Varex Imaging Corporation

Hello, and welcome to the Verix fourth quarter fiscal year 2022 earnings call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. 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.

Please go ahead. Good afternoon, and welcome to Verix Imaging Corporation's earnings conference call for the fourth quarter of fiscal year 2022. With me today are Sunny Sanyal, our president and CEO, and Sam Maheshwari, our CFO. Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Verix's website at veriximaging.com forward slash news. The webcast and supplemental slide presentation will be archived on Verix's website. To simplify our discussion, unless otherwise stated, All references to the quarter are for the fourth quarter of fiscal year 2022. In addition, unless otherwise stated, quarterly comparisons are made sequentially from the fourth quarter of fiscal year 2022 to the third quarter of fiscal year 2022, rather than to the same quarter of the prior year. Finally, all references to the year are to the fiscal year and not calendar year, unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements, which are predictions and 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 provide 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. I will now turn the call over to Sonny.

Thank you, Chris, and good afternoon, everyone. I'm pleased to announce a strong finish to another fiscal year with revenues reaching $231 million in the quarter, a new quarterly record for Verix. Global demand for our products were solid during the quarter and a slowly improving supply chain and our supplier diversification efforts allowed us to convert more orders to sales. As we start a new fiscal year, I feel good about Verix's prospects to grow despite a high degree of uncertainty in the upcoming year. Revenue in the fourth quarter increased 8% sequentially and 2% year over year. Revenue in medical increased 9% sequentially while industrial revenue increased 6%. Non-GAAP gross margin in the quarter was 33% at the low end of our expectations, primarily due to high semiconductor procurement costs. Adjusted EBITDA was 36 million, and non-GAAP EPS was 42 cents. Our cash position, including marketable securities, was solid at $113 million at the end of the quarter, up $3 million sequentially. Let me give you some high level insights into the market environment based on qualitative assessment of demand for different modalities and applications during the quarter. Medical segment revenues increased 9% sequentially and were flat year over year. Global demand for CT tubes remained solid, but we saw some softness in Asia Pacific as some customers experienced delays with their other suppliers. Demand across our other medical modalities was solid, led by fluoroscopy, radiography, dental, and mammography. Oncology shipments were soft in the quarter, primarily due to timing of shipments to one customer. Revenues in our industrial segment increased 5% sequentially and 9% year over year. During the quarter, we saw broad-based demand across various non-destructive inspection applications, including high energy sources for cargo screening at ports and borders. In the past, we have highlighted various products across our medical and industrial segments that we expect to drive future growth. Today, I wanted to take some time to reflect on the progress that we have made over the last year on these products, as well as other fronts, and our expectations moving forward. The global CT market remains a significant driver of sales for Varix. This includes new system installations, as well as demand for replacement tubes from our growing install base. During fiscal 2022, we had several new design wins with RCT customers, including local OEMs in China. These new design wins represent future sales opportunities, as well as 10 to 15 years of subsequent demand for replacement tubes. We continue to expect China to be a key driver of growth for both CT and Varix as our local OEM partners continue to gain market share. Turning to nanotubes. To further expand our position in nanotubes, in September we entered into a technology collaboration with Micro-X, a leader in carbon nanotube-based X-ray systems for medical and security markets. This includes an exclusive global license enabling Varix to use Micro-X's technology in the field of multi-beam X-ray tubes. Barix believes in the future importance of cold cathode X-ray sources, and we're excited to invest in additional nanotube technology to diversify our product portfolio. Earlier this year, we highlighted our high-performance X-ray tubes used for cardiovascular applications. During the year, we continue to ship samples of our new liquid metal bearing-based CT and cardiovascular tubes for evaluation by potential customers. Over the upcoming quarters, we expect to receive additional feedback on the products and move towards being included in their future system designs. These tubes offer a long life, noise-free operation and increased throughput for certain applications. Moving to detectors, we were happy to see that our dynamic detector platform called Azure continues to receive high interest from our customers. In fiscal 2022, A number of customers began to design Azure detectors into their systems and we continue to receive positive feedback. We expect to see further adoption of our Azure platform as our customers launch their product offerings. We have converted the majority of our radiographic customers to our Lumen detectors. This is a highly competitive radiographic detector platform targeted at the low end of the market where we have historically had lower market share. We will be showcasing our current Lumen detectors as well as a new detector for advanced radiographic applications at RSNA later this November. We also continue to make progress with our photon counting technology on both medical and industrial side. In medical, our photon counting detectors are being used in various applications. Further, we're making progress with our CT customers and are working closely with them to form up design specifications for integration into their systems. As we have noted in the past, we do not have an offering in the CT detector market space today, making this an entirely incremental market for Varix. Finally, we have been working to establish a local presence in India. We took a similar approach in China, where we have seen our revenue grow to nearly $140 million in fiscal 2022. We believe India and Southeast Asia region will be on a similar growth trajectory. and this investment in India will establish a new local presence in the region. Later this month, along with many of our customers, we will be attending the Radiological Society of North America, RSNA, conference in Chicago. Varix will be highlighting its product portfolio, including some of the products we have talked about today. Turning to industrial, we expect the cargo security market for ports and borders to continue to be strong in market for Varix Industrials. Our security business is experiencing growth as a result of increased demand worldwide for cargo screening systems and our partnership with established OEMs in this space. We expect to see continued growth here as we head into fiscal 2023, building on the success we saw this past year. Our industrial customers continue to praise the high frame rate imaging capability of photon counting detectors. And as a result, we are seeing increased adoption across various non-destructive inspection applications, such as electronics, battery, and food inspection. These photon counting detectors enable faster inspection rates and better image quality through enhanced material discrimination compared to other technologies, and thus enable factories to meet increased demand in these growth industries. Last quarter, we highlighted an exciting area within our industrial market. Specifically, I am referring to the use of X-ray or E-beam technologies to sterilize consumer-facing products. This is not a new market outside of Verix, but one that we have historically had limited exposure to. We expect irradiation to be a growing market in which our high-power X-ray sources can be used to irradiate food and other consumer-facing products. These solutions are in development and introduction stages, but we expect to have more details in Fiscal 2023 as we receive feedback from our customers. At the recent American Society for Non-Destructive Testing Conference, ASNT, held in Nashville during early November, our OEM systems integration partners indicated strong backlog and future demand for their inspection solutions in the aerospace, defense, and automotive markets. Our customers see value in our ability to integrate new technologies like photon counting detectors, supporting system components, image acquisition, workflow software, and AI capabilities for automated inspection. We continue to be excited about the prospect of providing more integrated solutions to our industrial customers. We expect this new approach to be a key growth driver for Varix across several industrial verticals. As we move into a new fiscal year, we're happy with the progress that we have made with supply chain initiatives and look forward to our prospects in fiscal 2023 and beyond. With that, let me hand over the call to Sam.