Varex Imaging Corporation (Nasdaq: VREX) today announced its
unaudited financial results for the third quarter of fiscal year
2023.
3QFY23 Summary
- Revenues $232 million
- GAAP gross margin 33% | Non-GAAP gross margin* 34%
- GAAP operating margin 10% | Non-GAAP operating margin* 13%
- GAAP net earnings $0.21 per diluted share | Non-GAAP net
earnings* $0.37 per diluted share
- Cash flow from operations $38 million
“We are pleased to report another solid quarter, with revenues
reaching $232 million in the third quarter of fiscal 2023, a new
quarterly record for Varex, and non-GAAP gross margin of 34%
exceeding our expectations. These results were helped by the
continued strength in our Industrial segment,” said Sunny Sanyal,
Chief Executive Officer of Varex. Sanyal added, “Our efforts to
reduce inventory levels coupled with profitability resulted in an
increase in overall cash position by $30 million in the
quarter."
Varex’s revenue of $232 million was up 2% sequentially and 8%
year-over-year. Medical segment revenue of $175 million was up 1%
sequentially and 5% year-over-year. Industrial segment revenue of
$57 million was up 5% sequentially and 20% year-over-year. Non-GAAP
gross margin was 34% in the quarter compared to 33% in the second
quarter of fiscal year 2023 and non-GAAP EPS increased to $0.37
from $0.26 in the second quarter.
Balance Sheet & Cash Flow
Cash flow from operations was $38 million in the third quarter
of fiscal year 2023, due primarily to improved earnings and a
reduction in inventory. Cash, cash equivalents, marketable
securities and CDs increased $30 million sequentially to $152
million at the end of the third quarter.
Outlook
The following guidance is provided for the fourth quarter of
fiscal year 2023:
- Revenues are expected to be between $220 million and $240
million
- Non-GAAP net earnings per diluted share is expected to be
between $0.20 and $0.40
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 third
quarter of fiscal year 2023 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 August 15th at 877-660-6853
from anywhere in the U.S. or 201-612-7415 from non-U.S. locations.
The replay access code is 13739792. The listen-only webcast link
is:
https://event.choruscall.com/mediaframe/webcast.html?webcastid=AmdkMU2w
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 Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Statements concerning
unaudited financial results; supply chain diversification
activities; industry or market outlook; customer demand and revenue
trends; revenues, product volumes, or other expected future
financial results or performance; and any statements using the
terms “believe,” “expect,” “intend,” “outlook,” “future,”
“anticipate,” “will,” “could,” “estimate,” “guidance,” or similar
statements are forward-looking statements that involve risks and
uncertainties that could cause Varex’s actual results to differ
materially from those anticipated. While forward-looking statements
are based on assumptions and analyses made by us that we believe to
be reasonable under the circumstances, whether actual results and
developments will meet our expectations and predictions depend on a
number of risks and uncertainties which could cause our actual
results, performance, and financial condition to differ materially
from our expectations. Such risks and uncertainties include supply
chain and logistical challenges; price increases from suppliers and
service providers, inflation generally and expense management;
shifts in product mix; the continued impact of tariffs or a global
trade war on Varex’s products and customer purchasing patterns;
global economic conditions and political conditions globally or
regionally, including any impact due to armed conflicts (such as
the conflict between Russia and Ukraine as well as governmental
sanctions imposed in response and increasing tensions between China
and Taiwan); demand for and delays in delivery of products of Varex
or its customers; litigation costs; Varex’s ability to develop,
commercialize and deploy new products; the impact of reduced or
limited demand by purchasers of certain X-ray products; the impact
of competitive products and pricing; and the other risks listed
from time to time in our filings with the U.S. Securities and
Exchange Commission, which by this reference are incorporated
herein. 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 third quarter of
fiscal year 2023. 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
Nine Months Ended
(In millions, except for per share
amounts)
June 30, 2023
July 1, 2022
June 30, 2023
July 1, 2022
Revenues, net
Medical
$
175.4
$
167.1
$
509.6
$
493.2
Industrial
56.8
47.4
156.4
134.8
Total revenues
232.2
214.5
666.0
628.0
Gross profit
Medical
54.7
54.3
152.7
153.7
Industrial
21.6
19.1
59.6
55.3
Total gross profit
76.3
73.4
212.3
209.0
Operating expenses:
Research and development
20.0
20.2
63.0
56.8
Selling, general and administrative
32.1
30.2
96.5
88.6
Total operating expenses
52.1
50.4
159.5
145.4
Operating income
24.2
23.0
52.8
63.6
Interest income
0.9
0.1
2.1
0.2
Interest expense
(7.3
)
(9.4
)
(22.1
)
(30.4
)
Other expense, net
(0.7
)
(0.2
)
(2.5
)
(3.0
)
Interest and other expense, net
(7.1
)
(9.5
)
(22.5
)
(33.2
)
Income before taxes
17.1
13.5
30.3
30.4
Income tax expense
7.9
5.1
13.6
12.8
Net income
9.2
8.4
16.7
17.6
Less: Net income attributable to
noncontrolling interests
0.1
0.2
0.4
0.4
Net income attributable to Varex
$
9.1
$
8.2
$
16.3
$
17.2
Net income per common share
attributable to Varex
Basic
$
0.23
$
0.21
$
0.41
$
0.43
Diluted
$
0.21
$
0.20
$
0.40
$
0.41
Weighted average common shares
outstanding
Basic
40.4
39.9
40.2
39.7
Diluted
50.4
40.5
40.6
41.9
VAREX IMAGING
CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(In millions, except share and per
share amounts)
June 30, 2023
September 30, 2022
Assets
Current assets:
Cash and cash equivalents
$
118.5
$
89.4
Accounts receivable, net of allowance for
credit losses of $0.6 million and $0.6 million at June 30, 2023 and
September 30, 2022, respectively
163.3
173.3
Inventories
297.7
303.2
Prepaid expenses and other current
assets
59.0
44.0
Total current assets
638.5
609.9
Property, plant, and equipment, net
142.0
141.3
Goodwill
289.2
284.5
Intangible assets, net
25.5
33.6
Investments in privately-held
companies
46.8
46.4
Deferred tax assets
2.8
2.3
Operating lease assets
28.7
23.2
Other assets
38.2
43.2
Total assets
$
1,211.7
$
1,184.4
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable
$
74.6
$
78.2
Accrued liabilities and other current
liabilities
67.9
81.4
Current operating lease liabilities
3.4
4.0
Current maturities of long-term debt
1.8
2.1
Deferred revenues
10.9
7.4
Total current liabilities
158.6
173.1
Long-term debt, net
441.1
412.3
Deferred tax liabilities
—
0.5
Operating lease liabilities
23.4
18.0
Other long-term liabilities
43.7
33.8
Total liabilities
666.8
637.7
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: 40,387,511
and 40,085,126 at June 30, 2023 and September 30, 2022,
respectively.
0.4
0.4
Additional paid-in capital
444.9
469.1
Accumulated other comprehensive (loss)
income
(0.3
)
0.1
Retained earnings
86.5
63.8
Total Varex stockholders' equity
531.5
533.4
Noncontrolling interests
13.4
13.3
Total stockholders' equity
544.9
546.7
Total liabilities and stockholders'
equity
$
1,211.7
$
1,184.4
VAREX IMAGING
CORPORATION
RECONCILIATION BETWEEN GAAP
AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended
Nine Months Ended
(In millions, except per share
amounts)
June 30, 2023
July 1, 2022
June 30, 2023
July 1, 2022
GROSS PROFIT RECONCILIATION
Revenues, net
$
232.2
$
214.5
$
666.0
$
628.0
Gross profit
76.3
73.4
212.3
209.0
Amortization of intangible assets
1.8
1.9
5.4
5.5
Non-GAAP gross profit
$
78.1
$
75.3
$
217.7
$
214.5
Gross margin %
32.9
%
34.2
%
31.9
%
33.3
%
Non-GAAP gross margin %
33.6
%
35.1
%
32.7
%
34.2
%
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE RECONCILIATION
Selling, general and administrative
$
32.1
$
30.2
$
96.5
$
88.6
Amortization of intangible assets
1.6
1.9
4.8
5.7
Restructuring charges
0.7
1.3
2.2
5.6
Other non-operational costs
0.8
0.1
4.6
2.0
Non-GAAP selling, general and
administrative expense
$
29.0
$
26.9
$
84.9
$
75.3
OPERATING EXPENSE
RECONCILIATION
Total operating expenses
$
52.1
$
50.4
$
159.5
$
145.4
Amortization of intangible assets
1.6
1.9
4.8
5.7
Restructuring charges
0.7
1.3
2.2
5.6
Other non-operational costs
0.8
0.1
4.6
2.0
Non-GAAP operating expense
$
49.0
$
47.1
$
147.9
$
132.1
VAREX IMAGING
CORPORATION
RECONCILIATION BETWEEN GAAP
AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended
Nine Months Ended
(In millions, except per share
amounts)
June 30, 2023
July 1, 2022
June 30, 2023
July 1, 2022
OPERATING INCOME RECONCILIATION
Operating income
$
24.2
$
23.0
$
52.8
$
63.6
Amortization of intangible assets
(includes amortization impacts to cost of revenues)
3.4
3.8
10.2
11.2
Restructuring charges (includes
restructuring impact to cost of revenues)
0.7
1.3
2.2
5.6
Other non-operational costs (includes
other non-operational impacts to cost of revenues)
0.8
0.1
4.6
2.0
Total operating income adjustments
4.9
5.2
17.0
18.8
Non-GAAP operating income
$
29.1
$
28.2
$
69.8
$
82.4
Operating margin
10.4
%
10.7
%
7.9
%
10.1
%
Non-GAAP operating margin
12.5
%
13.1
%
10.5
%
13.1
%
INCOME BEFORE TAXES
RECONCILIATION
Income before taxes
$
17.1
$
13.5
$
30.3
$
30.4
Total operating income adjustments
4.9
5.2
17.0
18.8
Convertible notes non-cash interest
expense
—
2.2
—
6.5
Other non-operational costs
—
—
—
1.2
Total income before tax adjustments
4.9
7.4
17.0
26.5
Non-GAAP income before taxes
$
22.0
$
20.9
$
47.3
$
56.9
INCOME TAX EXPENSE
RECONCILIATION
Income tax expense
$
7.9
$
5.1
$
13.6
$
12.8
Tax effect on non-GAAP adjustments
3.4
(0.8
)
3.3
(3.4
)
Non-GAAP income tax expense
$
4.5
$
5.9
$
10.3
$
16.2
VAREX IMAGING
CORPORATION
RECONCILIATION BETWEEN GAAP
AND NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended
Nine Months Ended
(In millions, except per share
amounts)
June 30, 2023
July 1, 2022
June 30, 2023
July 1, 2022
NET INCOME AND DILUTED NET INCOME PER
SHARE RECONCILIATION
Net income attributable to Varex
$
9.1
$
8.2
$
16.3
$
17.2
Total earnings before taxes
adjustments
4.9
7.4
17.0
26.5
Effective tax rate on non-GAAP
adjustments
(69.4
)%
10.8
%
(19.4
)%
12.8
%
Tax effect on non-GAAP adjustments
3.4
(0.8
)
3.3
(3.4
)
Non-GAAP net income
17.4
14.8
36.6
40.3
Interest expense on Convertible Notes, net
of tax
1.4
—
—
—
Diluted Non-GAAP net income
18.8
14.8
36.6
40.3
Diluted net income per share
0.21
0.20
0.40
0.41
Non-GAAP diluted net income per share
$
0.37
$
0.37
$
0.90
$
1.00
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING RECONCILIATION
GAAP weighted average common shares -
dilutive
50.4
40.5
40.6
41.9
Dilution offset from convertible notes
hedge transaction
—
(0.2
)
—
(1.6
)
Non-GAAP dilutive shares
50.4
40.3
40.6
40.3
ADJUSTED EBITDA RECONCILIATION
Net income attributable to Varex
$
9.1
$
8.2
$
16.3
$
17.2
Interest expense
7.3
9.4
22.1
29.2
Income tax expense
7.9
5.1
13.6
12.8
Depreciation
4.9
4.7
14.2
14.3
Amortization
3.4
3.8
10.2
11.2
Stock based compensation
3.6
3.4
10.1
10.7
Restructuring charges
0.7
1.3
2.2
5.6
Other non-operational costs
0.8
0.1
4.6
3.2
Adjusted EBITDA
$
37.7
$
36.0
$
93.3
$
104.2
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.
Convertible notes non-cash interest
expense: We issued convertible notes in June 2020 at a
discount related to the conversion feature of the notes and
capitalized certain costs related to the issuance of these notes.
The discount and capitalized issuance costs are amortized into
interest expense over the term of the convertible notes. The
amortization recognized for the convertible notes will be greater
than the cash interest payments for the notes. We believe that
excluding the convertible notes non-cash interest expense allows
the users of our financial statements to better understand the
historic and current results of our operations. This also
facilitates comparisons to peer companies.
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/20230801707988/en/
Christopher Belfiore Director of Investor Relations Varex
Imaging Corporation 801.973.1566 |
christopher.belfiore@vareximaging.com
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