All right. Why don't we get this session started? Hello, everyone, and thanks for joining the Varex Imaging fireside chat. My name is Young Li, one of the U.S. MedTech analysts here at Jefferies, and really pleased to be joined by the management team from Varex Imaging. On the far right, it's CEO, Sunny Sanyal, and next to him, CFO, Shubham Maheshwari. Gentlemen, welcome, and thanks for coming to our conference. I guess for the people that may be a little bit less familiar with the company, why don't we start a little bit high level. You guys are the leaders in CT and X-ray tubes and detectors for medical as well as industrial applications. You work with most of the OEMs worldwide. Can you just talk about what enables that? What are the key value props that Varex brings to the table? Thank you. Thank you, Young. One way to think about Varex is if you are anywhere in the world, in the middle of nowhere, having some procedure done and diagnostic imaging procedures performed, there's better than a 50% chance that some of the components in that machine are made by Varex. That's who we are. What we enjoy are a blue-chip customer base with very, very sticky relationships that have been in place for 25+ years, very average type of a relationship. The reason we are able to do that is what Varex brings to the table is, in one word, I'll just say scale. Scale means our scale of innovation and R&D, scale of manufacturing and production. We are, in a way, an extension of our customers' R&D organization. We spent a lot of money, and we get reminded of that all the time. We get to spend a lot of money in innovation, and which over time builds up a platform of technology-based components that are at a platform level that are mass customizable to be bespoke for every customer. If you are a single OEM and you have to build a new X-ray tube for a new application, it can take you years and a lot of investment and a lot of infrastructure to manufacture that. When you're done, that's all you have is one tube or one application. Then the next one you need to do, you need to do the same thing and over and over and over. You spread that across a very small number of units, a few thousand units. You can imagine how expensive it gets, how complicated it gets. What we are able to do is to expand that where we build for one, and we're able to then apply it for 150 others. That's what I mean by scale. That's across just medical. We're one of the few companies in the world that span two very distinct vertical environments, medical, healthcare and industrial. We aggregate scale for R&D, manufacturing, supply chain across medical and industrial, and that is one of our key strengths that enables us to put a moat around our organization. That is one of the key value proposition. Now, if you've been doing that for 75 years in terms of sheer technological acumen that we've acquired, this is what allows us to bring the very, very key value proposition to our customers, which is that we reduce their time to market. That scale enables us to reduce their time to market. It enables us to bring new technologies to those that otherwise would not be able to get into the market. If you're a new OEM, you've got an idea for a new type of imaging, and you have clinical expertise and software that you can apply, you're not going to be stuck with not having an X-ray tube that's needed for that special application. Someone like a Varex can work with you, and in parallel, while you're working on your system design, Varex brings these components to you, shortening your time to market. This is why companies work for us. There may be a few companies that know how to do this, but over time, it doesn't become worth their while. For majority of the others, the three, four that know how to make it's one thing. For the remaining 150, they work with us, and we enable them. Okay, great. Very helpful. I guess maybe just to follow up on that point, for some of the larger companies with the ability to insource, are they trying to outsource more? Are they trying to insource more? How's the trends with the top customers with more capabilities? Yeah, the trend has been consistent for a very long time, which is in the direction of outsourcing. The way this normally plays out is when there's a new technology environment, usually the top two or three OEMs that everyone knows by name very well, they jump into it. It's new technology. They try to get a lead of a few years over their competitors. They jump into it. They try to develop it. They invest in it. At some point, two things happen. The new technology, after they've built the first few years later, matures, they're faced with the choice of do we keep investing in it, or do we go to someone like Varex to the extent that Varex has also invested in it? The natural tendency is to go towards outsourcing. It's more beneficial for our customers, and they will tell you that, to invest in the systems that get them the market share and other essential market presence, entry to market, versus spending the time on foundational componentry. For the ones that don't have the technology, they don't think about insourcing. When there's a new technology, there's always uncertainty around the direction of the technology to the extent that someone makes a choice A in one type of a platform, another OEM makes the choice B. Obviously, either A wins or B wins, and then we end up again back in the situation where we end up playing with them for their continued supply of components. Direct answer to your question, Young, we see a continued trend towards outsourcing a lot more, and it has been in pretty much the same way for the last 25, 30 years. This is one thing we keep hearing. Well, you're in country X. It used to be Japan. When I came on board. Oh, you're in Japan. They'll take it in-house, and they'll make it themselves. Oh, you're in China. They'll take it in-house. They'll make it themselves. Oh, you're going to India. They'll take it in-house. They'll make it themselves. It just doesn't happen. Some companies have the competency, and they do experiment with it, and they do take it in-house, but over time, it becomes burdensome. Mm-hmm. Okay, great. Very helpful. Quick question on that if I might? Sure. In that situation where you eventually take over the new technology, how much money do you actually save the person who's transitioning to you? They're spending internally $100. Are you saving $25 on that? Are you saving $10, $2? It's actually- How do you measure that when you go about it? Yeah, when we offer our value proposition and our products and technologies, the thing that our customers take into account is the total cost of ownership of doing it themselves. It's not just the product minus cost of goods. It's usually the R&D that they put into it. It's the CapEx, it's the factory, the factory capacity. What are they using that capacity for? If they're using it to build these components, what could they be using the components for? There's warranty costs, which they have to absorb. There's a rework and all the field service supply costs. The actual tail of costs ends up being pretty significant, and that's how they look at it. When they amortize that over the number of units, that's when they decide it's not worth it. All right, great. Appreciate that. I guess, you recently started to provide annual guidance. Before it was just on a one quarter forward basis. Why was this implemented? I guess what's changed to give you a little bit more visibility into the annual trends and, maybe if you can talk about the building blocks of that and the level of conservatism that's dialed into that. Sure. I can take that question, Young. Yes, it is true that we recently started to provide annual guidance. We began doing that at the end of the midpoint of this current fiscal year. Our plan is to start providing full year annual guidance going forward. First, a couple of reasons why we did that. Number one, we did a peer benchmarking. We saw that a number of our peers, most of the companies in our industry are providing annual guidance. We wanted to align our practice to what the industry benchmark is. That's one. Secondly, more importantly, if you go back a couple of years ago, COVID, then followed by supply chain crises, and then followed by audits in China and also destocking. Almost all of that is behind us. I would reference the audits in China as well as the destocking phenomenon, both for medical and industrial segments. They are behind us, and we looked at our business situation, and we felt that we are in somewhat of a more stable environment. By no means I'm trying to say that we are living in a zero-risk environment or any such thing, but currently, our business seems to be more stable, and the large drivers of uncertainty are not there. We felt that this is a good time to start to provide annual guidance. Another factor that weighed in on our decision was the fact that we've been making good progress in our three growth initiatives, which is related to cargo inspection and photon counting, as well as India RAD-driven growth. These are not quarter-to-quarter type of initiatives. These are a little bit longer-term type of initiatives. We wanted to start providing annual guidance so that we can give investors a little bit more perspective on the longer-term, four quarters type of anticipation from these technologies or initiatives. That was another reason we decided to change our practice and go from quarter-to-quarter guidance to annual guidance. In terms of your last question on conservativism, et cetera, I would say that our guidance practice has been more geared towards the midpoint, and we are maintaining that. That has been our practice for quarterly guidance, and that continues to be the practice for annual guidance also. That's how we are approaching it. Mm-hmm. All right, great. I guess maybe just to follow up on that, just you mentioned the longer term, maybe midterm, three growth drivers. Can you maybe give us some incremental updates on progress so far, photon counting, radiography, et cetera, and I guess sort of midterm guideposts? What should we kind of expect in the next few years into fiscal 2029? Sure. Yeah, I can get started and by the way, Shubham and I complete each other's sentences, so either of us. As you should. Thank you. I'll start off with India. In India, we're trying to put two factories, as you know. One of the factories, we have completed that. That is for detectors, and we've started to produce some products over there. As you know, we need to complete the factory and then get the product through the regulatory approval process. At the same time, we have also started to approach our customers for our ability to produce out of India these detectors, and so we are now building our sales pipeline as well. Clearly on a sales, manufacturing, and the overall enablement, that is going well. I would say that our utilization levels in the factory is low, but we are expecting it to slowly and gradually ramp up. The second factory in India is related to tubes, and we are still in the construction phase of that. By the end of the year, we are planning to move equipment in. That factory is still at least a number of quarters away. The first one has started to ramp, and the second one we are building. Then, the second one related to cargo systems. We announced last year we received $55 million of orders in the last fiscal year, which is fiscal 2025 for us. Since then, we have made a couple of announcements during our earnings call, that we have been receiving multiple orders for various product types within that cargo inspection systems business, cargo inspection systems business. Multiple countries, multiple product types, and at the same time, we are also planning to release few more products there so that we can complete our portfolio. We've been ramping up our sales channel in that direction, and the market is providing us a very good reception to those products. Those are the two, and on photon counting, maybe I would ask Sunny, for you to provide update on photon counting. Yep. We've talked about photon counting in couple of contexts, medical and industrial. On the medical side, we have highlighted CT as a key area for investment for us in photon counting because it's a very highly sought-after technology for that modality, but it's also a new addressable space for us. We have not been in the CT detector market, and this is new for us, and it adds a potential $500 million of annual addressable market potential. There, the milestones for us are, we've said that our target is to get to $100 million in contribution in photon counting on the medical side, by the end of 2029, and that's where we're headed. A key milestone for us would be that the two customers that we currently have, that are for whom we are the primary source for this technology, we want to see them bring this to market to launch. From that point, the launch point, really the countdown starts for us to start the process of seeing commercial success, right? They'd announce a product, that means it's in FDA, and then they'll bring it to market. The first year is usually a pilot launch. The second year is their ramp-up to their target levels. That's how we're expecting this will play out, like it does with every other OEM customer, and that's a key milestone for us, where these customers are marching very fast towards trying to bring these products to market as soon as possible. They're driving themselves towards a launch plan. Unfortunately, we're not in a position where we can either disclose their names or their timelines, but that's what we're looking for. I also highlighted, just to give you additional color on photon counting, in our last quarterly earnings discussion, I gave some more color on how we are driving adoption of this technology more broadly into other modalities. I gave as an example of eight, I said there were eight customers, and there's others in the pipeline who are trying out our technology and incorporating them into a variety of applications. Some of them have already introduced products that are in the market using this technology for certain applications like breast imaging, like orthopedic weight-bearing imaging and spine imaging. We have customers on the dental side who have products in the market or who are working to bring products to the market. What we're doing here is broadening the pipeline of applications to democratize this technology and make it more available to OEMs, big or small, who want the capabilities of photon counting perhaps to do other things, such as make the imaging more effective, imaging workflow more effective, and we are being the enablers in this. Akeem, we will periodically give you updates on how we're doing photon counting along both these lines, but at this point, I'm very happy to say that we've found fairly broad-based application photon counting. On the non-medical side, we're expecting contribution of $50 million at least by the time we get to run rate of $50 million, by the time we get to the end of 2029. I'm happy to say that we're making good progress on that and fairly rapid progress. We're in the region of about $20 million already in that business on the industrial side. The uptake that we're excited about is the number of applications that we're seeing this technology being implemented in. It started out in battery inspection, electronics inspection. Now we're seeing very enthusiastic. Use and demand for this technology in food inspection. All of this is driven by a few key value propositions. One is the speed with high resolution, high-speed imaging that allows our customers to do 3D imaging at the speed of production. When you have fish filet flying down a production line, you can do 100% inspection. When you have baby food or electronic assemblies going down a production line, all they need to do is take an image quickly, have the data be analyzed, and produce a red, yellow, green, and it moves on. That's what we are able to bring, and these are really exciting applications. The key milestone here is for us to get to $150 million between now and 2030. Mm-hmm. All right, great. I guess just to clarify, those are three exciting growth drivers. Do they cannibalize any existing businesses? If not, should we sort of assume above-trend growth in the next few years? Not to hold you to a number or anything. Yeah. Yeah. Most of them are incremental or additive sources of revenue. Cargo systems, we've not been in that business. The only thing I would highlight is that in Cargo systems, we were previously selling linear accelerators. If we were selling a linear accelerator to somebody else in Cargo systems, say, we would sell it for half a million dollars. Now, if we are selling the entire system, and say, if the system is $1.5 million, then the net incremental revenue from previous versus current would be $1 million, although we would say that we won a $1.5 million systems business. I just want to make sure that is understood. In terms of photon counting, it is all net new. We have never been in the CT detector market. That is a new area for us to enter, and we are leveraging photon-counting technology to enter that space, so that should be incremental. I will say, though, that it is possible that some of the flat panel detector applications may move to photon counting, although photon counting is a much more expensive, much more capable technology, so to say. My comment should not be taken in terms of absolute 100%, but most of it is net incremental. Then RAD. Our goal is to start producing RAD detectors out of India. We do currently have some RAD business, and we would intend to migrate that from manufacturing from Germany or the U.S. over to India. Again, their majority of the revenue should be incremental. Of course, we are going to transfer some of the production from Germany and U.S. to get the factory going and season it up, so to say. Mm-hmm. All right, great. I guess one of the hot topics in investing nowadays is AI. Medical imaging, it's one of the earlier beneficiaries of that theme. Seems like in some of the recent medical conferences you have been in, AI was a topic of conversation with some of those OEMs. I guess I'm just kind of curious, what's your exposure to AI, potentially? What are some of the potential opportunities in that area for Varex? There are several opportunities. Let me first start by saying the data source that the AI algorithms and AI uses is generated by us, right? The X-ray source itself. We are the source of the data. We generate the X-rays, then we capture the X-rays, and our detectors produce the bits and bytes that then go downstream and then can be applied for AI and image processing and workflow, et cetera. Okay. Given that, there are three kinds of opportunities that I'll highlight, and some of these are in flight, some of these are in process, and some of it is just thought processes that we're trying to get our OEMs to work with us on. As an example, on our high-end CT tubes, we have a data infrastructure on the tube itself that captures key aspects, attributes of the imaging for every image procedure that is done. Think of that as an infrastructure that's available for the customer to, one, understand the tube health, how the tube is doing. Two, to the extent that they want to compare the image quality with the attributes and the parameters that were applied for that imaging. It's an opportunity for them to optimize, reduce dose, speed up imaging, and all sorts of other potential applications. That's an example of data enablement that we can provide either to our customers, or in a certain business model, perhaps we take it ourselves and provide it as a service to our customers. By the way, we have had this data infrastructure for quite some time, and it's in the field. There's a lot of data being generated and collected, and our customers who use our high-end CT tubes know that this capability exists. There's many things we can do with that data infrastructure. Secondly, we have standalone applications through our software business that we call MeVis, it's a company that we own 73% of, where we have standalone workstations for high-speed screening, lung screening applications, mammography applications. These are examples of applications that we. We provide that we are taking to now high volume markets like South Asia, India, for lung screening, and in future could potentially be expanded to other applications. This is where we can apply AI in the workflow in these applications for future new products. As much as we like to see images and pretty images, in many of these high-speed applications, it's not the image itself, the picture, that's important. It's really the data that's behind it that's used to run AI algorithms. Imagine if you want to do very high-speed screening, lung screening, all you needed was a green or a red. If it's a green, I didn't see anything, and that's a lot simpler for AI to do than to resolve the complex case. If I see something that looks like I don't know what it is, it could be cancer, flag it as red. Meanwhile, the 95% of the stuff that's green can just go through. This is an example of capabilities that we can incorporate in our technologies. It doesn't exist yet, but the infrastructure is there, the data is there. We are known for our lung screening application, and we're seeing successes in many countries. Thirdly, where we have brought systems to market ourselves on the industrial side. By the way, an industrial customer is the one who opened my eyes to this, and I asked them, "How do you inspect a battery in three seconds with high-speed imaging, and then it moves on?" Who's reviewing these images? Who's looking at it to say it's good or bad? They said, "No one looks at images. It's not the images that we care about. It's the automated signal that comes back from our backend processing. That opened our eyes to how AI in the industrial world works, and the future of AI in imaging could potentially be that simple. We've decided we're going to implement this in our cargo inspection systems. Today, when a container is scanned, we highlight what looks like potential threats or potential opportunities for someone to take a look at. Our intention is to continue to improve that and turn it into fully automated processing, where red, yellow, green, or something similar can be done even to the extent of identifying whether what's being transported in that container matches or does not match what's in the manifest and what it might be. These are the kinds of potential uses and applications that can be provided either by Varex or Varex customers using the infrastructure that we provide. We are a key enabler to AI in imaging, and we see our role in that way. All right, great. That's very helpful. I guess maybe switching gears a little bit, the China market used to be a big growth driver, a big part of the story. Now it seems to be a little bit more stable. It's around 16% revs in the fiscal first half. Can you maybe just give us an update on that market and then the growth outlook embedded in the second half? Sure, I can provide that. China is a stable market for us. We were growing 10%- 12% a year previously, but now it's the law of large numbers, so to say. At this point, we expect China to grow 5%, 6%, 7%, mid-single to high single digit type of growth on a go-forward basis. Your last question in terms of second half guidance that we are baking in, I think last year, meaning in fiscal 2025, those were some easy comparative numbers. I would imagine that the second half China growth would be higher than mid-single digits. Not quite double digits, but towards the higher single digits. That's what we are expecting. All right, great. I guess maybe something near and dear to your heart, Shubham, just the debt refinancing recently. You reduced debt, you lowered annual interest expense. I guess, how does this change the capital allocation priorities for Varex? Yeah, sure. With the refinancing done, by the way, we are very happy with the refinancing. We lowered the interest burden for the corporation. With this, we are very comfortable in terms of our net leverage ratio. We are somewhere 2.1, 2.2, or 2.3 in that range, early twos. That's a very comfortable range for us. As part of this financing, we have purposely designed this instrument or this debt instrument so that we have no penalty if we want to prepay the debt. That gives us the flexibility to prepay if we want to reduce the leverage further. Also, keep in mind that the facility comes with mandatory amortization and payments every quarter. We plan to pay that down. Overall, I would say leverage-wise, we are very comfortable, and over time, beyond funding all the CapEx and the operating needs and the mandatory amortizations, we would be looking at inorganic growth opportunities that fit strategically and make sense for us. We will begin to change our posture a little bit go forward basis. All right, great. We're running tight on time. I guess maybe just a final catchall. Anything else we want to highlight to investors? What do you think are the most underappreciated aspect to the story? Look, the thing that you hear a lot from us is that Varex is a market leader, and we have a very large number of customers with an average relationship span 25 years. That's not to be underestimated. That creates a very, very strong distribution channel for us and the trust that OEMs put in companies like us to become their major partner in supplying a very critical part of their systems offering. That is a very key part of our value proposition and who we are that sometimes goes underappreciated. Secondly, the moat that we have around our business is actually very solid and perhaps not well understood. What I mean by that is we get a lot of questions about why can't customers just make an X-ray tube? It's like a light bulb. Well, it's not. It's taken us 75 years to get the expertise that's needed, and the higher you go up in the complexity of the modality, the more difficult it becomes. As much as a few customers might know how to make these X-ray tubes and the complex ones, they don't necessarily want to. It's for them, a means to an end. So that moat is actually pretty strong. The one place where that has been weaker historically has been in the very low-end value segments in the general radiography, which is your everyday general X-ray and dental imaging. Our intention is to tighten the moat around that, where we're known today as an innovation leader, even in the value space. Our intention is to become the cost leader in that value segment. We've been redesigning the radiographic products and bringing in lower cost supply chain, lower cost manufacturing with lower cost overhead, and our intention is to tighten that up as well. That's a pretty strong part of our story. Lastly, we keep investing. We're asked about why we spend a lot of money in R&D, and we don't think it's that much. We just need to do a better job with our gross margins to be able to have that then flow down lower. The R&D is what drives our business. It's critical to our business because it not only strengthens the moat, but also it allows us to make these new technologies that we put money into. A lot of it goes into developing photon counting, developing nanotubes, and then we make that available to everyone, not just the two or three OEMs that understand how to utilize this. That's been our strength in growing out our franchise, where there's now 150 or so OEMs that rely on us to bring that to them. The investments that we make in some of these new technologies is we target it at everyone, not just a few or some niche end of the market. That creates an additional strength for us in our customer franchise. I'm not sure how well that is appreciated or understood, but that is what's going to give us the basis for continued success, continued growth, and for finding new types of novel applications for our technologies. All right. Great. Thank you very much. Really appreciate. Thank you. the fireside chat and thanks everyone for your interest. Thank you. Thank you. Thank you, everyone.