VREX - Earnings call transcript Q1 2022 | Varex Imaging Corporation

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Operator

Hello, and welcome to the Varex Imaging First Quarter Fiscal Year 2022 Earnings Conference Call and Webcast. 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. It's now my pleasure to turn the call over to Christopher Belfiore, Director of Investor Relations. ahead. go Please

Christopher Belfiore

CEO; website. welcome conference for and XXXX. Imaging earnings live President Corporation's me Please our Good that includes note first discussion, to presentation Varex The webcast quarter call investors.verximaging.com. otherwise the and our slide Sanyal, that the are of will archived year Sam of references conference quarter a Maheshwari, be at to today presentation our CFO. fiscal can first this afternoon, are webcast Sunny Varex website and be call XXXX. To the on all With fiscal stated, for Varex's supplemental unless quarter accessed slide simplify year at the and of the

from fourth quarter to same addition, year XXXX of fiscal quarter quarter the year. first rather In stated, of made otherwise unless than the of year quarterly fiscal XXXX comparisons prior the the sequentially are

are from cause based to risks could calendar release earnings are during with on SEC. stated. that to fiscal filings to to the are references the are year about actual to business Risks predictions all we or anticipated. call, subject this be results in not expectations differ that uncertainties current our quarterly and forward-looking relating and and materially Please our those described assumptions These be projections will are the and statements, Finally, statements events. our making which otherwise unless advised year future year, that

discussion for assume forward-looking The of to XX-K. or no Form of speaks our this as is information XA, GAAP in we the certain date, Factors including and of in our to not reports our today's on with, a annual provided filings, are I financial Sunny. results are report substitute non-GAAP most reconciliation Form materially on financial will presented in our non-GAAP These over measures. measure measures. On each revise release, we posted Item information nor Additional the will update to call, to press they in differ discussion. website. obligation accordance the from could discuss that earnings GAAP financial and contained XX-Q now We call turn a statements today's in which those anticipated financial concerning factors non-GAAP measures measure actual is cause Risk on directly quarterly SEC comparable our this

Sunny Sanyal

Thank and remained chain our you, as supply afternoon, strong everyone. Demand in ability fulfill good planned. our first quarter limited Chris, for products to orders but the constraints

more increased shipping challenges As from We as in well the estimate of product the material $XX inbound unexpected quarter chain with progressed, critical electronics worse issues, saw that us outbound and raw becoming in delays we the delivery supply quarter. progressively Among in delays prevented the as the other in components million and uncertainty in in of quarter. delays freight. abrupt than

operating operations considering continued with reasonable strong in be persistent headwinds and to but Non-GAAP was XX% supply expectations, quarter As sequentially. margin Both was a XX% Revenue our segments was in Industrial which in result, declined our year-over-year. and EPS was flow below generation the $XX the decreased revenues Medical Cash chain we XX% non-GAAP expectations. quarterly revenue our below XX%, quarter and increased Non-GAAP cash was $XXX the sequentially $X.XX. quarter million, faced. million. was from the margin that of gross first which of

$XXX the up million, Our million balance at sequentially. the quarter end was $XX cash of

decreased based quarter Medical quarter. on Since year-over-year. you the trended revenues first increased during qualitative segment give me some and trends revenue environment and how our impacted demand into Let our by modalities assessments. supply modality severely constrained sequentially the was XX% high-level chain different for environment, applications XX% insight are

recovery a in U.S. strength including Industrial demand mammography. to was fluoroscopy, We strong in well tubes and robust radiographic, in globally and Revenues the quarter, CT as including dental XX% medical first market. other oncology, our in our the year-over-year. decreased modalities, see in segment China Demand for increased sequentially continue as X%

for our oil strong and and inspection industrial counting, past and products see borders have across for to electronics nanotubes products AI-aided In products for experienced quarter. photon and innovation, of various for screening including several at demand verticals, nondestructive gas. including demand we the improved highlighted security during software. quarters, ports continue new and We imaging We the

additional some progress they This quarter, how with I'd made and technologies strategy. contribute with to wins could share to and like these details long-term design growth you on our

today's the and X-ray future. shipping high-performance more fiscal tubes to focusing Industrial in applications segment our In on fourth be cardiovascular our Medical discussion, We provide tubes the we samples of of color quarter XXXX. for expect on the business, began for in will segment we

seeing system to a good this are in interest them customer close We launch. one and of is initial product, getting

that innovative, tubes several take than addition, used are today, options systems. high-performance footprint. at the evaluating highly half In systems other lighter and customers future size, significantly are smaller much and These integration for in are tubes up their design

tubes customers these We significant and design flexibility. our high-performance compact will expect give systems that

that In addition, help these patient tubes throughput. have can performance characteristics

with in to make steady we a customer. Germany continues progress segment, Medical venture with signed prototype have In a the joint development Nanotube Our Technologies. agreement

an multimeter In customer. first prototype have industrial addition, we shipped the to

utilized customers now dental, quarter. make In currently We and are counting counting continues technology photon detectors, imaging. medical to modules fiscal progress and various our the expect half breast second to expected to ship to this prototypes skeletal CT modalities, Additional in in XXXX. being is of ship Photon including

entirely this to CT in in-line rate per for high Varex. detector frame do photon seeing that adoption Due counting systems today, with automated inspection dynamic would in second we market are and we imaging ability, Given not its offering have addressable an detection. industrial applications be incremental serviceable the market

utilizing see launch and to in counting customers inspection. photon We battery systems new inspection XXXX, some detectors food expect in our

dental customers. We and our CRM wins dynamic with have had multiple mobile previously detectors, Z-Platform design Azure, with

six start we highlighted cancer our quarter, Last is the lung will of that of of installation end AI-aided the to gain software, production program completed in second phase continues which systems bid our our these The ramping winning to we be half expect in by software screening British We XXXX. of lung product in the across sites, momentum. implementation the March. for cancer shipments and and Columbia up expect screening

addition, and we're several we're In lung about in and as seeing interest Control, UK Canadian In other implementing provinces screening well the Connect products. excited programs new in in cancer as Australia.

technology proactively improves product cooler our image the smart downtime. allowing cost tube to cooler, our retakes, proprietary performance reduces example, can help life. prevent and Similarly, For X-ray intervention limit uses user the of that end collimator smart unscheduled measures

panel decision-making mammography is compression technology, in the breast to to unique patient's experience Through health care its smart adapts patient's compression proprietary the process. aid Our improve and anatomy. the aim

organic these is XXXX. under expect the to our in technologies Medical addition in same This We or $X.X growth over SAM, to frame. billion of segment addressable new expand $X just expansion serviceable billion of calendar across market market, approximately time the

the look the we challenging expect we to forward As year, volatility remain supply of fiscal throughout to chain rest XXXX. fiscal

continue to supply risk to vigilant in will the customers’ while needs managing meet We efforts chain. our be in

our anniversary weather be effort that the of to by the celebrated five-year being demand employees to seeing of Imaging. We and recently We making Varex our supply are level continue chain uncertainties. we’re the encouraged

people diverse Over proud I’m difference have and every world, the we of of years, past day. talented around of the a touched global team. making five our the lives millions

Sam. and investments our the to technologies, enabled and place. Our thus help leadership a to have over market introduce With allowing safer us world customers in imaging innovative let innovation make hand to solutions expand healthier our me to that, new call to bring the market

Sam Maheshwari

hello, Thanks, Sunny, everyone. and

As XXXX. a indicated, Despite year of us reminder, those prevented will high shipping constraints I unless first our provide our with fourth of on the of demand, fiscal supply fiscal from products results sequential comparison time. otherwise of for quarter quarter chain XXXX

logistics As Rising below a some helped expedite $X.XX. Lower pressured came guidance. generate margin. EPS provided our gross material, operating in our expenses and costs of and offset result, revenues non-GAAP raw

decrease XX% revenues Industrial sales for and Medical million were the million. Medical of XX% from were were the XX% X%. industrial $XX were Sequentially, quarter. the were overall quarter quarter. declined medical Industrial of fourth First million, revenues revenues a declined sales and $XXX XX% and revenues revenues $XXX revenues

and XX% revenue supply at driven declined our declined limitations EMEA shipments. while on declined region, XX%, to chain APAC due Americas all XX% Looking by sequentially,

Let our results cover me a now on GAAP basis.

First but and earnings due before rate GAAP tax a resulted line quarter, quarter revenue previous Operating This base. low on figure earnings of with the XX%, income was was of base the in gross high net taxes. margin $X.XX. in million XX% lower $X of to a at million, and was EPS $XX unusually

expenses Freight compared the basis was quarter. gross Moving logistics-related XXXX expectations, on XX%, QX the ongoing but and basis supply and challenges. chain points non-GAAP was to Gross quarter. year XX results which by our margin below slightly XXX in a margin to by of face reasonable for about compared to points ago impacted

In addition, chain as qualify the were impacted by XX quarter we result, solving various These to alternate suppliers. points. margin supply basis continue R&D issues. gross a for towards diverted resources activities And

As fiscal second in we have a highlighted XXXX, and material freight availability, challenges headwind. of been logistics the since margin quarter persistent raw have

to continues to these environment. through a challenges alternate and be current to been continue mitigate what We this suppliers with work and has dynamic impact

work have SG&A $X gradually renewal million, $XX or quarter, were on our we Average to with or broad-based $XX in many QX of diluted explained spending revenues $X range. generate prior quarter October, quarter share prior above. million. Tax shares revenue compared price the XX% we $X.XX Operating the X% of helped noted expect increases line approximately customers the increases contracts operating million increases, of in were from to contracts. expense $XX first operating accepted target in whose contracts, in majority fiscal XXXX. throughout earnings we as into expenses $XX Operating to for million, per $X Since increases diluted margin was with to customers million down mid-single XX% million realize million higher. was in the late and their quarter were $X.XX $XX prior digit As price quarter, share million, quarter. XXXX. we expenses price million. quarter. the continue $XX per R&D or At of incorporate from remaining Lower diluted out X% earnings Net the or was in in to first $XX rolled point, are down the million quarter. up this were price the was last of percentage customers annual our within

previously, highlighted the count As bond includes hedge count between convertible hedge, the purposes. non-GAAP and we difference notes-related a share to ignores GAAP diluted and due range is trading economic GAAP share this hedge. there bond benefit non-GAAP shares associated for our shares, of while our the from

press accounting earnings ASU effect our provided We our related bond The and non-GAAP reconciliation table release. two at for a XXXX the of hedge showing for have share the count us for year XXXX-XX of a to diluted Separately, of the the purposes. the provides instruments appendix between become convertible will effective QX onwards. fiscal this to end GAAP slides from on

by Accounts mainly lower balance Inventory improved $XX being as quarter. in to shortages to material. sheet. sales the receivable turning Now ongoing as paid raw well increased to working decreased amidst procure the XX days. in premiums million, $XX increase primarily process DSO inventory component million, to due to due

of partially increased and XX XXX days. a by increased activity, Accounts As $XX to million, was result, purchasing increased days. payable payables days days to due inventory

of the $XX quarter. mitigate and by million outstanding remain of the increase the cash sheet, $XXX the I thank delevering quarter. back discuss Like continued the efforts debt reflecting to $XXX ended Varex of million revenue demands to prior was generation to adjusted and meeting a cash million, an million, the customers quarter, flow million moving To has to take was debt and operations was of Adjusted debt challenges for information. quarter. of net was of on guidance, net continued basis. on dynamics. quarter, a and and with helped EBITDA at end The chain. while like our $XXX quarter and gross million we the in course supply focused combination wanted We XX%. colleagues and the before to end, staying step in from lower end first on Now our our EBITDA Cash providing margin that times margin from at X.X the balance cash achieving ratio broader results this presented and worldwide last the debt the net of $XX on quarter $XX a to flow first Gross declined cash I debt would leverage their constrained working these profitability

of of and Our strong XXXX. QX is the the was factor opposite in This environment currently This fourth our quarter The what delays. than lower face in to expected. came the the sales we chain in exact experience chain due revenue remains governing volatile results remains mainly growth. supply supply significantly demand for of fiscal

the Turning plus XX% to noted have gross past, minus or margin, our X%. target in margin as is we gross

we escalations hard increases, so successful are achieve various Although by far, expediting to caused is in we due other been cost have target through factors. this price customer qualification to fees, alternate supplier neutralizing and finding manufacturing disruptions, inefficiencies

million, $X.XX. margin is QX. Given the between and share backdrop, range. for low our Revenues be to With that, guidance expected below $XXX that is non-GAAP gross end as targeted and a are between near-term, gross $XXX diluted $X.XX per the we slightly expected million expect our for earnings here and of margin

based margin to Our open the fiscal expectations million With of count non-GAAP for call the operating questions. to range in non-GAAP XX%, of a that, now non-GAAP million, about tax XX% and on will XX% million $XX your about shares. in for XX expenses are diluted of gross we of share XXXX, rate range $XX

Operator

[Operator from coming question Larry Solow Securities. CGS from Instructions] is today Our Thank you. first

line Your is live. now

Larry Solow

on expect worse just said guess, Sunny, a the afternoon. subject persist these of quarter. through the the companies Good it of the And few are I obviously, the questions, like the that’s you a through month, and problems on I you think what problems question you seems day got mentioned year And chain. supply – also to most saying. think I the on that

really light the that quarter, got sales just demand But you the filtrate I’m supply range kind from on a I if fully to components and get with and weren’t stand below just and other is where depending the of chain. Because orders should in your – but So for the that, it are of the numbers starting to guidance there? like alone, wide we upcoming you the trying midpoint? you had back of you gauge sounds meet range constrained. ability

of Are picture at trying sort better it to you’re just whatnot? where So stand suppliers a say, your we kind hard Or mercy still is and the of things deteriorating? of get to freight today? and of and

Sunny Sanyal

add So more let get to me it. Sam started, color ask and I’ll to then

business a side, we and The the healthy that us. demand can here very being has deliver all, the First been And us of supply for is constraint against broad-based, the there few we’ve of constraints. which what got Sam factory, of on disruption book to chain. chain chain the is these suppliers types type are called are got nuisance by where days. shortages, we’ve in rolling two the delayed a situation supply One is supply of

That’s out it end in on typically is Thursday, pushed the of to on chain. that’s Something shows one gets come right? supposed up supply type you having to then to quarter, and up scramble put Monday, of and with So stuff together tubes.

is then and of so we’ve has starts. supply and we Larry, short there, delays. starts, second shortage which had type and been The get consistent electronics, stops where shortage stops second And –

the As have suppliers and from had that we other rolling look in impacts have it’s had slowness disrupted environment. electromechanical forward, hearing our in parts – – few their is, that COVID are of that what been there things mostly a we’re on –

the better. or part and be have the are getting That for there the beyond next don’t we problems better. that of so. chance got supply getting chain pockets see of electronics consistent, We’ve where the has that what visibility quarter improvement like more But feel we we for So seems in are can to problems.

of the for hence, our indication to this this And expect rest we that fiscal year. linger so on

Sam Maheshwari

then And that like able And suppliers, would to the like to supply the in Sam. takes add various would not too to I time chain add by it comes it to the And I what from to are complete within Larry, is time late us, quarter. this it. is – the sometimes, material here comes here quarter, if it us. that comes it and complete us side to we

that electronics, in here. And chips on for they supply. lumpiness there then we So use are semiconductor is short detectors, particularly, what

of those perspective, and are guidance at the But we from both back going question, happening. we probabilities and that’s we look to a things how guide midpoint towards guide. So original and the your risk then

So is this what are are right and we now, what guiding seeing now. that as we of is

Larry Solow

that of is eventually, sides. issues That’s getting chasing as long fair. chain your And your modalities you minus And lose that Or And what or like some about more to continue. anything? things these better, of sounds is new Do as like for sort yes. right? both suppose, supply until across maybe some business million look is feel you strong feel losing orders, most like everything And for of just it demand to can’t time just pushed the a you you’re we’re these mean maybe right. is orders? at it? on any just or good or do $XXX a constraint, a plus But you at than quite I quarter it no. share way do get I

Sunny Sanyal

similar in others our everyone are our space also having – Larry, in problems.

have at But products in we’re moved to orders. don’t so are they expectations. time, and losing these These same just not to So right, the designed manage the we share. just customers’ lose we

that, a So not concern. point, this is at losing orders

Sam Maheshwari

the like quarter. as of That a I to the rest $XXX Yes. are And that, year or million not of don’t the is would think for quarters we Larry, add I the case. rest business the seeing around hamstrung

degree issues. caused later, But these that issues I fully and prior to hope but because there of compression, begin they chain Omicron, is of improve. because be not quarter, supply in of resolved, there or the reasonable may also out that all of think sooner availability material

would And necessarily are quarter. we so around a we $XXX stuck that that are I not million indicating suggest

Larry Solow

see maybe supply tube obviously, is on medical don’t disruptions noteworthy is do mentioned some industrial, side. of but and medical a balanced, is between it the there? of the And seems issues – more both some the – – segments? it Is – it on business. feel fairly piece different – trend have there sounds is in like you Or your are really or anything it sort difference you evenly larger you there you two Do it’s like like any a

Sam Maheshwari

Yes.

So to supply the bit segments. Medical of in and versus Industrial you detector side segments, are product we is side. can to issues I comes I our pronounced chain to say business both it the would a But at customer. are when think the it the when ship little those look more the It product demand down that strong in versus tubes largely because all terms comes it they similar of in what finish on

Larry Solow

Got it.

Okay. I the appreciate Thanks. color.

Sunny Sanyal

you, Thank Larry.

Operator

you. Thank

Suraj from coming is today Kalia question & from Oppenheimer next Our Company.

is Your now line live.

Suraj Kalia

Good healthy. is afternoon, Hope hear and Can Sunny, me safe Sam, everyone right? Chris. you all

Sunny Sanyal

can, we Suraj. Yes,

Suraj Kalia

Perfect. version does How don’t the delivery me Sunny, given of product different so But decision shortages. issue chain a you look supply the start component to ration have like? with question. let out matrix

Sam Maheshwari

Yes.

So Suraj, question. great

and a is bit issue lying make wants product, Obviously, sure what to a to straightforward to everybody trying of from we do, Obviously, this. try multidimensional no customer down. it’s Of not and course, have we do quite a here do side, but there, our we are answer.

those variability, there assessment is judgment of sales leadership a and decisions. is of our degree degree makes there a So that

look the secondly, then And that it’s degree machine, there cell it’s applications perspective. in assessment product of also various versus customers in a a whether what going component a is a then are And have life-saving So we is into that’s of different phone at there. or degrees from whether industrial, comes with there one. medical terms to of

one in set So one short if for something may we But of may have example, products, to then else an we component issue. try supply. on work become

a thought is cascading So component that’s there also through. effect of

our to of want to things other come mind. couple are my mind. you But those to those then And So Sunny, there if a that are that add some things come factors are Maybe, also. there. the the

Sunny Sanyal

regular we try these is one weekly letting other priority Suraj, discussions And And any with our go where we a start. how to customer we on described, number balance down. that’s – daily, line in basis. factors, goes the from customers, we as get that – customers then and Sam Look, on have input and not that’s a

Suraj Kalia

and Sam, one Sunny, it. one you pose together. of for both then Got for these and I’ll

the your So tenets of of of million $XX Sam, P&L eliminating one was inventory. optimization

remember into you do given visibility nine correctly, to Just have months I if a visibility, orders. rolling six

management. your So all helps plan inventory obviously, that inventory do you or

Just And to going I’d being or love tangent, maybe a out on whichever for to if send carbon what be changed $XX had your respect would two on, has far for the specifically million number it, OEM that given to questions. in, you earlier? new different you multimeter anything right? nanotubes. you presumably, have prototypes quote received feedback mentioned partner – everything I And sockets, application my so thank all missed the completely with Sunny, I this only taking you’ll Gentlemen, sent

Sam Maheshwari

Sure.

Suraj, So your question answer I’ll first.

time, million doing terms $XX that goal with in year. out of suppliers. achieved long-lead to At we and what giving to fiscal our orders of of raw for terms improvement material our We purchase other number inventory, was lot this of able and are efficiencies we there that a things. make is the in So procurement a were last reduction,

So side as customers. demand and getting we are to on from more more customers, are visibility our our the visibility more providing we

lead perspective, where volatility or the is from areas stock we bit are – the more times are also increasing we are a there carry. longer maybe supplier little that We the

a go material seeing result, are And we inventory you are higher then up. as lastly, at prices. procuring So

demand visibility that. is everybody as on P&L. robust, on time, this the trying And is lot because And truly, will high. material is is there quite more remain values I cost a inventory have a the the to have And demand definitely up. of through of inventory beginning think to gone and result, hand So flow the and at volume

meet more than would our have less to currently, order in inventory demand. we customers’ So to like

Sunny Sanyal

that is And your about multimeter nanotubes we’re getting we’ve And we’re We’ve it question tubes. shipped multimeter you then, Suraj, as tubes, the sent getting works feedback the massively out asked these stated. out. –

customers it’s So their of need working. for they application, to they us dose in given energy imaging what need have specs terms that and

satisfied we the energy for are As and out. dose we’re the were levels earlier that performance said the and that have with had in those levels prior panning and calls we targeting tested,

we’re So happy far. done with pretty we’ve what so

Operator

Company. Instructions] Thank Jim question you. [Operator Sidoti & from is Our from Sidoti next coming

Your line now is live.

Jim Sidoti

Good thanks Hi. for and taking afternoon the questions.

I get think from everyone agrees if it’s some only point. but the sure everybody think happen is three, issues nine it a I matter supply of anybody that’s time will chain six, don’t at now, I before resolved. months thinks think

of when is, more you cost increases question point? opportunity do that there a And environment, to get is you will in think the additional stick? my price do for putting cutting normal that at you’re that So back

Sunny Sanyal

So to base start. temporary are These – be me or let The increases temporary price were the just are price. intended increases pass-throughs. to not

year, realization see yes, full up expect second – sorry, Sam. will – then that, as year price So them should going the And we do we And see next stick. go this into ramping to the of of through second the and increases. ahead, impact the we said, those we Sam

Sam Maheshwari

And can that cost cutting, with terms Jim, help the second of question here. in you I

on is inflationary passing the that raw at of and look by on Sunny P&L costs, our the – cost are longer-term. of now. terms you One said, it neutralizing that business like as to costs customers, our price or are two will that we be types experiencing these increases, is in there expect we and material, right So

And lot going our I there inefficiencies terms set fees or expenses. is or costs a the elevated what freight chaos, paying that and chain would or freight so of cost But or which or the another P&L, is is is it of that neutralize in high stop for is through definitely start very call expenses manufacturing supply there lines, increases. whether of expediting

would So stable, that more expect inefficiencies efficiencies create that actually orderly and environment do the improves our becomes or and chain supply when and it go P&L. away, to improvements that I would the

and the cost is and know inflation, it profitability the maintaining it we for of pricing side monitor with out don’t are terms do can on working material In the All customers. the by right now. the we raw we ensure business

you hopefully, the that So gives just that color looking you’re for.

Jim Sidoti

guess Yes. mean to those previously you Well, you at think they out put be targets out fiscal I’m what do and for look is get to gross trying that beyond, I XXXX achievable? margin, we will I if

Sam Maheshwari

We when in certainly know hope environment right we where the would all them so. those, of not that but obviously, back certainly but this achieving Obviously, chain certainly know target. we improves. target remains do we as need supply But soon and and to we would be those, now Yes.

Jim Sidoti

Thank you.

Operator

to end over Instructions] We’ve our like floor you. closing question-and-answer the Thank [Operator for I’d session. of comments. reached turn the back to Chris any or further

Christopher Belfiore

quarter by will webcast Thank can be first and locations. and February The slide from from at be year the code earnings call conference the The and through be accessed of presentation quarterly conference access fiscal on website. Varex’ conference or XX XXX-XXXX U.S. A our non-U.S. call questions archived this XXXX. and for your of participating for will you, you XXXXXXXX. call in Thank is replay in the anywhere calling available (XXX) (XXX) website XXX-XXXX or replay goodbye. company’s supplemental

Operator

Thank you. today’s and webcast. That teleconference does conclude

your your this a have at you wonderful today. for day. participation We time, You disconnect may thank and line

Varex Imaging (VREX) 9 Feb 222022 Q1 Earnings call transcript