VREX - Earnings call transcript Q4 2018 | Varex Imaging Corporation

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Operator

Greetings and welcome to Varex Imaging Corporation’s Fourth Quarter and Fiscal Year 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to Howard Goldman, Director of Investor and Public Relations. you. Thank

begin. may You

Howard Goldman

accordance advised and are for, fiscal of that welcome to to fourth Imaging XXXX. quarter Sunny most otherwise a release, and today and simplify with, CFO. nor call discussion, measures. posted quarter could statements in forward-looking projections These adjusted our With to events. financial financial year this These be are measure we earnings fiscal are and year expectations On comparisons the for subject on are fourth versus unless results CEO; GAAP President fiscal our year the assumptions that our actual and a all earnings reconciliation measures. quarters. our Quarterly Sanyal, in Verhoef, to XXXX substitute afternoon We year each Annual provided adjusted comparable GAAP the our about materially fiscal measure differ risks comparisons press versus measures are anticipated. Corporation’s today��s certain To directly to otherwise. presented is those financial future are that of predictions references making they uncertainties Varex XXXX stated, conference we me which and are for Clarence are will which on cause or website. be from financial the XXXX, fiscal Good XXXX the fiscal year are otherwise. stated for current based Please call during not fourth will quarter of stated non-GAAP unless quarter unless discuss call

the quarterly that risk XX-K I’ll our XX-Q. filings, this no differ our forward-looking we report And information factors factors including year now, or subsequent could of on Item Form actual cause Additional materially in Sunny. a date to results speaks reports SEC over as obligation discussion. the to statements fiscal and on call is discussion in assume of in annual XXXX turn today’s this XA for contained The update information Form to and concerning revise

Sunny Sanyal

increased Howard, increased and the double-digit Revenues million. top X% our and Industrial We detector year We those segment ended we of an acquired from increase XXXX XX% revenues full-year in from Medical from customers year contribution revenues to public you, growth. for in Thank imaging tube everyone. segment for $XXX XX%. benefited as good fiscal the CT company revenues increased saw a revenues OEM business, a including prior afternoon, year with line China. second

connect software saw growth and our and We control solutions. also products in continued

mammography In in well improvements applications. dental the year. addition, and these decline as, security XD industrial revenues grew for compared to was the as prior detectors cardiac imaging Offsetting modalities, and

into our year price payments sequentially revenues industrial increases markets. for the fourth by the quarter, to products revenues X% business China. importing direct decreased in in driven growth made in the and from concessions third prior increased U.S. the Tariff While impacted quarter, quarter in record fourth the CT, given revenues quarter through the China from customers and mammography our and our

near tariffs the revenues. our expect For continue we term, affect to to

expense. higher often are year partially duties fiscal shipped import for Chinese projected requested price have many revenues While XXXX. currently fiscal from expect our responsible customers $XX their in to from concessions year negate into for on million revenues China, way, million Said will the incremental our $XX a in offset good includes products enacted XXXX customers CT tariffs increased China our amount the on paying to tariffs. to another this, we Based tubes of of impact

efforts with of respect to about talk some me So, mitigation tariffs. let our

Office legislators Representative from to U.S. Trade seek an import our to of tariffs. talking been certain the exclusion States have and We the United

classification codes of import customs China petitioned imported our China. also that are products have We for to into to some clarify authorities – classify

Additionally, Varex our and to manufacturing in footprint to global other activities China leveraging parts of we’re a in facilities move process locations. the of

We expect to complete these activities over the months. next XX

Next, tube China. in I’d an on like expansion update our provide CT to

by development CT year We’re are In making are production expect now very customers and shipments of the than hospital CT China approval our our ramp-up some progress regulatory more XXXX. transitioning to OEMs from of a and and to double we and XXXX, them in systems fiscal of shipments OEM encouraged year fiscal in to installations. product of saw tubes

are CT high into end, being value and incorporated scanners. mid-tier Our tubes segments CT

the In see are excited above XXXX, to would shipments hospitals revenues. to to in the and Health we China base which of more end XX% long-term by recent installed year increase be continue noted base. the slice CT government over for XX systems. installed planned a be be growth Commission In of current approximately the China in installed our CT XX% XXXX, new of as of National fiscal that report, market, than significant a We about systems our the X,XXX prospects in China accounted

our markets. great overall of segment fiscal for a year niche at XXXX had Looking couple in we medical performance

demand led in tubes this in modality. revenues computer double-digit for aided to strong and software of growth First for all, detection X-ray mammography applications

revenues. we products Second, of to continue control connect growth expand portfolio and this delivered the in business double-digit and

prior detector having XD lines. overshadowed diagnostic our XXXX. segment sales. We Industrial dental after product the results by of revenues the and also XXXX detector double slowed from fourth year. quarter in a steady had had of challenging solid digits quarter record quarter X-ray imaging In increased This the in of revenue revenues first Dental imaging significantly was the performance from CT

testing and strong from reflected the its with that of the industrial was non-destructive market a recall sales this You major digital detectors applications. higher for detector in was position acquired benefit imaging business will

acquisition Virtual a the imaging of Media outlined CR, with our business the can in utilizing such fourth the provider financial software. and VMI detectors. industrial nuclear is DR looking purchased gas, oil Varex the applications digital We’re a potential in forward that, and industrial Starrview Clarence greater further on our VMI. we Verhoef solutions us as markets following and of X-ray used Starrview aerospace. market over call. its Integration, proprietary hand opportunities call in is NDT opportunities the to last space systems in we detail. [ph] let talk film to focus will to leadership new changes our This our digitizer additional With quarterly the specific give in industrial be CFO, performance me NDT To quarter, during the and NDT leading about to greater

Clarence Verhoef

expense that details while XXXX of line I’m found I’ll the be top fab strong variances were highlights than due guidance. significantly fiscal financials gross of year our with in more Thanks, good with Clara facility. everyone. we to expectations going and QX quarter the to were similar unfavorable manufacturing XXXX. and Santa These in the than by higher expected up The combined hello the margin The that year fiscal our exceeded FY offset tariffs our glass variances discussion difficulties press of can release. control. results anticipate follow challenges on QX focus performance and first were at the our

half direct importing roughly year. operations, our by our for the we the that Santa due end of half the was Tariffs to having our You QX, on to calendar U.S. shutdown are fab business. Chinese reduced impact the Clara quarter the and last direct is customers supply other and margin tariffs to $X track tariffs now price a which to related due In chain of products about gross with announced million in concessions payments China. the on will of recall due

impact to ahead look million. the range fiscal of to negative we As we currently to year two to due to expect incur gross of million including enacted concessions tariffs to about margin three $XX price points XXXX $XX in

compared quarter saw third ago, all-time which the oncology Sequentially, of quarter were X% down revenues increased and in had detector Medical from a sales quarter to good very strong X% a markets. the revenues segment. we dental Our high with performance for levels the fourth year

in XX% quarter, the adjusted the XX% was gross declines to year The reflects was compared ago. the The to recent margin quarter. gross changes a For to prior tariffs variances. margin manufacturing XX% detector gross our XX% the due in and year rate fourth compared margin

of year the to year expenses ago product $XX encountered the of expenses unfavorable gross margins the were million costs revenues lower million with to quarter acquisition depreciation to addition, year year of In the were we prior restructuring integration of that the and of $XX in with to the operations. and throughout quarter. restructuring current prior R&D integration included the million XX% quarter had ago. have or quarter. fab for quarter for a prior year. costs SG&A comparable Industrial In we in million than the $X the compared mix was year The $XX segment associated compared amortization fourth million totaled in quarter. million the the approximately due Fourth $XX $X Depreciation quarter $XX compared which quarter, million million $X glass fourth were accelerated

were for quarter million Our quarter operating the earnings the year ago. $X million, $XX a in down fourth same from

rate. in in restructuring the and quarter, Our margin a XX% margin reflecting a X% year rate gross was from operating quarter, fourth the ago lower and decline costs acquisition-related

$X fourth fourth $X million privately ago year other was due investments million to The in year. earnings operating in had Interest were million the fourth the to compared the prior $XX adjusted quarter operating XX% quarter. million from the results quarter, approximately in in $X $XX million to $X year. the year held to margin adjusted the prior in compared companies. the our the of We was For XX% in earnings expense compared quarter, primarily to prior compared million expense quarter in

$X.XX quarter year fourth earnings rate tax per than or for the effective $X.XX Our per share diluted million for in to $X prior less diluted $XX XX% in or million were was quarter share Net the XX% year quarter. the compared to prior the quarter. compared fourth

diluted million were million of net fiscal year. XXXX, $X.XX adjusted For were compared $XX share year quarter shares share $XX.X year. to the or versus million per per in outstanding shares or the prior fourth million Diluted diluted $XX $XX.X the $X.XX shares in earnings prior

the receivable $XXX $XX XX during the million our working days with year. We the compared outstanding million. at decreased and million. accounts Looking million Inventory of prior cash fourth ended XX quarter the in equivalents sales capital, to by fourth was Day quarter cash to in quarter. $XX days $XX increased

flow In of while of spent diluted We share summary, per meet million. for from had This $XX amount year, are our earnings balance our XXXX, is reducing our the fiscal million GAAP items. equipment and and provided well, operations or only. adjusted a full net on not our to of did for cash of expectations. share and an approximately debt net the adjusted diluted plant meaningful reconciling $X $XX forward-looking sheet million million. $XX for operating Guidance we year basis and due measure an accurate per for we unable items financial managed the fiscal property, compilation by is earnings For provide the guidance to but we for timing to unusual uncertainty acquisition margins

focused been structure, the goods cost Over well six of review expenses, past on return reprioritizing detailed and investment. cost we've portfolio reducing performing SG&A maximum as the months, for as our our a R&D on sold of

negotiated previously site. suppliers, are multiple about expediting As and process. our But on for plans glass planned closure positions, operations services R&D our of in-sourcing Clara We've key reduced digit and in from actions. detector London our cost outside a result we addition, we fab key of have certain double the several manufacturing reductions have spending management restructured significantly in taken Santa the talked

R&D less XX% compared than XXXX. are to year in of revenues We XXXX, in expense fiscal year fiscal be to targeting XX.X%

be revenues to XX% SG&A XX.X% fiscal expect than of impact to year less and compared in fiscal also XXXX, of related costs. We restructuring XXXX, year excluding in acquisition the expense

these to sold. to reducing sizable goods operating our in we addition also cost reductions make In gains of expect expense

from Some the glass the tariffs. closure be will those negative realized the of of these Unfortunately, from offset these the fab year. operations fully benefits, not of impact by such second be half until the as will gains

to XX%, to fiscal that the for margins fiscal an adjusted includes margin in is X% year XXXX expectations XX.X% compares X% adjusted range This be to of XXXX. of Our year headwinds. tariff which of XX% gross gross will in

effective the We expense be and rate to XX% expect XX%. million to million to interest be $XX $XX to tax

To currently $XXX assume XXXX, million earnings not $X.XX are to year diluted place. of per range this to expect fiscal $X.XX. guidance any the and net be we the expect be in range that and to the changes in For $XXX share we be includes currency in of estimated adjusted clear, of to impact rates exchange million in tariffs only revenues does

year fiscal year of the is similar first for quarter. outlook Our the be XXXX to that quarter revenues will ago

hand Sunny me comments. some closing Let over for to back it

Sunny Sanyal

you, Thank Clarence.

term like outline I'd Varex. Q&A, some into a to few minutes for get longer to take we Before thoughts

tubes components to beyond for healthy will Industrial in Looking segment, Medical trade We the and about Medical demand, situation high-performance see China, our imaging also both for position tariff to and the areas continue us technologies imaging. large to driving in years. believe for see surgery these of We and and the with In leading not and market our have us both our areas result investments innovator feel products and and new allow more continue the X-ray and conversion with ourselves our field XD a develop well XD can in these widening three curve ahead our war competitors. gap dental believe our that next we of will of be current we advanced R&D the segments. is detectors digital new lead to are to the secure and positioned over markets X-ray in Mammography, will between growth. to advanced only imaging strong bring but continued the end-user and that as that applications enable new

addition global and relationships local R&D developing OEMs. of to in position components very product the emerging strong our with engineered their OEMs with We're to support into our China local to components customers, our systems. is market strategy CT our In with having roadmaps pleased build OEM

delays our them in we're regulatory development China. with of prospects or approvals, of typical While confident some still may experience product

As China's over the of which the our in installation scanners National thousand announced China. Commission of earlier, in of the CT with CTs is next planned two mentioned Health years, several line expectations adoption

trajectory believe point they Chinese in another and well positioned growth support that business tube China. data of expectations win, of our to CT local customers Our this are OEM to adds

and adopt anticipate India relatively companies has Government imaging of unpacked. from the platform processing XXXX, thousands that accelerators expand digital year security driver with linear industrial In smaller of energy security and line packaging early relationships develop plans but modernize We footprint, non-destructive future, protect China lighter is services. use is space We're come In growing. only automatically as inspected, scanners. and markets inspection seeing components to scanners. emerging applications. miles to applications has linear imaging and to the sweeping are objects In we increasingly the CT in not of detect these to access and driving we and developing major in to making to digitally beginning given also and where will to imaging of near for fiscal suitable be X-rays. for adjust initiating of introduced airports, several more enabling in healthcare. elements. to imaging imaging Similarly technology being be the imaging well The through to follow the quicker XD checked performance as a in with increasingly food – accelerators efficient of Beyond in a working In testing and China, gas, sector, cargo for undesirable digital small, high tens new similar our similar where as unwanted manufacturing path that business verticals CT These India these a in such items mobile we're Brazil, being is in go stages healthcare much pipelines our speed Increased its strong detectors oil objects inspection and indications to scanners to airports opportunities we practical. the used India can and X-ray smart can contaminants are hand-carry are in need of identify based CT baggage with in that much where of exposed that but are we there manufacturers. screening,

our facilities the war plans more us, us China headwinds other to accelerate resulting situation for and with caused recent the the front, On and while manufacturing has world. in trade drive and are locations creating at consolidation the existing operational tariffs around local this China to operational our for

effectiveness. prepared We XXXX two local introduced China imaging and updated and we be meet global new applications year has to report approximately support industrial to cost fully weeks characteristics and plans. that and to fiscal products our improved platform in new Conference, their be medical Chinese for detector showing couple I'm In XXXX. technology pleased expect RSNA of a customers this that X-ray dozen year's to OEM performance we at will a digital

with parts OEMs are will build front, the investing systems speed, effectiveness. fewer innovation cost enable in to that we enhance rotating we moving tubes On lighter and believe X-ray performance and that will

has to expertise Our imaging the digital cost-effective we at and us team open of components. most imaging working smart with time, position that this acquired, the we'd and technology meta unique continuously redefine for our the the questions. now at detection and forefront to as capabilities in your know-how innovation is innovative like imaging competitively applications [ph] up in the tubes We're software our X-ray expect and to R&D aided of business in detectors our enable and computer AI its and engineering keep landscape expand company. components to and teams call and ahead use closely X-ray With

Operator

Thank you. proceed Please Petrone question. is Our [Operator your Instructions] question from with first Jefferies. Anthony with

Anthony Petrone

the afternoon. for the line slightly the wide down with within are ranges up to X%-ish line to good The top guidance up and here, impacts the year ranges on just and bottom implied start Thanks, XX%. sort of Maybe similarly and then there. X.X% down to

sort those a have forecasts, of to needs and hit line the of sort break end top top in to, company’s or I’ll then follow-ups? of those favor couple So order in-range of in forecasts Thank you.\ top particular ranges on of in the what

Clarence Verhoef

Hey, Anthony.

guess I of bit I little a kind of – walk mean, So a I did through.

first your broadness kind of guess the about the kind of on touch part for The first address of is that of and I first the question I of drivers high little range I’ll question, think, then the of maybe kind end it. and the

thing because where going the amount The I uncertainty the up. is this there’s tariffs end biggest a still say where of would of about to first is driver fair already, just that’s

Okay.

as with bit rates made themselves we in place and much products you’re some what that how to still that number But little tariff – is. that much a mix assumptions from So of how customers current of the at the mercy that the are is we’re the product still of in change. terms will current

So we year. this a into are – little regulatory activities side of the of where their it’s and other different see terms is whether are in with in it terms of the it’s usual you what’s in the relative amount And and terms introduction us they lot it’s where does number mean about are on the be on is of hear going next cycle increase the we just this market OEMs going a talk with – that. – different ship of the or that tubes volumes of in variation that in see this expectations of there. there it to in for to We will do the bit of CT sizable the that than Then timing hear the going China ramp a up China. the about lot we

the the so think of other broadening factor probably goes range. the into And that’s that I biggest

Anthony Petrone

helpful. Maybe comments ups particular. follow in the on just would the be tariffs Very just

And schedule one to to tariffs just which of million? on $XX last Thank tariffs, tariffs parts step the into or would I’ll guidance. lot to million moving broad then there U.S. retaliatory baked tariffs, And that include this on be, is China was have is multinationals? particular then one exclusively $XX you. follow-up So of review, earnings a is more related the further OEM

Sunny Sanyal

Hey, this is Yes. Anthony, Sunny.

ask specifics Let in the fill then me get on I’ll numbers. it started and to Clarence to more

codes, impact impact each first recall – the that to – the waves way. that first wave additional First codes any subsequent us you And of then if introduced tariff didn’t us. significant were the introduced in of all were the then in tariffs

products side, products China. that the were So imposed Correspondingly place, our put were buying this the that sales is – on and China the tariffs. parts U.S. in tariffs of retaliatory on imported then then from into China, were our that then tariffs exposed which to there impacted those

in impacts tariffs So three ways. us

very When us from parts, current well. foremost, pieces buy accurately it’s quantify tier can our volumes. directly fairly based or year’s on that our and buying side. we China, suppliers the numbers those First on second know materials, them We whether we

that products is, our we directly second Chinese to ship customers. The

uncertainty good on with single those. on forecast We fairly have handle we’re one within one-on-one those and that numbers understand And also range negotiating volumes We is the of the guidance. of and our every difference on of it’s and done say, so we’ve to in those say can customers sort of splitting the But within zone bracket there you I’d right. of say that. I’d terms the the it upside-downside

third hasn’t bigger with any The been of brings are is extend that to products we we those quantified not this but is come say. that less start so – that And ship impacted into China by some the want to about is we’re that uncertainty, to sharing them, hypothetical extent yet, that they bring costs not be those customers enough to to of they really negotiate broad – well other being know will those they’ll and on and defined to us which – us part if I to our probably and cautious which tariffs.

ways that’s us. So the three are impacting tariffs in

Anthony Petrone

Helpful. Great. yes. – And just then

Clarence Verhoef

tariffs in about just of Anthony, talking take And of other the have middle quarter clarification line. half not till we an margin really half tariffs subject and more was in impact the quarter, second fourth the points maybe didn’t the activity uptick. with of gross volume that changes did of of of we then quarter two on first just the on had the three last with so effect to went see of some and the to an quarter that the one round because we’re

we a but going roughly equally overall, million you run price normal a fees volume between paid, get as activity. anticipate terms that saw being we split that in and of impact do about of forward, concessions higher we So $X rate

Anthony Petrone

Great. year is one general is back cutting of just much related and But how in this part cost queue? for of of containment just hop terms its And I baked the then efforts efforts. and Thanks. to Santa middle in Clara. in I’ll of last is cost know the out Clara Santa

Clarence Verhoef

Yeah, I guess multiple I’d in it right. ways, define

the the closing So parts the in heavily particular the that’s to of is activity line margin weighted impact that Santa gross operations. going the on with fab Clara

second chain And get. quarter so that is of that side a until side and of there the to line. suppliers other and margin sizable going reduction get supply to the with we’ve doesn’t there’s $X impact gross then on out done the the get cost million Most basis negotiations a then the kick annual – has million that run of somewhere also to favorable an least at that the that $X we’re range we in on rate

revenue, our some have mean, and happened. cost reducing is at In leverage. number that’s where actions as percentage about reducing not not changing is R&D SG&A the addition looked – to that of not much, that is top we’ve a that through of because went I obviously, about and this that’s line This reduction expenses I actual

already. path that down well we’re so, And

so X.XX And percentage driven those each to reduction point point changes actions. of by reductions cost in categories those X.X those is

Anthony Petrone

again. Thanks

Clarence Verhoef

Sure.

Operator

with Please your with Solow Larry CJS from is proceed question Securities. next Our question.

Larry Solow

you. thank Great,

follow-up some. Just a couple of

of based the tariff saying that just specifically, – $XX that million impact sort to – is if do a sounds it total $XX estimate? X%, it’s side, So million. your impact, the we on to math, on like, Is guess the you’re and I revenue million on about but $XX so the the fair on X% margin

Clarence Verhoef

you points mean, range, get think but, kind yes, million, that high into Yes, math, not the of quite I revenue Larry, you maybe as to do and around $XX as in I the three that range. can you’re just two

Larry Solow

in like sort QX on buying split it price So assuming – did it essentially, then between – almost almost you it’s impact stuff was the evenly of concessions. and your you’re for materials

expect your you the sort year uncertainty, point, the ago, Could coming we – tweaking that if Is flat we that. only growth X% of growing into would this of year, tariff layer guidance? your we just more that said impact, remove up into which third you’re sort guidance? to than of the does Now sales how overall would sort a probably

Clarence Verhoef

can Let go I for just a back [indiscernible]. to me – second

Larry Solow

sorry. ahead. I go Please am Yes,

Clarence Verhoef

Because the split, it’s is whether based lot price or the that we whether how concession expense done. on a is it’s transaction incur

we or then we’re are certain we’re we the parts importing as are China, such paying into when paying So if of we’re importer products record the that China, when directly are at buying items those directly. from then

those it that’s customers lot we of the but because themselves and terms price importer While of side, or side us much a the customer that in by how much record and with weighting concessions end are are in of times, our why the split up absorbing is a higher volatility to revenue more the customer or also themselves. of is negotiated between paying there how they’re

here that a of we kind as And in we finished guess of had $XXX in high I our of number at the just had key year if terms QX I So we our I our in and amount think strong very as million well. not was process. at back the, that. bit fair expectation just a happens of numbers as quarterly a maybe variation you mean the distinction variability that’s in little a that then kind look this is,

inherently. just of in kind happens business that got our we’ve So variation

that So, I accounted want for the when have to levels. sure that we make we’re guidance talking about

Larry Solow

not on this that the the of to especially so year guess impact realize flat the and that that the from of but million. for I – guidance your we But I if last think – to told this impacted would sort a was which million Okay. is growth down which again sort then year, I sort that we surface, in follow-up to off may of I of just that by exact sort would then And an just year science, disappointed, year would – than of think on X%, growth side $XX or you’re plus be the be a greater if be the take at was sales Japan. beginning $XX tariffs that your you simply to flat me guiding revenue – partially it’s organic be coming of timing

into So can that? me more give – taking you of sort little color account a those factors those all on what,

Sunny Sanyal

progress Chinese The by our though Hey, for of the line Larry, – that caution customers, that layer we we’re on is even a us in is top this layering Sunny. see thing. made just and cautiousness in progress continued on putting good

– there’s approvals. and always projects sometimes delay FDA be just possible some for Let’s R&D

We’re just here. cautious a stance taking

Larry Solow

that’s on I think fair did But like is important. it on want don’t said than you you to back side, QX Okay, going QX, actually really sounds obviously better more the forward – somewhat look you thought. enough. you I because medical

that You – but and said upper thought CT that something, X% are I on the you thought. little the certainly industrial, in you some bit that – down up of you flipside you And sequentially was of maybe than to – percentage were of numbers, on was mentioned that [ph]. were said came small more although but XX%, flat timing that or we were basis Was then Japan – going you somewhat the think you you around back? a that was sort than a

Clarence Verhoef

million had for variety as a that around would I did of are markets up, that well. are mean we as QX. I much say up $XX we mean, actually I fair. we That’s

So and not in that’s CT. it was insignificant

business it. – and a if our good that’s about part think big So of you

an upticks in to had on year little of a times spaces good bit well year good think that couple different we the performance CT CT. niche A quarter-to-quarter, but has all, or oncology as for as And veterinary area the variation us. continued as performance so other comparison that’s from was good had see a just good QX for couple and CT. some a markets We touched I all such that performed to in of in Mammography, QX well.

little that’s cargo I some not the side light on of yes, on shipments side. I at right say medical I across the kind the Industrial – of anything mean the I a would bit it little a – than of all. So was And, mean results bit board mean pretty just side. it’s you’re more good the around timing yeah, on was a

Larry Solow

Okay. sort I But guide, know has has base in digits don’t you segment. mid XXXX? growing expect break that don’t you been Industrial single by out you do organic of been

Clarence Verhoef

of very without mean, small the faster medical it still it’s the those Yeah, I I grow numbers, non-destructive that perspective. lot than probably from the, getting of of is the space. a going as easier that think somewhat a do side. to some just on security industrial well of because specific, as there’s to stuff law industrial But space applications. little are think mean of of talked testing through I the things kinds of good on Sunny around kind going I in specifically going

Larry Solow

right? industrial for piece the impact I then you And on guys, less the minimal or on tariffs much is imagine

Clarence Verhoef

minimize wouldn’t I it Well, totally.

Larry Solow

not At maybe side. perhaps least the on on the revenue cost side,

Clarence Verhoef

– do have sell still into China. detectors we that go Yes, we

– And have But charged terms in get where of those so alternative we as tariffs they come that’s well. sources on from. they

ship a of but U.S. not those Europe. of So lot out ship may of out rather the

fair helped what’s So a us that’s amount.

Larry Solow

So you competitive competitor do have they really least. selling as to I Being there least selling in you? at find OEMs base they a other not being think at one all? China And that’s or China, it’s European are impacted only disadvantage much not yourselves you that that’s for there is guys the primary at into

Clarence Verhoef

that’s in the competitors that is U.S. are of tariffs not our have think based. I we general that one with worries is,

some the if we’re those are kind of a the we fair can where a amount the of and manufacturing of And or some if probably operations, okay, even those, where path. latter heading say, our we for so we some and we at should of doing global the our parts done final it’s in test that avoid different of be look location of the and that’s footprint tariffs assembly steps down

Larry Solow

you you’re So opt that of facilities. you – and going out mentioned

enable a bit a of doing you little if does of if in will? the sort that that’s of them So avoid you that to not the cheating bit you say Chinese – does are that little lot or government final think – do you actually that maybe that’s tariffs sort assembly only

Clarence Verhoef

We’re not anybody. we’re out not to, going to cheat

Larry Solow

saying getting But that just fly. maybe of maybe you get Right. loop what won’t sort that I’m maybe know wrong hole, that around That’s the won’t then words. then –

Clarence Verhoef

tariff different are There rates for harmonization different codes. product

Okay.

a we’re So depends part the as at what that if take very from, from Then so is compared no look we’ll definitely and it’s is advantage that of the shipping small so doubt. is product what to where that tariff so import in classification the that. are at Germany, or to on tariff obviously and is a is understand U.S. and tariff there addition, what product determines it that from No there is and the shipping sourced what all, importing we rate that is, a

Larry Solow

I’m Right, okay. ahead, sorry. Go

Sunny Sanyal

what in in there different that what in the to how to order China get – and thing. presence in do are and our saying, manufactured around right label countries, leverage and can Larry, rules we’re No, take in presence Germany to have you that’s specific XYZ-country to we leverage do our tracking with

Larry Solow

And okay. last question. Right, then just

think, I came I pluses your other and I think it’s rocky a some obviously think investors, on is since and this and little minuses. some IPO, some I bit you’ve been think year myself, had

expenses revenue, I that thought. do forward, been we control so – you’re bit the but item and a the just too more you that feel the SG&A I on to it’s it’s on you’ve concern one or been has your you but upsets and really little haven’t going you higher line because more it people And some done absolute that think have that’s talked where little a think I of able of better that I of a had out sort a had hopefully side little we of have been like been get that would Do on about is lower on that. visibility think lot seem percent you is one think realize is control of sort bottoms-up people frustrating feel some they and basis just a of than a the like you guidance much. does control, it case? P&L

Clarence Verhoef

to I terms mean in that going to feel and right I taking of we see impact the like actually in reduce done the things actions you’re some FYXXXX. those have expenses of

Larry Solow

Okay, great. Thanks guys. Appreciate it.

Operator

Our next question is question. Oppenheimer from with your Co. proceed with John Please & Koller

John Koller

Good afternoon, you gentlemen. doing? How are

Sunny Sanyal

John. Hi Good.

Clarence Verhoef

Hi, John.

John Koller

Hi. it, XXXX? quick year for may CapEx question, A have did fiscal I a give number you missed

Clarence Verhoef

$XX I million. was did, think I it

John Koller

million. $XX

Okay, great.

Clarence Verhoef

Yes.

John Koller

at bulk I and where the you’re If in curious generate you at to generate cash if that I’m comment the going. see of that. million for in or Thanks look what flow, I you $XX flow going to look expect cash cash on would

cash? maybe If you’re or that use repayment for another looking debt of

Sunny Sanyal

fundamentally by would million of starts actually reduced we our well. so – I did was for cash little I we FY the it and of that a balances and trapped That’s of it mean cash some default as had offshore was we got, bit. to us that that in repayment. and the XXXX, we say debt job we a with $XX reduced good some

kinds that the in lot a aren’t That to revenue so a we – quarter, that on $X so kind So say much were are acquisitions one the a we our radar. able and million VMI of times got acquisitions. kinds this and good to of you there that in that’s acquisition where is And value We still once we a small, the to of pretty last did are those of of those market that debt. isn’t access things reduce number. acquisition technology – the back before they U.S., to know had of haven’t tuck-ins about

John Koller

does manufacturing? have take non-U.S. And you account CapEx into great. to the any augment budget that Okay, plans might

Sunny Sanyal

expansion our rate basically locations. certain a it’s certain so not of amounts current it’s large It Yes, Certainly. we huge. taken of isn’t out It’s plan something run have in incremental. that And CapEx. of in our

John Koller

I Okay. specifically I relates as guess tariffs. added. mean, to I it should have

Clarence Verhoef

– our Well, where that I a we of yeah, to we’ve and global there we’re want to what want we so executing to, plan plan. mean, I is where doing – terms in be got mean things if is and footprint

Some locations. some of that in is expansion

activities happening want We have in the there more doing and needs example. is we at do. time what we’re footprint have to China. few equipment at to a in we that the there We Philippines, need And a same sizable for look

actually factory want we there, finish think it I enough to or equipment. but space out filling we some space physical have with

John Koller

you as provide are still if these far R&D, on regarding if we’re a line? projects the – really boost Okay. can And as, to revenue see goes quick could, timeline I loaded or then you’re is mostly you that additional whether qualifications, any before Thanks. longer-term working front-end

Sunny Sanyal

various Well, a in always are that have under projects way guess, stages, we I series okay. of

stages all So, of that stages release different with cycle. in that coming and come products kind market they they’re at out to different are of

that that uptick start CT I see yes, So certainly example. other that an come products the from refresh mean that like cycle the or It that portfolio a so Chinese new their a existing of customer for as for that through market OEMs. always much to our necessarily lot or the now all that customer going are is a we’re their in seeing coming revenues cycles of we specifically including existing now There other are to imaging and in are isn’t base. have activities either like an of longer expanding products products, customer, that support their systems. it all That’s projects about of as

John Koller

Great, thanks.

Sunny Sanyal

All you, right. John. See

Operator

next Our Petrone from Instructions] Please Anthony Jefferies. [Operator question is proceed. with

Anthony Petrone

on Just China a sits where order update follow-up quick fiscal the on OEM XXXX. heading the books into

around had our notes on total book think was something that XXX. I last we order

of XXXX. had a portion into slipped think I it

to totality on the update in of XXXX? book realize order you an the expect and just what maybe So

Clarence Verhoef

we of that we had submissions towards did had, there were said what we our to expecting needs limited talked do because the that is we’re testing year go when that would there we most year, in of expect and customer said volume So XXXX. book, of are in we back-end next think what five of the in And – regulatory going we loaded saw uptick I good saw volumes shipments. and order then FDA, contracts tube those their some QX that was would we double going supporting be orders, we and a and about anticipating bookings prototyping, into as pickup I first

a question still answer the continues be to to loaded. few moved delays, your the business is still but because say back-end – I’d directly it right that has So of that it to

best third. or were is So be third much estimate or – said, third a of our not into XXXX more like it one-third, smaller it’s had will we baked than a the what like

Anthony Petrone

helpful. That’s Okay.

Operator

to the Howard reached call like session. to closing have for I Goldman of We question-and-answer end back the our turn would remarks.

Howard Goldman

will conference code Thank calling can from at or fourth X-XXX-XXX-XXXX and through be is today and replay this XXXX-XXX-XXXX the or XX A from call by you replay for website from available anywhere and of the Company’s fiscal a and your for quarterly has November participating call year quarter be locations. earnings XXXX. our questions Thank access goodbye. U.S., which accessed non-U.S. XXXXXXXX. in the you in The

Operator

today’s Thank you. conference. This concludes

your participation. disconnect You at your lines may and thank time for you this

Varex Imaging (VREX) 13 Nov 182018 Q4 Earnings call transcript