Varex Imaging Corporation

Greetings and welcome to the Varix Imaging second quarter full year 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone to 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 Belfier, Director of Investor Relations. Thank you, sir. You may begin.

Good afternoon and welcome to Varix Imaging Corporation's earnings conference call for the second quarter of fiscal year 2024. 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 Varix's website at variximaging.com. The webcast and supplemental slide presentation will be archived on Varix's website. To simplify our discussion, unless otherwise stated, all references to the quarter are for the second quarter of fiscal year 2024. In addition, unless otherwise stated, quarterly comparisons are made year over year from the second quarter of fiscal year 2024 to the second quarter of fiscal year 2023. Finally, all references to the year are to the fiscal year and not the 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 release and our filings with the SEC. Additional information concerning the 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 be discussing 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 will 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. Good afternoon, everyone, and thank you for joining us for our second quarter earnings call. Sales in the second quarter was in line with our expectations, resulting in revenue of $206 million. Non-GAAP gross margin of 33% was within the guided range, and non-GAAP earnings per share was 16 cents in the quarter. Revenue in the second quarter was down 10% year over year. Revenue in the medical segment decreased 15% year over year, while the industrial segment revenue increased 6%. Non-GAAP gross margin in the second quarter was 33%, which was flat compared to the same quarter last year, and non-GAAP EPS was 16 cents compared to 26 cents last year. We ended the second quarter with $190 million worth of cash, cash equivalents, and marketable securities on the balance sheet, up $68 million compared to the second quarter of fiscal 2023. Now let me give you some insights into the sales detail by modality in the quarter compared to a five-quarter average, which we will refer to as the sales trend. Sales in our medical segment was down in the quarter due to cautious purchasing behavior by our customers, in addition to the continued softness in China. Global sales of CT tubes improved in the quarter and is now in line with the sales trend. Fluoroscopy and mammography were both in line with their respective sales trends. Oncology, radiographic, and dental modalities were all below their respective sales trends. Global sales of our industrial products were solid in the quarter and in line with our sales trend. Our cargo inspection products and industrial tubes continued to see strong sales while we experienced some softness in other industrial and markets, primarily in semiconductor, electronics, and battery inspection. Now I'd like to take a moment to give you an update on our photon counting technology. As we highlighted in the past quarters, photon counting detector technologies are a significant focus across the entire imaging industry. Both medical and industrial OEMs continue to explore the use of photon counting in imaging applications across various modalities, from food inspection to full-body medical CT. Engagement with our OEM customers has accelerated over the past year, and we believe Verix continues to be well-positioned to benefit from these trends, given our innovative technology and breadth of our product portfolio. Our industrial segment, where technology adoption tends to be faster, continues to be the main driver of our photon-counting detector sales. The technology is being adopted in high-growth niche verticals where there's a need for high-speed and high sensitivity imaging. Our photon counting detectors continue to be integrated into new customer systems, and we expect industrial applications to remain solid source for sales of Varix's photon counting products in the future. In addition, last year we provided an overview of two collaborative photon counting projects in our industrial business, Parsec and Grinner. These projects are sponsored under the Horizon Europe program, the European Union's key funding program for research and innovation. Both projects are focused on the speed of imaging and material discrimination, which are distinctive strengths of photon counting. The PARSEC project aimed at addressing the potential abuse of postal and express courier services by criminals and terrorists is making solid progress. The material discrimination capability of our photon counting technology, coupled with AI software, is being used to test the detection of illicit substances within clusters of parcels. The Grinner project, which is aimed at preventing battery-caused fires in the electronics waste management chain, is also progressing well. A prototype incorporating our photon counting technology is expected to be deployed to an end-user facility in Europe for gathering data and field testing. Once testing at the recycling facility is complete in late fiscal 2024, we expect to work with our customer on commercialization of the final system. In our medical segment, our Photon County technology is being used in full body scans and panoramic dental imaging. As we noted on our first quarter earnings call, We're working with a major OEM to integrate our photon counting technology in their next generation of CT scanners. This process is moving along as planned. We also now have other prospects in the pipeline who are in various stages in assessing our technology for CT application. We expect new and existing applications of our photon counting technology to contribute strong sales growth over the next five years. Specifically, we expect additional applications in medical, including CT, to add over $100 million of revenue over this timeframe. Coupled with traction in our industrial markets, we expect our photon counting portfolio to contribute more than $150 million of revenue annually by fiscal 2029. We continue to be encouraged by the acceptance of photon counting technologies for medical and industrial applications. With that, let me hand over the call to Sam.