those regions as well.
Sunny Sanyal: So, our perception and what we're picking up is that the hospital environment in the US is generally doing better from the profitability standpoint. Their cost structure, their labor costs, and their, you know, back to nursing and clinicians, manpower has gotten better. And so they're managing it better.
Seamus: So.
Seamus: Our our perception and our what we're picking up is that the.
Seamus: The hospital environment in the U S.
Seamus: There are the hospitals are generally doing better from a from there from a profitability standpoint, there are cost structure does the labor costs.
Seamus: You know.
Seamus: Try to nursing and clinicians.
Manpower is.
Seamus: It has gotten better and so they're managing it better. So there's a profitability has improved so that generally bodes well for capital availability for our diagnostic imaging. So we are.
Sunny Sanyal: So there's profitability to improve, so that generally bodes well for capital availability for diagnostic imaging. So we are, we feel positive about the US market. Outside of that, you know, we haven't noticed any measurable difference in Europe or, or let's say, Japan, those are our two biggest regions. So, I think the U.S. continues to be strong; Europe and Japan are still going to be strong. Got it.
Seamus: We feel positive about the U S market outside of that you know we haven't noticed any measurable difference in Europe or are let's say, Japan. Those are our two biggest regions.
Seamus: So I think the U S continues to be strong Europe is in Japan are still to be seen.
Speaker Change: Got it thank you and then.
Sunny Sanyal: Thank you. And then, uh, Looking at it, you know, the medical segment was down a little bit, I guess. How should we think about the relative health of the next three to four quarters? And where would you describe any soft spots that maybe need to be monitored?
Speaker Change: Looking at the Mega Medical segment was down a little bit.
Speaker Change: How should we think about the relative health over the next three to four quarters.
Speaker Change: How would you describe any sort of thought that maybe need to be monitored.
Speaker Change: So.
Sam Maheshwari: So I would say in the medical field, you're looking at Q1, which is generally a seasonally softer quarter. So when you're comparing to Q4, you might see that it's a little bit down. But we did indicate in our prepared remarks that we saw trends in oncology and CT, et cetera, in Q1, which was somewhat softer.
Speaker Change: So I would say in medical Youre looking at Q1 jump, which is generally a seasonally softer quarter. So when you're comparing to Q4, you might see that it's a it's a little bit down.
Speaker Change: But we did indicate in our prepared remarks that we are seeing we saw trends in <unk>.
Oncologist and C T et cetera in Q1, which was somewhat softer.
Sam Maheshwari: So what I would say is that CT, we've been growing continuously for five years in a row, so that business is doing well. It's just a quarterly situation, and then also impacted a little bit by China. So we expect CT to go up as China goes up. Other than that, there really isn't anything major that we are seeing, which is, which is, which is the takeaway here, Shane, other than that.
Speaker Change: So what I would say is that you know CTV being now growing continuously for five years in a row. So that business is doing well its just a quarterly situation and then also impacted a little bit by China. So we expect.
Speaker Change: C T two to come come up as China comes up.
Speaker Change: Other than that there really isn't anything major that we're seeing.
Speaker Change:
Speaker Change: Which is a which is.
Which is which is a takeaway here Shane.
Speaker Change: Net.
Sam Maheshwari: I think the last couple of quarters we talked about how our customers' environments have been, Choked Manufacturing Environment due to Supply Chain issues, and so they had, in some of these modalities that are down, they had stocked up. So we saw some inventory adjustments, and hence soft. And CT, part of the CT bounce back will also happen as China starts to... Got it. Appreciate that. And one last one from us, and then I'll hop back in queue. Just any latest thoughts on the convertible debt, you know, how you're going to potentially address it? And I guess what's the optimal structure that, you know, if you had your choice, you'd be looking for?
Speaker Change: I think in the last couple of quarters, we talked about how our customers' environment.
Speaker Change: Environments have been.
Speaker Change: Joked.
Speaker Change: Manufacturing environment due to supply chain issues.
Speaker Change: And so they had in some of these modalities are down they had stocked up so we saw some inventory adjustments and softness.
Speaker Change: C T part of the Cte bounce back will also happen as China starts to come back.
Speaker Change: Got it appreciate that and one last one from US and then I'll hop back in queue, just any latest thoughts on the convertible debt, how youre going to potentially address it in a I guess, what's the optimal structure that you know if you had your choice you'd be looking for.
Sam Maheshwari: Thank you. Sure. Yes, so we are currently considering various approaches to refinance the convertible debt, and as and when we make a decision, we will be sure to share with all of you.
Speaker Change: Sure Yes.
Speaker Change: So we are currently considering various approaches to refinance the convertible debt and as and when we make a decision we will be sure to share with all of you I just want to remind that the debt is not as.
Sam Maheshwari: I just want to remind you that the debt is maturing next June, which is June of 2025. So that's an update on the convertible bond side. Secondly, in terms of the overall structure, we would like to bring down the overall gross debt that the company is carrying.
Speaker Change: Is maturing next June which is June of 2025. So that's a that's an update on the convertible bond side.
Speaker Change: Secondly in terms of overall structure, we would we would like to bring down the overall gross debt that the company's carrying.
Sam Maheshwari: And I would like to see that we maintain an overall adjusted EBITDA-based net debt leverage ratio of 3.0 or below. Right now, we are running at around 2.0, so we are fairly comfortable with our overall leverage situation. I would also say that we are currently in an excess cash situation, and we are purposely carrying excess cash on the balance sheet to deploy some of that for refinancing purposes and bring the overall gross debt for the company down. Thank you.
Speaker Change: And I would like to see that we maintain overall.
Speaker Change: Adjusted EBITDAR based net debt leverage ratio to be three point, though are below right now we're running at around two point, though so we are fairly comfortable with our overall leverage situation. I would also say that we are currently in an excess cash situation and we are.
Speaker Change: Lee carrying excess cash on the balance sheet.
Speaker Change: To to deploy some of that for the refinancing purposes and bring the overall gross debt for the company down.
Speaker Change: Thank you. Our next question comes from the line of Larry Solow with CGS. Please proceed with your question.
Sam Maheshwari: Our next question comes from the line of Larry Solo with CGS. Please proceed with your question. Great, thanks. Thank you for taking the questions and shout out to Mr. Sidoti. I appreciate the thoughts. Sorry, Larry, for that.
Larry Solow: Great. Thank you for taking the question Todd. Thank you shut off the I missed at Sidoti I appreciate the thoughts.
Larry Solow: Sorry, Larry for that.
Larry Solow: Okay, well that's all good.
Larry Solow: No, that's okay. Well, that's all good. Page PAGE of NUMPAGES www.verex.com Page PAGE of NUMPAGES www.verex.com Page PAGE of NUMPAGES, I guess, first question, just on the medical side, and you touched on it a little bit, but... XChina. I guess it looks like you were down double digits on that too, right? Or close
Speaker Change: Uh huh.
Speaker Change: So that's fine.
Speaker Change: I guess first question just on the.
Speaker Change: On the medical side, and you touched on it a little bit but.
Speaker Change: Ex China I guess, it looks like you were down double digits ex China too.
Speaker Change: Close to it.
Speaker Change: Yes.
Speaker Change: And medical alone because that's most of the sales I know into China today, our medical right and they were down.
Sam Maheshwari: Just in medical alone, because most of the sales I know into China today are medical, right? And they were down... only 10%. I say only because I think we thought that would be more like 2530. So, just trying to figure out, was that some of the weakness in the quarter, you know, within that medical being down a little bit more and the mix? I know you called out maybe industrial down as well, but industrial was actually up 10% year over year. I know it was down sequentially, but I'm trying to figure out was industrial kind of also below your, what was sort of the mixed driver?
Speaker Change: Only 10% I'd say only because I think we thought that would be more like 25 30.
Speaker Change: So.
Speaker Change: Just trying to figure out is that was that some of the weakness in the quarter.
Speaker Change: Within that within that medical being down a little bit more and then the mix I know you called out maybe industrial down as well, but industrial was actually up 10% year over year I know it was down sequentially, but I'm trying to figure out was industrial carnival. So below you or what was sort of the well mix driver and going forward. It.
Speaker Change: Like you know I'll.
Speaker Change: The gross margin this quarter was supposed to be 33 to 34 now you rebound, we can revenue, which looks like that kind of in line with our original projections, but the gross margin is still below where you thought Q1 was going to be so can you maybe give us a little more color on that if that makes sense.
Sam Maheshwari: And going forward, it looks like, in Yeah, I can start off with gross margin first, Larry. So gross margin, we did see softness in gross margin in Q1. And that was largely driven by unexpected softness in the industrial segment. Overall volume for the business is quite low at $190 million for the full company. So there is under-absorption in our factories in both industrial and medical. So there is lower volume.
Speaker Change: Yeah, I can start off with the gross margin first Larry So gross margin, we did see softness in gross margin in Q1 and that was largely driven by unexpected softness in the industrial segment overall volume in the industry overall volume for the businesses.
Speaker Change: Quite low at $190 million for the full company. So there is the under absorption in our factories in both industrial and medical so theres lower volume.
Sam Maheshwari: And then, And then the unfavorable mix in the industrial segment drove gross margins down. And right now, we are seeing that the mix in industrial in Q2 is also not as strong, and the overall volume is also not where we would like it to be. So between China and industrial, and the mix on the industrial is bringing the gross margins down, which we expect to rebound or recover in the second half, and that's what we are expecting right now. And then remind me- More industrial than, it's more of an industrial mix, a mix with more industrial than medical, outside of the... In terms of the... Yeah, yeah, yeah, right, okay. And then, could you repeat your first question or the other piece, the first part of the question?
And then.
Speaker Change: And then the unfavorable mix and industrial segment drove gross margins down.
Speaker Change: Right now we are seeing that the mix in industrial in Q2 is also not as strong.
Speaker Change: <unk>.
Speaker Change: And the overall volume is also not where we would like it to be so between China and industrial and the mix on the industrial it's bringing the gross margins down, which we expect to rebound or recover in the second half and that's what we're expecting right now and.
Speaker Change: And then remind me more industrial than it's more of an industrial mix, our mix with industrial and medical it sounds like outside of it in terms of the yeah, Yeah, yeah, Okay mhm.
Speaker Change: And then could you repeat your first question or the other piece of the first part.
Sam Maheshwari: My other question was just kind of, and I'll rephrase it, I guess. I think at the start of the year or at the end of the last, you know, when you kind of gave this three to five percent full year revenue down guidance, and I think you had said, if I'm not mistaken, that you thought medical x China would be flat. Do you still think that? I think at this point...
Speaker Change: I was just kind of.
Speaker Change: Rephrase It I guess I think at the start of the year or at the end of last when you you kind of gave the 3% to 5% full year.
Speaker Change: Revenue down guidance and I think you had said if I'm not mistaken that you'd thought medical ex China would be flat to up.
Speaker Change: Still think that.
Speaker Change: I think at this point.
Sam Maheshwari: When it comes to the guide or the outlook around 3-5% down, I would say that at this point, we would be closer to the lower end of the range than the higher end of the range, meaning more between 4-5% as opposed to 3-4%. So that is because we were initially expecting a little bit better performance from our industrials. For more information, visit www.fema.gov. I'm not sure if we really commented on medical ex-China.
Speaker Change: When it comes to the Guy guide or the outlook around 3% to 5% down I would say that at this point.
We would be more closer to the lower end of the range than the higher end of the range, meaning more becoming 45 as opposed to three to four so that there is there because we were initially expecting a little bit better performance from our industrial segment.
Speaker Change: I am not sure if we really commented on medical ex China, China still continues to be a situation you know China was a pretty strong growth area for us, but C T and some other products over there and they're outside of the two things that we talked about macroeconomic as well as anti corruption.
Sam Maheshwari: China still continues to be a situation. You know, China was a pretty strong growth area for us, but CT and some other products over there, and they're outside of the two things that we talked about, macroeconomic as well as anti-corruption. We expect China to come back, it's just that the timing is somewhat of an unknown factor for us. And the full year will really depend upon... Does China come back at the beginning of Q3 or does it come back towards the end of Q3, and that will determine it? the medical and overall medical situation in a big way.
Speaker Change: We expect China to come back it's just that the timing is somewhat of an unknown factor for us and the full year will really Larry depend upon.
Speaker Change: Does China come back at the beginning of Q3 or does it come back towards the end of Q3, an agile determined.
Speaker Change: The medical overall medical situation in a big way for us.
Sam Maheshwari: Okay, and just on the industrial piece. Again, I know you don't actually break it down by segment, but you had a great year last year. This quarter, like I said, was up 10%, but down, and now you're lapping much more difficult comps too, obviously, as we get into the next quarter. But it sounds a little bit mixed there too.
Speaker Change: Okay, and then just on the industrial piece.
Speaker Change: Again, I know you don't actually got by segment, but you had a great year last year.
Speaker Change: This quarter like I said, it was up 10% but down.
Speaker Change: What sequentially and now Youre lapping much more difficult comps to obviously as we get.
Speaker Change: So you didn't next quarter.
Speaker Change: But it sounds like you know it sounds a little bit mixed there too do you still think certainly it sounds like you'll grow sequentially.
Sam Maheshwari: You still think, certainly sounds like you'll grow sequentially. You're building that into your expectations. Do you think you'll grow in the back half year over year?
Speaker Change: Oh that you're building that into your expectation do you think you can grow in the back half year over year or does this site because that segment overall.
Sam Maheshwari: Or does that segment overall go, you know, you did 220 last year. Is that a good place to start for this year, or do you think you can exceed that? Yeah, a little bit of a few things going on here. Let me explain that, Larry. So yes, the comps are going to become industrial. We grew very well last year; we grew 19% year over year in 2023. So that's clearly very strong growth we had last year in industrial production. And yes, you rightly pointed out we did 220 million there.
Speaker Change: You did $2 20 last year is that a good place to start with this year or do you think you can see that.
Yeah little bit of a few things going on there let me explain that Larry So yes. The comps are going to become industrial we grew very well last year, we grew 19% year over year in 2023. So that's clearly a very strong growth we had last year in industrial and <unk>.
Speaker Change: Yes, you rightly pointed out we did 220 million there.
Sam Maheshwari: In industrial, we are seeing kind of a tale of two cities, and why I say that is because in industrial, it is still very strong in the cargo inspection area where we are shipping a lot of hardware or what we call industrial systems or, you know, these big linear accelerators or LINACs. Right, yeah. When we ship these Linux, our gross margin on the hardware or the system upon shipment is lower. Our gross margin on the service piece is much... So overall, when you look at our industrial, we have softness ex-cargo.
Speaker Change: In industrial we are seeing kind of like a tale of two cities and why I say that is this.
Speaker Change: In industrial it is still very strong in the cargo inspection area, where we are shipping.
Speaker Change: A lot of hardware or what we call industrial systems are you know these big linear accelerators on Linux.
Speaker Change: Yeah, when we ship these Lynn <unk>, our gross margin on the hardware or the system. Upon shipment is lower our gross margin on the service piece is much higher.
Speaker Change: So overall when you look at our industrial we have softness ex cargo and within cargo the distribution between systems and service is lot more skewed towards systems because right now we are shipping quite a bit of that so that brings the overall gross margin down for the segment. It's a good thing.
Sam Maheshwari: And within cargo, the distribution between systems and service is a lot more skewed towards systems, because right now, we are shipping quite a bit of that. So that brings the overall gross margin down for the segment. It's a good thing, because it'll generate future years' service revenue. Yeah, exactly, exactly.
Speaker Change: Because it'll generate eventually materialize.
Speaker Change: Right, Yeah, exactly exactly get that so that is happening on the industrial side in terms of overall volume or sales levels for industrial obviously, we would not be able to repeat the percentage growth factor in industrial of 2023, well we are still.
Sam Maheshwari: So that's happening on the industrial side. In terms of overall volume or sales levels for industrial products, obviously, we would not be able to repeat the percentage growth factor in industrial products in 2023. But we are still hopeful of having a year-over-year growth in industrial, again, provided the timing when it comes back. In the cargo inspection business, we have good visibility for the rest of the year. On the non-cargo industrial business, we need to see how it develops and if it comes back. Sooner than later, the overall year will be a growth year for sure. So that is something that we are monitoring, and that's where we are. And just remind me the cargo that includes security, too; that's like one third of the segment plus or minus. Is that about right? And then everything else is two thirds of my ticket.
Speaker Change: Full of having a year over year growth in industrial.
Speaker Change: <unk> pro.
Speaker Change: Provided the timing when it comes back the cargo inspection business, we have good visibility for the rest of the year.
Speaker Change: On the non cargo industrial business.
Speaker Change: We need to see how it develops if it comes back.
Speaker Change: Sooner than sooner than later, then overall there will be a growth year for sure.
Speaker Change: So that is something that we're monitoring and thats, where we are right.
Speaker Change: Can you just remind me the cargo that's like he was like security to that's like one third of the segment plus or minus is that about right and then everything else that two thirds of my gut is that right.
Speaker Change: Ballpark, so security inspection is around in that range for cargo for yeah.
Speaker Change: Sometimes it can go higher Larry in certain quarters, one guy shipping quite right. Okay.
Sam Maheshwari: Is that right? Thank you all. Okay, just just last question just on the full-time technology and, you know, some, you know, being adopted more or maybe not, it just sounds like we're in the early stages, but of adoption. And you mentioned one particular OEM with, I don't know if you could answer, I guess, a broader question with this, I guess, to some extent, cannibalizes the existing technology. And is this customer, a customer today of yours in your existing, Larry? Before we go to this photon counting-related question, I just want to correct that cargo is around 20% of the segment, not 30%. Okay. And with that, yeah.
Yeah.
Speaker Change: Okay. Just last question just on the.
Speaker Change: On the on the photon technology and some are being adopted more ore.
Speaker Change: Maybe just it sounds like we're in the early stages, but of adoption and you mentioned in one particular OEM with I don't know if you could answer.
I guess a broader question with just I guess, you can come to some extent cannibalize the existing technology.
Speaker Change: And as this customer.
Customer told all of you guys in your existing technology.
Larry before we go to this put on current accounting related question I just wanted to correct that.
Speaker Change: Cargo is around 20% of the segment not 30%, okay and with that yes.
Sam Maheshwari: And then on photon counting, I'll ask Sunny to comment here. But in general, not in general, specifically what Sunny talked about was photon counting for CT. So that is not a market that we are participating in today, so there is no cannibalization. That's really a new market, a new business development for us. Yeah, and Larry and everyone in general, the photon counting detectors go into whole new types of applications; where someone needs a flat panel or large area detector, they will go with a flat panel detector. And where they need a different type of performance, particularly in high speed imaging or a different type of dynamic imaging, they'll use photon counter detectors.
Speaker Change: Yeah.
Speaker Change: And then on the photon counting Alas sunny to comment here.
Speaker Change: But in general not in general specifically, what Sandy talked about was photon counting for C. P. So that is not a sector that is not a market that we are participating today. So there is no cannibalization, that's really new market new business develop.
Speaker Change: And for Us.
Speaker Change: And Larry and everyone in general the photon counting detectors.
Speaker Change:
Speaker Change: So into a whole new type of applications where someone needs.
Speaker Change: That panel our large area detector. They will go with our flat panel detector and where they need a different type of outperformance, particularly in high speed imaging or <unk> or a <unk>.
Speaker Change: Different type of dynamic imaging they'll use photon counting detectors. So we are not seeing cannibalization or we don't expect cannibalization at this stage between flat panel detectors and photon counting so that's one thing, but so within existing customers. These would be new applications, new products and then of course that Samsung the C T as a brand new space new addressable.
Sunny Sanyal: So we are not seeing cannibalization, or we don't expect cannibalization at this stage between flat panel detectors and photons, so that's one thing. So within existing customers, these would be new applications, new products. And then, of course, at SAMHSA, CT is a brand new space, new addressable market. Got it.
Speaker Change: Yeah.
Sam Maheshwari: I appreciate that clarification. Thank you, by, Thank you. Our next question comes from the line of Michael Tumay with Jeffries. Please proceed with your question. Hey guys, thanks for taking my questions. Mike Toomey here from Geoffrey's Covering for Young Lee.
Speaker Change: Got it I appreciate that clarification. Thank you Tony.
Speaker Change: Thank you guys.
Thank you. Our next question comes from the line of Michael <unk> with Jefferies. Please proceed with your question.
Hey, guys. Thanks for taking my questions Mike to me here from Jefferies covering for the young Lady most of my questions been answered.
Mike Ott: Most of my questions have been answered, but just two please. Can I ask a follow-up on the photon counting? You know, when do you think that this could start contributing to the revenue for you guys? So are we talking about the next two years or longer term? And anything you'd highlight on pricing from your side or costs easing or stabilizing, whether that's globally or in China. Thanks for taking my question. I didn't catch the second part of the question, so maybe I can answer the first one.
Michael: Just two please.
Michael: Can I ask a follow up on the photon counting.
Michael: When when do you think this could start contributing to the revenue for you guys. There are we talking.
Michael: In the next two years or longer term.
Michael: You'd highlight on the pricing from your side.
Michael: Or costs kind of easing easing or stabilizing.
Michael: With that globally or in China.
Speaker Change: Thanks for taking my question.
Speaker Change: Sunny I didn't catch the second part of the question. So maybe let me answer the first one.
Sunny Sanyal: So I think it's going to be a cost question. We'll come back to that. So photon counting. So there's, there are...
Speaker Change: Sure.
Speaker Change: Energy costs cost question, we'll come back to that so.
Sunny Sanyal: Photon counting so there.
Sunny Sanyal: In addition, we talked about CT quite a bit, about photon counting applications for CT. That is, that's a longer-duration project. Those are, you know, our typical cycles for these types of projects are, you know, 3-5-ish type of years. More, and this being a new technology, more on the 5-year side.
Sunny Sanyal: In addition to we talked about C. T a quite a bit about photon counting applications for C. T that is that's a longer duration projects those are.
Sunny Sanyal: You know our typical cycles for these types of projects are you know.
Sunny Sanyal: Three to five ish type of years more and this being a new technology more on the five year side. However, we've been working with our customers now for about a couple of years. So we're looking at about a three year type of a horizon for when we expect our.
Sunny Sanyal: However, we've been working with our customers now for about a couple of years, so we're looking at about a 3-year horizon for when we expect our CT detectors to start contributing in any measurable volume, so to say. Between now and then, we will see some amounts of prototypes and, you know, low volumes of shipments. There are other applications within photon counting that are also being contemplated.
Sunny Sanyal: Cte detectors to start contributing in any any measurable volume so to say between now and then we will see some amounts of prototypes and he knows low volumes of shipments.
Sunny Sanyal: There are other applications within photon counting that are that are also being contemplated those will also be within that two to three year window, but those are for other modalities and in there you'll see the revenue contribution to be modest.
Sunny Sanyal: Those will also be within that two to three year window, but those are for other modalities, and there you'll see the revenue contribution to be modest. A large chunk of our photon counting detectors are being sold; a larger proportion of our photon counting detectors are going into industry for food inspection and other applications. High-Speed Real-Time Imaging Applications and... Those are short cycles; those are happening continuously. And we're counting to. Industrial applications will contribute to the growth of photon counting in the near future.
Sunny Sanyal: Large chunk of our photon counting detectors are being sold.
Sunny Sanyal: A larger proportion of photon counting detectors are going into industrial food inspection and other applications high speed real time imaging applications in industrial.
Sunny Sanyal: Our short cycle those are happening continuously and.
Sunny Sanyal: And we're counting on industrial.
Sunny Sanyal: To contribute to the growth of photon counting in the near term.
Sunny Sanyal: Okay, all right, that's really helpful. And just to reiterate, the second question was just if there's anything on the price that you're charging, any pressure on pricing, and any change, significant changes in the cost. At this time, you know, the supply chain-driven issues are largely behind us. I would say that freight is quite manageable at this time.
Speaker Change: Okay, Alright, that's really helpful and just to reiterate the second question was.
Just if there's anything on price that you're charging.
Speaker Change: Any pressure on pricing and any change significant changes in the cost.
Yeah.
Speaker Change: At this time.
Speaker Change: The supply chain driven issues, they're largely behind us I would say that freight is quite manageable at this time.
Sam Maheshwari: And from the raw material cost perspective, things have begun to normalize, or they're rather stabilized at this point. We talked about price increases about 12, 18 months ago. That round of price increases has largely been completed, and other than... You know, on a spot basis, we are not embarking upon any new across-the-board price increase type of campaign at this point. But we are looking at different situations where we need to work on certain price-related initiatives, which we would do. And in case inflation picks up much more than what we are planning, then we would address it through a campaign. But that is not front and center for the situation.
Speaker Change: And from the raw material cost perspective things have things have begun to normalize or their broadest stabilized at this point are we.
Speaker Change: Talked about price increases about 12, 18 months ago that round of price increases has largely been completed and.
Speaker Change: Other than.
Speaker Change: You know on a spot basis, we're not embarking upon any new across the board price increase type of a campaign at this point, but we are looking at here and there are different situations, where we need to.
Speaker Change: The work on certain price related initiatives, which we would do and in case inflation picks up much more than what we are planning then we would address it through a through a campaign enough price increases, but that is not front and center for.
Speaker Change: For the situation at this time.
Speaker Change: Yes.
Sam Maheshwari: Okay, great. Thanks very much. Thank you. There are no further questions at this time. I'd like to turn the call back over to Chris for closing remarks. Okay, great. Thank you.
Speaker Change: Okay, great. Thanks very much.
Speaker Change: Yeah.
Speaker Change: Thank you there are no further questions at this time I'd like to turn the call back over to Chris for closing remarks.
Speaker Change: Great. Thank you I'll now turn over the call to Sunny for some final comments.
Christopher Belfort: I'll now turn over the call to Sunny for some final... Thank you, Chris. In closing, you know, as always, I'm very proud of all the hard work of our employees globally as they work to support our customers every day. We're looking forward to our customers' successes in incorporating our technologies and also looking forward to their success this year with new product launches. So, thank you for taking the time to join us today and for your continued interest in Varex. Thank you, Sonny, and thank you all for your questions and participation in our earnings conference call today. The webcast and supplemental slide presentation will be archived on our website. A replay of the quarterly conference call will be available through February 20th and can be found at vareximaging.com forward slash investor relations.
Thank you Chris in closing as always I am very proud of all the hard work of our employees globally as they work to support our customers everyday.
Sunny Sanyal: We're looking forward to our customer successes with incorporating our technologies and also looking forward to their success. This year with new product launches. So thank you for taking the time to join US today and for your continued interest in <unk>. Thank.
Sunny Sanyal: Thank you Sydney and thank you all for your questions and participating in our earnings conference call today, the webcast and supplemental slide presentation will be archived archived on our website a replay of the quarterly conference call will be available through February 20th and can be found at <unk> Dot com forward Slash Investor relations. Thank you and goodbye.
Christopher Belfort: Thank you and goodbye. This concludes today's teleconference. You may disconnect your lines at the, Thank you for your participation. Bye! www.thevenusproject.com Copyright © The Venus Project 2012 All Rights Reserved Venus Project … … … … … … Solaw, Suraj Kalia, Mike Ott, Anthony Petrone, Varex Imaging © BF-WATCH TV 2021, and and and and and and and and www.microsoft.com.au www.lime-films.com www.microsoft.com.ca, © The Ultimate Parody Site!
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Hmm.
Speaker Change: [music].
Speaker Change: Hum.