Q3 2025 Varex Imaging Corp Earnings Call

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Chris Belfiore. Thank you you may begin.

Good afternoon, and welcome to the Barrick and the Incorporations earnings conference call for the third quarter of fiscal year 2025.

With me today are sunny Sanyal, our president and CEO and Sam Maheshwari our CFO.

Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at <unk> website at barracks imaging dot com, but.

Webcast and supplemental slide presentation will be archived on <unk> website.

To simplify our discussion unless otherwise stated all references to the quarter or for the third quarter of fiscal year 2025.

In addition, unless otherwise stated quarterly comparisons are made year over year from the third quarter of fiscal year 2025 to the third quarter of fiscal year 2020 for.

Finally, all references to the year or to this fiscal year and not the calendar year unless otherwise stated.

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 information and expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

Risks relating to our business are described in our quarterly earnings release, and our filings with the SEC.

Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including item one a risk factors of our quarterly reports on Form 10-Q, and our annual report on Form 10-K. The information in this discussion speaks as of today's date and we assume no obligation.

To update or revise the forward looking statements in this discussion.

Speaker #4: Good evening and welcome to Varex third quarter fiscal year 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

On today's call, we will discuss certain non-GAAP financial measures. These.

These non-GAAP measures are not presented in accordance with nor are they a substitute for GAAP financial measures. We've provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website.

Speaker #4: If anyone should require operating assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Christopher fiore, thank you, and we may begin.

Speaker #5: Good afternoon and welcome to Varex Imaging Corporation's earnings conference call for the third quarter of fiscal year 2025. With me today are Sunny Sanyal, our president and CEO, and Sam Maheshwari, our CFO.

I will now turn the call over to Sunny.

Thank you Chris Good afternoon, everyone and thank you for joining us for our third quarter earnings call.

We are pleased to report our third quarter revenue of 203 million was above high end of our guidance during the quarter. We saw continued strength in our industrial segment and our revenue in China was better than forecasted and in line with the recent quarters.

Speaker #5: Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Varex's website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex's website.

You may recall that our Chinese customers had asked us to hold shipments earlier in the quarter when tariffs were around 145% levels.

Speaker #5: To simplify our discussion, unless otherwise stated, all references to the quarter are for the third quarter of fiscal year 2025. In addition, unless otherwise stated, quarterly comparisons are made year over year from the third quarter of fiscal year 2025 to the third quarter of fiscal year 2024.

As expected once the tariffs dropped to around 55% customers resumed their delivery requests.

I'm happy to say that we were able to accommodate their shipment needs.

On a related note concurrent with the reduction in tariffs the Ministry of Commerce in China paused, both investigations that it had launched in early April.

Speaker #5: Finally, all references to the year are to the fiscal year and not the calendar year, unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements, which are predictions or projections about future events.

non-GAAP gross margin of 34% in the quarter was above the high end of our guidance compared to expectations gross margin benefited from higher volume and favorable product sales mix as well as lower impact from tariff related expenses compared to expectations.

Speaker #5: These statements are based on current information expectations and assumptions that are subject to risks and uncertainties that could use actual results to differ materially from those anticipated.

I'm also happy to say that during the quarter, we paid off our $200 million convertible notes, which reduces our overall debt burden and simplifies our capital structure.

Speaker #5: Risks relating to our business are described in our quarterly earnings release and our filings with the SEC. Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including item 1A, risk factors of our quarterly reports on Form 10Q and our annual report on Form 10K.

Turning to third quarter results total revenue was down 3% year over year with medical segment down, 4% and industrial segment up 1%.

non-GAAP gross margin of 34% 100 basis points higher than in the same quarter last year.

Speaker #5: 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.

non-GAAP earnings per share in the third quarter was 18, <unk> up <unk> <unk> compared to last year.

Speaker #5: 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 of substitute for GAAP financial measures.

We ended the third quarter with $153 million of cash cash equivalents in marketable securities on the balance sheet down $73 million from the prior quarter.

Speaker #5: 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.

This decline was primarily due to the use of cash to repay our $200 million convertible note.

Let me give you some insights into sales detail by modality in the quarter compared to a five quarter average, which we referred to as the sales trend.

Speaker #5: I will now turn the call over to Sunny.

Speaker #6: Thank you, Chris. Good afternoon, everyone, and thank ou for joining us for our third quarter earnings call. We are pleased to report that third quarter revenue of $203 million was above high end of our guidance.

Global sales of Cte tubes remained strong in the quarter and were in line with the sales trend.

Sales in oncology and mammography modalities were above their respective sales trends in the quarter, while sales in radiography and dental modalities were in line with their respective sales trend.

Speaker #6: During this quarter we saw continued strength in our industrial segment and our revenue in China was better than forecasted and in line with the recent quarters.

Speaker #6: You may recall that our Chinese customers had asked us to hold shipments earlier in quarter when tariffs were around 145% levels. As expected, once the tariffs dropped to around 55%, customers resumed their delivery requests.

Sales in our fluoroscopy modality, we're below its sales trend.

Demand in our industrial segment remained strong in the quarter need for security screening globally continued to drive sales of cargo inspection components as well as our recently launched security inspection systems.

Speaker #6: I'm happy to say that we were able accommodate their shipment needs. On a related note, concurrent with the reduction in tariffs, the Ministry of Commerce in China paused both investigations that it had launched in early April.

Similar to prior quarters strong demand for checked baggage inspection and cargo screening at airports as well as non destructive inspection and other verticals drove growth in our industrial X-ray tubes product line.

Speaker #6: Non-GAAP gross margin of 34% in the quarter was above the high end of our guidance. Compared to expectations, gross margin benefited from higher volume and favorable product sales mix, as well as lower impact from tariff-related expenses compared to expectations.

Moving to some product highlights.

In medical we continue to make progress with our India expansion plans and expect to begin production of radiographic detectors around fiscal year end.

As mentioned previously our objective for India is to established low cost manufacturing for value tier radiographic components, where we faced competition from Asia based companies.

Speaker #6: I'm happy to say that during the quarter, we paid off our $200 million convertible notes which reduces our overall debt burden and simplifies our capital structure.

We expect our factories in India to be a key enabler for driving growth in radiographic components in the coming years.

Speaker #6: Turning to third quarter results, total revenue was down 3% year over year, with medical segment down 4% and industrial segment up 1%. Non-GAAP gross margin of 34% was 100 basis points higher than in the same quarter last year.

Since our announcement at <unk> customer interest for alumina and HD detectors continues to grow and we are providing customers with prospects with detectors. So that they can do their integration and validation.

Speaker #6: Non-GAAP earnings per share in the third quarter was 18 cents, up 4 cents compared to last year. We ended the third quarter with a $153 million of cash, cash equivalence, and marketable securities on the balance sheet.

Illuminate and the HD Pro digital radiography detectors are our new competitively priced family of detectors, which offer superior image quality high reliability fast image acquisition with lightweight and very user friendly design and several options for workflow improvement.

Speaker #6: Down $73 million from the prior quarter. This decline was primarily due to the use of cash to repay our $200 million convertible note. Let me give ou some insights into sales detailed by modality in the quarter compared to a five-quarter average, which we refer to as the sales trend.

As mentioned before this product line is expected to showcase both our innovation and cost leadership and our goal is to gain share globally with these detectors.

We have received all necessary regulatory licenses for the U S and Europe, and we have begun shipping certain models from our Salt Lake City factory.

Speaker #6: Global sales of CT tubes remained strong in the quarter and were in line with the sales trend. Sales in oncology and mammography modalities were above their respective sales trends in the quarter.

We expect to begin manufacturing and shipping these products from one of our factories in India around fiscal year end.

Speaker #6: While sales in radiography and dental modalities were in line with their respective sales trends. Sales in our fluoroscopy modality were below its sales trend.

And photon counting we're making progress as expected with a couple of Oems, who are integrating our technology in their new systems and these projects are moving forward.

Meanwhile, we are also in different stages with other prospective customers who are exploring their design options for Cte and other applications. We.

Speaker #6: Demand in our industrial segment remained strong in the quarter. Need for security screening globally continued to drive sales of cargo inspection components, as well as our recently launched security inspection systems.

We recently released for general availability of photon counting detector called floor for very high speed industrial <unk> imaging.

Speaker #6: Similar to prior quarters, strong demand for check baggage inspection and cargo screening at airports as well as non-destructive inspection in other verticals drove growth in our industrial X-ray tubes product line.

Potential applications for <unk> include non disruptive non destructive testing for EV batteries semiconductor components food and materials sorting applications.

This detector is engineered to operate in demanding industrial applications, where both precision and high speed imaging as a critical requirement.

Speaker #6: Moving to some product highlights. In medical, we continue to make progress with our India expansion plans and expect to begin production of radiographic detectors around fiscal year end.

On the systems side of our business in our industrial segment cargo systems continue to perform well.

Speaker #6: As mentioned iously, our objective for India is to establish low-cost manufacturing for value tier radiographic components where we face competition from Asia-based companies. We expect our factories in India to be a key enabler for driving growth in radiographic components in the coming years.

<unk> was honored to have its <unk> six mobile X-ray inspection systems on display at the Blue Light show in London This past quarter.

This is a show highlighting key technology for emergency services teams, enabling them to keep communities safe. This is precisely what the versatility of the mobile X-ray system provides so carrying various sites and allowing the emergency response teams to have the flexibility and mobility of deploying the mobile extra unit, where and when needed.

Speaker #6: Since our announcement at RS&A, customer interest for lumen HD detectors continues grow, and we are providing customers and prospects with detectors so that they can do their integration and validation.

On July 14th we announced additional new orders were at $17 million for cargo inspection systems for international customers to help secure C inland ports.

Speaker #6: The lumen HD and the HD Pro digital radiography detectors are our new competitively priced family of detectors, which offer superior image quality, high reliability, fast image acquisition, with lightweight and very user-friendly design, and several options for workflow improvement.

These new orders bring our year to date bookings to over $55 million, which is a testament to our strong reputation for quality and innovation in high energy linear accelerator based imaging.

Speaker #6: As mentioned before, this product line is expected to showcase both our innovation and cost leadership and our goal is to gain share globally with these detectors.

To date, we have installed and commissioned several systems in Saudi Arabia, Turkey, Colombia in Bangladesh. Additionally, we are in various stages of implementation of portals, Gantries and mobile systems in Brazil, Ukraine, Mexico, and expanding to other locations in Saudi Arabia.

Speaker #6: We have received all necessary regulatory licenses for the US and Europe, and we have begun shipping certain models from our satellite city factory. We expect to begin manufacturing and shipping these products from one of our factories in India around fiscal year end.

A typical cargo inspection system consists of a linear accelerator, which is the source of high energy X rays and array of detectors software for image acquisition image viewing and workflow.

Speaker #6: In Photon County, we're making progress as expected with a couple of OEMs who are integrating our technology in their new systems, and these projects are moving forward.

And electromechanical framework that ties it all together.

Speaker #6: Meanwhile, we're also in different stages with other prospective customers who are exploring their design options for CT and other applications. We recently released for general availability of Photon County detector called Thor for very high-speed industrial CT imaging.

We are a vertically integrated systems provider and build each of the major components ourselves. We also have legacy competency in building and deploying full systems, many of which are still in use by the U S customs and border protection.

We believe that being vertically integrated gives us a distinct advantage by being able to bring innovation to each component. We believe that we can serve the cargo inspection industry better and more cost effectively.

Speaker #6: Potential applications for Thor include non-disruptive, non-destructive testing for EV batteries, semiconductor components, food, and material sorting applications. This detector is engineered to operate in demanding industrial applications where both precision and high-speed imaging is a ical requirement.

These capabilities resonate with our current and prospective customers.

Through our knowledge and legacy experience in cargo systems supplemented by small asset purchase we have been successful in developing systems integration capability out of our facility in silicon trend in the United Kingdom.

Speaker #6: On the system side of our business, in our industrial segment, cargo systems continue to perform well. Varex was honored to have its VXM6 mobile X-ray inspection systems on display at the Blue Light Show in London this past quarter.

At the same time, we have been investing in our Las Vegas facility that provides components to our UK based operations as well as for the broader security inspection industry customers.

Speaker #6: This is a show highlighting key technology for emergency service teams enabling them to keep communities safe. This is precisely what the versatility of the mobile X-ray system provides.

We are ramping up systems production at our facility in the UK and investing in customer demonstration capabilities in both the UK and in the U S.

Speaker #6: Securing various sites and allowing the emergency response teams to have the flexibility and mobility deploying the mobile X-ray unit where and when needed. On July 14th, we announced additional new orders worth $17 million for cargo inspection systems for international customers to help secure sea and land ports.

We have a well established services team and our parts supply and logistics infrastructure with global reach through whom we are installing and servicing our customers.

We are prepared to expand these capabilities as the business grows.

We have been focused on developing our sales channel, which includes various employees in country agents, who we have known for many years as well as several application specialists and engineers, who support the sales process. We have an active pipeline of projects that we're bidding and continue to develop our future sales funnel of prospects for new business opportunities globally.

Speaker #6: These new orders bring our year-to-date bookings to over $55 million, which is a testament to our strong reputation for quality and innovation in high-energy linear accelerator-based imaging.

Speaker #6: To date, we have installed and commissioned several systems in Saudi Arabia, Turkey, Colombia, and Bangladesh. Additionally, we're in various stages of implementation of portals, gantries, and mobile systems in Brazil, Ukraine, Mexico, and expanding to locations in Saudi Arabia.

In summary, our industrial segment continues to perform well and we are seeing positive trends across our medical segment, despite a very challenging and constantly changing global trade environment.

Speaker #6: A typical cargo inspection system consists of a linear accelerator, which is the source of high-energy X-rays, an array of detectors, software for image acquisition, image viewing, and workflow, and an electromechanical framework that ties it all together.

We expect to finish out the fiscal year on a strong note.

I would like to thank all our employees globally for their hard work and commitment in helping us deliver a solid quarter.

With that let me handover the call to our CFO Sam Maheshwari.

Thanks, Tony and Hello, everyone of our performance in the third quarter was better than our expectations revenues of $203 million or above.

Speaker #6: We are a vertically integrated systems provider and build each of the major components ourselves. We also have legacy competency in building and deploying full systems; many of which are still in use by the US Customs and Border Protection.

Above the high end of our guidance as well as non-GAAP gross margin of 34% and non-GAAP EPS of <unk> 18.

Speaker #6: We believe that being vertically integrated gives us a distinct vantage. By being able to bring innovation to each component, we believe that we can serve the cargo inspection industry better and more cost-effectively.

Comparing the third quarter to the same period in fiscal 'twenty four revenues decreased 3%. This decrease was due to a 4% decrease in our medical segment, partially offset by a 1% increase in our industrial segment.

Speaker #6: These capabilities resonate with our current and prospective customers. Through our knowledge and legacy experience in cargo systems, supplemented by small asset purchase, we have been successful in developing systems integration capability out of our facility in Silicon Trent in the United Kingdom.

Medical revenues were $142 million and industrial revenues were $61 million.

Medical revenues were 70% in industrial revenues were 30% of our total revenues for the quarter.

Analyzing revenues by region America saw an increase of 1% compared to the third quarter of fiscal 'twenty four EMEA revenues were down 2%, while APAC decreased 8% year over year in the first six weeks of the quarter, the Chinese customers paused receiving shipments due to unusually high status.

Speaker #6: At the time, we have been investing in our Las Vegas facility that provides components to our UK-based operations, as well as for the broader security inspection industry customers.

Speaker #6: We are ramping up systems production at our facility in the UK and investing in customer demonstration capabilities in both the UK and in the US.

However, the subsequent pause <unk> helped them to resume receiving their deliveries during the second half of the quarter. We are pleased to meet the shipment needs are for Chinese customers.

Speaker #6: We have a well-established service team and a part supply and logistics infrastructure with global reach. Through whom we are installing and servicing our customers.

Speaker #6: We are prepared to expand these capabilities as the business grows. We have been focused on developing our sales channel, which includes Varex employees, in-country agents who we have known for many years, as well as several application specialists and engineers who support the sales process.

As a result sales volume to China ended up fairly in line with the recent quarters and contributed 15% of total revenues for the company sales.

Sales to China increased 4% for the quarter year over year.

Let me now call our results on a GAAP basis.

Speaker #6: We have an active pipeline of projects that we are bidding in and continue to develop our future sales funnel of prospects for new business opportunities globally.

Third quarter gross margin was 33% up about 100 basis points year over year operating expenses were unusually high at $148 million.

Speaker #6: In summary, our industrial segment continues to perform well, and we are seeing positive trends across our medical segment, despite a very challenging and constantly changing global trade environment.

An increase of $90 million compared to the third quarter of fiscal 'twenty four.

Primary driver of the increase was a noncash goodwill impairment charge of $94 million.

Speaker #6: We expect to finish out the fiscal year on a strong note. I'd like thank all our employees globally for their hard work and commitment in helping us deliver a solid quarter.

Due to a decline in the company's market cap as a result of this noncash charge operating loss was reported at $81 million.

Speaker #6: With that, let me hand over the call to our CFO, Sam Maheshwari.

<unk> net loss of $89 million.

Speaker #7: Thanks, Sunny, and hello, everyone. Our performance in the third quarter was better than our expectations, revenues of $203 million were above the high end of our guidance, as well as non-GAAP gross margin of 34% and non-GAAP EPS of 18 cents.

And GAAP EPS loss of $2 15.

Per share based on a fully diluted 42 million share count.

Now moving on to non-GAAP results for the quarter grew.

Gross margin was 34% up 100 basis points year over year, primarily due to a favorable product sales mix.

Speaker #7: Comparing the third quarter to the same period in fiscal 24, revenues decreased 3%. This decrease was due to a 4% decrease in our medical segment, partially offset by a 1% increase in our industrial segment.

<unk> guidance gross margin benefited from lower than previously anticipated impact from tariff related expenses.

R&D spending in the third quarter was $21 million, a decrease of approximately $1 million compared to the third quarter of fiscal 'twenty, four and representing 11% of revenue.

Speaker #7: Medical revenues were $142 million and industrial revenues were $61 million. Medical revenues were 70% and industrial revenues were 30% of our total revenues for the quarter.

SG&A expense was $30 million, a decrease of $1 million compared to the third quarter of fiscal 2004, and representing 15% of revenue.

Speaker #7: Analyzing revenues by region, America saw an increase of 1% compared to the third quarter of fiscal 24, MAR revenues were down 2% while APAC decreased 8% year over year.

Operating expenses totaled $51 million.

Decrease of $2 million compared to Q3 of fiscal 'twenty, four and represented 25% of revenue.

Speaker #7: In the first six weeks of the quarter, the Chinese customers paused receiving shipments due to unusually high tariffs. However, the subsequent pause in tariffs helped them to resume receiving their deliveries during the second half of the quarter.

Operating income was $17 million, an increase of $2 million compared to the previous year and operating margin was 8% of revenue up from 7% in the third quarter of fiscal 'twenty for <unk>.

Speaker #7: We are pleased to meet the shipment needs of our Chinese customers. As a result, sales volume to China ended up fairly in line with the recent quarters and contributed 15% of total revenues for the company.

Tax expense in the third quarter was $2 million or 23% of pretax income compared to $352000 or 6% in the third quarter of fiscal 2004.

Speaker #7: Sales to China increased 4% for the quarter year over year. Let me now cover our results on a GAAP basis. Third quarter gross margin was 33%, up about 100 basis points year over year.

Net earnings were $8 million or <unk> 18 per diluted share up from 14 in the year ago quarter.

Average diluted shares for the quarter on a non-GAAP basis were $42 million.

Now turning to the balance sheet.

Speaker #7: Operating expenses were unusually high at $148 million, an increase of $90 million compared to the third quarter of fiscal 24. The primary driver of the increase was the non-cash goodwill impairment charge of $94 million due to a decline in the company's market cap.

Accounts receivable decreased by $9 million in these sales outstanding declined by one day to 61 days inventory increased by $14 million in the third.

Third quarter and days of inventory increased by 11 days to 201 days the increase in inventory was primarily due to raw materials and work in process inventory related to the strength in our industrial business accounts payable was flat and days payable remained at 47 days.

Speaker #7: As a result of this non-cash charge, operating loss was reported at $81 million, net loss of $89 million, and GAAP EPS loss of $2.15 per share based on a fully diluted $42 million share count.

Now moving to debt and cash flow information.

Speaker #7: Now, moving on to non-GAAP results for the quarter. Gross margin was 34%, up 100 basis points year over year, primarily due to a favorable product sales mix.

Net cash flow from operations was $8 million.

We ended the quarter with cash cash equivalents and marketable securities of $153 million.

Down $73 million compared to the second quarter of 2025.

Speaker #7: Compared to our guidance, gross margin benefited from lower than previously anticipated impact from tariff-related expenses. R&D spending in the third quarter was $21 million, a decrease of approximately $1 million compared to the third quarter of fiscal 24, and representing 11% of revenue.

Reduction in cash and cash equivalents was due to the use of cash to pay off our convertible debt in June.

Gross debt outstanding at the end of the quarter was $370 million in debt net of $153 million of cash and marketable securities was $217 million.

Speaker #7: SG&A expense was $30 million, a decrease of $1 million compared to the third quarter of fiscal 24, and representing 15% of revenue. Operating expenses totaled $51 million, a decrease of $2 million compared to Q3 of fiscal 24, and represented 25% of revenue.

Adjusted EBITDA for the quarter was $29 million or 14% of sales.

Our trailing 12 months adjusted EBITDA was $110 million and our net debt leverage ratio was approximately two times adjusted EBITDA on a trailing 12 months basis.

Speaker #7: Operating income was $17 million, an increase of $2 million compared to the previous year, and operating margin was 8% of revenue, up from 7% in the third quarter of fiscal 24.

Now moving on to the outlook for the fourth quarter guidance for the fourth quarter is as follows revenues are expected between $210 million to $130 million non-GAAP earnings per diluted share are expected between <unk> and <unk> of profit.

Speaker #7: Tax expense in the third quarter was $2 million, or 23% of pre-tax income compared to $352,000 or 6% in third quarter of fiscal 24.

Our expectations are based on non-GAAP gross margin of 32% to 33% non-GAAP operating expenses of approximately $51 million.

Speaker #7: Net earnings were $8 million, or 18 cents per diluted share, up from 14 cents in the year of the quarter. Average diluted shares for the quarter on the non-GAAP basis were $42 million.

Interest and other expense net in the range of $9 million to $10 million tax.

Tax rate of about 25% for the fourth quarter and non-GAAP diluted share count of about 42 million shares.

Speaker #7: Now, turning to the balance sheet. Accounts receivable decreased by $9 million, and this is outstanding declined by one day to $61 days. Inventory increased by $14 million, in the third quarter, and days of inventory increased by 11 days to $201 days.

With that we'll now open the call for your questions.

Thank you we will now.

Ill be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker #7: The increase in inventory was primarily due to raw materials and work in process inventory, related to the strength in our industrial business. Accounts payable was flat, and days payable remained at 47 days.

You named <unk> to remove yourself from the queue.

Participants using speaker equipment, it may be necessary to pick up the handset before questions feedstock east.

One moment, please while we poll for questions.

Okay.

Speaker #7: Now, moving to debt and cash flow information. Net cash flow from operations was $8 million. We ended the quarter with cash, cash equivalence, and marketable securities of $153 million, down $73 million, compared to second quarter of 2025.

Our first question comes from the line of Jim Sidoti with Sidoti <unk> Company. Please proceed with your question.

Hi, good afternoon, thanks for taking the questions. So.

It sounds like you were able to fulfill the orders to China, even though you only had six weeks to do it in the quarter.

Speaker #7: Reduction in cash and cash equivalence was due to the use of cash to pay off our convertible debt in June. Gross debt outstanding at the end of the quarter was $370 million, and debt net of $153 million of cash and marketable securities was $217 million.

Did that result in higher than expected.

<unk>.

Hey, Jim this is sunny.

<unk> did not result in any.

The particular higher than normal expenses it was just.

We have the capacity in.

We were able to we're glad we were able to fulfill that.

Speaker #7: Adjusted EBITDA for the quarter was $29 million, or 14% of sales. Our trailing 12 months adjusted EBITDA was $110 million, and our net debt leverage ratio was approximately two times adjusted EBITDA on a trailing 12 months basis.

That demand.

Okay.

What are your do you expect China sales in the fourth quarter, it will be on par with Q3 or possibly start to tick up.

So Jim this is Sam we do not guide really by region or by customer or a product that such but the demand overall I can say that the demand in China is stable and healthy and it's continuing so barring any other external event or any such situation. We would expect it to remain normal.

Speaker #7: Now, moving on to the outlook for the fourth quarter. Guidance for the fourth quarter is as follows. Revenues are expected between $210 and $230 million, non-GAAP earnings per diluted share are expected between $10 cents and $0.30 of profit.

Sure.

Alright, and then when you discussed the photon counting OEM you called out one of your industrial customers.

Speaker #7: Our expectations are based on non-GAAP gross margin of 32 to 33%, non-GAAP operating expenses of approximately $51 million, interest and other expense net in a range of 9 to 10 million, tax rate of about 25% for the fourth quarter, and non-GAAP diluted share count of about 42 million shares.

Do you have any.

Of your medical Oems.

Telco photon counting technology.

Yes, so the big Cte projects are on the medical side.

On the industrial side, we have ongoing activity in several different applications, but.

Speaker #7: With that, we'll now open the call for your questions.

But our big focus and investment in photon counting has been far medical CPE.

Speaker #8: Thank you. Do we now be conducting a question and answer session? If you would like to ask a question, please press star one on your telephone keypad.

Alright.

You've done a nice job paying down the debt with the operating cash.

Speaker #8: A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the art keys.

What's kind of putting the bank over the past.

Several quarters Whats the plan going forward do you think you will continue to use.

Speaker #8: One moment, please, while we pull for questions. Our first question comes from the line of James Sidotti with Sidotti and Company. Please proceed with your questions.

Your operating cash to pay down debt.

Yes, so Jim.

As you know we have another tranche of <unk>.

The refinancing coming but it's about two years away from now so we need to address it.

Speaker #9: Hi. Good afternoon. Thanks for taking the estions. So it sounds like you were able to fulfill the orders to China, even though you only had six weeks to do it in the quarter.

Before next fall.

So right now we are in a very comfortable cash cash situation.

And overall, we would like to target our debt in the $300 million to $350 million range.

Speaker #9: Did that result in higher than expected expenses?

Gross debt I mean.

Speaker #10: Hey, Jim. This is Sunny. No, that did not result in any particular higher than normal expenses. We were just, we have the capacity and we were able to, we're glad we were able to fulfill that demand.

So from that perspective, right now we would like to continue to build up the cash position. So we are in a strong position when we approach refinancing in the next 12 to 18 months.

And the guidance you gave for $9 million to $10 million of interest expense for the fourth quarter does that is that net of any interest income we get from the cash on hand.

Speaker #9: And what are your, do you expect China sales in the fourth quarter to be on par with Q3 or possibly even start to tick up?

It's Matt here Andrew.

Speaker #10: So hi, Jim. This is Sam. We do not guide really by region or by customer or product as such, but the demand overall, I can say that the demand in China is stable and healthy and it's continuing.

Interest income plus the other operating and expense so it's those two items.

Yes, it's not just pure interest expense yes.

Speaker #10: So barring any other external event or any such situation, we would expect it to remain normal.

Alright, alright, thank you.

Thanks, Jim.

Thank you.

Our next question comes from the line of Suraj Kalia with Oppenheimer. Please proceed with your question.

Speaker #9: All right. And then when you discussed the Photon County OEM, you called out one of your industrial customers. Do you have any of your medical OEMs?

Hi, Tony and Sam This is Sheamus answer Suraj.

Okay.

Questions, Hi, and congrats on a really strong quarter Nice guide for the fourth Q.

Speaker #9: Testing the Photon County technology?

Speaker #10: Yeah. So the big CT projects are on the medical side. On the industrial side, we have ongoing activity in several different applications, but our big focus and investment in Photon County has been for our medical CT.

Just kind of trying to pull an overall picture you guys gave a great guide for <unk> and whatnot can you guys kind of characterize kind of the capital spending environment and kind of what youre seeing and how sustainable is obviously you had a great <unk> <unk> looks great from what you've told us.

Just trying to understand the sustainability and the medical side of the business kind of going into.

Speaker #9: All right. And you know you've done a nice job paying down your debt. With the operating cash, you know that you've kind of put in your bank over the past several quarters, you know what's the plan going forward?

Fiscal 'twenty six and whatnot. So just any color you can provide there kind of give us a little bit I know you won't probably give guidance, but again just trying to help.

Speaker #9: Do you think you'll continue to use your operating cash to pay down debt?

Help us model that out.

Yes, so shannon.

Speaker #10: Yeah. So Jim, as you know, we have another tranche of refinancing coming, but it's about two years away from now. So we need to address it you ow before next fall.

The environment seems to be.

It seems to be healthy.

Demand pattern is good and based on whatever hospital capex environment and overall, our priority of imaging from an investment perspective and.

Speaker #10: So right now, we are in a very comfortable cash situation. And overall, we would like to target our debt in the $300 to range gross debt, I mean, so from that perspective, right now, we would like to continue to build up the cash position.

The procedure volume all of them.

What we see and read all of them seem to be in a decent decent places us now.

Speaker #10: $350 million

So so.

And remember <unk>.

Last year FY 'twenty four it was somewhat of a soft year because of the inventory destocking situation. So we are expecting.

Speaker #10: So we are in a strong position when we approach refinancing in the next 12, 18 months.

We are expecting to enter FY 'twenty six.

Speaker #9: And the guidance you gave for 9 to 10 million of interest expense for the fourth quarter, does that, is that net of any interest income?

In a decent situation there in terms of the macro the macro demand environment.

Speaker #9: Is that from the cash on hand?

Is that what you were asking shipments or did I misinterpret to your question.

Speaker #10: It's net, yeah. Yeah. It's net interest income plus the other operating and expense items. So there's two items.

Yes, no yes.

For the most part that's the gist of it.

Yes.

A side note so just trying to understand.

Speaker #9: Okay.

Speaker #10: If it's not just zero interest expense, yeah.

The sliding scale so to speak with you kind of.

Speaker #9: All right. All right. ank you.

Performance in the quarter by line.

Speaker #10: Thanks, Jim.

Where are you kind of seeing strength because I know.

Speaker #8: Thank you. Our next question comes from the line of Suraj Kelly with Oppenheimer. Please proceed with your estion.

I think you noted like philosophy down you know a lot of things are kind of been stable. So to speak so I guess on where within that medical segment kind of are you seeing.

Speaker #11: Hi, Sunny. It's Sam. This is Shane Sanford Suraj. Thanks for taking our questions. Hi. And congrats on a really strong quarter and nice guide for the fourth queue.

Strength, that's kind of leading to these kind of lesser revenue numbers.

Yes, I would say from a revenue mix perspective, our industrial business is fairly strong and CET was strong.

Speaker #11: Just kind of trying to paint an overall picture. You ys did a great guide for fourth queue and atnot. Can you guys kind of characterize kind of the capital spending environment and kind of what you're eing and how sustainable is, you know, obviously, you had a at three-queue, four-queue looks great, you know, from what you've told us.

And this and this last quarter and Thats, where we are seeing.

Radiographic was somewhat stable fluoroscopy was down.

So I would say a number of modalities were stable to slightly better than stable.

Speaker #11: You know, just trying to understand the sustainability in the medical side of the business, kind of going into fiscal 26 and whatnot. So just any color you could ide there, kind of give us a little bit.

And the strength was there in <unk>.

And industrial.

Speaker #11: I know you 't probably give guidance, but again, just trying to help us start to model that out.

Okay, I appreciate that and one more.

Our ends.

Photon counting I know you guys kind of gave a little bit of color on that can you give us any kind of let's say metrics or something where we can start potentially seeing how many customers you are kind of.

Speaker #10: Yeah. So Shane with the environment

Speaker #11: seems to be healthy. You know, the demand pattern is good. And based on whatever hospital CapEx environment and overall priority of imaging from an investment perspective and the procedure volume, all of them what we see and read, all of them seem be in a decent place as of now.

Working with either any stages and kind of rough.

Rough timeline for when you would expect.

50% to kind of move to the next.

Looking for commercial commercialization or whatnot.

<unk> said.

Or is it I think 27, you gave a guidance number for the number of <unk>.

Expected sales or sorry, we made have been 29, but just trying to understand that when we start to see that initial Congress.

Speaker #11: So and remember, last year, FY24, it was somewhat of a soft year because of the inventory destocking situation. So we are expecting to enter FY26 with a decent situation here in s of the macro or the macro demand environment.

Orders start coming in and you guys kind of add that to your backlog.

Thank you again for taking our questions.

So.

Let me.

Let me.

Try to respond to your question and then I'll ask <unk> to chime in so we had indicated that.

Speaker #11: Is that what you were asking, Seamus, or did I misinterpret your question? Yeah. No. You, for the most part, got the gist of it.

We're expecting a $150 million of contribution from photon counting and Thats.

Speaker #11: I guess kind of a side note to that, just trying to stand, I know this is a sliding scale, so to speak. If you kind performance in a quarter by line, I guess where are ou kind of seeing strength?

Point where were.

Where we expect.

Pretty good.

Rollout on the CD side.

Medical and at the same time about $50 million worth of contribution from industrial so on the industrial side that is more of a continuous growth. It's happening now, it's continuing to happen and in bits and bites, it's growing and.

Speaker #11: Because I know you ow I think you noted like fluoroscopy is down. You know, a lot of things have kind of been stable. So to speak.

Speaker #11: So I guess where within that medical segment kind of are you seeing you know strength that's kind of leading to these kind of you know nicer revenue numbers?

Launch of a new product like for that.

I talked about will help with that and then we expect to see pretty good uptick in industrial on the medical side.

Speaker #10: Yeah. I would say from a revenue mix perspective, our industrial business is fairly

We have tailored.

Telegraphed that we have two very.

Very.

Solid candidates and good Oems strong Oems.

That are in that phase of design implementation. So we're past the selection process and what theyre going to do now they're actively building developing and designing their systems. So for the next 12.

Months, or so you'll get a bit of a boring update from us it's because as they continue to do their work it's beyond that that we expect them to start doing their pilots and and then go down the process of bringing systems to market I can give you.

Narrower dates than that because one it's really.

Confidential for our customers.

Even though we're not disclosing names.

I, just don't want to get to a point, where we can create a problem for our customers, but our timelines that we have talked about earlier the towards 2029 timeframe that has not moved.

I can also just add that we had said by 2029, we would be expecting say $150 million of so and photon counting revenue.

With.

I'd say two thirds of that approximately from the medical segment and a third from the industrial segment now keep in mind right now most of the photon counting shipments are in the industrial area and that.

Speaker #2: Can you give us any kind of, I say, metrics or something where we can start potentially seeing, you know, how many customers you are kind of working with at either any stages and kind , you know, rough timelines for when you expect, you know, say, 50% to kind of move to the next, you ow, looking for commercialization and whatnot.

Syed a photon counting business is continuously and very nicely progressing and improving however on the medical side, we expect it to be in step basis manner. So so so say about $100 million of medical contribution for Florida accounting revenue would mean that we need to have 3%.

Speaker #2: I know you've id, what is it? I ink 27 you gave a guidance number for the number sales or, sorry, it might have been 29.

Speaker #2: But yeah, just trying to understand when we start kind of to see that initial kind of orders start coming in and you guys kind of add that to your backlog.

For Oems and design our product into their system, then be rolled out and so.

Speaker #2: Thank you again for taking our estions.

Say two quarters or so ago, we were working very strongly with one OEM and now we are working with two Oems and so we are pretty happy with the progress we've made and how we are moving in this direction in terms of commercializing that technology and as I mentioned on our call. We have others in the pipeline that are in that.

Speaker #1: So, let me, let me give add and try to respond to your question and then I'll ask to also chime in. So we had indicated that we were, you know, we're, we're on track.

Speaker #1: We're expecting $150 million of contribution

Speaker #1: from Photon Counting. And of, expected that's, and at a point where, where we expect pretty good rollout on the CT side, on in the, in medical and at the same time about $50 million worth of contribution from industrial.

Phase of the Consultative phase, where they are trying to figure out how they would integrate this in their system. They are doing the initial physics measurements and all of the things that kept them ready to get their head around.

Speaker #1: So on the industrial side, that is more of a continuous growth. It's happening now. It's continuing to happen. And in bits and bites, it's growing.

The next product that theyre going to bring to market. So the pipeline is good and interest remains strong.

Speaker #1: And, launch of a new product like Thor that, I, I talked will help with that. And then we expect to see pretty good uptake on industrial.

So.

It's on its way up.

Got it. Thank you again for taking our questions and congrats.

Thank you.

Speaker #1: On the medical side, we have, Telegraph that we have two very, you know, very solid candidates and, good OEMs, strong OEMs. That are in that phase of design implementation.

Thank you.

Our next question comes from the line of John Lee with Jefferies. Please proceed with your question.

Alright, great. Thank you very much.

I guess to store.

I was curious on the China business.

Speaker #1: So we're past the selection process and what they're going to . Now they're actively building developing and, designing their systems. So for the next, you know, 12 months or so, you'll get a bit of a boring, update from us.

Outperformed expectations.

If you can talk a little bit about your.

Patients for potential.

Sized orders in China.

Speaker #1: It's, you know, because as they continue to do their work, it's beyond that that we expect them to start doing their pilots and, and then go down the process of bringing systems to market.

Maybe some customers will take this opportunity to stock up on inventory to try to derisk future tariff updates.

Speaker #1: I can't give you a narrower dates than that because one, 's really confidential for our customers. They, and, even though I'm, we're not disclosing names, you know, it's, I just don't want to get to a point where we create a problem for our customers.

It also.

You're seeing an impact.

Government stimulus.

In China.

Hey, young Sunny so are.

Order intake in purchased from China has been steady as we said in the third.

Speaker #1: But our timelines that we have talked about earlier, the 2029 timeframe, that has not moved. Yeah. I can also just add that we had said, by 2029, we would be expecting, say, $150 million or so in Photon Counting revenue.

In this third quarter.

Sure.

Sales in China was consistent with the performance in China over the last several quarters. So it has been there as they they don't buy in lumpy manner, or we have not seen them try to predict.

Speaker #1: With, say, two-thirds of that approximately from the medical, segment and a third from the industrial segment. Now, keep in mind right now, most of the Photon Counting shipments are in the industrial area.

Sure.

The tariff rates at the tariff rates themselves have been fairly steady for some time. So we're not seeing that yet and we have not seen that kind of behavior. So the demand is I would say is steady in China. The only time, we had a.

Speaker #1: And that, side of Photon Counting business is continuously and very nicely progressing and improving. However, on the medical side, we expect to be in a step basis manner.

A pause was when it was ridiculous tariff rate of 145%, which made everyone just pause and say jeez. This can be real I bet. It will come down and so they took a breather, but other than when they did come back they came back to the levels of inventory that they needed.

Speaker #1: So, so, so say about $100 million of medical contribution for Photon Counting revenue, would mean that we need to have three to four OEMs design our product into their systems and be rolled out.

So thats the backdrop, there and then.

Speaker #1: And, so, so, say two quarters or so ago, we were working very strongly with one OEM and now we are working with two OEMs.

I'm, sorry, I forgot the second half of your question.

Governance stimulus empower government stimulus.

Yes, so again like we've said before there's been talk of stimulus and we've we've heard of stimulus programs, making its way through provinces into the hospitals, but we have not seen yet any significant indicators that of.

Speaker #1: And so we, we are pretty happy with the progress we've made and, h, how we are moving in this direction in terms of commercializing the, the technology.

Speaker #1: And as I mentioned on a call, we have others in the pipeline that are in that, yeah, phase of the consultative phase where they're trying to figure out how they would integrate this in their systems, they're doing the initial physics measurements and all the things that get them ready to get their head around, the next product that they're going to ing to market.

<unk> demand, it's very hard to tease that apart and say, what's because of stimulus and what's the secular or normal demand.

All I can all we can see is that the Chinese government remains.

Committed to there.

Speaker #1: So the pipeline's good. And the interest remains strong. So it's on its way.

Expansion of health care services and.

Healthcare.

Speaker #2: Got it. Got it. Thank you again for taking our questions and congrats.

Ministry of Health Commission I believe that's what it's called it continues to push for getting imaging technologies into rural hospitals, and I think they've been circulars that we've seen where they want at least $1 64 slide <unk> in every single.

Speaker #1: Thank you.

Speaker #2: Thank you.

Speaker #3: Thank you. Our next question comes from the line of Young Lee with Jeffries. Please proceed with your question.

Speaker #4: All right. Great. thanks very much. I, I guess to start, I was curious on the, on the China business. you ow, outperform expectations. I was wondering if you can talk a ittle bit about your expectations for potential, outsized orders in China?

County Hospital in China, and as you know, there's like 15000 of them. So we expect that this demand for Cts to continue along with their expansion of healthcare services in a fairly steady manner.

Alright, great very helpful.

I guess.

Your comment on ramping up system productions in the UK and invest in the Vegas facility.

Speaker #4: Maybe some customers will take this opportunity to stock up on inventory to try to de-risk future tariff updates. And also, you know, are you seeing an impact from government stimulus in China?

As it relates to the industrials.

Cargo systems business.

Is that a signal that.

Speaker #1: Hey, Young. this is Sunny. So our order intake in for from China has been steady. As we said, you know, in the third in this, third quarter, our, sales in China was consistent with the performance in China over the last several quarters.

We should be seeing.

More outsized orders in the coming quarters and can you maybe.

The order side rooms.

Contacts for Us I mean thats.

It ranges from 14% to 25 million.

But.

Can we see.

Five plus million type of orders.

Speaker #1: So it's been, there's, they, they, they don't buy in, in lumpy manner or the, and we've not seen them try to predict the, just, you know, the tariff rates at, and the tariff rates themselves have been fairly steady for some time.

Future quarters.

So.

First of all the facility in the UK as the expansion there is mainly for as business ramps up and we've taken and $55 million worth of orders to for us to continue to fulfill them, we need space, we need people and so that's what I was referring to and we will continue to do that.

Speaker #1: So, we're not seeing that, yet. And we've not seen that kind of behavior. So the demand is, I'd say, is steady in China. The only time we had a, we had a pause was when it was a ridiculous tariff rate of 145%, which made everyone just pause and say, "Geez, this can't be real." I bet it'll come down.

In terms of.

The health of that business and future orders.

Speaker #1: And so, we took a breather. But other than, and when they did come back, they came back to the levels of inventory that they needed.

All I can say is that the pipeline is strong we've got a good pipeline we're competing in.

I have to believe that <unk> given.

Speaker #1: So that's the backdrop there. And then, I'm sorry, I forgot the second half of your question. The,

Given our reputation given our footprint currently.

Probably seeing.

Speaker #2: Government stimulus impact.

Virtually every deal it's not I mean, if not every of majority of the deals and so we see the pipeline is healthy.

Speaker #1: Oh, government stimulus. Yes. So, again, like we've said before, the, you know, there's been talk of stimulus and we've, we've heard of stimulus programs making its way through the provinces and to the hospitals.

What's uncertain there is some amount of uncertainty around timing of when those deals will happen because of just their tender driven process. So what we don't want to do is to fall behind on our ability to deliver so that's why we want to make sure that we ramp up thoughtfully and Thats what were doing in terms of deal sizes.

Speaker #1: But we have not seen yet any significant indicators that of additional demand. It's very hard to tease that apart and say, "What's because of stimulus and what's secular or normal demand?" All I can all we can see is that the Chinese government remains committed to their, expansion of healthcare services and, healthcare, Ministry of Health Commission, I believe that's what it's called, continues to push for getting imaging technologies into rural hospitals and I think they've been circulars.

<unk>.

<unk>.

Can't predict that but what we have so far the $17 million ish type of $25 million ish type of order volume.

Sizes are not abnormal for us.

Yes, I would add that in terms of our capex requirements, and maybe thats, what youre thinking maybe a little bit reading your mind here.

From a capex perspective, we have guided $25 million to $30 million capex for the year last year this year.

Speaker #1: We've seen where they want at least 164 slice CT in every single h, you ow, county hospital in China and, and as you know, there's like 15,000 of them.

Coming here.

That would include investments in the UK that we plan to make to ramp up our <unk>.

Speaker #1: So we expect that this demand for CTs to continue, along with their expansion of healthcare services, in a fairly steady manner.

Ability to.

Address the order then ship the product so.

So that $25 million to $30 million Capex would include this and then I would just add that in cargo systems business order size more than $25 million is not uncommon. So.

Speaker #2: All right. Great. Very helpful. I guess, just, you know, your comment on, ramping up, system productions, in the UK. And, investing in, the, the Vegas facility.

So it's just our ability to compete and win.

Speaker #2: As it relates to the industrials, cargo systems business. is that a signal that, you know, we should be seeing, more outsized orders, in the coming quarters and, can you maybe put the order sizing, in context for us?

So it can happen.

But at the same time as you know.

As I said.

It'll be great. If we win those orders and then we would be able to fulfill them.

But we will be mindful about the capex that we need to.

To invest in those facilities.

Speaker #2: I mean, it's lumpy. It ranges from 14 to 25 million. but, you know, can we see, 25 plus million type of orders in, future quarters?

Okay, great very helpful. Thank you.

Thank you.

Our next question comes from the line of Larry Solow with <unk>.

<unk> Securities.

Speaker #1: So, first of all, the facility in UK, the expansion there is mainly for, as, as business ramps up and we're, we've taken in 55 million worth of orders for us to continue to fulfill them.

Please proceed with your question.

Great. Thanks, good evening or good afternoon for you guys. I guess first question just on the on the guidance.

Nice nice improvement year over year, I think it's implying 7% growth.

Speaker #1: We need space. We need people. And so that's what I was referring to. And we will continue do that. In terms of, the health of that, that business and future orders, all I can say is that the pipeline is strong.

And.

What percent sequential growth at the midpoint so.

As most of that growth going to come from just looking at it sequentially or maybe even year over year or two is it more on the medical side just in Q4.

Speaker #1: We've got a good pipeline. We're competing in, you know, I have to believe that we've iven our reputation, given our footprint currently, we're ably seeing virtually every deal, if not, I mean, if not every, you know, majority of the deals.

Or.

Usually it's been kind of tracking around that $60 million for several quarters. So.

Bump up a lot more.

On both segments I was just trying to a little more color there yes.

Yes, Larry I think both the segments are at can we expect to grow both the segments in Q4.

Speaker #1: And so we see the pipeline. It's healthy. What's uncertain in this, there's amount of uncertainty around timing of when those deals will happen because of just their tender-driven process.

You know.

In industrial of course, we have a number of orders that we have taken in cargo systems that we expect to fulfill and on the medical side, we have a backlog to address.

Speaker #1: So what we 't want to do is to fall behind on, our ability to deliver. So that's why we want to make sure that we ramp up, thoughtfully.

Speaker #1: And that's what we're doing. In terms of deal sizes, you ow, I can't predict that. but what we have so far, you know, the 17 million, 25 million-ish type of order, sizes are not abnormal for us.

From our customers in Japan, Europe et cetera.

Okay, I'm actually more curious just on the gross margin outlook. So.

Look back Q2, you, obviously I think that may have been.

Speaker #1: Yeah.

A lot of the stars align where you had a 30% gross margin but.

Speaker #2: Young, I would add that in s of our CapEx requirements and maybe that's what you're thinking or maybe a little bit reading your mind here.

It felt like exiting Q2, if the China story could at least stabilize.

Speaker #2: From a CapEx perspective, we have guided 25 to 30 million dollar CapEx for the year, last year, this year, as well as, the coming year.

Your sales will be a lot better, which which are little appears to happen this quarter and your outlook implies even 10% sequential growth how come the gross margin is.

Speaker #2: that would include investments in the UK that we plan to make to ramp up, our ability to, address the orders and ship the products.

This quarter and then your next quarter outlook is even lower.

Is that because of I assume mix is that more because you're delivering on some of these.

Speaker #2: So, so that 25 to 30 million dollar CapEx would include this. And then I would just add that in cargo systems business, order size more than 25 million dollars is not uncommon.

Delivering upfront equipment versus maintenance or any color there would be appreciated sure. Yes. So Larry remember in Q2, which is where youre comparing it to in Q2, we had talked about one time refund from customs agencies in Germany and outcome of multiple years of.

Speaker #2: So, so it's, it's just our ability to compete and win, so it can happen. but at the same time, as you ow, as I said, it'll be great if we win those orders and then we would be able fulfill them.

Back and forth with them. So that was a one time benefit I would say and we did highlight in that quarter's commentary rightful how much was that Ben if I thought that was the one that was about 200 basis points 200 basis points. So even so that you're still down from 34.

Speaker #2: but we'll be mindful about the CapEx that we need to, to, to, to invest in those facilities.

Speaker #4: Okay. Great. Very helpful. Thank ou.

32, and a half at the midpoint in your guidance, but you are growing sequentially correct, 5% at this point.

Speaker #3: Thank you. Our next question comes from the of Larry Solo with, CJS Securities. Please proceed with your question.

So your point is well taken and the degradation in gross margin of say 150 basis points that you are talking about is really coming from.

Speaker #4: Great. Thanks. good evening or good noon if you guys. I guess first question, just on the, on the guidance, nice, nice improvement. You know, year over year, I think it's implying 7% growth and, and, and three, and, 3% sequential growth.

Tightest aspect the tariffs pieces.

Passing it along to customers, but we are not able to fully mitigate it and so that is impacting about 100 to 150 basis points and then on the cargo systems business. We've talked about that that business is slightly lower in gross margin. So that is also happening. So that is all in the mix here.

Speaker #4: 's a midpoint. So is, most of that growth going to come from the, just looking at it sequentially or maybe even year over year too, is it more on the medical side just in Q4?

Speaker #4: or, or, you know, industrial usually, ou know, has been kind of tracking around that 60 million for several quarters. So we'll bump up a lot more on, on both, you know, segments.

Scott.

The industrial piece in particular, I know that that margin is.

At least from the front end of last fiscal year.

Speaker #4: Just trying to add a little more color there. Yeah.

Come down.

Speaker #1: Yeah. Larry, I think, both the segments are, we expect to grow both the segments in Q4. you ow, in industrial, of course, we have, a number of, orders that we have taken in cargo systems that we expect to fulfill.

Because I think you were delivering more on the equipment side and less on the service right. That's what I meant that's what I meant is that is that I.

I guess as that installed base grows and then the warranties expire then.

There is service requirements I guess some of that should come back to help you right.

Speaker #1: And on the medical side, we need, we, we have, backlog to address, from our customers in Japan, Europe, etc.

Because the maintenance I believe as margins a lot better is that correct, yes that is.

Absolutely correct that the service margins are much higher on the industrial side. So all the linear accelerators and cargo systems et cetera.

Speaker #4: Okay. And I'm actually more curious just on the, on the gross margin outlook. So, you know, if you look back Q2, you obviously, I ink that may have been a lot of the stars aligned where you had a 30% gross margin, but, it felt like exiting Q2, if, if the China story could at least stabilize, your sales would be a lot better, which, which are, what appears to a bit happened this quarter and, and your outlook implies even, you know, 10% sequential growth.

You rightly pointed out have a warranty period of 18 months, sometimes 24 months and we began shipping <unk>.

Quite a bit of linear accelerators, I would say towards the <unk>.

Mid part of 2024 and so.

From mid 2026 onwards, they should be coming off of warranty and begin to contribute that.

Speaker #4: How come the gross margin is, you know, this quarter, and then your next quarter outlook is even lower? Is that because of, I assume, mix?

You look at our numbers, we have improved medical segments gross margin. However, as you rightly said industrial gross margin has come down so so the gross margin.

Speaker #4: Is that, more because you're delivering on some of these, you're delivering upfront equipment versus maintenance or any color there would be. Appreciate .

<unk> is seeing a little bit of a segment headwind, but it's all good news in the sense, we are shipping quite a bit of hardware and the hardware.

Speaker #1: Sure. Yeah. So Larry, remember in Q2, which is where you're comparing it to in Q2, we had talked about a one-time, refund from customs agencies in Germany and outcome of multiple years of, you ow, back and forth with them.

Yes.

18 months, we should get the benefit from it.

Okay, and then just in general from a high level Q4 guidance.

But just the trends last two three quarters going back to Q2.

Speaker #1: So that was a one-time benefit. I would say, and we did highlight even in, in that quarter's commentary.

Just how should we think about fiscal 'twenty six.

At least from a high level is most of it and again outside of China, Let's just say China stabilizes from here.

Speaker #4: Right. Well, how much was that benefit? I thought that was only one-time.

Speaker #1: That was about 200 basis points. 200 basis points.

Speaker #4: Okay. So even still though, you're still down from 34 to 32 and a half at the midpoint in your guidance, but your growing sequentially,

For now.

Yeah.

Global OEM order pattern.

Inventory destocking.

Speaker #1: Correct.

Speaker #4: 5% at the midpoint.

Like a lot of that is getting closer to normal so yes.

Speaker #1: Yeah. Yes. So your, our point is well taken. and, the, the degradation in gross margin of, say, 150 basis points that you're talking is really coming from the tariff, h, aspect.

26 B.

Sure.

Continuing to have.

Sort of low to mid single digit.

Perhaps even better topline growth I know, you're not giving guidance yet but.

Speaker #1: The tariffs pieces we are passing it along to customers, but we are not able to fully mitigate it. And so that is impacting about 100 to 150 basis points.

Just trying to maybe you can give us some of the big.

Bullet points as we think out over the next few quarters sure where we stand sure. Yes. So I think the first point you raised was about the inventory Destocking and we had said that we expected to be over by March April timeframe and it actually did happen that way. So we are fairly beyond that phenomenon at this point.

Speaker #1: And then on the cargo systems business, we've talked that, that business is slightly lower in gross margin. So, so that is also happening. So that is all in the mix here, which is what is causing.

Speaker #4: Gotcha. And then the industrial piece in particular, I know that margin has, at least from the big front end of last fiscal year, come down because I think you were delivering more on the equipment side and less on the service, right?

And also China has stabilized and then came the tariffs there was a little bit of instability, but it seems to be normalizing now.

And cannot really predict what happens in the next month, its a very very fluid and dynamic environment, but it seems to be a little bit more stable than when we talked to you last time say 90 days ago. It was extremely unstable at that time.

Speaker #1: Correct. That's what I meant. That's what I meant.

Speaker #4: Yeah. Yeah. And is that, is that, you know, I guess as that installed base grows, and then the, the warranties expire and then they, they, there's service requirements, I guess some of that should come back to help you, right, on the, on because the maintenance, believe, is margins a lot better.

So overall overall, both the medical and industrial businesses seem to be in a decent place and barring any external events that we don't think of right now they should be they should grow and we should be in a decent position. So overall I would say I would concur that we should be expecting 2006 to two.

Speaker #4: Is that correct?

Speaker #1: Yes. That is, that is absolutely correct that the service margins are much higher on the industrial side. So all the linear accelerators and cargo systems, etc., you rightly pointed out, have a warranty period of 18 months, sometimes 24 months.

A growth year for us, but obviously, it's a bit too soon and.

Speaker #1: And we began shipping, quite a bit of linear accelerators. I would say towards the, mid part of 2024. And so from mid 2026 onwards, they should be coming off of warranty and begin to contribute that.

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And external events can always.

Come in a positive or a negative way, but we'll deal with it as they come in as we get closer to the year.

Yes, I fully understand and I appreciate all the color. Thanks, Okay.

Speaker #1: You know, if you look at our numbers, we have improved medical segments gross margin. However, as you rightly said, industrial gross margin has come down.

Thank you and as a reminder, if anyone has any questions. You May press star one on your telephone keypad to join the queue.

Our next question comes from the line of Anderson.

<unk> with <unk> Securities. Please proceed with your question.

Speaker #1: So, so the gross margin, is seeing little bit of a segment headwind, but it's all good news in the sense we are shipping quite a bit of hardware and they shouldn't benefit from that.

Okay.

Hi, This is Brian Kearney Yonker Anderson.

Congratulations on the quarter and thanks for taking our questions. I think you just mentioned some impact of the tariffs for meetings with GM Guide you.

Speaker #1: Yeah. Yeah. It's the, yeah. And, and in 18 months, we should get the benefit from it. Yeah.

Speaker #4: Okay. And, and just, just in general from a level, you know, Q4 guidance, you ow, just the trends last two, three quarters going back Q2 too.

Do you have any updates on the progress.

Redirecting supply change as part of your tariff mitigation strategy. I know you said that that would take some time, but is there anything you've been able to do.

Speaker #4: just as we think , you know, fiscal 26, at least from a, you know, high level, is most of the, and again, outside of China, let's just say China stabilizes from here.

We're planning to do in the near term.

So yes.

Brian is that Bryan Bryan.

Brandon it's.

Brendan sorry, so yes, Brandon, yes, yes, we've been making good progress I would say that we've not.

Speaker #4: for now, but, just global OEM order patterns, inventory, the stocking, you know, it feels like a lot of that's getting closer to normal. So, you know, could 26 be, you know, is, you know, continue to have a, a sort of low to mid single digit or perhaps even better, you ow, top line growth?

<unk> are concluded our efforts there, but we are midstream and we are definitely making.

Good progress there.

Our efforts in producing out of India are doing are doing good but at the same time. We are also making progress in terms of our.

Speaker #4: I know you're not giving guidance yet, but, just trying to maybe you can give us some of the, the big, you know, bullet points as we think out over the next few quarters.

In terms of creating structures like bonded warehouse and also increasing manufacturing in a given region to service that region. So we are slowly making those changes as you know it takes time.

Speaker #1: Sure.

Speaker #4: Where we stand.

Speaker #1: Sure. Yeah. So I think, the, the first point you raised was about the inventory destocking. And we had said that we expected it to be over by March, April timeframe.

At the same time, we've also.

Speaker #1: And it actually did happen that way. So we are fairly beyond that phenomenon at this point. And also China has stabilized. And then came the tariffs.

Started passing along price increases to our customers that we've been successful in that.

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A number of initiatives that we are in midstream for example.

Speaker #1: There was a little bit of instability, but seems to be normalizing now at, and, and cannot really predict what happens in the next month.

Redirect material spending to suppliers and a lower tariff region so to say.

And duty drawback and bonded warehouse.

Speaker #1: It's a very, very fluid and dynamic environment. But it seems to be a little bit more stable than when we talked to you last time, say 90 days ago, it was extremely unstable at that time.

And also more local for local manufacturing so all of those initiatives.

Our in play.

But I would say we are in.

Speaker #1: So overall, overall both the medical and industrial businesses seem to be in a decent place. And barring any other external events that we don't think of right now, they should be, they should grow.

And the I would not say we are in the early innings, but we are definitely not beyond the mid in mid innings on these initiatives I would say we are somewhere closer to mid points in some of these initiatives. It takes time.

Speaker #1: And we should be in a decent position. So overall, I would say, I would concur that we should be expecting 26 to, to be a growth year for us.

Got it thanks for that.

Just following up on that if you are able to start shipping et cetera from the India plant by the end of the year do you think that that would have an immediate impact on the tariff exposure in China, or we have to wait another quarter or two to see the impact.

Speaker #1: But obviously, it's a bit too soon. And, and external events can always, come in a positive way or a negative way, but we'll deal with it as they come and as we get closer to the year.

So India. The main strategy for India for us is to be able to produce radiographic components in a more cost effective manner. So that we are more <unk>.

Speaker #4: Yeah. I feel like I stand that. I appreciate all the color. Thanks.

Speaker #1: Okay.

Speaker #3: Thank you. And as a inder, if anyone has any questions, you may press star one on your telephone keypad to join the queue. Our next estion comes from the line of Anderson, Shock with B.

Price competitive in the market. This is a value value tier type of a market.

Speaker #3: Riley Securities. Please proceed with your question.

So that is our strategy out of India and so.

We plan to produce out of India for global global consumption. So in that regard we are shipping out of U S to foreign country than all the supply chain of raw material that we are bringing into the U S would be.

Speaker #5: Hi. this is, Brandon Carneon for Anderson. congratulations on the quarter and thanks for taking our questions. I think you, you just mentioned some impact of the tariffs contributing to the GM guide.

Speaker #5: do you have any updates on the progress of, redirecting supply chains as part of your, tariff mitigation strategy? I know you said that that would take some time, but is there anything you've been able to , or plan to do in the near term?

We'd be able to avoid tariffs on that raw material because we are not.

Bringing it in U S manufacturing adhere and shipping it out of here. So in that regard, yes, it would be it would be helpful.

Speaker #1: so yes. and, Brian, is that Brian?

But I just wanted to make sure our primary and secondary strategies are clear in terms of their priority and also just to add.

Speaker #5: Brandon.

Speaker #1: Brian. It's Brandon. Sorry. So yeah, Brandon. Yes. Yeah. We've been making good progress. I, I would say that we've not completed or concluded our efforts there, but we are midstream and we are definitely making, good progress there.

Even for detectors or detectors business in China is supported by manufacturing in China and vast majority of the components that go into it are also procured in that region. So China is pretty independent from them in that sense.

Speaker #1: You know, our efforts in, producing out of India, are, are, are doing are doing good. But at the same time, we have also making progress in terms of our, in terms creating structures like bonded warehouse and, also increasing manufacturing in a given region to service that region.

Okay got it.

Is there any.

The connection between the India plant.

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Production in the U S. I'm just wondering.

You know if theres any components from India coming into the U S that might be affected by the <unk> sort of escalation and trade tensions between those two countries.

Speaker #1: So we are slowly making those changes. As you know, it takes time. at the same time, we've also, started, passing along price increases to our customers.

Yes, there is not I mean, there may be small, but there is no significant dependence in the U S for our product coming from India.

Speaker #1: So we, we've been successful in that. And, a number of initiatives that we are in midstream, for example, you know, redirect material spending to suppliers in a lower tariff region, so to say.

Keep in mind dual sourcing and triple sourcing as being some of the mantra for the supply chain folks and the team here. So we are slowly increasing our supply chain from a supply chain resiliency perspective other countries, so so and <unk>.

Speaker #1: And, and, and, and duty drawback and bonded warehouse. and also more local for local manufacturing. So all of those initiatives are in play. But I would say we are, in the, in the, I would not say we are in the early innings, but we are definitely not beyond the mid innings on these initiatives.

Anyways has.

Being a new initiative for us so there is not a whole lot of dependent.

After Salt Lake factory for supply chain out of India, there is some but not significant.

Got it thanks again for taking my questions and congratulations again on a great quarter.

Speaker #1: I would say we are somewhere closer to midpoints in some these initiatives. It takes time.

Thank you Brian Thank you.

Thank you.

Speaker #5: Got it. Thanks for that. maybe just following up on that. if you're able to start shipping detectors from the India plant by the end of the year, do you think that that would have an immediate impact on the tariff exposure in China?

And ladies and gentlemen, this does conclude today's conference. We have reached the end of the question and answer session. This concludes today's conference call. You may disconnect. Your lines at this time.

Speaker #5: Or will we have to wait another quarter or two to see the impact?

Thank you for your participation.

Speaker #1: so India, the main strategy for India for us is to be able to produce radiographic components in a more cost-effective manner so that we are more price competitive in the market.

Speaker #1: This is a value, value to your type of a market. so that is our strategy out of India. And so, so, so, so we plan to produce out of India for global, global consumption.

Speaker #1: So in that regard, if we are shipping out of the US to, foreign country, then all the supply chain or raw material that we are bringing into the US would be we'd be able to avoid tariffs on that raw material because are not bringing it in US manufacturing it here and shipping it out of here.

Speaker #1: So in that regard, yes, it would be, it would be helpful. but I just wanted to make sure our primary and secondary strategies are clear in terms their priority.

Speaker #1: And I'll just add, even for detectors, our detectors business in China, it's supported by manufacturing in China. And the vast majority of the components that go into it are also, procured, in that region.

Speaker #1: So China is pretty independent from that in that sense. Yeah.

Speaker #5: All right. yeah, got . is there any, connection between the India plant and, and, production in the US? I'm just wondering if, you know, if there's any components from India coming into the US that might be affected by the recent sort of escalation in trade tensions between those two countries.

Speaker #1: Yeah. There is not. I mean, there may be small, but there is no significant, dependence in the US for product coming from India. And, keep in mind, dual sourcing and triple sourcing has been some of the mantras for the supply chain folks and the team here.

Speaker #1: So, we are slowly increasing our supply chain, from a supply chain resiliency perspective. Other countries. So, so, and India, anyways, has been a new initiative for us.

Speaker #1: So, there is not a whole lot of dependence on the Salt Lake factory for supply chain out of India. There is some, but not significant.

Speaker #5: Got it. Thanks again for taking our questions and congratulations again on the great quarter.

Speaker #1: Thank you, Brandon.

Speaker #2: Thank you.

Speaker #3: Thank you. And ladies and gentlemen, this does conclude today's conference. we have reached the end of the question and answer session. This concludes today's, conference call.