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VREX Varex Imaging

Participants
Howard Goldman Director of Investor Relations
Sunny Sanyal President, Chief Executive Officer
Sam Maheshwari Chief Financial Officer
Anthony Petrone Jefferies
Larry Solow CJS Securities
Suraj Kalia Oppenheimer & Company
Jim Sidoti Sidoti & Company
Call transcript
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Operator

Greetings! Welcome to Varex Imaging Corporation’s Fourth Quarter and Fiscal Year Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I would now turn the conference over to Howard Goldman, Director of Investor Relations. you. Thank

begin. may You

Howard Goldman

you. Thank

our begin. fiscal otherwise Corporation's Good and to may quarter fourth simplify Sunny and year Maheshwari, the and our after CFO. XXXX. all afternoon, conference call references Imaging To Sanyal, are earnings today quarter discussion, With Varex and for CEO; XXXX. Sam year unless You our me welcome of President stated, the fiscal the quarter fourth to

quarterly assumptions our actual in earnings on about advised are our and which that call, are which release relating Risks website. subject our is materially they events. the certain forward-looking rather from non-GAAP are and current the from financial measures. quarter quarterly projections These statements quarter GAAP non-GAAP reconciliation on presented our anticipated. of measures. comparisons the today's measures in could risks are and future year results expectations We discuss On provided in comparable with addition, uncertainties are that to posted predictions to of cause those same differ call, year. each In otherwise XXXX directly we business financial to substitute nor statements, sequentially fiscal SEC. the to to measure a unless stated, non-GAAP financial a for of These be made not fiscal during than this or described that quarter fourth the release, will based financial Please are third GAAP we prior filings year of our earnings measure be the XXXX most will are making accordance with, to press

XA, update anticipated annual materially actual XX-Q factors obligation Sunny. factors over our that we Form and Risk filings forward-looking or And is item date, I'll of on call report concerning including The speaks as from today's this of those discussion. no discussion XX-K. information cause results assume quarterly our to on in our statements Form in this to and SEC reports contained now, Additional revise to the could information in differ turn the

Sunny Sanyal

Thank the for by and everyone, created year COVID. productive despite afternoon, us Howard. welcome. XXXX was headwinds year a you, Good Fiscal

First that year. very multiyear XX agreements of happy to the I'm of renewed during customers all fiscal all, our we became report with due the that top

we Santa our together closure Clara cost which ahead Second, made realized. completed of $XX of schedule savings in additional structural result of facility fully and million annual changes, the will when

million segments environment, current continue XXXX. The so and more year-over-year pandemic. sequential was that our our investors with financial team, well The Varex leave we year a mix were fiscal our also products. COVID. us these not existing pleased sequential customers' with and that have world leadership third structure with replaced positioned navigated who number a and fourth and at performance, basis. On other future And the And the of flexibility. managers economy combination increased impacts our better revenues to to our of very with a we than for our performance of a debt recovers provides believe all, our on comparisons. comparisons the get also employees quarter In we from as the capital of comparable I'm note, $XXX the through new comparable fulfill liquidity we our we sense it of quarter our but of look performance needs. Third, our revenue this the least, growth from launched were will once the between actions, last the turbulence around

in sales the for sales basis, tubes CT fourth mammography solid, systems Medical strong, Our from segment, slightly, and COVID. products to of the tube impact On year-over-year declined of for increased general due of the due reduction months but presumably the mobile early in the our cost our quarter a used total demand benefits tubes margins start our quarter, in the fourth Demand be actions. imaging XX% X-ray the procedures medical the our during purchases were increase detectors to other In to improved sequentially, continued from was during while company largely to ongoing X-ray due down. COVID. of revenues

seeing customers uptick their our of selling were in the in surgery acknowledged that During dental and quarter, some activity an of markets. some they oncology

fourth prepared into to we demand. the quarter, while us any orders respond we significant translate to for activity However, this, encouraged increases to did are in hear and this not operationally are in

into our Our to have metal We with of development growing technologies engaged initial to these future designed The that pipeline to customers interested liquid available been customers expected efforts. teams a life, intend new prototypes for longer bearing year have are we models customers we evaluation. in product and new and them contracts with applications, family service incorporate OEMs. make cardiac of our actively the recently and engineering liquid their this technologies bearing tubes metal are have began with market a to technology-based products.Tubes for of CT incorporating to R&D

our progress BEC make Nanotube partner, our We also technology venture imaging. with continue joint to with development

we received emitter our of year Radiological North multi Society may then, meeting as also since ago a per have we this recall technology a about lot mammography interest Nanotube of at RSNA, system configuration. a known the in And type of exhibited a technology. You that in America, annual of

and the happy are the very We with of the performance emitters tubes.

with early-stage of systems. in future their imaging activity technology use in explore engaged to development are our We several the product OEMs

commercialization available detector need that all used can that new new high-performance in stages surgery, Since last side, detectors. Platform Platform during to now the This technology released dose customers. Z this introduced at of systems fluoroscopy are and RSNA have detectors the year, we imaging. Z new platform x-ray reduce we're our we three cardiac, models our that On of initially at is dynamic targeted other final dental,

Additional to number a we models Z and initial the to of to 'XX. placed detectors integration customers begin OEMs expect scheduled have for in our that and release XXXX. them year in report half first Platform evaluation development, orders I'm shipments of with for during FY fiscal are to pleased

Industrial backlog that revenues. down fiscal shutdown sales expect recovered In our led performance increase happy in Meanwhile, to orders our as activity the market such saw testing have China year-over-year, COVID, China inspection. OEM we early modest some our turn some verticals, our XXXX. segment very customers, appears some and a we recovery in and were battery While increased of are in of to signs and for year to very represented our nondestructive we orders us in In for fiscal and cargo of screening, total the year initial there. with this will of company due into XXXX, XX% from electronics

CT have be year. of Chinese the in year continued significant will we CT bring new systems CT tubes local showcasing shipped led successfully we by again to systems to to a of local In to sales the a OEM Strong Our once and over introducing prior fiscal XXXX our other customers upcoming China on of fiscal number that weeks, increase couple market. new devices these included Chinese and starts manufacturers conference. to going event. we x-ray connection More In latest new announcements. in will control be the November information year, Photon be our products be particular, two digital and a solutions RSNA detectors. annual software will detectors tubes it's RSNA at XX, counting RSNA about virtual this in

social links in will interested, you that over call RSNA are those our have talk channels. media let on posted the booth we performance on that, to after detail. For Varex me to to and starts, financial greater Sam With our virtual exhibit of our about hand website

Sam Maheshwari

hello, and Sunny, everyone. Thanks,

quarter reminder, I results will of year those fourth of comparisons of otherwise with quarter unless our a of indicated, fiscal As XXXX. sequential XXXX provide the fiscal for our third

results $XX revenues $XX Our APAC. year, segment million sales the of million. to million Industrial third declined have stabilized. were in due our were $XXX million in XXXX. XX% $XX million were EMEA $XXX the $XXX million Geographically, in $XXX Compared Americas, revenues of Medical COVID. revenues indicate fourth fourth revenues to million from and quarter Fourth financial effects quarter revenues million were fourth to last to the the $XX and quarter segment of fiscal quarter comparable and quarter that

EMEA For in million full a geographically $XXX for fiscal year us. APAC. XXXX, reflects This million, and revenues in million $XXX Americas were the revenue balanced $XXX profile in well

were expenses non-GAAP to two were $X million. previous spending. to expenses $XX pension GAAP This percentage Our fourth is gross million million product and in quarter reduction. mix benefits a fourth This SG&A the was due expenses quarter was third decrease fiscal of the an a year points GAAP and about both XX%. from margin of XXXX. margin improvement the from quarter On was quarter. XX%, of cost on previous initial basis. increase favorable non-GAAP a Fourth quarter gross from from year-end million $X were compared in lower previous were in $XX million costs our non-GAAP of expenses offset a quarter, primarily R&D to million to expenses higher was a the sequential largely fees partially operations. were basis, that $XX expenses SG&A about Non-GAAP German $XX the were $XX million quarter. due due operating audit million, R&D million. $X $XX increase and an On SG&A higher Operating This by increase basis,

non-GAAP a compared including The operating operating and as previous associated $X a from current quarter quarter. loss prior On tax activities, to $X quarter. due a the XX than Our regulations U.S. quarter $X.XX a rate was year million We a basis, quarter us to from interest share. net the $X of CARES period. basis, in the million million, credit diluted On to $X refunds non-GAAP net shares $X GAAP the allow million. result, was tax an million we $X.XX outstanding expense expect in losses million in taxable share. net expenses to diluted less to the interest loss approximately or apply subsequent fourth basis, GAAP million, $XX were million. share unusually million third filings. was benefit. paying $X million diluted fourth recorded of or third an we in similar facility On in loss per loss the per $X On fourth shares compared interest recorded expense to GAAP income or the and a loss was million treasury a the And million Act basis, for tax tax net both year $X Diluted $XX various per $XX high previous $X.XX operating quarter financing was were loss issuing than off and was which benefit operating high-yield of more fourth non-GAAP was Other swap. non-GAAP quarter. notes our Treasury.

to Now days the to City. quarter, as gross to million, quarter, to it of Salt $XX the fiscal recognized operations as receivables million large increase on $XX go We convertible the turning of sheet an due by of Inventory the $XXX which Total flow of the up by for by DSO during days. debt of eight the with positive shipments sheet, quarter. the was fourth recorded of but million year. a million XX we sheet. quarter $XXX was in $XX the the million of $XXX fourth Clara manufacturing loan full quarter in the Santa equity. million at million A of third being facility occurred component ended negative to quarter. million portion increased the $XX on a cash balance Accounts our month decreased million was balance to out our balance transfer completed was the $XXX portion outstanding the $XX fourth in from Lake Cash causing for

I me summary process. a financial are fiscal overview XXXX. recently of with our now then our either Let an that or follow of have will year for up completed been you initiatives give high-level initiatives in

like would discuss and new our First, I liquidity. to capital structure

debt XXXX, our in flexible structure also a we the put place half During helped more of second increase that liquidity. fiscal

that $XXX interest notes at interest million a $XXX that asset-based debt bear credit of new secured X% currently that of bear improved X-year facility revolving notes now at X-year and Our undrawn. convertible $XXX million remains million X.XXX%. senior

million $XX a around subsidiaries of rate weighted pretax the well annual burden expense be as our currency average approximately interest annual Overall, swap. $XX as should about debt additional should carry foreign X.X%, and also be interest our in cash cross million. We

our we there was doubt year-end, paying our and line. removed million As of concern. $XXX facility, fiscal a cash ability through substantial going to the the our with our $XXX of on another sheet liquidity off balance asset-based credit plenty million Also about of previous as revolver by continue

cost an Second, our efforts. I would like to on reduction provide update

targeted we the $XX and are you the of P&L. As XX% margin, with should Roughly, gross we shared year fully be cost fiscal million, an from of which to to reduction the expected quarter on realized cost of XXXX. second XX% expenses annualized benefit are reductions benefit expected operating previously,

We initiative Santa or only our savings about are $XX is the Clara million largely provide specific complete facility $X.X about of to of minor million with steps a quarter. closure few This be to annualized executed. left expected per with

Additionally, the quarter, to beginning annualized which as fiscal U.S. of XX of us the our is reduced first cost part save quarter efforts, in we expected in year fourth reduction $XX the an positions XXXX. million

initiatives process new Let that to are me now fiscal for XXXX. year in move discuss

through reduction our combination to lean products. low further programs, $XX million year initiative inventory and facility additional of first supply implementing discontinuing consolidations, The chains velocity the $XX a streamlining a is million during targeted in our

initiative with this margin our by second reduce of the to costs our and fiscal target percentage year. improve end The warranty, initiative, to freight servicing fiscal manufacturing towards areas of particularly this one is and products, XXXX is in for costs. point manufacturing Through the gross associated yields of

me our now provide business Let you outlook.

$X.XX. quarterly we performance share are Non-GAAP for million. between better margin Accordingly, reduced XX%, approach Given are economic and a the earnings on of XX% quarter We non-GAAP improvement favor to providing year I to range like between of expenses closing to million expect XXXX, negative expense which diluted now $XX guidance. the positive non-GAAP to annual of environment, $X expect guidance some progress. to would benefit facility. in the understand $XXX over And These providing operating Sunny million. our believe current of be some be Clara $XX around million based that, expectations call remarks. gross business to we $X.XX changing from of back a non-GAAP our investors revenues for includes the fiscal our quarterly help and will prior hand per range and interest million With to closure of first $XXX we to to Santa guidance

Sunny Sanyal

Sam. Thank you,

COVID, for beyond effect expect So is X-ray we and once for us. to looking products demand the equipment our the of pandemic rebound past imaging

our expand product all will our as We enable us are position confident leader core on that a business. focus to our market innovation continued position across -- lines in

through the for growth, sheet. balance referred have phase our as transformation focused of to next X.X and we goals are growth, accelerating which Varex Our on organic operational improving operating strengthening margins

With the refinancing our positioned flexibility operating and strengthens with debt sheet. structure ourselves already new a capital us gives balance we've actions, that

our and continue here will Our to improve are To initiatives performance and drive do debt. our income. next improve margin lower gross financial that, we operating to to steps

and Varex our I'm as happy that expand plans year counting these to good -- detectors Our up are With to will base questions. Photon addressable aimed x-ray in incentives. Nanotube initiatives in and market investments R&D opportunities each customer of call at making for enabling our footprint progress and the XXXX well Varex are these now opening areas X.X, new within we as with its our fiscal operating your the we're management reflected for goals say open of in sources. that,

Operator

with question Anthony [Operator Petrone first Instructions] is Our Jefferies. Please proceed. from

Anthony Petrone

couple a then it for guidance as have the everyone some provided, is healthy. few to you I'll for a Sam, metrics doing Sunny, hope well staying that Sam. Maybe I of and And and relates

each is sort so COVID here resurgence. from high gave amid trending of maybe on Sunny, updates businesses of you the a where And level, the

like resurgence when to level seeing of to it signs guess, that some turnaround here, in back its and areas sounds from 'XX a referenced And a you you select that key consider particular, consider, can how at a so describe Industrial, China, when some geographies if particular, in you have are for refer trending in business lot a And maybe we see do of of you where you in high Industrial, so then I matter? that geographies usual. you into

then where China quarter? have So the is a a And describe exiting is follow-ups. few to way fair that I'll

Sunny Sanyal

Yes.

Okay.

the So the when activity everywhere everything thanks So lockdowns for most everyone situation essentially gates we around saw frame, the hit that of their and we seized. we And stopped, right? then and slowdown is COVID Anthony, experienced Industrial, way impact the April-May initially, full had all airports operating stopped time of there. serious

now that their from what as verticals within -- is But is progressed know, no seeing pulling other the and recovering. So you down. are COVID look, Industrial in degradation as very mean improvement that's started Industrial to -- meanwhile, then those out. by and sub side away verticals. And for is shut that they're or the There's They're way. been shut we're is, Industrial in those it recovery Medical from I away down -- business as there time. going of are how some different what airports pulling many stay And fragmented and our markets have trajectory, there. and verticals, as

As different they're verticals, trajectories. progressing different at along you look

electronics I was activity. seeing area, and So there and levels returned mentioned that to strength inspection. and strength battery We're of in pre-COVID, it increasing continued

globally. large Medical to we're have that is won't the Industrial, group pegged isn't entity's what be budgets side, nothing. seeing, within budgets all isn't Medical capital of an what hospital or the In There So capital tied in that -- like it side. anticipating it to we're the one we we're

of Industrial and -- sorry, their However, within vertical, have own trajectories. dynamics different the little different given each fragmentation trajectories. each And sub they side, on the seeing the verticals, we're

government, in finalized, were some to government on that evolve area by if we cargo the And significant to AND orders. even -- we've food not own. their expect were the move to all situation inspection, encouraged the the screening is way. where regression We tender government on spending we on stay tenders OEM what with other see a activity the in continue So now what side some any general or COVID, and controlled spend even that the our the by continue customers active. verticals receive manufacturing will forward. in the -- to continued continue Similarly, activity we're anticipating Industrial balance, will is government with expect verticals

recovery. So that's evolving the Industrial during on how see scoop we this

Anthony Petrone

follow-up a market Okay. on And CT X the China particular. again, then in

So on like and sort sound levels, that is business that maybe does where a completely accurate? of just is that pre-COVID to trending, is it there follow-up back business,

Sunny Sanyal

Yes.

So we're very happy China. with our performance in

they work, shut down weeks for so And they came back they eight this to trajectory. and up up, with went about were back they caught And prior year. their when right

uptick the see didn't a previously So from have saw way health beyond continues have systems they care. explained through have trajectory said appears the play -- the want to out make that went they all an And systems they post the in is CT just we buying and purchasing peak in CT continues, subsiding that through we've in that the it, X-ray peak, of their own. about while The things the which -- of on perspective, were The continued COVID that like or -- Chinese pandemic, anything a to we of and that. their China government investments to market we continued. CT market

going are things So are the with in way we happy China. we're

their down Any slowed plans. our or They're product there R&D not are on continuing cycles slowdowns development their processes. any in typical have OEMs to delays with normal Our and efforts.

as feels side on China, for practical purposes the business all it Medical usual. So like in

Anthony Petrone

back then and queue. shift get And in I'll gears

on, the expenses just one XQ. on Sam, for one then guidance range for on Here up and

total fiscal some operating we in million savings are Just evolve fourth When a guidance the first X.XX expense going be question the line savings that cadence should the would for $XX be just on level, be on the the more when to vis-à-vis particular, look into question and as we to we the look OpEx the and $ range, the know line. the on And 'XX? a then at think kind head So 'XX. I $X.XX in quarter. level, million bottom on we that the of top would how as fourth fiscal we quarter or of at spread it's run XQ, of OpEx, gradually through seeing quarterly on $XX line second range

the of the kind factoring you drive the maybe range variables lower upper in end sort of so that it can end And to of through walk us of that the would range?

Sam Maheshwari

Sure, sure.

one questions at Let me address time. your a

significant of in we terms QX for a guiding OpEx, So QX. versus are improvement

at as the expenses that was were QX out there $XX audit filing the we and So stuff. go of round XX-K should in million. and away all certain that There

guiding million are $XX we with beginning essentially, $XX QX. million to So

in a all are from, beginning positions big we that eliminated starting use frame, August the So the time is say, July, to they October.

And run go those that why then would year. the to guided the the say, for to, it is say million by XX%. $XX remember, to XX% XXXX. that's QX year. throughout of per full XX%, OpEx levels year that And for at going from million quarter had rate in quarter, in should you million range straight $XX So last about I remain the if of range $XXX And

that range, will and glad build million that up. we here I'm to So to are that's $XX million already how at say that $XX

cost other the position eliminations. on, been Santa that example, we've for taking other initiatives reduction and of Some some Clara

improvement that the You going are in in gross see margin. benefit to continuous

margin we sequentially get points So gross percentage or improve one Clara XX% did to begin I XX%. two Santa And guiding to to couple another. realized, XX% just quarter year during expect as and to benefits the fully from one

lockdowns is $XX is I And our happening are quite is few your of what bottom the So you've the up some here, can for -- so mix, based know, line are $XX things the COVID the change. at the uncertain given is to been The that. top environment, about us, the with on which in year there et Anthony, all gross us nicely during is on million mix initiatives. the and margin range, and time terms to building a But we in can in on that line expect Then you given have Europe, happen cetera. at which guidance here started yes, really time, lastly, change revenue of same be million.

We of exactly where of that are. would So we what type quarter feel the about don't we good mix know the terms really in come.

quarter. done halfway the with are We

So good. we quarter. is quarter next as the similar this And on to feel beginning also a Form trajectory

So of that we also. out you can a know, shipment our feel one always by about But never customers. any good quarter push there be

the to difference. And And So that's because our revenue then mix taxes gross breakeven. be different can can drive are lastly, to change we margins. closer a then

on to start a So in manner basis behave taxes unpredictable a GAAP very way. in

So reason essentially. for that's this of range the some

Operator

proceed. is Our Please Larry from Securities. with next Solow question CJS

Larry Solow

a Just few follow-ups.

question. Anthony's on First

On Or any the from at full be that of the get going expenses at were all? But you It see would the, you operating headcount I guess, get the $XX on all? in I facility all sounds closure benefit forward. benefit benefit, cost like any the million we do side, did did the guess, still QX and reductions coming?

Sam Maheshwari

million go Santa Larry, going because through essentially simple going but a is margin. in half are of in to QX, OpEx in And XX% were COGS small. the look QX. from that of XX% And Clara million, during through $XX is eliminations situation for ramping and QX. P&L eliminated. that eliminations, half Santa to benefits is of the benefits, of roll cost is benefit in OpEx take And through and would benefits of it QX. So the at completely that it half reduction it's and half of position Remaining position or cost kind when in when the Clara, will a are numbers, of you that, of so look we so begin show just way program, where Santa if at all you $XX Clara savings you the up I QX would is it, And Clara very, we QX. very The the Santa in some half our positions bulk expect of then they gross through there

Larry Solow

it. Got

Medical just just sense. gross up break And GAAP I was noticed a -- between know going I two XX% over Industrial -- I margin the never But you you so don't out Okay. That a back makes non-GAAP could you XX%, the years. Industrial. adjusted question, number number that and and that

was about be benefited? So there I'm -- just that to trying something that number in to unusually

Sam Maheshwari

Yes.

these So it business, our way and that all as as at on Larry, remember, to are as levels, we low services. that. Industrial machine you contracts is the understand Services have sales of in well

shipments or margin type that what of the not would perspective. there. for explains behavior that these low what through going So in the that installation Industrial is is I And profile happens low. the a sales And somewhat erratically we trending are really machine are overall suggest margin gross behave business when from period very machine margins new is the direction. business in a that

Larry Solow

was that are the flip that the margins maybe one-timer? Medical more than worse I side, a Or potentially. was actually concerned I on thought

-- why, really was just I that's yes. So

Sam Maheshwari

type Yes. versus and It's Industrial service of machines material segment of the just the mix within time service. and

Larry Solow

Okay.

a Okay. -- then gears benefit back come you're has probably the component just down not the start switching somewhat elective little the I No, trends. business realize to won't just end revenue for surgery fair and you to front see enough. a that And while.

but that people some surgeries improving are was realize at in not to, demand come but medical causes, that their that although soon, consensus people most like maybe least the seem way I are there to seen is does back -- -- things I COVID's in world, of pent-up get anytime certainly trying vein, bottoms. off So you elective still it especially out for as timing? you things fiscal we get that beginning any anecdotally clarity start with customers hospital at that? in kind on very any, out do. any of or better go visibility purchase maybe are coming to least uncertain hospitals have of better 'XX? budgets years you absolutely capital Have to Or the Will may to

Sunny Sanyal

is this Larry, sunny.

So our customers by modality. geography varies are seeing varies that and the activity

normal day these been were activity Europe, in encouraged practical we China that is they But purposes, every Asia Pre second of mentioned began before as like by customers Asia, the so business. wave slower. our in or saying has So were that of rest -- in all for in activity. tender that's increased -- rest seems seeing lockdowns

there were and going activity out. quote so was And more quotes

was thing, feeling a good it. And so about positive were and they that

course, communication Americas, slower set down, these America then And probably that'll little down a North of Now, Americas with of slow in because -- cetera. slowest. lockdowns bit was and et current slows

perspective, dental the a what on that's we was, modality, it mammography initially of they modality a were quickly, back feels -- -- sooner, as faster. really But They also return and quicker. From the because quicker respond come stop region in like seems areas. outpatient a two very right, like So stopped basis. were then these one was that saw they mammography

that's seeing mammography. an so we're see So did uptick we how in

as largely coming -- that's as it Now is elective in just I'll because, mammography that you screening mentioned, call context. elective these

to then tube As open screening the the revenues and people us. replacement of offices up for back the usage back go systems activities, the go people drives to their

volume centers active, have see and seeing uptick we've to active picking more become we're -- are hospitals replacement So more in tubes begun an up. as outpatient imaging

seeing So it. that's where we're

which way we one activity, conclusive or purchases, we In increased haven't seen But of equipment seen terms encouraging. of have pockets capital another. anything are

Larry Solow

Okay.

actually take out we still commercialization on from might or? sounds mentioned It of that side, very one years excited still we about several so like you Just you are sound Nanotube -- that. some and we this? When technology, see the product the

Sunny Sanyal

Yes.

be a look time this as part is at Larry, to long. can be our of you the right? -- our tends frustrating basis, revenue to So That --

technologies. life they they start their If we you And from OEMs into evaluating we the then our the cycle it, around it and then it. take And have, when look we it, foundational product have applications market. developed to where start point we first, the they imaging bring at designing and

moving phase So this we're R&D now are we technologies. development continues to who feel them. where we're And That available And is the customers process samples making on. good at very then foundational that stage, along about so -- now characterizing of well. our initial

to years, the system anyone good that's market But is right? market. years before next XX see once to in in So bring to directly it stay be question, frankly, we So it'll XX, engineered the a we there, X-plus your news bring they upside?

Larry Solow

you That's fair And Yes, several, come to can obviously, Yes. great. absolutely. that swell be would market, enough. hopefully, right. and Yes,

Sunny Sanyal

Right.

Larry Solow

Absolutely. Yes.

the I bps on will margin you guess be sort gradual 'XX? million, run type that type a of revenue? we just we cost XXX that question, improvement thing, enough? million fair Is a $X head on again. thing fiscal run last would that if rate $X just rate full the into to be as targeted reach Just $X gross million, based like hope And

Sam Maheshwari

Yes.

the think, half these move beneficial So in XXXX said, impact working but it fiscal second are Larry, started I'm I we on -- I that has a of as them, slowly. here. hoping these things

of So our are point. full year, a sure, hoping QX we FY point target 'XX help this gets able would one be get percentage for even the the that to full for But I'm for. fiscal of percentage

Larry Solow

great. Okay,

if bit little in but that not you'll even or maybe QX, some level? to a you improvement, to gradual So going get fall get QX, in QX maybe

Sam Maheshwari

are little pick in to in a QX We up QX, and slow QX. bit going then QX, go

will count QX, too much So I on QX, not that.

Operator

Our is next Suraj & Please with Oppenheimer proceed. from question Kalia Company.

Suraj Kalia

Howard, is hear I healthy. Sam, safe me? you and hope Sunny, Can everyone

Sunny Sanyal

can. we Yes,

Suraj Kalia

So Sunny, you of for for a some Sam. bunch and questions

were position tariff out with you China thing. level, into Let whole nonsensical a on this me sunny. high a start Obviously, guys forced tricky

manufactured benefits, additional there locally do product? workflow could Any the the great. administration Now new with product you on streamlining, in color potentially anticipate it's logistics, would that any whether offer some be a realignment horizon, incremental

Sunny Sanyal

Okay.

take So let me that.

got recall, be very local. so we up did things we local was quickly -- it's you the to China, said by one we hit might today, As tomorrow We beginning, how the manufacturing. And and that. we that local set might else, India, tariffs reacted in ourselves for as of make you do somewhere

of good detectors built. is initiative, of is is being So had up manufacturing models and our local-for-local models for models, tubes, Wuxi many tubes, our that running the and which news many here in we've detectors multiple

steps So will a think in we mean, this me totally in in ourselves. mean be that manufacturing if for is in sell I are that's -- of allow way, can local that we're offset I increase, sourcing -- took our going a it's there's mean, a way things turnaround great. that feel were really risk a reversed, go don't if how local why this I I'm something for hoping this speculative putting saw and But be what and it to we tell That's where, say that in or the continue hedge will we know. for to for and future, the -- business in tariffs we at done something. we say some not dog the the did. reverse with It what China, to should to is I a situation of -- there we a if that's looking don't locals like need create All confident which bit that I it. point, we we would of will tariffs we at the be that are by have Hard local tariffs. helpful. China I to and

Suraj Kalia

Fair core Sunny, number potentially a times generation. generation there your have Photon and new lot is about enough. and talked of technology. X-ray a Obviously, about to you paradigm-shifting cato and approach this of buzz approach I

comments ready I right, some specifically, you Sunny, be So made you it two said heard in you if will years.

cycle in guys life are You testing.

color How Have Any new Let How little occur great. price the approach? would the new me this this that all sockets be done the frame cannibalization versus of internal a there with differently. question points? you could would do existing balance you work?

Sunny Sanyal

Yes. Yes.

and all So in those on. they stuff terms continue underway, that's of and cycle life things, will those are testing

we're that with in doing work parallel is that. now the So

customers. to now, tubes, to these of So we're our giving engineering so say, samples samples

would So how of understand modalities they they what operate, this. start about how so be behave, applications thinking and can can they types they useful for

of Now, for. obviously, a That in OEMs what that new new could to -- will that's existing pins, that customers. a lot technologies, of didn't this that's terms up of I happen. Then version are what thing. expect get existing Nanotube-based we will of terms there I'm and use and to good technologies, -- of my right? are we look, are see next cannibalized evaluate that use our will well, their first our in is from I happen lining the lot -- So happy existing -- all, decides a this If technologies, customers of that's cannibalization that with of these out tubes. of there that people pushing modality expect that perspective, -- one really of line product would XYZ be

we is it. thing to we are other do in set here going is stage not proposition. to to different -- What be the value that pricing this that those significantly very at we're intent -- and new So have have but has parameters,

would technologically So positive value and net a cannibalize and us to far I would very additional this brings ourselves for rather advantage. put something that lot expect be of superior and a thing out that's

it'll it for thing replaces line. product So existing positive us, be even that if our

base the we we still that technologies, installed has other that we new still their into have which supply. builds Now have -- remember, customer will large to right, application continue of this very any a

I revenue retrofit a a but application I way are an guess be line. product mean stream. this us what into mainly revenue existing becomes not to a new going So going a people new the It's for stream future. a new People -- this is for new and in to

Suraj Kalia

technology the anticipate your I'm existing spread all on the all, guess -- up up. Right. line. the for now. Medical? incorporates and sure right? Industrial. I I I that then Sam. new second flavor $XX And couple if the of this and life And sockets guidance? following It sort And I it. I and incorporate? my all have just ramifications the equipment just it Anthony's top the get But No, if was your for maybe the out, the of of any question, things a matter, would the curious implicit are about that just about reason of could, a to you can But the machine not the about I'll ask on cycle all get coal in for or in If making that Sam, heard of you bottomed million that Medical me clear follow-ups, the at of mentioned I you notes. especially expectations replacement improvements. if new cathode replacement I look I give isn't I you when of terms point. cycle versus the there on is was for Sam, us Medical part are that. Industrial, question how is, and thinking plug just

operations. X% shutdown? manufacturing gross incremental You And Would Santa wrote scribbling existing from offset Clara to was gains I margins about I said any this in as quarter. improvement the X% what was every streamlining notes,

probably So that XX-ish-percent think talking we should XX%, exit GAAP that margins I wrong? as I margins, gross in year, we get did gross next range? are Or the

Sam Maheshwari

Sure.

So Suraj, here. first I'll address your question second

I 'XX I cetera. warranty, you give were margin. That FY cost the incremental do improvement points entire us highlight I will to. about, one. to savings. want that referring think one just that, yields, So That's of initiative to bit in is improving percentage related manufacturing Clara where for That's et Santa -- talked what I and an gross

quarter. is want sure I make So every X% that to just not it

coming is from from Clara warranty from gross this Santa following way coming quarter, And have up So of some initiatives. yields here following and shutdown. Santa that, margin The the benefits is benefits benefits would have in quarter, Clara we have shutdown. the would lining and we some some we those quarter, our full

And ramping so how is gross that up. margin is

time you'll gross be by looking think say, opposed numbers ending you are So of of I highlighted if the to year here, mentioned. going see you that margin as I to that around probably as you XX% XX% is all to, the at XX%, take these opposed that have XX% type

to back your in these that take that there. season to to able and why or all non-GAAP may $XX the also of that flaring is coming line. million line shipments. are and first And the our terms around And is one they that, variability COVID I It here Christmas is are be question in that, this may highlight, facilities thing not on want coming in and and top is range up some our have, highlighting customers So then is a numbers. the we possible top

are and at what which so why is have, And the towards also are of so point, that is for But knowledge guidance, line range. in incorporating. news we we we our unknown, are to the is midpoint we just both being this the cautious our track EPS such we general, guidance, guidance. So, far, top giving really no that this there about it. but known It's say, for

Operator

from question Jim next Sidoti with is Please Our proceed. Company. Sidoti &

Jim Sidoti

quick Good. of questions. Hope everyone's well. A couple

talked convert of in now with how customers, a prototypes does to or out take field young old it you bit samples your about that long orders? some have the for to little the You that

Sunny Sanyal

XX technology First of all, XX if to -- is on it's longer are technology. usually an months. like XX take existing existing Tubes faster. new tubes, integrate. Detectors process This between existing to Usually, between and somewhere brand is that a detectors.

technology. new something I and think entirely you're referring to based It's Nanotube its new. brand our different

a take it'll that is Jim, expectation, my longer. So little

of to customers going the a maybe whole what all, do. in work different modality figure design about them, they're of a the have do out to ideas, of thinking of have have what can to and existing First do lot and way they they then for redesigning

So time. it'll some It'll longer than take normal. take

or to three So we're saying to with something anything terms revenue not this bring people it'll market putting in take or lines time out two of All that years is for out there I'm to trajectory technology. trajectories. our

Jim Sidoti

you you positive flow year? cash flow did indicate did regarding be Sam, And any Or make whether think next you'll neutral, you that? cash comments

Sam Maheshwari

that. make provide some but did I'm comments, I on happy color any not to

recovery that want breakeven margin, on is are what we essentially. is quarter these and and next of bigger play. happen. this be thing Obviously, should to and what begin we the improve working all after at like to everybody reduce should would does cash to gross But flow reductions think costs levels, levels, at and in, terms In we current we cost would I passes, our

nicely the recovery So perspective improve performance the able that gross should structure to receive flow we to and the cash a cost are be of and positioning ourselves well, from really margin business.

Jim Sidoti

in reductions were any staff quarter? additional fourth there And the Okay.

Sam Maheshwari

U.S. positions were We Yes. in early, of not mid had -- quarter, fourth around say sorry, early about in XX -- eliminated that quarter fourth the we

So there. a actions then that -- are small other little there bit done. staff that was are of few being work reduction a still And

to they but compared We a fully, was July, haven't done minor pace in are them August. what completed

Jim Sidoti

productions to So point? the of bulk bulk are -- of staff this fair the is the it you're at staff say the reductions past

Sam Maheshwari

Yes.

fair think bulk to is us very at this to fair is that I reductions say behind that say. staff are time. the That of

Jim Sidoti

give So I pretty mean the significantly quarters you're gave don't it out right to quarter you if level we from guidance, look and sounds last bottomed fair go out like that the 'XX, at things for guidance long-term we of the want but to the it of is right fiscal like staff two it comfortable deteriorate the don't much is I that have say putting you first know with are business the expect you now. now? think and the to that level you

Sam Maheshwari

has in our although we in never have a but a It general, never say levels. QX, look, of terms stabilized, QX, a lower Jim, that stabilized. So it has green would we of at type business, thing,

We recovery are the to happen. just waiting for

think your your interpretation So I understanding or is correct.

me bottomed seeing are further of of of We out, seems business. any month-to-month say, our we maybe, not kind degradation the to performance. It terms in July

same are. ready will time, we and are where major it still comes. as But we for, it piece that's waiting be And of for recovery, so we the at

provide line. We where to currently, increases operating we performance, this get to margin. nice And gross from are line including in are margin structure overall our margin all our it should gross structure and and as tailwind top taking a time cost

Operator

question-and-answer remarks. the closing conference have of the We like to end reached would management to over I our for session. back turn

Howard Goldman

the code of our XXX-XXX-XXXX and be in access replay can and in through Thank earnings you or by replay quarter goodbye. the call non-U.S. by be call you, the for will locations. and your December questions and quarterly fourth conference or at for XXXX. anywhere website X conference fiscal Company's calling from participating The year XXX-XXX-XXXX Thank conference available this U.S. A call from accessed dialing is XXXXXXXX.

Operator

does This conference. Thank today's you. conclude

lines disconnect you thank participation. may at You your this and for your time