Varex Imaging(US:VREX)2019-08-07 00:35Financial Data and Key Metrics Changes - Quarterly revenues increased by 3% compared to the prior year, driven by record global CT tube sales and double-digit growth in oncology and mammography imaging products [9][10] - Operating earnings for the third quarter were $5 million, down from $7 million in the same quarter a year ago, while adjusted operating earnings were $19 million, comparable to the prior year [21][29] - Gross margin was 31%, down from 33% in the prior year, with adjusted gross margin at 34%, compared to 35% in the prior year [27][32] - Net loss of $1 million or $0.04 per diluted share in the third quarter compared to net earnings of $4 million or $0.10 per diluted share in the prior year [32] Business Line Data and Key Metrics Changes - Medical segment revenues increased by 3%, with higher sales of CT, oncology, and mammography products, partially offset by lower sales of radiographic detectors [26] - Industrial segment revenues also rose by 3%, primarily driven by increased demand for X-ray tubes for airport security [26][13] Market Data and Key Metrics Changes - The company experienced a significant increase in shipments of CT tubes to OEM customers in China, with expectations to ship more than twice the number of units compared to the previous year [12] - The global detector business faced challenges due to tariff-related losses in radiographic detector sales in China, but plans to establish local production in Wuxi are underway [16] Company Strategy and Development Direction - The company is focusing on a local-for-local strategy to mitigate tariff impacts by establishing local manufacturing and sourcing [16] - Plans to close digital detector manufacturing operations in Santa Clara, California, are expected to yield annual benefits of $21 million to $27 million once completed [19][24] - The company is actively pursuing small tuck-in acquisitions while prioritizing debt reduction over the next 12 to 18 months [90][91] Management's Comments on Operating Environment and Future Outlook - Management noted that the tariff situation has not significantly impacted product costs, and they are closely monitoring developments [11] - The effective tax rate for fiscal year 2019 is now expected to be approximately 26%, affecting adjusted net earnings per diluted share guidance to be in the range of $1.25 to $1.45 [36] - The company maintains its revenue outlook for fiscal year 2019, expecting revenues between $760 million and $785 million [35] Other Important Information - The company launched three new industrial digital detectors and one detector for 3D dental applications during the quarter [15] - The acquisition of Direct Conversion contributed approximately $2 million in revenues, with integration activities ongoing [10][63] Q&A Session Summary Question: Has anything other than the tax rate changed in guidance? - Management clarified that expectations for gross margins and operating expenses remain the same, with the only change being related to tax impact [39][41] Question: Can you discuss the factors that would drive the wide range for Q4 guidance? - Management indicated that guidance is based on annual expectations and will not change unless known events occur [42][46] Question: What is the timeline for the closure of the Santa Clara facility? - The facility is expected to cease operations by mid-2021, with most benefits realized after full closure [23][55] Question: How is the direct conversion acquisition performing? - The acquisition was slightly a drag on earnings due to R&D expenses, but overall it is expected to be a breakeven transaction [56] Question: What is the status of the China OEM order book? - Management reported that 8 out of 10 Chinese OEMs have contracts with the company, with a backlog of approximately $140 million [71] Question: How are new industrial products performing? - The company launched a new small footprint linear accelerator and several digital detectors, focusing on oil and gas applications [82]