Varex Announces Financial Results for Second Quarter of Fiscal Year 2020

SALT LAKE CITY--(BUSINESS WIRE)-- Varex Imaging Corporation (Nasdaq: VREX) today announced its unaudited financial results for the second quarter of fiscal year 2020. Varex also announced the withdrawal of its previously issued guidance for fiscal year 2020 due to the significant uncertainty surrounding the COVID-19 pandemic and its impact on the company’s business and the global economy.

Summary

• 2Q20 Revenues were $197 million
• 2Q20 Gross margin was 29% | Adjusted gross margin* was 32%
• 2Q20 Operating earnings margin was 1% | Adjusted operating earnings margin* was 5%
• 2Q20 Net earnings were ($0.05) per diluted share | Adjusted net earnings* were $0.12 per diluted share

“During the second quarter we began to see the impact of the COVID-19 pandemic on our business. Although our revenues increased over the prior year quarter, we experienced a substantial shift in mix between and within our business segments that lowered our overall margins,” said Sunny Sanyal, Chief Executive Officer of Varex.

“In our medical segment, during the second quarter a significant increase in sales of CT tubes and higher demand for other X-ray imaging products that assist with the fight against COVID-19 drove revenue growth. This growth was partially offset by a decline in sales of other medical products as our OEM customers managed their inventory levels in response to the uncertainty around spending for X-ray imaging systems. In our industrial segment, a decline in world oil prices and the widespread economic impact of COVID-19 led to lower sales of products for cargo screening and non-destructive inspection applications that were partially offset by increased sales of products for the airport security market,” Sanyal added.

Second Quarter Fiscal Year 2020 Results

Revenues for the second quarter of fiscal year 2020 were $197 million compared to $196 million in the prior year quarter. Medical segment revenues increased 4% to $155 million while Industrial segment revenues decreased 11% to $42 million from the prior year quarter.

Gross margin for the second quarter of fiscal year 2020 was 29% of revenues compared to gross margin of 33% of revenues in the prior year quarter. Adjusted gross margin* was 32% of revenues compared to 34% of revenues in the prior year quarter.

R&D investment for the second quarter of fiscal year 2020 was 11% of revenues compared to 10% of revenues in the prior year quarter. SG&A expenses were 18% of revenues compared to 16% of revenues in the same quarter a year ago primarily due to increased consulting fees associated with the implementation of a new accounting standard.

Operating margin for the second quarter of fiscal year 2020 was 1% of revenues compared to 7% in the prior year quarter. The adjusted operating margin* was 5% of revenues compared to 12% in the prior year quarter.

Net loss for the second quarter of fiscal year 2020 was ($0.05) per diluted share compared to net earnings of $0.15 per diluted share in the prior year quarter. Adjusted net earnings* were $0.12 per diluted share compared to adjusted net earnings* of $0.34 per diluted share in the same quarter a year ago.

Year-To-Date Fiscal Year 2020

Revenues for the first six months of fiscal year 2020 were $397 million compared to revenues of $382 million in the prior year period. Medical segment revenues increased 6% to $311 million and Industrial segment revenues decreased 3% to $86 million.

Gross margin for the first six months of fiscal year 2020 was 30% of revenues compared to 33% of revenues in the prior year period. Adjusted gross margin* was 33% of revenues compared to 35% of revenues in the prior period.

Balance Sheet

At the end of the second quarter of fiscal year 2020, cash and cash equivalents were $24 million. Year-to-date cash flow from operations was $24 million for fiscal year 2020 compared to $33 million in the prior year. During the second quarter of fiscal year 2020, the company increased its total debt outstanding by $2 million to end the quarter at $383 million. Subsequent to the end of the second quarter, the company drew an additional $65 million on its revolving credit facility.

Outlook

The unprecedented nature of the COVID-19 pandemic and its impact on the global economy has created a disruption to Varex’s business which includes significant uncertainty in demand for certain products for medical and industrial applications, as well as increased variability in its supply chain and manufacturing productivity. The company expects this uncertainty to continue for at least the remainder of the current fiscal year. As a result, Varex is withdrawing its previously issued guidance for fiscal year 2020.

Further, due to the unpredictability of when and how strong a global economic recovery may be, the company has been implementing actions to reduce its expenses and cash disbursements, some of which were previously disclosed in Varex’s Form 8-K dated April 10, 2020. The company continues to evaluate and implement additional cost reduction measures.

Adjusted Non-GAAP Financial Measures

*Please refer to “Reconciliation between GAAP and Adjusted 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 second quarter of fiscal year 2020 today at 3:00 p.m. Mountain Time. The conference call will be webcast live and can be accessed at the company’s website at investors.vareximaging.com. Access will also be available by dialing 1-877-524-8416 from anywhere in the U.S. or by dialing 1-412-902-1028 from non-U.S. locations. The webcast of this call will be archived on the company’s website and a replay of the call will be available from today through May 26th at 1-877-660-6853 from anywhere in the U.S. or 1-201-612-7415 from non-U.S. locations. The replay conference call access code is 13702421.

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 2,000 people located at manufacturing and service center sites 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; industry or market outlook; customer demand; potential impact of tariffs, 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 the company’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 the severity and duration of the COVID-19 pandemic and its impact on the global economy; supply chain and labor disruptions due to COVID-19 or otherwise; not receiving the intended benefit of current or future restructurings or cost-saving activities; the continued impact of tariffs or a global trade war on the company’s products and customer purchasing patterns; our ability to obtain the intended benefits and synergies of acquisitions and facility consolidations; global economic conditions; demand for and delays in delivery of products of the company or its customers; litigation costs; the company’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; the ability to remediate material weaknesses in internal control; 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. The company 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 second quarter of fiscal year 2020. As a result, 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 the company files the Form 10-Q.

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