Varex Imaging, Q2 2021, Sales Results

Image Credit: Varex Imaging Corporation RSNA 2020 virtual booth, News

On the 3rd of August, Varex Imaging Corporation published its financial results for Q2 2021. Due to the companies reporting cycle, this is its third fiscal quarter. These results show that Group sales continued to grow for the second consecutive quarter, following revenue declines in 2020 related to the COVID pandemic.

Quarterly sales reached $211.2m, compared with $171.2m in Q2 2020, an increase of approximately +23% year-on-year. This was on top of a -13% revenue contraction in Q2 2020, compared with Q2 2019, and reflects an increase of +7.4% when compared with Q2 2019. The quarterly result was at the top-end of the management’s revenue forecast of between $195m to $215m.

On a calendar year basis, cumulative H1 2021 sales reached $414.7m, compared with $368m in 2020, an increase of approximately +13% year-on-year. On a trailing-twelve-month (TTM) basis, sales revenue remained lower by approximately -1% year-on-year.

The Medical Segment

Quarterly sales originating from the medical segment reached $167.3m, compared with $137.6m in Q2 2020, an increase of approximately +22% year-on-year. This was on-top of a circa -9% sales contraction in Q2 2020, compared with Q2 2019. On a calendar year basis, this took cumulative H1 2021 sales to $323.9m, compared with $293.0m in 2020, an increase of approximately +10.5% year-on-year. On a TTM basis revenues were -0.3% lower 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 earnings call, Sunny Sanyal, President and CEO, commented: “In the third fiscal quarter [calendar Q2], all medical modalities except dental returned to pre-COVID sales levels or better. The strong trend in CT tubes sales continued during the quarter, enabling our already large installed base to grow further. Since many of the tubes were for new systems, it bodes well for our future sales related to replacement tubes. In our other medical modalities, oncology, fluoroscopy and mammography posted healthy potential growth, and are back to or above pre-COVID levels. We believe growth in Medical segments was driven in part by demand that had been deferred over the past year, as well as expansion of healthcare services in some markets and adoption of new technologies.”

Slide 4, CY Q2 2021 Investor Presentation
Data presented on a calendar year basis
The Industrial Segment

Quarterly sales originating from the industrial segment were $43.9m, compared with $33.6m in Q2 2021, an increase of approximately +31% year-on-year. This was on-top of a circa -25% sales contraction in Q2 2020, compared with Q2 2019. On a calendar year basis, this took cumulative H1 2021 sales to $90.8m, compared with $75.2m in 2020, an increase of approximately +21% year-on-year. On a TTM basis revenues were approximately -4% lower 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.

During the earnings call, Sunny Sanyal, President and CEO, commented: “in Q3 [calendar Q2] demand for digital detectors for non-destructive inspection increased across several of our industrial verticals, including battery inspection and oil and gas. However, demand for imaging products for security screening at ports and borders, as well as baggage screening at airports continued to be soft.”

Momentum from China
Slide 5, CY Q2 2021 Investor Presentation

In recent periods, the business has experienced strong growth momentum from OEM customers in China, driven by the demand for new CT systems. Varex anticipates that this demand is likely to grow at approximately 10% per annum for the next several years and that revenues from China will exceed $100 million by fiscal year end 2021. This would represent 25% to 30% year-over-year growth for the last two years. The underlying demand is from the Chinese healthcare system and the expansion of medical imaging capabilities at so-called “fever clinics” in order to make rural health systems more reliant as well as being able to handle more advanced diagnostic procedures such as cardiac applications.

The companies strategy in China has been to establish relationships with local OEMs and it has been working with 8 local Chinese OEMs in order to bring 12 new CT solutions to market. Out of these 12 projects, 9 systems are now commercially available with 3 still in the process of being brought to market. These customers combined 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.”

While digital detectors have been a significant part of the company’s early growth story in China, year-to-date medical tubes represented over half of the revenues originating from China. It’s Wuxi facility is capable of manufacturing several 1,000 detectors per year and the detectors manufactured in the Wuxi plant now span various modalities, including radiographic, dental, oncology and fluoroscopy.

Sunny Sanyal commented: “This broad set of local offerings along with strong industrial detector sales, have enabled our detector sales in China to reach levels previously achieved in 2017 and 2018, prior to the onset of the trade war with China and associated tariffs. In addition, our local OEM relationships in China provide a platform to grow into other modalities. We are currently targeting into cardiology, dental and radiation therapy.”

Direct Conversion

During the quarter, Varex completed the acquisition of the outstanding minority stake in Direct Conversion, reflecting its continued investment into photon counting detector technology.

VEC Imaging

During the quarter, this venture continued to make progress with product life testing with good results and is now working on customer prototypes. Formed in 2018, VEC Imaging GmbH Co. & KG is a joint venture between CETTEEN GmbH and Varex. The company is developing “nanotube technology” which will replace the traditional coiled filament with a nanotube field emission emitter (cold cathode).

Supply Chain Constraints

During the quarter, “supply chain challenges became more pronounced” and is impacting the availability of some raw materials and semiconductors. The company noted that it envisages the potential for supply chain constraints and shipping disruptions in Q4 and beyond. It is working closely with its suppliers to mitigate potential impacts.

Revenue outlook for Q3 2021

For calendar Q3 2021, the company is projecting sales revenue of between $195m to $215m, an increase of between +15% and +26% compared with Q3 2020.

X-ray Detector Market Research Products

For more detailed analysis of the Varex detector portfolio as well as analysis on the global market for X-ray detectors, PMI is due to publish the following report by the 31st August 2021:

In addition, the following X-ray detector market research products are available: