Varex Imaging Corporation

And welcome to the earnings conference call for the fiscal year of 2021. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Howard Goldman, Director of Investor Relations.

Good afternoon and welcome to Verix Imaging Corporation's earnings conference call for the first quarter of fiscal year 2021. With me today are Sunny Sanyal, our president and CEO, and Sam Mahashwari, our CFO. Please note that live webcast of this conference call includes a supplemental slide presentation that can be accessed at Verix's website at investors.veriximaging.com. The webcast and supplemental slide presentation will be archived on VERX's website. To simplify our discussion, unless otherwise stated, all references to the quarter are for the first quarter of fiscal year 2021. In addition, unless otherwise stated, quarterly comparisons are made sequentially from the first quarter of fiscal year 2021 to the fourth quarter of fiscal year 2020, rather than to the same quarter of the prior year. Please be advised that during this call, we will be making forward-looking statements, which are predictions or projections about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks relating to our business are described in our quarterly earnings release and our filings with the SEC. Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including item 1A, risk factors of our quarterly reports on Form 10-Q and our annual report on Form 10-K. The information in this discussion speaks as of today's date, and we assume no obligation to update or revise the forward-looking statements in this discussion. On today's call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with nor are they a substitute for GAAP financial measures. We provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website. And now I'll turn the call over to Sonny.

Thank you, Howard. Good afternoon, everyone, and welcome. I'm very excited to say that last week was our fourth anniversary as an independent public company. We continue to remain focused on our mission to help improve and save lives throughout the world by making the invisible visible. We are a world leader in X-ray imaging products for our medical and industrial applications. And with the help of our 2000 colleagues, as well as our customers and suppliers, over the last 70 years, we have continued to bring innovative and breakthrough technologies to market. Global OEMs incorporate our mission critical components into their X-ray imaging systems, and we have continued to strengthen our relationships with them, many of which span more than four decades. Our first quarter results came in towards the higher end of our guidance range. Revenues increased sequentially by 4%, indicating the start of recovery in our business. Global demand for our CT tubes has stayed strong during the last few quarters, and Q1 followed the same trend. Our non-GAAP gross margin increased to 34%. The improvement was due to realization of benefits from previously disclosed cost reductions, as well as a favorable shift in product mix within our medical segment. Non-GAAP operating expenses were down approximately $3 million, reflecting our continued focus on profitability. As a result, our non-GAAP operating margin improved to 8% of revenues. Non-GAAP EPS also came in towards the higher end of our guidance at $0.08 per diluted share. Cash improved to $106 million, driven by positive cash flow from operations. Let me give you some high-level insight into how our different modalities performed during the quarter. We previously indicated that our business had stabilized, This quarter, we began to see a recovery. CT has continued to remain strong for a number of quarters, including Q1. Much of our CT business is coming from new system installations, which bodes well for our replacement business in the future. In fluoroscopy and oncology, we saw some improvement, primarily driven by an increase in patient visits for elective procedures. Our other medical modalities remained sequentially flat for the quarter. Industrial is also beginning to see consistent sequential recovery. Cargo and port security, as well as baggage screening business, remain low, but other non-destructive testing and inspection verticals showed improvement. Let me now give you an update on our progress in China, where we are seeing continued momentum. As a reminder, we estimated that approximately 25,000 new CT systems will be needed in China over a 10-year period. Partially in response to COVID, we believe the Chinese government intends to accelerate the installation of about 10,000 CT systems over the next few years. These systems will be placed in so-called fever clinics and emergency departments at local hospitals in order to provide dedicated CT scanner rooms for patients with infectious conditions. As a result, we're seeing a significant increase in demand for our tubes for new CT systems in China. For the past few years, we've been working with eight Chinese OEMs and have active pricing agreements with them to incorporate our CT tubes and other components into their new CT systems. On the left panel of this slide, you can see the current planned introduction and rollout of different CT scanner models by various OEMs. As we have said before, these OEMs are making steady progress with their product development, and we are confident that several new CT models utilizing our components will hit the market over the next couple of years. Now let me give you some perspectives on how Verix is positioned for growth. Our business has started to exhibit sequential growth that should lead us back to pre-COVID revenue levels of about $200 million per quarter. The pace of recovery will initially be driven by increasing demand for service replacement products as surgeries and elective procedure volumes increase. Service replacements are typically funded by hospital operating budgets, whereas the purchase of new imaging systems require capital expenditure budgets. Beyond the initial recovery, we expect that hospitals and medical facilities will begin to commit capital for new imaging systems once utilization levels reach certain thresholds. We also expect that COVID vaccines will play a key role in increasing utilization levels. In our industrial segment, we expect to see continued gradual improvement as the broader economy recovers. The pandemic has revealed substantial vulnerabilities in the preparedness of healthcare systems and associated infrastructure globally. In response, in the mid-term, just like we're seeing in China, other governments and medical facilities around the world are likely to increase spending on healthcare. Such spending is likely to occur over many years in numerous areas of healthcare, including modernizing and expanding X-ray imaging capabilities. Over the long term, we expect our new technologies and innovative products to drive growth. These include our photon counting digital detectors and our nanotube technology, which I will discuss in a moment. Let me give you a summary of what we have achieved as a company since the spinoff from Varian and where we are headed. During our first three years, we focused on standing up a new public company, completing the integration and consolidation of a major acquisition, and expanding our global footprint. We consider Verix 1.0 to be a success. Beginning last year, we entered the second phase, which we call Verix 2.0, and are in the early stages of this transformation. Here, we remain focused on three major areas. First, strengthening our balance sheet Second, improving our operating margins. And third, accelerating our growth through innovation. We have already completed the first element of our transformation with the new capital structure that provides increased flexibility with limited financial covenants. Second, we're working to improve the operating structure of the company. Our objective is to improve profitability by expanding our gross margin and reducing our operating expenses. We expect the significant cost reductions that we recently made to largely remain in place even as business recovers. And third, we're focused on releasing new products based on game-changing technologies. We expect that our investments in new and innovative platforms will enable us to release a number of new products over the coming years. While adoption of new technologies can take several years, upside is a long multi-year tail of recurring revenues from products that have been engineered into our customers' X-ray imaging systems. Our new products include the Z-Platform family of dynamic digital detectors. These detectors are designed to produce high-quality images at lower doses compared to equivalent amorphous silicon detectors. Since the acquisition of direct conversion, we have continued to invest in our photon counting technology. Detectors using photon counting produce high contrast images at low doses and enable very good soft tissue resolution due to their ability to do precise energy discrimination. An exciting application for photon counting technology is CT detectors. We plan to leverage our technology to enter the CT detector market, which is complementary to our CT tube business. At RSNA last year, we introduced our new photon counting CT detector modules. These modules should soon be available for customer evaluation. We believe our entry into the CT detector market has the potential to expand our addressable market by half a billion dollars. While the adoption of this technology may take a few years, we are excited about the opportunity. We continue to work on nanotube technology with our joint venture, BEC Imaging. We are developing a multi-beam cold cathode x-ray nanotube. We are pleased with the progress we have made so far and look forward to providing updates on future developments. In our industrial segment, we intend to grow by extending our technology into select verticals. We have been focused on our components and subsystems, and going forward, in certain verticals, we may develop full imaging systems. We're excited about industrial products we're developing. With that, let me hand over the call to Sam to talk about our financial performance in greater detail.