Varex Imaging Corporation

Greetings. Welcome to the Verix third quarter full year 2023 earnings call. At this time, all participants are on 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. Please note this conference is being recorded. I'll now turn the conference over to your host, Christopher Belfour. You may begin.

Good afternoon and welcome to Verix Imaging Corporation's earnings conference call for the third 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 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 third quarter of fiscal year 2023. In addition, unless otherwise stated, quarterly comparisons are made sequentially from the third quarter of fiscal year 2023 to the second 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 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 provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measures 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 another solid quarter for Verix. Revenue of $232 million in the third quarter of fiscal 2023 is a new quarterly record for us. Non-GAAP gross margin of 34% exceeded our expectations and non-GAAP earnings per share of 37 cents was at the high end of our guidance. These results were helped by continued strength in our industrial business. In addition, we increased cash by $30 million in the quarter. primarily driven by diligent inventory management and increased profitability. Revenue in the third quarter was up 2% sequentially and 8% year-over-year. Revenue in the medical segment increased 1% sequentially and 5% year-over-year, while industrial revenue increased 5% sequentially and 20% year-over-year. Non-GAAP gross margin in the third quarter was 34%, which was better than our expectations, and up 100 basis points compared to the second quarter. This was primarily due to the higher portion of industrial sales. Adjusted EBITDA in the third quarter was $38 million, and non-GAAP EPS was 37 cents. We ended the third quarter with $152 million of cash, cash equivalents, and marketable securities on the balance sheet. up $30 million from $122 million in the prior quarter. This was primarily due to higher profitability and $13 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, which we will refer to as sales trend. In our medical segment, global sales of CT tubes was solid in the quarter and remains above its sales trend. Our fluoroscopy and oncology modalities improved in the quarter, but were flat compared to their respective sales trends. Mammography was solid in the quarter and above its sales trend. Dental, which can be lumpy from quarter to quarter, remained down in the third quarter, but is trending in a more positive direction, and radiographic continues to grow above its sales trend. Global sales of our industrial products were robust for the second straight quarter, and order intake remained solid. The continued strength was primarily in our non-destructive inspection business across various applications, including cargo screening and oil and gas. We also saw increased adoption of our photon counting technology with growth in food, battery, and electronics inspection in the quarter. Taking a step back from the quarter, I'd like to provide a brief update on some of our products we introduced over the last year. Our dynamic detector platform Azure continues to make solid progress with our customers who are integrating these detectors into various systems, including those for cardiovascular and surgery applications. The Azure platform is a cost effective, high performance dynamic detector technology aimed at enabling us to secure design wins for dynamic applications. These detectors are targeted at expanding our applications footprint in our new and existing customers. It offers high resolution and high performance at lower x-ray dose than its amorphous silicon equivalent and is a cost-effective alternative to CMOS detectors, which become expensive at larger sizes. We expect to see continued adoption of Azure and expect that many new system launches by our customers in the coming years will design in our Azure detectors. Since its launch in 2022, we have seen strong interest in this platform, and we are happy with how this technology is performing in the field. At the same time, we are seeing continued uptake of our lumen detectors. We now have a full portfolio of lumen detectors used across various modalities, including dental and fluoroscopy. We recently also introduced lumen detector models made in our factory in China for sales in global markets where there are no political or economic barriers to sales of products made in China. We expect to see shipments of lumen detectors made in our factory in China starting in October of this year. The lumen platform offers a US-designed detector for radiographic applications at a globally competitive price and is targeted at expanding our coverage of these applications. Our industrial business has seen solid growth this year, partly due to strength in our non-destructive inspection applications, which utilize our linear accelerator products, also referred to as LINACs. These are high-power X-ray sources that are used in inspection of large objects such as cargo containers, automotive parts, jet engines, and rocket motors. We're excited to say that this technology was used in the manufacturing of India's Chandrayaan-3 rocket, which is carrying a rover to the moon. BAREC's LINACs were used to inspect the integrity of the rocket motors, propellant tanks, and detecting voids, cracks, and other abnormalities. Varick is the world leader in high-energy linear accelerators for industrial applications. We work with various rocket manufacturers in the U.S., Europe, and Japan, and now we're proud to support India's growing space program. In summary, we're very happy with our performance in the third quarter, and now I will turn over the call to Sam to go over details of our financial results.