Varex Announces Financial Results for Second Quarter Fiscal Year 2024

Rhea-AI Summary

Varex Imaging (Nasdaq: VREX) announced its unaudited financial results for the second quarter of fiscal year 2024, with revenues of $206 million. The GAAP gross margin was 32%, while the Non-GAAP gross margin stood at 33%. GAAP net earnings were $0.03 per diluted share, and Non-GAAP net earnings were $0.16 per diluted share. Cash flow from operations was $3 million. The company reported a 10% year-over-year decrease in revenue, primarily due to lower sales in China. The medical segment revenue was down 15%, while the industrial segment revenue was up 6%. Non-GAAP gross margin was 33%, with Non-GAAP EPS decreasing to $0.16 from $0.26 in the previous year. Cash, cash equivalents, marketable securities, and CDs totaled $190 million at the end of the quarter. The company provided guidance for the third quarter, expecting revenues between $200 million and $220 million and Non-GAAP net earnings per diluted share between $0.05 and $0.25.

Insights

Financial Analyst

Varex Imaging Corporation reported a revenue of $206 million for its second quarter, which aligns with their guidance, yet reflects a 10% decline year-over-year. This dip is attributed to decreased sales in China, representing a notable regional challenge. Their medical segment's revenue dropped 15% year-over-year, while the industrial segment grew by 6%, indicating sectoral divergence in performance. The reported GAAP net earnings of $0.03 and Non-GAAP of $0.16 per diluted share, when juxtaposed with the previous year's Non-GAAP earnings of $0.26, signals a contraction in profitability. The company anticipates further softness in sales for the latter half of the fiscal year, primarily in the medical segment, which investors should watch as it may impact future profitability. The liquidity position, with $190 million in cash and equivalents, offers some financial stability, yet it reflects a slight decrease from the previous year-end. The projected Q3 revenue of $200 million to $220 million and Non-GAAP EPS of $0.05 to $0.25 suggest cautious optimism with a broad earnings estimate range that merits attention for its potential volatility. Considering these factors, the financial health of the company appears stable but faces headwinds that could influence both short-term performance and long-term growth prospects.

Market Research Analyst

The performance of Varex Imaging in the Chinese market raises concerns about the company's sensitivity to geopolitical and economic factors in the region. The 15% decline in the medical segment echoes broader challenges faced by the healthcare industry in that market. Investors should consider the company's efforts to diversify and mitigate these risks. Furthermore, the upward trend in the industrial segment may indicate resilience or strategic pivots that could offset challenges elsewhere. The overall market's response to Varex's performance may be tempered by the company's realistic guidance and the management's acknowledgment of the headwinds faced. From a market perspective, Varex's situation exemplifies the need for companies to adapt to fluctuating international markets and reflects broader trends in the healthcare and industrial sectors, which investors might want to consider as part of their portfolio risk management strategy.

SALT LAKE CITY--(BUSINESS WIRE)-- Varex Imaging Corporation (Nasdaq: VREX) today announced its unaudited financial results for the second quarter of fiscal year 2024.

2QFY24 Summary

• Revenues $206 million
• GAAP gross margin 32% | Non-GAAP gross margin* 33%
• GAAP operating margin 4% | Non-GAAP operating margin* 6%
• GAAP net earnings $0.03 per diluted share | Non-GAAP net earnings* $0.16 per diluted share
• Cash flow from operations was $3 million

"Revenue of $206 million in the second quarter was in line with guidance, but down year-over-year primarily due to lower sales to our customers in China," said Sunny Sanyal, Chief Executive Officer of Varex. "Sales in the first half of fiscal 2024 were as expected, but we are lowering our expectations for the second half of the fiscal year due to continued softness in our medical segment, particularly in China."

Varex’s revenue of $206 million was down 10% year-over-year. Medical segment revenue of $149 million was down 15% year-over-year. Industrial segment revenue of $57 million was up 6% year-over-year. Non-GAAP gross margin was 33% in the quarter compared to 33% in the second quarter of fiscal year 2023 and non-GAAP EPS decreased to $0.16 from $0.26 in the second quarter of fiscal year 2023.

Balance Sheet & Cash Flow

Cash flow from operations was $3 million in the second quarter of fiscal year 2024. Cash, cash equivalents, marketable securities, and CDs was $190 million at the end of the second quarter of fiscal year 2024 compared to $195 million at the end of fiscal year 2023.

Outlook

The following guidance is provided for the third quarter of fiscal year 2024:

• Revenues are expected to be between $200 million and $220 million
• Non-GAAP net earnings per diluted share is expected to be between $0.05 and $0.25

Guidance for the company's net earnings per diluted share is provided on a non-GAAP basis only. This non-GAAP financial measure is forward-looking, and the company is unable to provide a meaningful or accurate reconciliation to a GAAP forecast of net earnings per diluted share without unreasonable effort due to certain of these reconciling items being uncertain, out of our control, and the amount and timing of these items being unable to be reasonably predicted. The actual amounts of such reconciling items could have a significant impact on the company's GAAP net income (loss) per diluted share.

Non-GAAP Financial Measures

*Please refer to "Reconciliation between GAAP and non-GAAP Financial Measures" below for a reconciliation of non-GAAP items to the comparable GAAP measures.

Conference Call Information

Varex will conduct its earnings conference call for the second quarter of fiscal year 2024 today at 3:00 p.m. Mountain Time. The conference call, including a supplemental slide presentation, will be webcast live and can be accessed at Varex’s website at www.vareximaging.com/investor-relations. Access will also be available by dialing 877-524-8416 from anywhere in the U.S. or by dialing 412-902-1028 from non-U.S. locations. The webcast and supplemental slide presentation will be archived on Varex’s website at www.vareximaging.com/financial-reports. A replay of the call will be available from today through May 16th at 877-660-6853 from anywhere in the U.S. or 201-612-7415 from non-U.S. locations. The replay access code is 13745752. The listen-only webcast link is: https://event.choruscall.com/mediaframe/webcast.html?webcastid=8aPvDuBB.

About Varex

Varex Imaging Corporation is a leading innovator, designer, and manufacturer of X-ray imaging components, which include X-ray tubes, digital detectors, and other image processing solutions that are key components of X-ray imaging systems. With a 70+ year history of successful innovation, Varex’s products are used in medical imaging as well as in industrial and security imaging applications. Global OEM manufacturers incorporate the company’s X-ray sources, digital detectors, connecting devices, and imaging software in their systems to detect, diagnose, protect, and inspect. Headquartered in Salt Lake City, Utah, Varex employs approximately 2,300 people located in North America, Europe, and Asia. For more information visit vareximaging.com.

Forward-Looking Statements

This news release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements concerning revenue and earnings guidance, supply chain and logistics challenges; cost increases and expense management; changes in U.S. and worldwide economic conditions, such as the impact of inflation, and fluctuations in foreign currency exchange rates; geopolitical tensions; industry or market segment outlook; market acceptance of or transition to new products or technologies such as advanced X-ray tube and digital flat panel detector products; growth drivers; future orders, revenues, backlog, earnings or other financial results; and any statements using the terms “believe,” “expect,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “may,” “intend,” “potential,” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations. Any forward-looking statements made by us in this news release speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Varex assumes no obligation to update or revise the forward-looking statements in this release because of new information, future events, or otherwise.

Varex has not filed its Form 10-Q for the second quarter of fiscal year 2024. All financial results described here should be considered preliminary and are subject to change to reflect any necessary adjustments or changes in accounting estimates that are identified prior to the time Varex files its Form 10-Q.

VAREX IMAGING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended								Six Months Ended
(In millions, except for per share amounts)	March 29, 2024				March 31, 2023				March 29, 2024				March 31, 2023
Revenues, net
Medical	$	148.8			$	174.1			$	288.7			$	334.2
Industrial		57.4				54.1				107.5				99.6
Total revenues		206.2				228.2				396.2				433.8
Gross profit
Medical		44.7				51.7				83.6				98.0
Industrial		21.1				21.0				39.3				38.0
Total gross profit		65.8				72.7				122.9				136.0
Operating expenses:
Research and development		22.6				23.0				43.1				43.0
Selling, general, and administrative		35.5				34.1				67.9				64.4
Total operating expenses		58.1				57.1				111.0				107.4
Operating income		7.7				15.6				11.9				28.6
Interest income		1.8				0.7				3.7				1.2
Interest expense		(7.9	)			(7.3	)			(15.2	)			(14.8	)
Other income (expense), net		0.7				(1.2	)			1.3				(1.8	)
Interest and other expense, net		(5.4	)			(7.8	)			(10.2	)			(15.4	)
Income before taxes		2.3				7.8				1.7				13.2
Income tax expense		0.7				3.5				0.5				5.7
Net income		1.6				4.3				1.2				7.5
Less: Net income attributable to noncontrolling interests		0.2				0.2				0.3				0.3
Net income attributable to Varex	$	1.4			$	4.1			$	0.9			$	7.2
Net income per common share attributable to Varex
Basic	$	0.03			$	0.10			$	0.02			$	0.18
Diluted	$	0.03			$	0.10			$	0.02			$	0.18
Weighted average common shares outstanding
Basic		40.7				40.2				40.6				40.2
Diluted		41.2				40.5				41.1				40.5

VAREX IMAGING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share and per share amounts)	March 29, 2024				September 29, 2023
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	141.8			$	152.6
Marketable securities		47.1				41.3
Accounts receivable, net of allowance for credit losses of $0.7 million and $0.6 million at March 29, 2024 and September 29, 2023, respectively		151.5				163.6
Inventories		286.1				277.5
Prepaid expenses and other current assets		25.4				23.3
Total current assets		651.9				658.3
Property, plant, and equipment, net		147.7				143.6
Goodwill		289.3				288.5
Intangible assets, net		18.2				22.4
Investments in privately-held companies		28.9				29.0
Deferred tax assets		47.8				41.3
Operating lease assets		29.5				29.0
Other assets		38.4				37.5
Total assets	$	1,251.7			$	1,249.6
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	69.4			$	64.7
Accrued liabilities and other current liabilities		69.4				82.6
Current operating lease liabilities		3.8				3.8
Current maturities of long-term debt		1.5				1.5
Deferred revenues		10.0				10.2
Total current liabilities		154.1				162.8
Long-term debt, net		441.4				441.1
Operating lease liabilities		23.9				23.1
Other long-term liabilities		42.1				41.6
Total liabilities		661.5				668.6
Stockholders' equity:
Preferred stock, $.01 par value: 20,000,000 shares authorized, none issued		—				—
Common stock, $.01 par value: 150,000,000 shares authorized
Shares issued and outstanding: 40,855,981 and 40,529,573 at March 29, 2024 and September 29, 2023, respectively.		0.4				0.4
Additional paid-in capital		458.4				450.4
Accumulated other comprehensive loss		(1.7	)			(1.2	)
Retained earnings		119.0				118.1
Total Varex stockholders' equity		576.1				567.7
Noncontrolling interests		14.1				13.3
Total stockholders' equity		590.2				581.0
Total liabilities and stockholders' equity	$	1,251.7			$	1,249.6

VAREX IMAGING CORPORATION RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES (Unaudited)
	Three Months Ended								Six Months Ended
(In millions, except per share amounts)	March 29, 2024				March 31, 2023				March 29, 2024				March 31, 2023
GROSS PROFIT RECONCILIATION
Revenues, net	$	206.2			$	228.2			$	396.2			$	433.8
Gross profit		65.8				72.7				122.9				136.0
Amortization of intangible assets		1.9				1.8				3.7				3.6
Non-GAAP gross profit	$	67.7			$	74.5			$	126.6			$	139.6
Gross margin %		31.9	%			31.9	%			31.0	%			31.4	%
Non-GAAP gross margin %		32.8	%			32.6	%			32.0	%			32.2	%
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE RECONCILIATION
Selling, general, and administrative	$	35.5			$	34.1			$	67.9			$	64.4
Amortization of intangible assets		1.7				1.6				3.5				3.2
Restructuring charges		—				0.8				0.1				1.5
Other non-operational costs		1.9				3.2				3.8				3.8
Non-GAAP selling, general, and administrative expense	$	31.9			$	28.5			$	60.5			$	55.9
OPERATING EXPENSE RECONCILIATION
Total operating expenses	$	58.1			$	57.1			$	111.0			$	107.4
Amortization of intangible assets		1.7				1.6				3.5				3.2
Restructuring charges		—				0.8				0.1				1.5
Other non-operational costs		1.9				3.2				3.8				3.8
Non-GAAP operating expense	$	54.5			$	51.5			$	103.6			$	98.9

VAREX IMAGING CORPORATION RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES (Unaudited)
	Three Months Ended								Six Months Ended
(In millions, except per share amounts)	March 29, 2024				March 31, 2023				March 29, 2024				March 31, 2023
OPERATING INCOME RECONCILIATION
Operating income	$	7.7			$	15.6			$	11.9			$	28.6
Amortization of intangible assets (includes amortization impacts to cost of revenues)		3.6				3.4				7.2				6.8
Restructuring charges (includes restructuring impact to cost of revenues)		—				0.8				0.1				1.5
Other non-operational costs (includes other non-operational impacts to cost of revenues)		1.9				3.2				3.8				3.8
Total operating income adjustments		5.5				7.4				11.1				12.1
Non-GAAP operating income	$	13.2			$	23.0			$	23.0			$	40.7
Operating margin		3.7	%			6.8	%			3.0	%			6.6	%
Non-GAAP operating margin		6.4	%			10.1	%			5.8	%			9.4	%
INCOME BEFORE TAXES RECONCILIATION
Income before taxes	$	2.3			$	7.8			$	1.7			$	13.2
Total operating income adjustments		5.5				7.4				11.1				12.1
Acquisition related (benefit) costs		—				—				(2.1	)			—
Other non-operational costs		0.5				—				0.6				—
Total income before tax adjustments		6.0				7.4				9.6				12.1
Non-GAAP income before taxes	$	8.3			$	15.2			$	11.3			$	25.3
INCOME TAX EXPENSE RECONCILIATION
Income tax expense	$	0.7			$	3.5			$	0.5			$	5.7
Tax effect on non-GAAP adjustments		(0.8	)			(0.8	)			(1.6	)			(0.1	)
Non-GAAP income tax expense	$	1.5			$	4.3			$	2.1			$	5.8

VAREX IMAGING CORPORATION RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL MEASURES (Unaudited)
	Three Months Ended								Six Months Ended
(In millions, except per share amounts)	March 29, 2024				March 31, 2023				March 29, 2024				March 31, 2023
NET INCOME AND DILUTED NET INCOME PER SHARE RECONCILIATION
Net income attributable to Varex	$	1.4			$	4.1			$	0.9			$	7.2
Total earnings before taxes adjustments		6.0				7.4				9.6				12.1
Effective tax rate on non-GAAP adjustments		13.3	%			10.8	%			16.7	%			0.8	%
Tax effect on non-GAAP adjustments		(0.8	)			(0.8	)			(1.6	)			(0.1	)
Diluted Non-GAAP net income		6.6				10.7				8.9				19.2
Diluted net income per share		0.03				0.10				0.02				0.18
Non-GAAP diluted net income per share	$	0.16			$	0.26			$	0.22			$	0.47
ADJUSTED EBITDA RECONCILIATION
Net income attributable to Varex	$	1.4			$	4.1			$	0.9			$	7.2
Interest expense		7.3				7.3				14.6				14.8
Income tax expense		0.7				3.5				0.5				5.7
Depreciation		5.2				4.7				10.3				9.3
Amortization		3.6				3.4				7.2				6.8
Stock based compensation		4.2				3.2				7.9				6.5
Restructuring charges		—				0.8				0.1				1.5
Acquisition related (benefit) costs		—				—				(2.1	)			—
Other non-operational costs		2.4				3.2				4.4				3.8
Adjusted EBITDA	$	24.8			$	30.2			$	43.8			$	55.6

Discussion of Non-GAAP Financial Measures

This press release includes non-GAAP financial measures derived from our Condensed Consolidated Statements of Operations. These measures are not presented in accordance with, nor are they a substitute for U.S. generally accepted accounting principles, or GAAP. These measures include: non-GAAP gross profit; non-GAAP gross margin; non-GAAP operating expense; non-GAAP operating earnings; non-GAAP operating earnings margin; non-GAAP earnings before taxes; non-GAAP net earnings; non-GAAP net earnings per diluted share, non-GAAP dilutive shares; and non-GAAP EBITDA. We are providing a reconciliation above of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. We are unable to provide without unreasonable effort a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability and limited visibility of the excluded items discussed.

We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, and forecasting and planning for future periods. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business by excluding unusual and one-time costs. We believe that disclosing non-GAAP financial measures provides useful supplemental data that allows for greater transparency in the review of our financial and operational performance. We also believe that disclosing non-GAAP financial measures provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.

Non-GAAP measures include the following items:

Amortization of intangible assets: We do not acquire businesses and assets on a predictable cycle. The amount of purchase price allocated to intangible assets and the term of amortization can vary significantly and are unique to each acquisition or purchase. We believe that excluding amortization of intangible assets allows the users of our financial statements to better review and understand the historic and current results of our operations, and also facilitates comparisons to peer companies.

Purchase price accounting charges to cost of revenues: We may incur charges to cost of revenues as a result of acquisitions. We believe that excluding these charges allows the users of our financial statements to better understand the historic and current cost of our products, our gross margin, and also facilitates comparisons to peer companies.

Restructuring charges: We incur restructuring charges that result from events, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our on-going business. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods.

Acquisition and integration related costs: We incur expenses or benefits with respect to certain items associated with our acquisitions, such as transaction costs, changes in fair value of acquisition related hedges, changes in the fair value of contingent consideration liabilities, gain or expense on settlement of pre-existing relationships, etc. We exclude such expenses or benefits as they are related to acquisitions and have no direct correlation to the operation of our on-going business. We also incur expenses or benefits with respect to certain items associated with our acquisitions, such as integration costs relating to acquisitions for any costs incurred prior to closing and up to 12 months after the closing date of the acquisition.

Impairment charges: We may incur impairment charges that result from events, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our on-going business and such charges may limit the comparability of our on-going operations with prior and future periods.

Other non-operational costs: Certain items may be non-recurring, unusual, infrequent and directly related to an event that is distinct and non-reflective of the company’s ongoing business operations. These may include such items as non-ordinary course litigation, legal settlements, inventory write-downs for discontinued products, cost of facilities no longer in use, extinguishment of debt and hedge costs, environmental settlements, governmental settlements including tax settlements, and other items of similar nature.

Non-operational tax adjustments: Certain tax items may be non-recurring, unusual, infrequent and directly related to an event that is distinct and non-reflective of the company’s normal business operations. These may include such items as the retroactive impact of significant changes in tax laws, including changes to statutory tax rates and one-time tax charges.

Tax effects of operating earnings adjustments: We apply our non-GAAP adjustments to the GAAP pretax income to calculate the non-GAAP effective tax rate. This application of our non-GAAP effective tax rate excludes any discrete items, as defined in the guidance for accounting for income taxes in interim periods, or any other non-operational tax adjustments.

Dilution offset from convertible notes hedge transaction: In connection with the issuance of the company’s Convertible Senior Unsecured Notes (the Convertible Notes) in June 2020, the company entered into convertible note hedge transactions (the Hedge Transactions) to reduce the potential dilutive effect on common shares upon the eventual conversion of the Convertible Notes. GAAP diluted shares outstanding includes the incremental dilutive shares from the company’s Convertible Notes. Under GAAP, the anti-dilutive impact of the Convertible Note Hedge Transactions is not reflected in GAAP diluted shares outstanding. In periods in which the average stock price per share exceeds $20.81 and the company has GAAP net income, the non-GAAP diluted share count includes the anti-dilutive impact of the company’s Hedge Transactions, which reduces the potential dilution that otherwise would occur upon conversion of the company’s Convertible Notes. We believe non-GAAP diluted shares is a useful non-GAAP metric because it provides insight into the offsetting economic effect of the Hedge Transactions against potential conversion of the Convertible Notes.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240502508181/en/

Christopher Belfiore

Director of Investor Relations

Varex Imaging Corporation

801.973.1566 | christopher.belfiore@vareximaging.com

Source: Varex Imaging Corporation

FAQ

What were Varex's revenues for the second quarter of fiscal year 2024?

Varex reported revenues of $206 million for the second quarter of fiscal year 2024.

What was Varex's GAAP gross margin for the second quarter of fiscal year 2024?

Varex's GAAP gross margin for the second quarter of fiscal year 2024 was 32%.

What was Varex's Non-GAAP net earnings per diluted share for the second quarter of fiscal year 2024?

Varex's Non-GAAP net earnings per diluted share for the second quarter of fiscal year 2024 was $0.16.

Why did Varex report a decrease in revenue for the second quarter of fiscal year 2024?

Varex reported a decrease in revenue for the second quarter of fiscal year 2024 primarily due to lower sales to customers in China.

What was the total cash flow from operations for Varex in the second quarter of fiscal year 2024?

Varex reported cash flow from operations of $3 million in the second quarter of fiscal year 2024.

What is Varex's revenue guidance for the third quarter of fiscal year 2024?

Varex expects revenues to be between $200 million and $220 million for the third quarter of fiscal year 2024.

What is Varex's Non-GAAP net earnings per diluted share guidance for the third quarter of fiscal year 2024?

Varex expects Non-GAAP net earnings per diluted share to be between $0.05 and $0.25 for the third quarter of fiscal year 2024.