Varex Imaging Corporation

Greetings and welcome to the VARIC's first quarter fiscal 2025 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Chris Belfiore, Director of Investor Relations. Please go ahead, Chris.

Good afternoon and welcome to Barrick's Imaging Corporation's earnings conference call for the first quarter of fiscal year 2025. 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 VARIC's website at varicsimaging.com. The webcast and supplemental slide presentation will be archived on VARIC's website. To simplify our discussion, unless otherwise stated, all references to the quarter are for the first quarter of fiscal year 2025. In addition, unless otherwise stated, quarterly comparisons are made year over year from the first quarter of fiscal year 2025 to the first quarter of fiscal year 2024. 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 information, 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 suitable 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 Sunny.

Thank you, Chris. Good afternoon, everyone, and thank you for joining us for our first quarter earnings call. Demand in the first quarter was solid. However, unscheduled absences in our US facilities during the holidays prevented us from fulfilling all the demand for the quarter. Revenue in both the medical and industrial segments grew year over year. During the quarter, we started to see customer orders begin to improve, And in China, we realized an improvement in sales both year over year and sequentially. Gross margin of 35% in the quarter was strong and higher than anticipated. This was primarily the result of favorable product sales mix and productivity gains in both segments. Gross margin also benefited by approximately 130 basis points from refunds of German customs duties and taxes previously paid. Cash generation was also solid, with cash from operations of $10 million in the quarter. This was driven by very good working capital management. Turning to the first quarter results, which included 14 weeks. Revenue was up 5% year over year. Revenue in the medical segment increased 3%, while the industrial segment revenue increased 10%. Non-GAAP gross margin was 35%, up from 31% in the same quarter last year. Adjusted EBITDA and non-GAAP earnings per share in the first quarter were $24 million and 7 cents compared to $19 million and 6 cents last year, respectively. We ended the first quarter with $219 million worth of cash, cash equivalents, and marketable securities on the balance sheet, up $6 million compared to fiscal 2024 year end, and up $24 million year-over-year. In addition, we also have $124 million of restricted cash raised from our senior secured debt offering in December. Now 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 the sales trend. Sales in our medical segment were up in the quarter, driven primarily by solid global sales of CT tubes, which were above their sales trend. Fluoroscopy and mammography modalities were stable in the quarter compared to sales trend. Radiography, oncology, and dental modalities were all below their respective sales trends. In our industrial segment, continued strength in global security screening drove sales of cargo inspection products. We also saw an increase in our service revenues in this vertical. We experienced a strong start for the year in our industrial X-Ray 2 product line, driven by increased demand for checked baggage inspection and cargo screening at airports, as well as non-destructive inspection in verticals such as aerospace and automotive. During the quarter, we also saw stabilization in the semiconductor, electronics, and battery inspection verticals. but they have not yet returned to the demand levels seen in previous years. Last quarter we announced that we had expanded our offerings in cargo and security inspection to include comprehensive system and service solutions in high-energy cargo inspection. Our state-of-the-art systems are designed to enhance security, improve trade compliance, and combat smuggling. Our portfolio of currently available products includes a stationary portal which enables the seamless inspection of large cargo-carrying vehicles and containers as they drive through it. With a throughput of over 100 vehicles per hour, it can serve as an essential tool for customs and border security agencies. We also offer a similar application called a gantry, which is a rail-mounted portal that can move back and forth to image and inspect stationary vehicles and palletized cargo. Our mobile inspection system consists of a truck-mounted collapsible portal, which is a flexible on-demand cargo and vehicle scanning system that can be set up at various locations as needed. Designed for rapid deployment, it can be operational in 15 to 20 minutes of arrival, making it ideal for events and temporary security checkpoints. And lastly, our current offerings also include a compact vehicle scanning system, providing efficient inspection of passenger vehicles and their contents at designated checkpoints. Each of these systems are built on a foundation of our proprietary imaging components, such as high-energy X-ray sources, our detectors, advanced imaging software, and control systems. With over two decades of expertise and an installed base of more than 1,500 linear accelerators worldwide, we expect to deliver industry-leading security inspection solutions to our customers. Last quarter, we mentioned that we had successfully completed installation and received customer acceptance of several cargo inspection systems with additional deployments underway. Earlier this week, we were happy to announce that we have received additional orders from certain industrial customers to provide cargo inspection systems valued at approximately $14 million. These orders will include a combination of portals and mobile systems. The systems are expected to be installed over the next 12 months and will be used to secure ports and borders in different parts of the world. As we highlighted last quarter, we view cargo and security scanning systems as a potentially significant long-term growth opportunity for Varix. We estimate that the annual serviceable opportunity is over a billion dollars and expected to grow at approximately 7% CAGR over the next five years. Demand for security screening is being driven by continued global security threats and the need to ensure correct declaration of goods transported across international ports and borders. With decades of experience supplying and servicing key system components for OEMs in this sector, we have built a strong reputation for quality and service excellence. By leveraging our R&D expertise, vertically integrated manufacturing capabilities, and imaging technology leadership, We believe we can provide unique value directly to security and inspection end users worldwide. We're pleased to start off the fiscal year on solid footing and with the positive demand trends that we're seeing across our businesses. We're encouraged by what we're seeing in our China business and continue to remain optimistic about the long-term growth of imaging in China. In geographies outside China, demand trends are improving, and we remain on track to begin production of radiographic components in India during this fiscal year. Before I hand the call to Sam, let me comment on the tariff announcements between the US, China, Canada, and Mexico. This is a rapidly changing situation which we are monitoring very carefully. At this time, based on our current knowledge, we do not expect any significant direct impact to our business. However, additional tariffs or retaliatory actions or changes to currently announced tariffs could change the anticipated impact to our business. With that, let me hand over the call to Sam.