Varex Imaging Corporation

Greetings. Welcome to the Varix Imaging third quarter fiscal year 24 earnings call. At this time all participants are in listen only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time I'll turn the conference over to Christopher Belfier, Director of Investor Relations. Christopher, you may now begin your presentation.

Good afternoon and welcome to Verix Imaging Corporation's earnings conference call for the third 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 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 2024. In addition, unless otherwise stated, quarterly comparisons are made year over year from the third quarter of fiscal year 2024 to the third 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 risk 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. I will now turn the call over to Sonny.

Thanks, Chris. Good afternoon, everyone, and thank you for joining us for our third quarter earnings call. Third quarter revenues came in as expected, with continued strength in our cargo inspection business within our industrial segment. During the quarter, we continue to see customers in our medical segment adjust inventory levels, resulting in reduced demand for some medical products. We believe this is the result of our customers increasing inventory levels during the supply chain challenges over the past several years. We expect that these inventory adjustments should subside in early calendar 2025. In the quarter, gross margin was lower than anticipated, primarily as a result of unfavorable product sales mix in our industrial segment. The higher proportion of cargo equipment sales compared to service sales pressured gross margins in the quarter. In China, we continue to see softness in the third quarter as a result of the ongoing anti-corruption actions by the Chinese government. While sales are down year over year, in the quarter we saw modest improvement sequentially. We remain optimistic that the medical imaging market will improve in China and that Varix is well positioned to benefit when growth resumes. Particularly, we continue to see a desire by Chinese medical institutions to upgrade from value or 16-slice CTs to performance or 64 and 128-slice CTs. Turning to the third quarter results, revenue in the third 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 third quarter was 32%. Adjusted EBITDA in the third quarter was $23 million, and non-GAAP EPS was 14 cents compared to 37 cents last year. We ended the quarter with $192 million of cash, cash equivalents, and marketable securities on the balance sheet, up $40 million compared to the third quarter of fiscal 2023. 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. Sales in our medical segment were down in the quarter, driven primarily by inventory adjustment actions by our customers and lower sales in China. While sales in China improved slightly sequentially the overall environment in China remained soft. Global sales of CT tubes improved slightly in the quarter and was in line with its sales trend. Sales in our radiographic modality was above its trend. Sales in our fluoroscopy, oncology, mammography, and dental modalities were all below their respective sales trends. In our industrial segment, sales of cargo inspection products remained solid as our customers benefited from strong demand in the global security screening and cargo inspection markets. We continue to experience softness in other industrial end markets, primarily in semiconductor, electronics, and battery inspection. The markets we operate in remain challenging, including ongoing softness in China, inventory adjustments by our customers, and continued competition from Asia-based detector manufacturers. We continue to remain focused on our long-term priorities in innovation, particularly on photon counting, as well as cost leadership as we continue to expand our presence and footprint in India. With that, let me hand over the call to Sam.