Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Varex Imaging Corp (VREX, Financial) experienced continued strength in its cargo inspection business within the industrial segment.
- The company ended the quarter with $192 million in cash, cash equivalents, and marketable securities, up $40 million compared to the third quarter of fiscal 2023.
- Global sales of CT tubes improved slightly in the quarter and were in line with sales trends.
- Varex Imaging Corp (VREX) is optimistic about the potential for growth in the Chinese medical imaging market, particularly with the upgrade from 16-slice to 64- and 128-slice CTs.
- The company is making progress in its long-term strategy with photon counting technology and cost leadership initiatives, particularly in India.
Negative Points
- Third-quarter revenue decreased by 10% year over year, with a 15% decrease in the medical segment.
- Gross margin was lower than anticipated due to an unfavorable product sales mix in the industrial segment.
- Sales in China remained soft due to ongoing anticorruption actions by the Chinese government, impacting overall revenue.
- Non-GAAP EPS was $0.14, down from $0.37 in the previous year.
- The company faces continued competition from Asia-based detector manufacturers, particularly in low-end modalities such as radiographic and dental.
Q & A Highlights
Q: Can you provide more color on the situation in China, given the ongoing anticorruption campaign and potential stimulus?
A: Sunny Sanyal, CEO: We saw a slight sequential improvement in China, but we don't expect a significant trend change in the near future. The anticorruption audits continue, and while stimulus could be beneficial, its impact is not yet clear. Competition from Asia-Pacific players remains intense, especially in low-end modalities.
Q: What are your early thoughts on fiscal 2025, particularly regarding medical segment inventory pressures and industrial performance?
A: Shubham Maheshwari, CFO: It's early, but we expect inventory pressures to ease in early 2025. While China remains uncertain, the industrial segment, particularly cargo, is performing well. Overall, we anticipate gradual improvement in fiscal 2025 compared to 2024.
Q: Can you elaborate on the traction in the industrial segment, specifically the cargo business?
A: Shubham Maheshwari, CFO: The industrial segment, driven by cargo, is strong and expected to grow. While there is softness in semiconductors and electronics, the cargo business remains robust with good visibility for continued strength.
Q: Any updates on the photon counting technology and its impact on the medical segment?
A: Sunny Sanyal, CEO: We are making good progress with photon counting technology, which is part of our long-term strategy. We remain optimistic about its contribution to growth. In the near term, we are focused on cost-out initiatives to regain market share in radiographic and dental areas.
Q: What are your capital allocation priorities after strengthening the balance sheet through refinancing?
A: Shubham Maheshwari, CFO: Our priorities include funding business needs, capital expenditures, and deleveraging. We aim to reach an optimal debt structure of $300 million to $350 million. Beyond that, we will explore growth opportunities through M&A and further deleveraging.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
