Earnings call transcript Q2 2023

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Operator

Greetings, and welcome to the Varex Second Quarter Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded.

pleasure Relations. your my Director Chris now Investor of is to host, introduce Belfiore, It Chris. you, Thank

You may begin.

Christopher Belfiore

fiscal me Good Corporation's President for of earnings and and conference XXXX. afternoon welcome Maheshwari, call the to CEO; and second our Sanyal, are Sunny today Varex Sam Imaging year our With CFO. quarter

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

To simplify otherwise unless year quarter discussion, the quarter stated, to our of all are XXXX. second references for the fiscal

addition, second quarterly quarter In the comparisons the year fiscal sequentially XXXX to from fiscal stated, otherwise of of first are unless quarter made XXXX. year

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

that to quarterly risks our from our call, based in cause described advised are which These or forward-looking SEC. to and be with during our Please business are current the that on will relating results could anticipated. expectations subject statements be making filings Risks future statements, those we assumptions uncertainties release projections are to events. are and that earnings about predictions differ this and materially actual

on actual XX-Q Additional SEC speaks as this update date, is Annual reports our differ today’s or The contained of information filings, in Factors forward-looking Report information results in and of the discussion. statements on discussion Form we including could concerning Form this factors obligation from revise assume in and that quarterly no to XX-K. cause our our materially to those anticipated XA, Risk

to These a a most press presented accordance will directly earnings website. GAAP GAAP measures. substitute we measure with, our each measure discuss nor financial comparable the provided measures. non-GAAP are posted measures not on they our call, in of financial We which today’s in for release, financial non-GAAP are is reconciliation certain non-GAAP On financial

Sunny. the over turn call now will to, I

Sunny Sanyal

afternoon, was while good second exceeded to our half We're and report encouraged This segment, growth Thank everyone. than that you, in we're I'm driven our Industrial Medical by high-end expected in the quarter remain primarily better strong Chris, results guidance. our seeing to the by with the fiscal our pleased of levels we solid in-line and XXXX. anticipate second performed the demand of expectations. segment results

X% Revenue second in the and and in sequentially up segment revenue X% sequentially year-over-year. XX% sequentially Medical segment increased year-over-year. the XX% while year-over-year, XX% was quarter and Industrial X% increased Revenue

the than to was margin EPS gross the which a due Non-GAAP in and million our industrial Adjusted sales. $X.XX. better second was higher was quarter proportion second GAAP expectations primarily of non in was XX% $XX quarter EBITDA

$XXX and ended was equivalents up quarter This reduction inventory in the million in in with the balance due $XXX primarily We second million marketable million of the quarter. from cash securities on sheet, $XX a prior the to the cash, million quarter. $X

solid in compared year-over-year you Let quarter, primarily due me to and CT QX quarter. down down was and into customers. our which sequentially. in tubes increased and the the Dental, mammography sales quarter insights Medical quarter average. X% were Fluoroscopy flat be was in from strength up. Asia-Pacific the oncology with quarter-to-quarter, radiography lumpy in can second was Demand give was revenues segment by in a to the five modality X% detail quarter for some the while

quarter in was nondestructive sequentially. year-over-year for in Demand primarily Revenues robust products our in of products and across the The our Industrial was solidly quarter and segment and various increased our expectations. strength XX% industrial in service. inspection XX% end the ahead markets

inspection. market, security continue to also primarily We in cargo see improvement in

RSNA of continues March. of in our our November photon a focus customers. customers well It the many for last to highlighted quarter, was topic at in technological at Radiology the of be of European we Congress capabilities as counting significant As detectors conversations as a with

We are have Industrial businesses Medical into entered capabilities to to and across further counting our projects several of announce we photon that detectors. excited demonstrate the

to potential into segment, University their our integration Munich these In a Biomedical CT progress we counting make led Technical and order project detectors of for of efforts, have photon customers also continue of with systems. Munich. accelerate of funded to Engineering, we publicly Institute entered the the into Medical support In by

This focus use project Varex is the capabilities in detector photon of photon a technology detectors CT our for technology AI counting utilize a several enabled CT counting demonstrator to project develop the components applications, which addition allow to The by of to of photon counting and enhanced showcase will will the Varex system. including imaging.

to project this in potentially technology counting CT the cutting accelerate systems. detectors democratize expect photon of will next CT the edge generation adoption We

research In sponsored segment, are funding projects the collaborative Varex in two our PARSEC involved and under counting projects and Europe Industrial for innovation. named is GRINNER. These Programme, the key photon EU's programme Horizon

abuse detection is the postal goods postal higher in will performance. services these detection The in by addressing Varex’s assist and to is of courier its and of to courier PARSEC PARSEC, project, Varex help express the express of in deploy at enhance achieving and first project criminals illicit aimed counting users role terrorists. and this photon levels threats achieve objectives. flows technology and

fires an Varex’s high and addressing in electronic companies. electrical second to GRINNER, chain. waste is issues photon management significant develop help utilizing aimed for cause battery powered role detection costs battery project, These in this affecting management at waste project damage caused can AI detectors. our The fires system equipment is and counting

and further thankful and technologies in accelerate of use fields. our for projects, help the innovative development Industrial the Across Medical and associated all these three the partnerships are highly which funding, we

XXXX by fiscal seeing to in over for We as a across X% the expect is performance the supply XXXX. are solid chain fiscal demand both We that are continue grow of customers the situation we and the we half second trends expect segments improving encouraged our in to X% XXXX. to result, believe fiscal revenue and

over Sam. to, hand that, call With me let the

Sam Maheshwari

everyone. hello and Sunny, Thanks,

reminder, our XXXX. fiscal comparisons As provide I'll sequential of with for results indicated, the quarter unless quarter a second first of our those fiscal XXXX otherwise of

the to pleased primary results and guidance. compared our Industrial in our which gross significantly quarter. guidance EPS of the $XX cash run non-GAAP was report excellent A recent exceeded for for second the to revenue million I'm performance rates. flow We our in generated execution of margin solid and driver quarter operating strong was segment, above

The of portion margin was million we result, the non-GAAP gross $X.XX. of gross of Non-GAAP higher a primarily sales margin the EPS is XX%. result As larger of $XXX sales. reported industrial and

XXXX. a first second Revenues XX% XXXX. of compared increased revenues low to X% seasonally fiscal quarter to Second compared quarter increased of quarter fiscal

quarter. and past. and $XXX revenues contributed $XX revenues Industrial million were were our revenues revenues and were XX% Medical Medical revenues XX% between million. XX% for typically the Industrial total the were total revenues of recent Varex in have Industrial XX% revenues of

revenue revenue revenue of to perform well XXXX. X% X% note EMEA CT. increase Americas of increased from while increased overall sales reallocation driven of quarter. APAC with APAC APAC of by the in fiscal at region, QX Americas XX%. there strengthened sequentially, in increased for our Looking China XX% and sales The for minor a was us Please by were primarily continues to

now cover me a basis. our Let GAAP results on

$XX million basis million XXXX. were sequentially. income were of fully and margin million expenses million $X.XX Second fiscal points earnings quarter Operating was XX% GAAP quarter $X XXX million. operating $XX diluted was higher up was And Net EPS $X based the compared XX up gross on $X million first shares. to

Micro-X the on well primarily XX% to guidance due completion payment. XXX segment, we our $X on to by for higher freight $XX the was Micro-X X% and points as expenses. the Recall was last successful XX% the quarter. non-GAAP material payment up quarter XX% results R&D reduced Moving revenues Overall, to provided basis compared R&D sequentially, the R&D as million the spending expense to for sales related technology of R&D Gross related million milestones. included of high range. larger quarter transfer Industrial end at targeted in driven of first quarter, of a million second $X from in spending our of margin proportion was up margin

approximately $XX prior million SG&A up was of XX% compared $X to revenues. the SG&A quarter. million was

to SG&A credit million. with XXXX As $X a the associated second of quarter up XXXX, lower to was a QX related plan. was incentive fiscal SG&A compared our of The in note, fiscal

were due to in expenses expectations than of XX% up R&D or quarter higher $X million margin first revenue XXXX. the $XX Overall, to Operating revenue. spend X% SG&A. our compared were higher our Operating Operating of million and was expenses $XX material operating million XX% of fiscal sequentially. was income

or the first expense quarter $X quarter in Tax was of or fiscal XXXX. of income XX% second $X the XX% to in million million compared pre-tax

on per $X.XX XX for full Net diluted model the sequentially. million shares to non-GAAP XXXX. continue or $X.XX diluted $XX a approximately We earnings basis fiscal a share, were tax for quarter rate Average were year up XX% million.

Despite accounts days days XX increase of XXX quarter by $X and decreased significant turning decreased and DSO million days. prior XX Now quarter the in to decreased the balance sheet. days second to Inventory a million to sales, receivable the in $X inventory from XX increased days.

payable half pleased trend fiscal progress Accounts with very decreased inventory, XX our by million are days. in payable was this the XXXX. continue $XX days We of and to second reducing expect and

and the a marketable cash debt We million from of reduction fiscal second quarter quarter Now increase of $XX Cash XXXX. moving and in the to cash, of securities operations inventory. to $XXX from cash an was quarter primarily with first information. ended the equivalents $XX flow flow due million million, in

of of was $XXX outstanding was debt $XX of million quarter of the debt margin adjusted and million Gross Adjusted EBITDA $XXX quarter at the million marketable and was for sales. $XXX cash and securities EBITDA million. the net XX% was end

end. Our times at ratio XX net months EBITDA X.X trailing leverage the was debt quarter

in to fiscal earnings to customers, for revenue up compared to X% situation X% sales on now expect we moving be for to We XXXX improving fiscal stronger an than last Now we are be the fiscal XXXX. our expecting anticipated now XXXX due supply call. to guidance, to chain

between expected million, diluted revenues and and the for quarter $XXX of $XXX between and is $X.XX per expectations expected non-GAAP earnings XXXX fiscal $X.XX. million Our are; third are share

about non-GAAP are range count XX the expectations well expenses XX% to million of margin gross of $XX range million. in Tax rate share shares. fiscal operating about quarter non-GAAP as million as XX% rest of for on a and third of to of a the XX%. XXXX, Non-GAAP in based diluted Our $XX

open With that, call your questions. for the now will we

Operator

Thank you.

question-and-answer conducting We Thank be Instructions]. [Operator will you. now session. a

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

Larry Solow

question chain guys. guess strong. the first I out environment guess afternoon, quarter, singled know sounds last you softening pretty a you And supply caution felt sort I of has that Good high spoke demand hospital but or of you quarter, demand Great. impacted I of caution like importantly kind there's just on I the last been chain from serve the bit. also all always it impact a sort and from you was more purchasing. OEM -- I also demand to a, little of issues, couldn't remained some From think supply this demand level. been but because partners like

changed? to of of quarters it back, what effect better thought driving was and to trying a a kind out, parse then but a what sort of environment, of What that just it was there sort little revenue I'm looks of we of a So, bit has quarter. be -- last kind seesaw like appears couple

give be a that'd great. just on little maybe could you that, color If

Sunny Sanyal

this Larry, Hi, Yes. Sunny. is

Larry Solow

Hi, Sunny.

Sunny Sanyal

last and all, we met the were issues moving and saw, they supply that Industrial what with exceeded that our chain having mentioned expectations. through In general, for -- through factory. trouble our the our of moving quarter, the expectations Medical the many that of with this had customers having we and quarter First

when the reason okay, started that with they make clear made progress. the quarter for some the what And they caution placed -- started we subsequent So, our saying, quarters. we gave as up saw customers will orders then was gave in should us progress, the What and that to then expect us that in to this grow.

our for second of the So, the that year. half confidence in -- second the increased

Industrial, see to strength, we for strength. secondly, And ongoing continue

So, that's continued has on. -- and that

there situation, are hospitals on. is -- their we're terms that the the capital financial their But situation, hard to prioritization improve environment going been sensing is capital working still In that of have profitability. and what

though situation. even it And on so, with their continues capital improve, the prioritization, still and that prioritization continue to the extent that should they'll

let's the than So, we're December, timeframe. say, better were, January in we feeling

Larry Solow

out Okay. single-digit to this volume think called low flat And of kind of growth low you single-digit I year. sort

flat, higher quarter, do maybe last feels know more, really I end of Industrial I the think low maybe sort the said single -- better, but going but year, a that that maybe you semantics your just of could QX, but you that, you're the still I guide not switch more don't it are that's like you Medical. forward, is be at you full feels mean, not in always that than trying X%, -- case driven X% but there, in demand I'm to bit sort of maybe little it is

Sam Maheshwari

Hi, Larry. is Sam. This

we prepared prior X% -- yes, remarks, full year, now the the growth of to our in year X%. did call in expecting that the range So, we out sales over FY XXXX in ‘XX are for

Larry Solow

Okay.

Sam Maheshwari

number. here up, had we Previously from have and are of last that, productive so in and kind previously we months the sales of said customers the what, we flat progressed, said are indicating as full and less certain raising some really that, few to that's were Sunny coming year more pockets, and softness being seeing

Larry Solow

switching And gears Okay. just then off.

seems higher is of guidance expense temporary quarter, for this back to It of it kind call the like you of this originally where had side, your as on quarter. bit sort feels QX even below the guided somewhat little Just for your

I dollars. good a think, by million

that spend, of was sort like just figure So, sort was in trying what more nature, or obviously feels permanent, too. drove one-timeish SG&A, of that your the are expected temporary than to sales R&D than But was better that higher out Thanks. it? it material

Sam Maheshwari

sure, Yes, few there. to things A unpack Larry.

just would one-time we where reported that QX we -- had There If a remember, is you $X in guided million results.

Larry Solow

Right.

Sam Maheshwari

-- Payment related to milestones

Larry Solow

Right.

Sam Maheshwari

for And completion successful that of Micro-X.

is So, goes that away one-time in clearly QX. that

you're you doing also that a also were R&D, in R&D So, material. R&D more bit whenever little benefit. had then more had there's is material, QX, there we saying, And like we

expected So, R&D than spending. there higher a material was bit

So, that of trend QX. expect in down also kind we coming meaning quarter, to in this

a I'm It think quarter OpEx forward. not OpEx that one OpEx actuals high a run the we say was had. why going into that that's where I So, rate is that sustainable. I would that are of is back kind on going expenses expecting QX just the

travel are quarter, getting Now, well. as in a quarter back as come coming things visitors for of has the back countries last external the to your well as comment opened customers, travel full on had this with SG&A, meeting normal resumed, up we few

SG&A I as R&D should my is, come. in mind continue but it So, think would

Larry Solow

appreciate the all Thanks, I Great. it. Got color. Sam.

Operator

Thank you.

Young Li proceed your Our next question from with Please Jefferies. is question. with

Young Li

China start looks wondering can plus growth provide as bit Hi, in so the grow XX% XX% the like XX% can Thanks that reasonable first Maybe questions on was just the on on much plus business, year can assume if if China fiscal on and it half taking I of detail great. for well. quarter. around out our it's wondering you little maybe the to more congrats for a It growing China you of year? rest. for outlook Is the strong it. I was to comment a

Sunny Sanyal

expect then rates been growth of the the systems. around us. on first rates to which So more in has China growth of all, the the seen of over adoption settle into we China. for market is to you've And the due growth XX% to XX% that's past tear first why XX% And rates

we the not adoption continued base For of first year, see half, there's some much but installed China's expected this has impact. there, a our expect we've so and over trajectory change the had that in rest again, of to grown. always continued, has no, timing But time, the

growth. of the XX%ish long a haul, we type So for expect

kind can along you that So, in of that plot -- trajectory. it

Young Li

inventory, Maybe to supply higher fiscal I as one and gross ‘XX month gross Industrials ‘XX the issues fiscal expect, the on the so, the you're well? margin for improving, just right, margin, some some guess, low maybe fiscal great, of All should the are helpful. be better very reducing and was of I chain watermark XQ's business higher margin. wondering, macro is doing cost we

Sam Maheshwari

Hi, of Young, tailwinds which margin margin, portion Yes, sales. higher Sam few business, gross a Industrial, terms here. a being mentioned a I in higher is think we of

work number. overall more as benefited on But So to down well move XX rates ocean gross that We come from ocean. air to the both air freight also do as from basis freight. margin have need freight. the still points, the contributes XX points, of to points XX some basis to Freight then we basis

that should help. So,

more. there's the a benefit, I little freight So, more bit think related there, do to

So, that. that was

Foreign in the quarter this to a of -- in in. trade here we effect. exchange that do -- bit last that compared dollar, little was business major can some we that a currencies very small we Overall,

margins this to forward, So, with point between as I the are I'm all QX. items, gross these expecting At gross in going look to low three further. two gross tend forward, margins agree point. that you margin expected QX to be XXXX And benefited I improve or

of drag we that has P&L the that. to some balance that As work price the cost

should freight favorable. And provide help to as expecting I'm some environment and to happens, that that margin. some continue that So benefit should supply -- on gross provide would remain that freight more us.

probably So QX for on the think us. margin is gross low yes, I point the

Young Li

you Thank much. so Excellent.

Sam Maheshwari

Thanks, Young.

Operator

you. Thank

Our with & your Company. Please next Jim Sidoti question. from with proceed question is Sidoti

Jim Sidoti

I'm and taking Hi. and questions. thanks afternoon, good Good sorry, the morning for

the Micro-X, a what pathway about, assume I was commercialize the them some hitting product so a you payment, is? On of as that to -- $X bit payment just the milestones. talk result little that Can million

Sunny Sanyal

those The Hi, our up here bidder, by do lab milestones the had here and successfully transfer setting Yes. technology completing ourselves. to and with around of Jim. the in two building

one. how those we're completed So, and so that were that's and went satisfied with

them and which building is We are next, to and what necessary the with up the of build middle characterizing doing benchmarking tubes, out, testing. doing now in we do performance

down have path we starting to ship customers. prototypes then go Jim, that, our once of So, to we the

bread used get rest the of to the trails building of those and data them will are OEMs. take but crumb testing tubes, year is we that be and So the then with up the commercialization. sheets It coming of that how up sort the finish engage the spec the to the sheets, the those to -- us steps, are on would

Jim Sidoti

then the reported in COVID some shutdowns, slow first China, indicated trend? quarter of couple of the Did and And Okay. some because of you the a better that months device were similar the China then March. see was companies other particularly got in of

Sunny Sanyal

the flexible as to because up so were somehow we and We production our in our affected two their out. keep workforce going and environments came -- COVID by we. last did we with worked helped saw accommodating that very customers manage much We years, not the ways of shutdowns,

were So, on We that. anything didn't that with sense fine front. we that

Jim Sidoti

Okay.

Sam Maheshwari

Jim, were that, we the in Yeah. I just add shutdowns would impacted during China. that not much

And a continued step China things been has so, that up, up or as we for us, opened when quarters strong over a not and saw that. anything result continuously it's here of like way. number that a

So, of January didn't far as we China see versus difference a much really between is as March, concerned.

Jim Sidoti

the maybe the Okay. think the now XXXX above purchases, strong of Do driving that rates elective think very maybe likely on you procedure heard back up? hospital is some little then, quarter be that And see of for Do the they're capital the make levels. that that's their I've that trend improvement a they more other side? what's calls, procedure to on of seem some sort rates to you

Sunny Sanyal

we environment our I the also They for products for continues customers The were were the so is them getting their reason previous jam in we when to quarter, said, sense and as to shipped be up and they've their mentioned we're not deliver, to ability strong them. demand with ups. the jammed from that

and they're in whip. we components their they're ship and bolt, them another when because for and missing our there were So, stuck product stuck

our using our as So, And then saw, they we hence up demand - strengthen. were we freed that up products.

from environment. have our overall, about heard customers So only demand the news we positive

Jim Sidoti

a that other only you one on prepaid million I is Okay. and on cash, you sheet, you or said Alright. $XX and last then the the a think so show $XXX And current million other the balance $XXX million, assets have is on? -- we

Sam Maheshwari

Jim. No,

difference the said the and cash between sheet. cash reported one, we that that on on So balance

They called or You per other so. than invested treasury it GAAP, $XX or securities. is marketable as million rightly picked securities such about others, And up are security. in

income. the in to very So, they the risk it purposes, on balance cash are pick But for all is practical yield and is interest it sheet. investments up cash low elsewhere some

Jim Sidoti

Okay, all Thank you. right.

Sam Maheshwari

Jim. Thanks

Operator

you. Thank

your Kalia next is Suraj Our with Please from question proceed Oppenheimer. question. with

Unidentified Analyst

Hi, it's on for Shane, actually. Suraj,

So --

Sunny Sanyal

it. appreciate I

Unidentified Analyst

Thanks.

Sunny Sanyal

worries. No

Unidentified Analyst

our on taking and strong quarter. for questions, Thanks congrats a

that mix a various you of how given do of, ensure it rates kind match? mechanism kind all photon Is and players of the detectors, So other there various have free attach of detectors? also a tubes or counting is for

Sunny Sanyal

two may they disconnected I So, counting, photon purchased. how be think are of may in be they how bought, terms the

and the -- counting, talk let come back of first, me I'll to guts So, photon your about question. your

fairly our are some performance tubes some may counting really electronics, -- different detector direct industrial in the of cases, performance photon into broadly connection applications, and So, are variety used. tube. our across food There There's the inspection, they're used the dispersed and across be inspection, going of cases now not and are of a industrial right the detectors tubes no battery between verticals. of the detector industrial

counting photon some in those some our side, -- Medical in have the that are our tubes on applications cases of medical are that in those detectors go designed there. So and into

what detectors many are the targeting our these -- customers tube. our sorry these how customer, depends that, we our where CT of but and with customers detector tight -- are a there market, connection has who not inherently CT are two. the have between So the With core approach we been CT on

So, there incumbent. we have the an of being benefit

going So are optimizing with them to technologies to photon detector for already tubes components We're well there. counting work and in them. our our

Unidentified Analyst

you. Okay. Thank

on kind say I $X we saw a $XX inventory, to or want million $X million quarter-over-quarter. a down of Turning million,

I you've component in pricing. said cost there's it's So we speak, remainder inventory the that some year? management know previously higher higher there, so how kind inventory of to should for the of expect And, from

of boost could any guess, and you that if margin gross the through over year as So, work kind you quantify that? I

Sam Maheshwari

Sure.

year. targeting of So further overall, tick Shane, in inventory the during fiscal to terms balances, are of inventory the rest our down we overall

and towards down. bringing working inventory planning So, amounts are we

see positive then, and -- our P&L, be in generation components, high And the price a towards through through a of high margin the calendar end some my would should is P&L, estimate be should that price from the more now, inventory, gross those cost high as But year. is this flow we there rolling that they pickup. components much of as of cash and roll perspective. that are So,

So, beginning those should next year, pickup from across their when January moved have the of some see we gross kind of components margin P&L. way

Unidentified Analyst

Thank one the our you. last Okay. And of end, and cathode? what's status cold OEM the from current just validation -- of evaluation

Sunny Sanyal

Yes.

we've those the prototypes we're are prototypes, and So, progress on prototypes, -- continuing continued technologies ship to to to the the engineering customers. design make our

the that's progress moving And to our we So, Micro-X with forward also technology support continuing the time, venture, and is our them. at same moving with joint are technology forward.

Unidentified Analyst

you. Thank

Operator

at back further to over for would any are to this you. closing turn time. no Thank I the There Chris floor Belfiore, like questions comments.

Christopher Belfiore

for Great. any comments? you questions. Thank you final your have Sunny, do

Sunny Sanyal

seeing our global the with closing, very encouraged quarter the results, pleased that of prospects they basis. daily the we're demand and And that and we're very our of we're Look, I'm by remainder XXXX. effort make on as a fiscal in growth folks -- I'm of employees always, levels proud second Sure. the for

time join us interest thank Thank in today, to you your for and you continued taking the for Varex.

Christopher Belfiore

earnings conference and And participating your Sunny. today. for questions in thank you, Thank our call all you

Thank through slide will May be XX our this and website. accessed on The be webcast and A available quarterly at be replay www.vareximaging.com/investor-relations. will you. supplemental can archived presentation conference of

Operator

conference. today's concludes This

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

Varex Imaging (VREX) 2 May 232023 Q2 Earnings call transcript