On November 17th, Varex Imaging Corporation published its financial results for Q3 2020. Due to the companies reporting cycle, this is its fourth fiscal quarter. These results show that Group sales continued to decline, driven by the negative effects of the Coronavirus pandemic. Overall sales reached $170m, compared with $202.4m during Q3 2019, a decrease of -16% year-on-year. This took cumulative 2020 sales to $538.2m, compared with $594.9m during 2019, a decrease of approximately -10% year-on-year. The company has two reportable operating segments, medical and industrial imaging. The sales contraction during the quarter was driven by lower sales from both segments. Sales originating from the medical segment declined by -$16.5m (-10.8%), relative to Q3 2019, resulting in lower cumulative 2020 sales of -$24m (-5.3%). Sales originating from the industrial segment declined by -$15.9m (-31.8%), relative to Q3 2019, resulting in lower cumulative 2020 sales of -$32.7m (-23%).
The Medical Segment
In the medical segment, the sales contraction during the quarter was driven by higher sales of tubes for computed tomography (CT), general x-ray and mammography as well as higher sales from detectors for general radiography. Higher x-ray detector sales are interlinked with the higher demand for mobile x-ray systems used for the screening and diagnosis of COVID-19. Higher sales from these product segments were more than offset by declines from other parts of the portfolio. During the earnings call, Sunny Sanyal, President and CEO, commented: “during the quarter, some of our customers acknowledged that they were seeing an uptick in selling activity in some of their dental surgery and oncology markets. However, while this activity did not translate into significant orders for us in the fourth quarter, we are encouraged to hear this, and we are operationally prepared to respond to any increases in demand“.
From a product development perspective, the company reported that significant progress has been made by it’s R&D teams in the recent quarters. For example, the company has begun to manufacture prototypes of a new family of liquid metal bearing technology-based tubes. These tubes have a longer lifespan and the initial models are designed for CT and cardiac applications which are with OEMs for evaluation. Furthermore, progress has been made around the development of nanotube technology in collaboration with the companies joint venture partner, BEC imaging. At RSNA 2019, Varex exhibited this technology in a multi-emitter mammography system configuration which appears to have high potential to be engineered into the coming generations of x-ray systems, including portable tomosynthesis, surgical, interventional, and portable CT systems. Medical imaging system OEMs are currently exploring the use of this technology within their future imaging systems and some market estimates suggest this technology could be available to customers by as soon as 2023. On the detector side, the company is within the final stages of commercialising its Z Platform series of detectors. This new technology, based on IGZO, offers higher resolution, better low dose performance, and faster frame rates than current amorphous silicon (a-Si) detectors. It also offers performance that is approaching to be comparable with CMOS but with lower costs. The Z Platform series is initially targeted at cardiac, surgery, dental CBCT, and other fluoroscopy systems that need high-performance dynamic detectors that can reduce x-ray dose used during imaging. The company reported that OEMs have already placed orders and are in the process of integrating them into their next generation of imaging systems.
The Industrial Segment
Although sales were lower year-on-year, the company noted that it saw very early signs of recovery in some nondestructive testing verticals, such as electronics and battery inspection. In cargo screening, a modest increase in activity led to increased orders and backlog for some of our OEM customers. During the earnings call, Sam Maheshwari, CFO, commented: “we are really going through a very low period in the industrial business from a new machine shipment or installation perspective”.
Sales results by Geographic Region
From a geographical perspective, the sales contraction during the quarter was driven by all major regions, led by EMEA (-$15.9m, -22.4%), followed by APAC (-$14.3m, -21.9%) and the Americas (-$2.2m, -3.3%). Sales activity within the APAC and EMEA region slowed down during the quarter, partly driven by the increase in public health measures in response to a worsening pandemic situation.
For the medical segment, China is “business as usual”
Sales growth from China has been strong during 2020, despite the market shutdown at the start of the year. Sales growth has been predominately driven by higher sales for CT tubes as Chinese OEMs bring new systems to market. Sales originating from China accounted for approximately 11% of total company revenues during the first nine months of 2020. Sunny Sanyal commented: “(Chinese OEMs) were shut down for about eight weeks this year. And when they came back up, they went right back to work, and they caught up with their prior trajectory” and “our OEM customers have not slowed down in their product development efforts. They’re continuing on with their plans. So for all practical purposes on the medical side in China, it feels like business as usual“.