8-K: Varex Imaging Reports Mixed Q3 Results, Industrial Segment Shows Strength

Varex Imaging Corporation announced its third quarter fiscal year 2024 results, with a revenue decrease of 10% year-over-year, but a 6% increase in the Industrial segment.

Summary

• Varex Imaging Corporation reported a revenue of $209 million for the third quarter of fiscal year 2024, which is a 10% decrease compared to the same period last year.
• The Medical segment experienced a 15% year-over-year revenue decline, reaching $149 million.
• The Industrial segment showed positive growth with a 6% year-over-year increase, achieving $60 million in revenue.
• Non-GAAP gross margin was 32%, down from 34% in the third quarter of fiscal year 2023.
• Non-GAAP earnings per diluted share decreased to $0.14, compared to $0.37 in the same quarter of the previous year.
• Cash flow from operations was $8 million for the quarter.
• The company's cash, cash equivalents, marketable securities, and CDs totaled $192 million at the end of the quarter, down from $195 million at the end of fiscal year 2023.
• Varex expects fourth quarter revenues to be between $190 million and $210 million.
• Non-GAAP net earnings per diluted share for the fourth quarter are projected to be between $0.00 and $0.15.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the significant decrease in revenue and earnings, particularly in the medical segment, despite some positive growth in the industrial segment. The forward guidance is also weak.

Positives

• The Industrial segment demonstrated strong performance with a 6% year-over-year revenue increase.
• Cash flow from operations remained positive at $8 million for the quarter.

Negatives

• Total revenue decreased by 10% year-over-year.
• The Medical segment experienced a significant 15% year-over-year revenue decline.
• Non-GAAP gross margin decreased from 34% to 32% year-over-year.
• Non-GAAP EPS decreased significantly from $0.37 to $0.14 year-over-year.
• The company's cash position decreased slightly from $195 million to $192 million since the end of fiscal year 2023.

Risks

• The company faces challenging market conditions, impacting revenue and earnings.
• There is uncertainty surrounding the outcome of the elections in the United States in 2024 and possible legislative, tariffs, and policy reforms.
• The company is exposed to fluctuations in foreign currency exchange rates.
• The company is exposed to geopolitical tensions.
• The company is exposed to supply chain and logistics challenges.
• The company is exposed to cost increases and expense management issues.

Future Outlook

The company expects fourth quarter revenues to be between $190 million and $210 million, with non-GAAP net earnings per diluted share between $0.00 and $0.15. This guidance is provided on a non-GAAP basis only due to the difficulty in predicting certain reconciling items.

Management Comments

• Sunny Sanyal, Chief Executive Officer, stated, 'Revenue in the third quarter of fiscal 2024 came in as expected, driven primarily by continued strength in our cargo inspection business, which drove a 6% year-over-year increase in our Industrial segment.'

Industry Context

The results indicate a mixed performance with strength in the industrial sector but weakness in the medical sector, reflecting potential shifts in market demand or competitive pressures within these segments. The company's performance is also impacted by broader economic factors such as inflation and currency fluctuations.

Comparison to Industry Standards

• Varex's performance in the medical imaging sector is weaker than some of its competitors, such as Canon Medical Systems and Siemens Healthineers, who have reported more stable or growing revenues in their medical imaging divisions.
• The industrial segment growth of 6% is a positive sign, but it is important to compare this to other companies in the industrial X-ray inspection market, such as Smiths Detection and Rapiscan Systems, to assess Varex's relative performance.
• The decrease in non-GAAP EPS from $0.37 to $0.14 is a significant drop and needs to be compared to the performance of peer companies to determine if this is an industry-wide trend or specific to Varex.
• The company's cash position of $192 million is relatively stable, but it is important to compare this to the cash reserves of its competitors to assess its financial flexibility.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and earnings.
• Employees may be affected by potential cost-cutting measures.
• Customers in the medical segment may experience changes in product availability or pricing.
• Suppliers may be impacted by changes in order volumes.
• Creditors may be concerned about the company's financial performance.

Next Steps

• Varex will conduct an earnings conference call on August 1, 2024, at 3:00 p.m. Mountain Time.
• The company will file its Form 10-Q for the third quarter of fiscal year 2024.

Key Dates

Keywords

Varex Imaging, X-ray imaging, Medical imaging, Industrial imaging, Financial results, Revenue, Gross margin, Earnings per share, Non-GAAP, Cash flow