• Revenue: Increased 5% year over year to $200 million.
• Medical Segment Revenue: Increased 3% to $145 million.
• Industrial Segment Revenue: Increased 10% to $55 million.
• Gross Margin: 35%, up from 31% in the same quarter last year.
• Cash from Operations: $10 million.
• Cash and Cash Equivalents: $219 million, up $6 million from fiscal 2024 year-end.
• Adjusted EBITDA: $24 million, compared to $19 million last year.
• Non-GAAP Earnings Per Share: $0.07, compared to $0.06 last year.
• Net Debt Leverage Ratio: Approximately 2.4 times adjusted EBITDA on a trailing 12-month basis.
• Guidance for Q2 Revenue: Expected between $200 million and $215 million.
• Guidance for Q2 Non-GAAP EPS: Expected between $0.05 and $0.20.

• Warning! GuruFocus has detected 2 Warning Sign with VREX.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Revenue in both the medical and industrial segments grew year over year, with a 5% overall increase.
• Gross margin was strong at 35%, benefiting from favorable product sales mix and productivity gains.
• Cash generation was solid, with $10 million from operations and an increase in cash and marketable securities.
• The industrial segment saw a 10% revenue increase, driven by strong demand in global security screening and cargo inspection products.
• Varex Imaging Corp (NASDAQ:VREX) received additional orders for cargo inspection systems valued at approximately $14 million, indicating growth potential in this segment.

Negative Points

• Unscheduled absences in US facilities during the holidays prevented fulfillment of all demand, impacting revenue.
• The semiconductor, electronics, and battery inspection verticals have not returned to previous demand levels.
• The margin profile for new cargo inspection systems is currently below company gross margin levels.
• There is uncertainty regarding the impact of tariffs and trade relations, which could affect future business.
• The destocking phenomenon outside of China has only recently subsided, impacting previous quarters' performance.

Q & A Highlights

Q: Can you provide more details on the performance in China and any potential impacts from stimulus there? A: Sunny Sanyal, CEO: Sales in China showed an uptick, but we don't consider it a rebound yet. There's no significant improvement in demand expected this year, and no clarity on the impact of stimulus, which hasn't translated into orders for us. We remain optimistic about the long-term growth of imaging in China.

Q: Could you discuss the margin profile and investment needs for the cargo and vehicle inspection systems? A: Sunny Sanyal, CEO: The margin profile is lower for hardware equipment initially but improves with service revenue. Investments are included in our current plans, and we expect the business to become margin accretive once it reaches a $10-$15 million quarterly run rate. Shubham Maheshwari, CFO, added that the business is currently margin-decretive but is expected to improve as it scales.

Q: What percentage of the industrial segment does the cargo inspection business currently comprise, and what is the turnaround time for large orders? A: Shubham Maheshwari, CFO: The security inspection market, which includes cargo inspection, is about 40% of our industrial sales. Cargo systems' contribution is minimal now, but we expect it to grow. The turnaround time for large orders, like the recent $14 million one, can vary from 4-5 months to 18-24 months, depending on the specifics.

Q: How are the destocking issues outside China affecting your business, and what is the outlook? A: Shubham Maheshwari, CFO: The destocking phenomenon is largely behind us, and we are seeing improvement in order rates. The benefit of this will mostly be realized outside of the Q2 window, but we are experiencing positive trends as we speak.

Q: Can you provide an update on the new plant in India and its intended production focus? A: Shubham Maheshwari, CFO: The plant is on track to go online by the end of this fiscal year. Currently, we are focusing on detectors, with plans to expand to tubes the following year. The production is intended for global markets, not just Asia.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.