Varex Imaging Corporation

Greetings and welcome to the VARIC 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 a 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. It is now my pleasure to introduce your host, Chris Belfiore, Director of Investor Relations. Thank you, Chris. You may begin.

Good afternoon and welcome to Varick Imaging Corporation's earnings conference call for the second quarter of fiscal year 2023. 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. The website 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 second quarter of fiscal year 2023. In addition, unless otherwise stated, Quarterly comparisons are made sequentially from the second quarter of fiscal year 2023 to the first quarter of fiscal year 2023. 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 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 reliefs 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 1A risk factors of our quarterly reports on Form 10Q, 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. I will now turn the call over to Sonny.

Thank you, Chris, and good afternoon, everyone. I'm pleased to report strong second quarter results that exceeded the high end of our guidance. This was primarily driven by better than expected results in our industrial segment, while the medical segment performed in line with our expectations. We're encouraged by the demand levels we're seeing, and we anticipate our growth to remain solid in the second half of fiscal 2023. Revenue in the second quarter was up 11% sequentially and 6% year-over-year. Revenue in the medical segment increased 9% sequentially and 2% year-over-year, while industrial segment revenue increased 19% sequentially and 22% year-over-year. Non-GAAP gross margin in the second quarter was 33%, which was better than our expectations, primarily due to a higher proportion of industrial sales. Adjusted EBITDA in the second quarter was $30 million, and non-GAAP EPS was 26 cents. We ended the second quarter with $122 million of cash, cash equivalents, and marketable securities on the balance sheet, up $14 million from the $108 million in the prior quarter. This was primarily due to a $9 million reduction in inventory in the quarter. Let me give you some insights into sales detail by modality in the quarter compared to a five-quarter average. Medical segment revenues increased 2% year-over-year and 9% sequentially. Demand for CT tubes was solid in the quarter, primarily due to the strength with our Asia-Pacific customers. Fluoroscopy and oncology were down in the quarter. Dental, which can be lumpy from quarter to quarter, was down in Q2, and mammography was flat in the second quarter while radiography was up. Revenues in our industrial segment increased 22% year-over-year and 19% sequentially. Demand for industrial products was robust in the quarter and solidly ahead of our expectations. The strength in the quarter was primarily in our non-destructive inspection products across various end markets and service. We also continue to see improvement in security market, primarily in cargo inspection. As we highlighted last quarter, the technological capabilities of photon counting detectors continues to be a focus for many of our customers. It was a significant topic of our conversations with customers at RSNA in November, as well as at the European Congress of Radiology in March. We are excited to announce that we have entered into several projects across our medical and industrial businesses. to further demonstrate the capabilities of photon counting detectors. In the medical segment, we continue to make progress with our CT customers for potential integration of photon counting detectors into their systems. In order to accelerate and support these efforts, we have also entered into a publicly funded project led by Munich Institute of Biomedical Engineering of the Technical University of Munich. The focus of the project is to develop a technology demonstrator of a photon counting CT system. This project, which will utilize several Varix components in addition to photon counting detectors, will allow Varix to showcase the capabilities enabled by our photon counting detector technology in CT applications, including the use of AI for enhanced imaging. We expect this project will democratize cutting edge CT technology to potentially accelerate the adoption of photon counting detectors in the next generation CT systems. In our industrial segment, VERIX is involved in two collaborative photon counting projects named PARSEC and GRINR. These projects are sponsored under the Horizon Europe Program, the EU's key funding program for research and innovation. The first project, PARSEC, is aimed at addressing the abuse of postal and express career services by criminals and terrorists. Varix's role in this project is to help Parsec enhance detection of threats and illicit goods in the postal and express courier flows and achieve higher levels of detection performance. Varix will deploy its photon counting technology to assist users in achieving these objectives. The second project, Grinner, is aimed at addressing issues affecting battery-caused fires in electrical and electronic equipment waste management chain. These fires can cause significant damage and high costs for waste management companies. Barrick's role in this project is to help develop an AI-powered battery detection system utilizing our photon counting detectors. Across all these three highly innovative projects, we are thankful for the partnerships and associated funding which help accelerate further development and the use of our technologies in the medical and industrial fields. We are encouraged by the demand trend that we are seeing across both segments and expect the solid performance to continue in the second half of fiscal 2023. We believe the supply chain situation for our customers is improving, and as a result, we expect revenue in fiscal 2023 to grow 3% to 5% over fiscal 2022. With that, let me hand over the call to Sam.