Image Credit: Varex Imaging Corporation RSNA 2020 virtual booth, News
On February 4th, Varex Imaging Corporation published its financial results for Q4 2020. Due to the companies reporting cycle, this is its first fiscal quarter. These results show that Group sales continued to decline during the quarter, driven by the negative effects of the Coronavirus pandemic. Although revenue was lower year-on-year, sales activity showed improvement relative to Q2 and Q3 of 2020. Overall sales reached $177.1m, compared with $200.1m in Q4 2019, a decrease of -11.5% year-on-year. This took cumulative 2020 sales to $715.3m, compared with $795m in 2019, a decrease of -10% year-on-year. The company has two reportable operating segments, medical and industrial imaging. The sales contraction during the quarter as well as full-year was driven by lower sales from both segments.
The Medical Segment
During the quarter, sales originating from the medical segment were $139.2m, compared with $155.6m in Q4 2019, a decrease of approximately -11% year-on-year. This resulted in cumulative 2020 sales of $568.1m, compared with $608.5m in 2019, a decrease of approximately -7% 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 fluoroscopy and oncology applications. During the Q4 earnings call, Sunny Sanyal, President and CEO, commented:
“CT has continued to remain strong for a number of quarters, including Q1 [calendar Q4]. Much of our CT business is coming from new system installations, which bodes well for our replacement business in the future. In fluoroscopy and oncology, we saw some improvement, primarily driven by an increase in patient visits for elective procedures. Our other medical modalities remain sequentially flat for the quarter. Dental continued to be slow and soft this quarter, and mammography was soft as well.”
Sales growth and momentum anticipated from Chinese OEMs
Partially in response to COVID, it is anticipated that the Chinese government will accelerate the planned installation of approximately 10,000 CT systems over the next few years. These systems will be placed in “fever clinics” and emergency departments at local hospitals, in order to provide dedicated CT scanner rooms for patients with infectious conditions. As a result, Varex indicated that it is anticipating a significant increase in demand for tubes for new CT systems in China. Over the past few years, the company has been working with a number of Chinese OEMs in order to engineer Varex products into their systems. The slide below from the Q4 investor presentation indicates the planned introduction and rollout of various CT systems by its Chinese OEM customers. This shows that several new CT models, utilising Varex components, will enter the market over the next couple of years.
The Industrial Segment
During the quarter, sales originating from the industrial segment were $37.9m, compared with $44.5m in Q4 2019, a decrease of approximately -15% year-on-year. This resulted in cumulative 2020 sales of $147.2m, compared with $186.5m in 2019, a decrease of approximately -21% year-on-year. The sales performance during the quarter can be characterised by lower sales of products relating to cargo, port security as well as baggage screening applications, combined with recovering sales of products for non-destructive testing and industrial inspection applications.
Sales results by Geographic Region
From a geographical perspective, the sales contraction during the quarter was driven by all major regions, led by EMEA (-11%, -$16m), followed by APAC (-12%, -$14m) and the Americas (-12%, -$2m). Sales activity within the APAC region slowed during the quarter although cumulative 2020 sales remained higher for the year (+2%), driven by demand for CT tubes from Chinese OEMs.
The outlook for Q1 2021
“Our business has started to exhibit sequential growth that should lead us back to pre-COVID revenue levels of about $200 million per quarter. The pace of recovery will initially be driven by, increasing demand for service replacement products, as surgeries and elective procedure volumes increase. Service replacements are typically funded by hospital operating budgets, whereas, the purchase of new imaging systems require, capital expenditure budgets. Beyond the initial recovery, we expect that hospitals and medical facilities will begin to commit capital for new imaging systems, once utilization levels reach certain thresholds. We also expect that COVID vaccines will play a key role in increasing utilization levels. In our industrial segment, we expect to see continued gradual improvements, as the broader economy recovers.”