8-K: Varex Imaging Reports Mixed Q2 Results, Lowers Outlook Amid China Softness

Varex Imaging Corporation announced its second quarter fiscal year 2024 results, with revenue in line with guidance but down year-over-year, and lowered its outlook for the second half of the year due to continued weakness in the medical segment, particularly in China.

Summary

• Varex Imaging Corporation reported a revenue of $206 million for the second quarter of fiscal year 2024, which was in line with their guidance but a 10% decrease compared to the same quarter last year.
• The medical segment experienced a 15% year-over-year revenue decrease, totaling $149 million, while the industrial segment saw a 6% increase, reaching $57 million.
• Non-GAAP gross margin remained stable at 33%, but non-GAAP earnings per share (EPS) decreased to $0.16 from $0.26 in the prior year's second quarter.
• Cash flow from operations was $3 million for the quarter, and the company's cash, cash equivalents, marketable securities, and CDs totaled $190 million at the end of the quarter.
• Varex has lowered its expectations for the second half of the fiscal year due to continued softness in the medical segment, especially in China.
• The company expects third-quarter revenue to be between $200 million and $220 million, with non-GAAP net earnings per diluted share between $0.05 and $0.25.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the significant revenue decline in the medical segment, the decrease in EPS, and the lowered outlook for the second half of the year. While the industrial segment showed growth, it was not enough to offset the overall negative trends.

Positives

• The company's revenue of $206 million was in line with their guidance for the second quarter.
• The industrial segment showed positive growth with a 6% year-over-year increase in revenue.
• Non-GAAP gross margin remained stable at 33% compared to the same quarter last year.

Negatives

• Overall revenue decreased by 10% year-over-year.
• The medical segment experienced a significant 15% year-over-year revenue decline.
• Non-GAAP EPS decreased to $0.16 from $0.26 in the second quarter of fiscal year 2023.
• The company lowered its expectations for the second half of the fiscal year due to continued softness in the medical segment, particularly in China.

Risks

• Continued softness in the medical segment, particularly in China, poses a significant risk to future revenue.
• The company's reliance on the medical segment makes it vulnerable to market fluctuations in that sector.
• The decrease in non-GAAP EPS indicates potential challenges in maintaining profitability.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations.

Future Outlook

Varex expects third-quarter revenue to be between $200 million and $220 million, with non-GAAP net earnings per diluted share between $0.05 and $0.25. The company has lowered its expectations for the second half of the fiscal year due to continued softness in the medical segment, particularly in China.

Management Comments

• Sunny Sanyal, Chief Executive Officer of Varex, stated that revenue of $206 million in the second quarter was in line with guidance, but down year-over-year primarily due to lower sales to customers in China.
• Sunny Sanyal also mentioned that sales in the first half of fiscal 2024 were as expected, but they are lowering expectations for the second half of the fiscal year due to continued softness in the medical segment, particularly in China.

Industry Context

The results reflect a challenging environment for medical imaging companies, particularly those with significant exposure to the Chinese market. The decrease in medical segment revenue highlights the impact of market conditions and potentially increased competition in that region. The industrial segment's growth suggests a diversification strategy that is partially offsetting the medical segment's weakness.

Comparison to Industry Standards

• Comparing Varex to competitors like Canon Medical Systems and Siemens Healthineers, who also operate in the medical imaging space, Varex's 15% decline in medical segment revenue is concerning, as these larger players have shown more resilience in their recent reports.
• While Varex's industrial segment growth of 6% is positive, it is modest compared to some industrial technology companies that have seen double-digit growth in similar periods.
• The non-GAAP EPS decrease from $0.26 to $0.16 year-over-year is a significant drop, indicating potential challenges in profitability compared to industry benchmarks.
• Varex's cash flow from operations of $3 million is relatively low compared to larger peers, suggesting a need for improved operational efficiency or cost management.

Stakeholder Impact

• Shareholders may be concerned about the decreased revenue, lowered outlook, and reduced EPS.
• Employees may be affected by potential cost-cutting measures or restructuring due to the financial challenges.
• Customers in the medical segment may experience changes in service or product availability due to the company's performance.
• Suppliers may face reduced orders or changes in payment terms due to the company's financial situation.

Next Steps

• Varex will conduct its earnings conference call for the second quarter of fiscal year 2024 today at 3:00 p.m. Mountain Time.
• The webcast and supplemental slide presentation will be archived on Varex's website.
• A replay of the call will be available from today through May 16th.

Key Dates

Keywords

Varex Imaging, X-ray imaging, Medical segment, Industrial segment, Financial results, Revenue, Earnings per share, Gross margin, China, Outlook