Varex Imaging(US:VREX)2021-08-04 03:52Financial Data and Key Metrics Changes - Revenues reached $211 million, a 4% sequential increase and a 23% year-over-year increase, driven by strong demand in both Medical and Industrial segments [9][10] - Non-GAAP gross margin improved to 36%, while non-GAAP operating margin increased to 14% of revenues, resulting in non-GAAP EPS of $0.40, exceeding guidance [11][29] - GAAP gross margin was 35%, up over 300 basis points sequentially, with operating income increasing by $10 million compared to the previous quarter [31][32] Business Line Data and Key Metrics Changes - Medical segment revenues increased 7% sequentially and 22% year-over-year, with strong demand for CT tubes and other modalities returning to pre-COVID levels [10][11] - Industrial segment revenues decreased 6% sequentially but increased 31% year-over-year, attributed to timing of sales [14][29] Market Data and Key Metrics Changes - Revenue levels in the Americas decreased by 7% sequentially, while EMEA grew by 13% and APAC grew by 6% [30] - China is identified as a significant growth opportunity, with expected revenues exceeding $100 million by fiscal year-end 2021, representing 25% to 30% year-over-year growth [18][19] Company Strategy and Development Direction - The company is focusing on establishing relationships with local OEMs in China to drive growth, with nine out of twelve CT projects already brought to market [16][22] - New product development efforts include the launch of the LUMEN 4336W detector and advancements in nanotube technology [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand for CT tubes and other medical modalities, indicating that the demand is not solely a catch-up from the pandemic [98][101] - Supply chain challenges are acknowledged, particularly regarding raw materials and semiconductors, but management believes they are managing these issues effectively [26][50] Other Important Information - R&D spending was $19 million, or 9% of revenues, reflecting continued prioritization towards innovation and new product development [35][60] - Cash flow from operations improved to $22 million, with cash on hand increasing to $128 million [40][41] Q&A Session Summary Question: Can you provide insights on the demand dynamics for CT tubes in China and supply chain issues? - Management indicated strong demand for CT tubes and acknowledged supply chain issues related to commodities and semiconductors, but they are not currently demand constrained [49][50][51] Question: How much of the gross margin benefit was from sales volume versus cost savings? - Management confirmed that gross margin benefits were primarily driven by higher sales volume and successful cost reduction initiatives, particularly from the migration of manufacturing [56][57] Question: What is the outlook for revenue guidance in Q4? - Management provided guidance for Q4 revenues between $205 million and $225 million, indicating confidence in demand despite potential supply chain constraints [45][121] Question: How is the company performing in comparison to local and global OEMs in China? - Management stated that local OEMs are gaining market share in CTs, and the company is also gaining share in tubes, indicating a positive trend [73][74] Question: What are the expectations for new product contributions to revenue growth? - Management expects future growth from new products developed through increased R&D investments, which have been accelerated due to prior tax savings [82][86]