Q1 2025 Varex Imaging Corp Earnings Call
Greetings and welcome to the vertex first quarter fiscal 2025 earnings conference call and webcast. At this time all participants are in a listen only mode.
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As a reminder, this conference is being recorded.
It's now my pleasure trouble call over to your host Chris Belfiore Director of Investor Relations. Please go ahead Chris.
Chris Belfiore: Good afternoon, and welcome to Barrick's Imaging Corporation's earnings conference call for the first quarter of fiscal year 2025.
Chris Belfiore: With me today are sunny Sanyal, our president and CEO and Sam Maheshwari our CFO.
Chris Belfiore: 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 dotcom the.
Chris Belfiore: The webcast and supplemental slide presentation will be archived on <unk> website.
Chris Belfiore: To simplify our discussion unless otherwise stated all references to the quarter or for the first quarter of fiscal year 2025.
Chris Belfiore: In addition, unless otherwise stated quarterly comparisons are made year over year from the first quarter of fiscal year 2025 to the first quarter of fiscal year 2024.
Chris Belfiore: Finally, all references to the year or to this fiscal year and not the calendar year unless otherwise stated.
Chris Belfiore: Please be advised that during this call we will be making forward looking statements, which are predictions or projections about future events.
Chris Belfiore: These statements are based on current.
Chris Belfiore: Information expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.
Chris Belfiore: Risks relating to our business are described in our quarterly earnings release, and our filings with the SEC.
Chris 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.
Chris 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.
Chris Belfiore: 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 suitable for GAAP financial measures.
Chris Belfiore: 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.
Tony: I will now turn the call over to Tony.
Tony: Thank you Chris.
Tony: Good afternoon, everyone and thank you for joining us for our first quarter earnings call.
Demand in the first quarter was solid however, unscheduled absence in our U S facilities during the holidays prevented us from fulfilling all the demands for the quarter.
Tony: Revenue in both the medical and industrial segments grew year over year.
Tony: During the quarter, we started to see customer orders begin to improve and in China, We realized an improvement in sales both year over year and sequentially.
Tony: Gross margin of 35% in the quarter was strong and higher than anticipated.
Tony: This was primarily the result of favorable product sales mix and productivity gains in both segments.
Tony: Gross margin also benefited by approximately 130 basis points from refunds of German customs duties and taxes previously paid.
Tony: Cash generation was also solid with cash from operations of $10 million in the quarter.
Tony: This was driven by very good working capital management.
Tony: Turning to the first quarter results, which included 14 weeks.
Tony: <unk> was up 5% year over year.
Tony: Revenue in the medical segment increased 3%, while the industrial segment revenue increased 10%.
Tony: non-GAAP gross margin about 35% up from 31% in the same quarter last year.
Tony: Adjusted EBITDA and non-GAAP earnings per share in the first quarter were $24 million and <unk> <unk>.
Tony: Compared to $19 million.06 last year, respectively.
Tony: Yeah.
Tony: We ended the first quarter with $219 million worth of cash cash equivalents and marketable securities on the balance sheet up $6 million compared to fiscal 2020 for year end and up $24 million year over year.
Tony: In addition, we also have $124 million of restricted cash raised from our senior secured debt offering in December.
Tony: Now, let me give you some insights into sales as detailed 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 up in the quarter, driven primarily by solid global sales of C. T tubes, which were above their sales trend.
Tony: Fluoroscopy and mammography modalities were stable in the quarter compared to sales trend.
Tony: Radiography oncology and dental modalities were all below their respective sales trends.
Tony: In our industrial segment continued strength in global security screening drove sales of cargo inspection products.
Tony: We also saw an increase in our service revenues in this vertical.
Tony: We experienced a strong start for the year in our industrial extra two product line driven by increased demand for checked baggage inspection and cargo screening at airports as well as non destructive inspection in verticals, such as aerospace and automotive.
Tony: During the quarter. We also saw stabilization in the semiconductor electronics and battery inspection verticals, but they have not yet returned to the demand levels seen in previous years.
Tony: Last quarter, we announced that we had expanded our offerings in cargo and security inspection to include comprehensive system and service solutions in high energy cargo inspection.
Our state of the art systems are designed to enhance security improved trade compliance and combat smuggling.
Tony: Our portfolio of currently available products include a stationary portal, which enables the seamless inspection of large cargo carrying vehicles and containers as they drive through it well.
Tony: With a throughput of over 100 vehicles per hour. It can serve as an essential tool for customs and border security agencies.
Tony: We also offer a similar application called a gantry, which is a rail mounted portal that can move back and forth to image and inspect stationary vehicles and Palletize Chicago.
Tony: Our mobile inspection system consists of a truck mounted collapsible portal, which is a flexible on demand cargo and vehicle scanning system that can be set up at various locations as needed.
Tony: Designed for rapid deployment it can be operational in 15 to 20 minutes of arrival, making it ideal for events and temporary security checkpoints.
Tony: And lastly, our current offerings also include our compact vehicles scanning system, providing efficient inspection of our passenger vehicles and their contents and designated checkpoints.
Tony: Each of these systems are built on a foundation of our proprietary imaging components, such as high energy X-ray sources, our detectors advanced imaging software and control systems.
Tony: With over two decades of expertise and an installed base of more than 1500 linear accelerators worldwide.
Tony: We expect to deliver industry, leading security inspection solutions to our customers.
Tony: Last quarter, we mentioned that we had successfully completed installation and received customer acceptance of several cargo inspection systems with additional deployments underway.
Tony: Earlier. This week, we were happy to announce that we have received additional orders from certain industrial customers to provide cargo inspection systems valued at approximately $14 million.
Tony: These orders will include a combination of portals and mobile systems.
Tony: The systems are expected to be installed over the next 12 months and will be used to secure ports and borders in different parts of the world.
As we highlighted last quarter, we view cargo and security scanning systems as a potentially significant long term growth opportunity for barracks.
Tony: We estimate that the annual service civil opportunities over a billion dollars and expect and expected to grow at approximately 7% CAGR over the next five years.
Tony: Demand for security screening is being driven by continued global security threats and the need to ensure correct declaration of goods transported across international ports and borders.
Tony: With decades of experience supplying and servicing key system components for Oems in this sector. We have built a strong reputation for quality and service excellence.
Tony: Leveraging our R&D expertise vertically integrated manufacturing capabilities and imaging technology leadership, we believe we can provide unique value directly to security and inspection and users worldwide.
We're pleased to start off the fiscal year on solid footing and with the positive demand trends that we're seeing across our businesses.
Tony: We're encouraged by what we're seeing in our China business and continue to remain optimistic about the long term growth of imaging in China.
Tony: In geographies outside China demand trends are improving and we remain on track to begin production of radiographic components in India. During this fiscal year.
Tony: Before I hand, the call to Sam let me comment on the tariff announcements between the U S, China, Canada and Mexico.
Tony: This is a rapidly changing situation, which we are monitoring very carefully.
Tony: At this time based on our current knowledge, we do not expect any significant direct impact to our business. However, additional tariffs or retaliatory actions or changes to currently announced tariffs could change to the anticipated impact to our business.
Sam: With that let me hand over the call to Sam.
Speaker Change: Thanks, Sunny and Hello, everyone let.
Speaker Change: Let me start off by providing a breakdown of our revenues for both the medical and industrial segments. We thought that it would be helpful to provide this information on an annual basis.
Speaker Change: In our medical segment to be participate in nearly all X-ray imaging modalities.
Total medical sales in fiscal 2024 were $582 million with C. T. The largest modality, representing nearly 40% of total medical sales off note. Our CPE sales are predominantly X-ray tubes as we currently do not sell detectors in this modality.
From a geographic standpoint, the medical segment is relatively evenly split across the three regions, which reflects a balanced exposure with top imaging Oems across the globe.
Speaker Change: In fiscal 2020 for our industrial segment revenue grew to $228 million here, we sell into a highly fragmented customer base with our security inspection vertical being the largest at approximately 40% of total industrial sales.
Speaker Change: As a reminder, the security vertical can be volatile from year to year and going forward, our newly launched security systems business will be included in this vertical.
Speaker Change: The security vertical drives a higher proportion of sales to EMEA, given the location of our current customers and equipment.
Speaker Change: Now turning to results for the quarter.
Speaker Change: Revenues in the first quarter were $200 million below the midpoint of our guidance non-GAAP gross margin was 35% above our expectation and non-GAAP EPS was <unk> <unk> above the guidance midpoint.
Speaker Change: Comparing the first quarter to the same period in fiscal 2024 revenues increased 5%. This increase was driven by a 3% increase in our medical segment and a 10% increase in our industrial segment.
Speaker Change: Medical revenues were $145 million and industrial revenues were $55 million.
Speaker Change: Medical revenues constituted 72% of total and industrial revenues were 28% of our total revenues for the quarter.
Speaker Change: Analyzing revenues by region America saw an increase of 3% compared to first quarter of fiscal 'twenty four.
Speaker Change: EMEA revenues decreased 9%, while APAC increased 22% due to increased sales to China and solid <unk> sales into other regions within APAC.
Speaker Change: During the quarter, China sales were 18% of total sales, China sales increased 7% year over year, and 12% compared to the prior quarter, while our sales in China have continued to improve slightly we have yet to see major capital equipment investments being made.
Speaker Change: Yeah.
Speaker Change: Hmm.
Let me now cover our results on a GAAP basis first quarter gross margin was 34% up approximately 400 basis points year over year operating expenses were $57 million, an increase of $4 million compared to the first quarter of fiscal 'twenty four.
Speaker Change: Operating income was $11 million, an increase of $7 million from Q1 of fiscal 'twenty for <unk>.
Speaker Change: Net loss was $264000 and GAAP EPS.
Speaker Change: Dented a loss of one cents per share based on a fully diluted 41 million shares.
Speaker Change: Now moving on to the non-GAAP results for the quarter.
Speaker Change: Gross margin was 35% an increase of 350 basis points year over year, mainly due to favorable product sales mix and productivity gains in both segments.
Speaker Change: Gross margin also benefited by approximately 130 basis points from refunds of German customs duties and taxes, we had previously paid.
Speaker Change: R&D spending in the first quarter was $23 million, an increase of $3 million compared to the first quarter of fiscal 'twenty, four representing 12% of revenues.
Speaker Change: Off note R&D included assistant fine that was $1 million milestone payment for the transfer of technology from micro X.
Speaker Change: SG&A expense was $31 million, an increase of $3 million compared to the first quarter of fiscal 'twenty four representing.
Speaker Change: Representing 16% of revenues the increase in SG&A was primarily due to an increase in expense associated with one of our joint ventures.
Speaker Change: Consequently, operating expenses totaled $55 million, an increase of $6 million representing.
Speaker Change: Representing 27% of revenues.
Speaker Change: Income was $14 million, an increase of $5 million compared to the previous year and operating margin was 7% of revenue up from 5% in the first quarter of fiscal 'twenty for.
Speaker Change: Tax expense in the first quarter was $3 million or 48% of pretax income compared to $1 million or 20% in the first quarter of fiscal 'twenty four.
Speaker Change: Higher than expected tax rate for the quarter was primarily due to losses in certain foreign jurisdictions for the quarter.
Speaker Change: Net earnings were $3 million or seven cents per diluted share compared to six in the year ago quarter average diluted shares for the quarter on a non-GAAP basis were $41 million.
Speaker Change: Now turning to the balance sheet accounts receivable declined by $20 million and days sales outstanding declined by two days to 68 days in the quarter.
Speaker Change: The sequential decline is primarily due to year end payments from some large customers.
Speaker Change: During increased by $15 million in the first quarter and days of inventory increased by 35 days to 290 days the increase in inventory in the quarter was primarily due to an increased demand outlook.
Speaker Change: Accounts payable increased by $7 million and days payable increased by 10 days to 49 days.
Speaker Change: Now moving to debt and cash flow information net cash flow from operations was $10 million, we ended the quarter with cash cash equivalents and marketable securities of $219 million.
Speaker Change: Up $24 million compared to the first quarter of the prior year and up $6 million compared to the fourth quarter of fiscal 2024.
Speaker Change: Please note that $219 million includes $176 million of cash and cash equivalents and $43 million of marketable securities.
Speaker Change: In addition, we also have $124 million of restricted cash raised through our senior secured add on debt offering which closed on December 28 2024.
The funds raised from this offering are currently held in an interest bearing restricted account to reduce our convertible debt due in June of this year.
Speaker Change: Gross debt outstanding at the end of the quarter was $571 million and debt net of $219 million of cash and marketable securities and 124 million of restricted cash was $228 million.
Speaker Change: Adjusted EBITDA for the quarter was $24 million or 12% of sales our trailing 12 months adjusted EBITDA was $94 million and our net debt leverage ratio was approximately two four times adjusted EBITDA on a trailing 12 months basis.
Now moving on to outlook for the second quarter.
Speaker Change: We are encouraged by what we are seeing with sales in China, as well as improving demand trends in geographies outside of China.
Speaker Change: With that as a backdrop our guidance for the second quarter is as follows.
Speaker Change: Revenues are expected between 200 and $215 million and non-GAAP earnings per diluted shared unexpected between five and 20.
Our expectations are based on non-GAAP gross margin of 32% to 34% non-GAAP operating expenses of approximately $52 million interest and other expense net in a range of $9 million to $10 million tax rate of about 22% for the second quarter and non-GAAP diluted share count.
Speaker Change: Of about 41 million shares.
Speaker Change: With that we'll now open the call for your questions.
Speaker Change: Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
You May press Star two if you like two of your question from the queue.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Our first question today is coming from young Li from Jefferies. Your line is now live.
Speaker Change: Okay, great. Thanks, so much for taking the question.
Just to start with.
Speaker Change: Wonder if we can talk a little bit about China.
Speaker Change: It seems like the quarter better.
Speaker Change: Similar to I guess Oh.
Speaker Change: For the past couple of few quarters, where.
Speaker Change: There seems to be some sequential improvement can you, maybe just talk a little bit more about that market.
Speaker Change: Performance there.
Speaker Change: Any.
Speaker Change: Additional color on the potential impact from stimulus there as well.
Sunny: Hey, Young this is sunny yeah, you don't look sales in China.
Sunny: There wasn't uptick and we're we're encouraged to see that but you know we don't we don't call. It a rebound at this time, where we were.
Sunny: Or I'm not expecting.
Sunny: Meaningful improvement in demand this year.
Sunny: However.
Sunny: As we had said we did not see it going backwards. So this is encouraging to see.
Sunny: To see an uptick.
There has been really no indication of what the stimulus will do and Theres been no further clarity on it and it has not translated into any orders for us. So we're not counting on any impact of stimulus at this time in in our projections.
Sunny: Okay now there's been also no change in our position on expectation of.
Sunny: The Chinese government's commitment to health care, we think that will continue so the long term prognosis is just as we have discussed in the past.
Sunny: Alright got it very helpful.
Sunny: I guess, maybe my second question.
Sunny: Wanted to hear a little bit more about the.
Sunny: The cargo and vehicle inspection systems, they are selling direct.
Sunny: It was kind of curious if you can comment on the margin profiles of those products.
Sunny: Scale.
Sunny: Level of investment needed to stand up that business.
Sunny: And.
Sunny: Maybe at what revenue level would it be accretive to margins.
Sunny: Let me get started in their last Sam to also chime in.
Sunny: This business consists of hardware equipment, which goes in first followed by.
Sunny: After a couple of years you get that then the service revenue stream from this business the margin profile typically tends to be lower for the hardware equipment and then a very very good on the service side. So for us in the short run as we were ramping up this business, we expect that the March.
Sunny: <unk> profile for.
Sunny: The equipment will be below the our company company gross margin levels. However.
Sunny: As we keep shipping this equipment and as we start transitioning into the service revenue streams with longer term, we expect this margin profile too to improve and get better.
Sunny: In terms of the investments that we've made so far those are already included in our plans for this year.
Sunny: Which includes the R&D work that we do and then the deployment, but as we scale up there will be need for additional investments, which we will plan for.
Speaker Change: Yeah, I would add that are like Tony just said mentioned that we are organically funding. This business. We already are in the component side of this business as you know so we know this area very well.
Speaker Change: Yes, there will be investments. However, they said it would be mostly organic fund it through the P&L.
Speaker Change: At this point we are in early stages and are this is a large market and been more than $1 billion in size. So we are expecting in the next three to five years pick up a decent amount of revenue and that should allow us to also.
Speaker Change: Pick up on margins in terms of a.
Speaker Change: Current situation, yes, our investments and the amount of revenues that we are generating it is margin decretive right now to our industrial segment and.
Speaker Change: And also to our overall corporate margin.
Speaker Change: However, you know once it is more than $10 million to $15 million a quarter type of a run rate it should be margin.
Speaker Change: Accretive for us.
Speaker Change: So one is the scale as we look at this business as one aspect of it is the scale, but the second aspect is also what Sonny mentioned, which is the.
Speaker Change: Equipment to service ratio the service ratio is much more accretive and generally service would be say 18 to 24 months. After the full system has been shipped one area of investment that we would be looking at in this.
Speaker Change: Business development effort is to develop.
Develop our channels I think we are sufficiently covered in R&D.
We would be expanding as the sales growth, but one area, we would be expanding more is on the channel side. So that we can cover a broader and broader global exposure.
Speaker Change: Exposure or a presence in for this market.
Speaker Change: Alright, thank you so much.
Speaker Change: Thank you next question is coming from Kyle <unk> from B Riley Securities. Your line is now live.
Kyle: Great. Thanks for taking my questions, maybe I'll stick with the cargo inspection business here.
Speaker Change: A couple of questions still.
Speaker Change: What's the kind of current percentage.
Speaker Change: The total industrial segment that that the cargo inspection business comprises and.
Speaker Change: You know, what's what's a reasonable kind of run rate I know you put together some and.
Speaker Change: Analysis on the total market size of being over $1 billion. So I appreciate that but just kind of curious how big is it now what's the reasonable side and then what's kind of a turnaround time and a big order that you just got in you know for.
Speaker Change: $14 million.
Speaker Change: Yeah, their inventory and just kind of curious how that works.
Speaker Change: Sure so today.
Speaker Change: Today, we participate quite meaningfully in the components side of the cargo inspection market.
Speaker Change: The overall security inspection market and we just reported is about 40% of our industrial it seems in this last fiscal year.
Speaker Change: A vast majority of that security inspection market is.
Speaker Change: Revenues are generated from the cargo inspection market keep in mind. We are also and airport in some other areas. When it comes to inspection market. So I would say 70, 580% of that security inspection market is.
Speaker Change: Last year was generated from cargo inspection.
Speaker Change: I I would also see that the contribution of cargo systems full systems that we just announced in our press release earlier.
Speaker Change: Earlier this week.
Speaker Change: That its contribution to those revenues.
Speaker Change: Very minimal.
Speaker Change: It was mostly through component. So now we are expecting to continue with us components revenues as well as add on the cargo systems revenues to this to this business.
Speaker Change: And you also had a.
Speaker Change: Question about the timeframe.
Speaker Change: $14 million that we talked about expect to delivered within a 12 month timeframe.
Speaker Change: Yeah, Kyle just keep in mind in this business because we are working with government or quasi government agencies. The turnaround time from receiving the order to shipping the system can vary quite a bit it could be as.
Speaker Change: Little less four or five months to as much as 18 months or sometimes even 24 months depending upon the situation. So it just depends upon the specific order the specific country and a number of other factors, but the one that we announced we are expecting to ship in the next 12 months.
Speaker Change: Got it very helpful. I appreciate that and then maybe shifting back to China.
Speaker Change: Sorry, if I missed this did you call out the amount of revenues from China, specifically I think you know a.
Speaker Change: A couple of quarters ago was $29 million and stepped up to 31 million are we or is that still that $30 million range a good baseline.
Speaker Change: And you know to the extent you can provide color around your expectations, but you know where where do we think this can go in.
Speaker Change: Near to medium term.
Speaker Change: Yes, Kyle So we reported our I mentioned in our in my prepared remarks, China contributed 18% of our overall sales for the quarter. So that comes to about $35 million for the quarter.
Speaker Change: In terms of in terms of guidance are.
Speaker Change: Probes.
Speaker Change: Providing more color by country specific.
Speaker Change: We tend to not do that however, as sunny mentioned in the prior for the prior question.
Speaker Change: China is still.
Speaker Change: Not operating not at all operating at its full potential for us so as the recovery happens whenever it happens we should expect to grow from this level.
Speaker Change: At one time you know.
Speaker Change: Six seven quarters ago, we were operating.
Speaker Change: Higher than 40 closer to 43, 44 $45 million, but remember a lot of our business in China is related to tubes and tubes have are very high.
Speaker Change: Attach rate from a service perspective, so our cigna as time passes by more and more percentage of revenues for tubes from China would be from a replacement purposes as opposed to simply new sockets as what we call it.
Speaker Change: Sure Yeah, I appreciate that that makes sense, okay. Great. Thanks, so much for taking my question.
Q.
Speaker Change: Thank you next question is coming from Larry Solow from CJS ask your line is now live.
Speaker Change: Oh, great. Thanks, Hi, good afternoon, guys. Good evening, I guess I guess first question.
Speaker Change: Two part question I guess just on the you.
Speaker Change: You've mentioned.
Speaker Change: It sounds like demand in the quarter was good and knit waters or it sounded like they're even better going forward there was a little bit of a supply issue.
Speaker Change: Mentioned.
Speaker Change: Could you maybe give us a little more color on that it sounded like that held back.
Speaker Change: So if you could quantify the sort of the impact on sales and and I assume you're making most of that up in this quarter I guess that would be my first question.
Larry: Sure Larry Let me try to let me try to address that that is true.
Larry: The revenue for this last quarter was below our expectations impacted primarily by the supply side issues and the supply side issues, mostly by the labor aspects remember this last quarter, we had 14 weeks in the quarter and it was spanning the Christmas holiday timeframe as well as the <unk>.
Larry: Julia timeframe and so so.
Larry: We're a little bit more absenteeism than what we were expecting and as a result, we were not we were not able to complete the product that was slated for shipment and which is what caused us to kind of missed our expectation so that shipment rolled over into Q2.
Larry: Our our fiscal Q2.
Larry: So that's that's really what happened.
Larry: And was that one particular order was or wasn't spread out.
Larry: I'm just curious was it just isolated it was one large order yeah yeah.
Larry: No no. It was not one large order, but it was also not many I would say a few maybe two three maybe four we were not able to complete those tubes and once we were a little bit late than trying to get all of the freight forwarder and logistics worked out to get those ships, that's what really happened.
Larry: And I remember you also are the amount the impact the impact was sub $5 million for $5 million impact.
Larry: In fact, that's right okay.
Larry: And the sort of the outlook certainly sounds like things are getting better China was a little better this quarter.
Larry: What about outside China, I guess in the quarter in terms of I know you had spoken in the last couple of quarters that you had some visibility that we're starting to normalize outside of China and maybe by Q2 Q3 of this year that we would sort of be almost fully normalized curious how that.
Larry: Where we stand now and how that incorporated into your how that's incorporated in your guidance.
Speaker Change: Yeah, So Larry you're absolutely right in remembering what we said and actually the current experience is panning out as we had.
Speaker Change: Provided that color to you all three or four months ago outside of China, and the anti corruption measure the issue that we've been dealing with in all of last fiscal year. In fact, all of last calendar year as well was the Destocking effect and we had guided or we had provided expectation that we would be we would be XP.
Speaker Change: <unk> that to begin to subside or be subsided by January February timeframe and since we are pretty much. There now we are experiencing that the destocking phenomena as of now as we speak is largely behind us.
Speaker Change: So we are seeing improvement in order rates, but as you know from order to shipment. It takes a few months. So the benefit of that kind of mostly goes outside of the Q2 window, but we are experiencing that as we speak.
Speaker Change: Got you that's fair.
Speaker Change: What about just on the on the operating expense side. So you mentioned a little bit higher expenses, even if we take out the.
Speaker Change: The micro X payment.
Speaker Change: Can you just give us a little more color you mentioned, a new JV I guess that maybe that's not coming up in the JV line, but that's in your SG&A line and it sounds like it's going to bounce around a little bit because your guidance so far.
Q2, how does that kind of coming down a little bit.
Speaker Change: Yes, that's correct, Larry we just reported $55 million, which was driven by a $1 million of payment to micro X, which since it was the last payment that goes away, but remember we also had 14 weeks in this last quarter. So that also drove a little bit harder Eric.
Speaker Change: And so between.
Speaker Change: Between micro X going away between the quarterly spend going back to 13 weeks and then we also had a little bit higher expense in one off of our already existing joint ventures. So this is not a new JV.
Speaker Change: But one of our joint venture had a little bit higher expense. So since we consolidated them and proportional manner. We also had a little bit higher expense. There. So those three things should benefit us going forward and we are expecting that opex should come down to say $52 million.
For the quarter Gotcha.
Speaker Change: Perfect if I could just squeeze one more in just on the security side, it's exciting to see you getting some orders curious is this.
Speaker Change: Was this one large customer or was it more than one customer you mentioned that it's a government.
Speaker Change: Badger some border I'm just curious if it's like a one off or was it more orders to come and all the locations are you side by side with other at all.
Speaker Change: Obviously, we know your customers themselves are selling it in a much bigger larger orders on borders maybe they don't report some of the smaller ones too. So just trying to get a little lay of the landscape where your machines actually are are they excluded spots, where theyre exclusive or is it more now that you're a new entrant.
Speaker Change: Maybe try your a little bit now and then you grow over time I'm, just trying to get a little more feel for that if you. If you can get that kept us on effects.
Speaker Change: That was a pretty complicated question, Larry let me if I can tease it apart.
Speaker Change: I can't.
Speaker Change: Disclose where they are but it was multiple orders and as I said the orders included mainly two products. One was the portal in the second some mobile mobile scanners. So that's the profile we have been bidding actively on tenders and I'm not sure if.
Speaker Change: Exactly how to quest.
Question was going but you know in.
Speaker Change: And these tenders dipped.
Speaker Change: Depending on which country and where there tends to be.
Speaker Change: It can be civil works there can be other our other parts other things associated with the tender we parked.
Speaker Change: Sometimes we go through a partner in the country, who places the prime role our play and this is the systems.
Speaker Change: You know the systems that do the imaging due the scanning and everything all services that go with it implementation and then a follow up maintenance services. So it's fairly.
Speaker Change: Fairly simplistic from a model perspective that way and at the four products that we that we talked about in the presentation are what we're bidding actively in and where we don't have if there's a gap if there's something else that's needed we typically that will bring in another partner.
Speaker Change: Got you Okay I appreciate that okay, great. Thanks again appreciate it.
Speaker Change: As a reminder, that star one to be placed in the question queue. Our next question is coming from Suraj Kalia from Oppenheimer. Your line is that right.
Speaker Change: Hello, it's around Eastbourne.
Speaker Change: How are you.
Speaker Change: Great. Thanks.
Speaker Change: So plenty some a lot of.
Speaker Change: Details are already being provided and forgive me for belaboring. This so.
Speaker Change: So Sam you mentioned $35 million, China contribution in the quarter.
Speaker Change: If I could ask what percent of it is sunny was local for local.
Speaker Change: And what was the split between medical versus industrial.
Speaker Change:
Speaker Change: Let's start off there sure.
Speaker Change: Sure.
Speaker Change: Let me try to address that Suraj for you.
Speaker Change:
Speaker Change: What's majority or nearly all not 100%, but nearly all of our revenues in China are from medical so the split between medical and industrial is significantly tilted towards medical and within Medico. It is very very significantly tilted towards.
Speaker Change: Tubes.
Speaker Change: So so that's the that's the revenue profile for China for Us.
Speaker Change: And then.
Speaker Change: In terms of local for local worst is exported out of other countries into China.
Speaker Change: Your specific question was for the given quarter, but kind of expanding upon your question you know the exported into China versus local for local can be very volatile from quarter to quarter depending upon.
Speaker Change: Specific customer or particular products that are needed in that quarter by any one of our customers over there whether those customers are.
Speaker Change: Global Oems or whether those are Chinese Oems so.
Speaker Change: So focusing only on.
Speaker Change: Q1 quarter might lead you into a wrong conclusion, but I would say right now we are operating around $50 50, local for local versus global product of Biotics into China, but it is increasing over time more from local.
Speaker Change: More from global exports into China to local for local.
Speaker Change: Hope I answered your question and understood It right, let me know.
Speaker Change: No that was great.
Speaker Change: And plenty I'll just ask Sam I'll, just ask the last question and I'll hop back in queue.
Speaker Change: As you look into you know obviously you look provided your Q2 guide, we can sort of extrapolate where FY 'twenty five is headed.
Speaker Change: I guess my question more so is.
Speaker Change: Funny Weird doing a road independent checks in China stimulus right.
Speaker Change: How did you lay out your FY 'twenty five.
Speaker Change: The road map right.
Speaker Change: Hum I'd be thinking about your sensitivity of numbers.
Speaker Change: Two a new Chinese stimulus.
Speaker Change: Is 18% per quarter, the right bogey is that excluding new China stimulus.
Speaker Change: Could it go higher.
Speaker Change: I'm.
Speaker Change: Just kind of walk us through how you're thinking because admittedly.
Speaker Change: The whole macro level thing is very uncertain and.
Speaker Change: I get it where you are coming from it's difficult to plan a business, but how should we think about if we start talking about 18%.
Speaker Change: And the sensitivity up or down to whatever happens on the stimulus.
Gentlemen, thank you for taking my questions.
Speaker Change: Yes, Suraj I don't know how to.
Speaker Change: How to quantify that for you and you know with respect to that 18%.
Speaker Change: But what I can say is that as we've seen the uptick the uptick is coming from our customers who have gotten past their destocking issues in China to the extent that they had any and then also they're.
Speaker Change: Their sales too.
Speaker Change: Chinese hospitals, which is which is driven by just normal course of business we haven't seen.
Speaker Change: Any any significant tie in through stimulus typically what happens is if theres a stimulus related buying that tends to have a pattern across two across many different many.
Speaker Change: Many different customers versus the one off sales that we're starting to see in spots different places versus stimulus tends to have some of its own momentum. So at this point I really cannot pin down or give you any guidance around what the what any effect of stimulus might do for the rest of the year to China now a lot.
Speaker Change: This as we're forecasting.
Speaker Change: One quarter doesn't make a real trend, but it's a positive thing. However, I just have to remind you and everyone that there's still the potential impact of any.
Speaker Change: <unk> to tariffs and the trade situation as of now while you know, while we've not seen any any meaningful impact to us either from the U S tariff perspective, or the retaliatory tariffs in China. So we're being.
Careful about looking too far ahead, not knowing what might happen with the changes to the tariff situation.
Speaker Change: So Roger I would like to add a few more points to what Sandy just said.
Speaker Change: Remember in China, our Q1 revenues.
Speaker Change: Typically higher than Q2, because in Q2, we have the Chinese new year, So the China based customers buy.
Speaker Change: Little bit more in Q1 compared to say Q2 timeframe, so keep that in mind.
Speaker Change: At the same time, our business outside of China, So the Chinese new year, and a little bit of recovery still not full or in any of its anyway.
Speaker Change: China turned out to be a little bit stronger and the business outside of China, particularly in medical still got impacted by the Destocking phenomenon. So that yields are.
Speaker Change: Little bit higher percentage of revenue to China, So keep that in mind.
Speaker Change: Also we reported $35 million for China, but just two years ago or 18 months ago, we were doing mid forties in terms of our revenues per quarter from China. So we have more potential to grow in China, but at the same time, we also feel we have potential here.
Speaker Change: To grow outside of China and in that way, we can grow over sales, while keeping the percentage out of China still within the teens.
Speaker Change: And then all of what's on Eni said is all of that all of this is subject to.
Speaker Change: Changes or impact from tariffs, which we don't know wherever they will land and so we'd so it is a very uncertain macro environment right. Now so that's I just wanted to provide that perspective.
Speaker Change: Yeah.
Speaker Change: Excellent color gentlemen, thank you.
Speaker Change: Thank you. Your next question is coming from James Sidoti from Sidoti and company. Your line is now live.
Speaker Change: Hi, good afternoon. Thanks, Thanks for taking the questions.
Speaker Change: Last call you talked about the new plant in India is that still on track to get online by the end of this.
Speaker Change: Here.
Jim: Yes, Jim that our plans are proceeding well, we are making very good progress and that is.
Jim: Still our expectation to go online.
Jim: At the end of this fiscal year I do want to highlight that currently we are funding India.
Jim: And our India operations and our investments are through through Capex and also through Opex and through cost of goods sold area. It is impacting our overall financial performance, where we really do not have a whole lot of revenues. So we are investing in India right now and have our plans are.
Jim: Our plan.
Jim: We are making progress as part of our plans.
Jim: And is the plan for that plant is it C T tubes for Asia.
Jim: Merrily.
Jim: We are focusing on detectors right now at.
Jim: At least for this fiscal year.
Jim: Jim.
Jim: <unk> would be the following year.
Jim: Okay Alright.
Jim: Alright, but primarily to their customers in Asia.
Jim:
Speaker Change: No. These are for global kind of initially India as far global so it would be anywhere where those radio graphic products are needed.
Okay, and then on the convert that's due in mid this year and that's about 200 million do you plan to pay that entire balance down.
Speaker Change: So so Jim we raised $125 million and then that that entire amount is.
Speaker Change: Put in a restricted bank account because.
Speaker Change: That we have already stated that we plan to use those proceeds to pay down the convertible the remaining $75 million or so of principle.
Speaker Change: No decision has been made by our board yet and that's why we have not.
Speaker Change: Uh huh.
Speaker Change: Officially stated anything however, we have indicated to you that we are in an excess cash situation. So I would say that our intention is to pay down fully however, no decision has been made yet regarding the <unk>.
Speaker Change: $75 million of the of the principle of the convertible that would be left after paying down using $125 million or so of the proceeds.
Speaker Change: Alright, and then I just wonder.
Speaker Change: I'll make clear I know, China is still a little bit uncertain for the next few quarters, but did I hear you say that the destocking.
Destocking among the medical customers the Oems.
Speaker Change: That primarily is is complete and that you expect those orders to come back to.
Speaker Change: To come back to more historical levels.
Speaker Change: That is correct we saw.
Speaker Change: Order intake uptake in both in China, and outside of China, and typically with <unk> customers have inventory they don't place orders and so an uptick and we're seeing a positive trend and it is a fair.
Speaker Change: Fairly widespread so we believe that most of this phenomenon is behind us.
Speaker Change: Okay and then the last one on the on the cargo inspection do you think you'll benefit at all from the the.
Speaker Change: The increased focus with the new administration on border security.
Speaker Change: Did that help push those sales maybe not this year, but over the next couple of years.
Speaker Change: Oh, absolutely in fact, the globally not just in the U S. We see this.
Speaker Change: The.
Speaker Change: The pressure on security.
Speaker Change: Globally has increased and at the same time now with also with <unk>.
Tariffs.
Speaker Change: The need to scan cargo to ensure that our what's being transported matches the documentation for accurate.
Speaker Change: Assessment of tariffs and taxes across borders that's also becoming now.
Speaker Change: Just as equally important so it was always about there's two parts to it right security and inspection for contraband and guns et cetera, but now the tariffs are all equally important so.
It does raise the level of activity of our cargo inspection tenders and where we're happy to participate in those.
Speaker Change: Okay Alright. Thank you that's it for me.
Speaker Change: Thank you. Your next question is a follow up from John Lee from Jefferies. Your line is that life.
John Lee: Alright, great. Thanks, so much for the follow up question.
John Lee: I guess wanted to hear a little bit about the <unk>.
John Lee: Photon counting detector development and adoption.
John Lee: <unk>.
John Lee: Now that could be different or it may be similar.
John Lee: As you know digital detectors I'm, sorry, it started out and gain scale.
John Lee: You know from your perspective, as you're kind of planning it out for what I'm counting.
John Lee: That is fiscal 2009 guidance.
John Lee: What are some of the major differences between the photon counting plans versus how digital adopters gain traction.
John Lee: Yes, so a few.
John Lee: If I understand the question correctly, what is that trajectory for photon counting detectors.
John Lee: It looked like versus what happened with flat panel detectors.
John Lee: In flat panel detectors that that's the.
John Lee: The trend was driven by <unk>.
John Lee: By medical.
John Lee: And medical started it and then you know afterwards industrial.
John Lee: <unk> industrial to started happening versus here, what we are seeing is a much more accelerated.
John Lee: Adoption in industrial for several reasons mainly being.
John Lee:
John Lee: Photon counting detectors very very conducive for high speed.
John Lee: High speed imaging <unk> imaging at very fast rates because of the high frame rates of these detectors. So we're seeing a lot of enthusiasm and excitement in industrial and so as we laid out R.
John Lee: Our trajectory for the next between now and 2029.
John Lee: Initial near term midterm is largely being driven by industrial.
John Lee: In the meantime during this time.
John Lee: The medical customers have begun characterizing this technology and planning their new.
John Lee: New new equipment with it but adoption in medical takes longer just to bring those products that see these are these are not retrofit systems versus in flat panel detectors. They went into existing systems, that's right or not.
John Lee: <unk> had to change that to just sticking a detector and.
John Lee: And go from there however, here Theres more work involved on the medical side in order to take advantage of the photon counting detectors capabilities and medical always takes a little longer. So that's the main difference we're going to see fast uptick in industrial which allows us to scale up and then medical is a medical is following it.
John Lee: The one thing that I'll say that we're very happy about is there is no doubt in our minds that this technology is here to stay.
Lastly, <unk>, which was the Radiological Society of Society of North America.
With all the conversations that we've had with customers. It was fairly broad based conversations with Oems about photon counting there was a lot of interest in it and our Booth then every conversation we have with our.
John Lee: With our customers included photon counting and the value of that technology that the technical viability all of that is fairly well understood.
Speaker Change: Alright, great I appreciate the color and yes definitely agree with those alright.
John Lee: We start with them as well thank you.
John Lee: Thank you. Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
John Lee: Thank you for your questions and participating in our earnings conference call today, the webcast and supplemental slide presentation will be archived on our website a replay of a quarterly conference call will be available through February 20th and can be accessed at various imaging dotcom forward Slash Investor relations. Thank you and goodbye.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you.
John Lee: You for your participation today.
Yeah.