Image Credit: Varex Imaging Corporation RSNA 2020 virtual booth, News
On May 4th, Varex Imaging Corporation published its financial results for Q1 2021. Due to the companies reporting cycle, this is its second fiscal quarter. These results show that Group sales returned to growth during the quarter, following three consecutive quarters of revenue decline, driven by the negative effects of the Coronavirus pandemic. Quarterly sales reached $203.5m, compared with $197m in Q1 2020, an increase of approximately +3% year-on-year. Revenue growth was stronger than expected and was projected to be in the range of between $180m to $200m. The company has two reportable operating segments, medical and industrial imaging. The sales growth during the quarter was driven by higher sales from both segments. “Financial results for the second quarter of the fiscal year 2021 were stronger than our expectations and exceeded pre-COVID revenue levels. Driving this was continued strong global CT tube sales and higher sales of industrial digital detectors. We also had higher demand for our other medical imaging products related to certain elective medical procedures,” said Sunny Sanyal, President and CEO of Varex.
The Medical Segment
Quarterly sales originating from the medical segment reached $156.6m, compared with $155.4m in Q1 2020, an increase of approximately +1% year-on-year. The sales performance during the quarter was characterised by continued strong demand for computed tomography (CT) products, combined with some improvement in sales related to products for oncology, mammography and radiography applications. During the Q1 earnings call, Sunny Sanyal, President and CEO, commented: “let me give you some high-level insight into how our different modalities and applications trended during the quarter. Medical segment revenues increased 13% sequentially and 1% year over year. Momentum in CT tube sales, which has been building over a number of quarters, remained strong in fiscal Q2 [calendar Q1]. Many of these tubes are for new systems, which are also expected to result in future sales of replacement tubes. In our other medical modalities, oncology, mammography, and radiography also saw growth, while fluoroscopy and dental remained flat. We believe this growth is due to demand that had been deferred over the past year, as well as from the expansion of healthcare services in some markets.”
The Industrial Segment
Quarterly sales originating from the industrial segment were $46.9m, compared with $41.6m in Q1 2020, an increase of approximately +13% year-on-year. The sales performance during the quarter was characterised by higher demand for digital detectors for non-destructive inspection applications, partially offset by weaker demand for products related to security screening applications for ports, borders and baggage screening at airports. Approximately 1/3 of the industrial business consists of cargo, port and airport baggage demand.
Momentum from Chinese OEMs in the CT tube business
Demand for new CT systems in China and upgrades of CT systems globally are driving growth in the Varex CT tubes business. In China, Varex anticipates that the demand is likely to grow at approximately 10% per annum for the next several years, due to increased installations at fever clinics and to focus on making rural health systems more self-reliant. The companies strategy in China has been to establish relationships with local OEMs. Varex has been working with 8 local Chinese OEMs in order to bring CT solutions to market and these customers currently account for approximately 40% of CT sales in China. Sunny Sanyal commented: “Based on our experience, new OEMs tend to initially focus on gaining market share through launching entry-level systems. This has occurred in China for the CT modality. We are now seeing that the local OEMs are ready to expand into 64,128 and higher slice CT system projects in order to provide greater diagnostic imaging capabilities, including systems that are needed for cardiac procedures. Later this fiscal year, we plan to introduce two new CT tubes specifically for high-end 256 and 320 slice CT systems.”
The outlook for Q2 2021
For calendar Q2 2021, the company is projecting sales revenue of between $195m to $215m, an increase of between +14% and +26% compared with Q2 2021. Non-GAAP earnings per diluted share are projected to be between $0.15 and $0.35. These expectations are based on non-GAAP gross margin in the range of 33% to 35%, and non-GAAP operating expenses in the range of $44 million to $45 million.