Day two of the Jefferies New York City Healthcare Conference. My name is Young Li, one of the US med tech analysts on the team. Really pleased to be joined by management from Varex Imaging. We have Sam Maheshwari, CFO, and Chris Belfiore, Director of IR. This will be a moderated Q&A session.
This will be a moderated Q&A session. We have Sam Maheshwari, CFO, and Chris Belfiore, Director of IR. Sam, Chris, welcome, and thanks for coming.
Thank you, Young, and thanks for hosting us.
Mm-hmm. Sam, Chris, welcome, and thanks for coming.
Thank you, Young, and thanks for hosting us.
Mm-hmm. Session. Sam, Chris, welcome, and thanks for coming.
Thank you, Young, and thanks for hosting us.
Mm-hmm. Session. Sam, Chris, welcome, and thanks for coming.
Thank you, Young, and thanks for hosting us.
Mm-hmm. I guess starting high level, so, you know, Varex is the merchant provider of X-ray and CT tubes and detectors. You work with pretty much all the OEMs in the world. Can you maybe expand upon that and talk about the end market? You work with pretty much all the OEMs in the world.
Can you maybe expand upon that and talk about the end market? You work with pretty much all the OEMs in the world. Can you maybe expand upon that and talk about the end market? You work with pretty much all the OEMs in the world. Can you maybe expand upon that and talk about the end market growth for the medical and industrial segments to start us off?
Sure. Yes. So Varex, you know, we've been-
Growth for the medical and, industrial segments to start us off?
Sure. Yes. So Varex, you know, we've been-
Growth for the medical and, industrial segments to start us off?
Sure. Yes. So Varex, you know, we've been-
Growth for the medical and, industrial segments to start us off?
Sure. Yes. So Varex, you know, we've been in business for more than 40 years. We were part of Varian before, and then last 6, 7 years, we've been an independent public company. Most of the X-ray OEMs in the world are our customers. I would say they are about 150.
Most of the X-ray OEMs in the world are our customers. I would say they are about 50 of them worldwide, and almost all of them, maybe except one or two, all of them are our customers. And once we have a customer, then they have...
In the past, they have stayed with us for last 30, 40 years. And once we have a customer, then they have stayed with us for last 30, 40 years. So the stickiness is quite high. In terms of overall growth rates of our markets in the healthcare side, so the stickiness is quite high.
In terms of overall growth rates of our markets, in the healthcare side, this business is growing about 3% or 2%-4% on an annual basis. The main driver
The main drivers for the growth of our business are really the population growth, the aging of the population, newer technologies. You know, whenever there's a newer technology, then it provides us a growth area, technologies.
And for, you know, whenever there's a newer technology, then it provides us a growth area, growth impetus for us for the following five to 15 years. So that's healthcare. And then, the other business that we are in is industrial. Today, 25% of our sales is in industrial.
And then, the other business that we are in is industrial. Today, 25% of our sales is in industrial domain. There, what we end up doing is we take the technologies from healthcare and apply them in the industrial area. So that business is growing 6%-8% on an annualized basis.
So that business is growing 6%-8% on an annualized basis, apply them in the industrial area. We are seeing a lot of greenfield applications of X-ray in industrial area, whether it is in oil and gas.
We are seeing a lot of greenfield applications of X-ray in industrial area, whether it is in oil and gas related subdomain, or it is in food inspection, or in automotive related subdomain, or it is in food inspection, or in automotive related subdomain, or it is in food inspection, or in automotive, et cetera.
Okay, great. I guess maybe just double-clicking on the medical segment, et cetera.
... So you know, that business, I guess more recently, there's been some pressures. It's down mid-teens in the first half of the fiscal year. Some of that is driven by the China pressures, which we can get to a little bit.
Some of that is driven by the China pressures, which we can get to a little bit later. But if you strip out China from medical, I mean, growth is still down double digits. Can you maybe talk about some of the pressures that you're seeing there?
Yes. So you mentioned China already, and China business is soft for us.
Pressures that you're seeing there?
Yes. So you mentioned China already, and China business is soft for us.
Pressures that you're seeing there?
Yes. So you mentioned China already, and China business is soft for us.
Pressures that you're seeing there?
Yes. So you mentioned China already, and China business is soft for us, due to the anti-corruption campaign that is going on there. However, outside of China, for a number of our customers, lately, we've been seeing that they are adjusting their inventory levels. So as an outcome of the supply chain crisis, lately, we've been seeing that they are adjusting their inventory levels.
So as an outcome of the supply chain crises in the last 18-24 months, they increased their inventory levels. But since that crisis has largely abated, they are now readjusting their inventory levels, so we are seeing some softness from there.
Largely abated, they are now readjusting their inventory levels, so we are seeing some softness from there. So between destocking or inventory adjustment globally, coupled with the softness in China, that is what is impacting our business in the medical area currently.
Okay, got it. I mean, we heard about some of the channel destocking from some-
Of our business in the medical area currently.
Okay, got it. I mean, we heard about some of the channel destocking from some-
Of our business in the medical area currently. Okay, got it. I mean, we heard about some of the channel destocking from some-
... Okay, got it. I mean, we heard about some of the channel de-stocking from some other med tech companies as well, so that makes sense. But, you know, as your OEM customers de-stock inventory, how much visibility do you have in their order and patterns and, replacement needs? When do you think that can improve?
Yeah, generally,
Visibility do you have in their order and patterns and replacement needs? When do you think that can improve?
Yeah, generally,
Visibility do you have in their order and patterns and replacement needs? When do you think that can improve?
Yeah, generally-
visibility do you have in their order and patterns and replacement needs? When do you think that can improve?
Yeah, generally, our expectation is that that is more of a 6-9-month type of a duration. And, you know, we are already into it for a few months, so that's the situation on the inventory side.
Already into it for a few months, so that's the situation on the inventory side, inventory adjustment side. And when it comes to China, we are hearing a little bit more constructive dialogues with our customers there. But at the same time,
But at the same time, a little bit more constructive dialogues with our customers there. But at the same time, the situation there is not entirely clear. It is a little bit of an opaque system, but we are thinking that the business should begin to come back, more towards the end of this calendar year.
Should begin to come back more towards the end of this calendar year.
Okay, got it. I guess maybe just following up on China, you know, there's the anti-corruption campaign. Okay, got it. I guess maybe just following up on China, you know, there's the anti-corruption campaign. Okay, got it. I guess maybe just following up on China, you know, there's the anti-corruption campaign impacting business there right now. China's around, I guess, 14% of revs in the first half of this year, impacting business there right now. China's around, I guess, 14% of revs in the first half of this year, impacting business there right now. China's around, I guess, 14% of revs in the first half of this year....
Impact in business there right now. China's around, I guess, 14% of revs in the first half of this year. And, you know, we had seen anti-corruption campaigns impacting other industries. They typically ease up after about a year, and we're getting closer to that point.
I guess once the orders start to come back and things start to normalize a little bit, do you expect a more of a gradual recovery, or do you think there might be some pent-up demand bullish and normalize a little bit?
Do you expect a more of a gradual recovery, or do you think there might be some pent-up demand bullish impact?
Yeah. So, overall, if you look at it from a longer-
Impact.
Yeah. So, overall, if you look at it from a longer-
Impact.
Yeah. So, overall, if you look at it from a longer-
Impact.
Yeah. So, overall, if you look at it from a longer-
Impact.
Yeah. So, overall, if you look at it from a longer-term perspective, we expect China to be a growth area from a healthcare infrastructure and investment perspective. So outside of the short term, it should be a growing area. Before the anti-corruption campaign, we were growing double digits.
Before the anti-corruption campaign, we were growing double digits in China. So outside of the short term, it should be a growing area. So as we look at the anti-corruption campaign, China...
So, as we look at the anti-corruption campaign, China, and that gets over. And currently, it seems it's moving province to province. But when most of it is completed and then that gets over.
But when most of it is completed, there should be some sort of a demand that has been what you call pent-up demand or unserviced demand or unmet demand. That should be there. However, we think from a we think that the recovery would be.
However, we think that the recovery would be gradual because there's also the macro situation in China is not as strong.
So if the macro situation is very strong and anti-corruption is over, then that might drive more of a faster or a sudden fulfillment of demand, which might be a significant surge in terms of addressing that pent-up demand.
But if the macro situation is somewhat soft but improving and addressing that pent-up demand. But if the macro situation is somewhat soft but improving and anti-corruption is over, then we would be thinking more in terms of a gradual improvement in demand. So that's how we are thinking.
So that's how we are thinking, anti-corruption is over, then we would be thinking more in terms of a gradual improvement in demand. So that's how we are thinking about it, Young. Again, everything is subject to change, and as we get to see the data, but that's how we are thinking about it.
Okay, got it. And then, you know, they also have a stimulus plan out there as well. We don't-
We are thinking about it.
Okay, got it. And then, you know, they also have a stimulus plan out there as well. We don't-
We are thinking about it.
Okay, got it. And then, you know, they also have a stimulus plan out there as well. We don't-
We are thinking about it.
Okay, got it. And then, you know, they also have a stimulus plan out there as well. We don't know all the details, but can you maybe level set us on, you know, what's your latest thinking on the impact of the stimulus package, and when we can get more details from that?
Yeah. So based on our internal discussions with our teams on the ground,
Stimulus package, and when we can get more details from that?
Yeah. Based on our internal discussions with our teams on the ground.
Stimulus package, and when we can get more details from that?
Yeah. So based on our internal discussions with our teams on the ground,
Stimulus package, and when we can get more details from that?
Yeah. So based on our internal discussions with our teams on the ground,
Stimulus package, and when we can get more details from that?
Yeah. So based on our internal discussions with our teams on the ground, what they are telling us is that the stimulus program is right now working through the system in the sense a lot of the administrative details of how that'll work its way through are being figured out. That's what we are hearing.
Administrative details of how that'll work its way through are being figured out. That's what we are hearing. You know, our thought was that it was released or discussed about, say, 6 weeks or 2 months back, and it may take 4-5 months for it to be determined administratively how it'll work out.
2 months back, and it may take 4-5 months for it to be determined administratively how it'll work out.
So we are a few months away from seeing how it'll impact, whether what specific areas that it helps the various companies and hospitals. So we'll have to see, and we are a few months away from it. But it should have a positive...
Specific areas that it helps the various companies and hospitals. So we'll have to see, and we are a few months away from it. But it should have a positive impact, and as I said, between the macro situation, the anti-corruption situation, and the stimulus impact.
As I said, between the macro situation, the anti-corruption situation, and the stimulus effect, the interplay between these three is what will drive the pace of recovery after the corruption campaign is over.
Mm-hmm. Okay, got it. I guess during this time, you know, after-
After the corruption campaign is over.
Mm-hmm. Okay, got it. I guess during this time, you know, after-
After the corruption campaign is over.
Mm-hmm. Okay, got it. I guess during this time, you know, after-
After the Anti-corruption campaign is over.
Mm-hmm. Okay, got it. I guess during this time, you know, has competitive dynamics or has there been, you know, share changes in China during the past year? And, you know, what is this competitive dynamics, or has there been, you know, share changes in China during the past year? And, you know, what is the risk of, you know, Chinese OEMs preferring to work with a local manufacturer versus a company like Varex?
The risk of, you know, Chinese OEMs preferring to work with a local manufacturer versus a company like Varex.
Yes, sure. So in terms of the X-ray sources, there is very little competition from a merchant provider perspective. You know, in this business, we work with our OEM customers many years before they release a system model.
And while we work with our OEM customers many years before they release a system model, while the sales in China have been impacted due to anti-corruption campaign, we have been continuously working with our OEM customers in China and making progress there. So that should drive a benefit for us.
So that should drive a benefit for us, our OEM customers in China, and making progress there. So that should drive a benefit for us as those systems are released and as those systems pick up volume. So that should have a beneficial impact for us.
From a competitive perspective, as I said on the sources, we are not seeing any competition there. So that should have a beneficial impact for us. On the detector side, we do have Asia-based competitors. We do have China-based competitor and competition there.
On the detector side, we do have Asia-based competitors. We do have China-based competitor. And I would say in detectors, particularly on the static detectors, we do see more stiff competition from there. But our exposure or our revenues from static detectors is very little as a competition from there.
But our exposure or our revenues from static detectors is very little as of now.
Okay, got it. I guess maybe switching to the industrial segment a little bit,
As of now.
Okay, got it. I guess maybe switching to the industrial segment a little bit,
As of now.
Okay, got it. I guess maybe switching to the industrial segment a little bit,
As of now.
Okay, got it. I guess maybe switching to the industrial segment a little bit,
As of now.
Okay, got it. I guess maybe switching to the industrial segment a little bit, you know, it's growing well in the fiscal first half, especially against some tough comps. Seems like, you know, there, you know, it's growing well in the fiscal first half, especially against some tough comps. Seems like, you know, there, you know, it's growing well in the fiscal first half, especially against some tough comps. Seems like, you know, there, you know, it's growing well in the fiscal first half, especially against some tough comps. Seems like, you know, there might be some slowdown, partly driven by the 25% growth comp. But maybe if you can talk about, you know, might be some slowdown, partly driven by the 25% growth comp.
But maybe if you can talk about, you know, might be some slowdown, partly driven by the 25% growth comp. Within that, what are some of the modalities that are seeing some pressure in the second half, and which ones are doing well or better? And you know, how much visibility do you have on those pressure seasonality?
Sure. So in industrial,
Better, and, you know, how much visibility do you have on those pressures easing?
Sure. So in industrial,
Better, and, you know, how much visibility do you have on those pressures easing?
Sure. So in industrial,
Better, and, you know, how much visibility do you have on those pressures easing?
Sure. So in industrial,
Better, and, you know, how much visibility do you have on those pressures seasonally?
Sure. So in industrial, there are certain end markets, particularly semiconductors and EV battery inspection, other electronics. That's where we are seeing a bit of a slowdown right now, and that slowdown is mostly because we believe...
That's where we are seeing a bit of a slowdown right now, and that slowdown is mostly because we believe they are going through a phase of digesting the capacity that was installed in the last 12-15 months.
So those end markets are a little bit soft. However, we are seeing very good strength in our cargo inspection area, and that is the biggest driver of our growth or overperformance in industrial as of now. We do have fairly...
That is the biggest driver of our growth or overperformance in industrial as of now. We do have fairly good visibility in that market, and we expect it to remain strong for the next 12 months.
And then, you know, you launched the industrial irradiation system late last year. It's being offered directly to customers, the XRpure product irradiation system. I think you talked about it being a $1 billion market in five years.
The first target is reducing. I think you talked about it being a $1 billion market in five years. The first target is reducing microbacterials and agricultural stuff, such as contaminating cannabis, for example. You know, how's that microbacterials and agricultural stuff, such as contaminating cannabis, for example?
You know, how's that microbacterials and agricultural stuff, such as contaminating cannabis, for example? You know, how's that business doing so far versus expectations? What are some of the early learnings from that?
Yes, sure. So we're-
Business doing so far versus expectations, what are some of the early learnings from that?
Yes, sure. So we're-
Business doing so far versus expectations, what are some of the early learnings from that?
Yes, sure. So we're-
Business doing so far versus expectations, what are some of the early learnings from that?
Yes, sure. So we're-
Business doing so far versus expectations, what are some of the early learnings from that?
Yes, sure. So we're... We've already installed a few systems there. That business is doing well. Our product is getting good initial reception by our customers. The value add is quite significant there. We hope to replicate it and initial reception by our customers.
The value add is quite significant there. We hope to replicate it and continuously expand it. So we are pretty optimistic about the future prospects of that business. There is a little bit of a different business model that we are trying in that business, is that we are not selling in certain instances. We are not selling the equipment.
We are not selling the equipment. The business model that we are trying in that business is that we are not selling in certain instances. We are not selling the equipment outright. Rather, it is somewhat of a leasing model.
So we are going through the learning curve on that because typically we've not done a leasing business model in the past. But overall, from a customer and a product perspective, it is doing very well.
We business model in the past, but overall, from a customer and a product perspective, it is doing very well. We may need to invest a little bit more in the sales and marketing channel as we grow, and whatever is ...
We may need to invest a little bit more in the sales and marketing channel as we grow, and whatever is needed at this time, we have already invested, and as growth comes in, then we would look forward to investing a little bit more in that channel. But so far, so far it's been pretty good.
Okay, understood. That's helpful. I guess,
But so far, so far it's been pretty good.
Okay, understood. That's helpful. I guess,
But so far, it's been pretty good.
Okay, understood. That's helpful. I guess,
But so far it's been pretty good.
Okay, understood. That's helpful. I guess,
But so far, it's been pretty good.
Okay, understood. That's helpful. I guess, maybe switching gears, talking about some of the new and exciting products that you're working on. Photon counting detectors, you know, that's the next big thing in CTs. It's kind of like a once in a 20- to 30-year detectors.
You know, that's the next big thing in CTs. It's kind of like a once in a 20- to 30-year generational leap in terms of technology. You know, what are the photon counting detector products of generational leap in terms of technology?
You know, what are the photon counting detector products available today? What's Varex's position on photon counting detectors?
Yeah, sure. So we are very-
Available today, what's Varex's position on photon counting detectors?
Yeah, sure. So we are very-
Available today, what's Varex's position on photon counting detectors?
Yeah, sure. So we are very-
Available today, what's Varex's position on photon counting detectors?
Yeah, sure. So we are very excited about photon counting technology, and as you mentioned, Young, this type of a change in technology comes only once in multiple decades. So photon counting is technology where we are literally counting photons that go through the body.
So photon counting is technology where we are literally counting photons that go through the body, and then through the counting and energy of those photons, we are developing an image. So this technology allows up to 60%-70% dosage reduction, which is a pretty big driver. Then it also enables a much better image.
Then it also enables a much better image, 60%-70% dosage reduction, which is a pretty big driver. Then it also enables a much better imaging that comes out of this technology. So we've been working on this technology now for more than 5 years. There is a CT system that is in the market by C- 5 years.
There is a CT system that is in the market by Siemens in this area, and the industry is trying to adopt this technology quite a bit. A number of our customers are talking to us about it.
We, about 6 months ago, we signed a large OEM, and we are working with them to incorporate our photon counting detector into their system. It is a CT application.
It is a CT application working with them to incorporate our photon-counting detector into their system. It is a CT application, so we are going through that process and, we have guided or we have mentioned that in 4-5 years, this business should be about an additive $150 million for us.
In 4-5 years, this business should be about an additional $150 million for us. Today, we do sell photon counting majorly in the industrial applications, but we do have certain medical customers. That business today is about $20 million, and so it should grow to $150 million.
But we do have certain medical customers. That business today is about $20 million, and so it should grow to $150 million or so in four or five years. But that estimation that we are providing is based on our current discussions and the current.
But that estimation that we are providing is based on our current discussions and the current OEMs that we have an agreement, or we are working with them on a prototype development and stuff like that.
But as photon counting gets adopted more, there is potential for newer applications, and within the same application, there's potential to add more customers for us. So there is a potential for us to increase that figure more.
So that's where we are on photon counting. Increase that figure more. So that's where we are on photon counting. Increase that figure more. So that's where we are on photon counting. Increase that figure more. So that's where we are on photon counting.
Then your last question in terms of what is our unique advantage in photon counting, as I said, we've been one of the early companies in photon counting. We believe our data rate is definitely advantageous, and the resolution of our counting ...
We believe our data rate is definitely advantageous, and the resolution of our photon counting capability is best in class. And so those are the areas where we are targeting to be much, much better focused on photon counting.
Mm-hmm. Okay. And then, you know, it's obviously generating a lot of interest in the industry.
Much better focused on photon counting.
Mm-hmm. Okay. And then, you know, it's obviously generating a lot of interest in the industry.
Much better focused on photon counting.
Mm-hmm. Okay. And then, you know, it's obviously generating a lot of interest in the industry.
Much better focused on photon counting.
Mm-hmm. Okay. And then, you know, it's obviously generating a lot of interest in the industry with your customers. Just curious about, you know, your current ability to take on more photon counting detection projects with OEMs, and, you know, how does that translate or scale over time?
more photon counting detection projects with OEMs, and, you know, how does that translate or scale over time?
Yes, it is early technology, and it is an early phase in the technology development, and a lot of our R&D efforts are going towards photon counting. So we are open to signing up more customers, but you are right that are going towards photon counting.
So we are open to signing up more customers, but you are right that we are going towards photon counting. There is somewhat of a capacity limitation from an R&D perspective. We are working with one customer right now, and so we can take on some more, but it is true.
We are working with one customer right now, and so we can take on some more, but it is true that R&D can become a bottleneck in taking on more customers. So we are managing that.
So we are managing that R&D can become a bottleneck in that situation in taking on more customers. So we are managing that, and our ability to absorb more customers will increase as we are completed or largely done with the first customer, then we will have a lot more to share with to share our R&D capacity with.
Done with the first customer, then we will have a lot more to share with to share our R&D capacity with other customers. So it is somewhat of a limitation right now, but at the same time, other customers.
So it is somewhat of a limitation right now, but at the same time, we can take on a few more customers.
Okay, got it. And then, you know, nanotubes that will follow-
Time, we can take on a few more customers.
Okay, got it. And then, you know, nanotubes that will follow-
Time, we can take on a few more customers.
Okay, got it. And then, you know, nanotubes that will follow-
Time, we can take on a few more customers.
Okay, got it. And then, you know, nanotubes that will follow photon counting detectors. What's the latest updates on, you know, nanotube projects or progress? Follow photon counting detectors. What's the latest updates on, you know, nanotube projects or progress? Follow photon counting detectors. What's the latest updates on, you know, nanotube projects or progress? Follow photon counting detectors. What's the latest updates on, you know, nanotube projects or progress? Follow photon counting detectors. What's the latest updates on, you know, nanotube projects or progress? What can nanotubes improve upon from the current generation of technology?
Yeah, sure. So we are working with various-
What can nanotubes improve upon from the current generation of technology?
Yeah, sure. So we are working with various-
What can nanotubes improve upon from the current generation of technology?
Yeah, sure. So we are working with various-
What can nanotubes improve upon from the current generation of technology?
Yeah, sure. So we are working with various types of, cold cathode or nanotube technologies. We've been working on that for a few years now already. With types of, cold cathode or nanotube technologies, we've been working on that for a few years now already. With types of, cold cathode or nanotube technologies, we've been working on that for a few years now already. With types of, cold cathode or nanotube technologies, we've been working on that for a few years now already. We've talked about a joint venture with VEC Imaging in the past. We have been working with Micro-X Technology. We've talked about a joint venture with VEC Imaging in the past. We have been working with Micro-X Technology. We've talked about a joint venture with VEC Imaging in the past.
We have been working with Micro-X Technology. We've talked about a joint venture with VEC Imaging in the past. We are working on that technology transfer from Micro-X, and then there might be a few others.
So we see the benefit of nanotubes in terms of reducing the cost of imaging or the cost of generating X-rays. It's much lighter, again, much faster, and so it'll reduce the cost of imaging for the end customer, particularly the hospitals, faster.
And so it'll reduce the cost of imaging for the end customer, particularly the hospitals, faster. It'll also allow faster switching. So we see a number of benefits. It may...
It'll also allow faster switching. So we see a number of benefits. It may enable a number of completely new applications in the healthcare area. But from a timing perspective, I would say it is at least five years out from now.
But from a timing perspective, I would say it is at least five years out from now. So there is a lot more work that needs to be done. So I think it would come as a second wave beyond photon counting, and then there can be very lot more work that needs to be done.
So I think it would come as a second wave beyond photon counting, and then there can be very creative and new applications that can be developed in combination of photon counting and nanotubes, and we would be one of the very few companies to be well positioned from that perspective.
Nanotubes, and we would be one of the very few companies to be well positioned from that perspective.
Okay. Yeah, that's some exciting updates to be tracking over time. I guess, you know, one question I get a lot from investors is that, you know, a few of the top OEMs, they have the ability to insource products.
I get a lot from investors is that, you know, a few of the top OEMs, they have the ability to insource products as well. You know, but I guess from... They're just curious, you know, what is the Varex as well? You know, but I guess from...
They're just curious, you know, what is the Varex value prop for them, and why would OEMs like to or need to work with Varex? And, you know, is the trend in the industry going towards more insourcing or outsourcing?
Yeah. So if you look at the-
You know, is the trend in the industry going towards more insourcing or outsourcing?
Yeah. So if you look at the-
Then, you know, is the trend in the industry going towards more insourcing or outsourcing?
Yeah. So if you look at the-
You know, is the trend in the industry going toward more insourcing or outsourcing?
Yeah. So if you look at the-
You know, is the trend in the industry going towards more insourcing or outsourcing?
Yeah. So if you look at the history of X-ray business and X-ray component business, there are a few companies that have this capability, particularly the Big Three and, you know, GE, Philips, Siemens, and to some extent, Canon. So a few companies have this capability, but if you look at the history, maybe Canon.
So a few companies have this capability, but if you look at the history, maybe Canon. Twenty, thirty years ago, there were not as many OEMs in the industry. Today, the number of OEMs has been continuing. Twenty, thirty years ago, there were not as many OEMs in the industry. Today, the number of OEMs has been continued.
Today, so the number of OEMs has been continuously growing. Today, we believe there are about 150 OEMs for X-ray imaging equipment in the world. This number was much lower, say, 20 or 30 years ago, and what it is today is much higher than what it was 10 years ago, or say...
20 or 30 years ago, and what it is today is much higher than what it was 10 years ago, or say, 20 or 30 years ago, and what it is today is much higher than what it was 10 years ago, or say, 20 or 30 years ago, and what it is today is much higher than what it was 10 years ago.
So the industry is going more and more towards niche application and more and more specialization, and we enable a number of these OEMs in terms of providing more and more of what we call a focused solution.
These OEMs in terms of providing more and more of what we call a focused solution. These OEMs in terms of providing more and more of what we call a focused solution.
But at the same time, I agree with you that some of the larger customers do have this capability in-house, but the advantage that we are providing is that our R&D is focused entirely toward X-ray components. And over time, we have become. Is that our R&D is focused entirely toward X-ray components.
And over time, we have become the largest supplier of X-ray components in the world. So the scale at which we are operating is much higher than others.
So we are able to provide a more and more innovative product, focused innovative product at an attractive price point because of an attractive cost that we can generate because of our scale. And that is our value proposition.
But overall, as an industry, if you look at it, there may be exceptions here or there, but overall, and that is our value proposition. But overall, as an industry, if you look at it, there may be exceptions here or there, but overall, and that is our value proposition. But overall, as an industry, if you look at it, there may be exceptions here or there, but overall, and that is our value proposition. But overall, as an industry, if you look at it, there may be exceptions here or there, but overall... and that is our value proposition.
But overall, as an industry, if you look at it, there may be exceptions here or there, but overall, as an industry, you would see it is a slow migration towards more and more outsourcing, and that trend has been long-lasting, and it is continuing.
... Okay, got it. I guess switching gears, wanted to-
The trend has been long lasting and it is continuing.
Okay, got it. I guess switching gears, wanted to-
The trend has been long lasting and it is continuing.
Okay, got it. I guess switching gears, wanted to-
The trend has been long lasting and it is continuing.
Okay, got it. I guess switching gears, wanted to-
The trend has been long lasting and it is continuing.
Okay, got it. I guess switching gears, wanted to hear your thoughts on the balance sheet. You know, what are your targets for debt levels and leverage ratio? What are the plans for excess cash, the revolver pay down or the convert?
Sure. So we-
What are the plans for excess cash, the revolver pay down or the convert?
Sure. So we-
What are the plans for excess cash, the revolver pay down or the convert?
Sure. So we-
What are the plans for excess cash, the revolver pay down or the convert?
Sure. So we-
What are the plans for excess cash, the revolver pay down or the convert?
Sure. So we need about $100 million of cash to run our business. We are clearly in an excess cash situation currently. We need about $100 million of cash to run our business. We are clearly in an excess cash situation currently. We need about $100 million of cash to run our business. We are clearly in an excess cash situation currently. We need about $100 million of cash to run our business. We are clearly in an excess cash situation currently. We need about $100 million of cash to run our business. We are clearly in an excess cash situation currently.
About $200 million for convertible bond is due June of 2025, and recently we completed a revolver financing. So at this time, we have plenty of liquidity.
We completed a revolver financing. So at this time, we have plenty of liquidity. We are going to monitor our options, whether we pay down the convertible with cash from the balance sheet and borrowing from the revolver that we just completed or if we want to do something else.
So this is what, when borrowing from the revolver that we just completed or if we want to do something else, we are focused on currently in the short term. But overall, we are focused on deleveraging. I believe our gross debt is a little bit higher than what I would like it to be. So over time here, you're going to see the gross debt be reduced.
I believe our gross debt is a little bit higher than what I would like it to be. So over time here, you're going to see the gross debt be reduced. I believe our gross debt is a little bit higher than what I would like it to be. So over time here, you're going to see the gross debt be reduced. I believe our gross debt is a little bit higher than what I would like it to be. So over time here, you're going to see the gross debt be reduced. I believe our gross debt is a little bit higher than what I would like it to be. So over time here, you're going to see the gross debt be reduced for the company. Overall, leverage ratio on a net debt basis, I would like it to be between 2 for the company.
Overall leverage ratio on the net debt basis, I would like it to be between 2 for the company. Overall leverage ratio on the net debt basis, I would like it to be between 2 and 2.5, or if possible, even less than 2. So those are some of our targets.
Okay, great.
2 and 2.5, or if possible, even less than 2. So those are some of our targets.
Okay, great.
2 and 2.5, or if possible, even less than 2. So those are some of our targets.
Okay, great.
2 and 2.5, or if possible, even less than 2. So those are some of our targets.
Okay, great.
2 and 2.5, or if possible, even less than 2. So those are some of our targets.
Okay, great. I think that's all the time we have today. Thank you so much for the fireside chat.
Thank you, Young, and thanks, everybody.
I think that's all the time we have today. Thank you so much for the fireside chat.
Thank you, Young, and thanks, everybody.
I think that's all the time we have, today. Thank you so much for the fireside chat.
Thank you, Young, and thanks, everybody.
I think that's all the time we have, today. Thank you so much for the fireside chat.
Thank you, Young, and thanks, everybody.
I think that's all the time we have today. Thank you so much for the fireside chat.
Thank you, Young, and thanks, everybody.
All right. Thank you, everyone.