Varex Imaging Corp Q4 FY2024 earnings call

• Revenue in the fourth quarter was at the high-end of guidance, driven by Industrial segment strength, though Medical segment faced customer destocking. Gross margin was at the low-end of guidance due to unfavorable sales mix in Industrial. China business revenue was stable but lower than fiscal 2023.
• Initiatives include expanding CT tube capabilities, continuing to expand Azure detector portfolio, investing in industrial detectors for various verticals, focusing on photon counting technologies for growth in medical and industrial segments, planning to launch cargo inspection systems in Industrial, and making progress on India expansion with production set to begin in third-quarter of fiscal 2025.

In the fourth quarter, revenue decreased 10% year-over-year. Medical segment revenue was $144 million, a 12% decrease year-over-year, contributing 70% of total revenue. Industrial segment revenue was $61 million, a 4% decrease year-over-year, contributing 30% of total revenue. Non-GAAP gross margin in the fourth quarter was 33%, adjusted EBITDA was $23 million, and non-GAAP EPS was $0.19. Cash, cash equivalents, and marketable securities ended the quarter at $213 million, up $18 million from prior fiscal year end.

• First quarter of fiscal 2025 revenues expected between $195 million and $215 million. Non-GAAP EPS expected between a loss of $0.05 and a profit of $0.10 per share. Q1 includes 14 weeks, with an additional week expected to contribute ~$15 million in revenue. Expectations are based on non-GAAP gross margin of ~31%, non-GAAP operating expenses of ~$53 million, interest and other expense net in $7M-$8M range, tax rate ~22%, and non-GAAP diluted share count of ~41 million shares.

• Uncertainty regarding the impact of potential changes to tariffs on the business. - Continued effects of customer destocking in the medical segment outside of China could impact results if not managed properly.

Q: How are Varex thinking about the level of China stimulus and adaptation to it?

A: Sunny Sanyal stated they haven't seen the effect of stimulus yet as it hasn't flowed through to the healthcare systems and OEMs. Shubham Maheshwari added only a portion of the overall package is towards healthcare and they would have preferred a larger quantum for healthcare.

Q: What differentiates Varex in photon counting technology?

A: Sunny Sanyal mentioned differentiation comes from hardware aspects like resolution, speed, sensitivity of the detector and ability to process with multiple energy bins, and software aspects like years of experience with digital detectors for image processing.

Q: Thoughts on gross margin expansion and what drives it?

A: Shubham Maheshwari explained medical segment gross margins have improved due to factors like freight cost reduction, supplier diversification, etc. Industrial segment gross margins have been weighed down by low-margin linear accelerators in cargo inspection, but they hope to swap with higher-margin products. Overall, market-driven dynamics and company initiatives play a role.

Q: China revenue details and stability?

A: Shubham Maheshwari said China revenue in the fourth quarter was $31 million, same as year-ago quarter, and it has stabilized at lower levels but not worsening.

Q: Balance sheet and PP&E related to India?

A: Sunny Sanyal stated PP&E is mostly related to India, with investments in two factories, expecting production in second-half of fiscal 2025 for the first factory and first part of FY 2026 for the second, and PP&E expected to be around $25M-$30M in fiscal 2025.

Q: Full-year guidance and tariffs?

A: Sunny Sanyal said they can't guide full-year yet due to uncertainties like incoming administration and tariff regime changes. Shubham Maheshwari noted Q1 guidance is steady at $190M midpoint, and they hope volume pick-up and destocking subsiding will help gross margin.

Q: Competition in security solutions and target customers?

A: Shubham Maheshwari said Varex can play as a component supplier and with full systems, can target various locations including smaller ones with differentiated products in the growing security inspection market