Varex Imaging Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Varex Q1 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Christopher Belfiore, Director of Investor Relations. Thank you, Chris. You may begin.
Christopher Belfiore: Good afternoon, and welcome to Varex Imaging Corporation’s earnings conference call for the first quarter of fiscal year 2024. With me today are Sunny Sanyal, our President and CEO; and Sam Maheshwari, our CFO. Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Varex’s website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex’s website. To simplify our discussion, unless otherwise stated, all references to the quarter are for the first quarter of fiscal year 2024. In addition, unless otherwise stated, quarterly comparisons are made year-over-year from the first quarter of fiscal year 2024 to the first quarter of fiscal year 2023.
This is a change compared to prior quarters where since COVID, we have compared results sequentially. We believe going forward, this will be a better representation of our results given that the impacts of COVID are largely behind us. Finally, all references to the year are to the fiscal year and not calendar year unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements, which are predictions or projections about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks relating to our business are described in our quarterly earnings release and our filings with the SEC.
Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including Item 1A, Risk Factors of our quarterly reports on Form 10-Q and our Annual Report on Form 10-K. The information in this discussion speaks as of today’s date, and we assume no obligation to update or revise the forward-looking statements in this discussion. On today’s call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with, nor are they a substitute for GAAP financial measures. We provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website.
I will now turn the call over to Sunny.
Sunny Sanyal: Thanks Chris. Good afternoon, everyone, and thank you for joining us for our first quarter earnings call. Revenue of $190 million in the first quarter of fiscal 2024 was in line with our expectations. Lower volumes and unfavorable mix in both Medical and Industrial segments impacted profitability. As a result, non-GAAP gross margin was 31%, and non-GAAP earnings per share was $0.06. Revenue in the first quarter was down 8% year-over-year. Revenue in the Medical segment decreased 13% year-over-year, while the Industrial segment revenue increased 10% year-over-year. Non-GAAP gross margin in the first quarter was 31%, which was below our expectations and down approximately 100 basis points compared to the same quarter last year.
Adjusted EBITDA in the first quarter was $19 million and non-GAAP EPS was $0.06. We ended the first quarter with $195 million worth of cash, cash equivalents and marketable securities on the balance sheet, up $87 million compared to the first quarter of fiscal 2023. Let me give you some insights into sales detailed by modality in the quarter compared to a five-quarter average, which we will refer to as the sales trend. In our Medical segment, global sales of CT tubes were seasonally softer than usual and below its sales trend. Fluoroscopy and oncology modalities were weaker in the quarter and were below their respective sales trends. The lower volumes in these three modalities contributed to the unfavorable mix in the quarter for Medical. Dental improved slightly in the quarter, but remained below its sales trend.
Mammography continued to be solid with revenues above the sales trend in the quarter, while radiographic was below its sales trend. Global sales of our industrial products in the quarter were solid, but below its sales trend in the quarter. We continue to see strong momentum in our cargo inspection business. Outside of cargo, we're experiencing softness in industrial end markets, particularly in semiconductor, automotive and electronics. The lower-than-expected industrial revenue contributed to lower gross margin in the quarter. At the end of November, we attended the Radiological Society of North America Show, which is the world's largest imaging-focused event and attended by radiology professionals and diagnostic imaging companies globally.
A technician in a lab coat inspecting an X-ray imaging component.
We had over 150 meetings with our customers and prospects, and it was a very productive business development event for us. We displayed and discussed several new products across our entire portfolio, including a prototype of our photon counting detector module. Unlike in the last couple of years where supply chain related matters dominated the agenda, nearly all discussions with our customers at this RSNA were focused on new product development, including for CT, mammography, surgery, interventional and general x-ray systems. We also met with several new OEMs with novel technologies that would benefit from our Azure and photon counting detectors and our software applications. Photon counting continued to be at the front and center in many of our discussions.
I'm happy to say that a major global OEM has expressed their interest to incorporate our photon counting technology into their next-generation of CT scanners. Discussions with others are ongoing. With the acute supply chain problems behind them, our customers' focus has returned to new product introductions and so have our discussions with them. In summary, we continue to be excited about the prospects for new imaging products like photon counting CT and our unique position to support our customers in bringing innovative systems to market. With that, let me hand over the call to Sam.
Shubham Maheshwari: Thanks Sunny, and hello, everyone. As a reminder, the first quarter is generally a seasonally low quarter for us. Our revenues were at the midpoint of guidance, while gross margin was below the guided range and non-GAAP EPS was lower than the guidance midpoint. During the quarter, we experienced unfavorable product mix in both Medical and Industrial segments, along with seasonally low volumes. As a result, revenues were $190 million. Non-GAAP gross margin was 31%, and non-GAAP EPS was $0.06. Further, operating cash flows were $10 million for the quarter. First quarter revenues decreased 8% compared to the first quarter of fiscal 2023. Medical revenues were $140 million and Industrial revenues were $50 million.
Medical revenues were 74% and Industrial revenues were 26% of our total revenues for the quarter. Looking at revenues by region. Americas decreased 6% compared to the first quarter of fiscal 2023, while EMEA increased 1% and APAC decreased 16%. As highlighted last quarter, the decline in APAC was primarily the result of lower sales in our China business due to the government's anticorruption campaign into its healthcare system. China accounted for 17% of overall revenues in the first quarter, even though sales in China declined approximately 10% compared to the same period last year. Let me now cover our results on a GAAP basis. First quarter gross margin was 30%, 100 basis points lower year-over-year. Operating expenses were $53 million, up $3 million compared to the first quarter of fiscal 2023, and operating income was $4 million, down $9 million.
GAAP net loss was about $0.5 million, and EPS was a loss of $0.01 per share based on fully diluted 41 million shares. Moving on to non-GAAP results for the quarter. Gross margin of 31% was down 100 basis points compared to the first quarter of fiscal 2023. R&D spending was $20 million, flat compared to the first quarter of fiscal 2023. Overall, R&D was 11% of revenues. Generally, our target is 8% to 10% of revenues on an annual basis. SG&A was approximately $29 million, up $1 million compared to the first quarter of fiscal 2023. SG&A was 15% of revenues. Operating expenses were $49 million or 26% of overall revenues. Overall, operating expenses were in line with our expectation. Operating income was $10 million, down $8 million compared to the same quarter last year.
Operating margin was 5% of revenue compared to 9% in the first quarter of fiscal 2023. Tax expense was $1 million or 20% of pretax income compared to $2 million or 15% in the first quarter of prior year. We continue to expect a tax rate of 21% to 23% for full fiscal year 2024. Net earnings were $2 million or $0.06 per diluted share, down $0.15 year-over-year. Average diluted shares for the quarter were $41 million on a non-GAAP basis. Now turning to the balance sheet. Accounts receivable decreased by $24 million from Q4 of fiscal 2023, primarily the result of lower sales in the quarter. Days sales outstanding increased by 2 days to 67 days. Inventory increased $12 million sequentially in the first quarter and days of inventory increased to 198 days.
This was the result of an increase in raw materials ahead of higher expected sales in subsequent quarters as well as higher finished goods held in inventory during the quarter. Accounts payables increased by $9 million and days payable increased 11 days to 50 days. Now moving to debt and cash flow information. Net cash flow from operations was $10 million due primarily to the higher collections. We ended the quarter with cash, cash equivalents and marketable securities of $195 million, up $87 million compared to the first quarter of prior year and flat compared to fiscal 2023 year-end. Please note that $195 million include $141 million of cash and cash equivalents shown on the balance sheet, $53 million of marketable securities and $1 million of deposit certificates.
Gross debt outstanding at the end of the quarter was $448 million and debt net of $195 million of cash and marketable securities was $253 million. Adjusted EBITDA for the quarter was $19 million or 10% of sales. Our trailing 12 months adjusted EBITDA was $125 million, and our net debt leverage ratio was approximately two times on a trailing 12 months basis. Now moving on to outlook for the second quarter of fiscal 2024. Revenues are expected between $195 million and $215 million, and non-GAAP earnings per diluted share are expected between $0.10 and $0.30. Our expectations are based on non-GAAP gross margin in the range of 32% to 33%. Non-GAAP operating expenses in the range of $49 million to $50 million, tax rate of about 22% for the second quarter, and non-GAAP diluted share count of about 41 million shares.
With that, we'll now open the call for your questions.
