VREX - Earnings call transcript Q2 2019 | Varex Imaging Corporation

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Operator

Greetings, and welcome to Varex Imaging Corporation Second Quarter Fiscal Year 2019 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 your host, Mr. Investor of Director Goldman, Relations. Howard Thank you, Mr. Goldman.

now may begin. You

Howard Goldman

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

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

Sunny Sanyal

you, welcome. saw Howard. we pleased afternoon, as track performance of to for mid-year on the Good I'm and year. the that everyone mark, us that keeps report Thank

detectors, sales as million, offset $XXX for industrial revenues versus gains dental, revenues second non-OEM low-end QX by were driven in applications. markets strong stimulate new healthy of demand continued oncology, the tubes Higher a and for markets quarter, in for interest Medical CT CT product technology radiographic entry segment certain and in the markets. aftermarket We well to level and adoption sales platforms For in are and seeing end components, demand new space, In in X-ray tends declined by had be to by we increased prior mammography continue led year. the of strong tubes. medical and products as lower of imaging the our were X-ray strong use XD mammography, mammography medical growing introduction modalities.

photon stage new acquisitions Direct counting acquisition our to completed which our we as that Conversion, the technology, evaluate For of invest partnerships continue bring in will just portfolio. early part, to establish to added as well products R&D We technology. advance and

Varex next develop Several of generation are upgrade accelerators X-ray We segment technologies. are also to tubes due ways airport X-ray cycle many recently using OEMs higher innovative as increased that around in of to current screen per CT using allow for requirements. this includes they primarily the and pieces X-ray space joint nanotube to at systems airports productivity airports baggage and These an and customers, X,XXX security, year, as airport to future world technology. meet in new revenues and the security are sales prior in Industrial luggage sources testing Check established tubes applications. screening to hour. are our innovations linear and intended from a venture non-destructive

superior with we these In security second updated third throughput. mobile efforts controls, for electronics applications. designed begin Shipments with accelerator the faster systems small these Our software footprint components the image quarter. in linear quality quarter, will of and enable a released and

to and image quality being faster new addition this lighter, features and improve In allow includes also technology that smaller product can scans.

ports We laboratories working protect and borders for sales quarter, In will to mobile manufacturing plants. also beyond used our globally. expanded and cities in key our to we saw be increased of in with inspection venues of scanners the tubes applications customers X-ray find

analysis Our for requirements. levels used and instruments, chemical certifying as components incorporated are of into composition to quality regulatory which such perform material meet those

detectors. We high continue see industrial to demand also energy for digital

rocket ammunition such detectors and imaging area and large for automotive used objects as components. parts, are engine aircraft caliber Our large sizable

supply objects with last oil used we transition doing electronic of X-ray software VMI's demand to have are proprietary film We're refinery well. digital. acquisition, continue and detectors as we our for China to completed and minutes. the detectors few digital the are by we and impact digital grow mitigating chain products from and details actively In energy late tariffs, see a impact small in continue been received to us, imaging in the manufacturing inspection. to our cetera. gas software have to we from our pipeline expand. going participating manufacturing during combining will countries. specific these industry the applications Toward types to of and the is tariffs inspect in VMI welds, expect imaging away et Meanwhile, redirect of other year detectors in detectors components to and which Integration midsize and of customers Our castings, well digital portable Clarence for of so, Both financial continue high joints, image

will at if completed to certain our scale this closer the will that We next We're manufacturing over customers. of expect in of Wuxi for China. benefit in to to facility have couple China manufacture additional trade of our operations resolved, the current sale these shift being continuing our is strategy detectors in with up been war long-term Even products much actions and of Germany our quarters. digital also expanding our

will Medical industry's one Fair in Varex largest China the exhibiting week, in be at region. shows Next Shanghai, trade Equipment Asia-Pacific of the our

technology in imaging facility in addition service we local-for-local our be the tubes. our local showcasing initiative. detectors and to In products, our highlight X-ray new to Among customers other China things, Wuxi launching digital will latest investment will also of certain production this X-ray with initiative and

volumes to to One more support, last suppliers local. CT year. our shift ship time, to pace more remained possible. mix we ramp we we possible the CT and the on a so, as year priced strategies and Shipments of doing relationships, tubes quarter our local much get local local sourcing towards close the At want in globally same In not as service CT during China basic our is delivering commercial fiscal this and up, to be from as customers as by shipped seeing to lower tubes twice than XX-slice in number as continued OEM establishing we're for the of customers units systems. of

new CT of As a reminder, XX,XXX China of government's systems as approximately need XX over is years, healthcare next the estimated to services. expansion part

integrating and expanding because dose April. the About we a Photon technologies. successfully the precised detectors of imaging industry and Direct about using existing continue photon charge these China built of detectors. at ago, technology of portfolio CT counting exciting up Sweden, years, is should including discrimination. time. had past at opportunity this and tubes technology out array and digital the years counting this near and details that in its medical several of like two XXXX, Direct installed commercialized of will In They X-ray that over to The two EURXX regarding technical As counting revenue to This work while industrial perform will technology cycle and stream certain and utilizing replacement with million. challenges. sizable which digital with estimate initially is applications, can to for lower also Stockholm, was an to medical more manufacturer I'd We improve applications. between starting for detectors annual CT technologies the linear cutting evenly replacement with will medical leading image backlog. is on faced be some plays Direct ramp acquisition, two $XXX a significantly industrial tubes comes close three linear revenues applying CT million approximately Headquartered acquisition split all additional working photon Direct this Conversion the several been quality begin, market next array on challenges end decades and additional in the edge completed solved for material products. has detectors our

let our that, over We the vertical will new technology by over financial million for anticipate CFO, photon in also markets hand of customers. market addressable new detail. $XXX greater industrial applications the counting range us, wide the acquisition me to performance that Additionally, coming talk are for years. Verhoef our With Clarence approximately medical expand and Direct's about add our to call this

Clarence Verhoef

Thanks, Sunny, everyone. and hello,

in quarterly a also with tariffs. financials Conversion the our revenues lower particularly the be the some Medical while fiscal the I of discussion that year. would usual, by top-line is sales some good our As for summarize quality to offsets control segment addition details on on QX due with profit costs. found to was in good our results, line had impacted expectations focus our higher I'll year-to-date release. in expense press Industrial going the be to to quarter acquisition while Operating performance, segment, we outlook in as I'm Direct continued fiscal full provide the can

of Sunny chain the million continued our China related and business tariffs $X supply China. less related for in million detectors, radiographic with hurt $X As payments and Direct about mentioned, about US from tariffs revenue to

Medical by tubes ago. accelerators aftermarket down lower driven the quarter as sales X-ray tubes year decreased in security and quarter radiographic China. digital segment were compared linear X-ray X%, the revenues were up non-destructive and due dental segment revenues revenues quarter for well Industrial testing applications. second XX%, increased demand a to detectors for and primarily second Our of the as for to detectors, airport for X%

prior year. prior XX% our was to plus in to margin XX% the in quarter, expenses XX% higher gross cost-to-quality, million margin costs. our freight margin or to compared the was primarily The gross was tariff adjusted second the sector compared increased quarter less For The than the reduction in XX% in XX% the $XX to revenues due or business, XX% compared and R&D million $XX were quarter. year. year-ago in of

quarter to comparable year SG&A and the were $XX million prior Second expenses quarter.

had we and the quarter had litigation prior costs, acquisition while expenses However, million second of year million second the of Depreciation $XX $X asset restructuring amortization related in Direct additional expenses of to other acquisition million $X and in we in and approximately related the compared additional quarter, for $X and impairment, approximately to quarter. the activities. prior year and the million quarter, for restructuring totaled

down the for the second year million, million from ago. earnings operating quarter quarter a second $XX were $XX of Our in

X% operating decline year a rate margin the in second the X% from was quarter. in quarter, Our ago

quarter, was the margin operating had In were privately adjusted adjustments. adjusted our we $XX second in currency operating in compared in quarter. from million due to expanse The held was year-over-year. the million million XX%, swing year. the For quarter the earnings unfavorable in and investments $X of an to had ago year $X was to in Interest companies million, million year. quarter which the expense We similar the an other the results expense, as second the same earnings $X prior $XX second prior

fabrication of this Within item glass million. several that in early-stage However, technologies. had well joint in other in the are facility, represent quarter, ventures the investments a prior [indiscernible] $X as benefit as such year ventures investments we as results joint line from the

in $XX $X.XX per Adjusted before net were the discrete shares the diluted shares for compared prior as quarter. in $XX the shares were second for compared earnings diluted $X.XX outstanding was prior XX.X to quarter were same $X.XX million diluted the prior diluted share in the XX.X to or million per share million Our effective for $X year Net rate per the versus $X.XX year. million or quarter. year million prior earnings share XX%, million quarter Diluted quarter share the or or in per quarter. tax items year $XX

in receivable sales year at quarter. $X quarter, outstanding decreased million days the prior to Looking compared was the Day our working capital, $X the $XX and cash year. quarter the We in million XX quarter accounts projected to increased and XX $XXX primarily inventory cash by million. of million, for during days equivalents second second the half with second to due of ended the demand

quarter, the spent while million. plant of $XX $X operations property from for $XX had and we by For and cash flow million reducing equipment, million approximately debt

this the our the closed of debt Direct's paid of million, financial of of net utilized debt Five context, quarter. the of the on hand closing included us by million we less position the past $X results of of free year Subsequent are by will debt $XX total million over of year. acquisition. the the so To and Conversion. time was debt cash net Our be assume the debt. this reinvesting Direct last and had or the at increased revolving million We end equivalent reduced $XX We of in at we cash months give for quarters, end million. cash quarter, $XX to acquisition we some four fiscal million $X $XXX

per We expense. to revenue, adjusted our share approximately million but expect $X their earnings R&D to impact this of due level, gross and interest $X level to margins will added above million net spending of no with current the add

range As we now the in the a revenues for year. $XXX be to million result, expect million to of $XXX fiscal

adjusted margins of around SG&A our in unusual We be continue expense items. and less revenues, XX% excluding to than be XX%, revenues, that the that range be will believe XX% gross will will expense to of of R&D XX%

to expectations the in range We net of are maintaining $X.XX. our that earnings per will $X.XX adjusted be diluted share

We for will call questions. the now your open up

Operator

comes you. At time, we [Operator question-and-answer of Please Instructions] will the of proceed this session. your question. line from question with first Thank conducting be the Anthony Petrone Jefferies. Our

Anthony Petrone

there, of Thanks. for parts on on of the a just moving Maybe couple and questions some they topics just day guidance, start tariffs to the then stand. of as the

the a base -- of quarters of Just medical on get we could here -- guidance, business, maybe we've seen a sense better couple one, impacts.

the the a bit. the adding line, by overall in goes Direct And at so up you're Conversion transaction revenue

base color You've is a just a seen have ups. couple quarters then guidance two what's of in impacts And going I'll detector in the plates in reflected of medical, so maybe business that little the on follow in bit on medical change. of

Clarence Verhoef

down guess at the Sure. year, of I by medical out the Anthony, X%. when I I look half started first saying, think is I'd business the

for that it's we to first the less in of the to to quarter growth roughly at additional forward. probably the overall that was do quarter, will did range got account So say, -- okay, went bit that fact think the to that, into million we by got and the range. the we had a about little we then up in adding range in considering still $X the the it's still range where the medical -- $XXX look it but let's The million this going excluding the take some space. in a I what impact in Direct that's And bumping of way a be the million first increase tariffs in quarters, the impact the overall $XXX than in of -- that for two

Anthony Petrone

should rate a quarterly that estimated notice about think run further is impact is it? to assume kind way we in $X or the million another that until of said way, fair the So

Clarence Verhoef

that Well, I would say it's impact. an

up about Sunny we're to So facility in facility ramping a actually production little and talked the you Wuxi our in in know, this. mitigate a bit German process our of as way

have radiographic we back that that, then once that with able so go And start homestretch detector market place, to space. product to to the of so on the we be we're in in

of feels it's mitigate we that by quarter to give manufactured usual It as and products start able a us not to that like actually kind are So we'll then forever not to subject be thing. business -- tariffs. another having

Anthony Petrone

update to on into an half, just an then And the on just me my right. for one just just for -- having All Clara update question, still there. final of there. the last would the guidance mean just And target benefit short then midyear facility, that is net maybe of a be Santa that I'll I P&L, sides back to level on on both hard stance tariffs. kind how from on business. put reflect if but a could I of get any it's on based developments, any thoughts on thoughts out real early more sort more is there high do there recent we the play mean that I'll just say, hawkish time, the

Clarence Verhoef

All right.

set aside a first. Let's one Santa just second the and let me the one Clara tariffs answer for

Anthony Petrone

Yes.

Clarence Verhoef

of we say the us second of in closed do I benefit half I some the operations fab expect process yes, is and that would where And closure year. the the the did behind out.

has One closure the fab would I a we of quality of carryover the mention heard that not quarter. as from little inventory have well had the the still we higher because had challenges guess. little bit you bit costs a some That's performed we in liked, of second me there quite some that as

but to on, I'd little at of a looking say does product into say got parts our to always relative The that we I play that's manufacturing like the of gross amount -- a around that quarter, in fair mix going in right, kind feel whether that's QX mix, continue would you've a wildcard so Those you're when gross price is that which in performance challenge, the And behind a then come overall was margins actually factory. us. margin performance. parts moving good bit reasonably have and product erosion, moving

with I'm the why at XX%. comfortable that's staying So XX% to

a though fab Although get Clara bit operations. -- little Santa of closure even an the from I of the upside

add to want to the I well, follow Now, tariffs? relative maybe on the some tariffs, you -- up to before go

Anthony Petrone

very That helpful. No. was Thanks.

Clarence Verhoef

right. All

well. we've which Sunny be the and take this local of trade customers, a little problems. maybe to more with helps along of like is But part dealing us probably and let all general all challenges So that, kinds global as my war generated first I'll had more actually strategy of -- for answer in

we or as expand Philippines of so are operations mitigate that And our to in continue ways some the in that. those China in European or we locations,

And so We're shipped that's Detectors detectors. are tariff good put a with into US directly China. already -- from we path right has dealing them there. very see if now the a forward they with XX% on

say And is transition because revenues there. challenge we if not is case is think that's exposure scenario, saw deal accordingly add? our the bit worst quicker as transition goes we've Sunny, we see how you currently. do case reduction worst the I the that tubes in a there. anything with some scenario in high The so if to to as tariff I that subject it's got it's rate But X% scenario. a different a not of And tariffs only future X-ray that's up. that manufacturing, to little so we opportunities that, there

Sunny Sanyal

Yes.

which then an last mitigate the tubes tubes. it We're touches X-ray so into our to impact the actions OEM to like X-ray some part delay what hit figure three cycle directly, our don't going to And expect I'll those go products the any do to if tariffs out, those some be overnight. their to speculative. of between with OEMs. the not how we margin anywhere on with it's tariffs. what action chance see waiting. a at are year, try they're back at out them of wait And as for which -- OEMs some through years, be three the business. much decline, we sale -- will of time for two there's tariffs point, China's our is we extent People get the is our on Being customers. know of kind them did tubes arrangement it -- work buying But and to overall We some OEM I One we is X-ray what into will decisions will two in the Then years impact out take disappear that this the But will we that. there's smaller to tubes. products, as a OEMs, into will points. that think, our those Clarence retaliatory engineered much things short-term to customers, gross tubes, will always I aftermarket point, that this Their line engineered channels. touched all we say. Those is to

So sooner we related get that then. resolved will the issues than hope far trade

Anthony Petrone

All right. Thanks again.

Operator

the of CJS Our Solow next of line Larry question your question. from comes with Securities. proceed Please

Larry Solow

Great. Thanks guys.

a Just the on thoughts few tariffs.

revenue concession the out, sales. number that price that less that? because less that But would so million whether somewhat was know of know called less I it price don't last more less that or $X you -- be that $X or was million know or on quarter, more on called the number price to you how I that or So -- any a does out combination I a color and price is relate concessions today, concessions

Clarence Verhoef

it Sure. we we some business about -- with expected thereof. -- lost It's and little Hey, expected were it's more we've was The price mostly Larry. that in end reality so got originally that concessions was less difference. fundamentally But would that talking lost very business. just that -- it when because we revenue, I mixture up

Larry Solow

higher QX right. was number than number, that somewhat So that $X million, the

Clarence Verhoef

was QX, bit in little but lower bit lower, not It little a radically, a Yes. yes.

Larry Solow

margin sort I -- And with the your of what line expectations. gross in know was so about

look a it pretty this -- get it then mix what at -- the revenue quality to I little could got issue, and was -- but at bit quarter or of cost, to what still even exited really se, sort per difference like big above. the -- quarter, base But higher cost dangerous than maybe of You was know did to was much the little it that sounds with perhaps really is an you but QX, know, bit this just I -- sequentially, quarter be higher actually guess QX just I is you though quality I that don't was of but quality higher say? that cost, actually quarter Santa it in Clara -- the fair a

Clarence Verhoef

Yes.

kind because that of a of me a Let different go elements bit detail, through but it's of going go Because through touched the gross that with okay, in into bit worth bit. our a kind little I think the little do Larry I on margin. there's Anthony,

product So variation of mix. But in was that was the product them amount see of quarter like a typically in we would -- I back mix product QX. the being in is the mix one just fair say good, it

the the needle tube that with of the we That those quality was good last move margin the than gross touch did as do that the QX costs. We the on the getting was higher of big side offset two element a lower having on in fundamentally erosion quarter to that little little continue we other. rate happens reductions products margin factor. each a side, but customers, well. in QX biggest in terms of a mix some we the But price with versus bit little All-in-all detector -- a some just year. price offset volume on high had So mostly have have you're where

driver costs. the second is equal more -- Second about same you're with going biggest higher third tariffs is well, would've been year. but And is factor biggest is so was the probably to maybe comparing both -- the tariffs, the was of element when I quarters, the correspondingly prior well freight the impact freight -- the it. of tariffs of say

Larry Solow

So freight higher you -- costs. actually saw sequentially higher

Clarence Verhoef

Yes. did. We

Larry Solow

Okay.

Clarence Verhoef

of I freight shipping mean to higher. costs general door, is also in were it higher the was some but it just volume out tied

Larry Solow

Right.

head year We're I just -- pretty on get guidance. know a Okay. know, And quarterly, think bit that about think a again, still, you was QX, range QX, change started little not thoughts on I any but moving what and don't want wide halfway of I parts. a QX the you wider year don't of lot in range maybe to the due maybe a to guidance, I through cadence think slow but in it QX, comps start are okay -- as get little quarter, to so obviously and part really QX obviously we of to maybe was I latter things QX the perhaps a easier drive out where lower the the to what thoughts last But would the and range stand of the the any end year. end higher quarter you to to today? you or from on that

Clarence Verhoef

parts at bit already that of look how little I'm the going I I Direct, to when as you little be would But bit at still of and not cautious amount what's in mean a of in new of cautious. line of the have on think that when -- impact of easy challenging but we And not last gets I range. with of end amount range. enough the you've that, as be There question on higher year got a at broad margin the is part ago, which why lower I we into through compared results a part their moving maybe typically a little year. well just an taken fairly we say itself a to that tell as to have by here. And the comp, the a answer that's QX bit then that are is there have that Yes. account in or look the balance as now you tariffs I a surprising went probably QXs light fair adding numbers was moving there I a revenue well. for would so a of far a we as is that as this look us. that is entity variation What still side, gross in and yes.

of factor fiscal in we somebody's like. Just kind and it that and of a driving happen, making season summer into the big end don't have heading year

preparation a little -- a the into of well in a their ends. what advance because as in always people have year for leads it's calendar it's just year terms for fiscal will QX. push wildcard it us So of end strong manufacturing QX for be are we bit buying up numbers that and materials as ends for our year hard for

Larry Solow

Okay. And quickies on just China I may. of couple a if

for something other it's XX-year that to, like the bit think a in a on just Is so mix follow-up at you? comments, lower ultimate guys like other you And would that outsourcing refer of yourselves right or and Thanks. expected that it's that that that you is there's be tubes China, think a you would competitor is target? sort expect the five-year, be target that market XX-year, who's you it would you replacement and you then one I million a know or XX-year into now market? hurt potentially priced, $XXX it more Just of the sort But seeing maybe And all? not the the tubes. little shift; guys maybe Sunny's or hurting is an shift expected. Will is occurrence I'm sounds

Clarence Verhoef

Yes.

mix. start me the let to first one, So the

of about XX XX,XXX next purchased. assumed XX-slice, there's the What certain years. buy we the be that would mix China high-end So years, -- that so or that for in will next we know be XX-slice our cities of planning near-term, couple But in there is CTs. a China over X,XXX-ish will

What CT buy So it's, as us. for not us. starts the to the and China hospitals systems, starts -- is becomes buy to clearer to the pattern mix mix unusual

hospitals rural then buying, what high-end start trickle as are a hospital see seeing buy. way low-end So and being down In good so small normally generally you based systems lower, actually to smaller, is The the what systems happens systems the we're to CT this cost is first low is, broad the to go purchased. rural XX-slice ultra.

market years. versus that's replacement And that's are sockets two it CT indication possible. number What those threw front embark the kicks Now, good $XXX about loaded We is the as the loaded. to a approximately ultimately over annual be goal me our we that there going to to the It's number. get X,XXX an in, I being like back an units out of sockets. million, that next many is want as sign those as end end

-- systems replacement worth on the let's CT rate will number purchases. an number of based to fast average CT annual we're calculating $XXX that -- million of now, the expect years forward once installed based in approximately that three tubes We of systems, say, in the as that the from of result these life on

to they have systems own share the it'll systems benefit we'll that that -- expect those for replacement tubes be We certainly the But we Siemens, our unfair and shared of market. penetrating between that expect with our produce. get their engineered, Phillips, of get tubes the that they tubes that are us majors, -- we're where those

Larry Solow

Thank great. you. Okay,

Operator

from of the question with next JPMorgan. Mark line comes Our Strouse of your question. Please proceed

Mark Strouse

top an very XX Yes. Thank development questions our you with any actually of that since update Sunny can cycles, contracts regarding been already. you Chinese that call just update the your much have have answered been progress signed taking on Most there thing. your kind for give last partners, of if or OEM But curious, questions. our

Sunny Sanyal

Yes.

I So $XXX contracts value -- eight we what or eight were, purchase approximately is last agreements. but purchased at And the CT we of pricing wise of we're the million of timing eight remember where now with are about systems. signed our right worth who time which the signed at said total agreements for sum have we about price can't customers the

happy frankly good progress... very apologize. the your -- making and very is question. good, our there of broad of second OEMs see we're based there I acceptance the to traction How progress we're and I the forgot with So which part tubes, a

Mark Strouse

Yes.

Sunny Sanyal

the Yes. R&D. on ...progress

-- all of any all things to they're moving clinical than normal making look, reasons that systems sequentially forward. trials all progress They're through the they're -- -- development of cycles. progressing market. we've and for slowdown process not kinds R&D seen happen bringing any So through delays, their It's other these

that, in systemic, role there. So anything nothing to the played has so to point neither haven't a tariffs

Mark Strouse

about mentioned relatively Okay. margins higher kind And the I press it's that for how I potential think about long-term time, over know of the Clarence, gross gross upside DC margins. margins. you margins your near-term, grow? business mix you. -- small kind but there the gross should successfully a if we your Is previously talked are then in portion grows Thank of of as as you've are -- heritage the targets business that mean than that long-term to to the

Sunny Sanyal

I range. a that be guess helps XX% of to that's the the kinds in as to it getting these goal is are I this us achieve our the would describe one things in And difference. the XX% -- back of range that elements make of that

they technologies get road. gross time come the -- time, down typically the They period more levels. over to But of back better that's amount New a they of yes, fair normalized longer mature as margins.

their got needle. we detectors they margin us that one have technologies, very those to And as or But sizable on on all that's the to big they've plan. at they to think margin plans continue think the gives so it joint that this gross very internally. are through into acquisitions invest inside areas developed I'm is execute where we're ventures, going and you for I I be nice it's that a down be these go. either is I actually will the or trajectory backlog growth line. accretion that And to product are yet about where confidence enough a whether size you're important would measuring that -- things and not excited fact this that will move me But one right going say, that built drive of internally is And the to the counting portfolios where are

Mark Strouse

very sense. Thank much. Okay, you makes

Sunny Sanyal

Sure.

Operator

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

Suraj Kalia

my Everyone, questions. thanks for taking

-- on of So Direct been a let let Sunny, asked, and me questions in me hone the have lot Conversion.

You existing would counting photon first guys be obviously to a technology. technology question. Conversion pull That and clients. curious for there this at picked if is through looked DD I'm the the your Direct is landscape with hybrid

this the forward? me number growth know rates expect mentioned I and if thing you you that given, -- moving $XX and was Direct's forgive would over last all is, second million The on the year? call. What is

Sunny Sanyal

Yes.

one. let So the first start me at

background did take this explain why a to just that. acquisition. we for So We we minute

that no by you discrimination. noise, do And images. the very, resolution, generate order can time, holy been high And the virtually you So the at very those reason image grail decades, for with so for material virtue means of imaging you need people. of very that very -- in has provide the low images photon dose very quality counting high can is, you precise technology, same know, to

tissues. So can is, look organs, that at you at soft precisely out very you what call means can the the and tissue, different soft look between can you differences

tumors et And in gas, so in cetera. food nicely also applies spotting industrial and oil variety precise imaging -- more so to imaging food technology of the very same That a spaces. in segment, and

commercial was is this there technological counting counting. of detectors. their half with image quality, phases. photon a we researching a been are and it, -- But had $XX nice materials There's terms And ahead. lot plenty on in of that, about actually Conversion R&D products million -- to acquired -- there in it of that of have is So worth challenges. the reason business, evolving. second of photon been they people that photon have in with leader counting has company comes The Direct commercializing in out there're used working none It are

economies et cetera. So traction of it experience, market gives scale, them

there's of of areas, be in by at areas throughs imaging There between our us, look technologies overlap for the complementary So dental areas their but are detector they as one one certain is detector we several we expect pull space. way, products. the there the -- portfolio, or the and no will product are where

So technologies, complementary applications. this customers, is customer base, complementary entirely complementary, complementary

throughs. We've see has small some like footprint. as And huge -- got a so in the dental any small channel. a space, Direct Direct company, pull we expect we'll

the for ready hopefully other scale by we way advantage and though. very we some buy to So us the take and are infrastructure. future that and acquire nice that with play products haven't in and our And channel, our technologies way quantified bring go, into is to -- can of our to benefits our

said and what those We are pull publicly haven't what throughs those.

small a good growth externally. given growth. much products, Their new -- again haven't haven't we rates, those disclosed and those they're We about new Again obviously though those company, anything quantified to expect see technologies, numbers. we

Suraj Kalia

it. Got

Clarence Verhoef

And maybe that though $XX key of is of one numbers backlog million have... they the

Sunny Sanyal

Yes.

Clarence Verhoef

I four the indication over good next is there. already that ...which of years, mean opportunity gives that's three, so the a you

Sunny Sanyal

Yes.

us helps, execution. nice a and can of that So book their through -- of about gives a have confidence work we they good opportunity. their this as backlog the And at look revenue plans, it's that business -- they book

Suraj Kalia

or of get can backlog there Yes. Sunny, basis. is curious more you terms point appreciate otherwise you'll to the But some and on novo I technology of customer wins, sockets, your -- the really standalone all new was the de I wouldn't get won. through to have a it. was new pull in this cross-selling -- getting I where I

Sunny Sanyal

Sure.

Suraj Kalia

about look QX, color delta move taking of from you see as moving you extent Santa you different into the direction, the just out, for when at we us help kind maybe to be this beeps housekeeping appreciated. walk through perspective exposure, we is, as thank And my is pricing as can understand. fast playing Clara; the us make down, from to manufacturing to trying how of moving, I give second Clarence, any gross kind just this questions. this it is I was that one think Gentlemen, a the Direct congrats many this would hew the greatly -- and there -- is, and a basis sequential and On us and can. I mentioned notes FX up Conversion parts, and can the margins, you how

Clarence Verhoef

day, little and be do bit fab XX%, the bit we time to of saying going the take to margin answering shot in said, were to about fairly that we year from said little XX%. we margin I'll detailed of the because the still XX% we gross we're the we short in best be range And it when to started the a would of in complex where Sure. question and down being that's at the of a gross terms knew going closed XX% range the point are end what movement. operations are a of that, a at be the impact of Because we already improvement. saying Santa at Clara

knew that So we already.

our indication the that good is the offsets products other part pretty maybe. what the of mix mix a well line at erosion, at pretty had case. of which in then And moving in I would this expectations, our stayed understanding mix also same, the with the We price say was time. is then

probably the say staying of impact is this move that So relative we their just parts in all are time a the enough of Direct stable small the expected. needle end over the to at relatively scale gross the would because that to the margin what day are size not number and I is those impact. to -- the lot point at from overall large overall

you a bps So all those. I'm specific give to of going not on

think at more probably little this I could on this a call challenging that's than I do point.

Suraj Kalia

Thank you.

Clarence Verhoef

Sure.

Operator

Please line proceed the Sidoti your & Jim Instructions] Our of next [Operator of from Company. question. comes question Sidoti with

Jim Sidoti

hear Can me? afternoon. Good you

Sunny Sanyal

Yes.

Jim Sidoti

Great. All right.

Just One, two the on from or margin? either any me. have did the top-line gross material currency impact

Clarence Verhoef

not. did it No,

Jim Sidoti

able retain been their salespeople? is Direct. Okay. all integration And Have How to going? for the two, you

Sunny Sanyal

we If case, with happy so make that. don't -- much to there's want good acquisitions of been I'm so to this at track doing integration. much the us. just team. the with way, done, record it. with isn't do how stay been hallmark All team to a elapse -- great a we've there Other the are And that's their for say, look closed, Hey, for the And we that. say we've we us acquisitions take still acquisitions. and team, to time me than of In by there team management a let entire good there progress -- us. the those we got I'll expect hasn't fully leadership always

giving the and We've things done expect will traditional them offer agreements letters with We of them. through with that employment they working remain us.

to products. management our The get historically the portfolio, in product sales We teams been to is scheduled -- get side. do discuss together, out them that's care and first the their what had weeks teams integration for that first get together technologies, our sales work closing of all -- us so couple engage, steps the to together, a get We to to period, have hands customers. that's and product has always beginning figure we'll Between to off. couldn't we commercial have we of signing the see teams on their that now. in And all and get

Jim Sidoti

you at to your So have planning guys sales let are a products? crack these selling

Sunny Sanyal

Absolutely.

to the side. parts our One will in our synergies medical the sure the portfolio make two we and we products all is and Direct's industrial, will channel it. and -- the both of biggest that Direct products on full line medical used there's are sales in and and industrial have as execs

Jim Sidoti

was That it Okay. you. for me. Thank

Clarence Verhoef

Thanks, Jim.

Sunny Sanyal

Thank you, Jim.

Operator

the At for would to remarks. this over the now like turn back time, the there to over of are no I conference portion closing management audio conference. further questions

Howard Goldman

A our participating this you, be X-XXX-XXX-XXXX call earnings goodbye. accessed conference the the second call conference or Thank in today be in Thank and can website questions quarterly Company's locations. for non-US or will US, and The from your of through conference available and access May XXXXXXXX. from for replay XXXX. of quarter year fiscal XXst, you code is by at replay X-XXX-XXX-XXXX calling from the anywhere

Operator

conference. participation. This today's your concludes you Thank for

this You time. may at disconnect your lines

Varex Imaging (VREX) 7 May 192019 Q2 Earnings call transcript