Q2 2024 Varex Imaging Corp Earnings Call
Operator: Greetings and welcome to the Varex Imaging second quarter full year 2024 earnings call. 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, Chris Belfiore, Director of Investor Relations. Thank you, sir. You may begin. Good afternoon, and
Greetings and welcome to the Barrick imaging second quarter full year '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. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being.
Operator: We recorded it is not my pleasure to introduce your host Chris Belfiore director of Investor Relations. Thank you Sir you may begin.
Christopher John Belfiore: Good afternoon, and welcome to Varex Imaging Corporation's earnings conference call for the second 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 John Belfiore: Good afternoon, and welcome to Barrick's Imaging Corporation's earnings conference call for the second quarter of fiscal year 2024.
Christopher John Belfiore: To simplify our discussion, unless otherwise stated, all references to the quarter are for the second quarter of fiscal year 2024. In addition, unless otherwise stated, quarterly comparisons are made year over year from the second quarter of fiscal year 2024 to the second quarter of fiscal year 2022. Finally, all references to the year are to the fiscal year and not the calendar year unless otherwise stated.
Christopher John Belfiore: With me today are sunny Sanyal, our president and CEO and Sam Maheshwari our CFO.
Christopher John Belfiore: Please note that the live webcast of this conference call included a supplemental slide presentation that can be accessed at various website at barrick's imaging dot com.
Christopher John Belfiore: 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 second quarter of fiscal year 2024. In addition, unless otherwise stated quarterly comparisons are made year over year from the second quarter of fifth.
Christopher John Belfiore: Full year 2024 to the second quarter of fiscal year 2023.
Christopher John Belfiore: Finally, all references to the year or to the fiscal year and not the calendar year unless otherwise stated.
Christopher John Belfiore: 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 SBA. Additional information concerning the 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.
Speaker Change: Please be advised that during this call we will be making forward looking statements, which are predictions or projections about future events.
Christopher John Belfiore: 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.
Christopher John Belfiore: Risks relating to our business are described in our quarterly earnings release, and our filings with the SEC <unk>.
Christopher John Belfiore: Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including item one a risk factors of our quarterly reports on Form 10-Q, and our annual report on Form 10-K. The information in this discussion speaks as of todays date, and we assume no.
Christopher John Belfiore: 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 be discussing 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 will provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website. I will now turn the call over to Sunny.
Sunny: Nation to update or revise its forward looking statements in this discussion.
Sunny: On today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with nor are they a substitute for GAAP financial measures.
Sunny: We will provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website.
Christopher John Belfiore: I will now turn the call over to Sunny.
Sunny: Thank you Chris.
Sunny S. Sanyal: Good afternoon, everyone, and thank you for joining us for our second quarter earnings call. Sales in the second quarter were in line with our expectations, resulting in revenue of $206 million. Non-GAAP gross margin of 33% was within the guided range, and non-GAAP earnings per share was $0.16 in the quarter. However, revenue in the second quarter was down 10% year over year. Revenue in the medical segment decreased 15% year over year, while revenue in the industrial segment increased 6%. Non-GAAP gross margin in the second quarter was 33%, which was flat compared to the same quarter last year, and non-GAAP EPS was $0.16 compared to $0.26 last year.
Sunny: Good afternoon, everyone and thank you for joining us for our second quarter earnings call.
Sunny S. Sanyal: Sales for the second quarter was in line with our expectations, resulting in revenue of $206 million.
Sunny S. Sanyal: non-GAAP gross margin of 33% was within the guided range and non-GAAP earnings per share was <unk> 16 cents in the quarter.
Sunny S. Sanyal: Revenue in the second quarter was down 10% year over year.
Sunny S. Sanyal: Revenue in the medical segment decreased 15% year over year, while the industrial segment revenue increased 6%.
Sunny S. Sanyal: non-GAAP gross margin in the second quarter was 33%, which was flat compared to the same quarter last year and non-GAAP EPS was <unk> 16 cents compared to 26 cents last year.
Sunny S. Sanyal: We ended the second quarter with $190 million worth of cash, cash equivalents, and marketable securities on the balance sheet, up $68 million compared to the second quarter of fiscal 2023. Now, let me give you some insights into the sales detail by modality in the quarter compared to a five-quarter average, which we will refer to as the sales trend. Sales in our medical segment were down in the quarter due to cautious purchasing behavior by our customers, in addition to the continued softness in China.
Sunny S. Sanyal: We ended the second quarter with $190 million worth of cash cash equivalents and marketable securities on the balance sheet.
Sunny S. Sanyal: $68 million compared to the second quarter of fiscal 2023.
Sunny S. Sanyal: Now, let me give you some insights into the self detailed by modality in the quarter compared to a five quarter average, which we will refer to as the sales trend.
Sunny S. Sanyal: Sales in our medical segment was down in the quarter due to cautious purchasing behavior by our customers. In addition to the continued softness in China.
Sunny S. Sanyal: Global sales of CT tubes improved in the quarter and are now in line with sales. Fluoroscopy and mammography were both in line with their respective sales trends. Oncology, radiographic, and dental modalities were all below their respective cells. Global sales of our industrial products were solid in the quarter and in line with our sales target. Our cargo inspection products and industrial tubes continue to see strong sales while we experience some softness in other industrial end markets, primarily in semiconductor, electronics, and battery inspection.
Sunny S. Sanyal: Global sales of P. T tubes improved in the quarter and is now in line with the sales trend.
Sunny S. Sanyal: Fluoroscopy and mammography were both in line with their respective sales trends encore.
Sunny S. Sanyal: Oncology radiographic and dental modalities were all below their respective sales trends.
Sunny S. Sanyal: Global sales of our industrial products were solid in the quarter and in line with ourselves trend.
Sunny S. Sanyal: Our cargo inspection products and industrial tubes continued to see strong cells, while we experienced some softness in other industrial end markets, primarily in semiconductor electronics and battery inspection.
Sunny S. Sanyal: Now I'd like to take a moment to give you an update on our photon counting technology. As we highlighted in the past quarters, photon counting detector technologies are a significant focus across the entire imaging industry. Both medical and industrial OEMs continue to explore the use of photon counting in imaging applications across various modalities, from food inspection to full-body medical. Engagement with our OEM customers has accelerated over the past year, and we believe Varex continues to be well positioned to benefit from these trends, given our innovative technology and breadth of our product portfolio.
Sunny S. Sanyal: Now I'd like to take a moment to give you an update on our photon counting technology.
Sunny S. Sanyal: As we highlighted in the past quarters photon counting detector technologies are a significant focus across the entire imaging industry.
Sunny S. Sanyal: Both medical and industrial Oems continue to explore the use of photon counting in imaging applications across various modalities from food inspection to full body medical C T.
Sunny S. Sanyal: Engagement with our OEM customers has accelerated over the past year and we believe <unk> continues to be well positioned to benefit from these trends given our innovative technology and breadth of our product portfolio.
Sunny S. Sanyal: Our industrial segment, where technology adoption tends to be faster, continues to be the main driver of our photon counting detector sales. The technology is being adopted in high growth niche verticals where there is a need for high speed and high sensitivity images.
Sunny S. Sanyal: Our industrial segment, where technology adoption tends to be faster continues to be the main driver of our photon counting detectors sales.
Sunny S. Sanyal: The technology is being adopted in the high growth niche verticals, where there's a need for high speed and high sensitivity imaging.
Sunny S. Sanyal: Our photon counting detectors continue to be integrated into new customer systems, and we expect industrial applications to remain a solid source for sales of Varex's photon counting products in the future. In addition, last year, we provided an overview of two collaborative photon counting projects in our industrial business, Parsek and Grinner.
Sunny S. Sanyal: Our photon counting detectors continue to be integrated into new customer systems, and we expect industrial applications to remain solid source for sales have ericsson's photon counting products in the future.
Sunny S. Sanyal: In addition last year, we provided an overview of two collaborative photon counting projects in our industrial business.
Sunny S. Sanyal: <unk> hadn't greener.
Sunny S. Sanyal: These projects are sponsored under the Horizon Europe Program, the European Union's key funding program for research and innovation. Both projects are focused on the speed of imaging and material discrimination, which are distinctive strengths of photon counting. The PARSEC project aimed at addressing the potential abuse of postal and express services by criminals and terrorists is making solid progress.
Sunny S. Sanyal: These projects are sponsored under the Horizon Europe program, the European Union's key funding program for our research and innovation.
Sunny S. Sanyal: Both projects are focused on the speed of imaging and material discrimination, which our distinctive strengths of photon counting.
Sunny S. Sanyal: The parser project aimed at addressing the potential abuse of postal and express service.
Sunny S. Sanyal: Express Courier services by criminals and terrorists is making solid progress.
Sunny S. Sanyal: The material discrimination capability of our photon counting technology coupled with AI software is being used to test the detection of illicit substances within clusters. The Grinner Project, which is aimed at preventing battery-caused fires in the electronics waste management chain, is also progressing well. A prototype incorporating our photon counting technology is expected to be deployed to an end-user facility in Europe for gathering data and field testing. Once testing of the recycling facilities is complete in late fiscal 2024, we expect to work with our customer on commercialization of the final system.
Sunny S. Sanyal: The material discrimination capability of our photon counting technology, coupled with AI software is being used to test the detection of illicit substance substances within clusters up ourselves.
Sunny S. Sanyal: Okay.
Sunny S. Sanyal: The grid are project, which is aimed at preventing battery caused fires in the electronics waste management chain is also progressing well.
Sunny S. Sanyal: Our prototype incorporating a photon counting technology is expected to be deployed to an end user facility in Europe for gathering data and field testing.
Sunny S. Sanyal: Once testing of the recycling facilities complete in late fiscal 'twenty 'twenty four we expect to work with our customer on commercialization of the final system.
Sunny S. Sanyal: In our medical segment, our Photon County technology is being used in full body scans and panoramic dental imaging. As we noted on our first quarter earnings call, we're working with a major OEM to integrate our photon counting technology into their next generation of CT scanners, and this process is moving along as planned.
Sunny S. Sanyal: In our medical segment, our photon counting technology is being used in full body scans and panoramic dental imaging.
Sunny S. Sanyal: As we noted on our first quarter earnings call, we're working with a major OEM to integrate our photon counting technology in their next generation of C. T scanners.
Sunny S. Sanyal: This process is moving along as planned.
Sunny S. Sanyal: We also now have other prospects in the pipeline who are in various stages of assessing our technology for CT applications. We expect new and existing applications of our photon counting technology to contribute strong sales growth over the next five years. Specifically, we expect additional applications in medical, including CT, to add over $100 million of revenue over this time frame. Coupled with traction in our industrial markets, we expect our photon counting portfolio to contribute more than $150 million of revenue annually by fiscal 2029. We continue to be encouraged by the acceptance of photon counting technologies for medical and industrial purposes.
Sunny S. Sanyal: We also now have other prospects in the pipeline who are in various stages in assessing our technology for C. T application.
Sunny S. Sanyal: We expect new and existing applications of our photon counting technology to contribute strong sales growth over the next five years spin.
Sunny S. Sanyal: Specifically, we expect additional applications in medical including C T to add over $100 million of revenue over this timeframe.
Sunny S. Sanyal: Coupled with tax traction in our industrial markets, we expect our photon counting portfolio to contribute more than $150 million of revenue annually by fiscal 2029.
Sunny S. Sanyal: We continue to be encouraged by the acceptance of photon counting technologies for our medical and industrial applications.
Shubham Maheshwari: With that, let me hand over the call to Sam.
Sunny S. Sanyal: With that let me hand over the call to Sam.
Shubham Maheshwari: Thanks, Sunny, and hello, everyone. Our revenues in the second quarter were $206 million, at the midpoint of our guidance, while non-GAAP gross margin was 33% within our guidance. Non-GAAP EPS was $0.16 below the midpoint of our guidance. Second quarter revenues decreased 10% compared to the second quarter of fiscal 2023. Medical revenues were $149 million, and industrial revenues were $57 million.
Sam: Thanks, Sunny and Hello, everyone.
Shubham Maheshwari: Our revenues in the second quarter were $206 million at the midpoint of our guidance, while non-GAAP gross margin was 33% within our guided range.
Shubham Maheshwari: non-GAAP EPS was <unk> <unk> below the midpoint of our guided range.
Shubham Maheshwari: Second quarter revenues decreased 10% compared to the second quarter of fiscal 2023.
Shubham Maheshwari: Medical revenues were $149 million and industrial revenues were $57 million medical revenues were 72% and industrial revenues were 28% of our total revenues for the quarter.
Shubham Maheshwari: Medical revenues were 72%, and industrial revenues were 28% of our total revenues for the quarter. Looking at revenues by region, Americas increased 1% compared to the second quarter of fiscal 2023, while EMEA increased 2%, and APAC decreased 27%. The decline in AIPAC was primarily the result of lower sales in China due to the government's anti-corruption campaign there, and an Investigation into its Healthcare System.
Shubham Maheshwari: Looking at revenues by region Americas increased 1% compared to the second quarter of fiscal 2023.
Shubham Maheshwari: EMEA increased 2% in APAC decreased 27% the decline in APAC was primarily the result of lower sales in China due to the government's anti corruption campaign there.
Shubham Maheshwari: And investigation into its healthcare system.
Shubham Maheshwari: China accounted for 12% of overall revenues in the second quarter compared to 17% in the second quarter of the previous fiscal year. Further, sales to China in the second quarter declined sequentially from the first quarter. Given this trend, we no longer expect a pickup in Chinese sales before the start of our next fiscal year. However, we remain optimistic about the prospects of long-term healthcare-related growth in China.
Shubham Maheshwari: China accounted for 12% of overall revenues in the second quarter compared to 17% in the second quarter of prior fiscal year further sales to China in the second quarter declined sequentially from the first quarter.
Shubham Maheshwari: Given this trend we no longer expect a pick up in China sales before the startup of our next fiscal year, we remain optimistic about the prospects of long term health care related growth in China.
Shubham Maheshwari: Yes.
Shubham Maheshwari: Let me now cover our results on a gap basis... Second quarter gross margin was 32% flat year-over-year. Operating expenses were $58 million, up $1 million compared to the second quarter of fiscal 23. And operating income was $8 million, down $8 million from Q2 of 2020. Gap net earnings were $1 million, and EPS was $0.03 per share based on a fully diluted $41 million share.
Shubham Maheshwari: Let me now cover cover all of our results on a GAAP basis.
Shubham Maheshwari: Second quarter gross margin was 32% flat year over year operating expenses were $58 million up $1 million compared to the second quarter of fiscal 'twenty three.
Shubham Maheshwari: And operating income was $8 million down $8 million from Q2 of 2003 <unk>.
Shubham Maheshwari: GAAP net earnings were $1 million and EPS was <unk> <unk> per share based on a fully diluted 41 million shares.
Shubham Maheshwari: Moving on to the non-GAAP results for the quarter, gross margin was 33% flat compared to the second quarter of fiscal 23. Gross margin benefited by approximately 1 percentage point due to a reclassification of fixed expense related to our joint venture from cost of goods sold to SG&A expense. This change is expected to remain in place for the foreseeable future, and we are assessing ways to reduce this expense. However, this benefit to gross margin was offset by approximately 1 percentage point of higher warranty expense in the quarter. We expect the higher warranty expense to taper off and return to historical levels by the end of this fiscal year.
Shubham Maheshwari: Moving on to the non-GAAP results for the quarter gross margin was 33% flat compared to the second quarter of fiscal 'twenty three gross margin benefited by approximately one percentage point due to a reclassification of fixed expense related to our joint venture depicts from cost of goods sold to SG&A expense.
Shubham Maheshwari: This change is expected to remain in place for a foreseeable future and we are assessing ways to reduce this expense.
Shubham Maheshwari: This benefit to gross margin was offset by approximately one percentage point of higher warranty expense in the quarter, we expect the higher warranty expense to taper off and returned to historical levels by the end of our fiscal year.
Shubham Maheshwari: R&D spending was $23 million, flat compared to the second quarter of fiscal 23. R&D was 11% of revenue. In the second quarter, we made the fourth milestone payment of $1 million to MicroEx.
Shubham Maheshwari: R&D spending was $23 million flat compared to the second quarter of fiscal 'twenty three.
Shubham Maheshwari: Randy was 11% of revenue.
Shubham Maheshwari: In the second quarter, we made the fourth milestone payment of $1 million to micro X generally our target for R&D spending is 8% to 10% of revenue on an annual basis.
Shubham Maheshwari: Generally, our target for R&D spending is 8 to 10% of revenue on an annual basis. R&D spending is expected to remain around current levels, however, R&D as a percentage of sales may fluctuate due to overall sales levels. His GNA expense was approximately $32 million, up $3 million compared to the second quarter of fiscal 23. SG&A was 16% of revenues. The increase in SG&A in the quarter was primarily the result of the aforementioned reclassification of fixed expenses related to our joint venture, DIPIC.
Shubham Maheshwari: R&D spending is expected to remain around current levels. However, R&D as a percentage of sales may fluctuate due to overall sales levels.
Shubham Maheshwari: SG&A expense was approximately $32 million up $3 million compared to the second quarter of fiscal 'twenty three.
Shubham Maheshwari: SG&A was 16% of revenues the increase in SG&A in the quarter was primarily the result of the aforementioned reclassification of fixed expense related to our joint venture depicts.
Shubham Maheshwari: Operating expenses were $54 million, or 26% of revenues, above our expectations for the quarter. Operating income was $13 million, down $10 million compared to the same quarter last year. Operating margin was 6% of revenue compared to 10% in the second quarter of fiscal 23. Tax expense was $2 million or 19% of pre-tax income compared to $4 million or 28% in the second quarter of the prior year. We continue to expect a tax rate of 21% to 23% for the full fiscal year 2024.
Shubham Maheshwari: Operating expenses were $54 million or 26% of revenues above our expectations for the quarter.
Shubham Maheshwari: Operating income was $13 million down $10 million compared to the same quarter last year operating margin was 6% of revenue compared to 10% in the second quarter of fiscal 2003.
Shubham Maheshwari: Tax expense was $2 million or 19% of pretax income compared to $4 million or 28% in the second quarter of the prior year.
Shubham Maheshwari: Continue to expect a tax rate of 21% to 23% for full fiscal year 'twenty four.
Shubham Maheshwari: Net earnings were $7 million, or $0.16 per diluted share, down $0.10 year-over-year. Average diluted shares for the quarter were $41 million on a non-GAAP basis. Now turning to the balance sheet, accounts receivables increased by $12 million from the first quarter of fiscal 24, primarily the result of higher sales in the quarter. Day sales outstanding remain flat at 67 days.
Shubham Maheshwari: Net earnings were $7 million or <unk> 16 per diluted share downturn turns year over year.
Shubham Maheshwari: Now turning to the balance sheet.
Shubham Maheshwari: Days sales outstanding remained flat at 67 days inventory decreased $4 million sequentially in the second quarter and days of inventory decreased by 13 days 285 days of accounts payable decreased by $5 million and days payable decreased five days to 45 days.
Shubham Maheshwari: Inventory decreased $4 million sequentially in the second quarter, and days of inventory decreased by 13 days to 185 days. Accounts payable decreased by $5 million, and days payable decreased 5 days to 45 days. Now moving to debt and cash flow information. The net cash flow from operations was $3 million. We ended the quarter with cash, cash equivalents, and marketable securities of $190 million, up $68 million compared to the second quarter of the prior year and down $5 million compared to the first quarter of Fiscal 24.
Shubham Maheshwari: Please note that $190 million includes $142 million of cash and cash equivalents and $47 million of marketable securities, which is now broken out as a separate line item on our balance sheet. Gross debt outstanding at the end of the quarter was $447 million, and debt net of $190 million of cash and marketable securities was $257 million. Regarding capital structure, we implemented a $155 million revolver on March 26. Additionally, we recently secured an additional $20 million financing as a delayed draw-term loan.
Shubham Maheshwari: Now moving to debt and cash flow information.
Shubham Maheshwari: Net cash flow from operations was $3 million, we ended the quarter with cash cash equivalents and marketable securities of $190 million up $68 million compared to the second quarter of the prior year and down $5 million compared to the first quarter of fiscal 'twenty. Four please note that 100.
Shubham Maheshwari: Both of these actions put us in a comfortable liquidity position as we approach refinancing of our convertible bond. Now, moving on to the outlook for the third quarter and the remainder of fiscal 24. As discussed by Sunny, due to cautious purchasing behavior by our customers broadly, in addition to continued softness in China, we are reducing our expectations for the remainder of the fiscal year. Based on our current visibility, we expect revenue in the fourth fiscal quarter of 2024 to be flat with that of the third quarter.
Shubham Maheshwari: While demand is soft in the near term, we continue to be optimistic in the long term and continue to invest in promising technologies such as photon counting. Given the above context, guidance for the third quarter is Revenues are expected between $200 and $220 million, and non-GAAP earnings per diluted share are expected between $0.05 and $0.25. Our expectations are based on non-GAAP gross margin in a range of 33 to 34 percent, non-GAAP operating expenses in a range of 52 to 53 million dollars, a tax rate of about 22 percent for the third quarter, and a non-GAAP diluted share count of about 41 million shares.
Operator: And with that, we'll now open the call to your questions. Thank you. We will now conduct a question and answer session. If you would like to ask a question...
Operator: Thank you. We will now conduct 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 queue. You may press star 2 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. Once again, that's Star 1 to ask a question at this time. One moment while we poll for questions. Our first question comes from Suraj Kalia on Oppenheimer. Please proceed.
Shaymus F. Contorno: Hi Sunny and Sam, this is Shaymus on for Siraj. Hey Shannon, how are you? Doing fine. Doing fine.
Sunny S. Sanyal: Just to get started, you know, China kind of, any more color you can give there? What's, you know, what are you seeing on the ground? You know, obviously, it's kind of pushed out from your initial expectations of the second half of the year, of a calendar year kind of getting started. Can you talk a little bit more about the delay pushing out through the remainder of your fiscal year and when we may start seeing some pickup?
Sunny S. Sanyal: Yeah, hey, so we, as you might recall, a couple of quarters ago, we started talking about softness in China, based on early signals that we were getting from our customers and our partners, and this was driven by the audit process that the Chinese government had launched on the hospitals there, and it was anticipated that it would take about 12 months to complete that process. So the signals that we were getting from our customers broadly on the ground were that, you know, by early, late spring, early summer, this thing should start to free up, and buying would begin again.
Sunny S. Sanyal: And so that's what led us to give you the indications that we would expect to start to see recovery in the second half of the year. I think that was somewhat consistent with what others were seeing as well. We are not seeing early indicators at this time that would lead us to believe that the recovery will happen with any significant volume in our second half. As you know, we're 90 to 120 days ahead in the value chain of our customers.
Sunny S. Sanyal: So with that in mind, we are giving a cautious view of the second half as far as China is concerned. Now, that said, as we continue to keep our ears to the ground there and work with our customers, what we expect is likely to happen is there are multiple factors at play here. One was the audit, but secondly, there may be some impact of the stimulus package that's in the wings. It's not clear what that is, and it's not clear what the impact is, but there's some general confusion.
Sunny S. Sanyal: All of this leads us to believe that the recovery in China will be more of a gradual, steady recovery as opposed to any significant impact or burst of pent-up recovery. We're not anticipating that, but again, it's very fluid there, and we're staying close to it.
Sunny S. Sanyal: God, I appreciate that. And then kind of, you know, what, what, can you describe the environment you're kind of seeing outside of China? You know, I think America's growth was, I think, 1%. I mean, it was 2 or 3% somewhere there. What kind of environment are you seeing outside China? Let me add one more point.
Sunny S. Sanyal: Let me add one more point regarding China. We have seen no shift or no change in the Chinese government's intent or their policy for or their intentions to expand health care delivery services throughout China. To the contrary, it seems like the intention of the stimulus is also to continue to support. Now what we're seeing outside of China, ex-China is that there continues to be a general softness in demand.
Sunny S. Sanyal: Now what we're seeing outside of China ex China is that there is continues to be a general softness in demand and this is what we characterized as some cautious buying behavior by our customers.
Sunny S. Sanyal: And this is what we characterized as some cautious buying behavior by our customers. Our customers, you know, they... They predict, they forecast their needs, and then they place orders with us within our prescribed lead times. And then as they get closer to when they need the product, that's when they give us delivery dates, and what we've seen is general cautiousness around volumes of shipments that they would like from us. So they're asking us across the board.
Sunny S. Sanyal: Our customers.
Sunny S. Sanyal: You know the.
Sunny S. Sanyal: They they predict the forecast their needs and then they place orders with us with <unk>.
Sunny S. Sanyal: Leap prescribed lead times, and then as they get closer to there.
Sunny S. Sanyal: And then heat the product that's when they give us delivery dates and what we've seen is general cautiousness around.
Sunny S. Sanyal: Volumes of shipments that they would like from us so they're asking us that cross the board. Several many customers have asked us to defer or delay slowdown shipments as they adjust their stocking levels and inventory levels to match their more recent forecasts of when they expect to deploy these.
Sunny S. Sanyal: Many customers have asked us to defer, delay, or slow down shipments as they adjust their stocking levels and inventory levels to match their more recent forecasts of when they expect to deploy these products into new systems for shipment. So that's a broad-based approach, view that we're getting of the overall medical segment. It's hard for us to tease out where some of that softness is coming from because, as you know, our customers are global customers. We ship products to them, and then they send those products all over the world.
Sunny S. Sanyal: Products into new systems for shipment. So that's that's a broad based.
Sunny S. Sanyal: It's hard for us to tease apart.
Sunny S. Sanyal: Where some of that softness is coming from because as you know our customers are global customers. We we ship product to them and then they send those products all over the world. So it's hard to pinpoint.
Sunny S. Sanyal: So it's hard to pinpoint any specific sources of softness.
Sunny S. Sanyal: Any specific sources of softness.
Shaymus F. Contorno: Got it. Thank you.
Speaker Change: Got it. Thank you and just one last one from me and from our side.
Sunny S. Sanyal: And, you know, just one last one from me, from our side and You know, photon counting, we appreciate the color and quantification, you know, I think you noted somewhere in that slide deck, it's about 150 million in revenues by about 2029. So I guess kind of, can you describe how you're expecting the growth? Is this going to be kind of, you know, a slow burn? Is it going to, is there going to be some inflection point where in a year, you know, everything's going to kind of start to accelerate, you know, any, any color there? Thank you. Yeah.
Speaker Change: Photon counting we appreciate the color and quantification.
Sunny S. Sanyal: I think you noted somewhere in that slide deck, it's about 150 million in revenues by 2029. So I guess kind of can you describe how youre expecting the growth is this going to be kind of.
Sunny S. Sanyal: Slow burn is it kind of is there going to be some inflection point.
Sunny S. Sanyal: We're in a year you know everything is going to kind of start to accelerate any.
Sunny S. Sanyal: Our photon counting detectors, first of all, it's a new platform, and anytime a new technology is introduced in the healthcare environment, the time to adoption is fairly long. So that's why this, you know, our R&D cycles are long and, our customers' R&D cycles are long, and then their regulatory cycles. So with that said, that's the backdrop on the medical side.
Sunny S. Sanyal: R&D cycles are long and.
Sunny S. Sanyal: Yes.
Sunny S. Sanyal: Our photon counting scales are coming from industrial and medical applications, both on the industrial side, which is currently our largest chunk of photon counting cells. The uptake there is steady, and it's growing, and it's accelerating. So in this trajectory from where we are today in 20-ish million dollars of sales going up to the 150 million-ish that we talked about in the slides, we expect to see steady, accelerating uptake on the industrial side, driven by new applications that are coming out.
Sunny S. Sanyal: And adoption in industrial tends to be much faster than medical because, when they have a product, they just put it out there, and they try to. On the medical side, we have customers currently that have designed our photon counting detectors for certain applications. And there are a variety of applications that this technology, these detectors are going into. A few of them are out, and we mentioned that during the earnings call. And then there are more that are in the pipeline.
Sunny S. Sanyal: These tend to, you know, in the early stages of these applications, design in process, we see low volumes, largely prototypes that we ship. And there's customers take a couple of years to bring the product to market. And then we see initial pilots. And then a year after that, we see run rate higher volumes. So that's the, I'd say the general modality, most of the modalities behave that, Now, CT, detectors we expect will have a different trajectory and that's because they are much larger, higher priced, bigger detectors, so there it'll be, we will be in design phase and implementation phase for at least two to three years after which we expect acceleration to be fairly rapid as our customers take their new CT systems to market and it'll be driven by the pace of adoption really of CT systems more so than the new CT system that our customers bring to market versus just photon counting technology at that point.
Sunny S. Sanyal: Our photon counting technologies are being driven towards mainstream markets. So we're, you know, we're confident that once our customers bring these products to market, it won't be a very narrow niche application; it will be what we target the mainstream CT market. So towards the outer end of our trajectory that we showed you in the walk, it's going to be driven by CT. Between now and 2028, it's going to be 2026, 27, 28. It's going to be driven by industrial and a few other medical models.
Sunny S. Sanyal: Apple application it will be we are targeting at the mainstream Cte market. So.
Sunny S. Sanyal: Towards that outer and of our trajectory that we showed you in the work it's going to be driven by <unk> in there between now and 2028, it's going to be a 2026 27 28, it's going to be driven by industrial and a few other medical modalities.
Sunny S. Sanyal: I hope that gives you the color you are looking for. It's harder, hard for us to get more specific because there are challenges in predicting that far out and products that are in the design phase with the company.
Sunny S. Sanyal: I hope that gives you.
Sunny S. Sanyal: The color you were looking for it's hard to hard for us to go get more specific because.
Sunny S. Sanyal: Yes.
Sunny S. Sanyal: So challenges in predicting that far out on products that were that are in design phase with the customers.
Shaymus F. Contorno: I appreciate it. Thank you very much.
Speaker Change: I appreciate it thank you very much.
Xuyang Li: The next question comes from Xuyang Li with Jeffreys. Please proceed.
Xuyang Li: The next question comes from young Li with Jefferies. Please proceed.
Xuyang Li: Hello, Jan. Great. Hey, there. Thanks for taking our questions. I guess to start, maybe to follow up on China a little bit. It sounds like most, if not all, of the impact is due to the anti-corruption campaign. I'm wondering if there's any local competitive dynamics at play there as well.
Xuyang Li: Hello, John.
Xuyang Li: Hey, there thanks for taking my question.
Xuyang Li: I guess to start.
Xuyang Li: Maybe to follow up on China, a little bit.
Xuyang Li: It sounds like most if not all of the impact is due to the anti corruption campaign.
Xuyang Li: I'm wondering if there is any local competitive dynamics that play at play there as well.
Sunny S. Sanyal: No, that's, we don't see that as the reason for any of this slowdown. The slowdown is, it's a substantial slowdown. And it's most, as you know, most of our business in China is driven by x-ray tubes. And within x-ray tubes, the majority of our volume comes from, you know, the CT systems where we are. It's a highly engineered product that's designed in. So what we are experiencing is a result of our customers not needing the products because their sales have dropped pretty significantly.
Jan: No. That's we don't see that as the reason for any of this slowdown.
Sunny S. Sanyal: The slowdown is.
Sunny S. Sanyal: Substantial slowdown and it's.
Sunny S. Sanyal: Most of it as you know most of our business in China is driven by X Ray tubes, and within X Ray tubes. The majority of our volume comes from.
Sunny S. Sanyal: The <unk> systems, where we are so highly engineered.
Sunny S. Sanyal: Product that's designed in so what we are experiencing is a result of our customers not needing the products because their sales have have have dropped pretty significantly.
Xuyang Li: Okay, great, very helpful. Um, I guess, um, to a separate question, um, just related to photon counting, um, you know, that generates a lot more images and data. Um, I'm curious, is there a software play or AI play for Varex? And, um, you know, how's your software business doing recently?
Speaker Change: Okay, great very helpful.
Xuyang Li: I guess.
Xuyang Li: A separate question.
Xuyang Li: Related to photon counting.
Xuyang Li: That generates a lot more images and data.
Xuyang Li: Im curious is there a software play or AI play for Barrick.
Xuyang Li: And.
Xuyang Li: How's your software business doing recently.
Sunny S. Sanyal: Yeah, absolutely. So full-time counting, depending on the application, what you just described would be certainly true for CT. For CT, first of all, high-resolution detectors and imaging at high frame rates produce a lot of data. Yes, there is.
Speaker Change: Yeah, absolutely so photon counting the depending on the application what you just described.
Sunny S. Sanyal: Would be certainly true for <unk>.
Sunny S. Sanyal: For <unk>.
Sunny S. Sanyal: First of all high resolution detectors.
Sunny S. Sanyal: And imaging at high frame rates produces a lot of data yes, there is so.
Sunny S. Sanyal: So the good news is that with the high-resolution images, the amount of information that's now available in these images opens up a lot of opportunities for AI plays and for material discrimination and more precise pinpointing of artifacts and reasons to investigate, and to be able to distinguish between one type of artifact versus another. Our software group is very capable with CT reconstruction, applying image processing and techniques to look into and extract more and more information out of the data that's received.
Sunny S. Sanyal: The good news is in there that.
Sunny S. Sanyal: The high resolution images the amount of information that's now available in in these images is is gives opens up a lot of opportunities for for AI plays and for material discrimination and more precise.
Sunny S. Sanyal: Pinpointing of artefacts.
Sunny S. Sanyal: Reasons too.
Sunny S. Sanyal: And to be able to distinguish between.
Sunny S. Sanyal: One type of artifact versus another or our software group is.
Sunny S. Sanyal: His very capable with Cte reconstruction.
Sunny S. Sanyal: And applying image processing.
Sunny S. Sanyal: Techniques too.
Sunny S. Sanyal: To look into and extract more and more information out of the data. That's received so we certainly expect that our software group will continue to benefit from from photon counting we are we have quite a bit of technology that we offer currently with our detectors for image processing.
Sunny S. Sanyal: So we certainly expect that our software group will continue to benefit from Photon Counting. We have quite a bit of technology that we offer currently with our detectors for image processing, and those are actually a key part of our Photon Counting detector offerings. And as we take our products to market for CT, they are certainly playing a role in image processing, and...
Xuyang Li: All right. I've got it. Thank you very much.
Xuyang Li: And.
Xuyang Li: And those are actually a key part of our our photon counting detector offerings and as we take our products to market for <unk>. They are certainly playing a role in the image processing.
Xuyang Li: And.
Xuyang Li: And image construction.
Xuyang Li: Alright got it thank you very much.
Operator: Once again, to ask a question, that's star 1 on your telephone keypad. Our next question comes from James Sidoti with Zodi and Company. Please proceed.
Xuyang Li: Once again to ask a question Thats Star one on your telephone keypad. Our next question comes from James Sidoti with Sidoti and company. Please proceed.
Operator: Yeah.
James Philip Sidoti: Hi, good afternoon, and thanks for taking the question. On the... situation in China.
James Philip Sidoti: Hi, good afternoon, and thanks for taking the question.
James Philip Sidoti: On the.
James Philip Sidoti: The situation in China.
James Philip Sidoti: Okay.
James Philip Sidoti: Yes.
James Philip Sidoti: Do you think there'll be some pent-up demand because of the slowdown in buying now or because procedures are still getting done, and tubes are still wearing out? So when these restrictions get lifted, do you think there'll be an increase in demand?
James Philip Sidoti: Do you think there's some...
James Philip Sidoti: Do you do you think theres, some there'll be some pent up demand because of the slowdown in buying now or so procedures are still getting done tubes are still wearing out.
James Philip Sidoti: So when these restrictions get lifted do you think there'll be.
James Philip Sidoti: An increase in demand.
Sunny S. Sanyal: Yeah, Jim, procedure volumes are continuing. If people need care, they will get care. So what we are seeing is sales of replacement tubes and that. For us, that's a recurring revenue stream.
Speaker Change: Yes, So Jim press.
James Philip Sidoti: Seizure volumes.
Sunny S. Sanyal: Our continuing if people need care they will get care. So what we're seeing is sales of replacement tubes and.
Speaker Change: And did that.
Sunny S. Sanyal: The pent-up demand is, is, results when we get increased procedure volumes. So that is, I don't know whether we can predict that at this point. However, what we believe will drive the return to growth is the continued push to expand healthcare services in China. They have not come off of that.
Sunny S. Sanyal: That's for US that's a recurring revenue stream the pent up demand is.
Sunny S. Sanyal: Yes.
Sunny S. Sanyal: Results when we get increased procedure volumes, so that I don't know, whether we can predict that at this point. However, what we believe will drive the return to growth is the continued.
Sunny S. Sanyal: Push to expand health care services in China that they have not come off of that that is every everything that we hear from our customers is that the Chinese government's continuing to press forward. What is unclear at this stage is what effect. The stimulus package that is sort of in the sidelines will have.
Sunny S. Sanyal: That is, everything that we hear from our customers is that the Chinese government is continuing to press forward. What is unclear at this stage is what effect the stimulus package that is sort of on the sidelines will have on how that pent-up demand will play out. There's very little.
Sunny S. Sanyal: <unk> on <unk>.
Sunny S. Sanyal: How that pent up demand will play out there is very little.
Sunny S. Sanyal: We're not getting much transparency around what hospitals will have to do in order to be able to take advantage of the stimulus program that's being rolled out. Once there's more clarity on that, we'll be able to assess the trajectory of demand. But the thing that we have noticed over time is when there's any kind of a slowdown or stoppage for economic reasons or other reasons, when demand comes back, the pent-up demand doesn't go away.
Sunny S. Sanyal: We don't have we're not getting much transparency around what hospitals will have to do in order to be able to take advantage of the stimulus.
Sunny S. Sanyal: By a program that's being rolled out once there's more clarity on that we'll be able to assess how we you know the trajectory of the demand but.
Sunny S. Sanyal: The thing that we have noticed through overtime is when there is any kind of a slowdown or stoppage for economic reasons or other reasons. When it does when the demand comes back the pent up.
Sunny S. Sanyal: The pent up demand doesn't go away. It comes back and the question is whether it'll be a gradual ramp up which we think it's more likely versus is there going to be a sharp.
Sunny S. Sanyal: It comes back. And the question is whether it will be a gradual ramp-up, which we think it's more likely, versus whether there is going to be a sharp inflow of orders. We don't know that yet, honestly. So in the next 90 days or so, we expect to get more clarity on that, and we will continue to.
James Philip Sidoti: Okay. All right.
James Philip Sidoti: Sharp infill.
James Philip Sidoti: Inflow of orders.
James Philip Sidoti: We don't know that yet honestly, so thats what in the next 90 days or so we expect to get more clarity on that and we will continue to do.
Speaker Change: Share that with you.
Shubham Maheshwari: And then can you talk about, you know, your options regarding refinancing the convert? You know, are you looking at another refinance for that or possibly going with straight debt? You know, when do you need to do it? And how are rates comparing now to the existing loan?
Shubham Maheshwari: Regarding the refinancing the converts are you looking at another convert for that or possibly going with straight debt when do you need to do it.
Shubham Maheshwari: How are rates comparing that to.
Shubham Maheshwari: To the existing loan.
Shubham Maheshwari: Yes, sure. So, thank you, Jim.
Speaker Change: Yes sure. So thank you Jim So you know, we just recently closed about $175 million of.
Shubham Maheshwari: So, you know, we just recently closed about $175 million in new financing. One is a revolver, $155 million, and another $20 million of delayed draw term loans. So, from our position, we feel we are in a very strong position, from the liquidity perspective, to address the refinance. So at this time, you know, the existing convertibles are maturing next June, so June of 2025, so we are going to monitor the situation and make the right decision for us, and, you know, we'll share with you as the board makes that decision. There are a lot of factors that go into it, including interest rates, stock prices, and various other things. So that's the way we are thinking about it.
Shubham Maheshwari:
Shubham Maheshwari: And make the right decision for us and we will share with you is the board makes that decision.
Shubham Maheshwari: There are a lot of factors that go into it including interest rates stock price and various other things.
Shubham Maheshwari: So.
Shubham Maheshwari: That's the way, we're thinking about and then in terms of interest rates.
Shubham Maheshwari: And then, in terms of interest rates, our current loan is at 4%. The current convertible bonds are at 4% based on what we have seen from the convertible market. It's around there.
Shubham Maheshwari: Our current loan is at 4% the current convertible bonds at 4%.
Shubham Maheshwari: Based on what we have seen from the convertible market.
Shubham Maheshwari:
Shubham Maheshwari: It's around there, it's probably a little bit less than that if there were to be a new convertible loan, but as you know convertible loans can be structured with various dimensions and various outcomes. So the interest rates.
Shubham Maheshwari: It's probably a little bit less than that if there were to be a new convertible loan. But as you know, convertible loans can be structured with various dimensions and various outcomes. So the interest rates... (inaudible)
Shubham Maheshwari:
Shubham Maheshwari: Can vary depending upon how it is structured but at the same time.
Shubham Maheshwari: We feel we have good cash on the balance sheet, we are in an excess cash position and with this extra liquidity that we now have raised I think there is also the possibility that we can pay down partially or completely so we'll share with you as and when we make the decision.
James Philip Sidoti: All right, and that was going to be my next question. How much cash do you need on the balance sheet to comfortably run the business?
Speaker Change: Alright, and that was going to be my next question, how much cash do you need on the balance sheet to comfortably run the business.
James Philip Sidoti: Yes.
Speaker Change: If you go back four or five years ago, we were running the business with about $50 million to $60 million.
Speaker Change: Since Covid, we've decided to have $100 million or thereabouts.
James Philip Sidoti: In terms of the cash that we would like to carry on the balance sheet. So with $190 million, we have about $90 million of excess cash to that threshold.
Shubham Maheshwari: Yeah, we, you know, if you go back four or five years ago, we were running the business with about $50, $60 million. Since COVID, we've decided to have $100 million or thereabouts in terms of the cash that we would like to carry on the balance sheet. So with $190 million, we have about $90 million of excess cash compared to that threshold.
James Philip Sidoti: Okay, so theoretically, you could pay down almost 25% of the...
Speaker Change: Okay. So theoretically you could pay down almost 25% of the stay.
James Philip Sidoti: Handing that.
James Philip Sidoti: Outstanding debt, meaning.
James Philip Sidoti: Hi.
Shubham Maheshwari: [inaudible] I mean, we could theoretically pay down 50% of the convertibility because the convertibility is about $200, and between now and June, we are...
James Philip Sidoti: Right.
James Philip Sidoti: I mean, we could theoretically pay down 50% of the convert because of the converted about 200.
Shubham Maheshwari: Between now and June we do it we are targeting to generate cash so we might be able to pay down 50% from balance sheet.
James Philip Sidoti: Right, right. Which should, you know, theoretically lead to lower interest rates in 2025 and beyond.
Shubham Maheshwari: Right right.
Shubham Maheshwari: You know theoretically lead to lower interest rates 2025 and beyond.
James Philip Sidoti: Right. All right. Thank you.
Speaker Change: Alright, alright, thank you.
Speaker Change: Thank you Jim.
Lawrence Scott Solow: The next question comes from Larry Solow with CJS. Please proceed.
James Philip Sidoti: The next question comes from Larry Solow with CJS. Please proceed.
Lawrence Scott Solow: Great, thanks guys, and good afternoon, good evening. First question, in terms of the guidance or the lower outlook, is it principally, it sounds like it's China, but it's also US or ex-China because China is only 10% of your overall revenue, right? So are there other drivers?
Lawrence Scott Solow: And good evening, good afternoon, and good evening I guess first question.
Lawrence Scott Solow: None of the guidance or the.
Lawrence Scott Solow: The lower outlook.
Lawrence Scott Solow: The other drivers I guess, the U S or ex China is also weaker in medical.
Lawrence Scott Solow: On.
Lawrence Scott Solow: How about industrial that has that changed at all just fine.
Lawrence Scott Solow: Kind of piecemeal the reduction and I think when you started the year. You had said you thought medical I think it was going to be.
Lawrence Scott Solow: I guess the US or ex-China is also weaker in medical, how that industrial that that changed it all just on a kind of piecemeal basis. And I think when you started the year, you had said you thought medical was going to be flat-ish overall sales, if I remember correctly. Is there kind of a revised number to that? I know you kind of died for the quarter, but it sounds like, as a whole, your whole year is clearly coming down, but any more pieces to that kind of puzzle would be great.
Lawrence Scott Solow: <unk> overall sales if I remember correctly, there kind of a revised number to that I know you've kind of only guide for the quarter, but it sounds like as a whole your whole year is clearly coming down, but any any more pieces to that on a public would be great.
Shubham Maheshwari: Yes, thanks Larry. So yes, China is soft, but on top of that, we did say that the broader market in medical is also soft, particularly driven by what we said cautious customer behavior, and that phenomenon is not just in China. So yes, there is the effect of China as well as ex-China; there's also softness in medical. So medical, we expect it to be down this year, year over year, so that's what we are currently seeing in medical. In terms of overall revenue, what we are saying, we have provided the guidance for Q3, and at this time, we are seeing Q4 to be flattish to Q3. So that gives you almost the entire year.
Speaker Change: Yes, Thanks, Larry.
Shubham Maheshwari: So yes, China is soft but on top of that we did say that the broader market in medical is also soft, particularly driven by what we said cautious customer behavior and that's that phenomenon is not just China. So yes, there is the effect of China as well as.
Shubham Maheshwari: So that's that's that's what that's what we're currently seeing in medical.
Shubham Maheshwari: In terms of overall revenue what we are saying we have provided the guidance for Q3 and at this time, we are seeing in Q4 to be flattish to Q3.
Shubham Maheshwari: So that gives you almost the entire year.
Shubham Maheshwari: We are expecting industrial business to be slight growth, flattish to slightly up year over year. It's a pretty strong calm for the last year for what industrial did. At this time, you know, the cargo business in industrial is doing very well, and we expect it to continue. Thank you, to be a growth area for us, but very slightly for full year, 24 compared to fiscal 22.
Shubham Maheshwari: We are expecting industrial business too.
Shubham Maheshwari: To be a slight growth flattish to slight up year over year. It was it's a pretty strong comp for the last year for what industrial did.
Shubham Maheshwari: At this time.
Shubham Maheshwari: The cargo business in Australia is doing very well and we expect it to expect it to continue to do well, but there is softness in industrial outside of cargo. So with all of those puts and takes combined we expect industrial to be.
Shubham Maheshwari: To be a growth area for us, but very slightly four for full year 2004 compared to fiscal 'twenty, three and we expect medical to be down.
Lawrence Scott Solow: And the caution from, I guess, is your OEM customers, right, that you're referring to. That is true. Yeah.
Shubham Maheshwari: And the caution from I guess is your OEM customers right that youre, referring to that is true.
Lawrence Scott Solow: That is, and I guess you're kind of down the chain line, but does that start from the hospital? My understanding of hospitals is that they are actually doing okay; they're doing pretty fine. I mean, their volumes have been good post-COVID, and I think concerns about hospitals' finances are probably overblown, even though I know interest rates are a lot higher and that doesn't help them, but as far as I understand it, Capital Spain Hospital has been doing okay. So are your customers cautious because there's too much inventory still, you know? Is there any kind of... Yeah, you know, common theme that's
Speaker Change: And I guess, you're kind of down the chain line, but.
Lawrence Scott Solow: Does that start from a hospital because it's.
Lawrence Scott Solow: Capital playing households has been doing okay. So are your customers cautious because there's too much inventory it's still.
Lawrence Scott Solow: Is there any economy.
Lawrence Scott Solow: <unk>.
Lawrence Scott Solow: The common theme that's driving this caution.
Sunny S. Sanyal: Sorry, it's all of the above. And the conversation starts with, hey, we have what we need, and we just need to adjust our stocks and stocking levels. Can we slow this down? Can you push it out?
Speaker Change: Sorry, it's all of the above and the.
Sunny S. Sanyal: The predominant the conversation starts with Hey, we have we have.
Sunny S. Sanyal: And then if you dig into it, well, why do you have so much inventory? Well, we had expected a different trajectory of orders. And then the COVID buying behavior post-COVID, where people were worried about their factories being clogged and supply chain issues. So it's kind of a myriad of things that have come together, causing some amount of de-stocking and inventory adjustments. And clearly, what they had in mind when they bought the components didn't match up all the way with their current order production, so there are several of those. It's hard to reconcile them.
Sunny S. Sanyal: And then if you dig into why do you have so much inventory well, we had we had expected a different trajectory for end of.
Sunny S. Sanyal: Orders and then the Covid buying behavior post Covid, where people were worried about.
Sunny S. Sanyal: There are factories were clogged in the supply chain issues. So it's kind of a myriad of things that have come together, causing some amount of destocking destocking and inventory adjustments and clearly what they had that they had.
Sunny S. Sanyal: In mind when they bought.
Sunny S. Sanyal: The components didn't match up with all the way with their current this current quarter production needs.
Sunny S. Sanyal: <unk>.
Sunny S. Sanyal: Several of those it's hard to reconcile.
Sunny S. Sanyal: See, most of our customers ship from backlog. It's not that, you know, so the hospitals, health care, that's a good thing. I mean, we're glad that procedure volumes are there and growing because that's gonna drive the replacement of these modalities in our tubes. But that does not necessarily correlate directly with hospitals accepting shipments of large systems, which require other work on the side of the hospital, civil works, construction, and things like that. So there are a variety of reasons why. Their shipments have slowed for certain.
Sunny S. Sanyal: So most of our customer ship from backlog, it's not that they the hospitals health is.
Sunny S. Sanyal: That's a good thing I mean, we're glad that procedure volumes are there and growing because thats going to drive it.
Lawrence Scott Solow: All right, let's share. Okay, I guess I'm all set then.
Speaker Change: Alright, thank you.
Lawrence Scott Solow: Okay.
Lawrence Scott Solow: Thanks.
Speaker Change: Thank you Larry.
Christopher John Belfiore: Thank you. At this time, I would like to turn the call back over to Chris Belfiore for a closing comment.
Lawrence Scott Solow: Thank you at this time I would like to turn the call back over to Chris <unk> for closing comments.
Christopher John Belfiore: Thank you for your questions today and for your continued support of Varex. The webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through May 16th and can be accessed at vareximaging.com forward slash investor relations.
Operator: Thank you, and have a great night. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: The webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through may 16th and can be accessed at various imaging dot com forward Slash Investor relations. Thank you and have a great night.
Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Operator: Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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