Q1 2024 Varex Imaging Corp Earnings Call
Participants
Christopher Belfiore; Director - Investor Relations; Varex Imaging Corp
Sunny Sanyal; Chief Executive Officer; Varex Imaging Corp
Shubham Maheshwari; Chief Financial Officer; Varex Imaging Corp
James Sidoti; Analyst; Sidoti & Company
Anthony Petrone; Analyst; Mizuho Group
Suraj Kalia; Analyst; Oppenheimer & Co. Inc.
Larry Solow; Analyst; CJS Securities
Presentation
Operator
Greetings and welcome to the Varex's Q1 2024 earnings call. (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 website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex 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 fiscal 2023.
Let me give you some insights into sales detail 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 trends. 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. Moderately continued to be solid with revenues above the sales trend in the quarter, while radiographic was below it, sales trend global sales of our industrial products in the quarter were solid but below its sales trend in the quarter, we continued 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. 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. 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 could 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 our new imaging products like photon counting CT. and our unique position to support our customers and bringing innovative systems to market.
With that, let me hand over the call to Sam.
Shubham Maheshwari
Thanks, Andy, 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 23. While Amea increased 1% and A-Pac decreased 16%. As highlighted last quarter. The decline in A-Pac was primarily the result of lower sales in our China business due to the government's anti-corruption campaign into its health care 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% 101 hundred basis points lower year-over-year. Operating expenses were $53 million, up 3 million compared to the first quarter of fiscal 23. 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 23. 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 23, 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 23. 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 23, primarily the result of lower sales in the quarter. Days sales outstanding increased by two 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 collection. 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 23 year end. Please note that $195 million include $141 million of cash and cash equivalents shown on the balance sheet, EUR53 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 24. Revenues are expected between 195 and $215 million and non-GAAP earnings per diluted share are expected between $0.1 and $0.3. Our expectations are based on non-GAAP gross margin in a range of 30% to 33%. Non-gaap operating expenses in a range of 49 to 50 million, a 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.
Question and Answer Session
Operator
Thank you. We will now be conducting a question-and-answer session. (Operator Instructions)
James Sidoti, Sidoti & Company.
James Sidoti
Hi, good afternoon. Thanks for taking the questions. I just want to confirm with China. It sounds like revenue for the quarter was about a little over 32 million this quarter compared to a little over 36 million a year ago. Does that sound about right?
Shubham Maheshwari
Yes, so, Larry, this quarter, yes, they were about slightly above EUR32 million.
And then last year they were, you know, mid 30s, 34, 35, something like that. Just so give us a time where it has not gotten better.
James Sidoti
So right now, I don't mind you call me, Larry. He's a smart guy.
Yes, it sounds like the decline was less than it was in the previous quarter. So are you starting to see things level off there?
Shubham Maheshwari
So, you know, China continues to remain soft. You know, due to the due to two reasons, the macroeconomic situation in China as well as the anti-corruption campaign there. But from quarter to quarter, you're going to see some variations in just because we are talking one or 2 million here or there. But overall, it is soft. And also we are hearing that the anti-corruption campaign kind of moves from one province to another. So you're going to see some variation or some fluctuation around that. But overall, China is still continuing to two below.
Right.
James Sidoti
And then on last quarter's call, you talked about some initiatives through some some products, some nonorganic infection and similar products. Can you give us an update how that's gone?
I'm sorry, it was, I guess, organic products, things like cannabis as Jim.
Sunny Sanyal
So we did launch our irradiation product and one of the first applications of that was in fourth cannabis irradiation.
Yes, that's that's a touch point.
Well, the product showing well, and we've got a few customers on it and it's moving forward.
James Sidoti
So if I look at the guidance, you're expecting revenue to be down again in the second quarter, and I assume that's largely due to the situation in China. Do you think that by the time you get to the second half of the year, if you think those trends start to reverse and you get back to top line revenue growth in the second half of the year?
Shubham Maheshwari
Yes, Jim and I as we mentioned in the prepared remarks, we are expecting a rebound in second half the rebound in second half is a gated or it's dependent upon China coming back as well as somewhat of a pickup in industrial segment. Right now, we are seeing a softness in non cargo domains of industrial, particularly in semiconductors, automotive and electronics related. Our application to our product is sold in the industrial segment. So we are expecting both of them to pick up at this time, and that should drive a rebound in second half for us. So that is what we are expecting at this point.
James Sidoti
I mean, you talked about new product launches on the medical side, you know, are your customers starting to talk about that. How long does that take to turn into a real product and real revenue for Cervarix.
Sunny Sanyal
So a lot of the conversations around succession of successor products. Someone has got a CT scanner in the market and we're bringing the next CT scanners. Those tend to be in usually within a two to three-year window where those are at a fairly short time. So a lot of the conversations that we're having were in that vein of the next next modality, next version of the modality and the next markets, the tier that they want to go after. And then, of course, in the longer term, some longer cycle time cycle times are for the newer platforms like photon counting and nanotubes or anything brand new does tend to be five plus years, although photon counting is in.
Yes, we've been talking about it for sometimes it's getting closer Cool-Cap.
Right.
James Sidoti
That was it for me.
Sunny Sanyal
Thanks.
James Sidoti
Thank you.
Operator
Anthony Petrone, Mizuho Group.
Anthony Petrone
I think Sony, Sam, hope Europe is going well, maybe revert back to China. Just a couple of questions there. You mentioned one the anti-corruption headwind, but also just underlying economy on anticorruption. Is there anything you're hearing on the ground as to win the program can be completed? Is it safe to assume that it can be completed by midyear or could it extend further into the year? And when you talk about just underlying economic pressures, that's a new one. Is that something that you're hearing most recently from OEM partners and in the region there. And then I'll have a couple of follow-ups.
Sunny Sanyal
So let me have a lovely sunny. I'll get it started and then have some chime in on that on the there were two, there were always two parallel situations. One is the general health of the province's economic health of the provinces post COVID after they spent a lot of money on their zero COVID policy. That was there always in the backdrop. But however, the the direct slowed slowness we could attribute to the stop in purchasing due to the audit that was going on what we're sensing now. There is that the auditors thought it's made substantial progress. And as Sam said, it's just it's moving along through the provinces and the expectation still is that it will start to taper off towards the second half. Now our understanding is that the audits that don't necessarily end there, it's a new sort of a way for the Chinese government to monitor and manage how their how the monies are handled by the House public hospital system. So I think in general, what percentage is slight I'd say a loosening up of the environment. And so that's why we still continue to be. We have the belief that the second half, which we should expect to see things pick up in China.
Shubham Maheshwari
Yes, I can just add there, Anthony, is that you know that there is no specific announcements or there are no sharp cutoff dates or deadlines that are announced. It is generally as we perceive and hear from our sales force. So so we just need to be open to that, you know, and they can be various interpretations. But in general, we are thinking things will improve because the government does want to spend money on the infrastructure and provide better healthcare facilities and services to its citizens. So there is the positive pressure there, along with, we would say, taking care of the health care system for the long-term goodness of the system. So in that way, that's also positive for the long term.
Anthony Petrone
And maybe just a quick one there. I mean, is it safe to assume then just the I guess the lead time on new deals is maybe slightly longer here because this audit process may be continuously going on in the background? Or are there certain like checks and balances upfront before the deal is closed, whether that's in the provinces or major coastal cities is kind of the mechanics of what's going on behind the scenes, there would be helpful.
Sunny Sanyal
You know, since we don't have direct visibility to the end user hospital buying up. I can answer that very accurately for you. But the way we see it is and the hospital purchasing just stopped at some point because of their in the middle of the audits. But once the audits are completed, the hospitals go back to their normal operating mechanisms. And so whatever was the deal cycles, the cycle times, we anticipate that that would come back for those particular hospitals. And for us, the lead times then because then come back to what would be normal traditionally lead times as hospitals start taking orders, they might have I'm sorry, as vendors start, our OEMs start to take orders. They may have three to six month delivery cycles, and that's when we get the indicators for off for the for our forecasts and and our and our factory will then build the components. So it I don't think anything gets extended once it turns on it just comes back on and the way things were. So the question is, it's not all at the same time, it's going to start trickling in, and we're seeing early signs of a little bit of that happening.
Shubham Maheshwari
Thanks.
Anthony Petrone
And last one for me. I'll hop back and just an update on photon counting on the CT detector side, just maybe where we are in the cycle. What you're hearing in terms of demand for conversions on into photon counting and how you expect that to play out over the next couple of years?
Shubham Maheshwari
Thanks.
Yes.
Sunny Sanyal
So it's safe to say that the technology is here to stay in the sense that there's some outside of the OEMs and the vendors like us making the noise around the technology itself, the broad based radiology community has picked up on photon counting as a viable technology and clinically exciting for them. So from that perspective, we believe it's here to stay and we are seeing that in the way, our medical OEMs are beginning to talk about their future products and the need to incorporate their desire to incorporate photon counting technologies.
From a city perspective, the initial introductions were at the high end of the spectrum of cities, but the need in the market is for it to be more in the third, the general tiers that are in that are more broadly available. And we are we are targeting that type of market segment and our application, our products are geared towards cities that would be in that not super ultra high end, but things that would be more broad-based.
Operator
Suraj Kalia, Oppenheimer.
Suraj Kalia
Please proceed with your question by And Sam, this is Seamus on for Suraj. Thank you for taking your questions. Shane guess just looking at kind of outside of China, what do you what are you seeing in terms of the capital equipment environment.
And then kind of more specifically more specifically. And I think you noted in the geographic mix, the Americas was down as well, and Amir was pretty much flat. So I guess any any color you could provide there as to what's happening those in those regions as well?
Sunny Sanyal
So our our perception and our what we're picking up is that the hospital environment in the US is generally there are the hospitals are generally doing better from a from there from profitability standpoint, their cost structure does the labor costs and are tied to nursing and clinicians is that manpower, ASDA has gotten better, and so they're managing it better. So there's profitabilities improves. So that generally bodes well for capital availability for our diagnostic imaging. So we are we feel positive about the US market outside of that. You know, we haven't noticed any measurable difference in Europe or, let's say, Japan, those are our two biggest regions. So so I think US continues to be strong. Europe is And Japan is still to be seen.
Suraj Kalia
Got it. Thank you. And then looking at the Magnum medical segment was down a little bit. I guess how should we think about the relative health over the next three to four quarters? Where would you describe any soft spots that maybe need to be monitored.
Shubham Maheshwari
So so I would say in medical, you're looking at our Q1, John, which is generally a seasonally softer quarter. So when you're comparing to Q4 you might see that it's a little bit down, but we did indicate in our prepared remarks that we are seeing we saw trends in oncology and CT., et cetera, in Q1, which was somewhat softer. So what I would say is that, you know, CTVB. now growing continuously for five years in a row. So that business is doing well, it's just a quarterly situation and then also impacted a little bit by China. So we expect CT. two to come come up as China comes up other than that there really isn't anything major that we are seeing, which is a which is a which is which is the takeaway here, shape other than that, I think the last couple of quarters, we talked about how our customers' environment environments have been and choked manufacturing environment due to supply chain issues.
And so they had in some of these modalities that are down they have stocked up. So we we saw some inventory adjustments and softness and CT. part of the CT. bounce back will also happen as China starts to come back Got it.
Suraj Kalia
Appreciate that. And one last one from us, and then I'll hop back in queue. Just any latest thoughts on the convertible debt and how you're going to potentially address it. And I guess what's the optimal structure that you know, if you had your choice you'd be looking for? Thank you.
Shubham Maheshwari
Sure.
Yes. So we are currently considering various approaches to refinance the convertible debt. And as and when we make a decision, we will be sure to share with all of you.
I just want to remind that the debt is what is maturing next June, which is June of 2025. So that's that's an update on the convertible bond side.
And secondly, in terms of overall structure, we would we would like to bring down the overall gross debt that the Company is carrying. And I would like to see that we maintain overall on adjusted EBITDA based net debt leverage ratio to be 3.0 or below. Right now we are running at around 2.0. So we are fairly comfortable with our overall leverage situation. I would also say that we are currently in an excess cash situation and we are appropriately carrying excess cash on the balance sheet to deploy some of that for the refinancing purposes and bring the overall gross debt for the Company down.
Operator
Larry Solow, CJS.
Great.
Larry Solow
Thanks. Thank you for taking the questions. And thank you. A shout out to Mr. stability. I appreciate the thoughts.
I'm sorry, Larry, for that.
I know that.
Okay. Well, that's all good. That's a lot of worthwhile people so that's one I guess, I guess first question, just on the medical side, yes, you touched on it a little bit, but Tom, ex China, yes, it looks like you were down double digits ex China to or close to it on a just in medical alone because that most of the sales I know into China today are medical, right? They were down only 10% U.S. only because I think we thought that would be more like 25, 30 or so. Just trying to figure out is that was that some of the weakness in the quarter. But within that, within that medical being down a little bit more and the mix, I know you called out maybe industrial down as well, but industrial was actually up 10% year over year. I know it was down sequentially, but I'm trying to figure out was industrial kind of also below your what was sort of the mix driver. And going forward, it looks like in oncology, the gross margin this quarter was supposed to be 33 to 34. Now you're rebounding in revenue, which looks like that's kind of in line with original projections, but gross margin is still below what you thought Q1 was going to be. So can you maybe give us a little more color on that, but that makes sense.
Shubham Maheshwari
Yes, I can start off with the gross margin first, Larry. So gross margin, we did see softness in gross margin in Q1, and that was largely driven by unexpected softness in the industrial segment. Overall volume in industrial overall volume for the business is quite low at one 90 million for the full company. So there is the under-absorption in our factories in both industrial and medical. So there's lower volume. And then and then the unfavorable mix in industrial segment drove gross margins down. And right now, we are seeing that the mix in industrial in Q2 is also not as strong and overall volume is also not where we would like it to be. So between China and industrial and the mix on the industrial, it's bringing the gross margins down, which we expect to rebound or recover in the second half. And that's what we are expecting right now.
Larry Solow
And then I'll remind more industrial that it's more of an industrial mix, our mix within industrial and medical standpoint outside of that in terms of this year, yes, by.
Okay.
Shubham Maheshwari
And then could you repeat your first question or the other piece?
The other?
Larry Solow
The first part of my question was just kind of and I'll rephrase it. I guess I think at the start of the year or at the end of last one year, you kind of gave the 3% to 5% full year revenue down guidance. And I think you had said if I'm not mistaken, you thought medical ex China would be flat to up.
Shubham Maheshwari
Do you still think that and I think at this point when it comes to the guide and guide or the outlook around 3% to 5% down. I would say that at this point we would be more closer to the lower end of the range than the higher end of the range, meaning more became four to five as opposed to three to four. So that is there. But we were initially expecting a little bit better performance from our industrial segment. And I'm not sure if we really commented on medical ex China, China still continues to be a situation. You know, China was a pretty strong growth area for us. But CT and some other products over there. And they're outside of the two things that we talked about macroeconomic as well as anti-corruption. We expect China to come back. It's just that the timing is somewhat of an unknown factor for us and the full year will really Larry depend upon.
Does China come back at the beginning of Q3 or does it come back towards the end of Q3, and that will determine the medical overall medical situation in a big way for us.
Larry Solow
Okay. And just on the industrial piece, again, I know you don't actually got by segment, but you had a great year last year on this quarter. Like I said, it was up 10%, but down somewhat sequentially. And now you're lapping much more difficult comps to, obviously as of yet.
Yes, and certainly even next quarter on the still fluid, but it sounds like it sounds a little bit mixed there to do you still think certainly sounds like you will grow sequentially on that you're building that into your expectations. Do you think you grow in the back half year over year or does this cycle? Does that segment overall go out you did to 20 last year. Is that a good place to start for this year, or do you think you can exceed that?
Shubham Maheshwari
Yes, a little bit a few things going on there. Let me explain that, Larry. So yes, the comps are going to become industrial. We grew very well last year. We grew 19% year-over-year in 2023. So that's clearly a very strong growth we had last year in industrial and we, as you rightly pointed out, we did 20 million there in industrial, we are seeing kind of like a tale of two cities. And why I say that is this in industrial, it is still very strong in the cargo inspection area where we are shipping a lot of hardware or what we call industrial systems or, you know these big linear accelerators on linacs. But yes, when we ship these linacs, our gross margin on the hardware upon or the system upon shipment is lower. Our gross margin on the service piece is much higher. So overall, when you look at our industrial, we have softness ex cargo. And within cargo, the distribution between systems and service is a lot more skewed towards systems because right now we are shipping quite a bit of that. So that brings the overall gross margin down for the segment?
It's a good thing because it will generate eventually areas and our rental revenue mix.
Larry Solow
Right, right.
Shubham Maheshwari
Yes, exactly. So that's happening on the industrial side in terms of overall volume or sales levels for industrial, obviously, we would not be able to repeat that percentage growth factor in industrial of 2023 but we are still hopeful of having a year-over-year growth in industrial, again, provided the timing when it comes back the cargo inspection business, we have good visibility for the rest of the year on the non cargo industrial business, we need to see how it develops. If it comes back sooner than sooner than later. The overall year will be a growth year for sure. So that is something that we are monitoring and that's where we are.
Larry Solow
And just remind me, the cargo that's like that includes like security two, that's like third of the segment plus or minus.
Is that about right?
And then everything else is two thirds of my guess is that right in the ballpark?
Shubham Maheshwari
So security inspection is around in that range for cargo for?
Yes, sometimes it can go higher, Larry, in certain quarters, longer shipping quite right. Okay.
Sunny Sanyal
Yes, yes.
Okay.
Larry Solow
Just last question, just on the on the four times technology and some are being adopted more or maybe not. It just sounds like we're in the early stages of adoption and you mentioned one particular OEM with I don't know if you can answer and I guess a broader question, would this, I guess can come to some extent cannibalize the existing technology and is this customer our customer today and you guys have your existing technology that Larry, before we go to this photon counting related question, I just wanted to correct that cargo is around 20% of the segment, not 30%.
Okay.
Shubham Maheshwari
And with that, yes.
And then on the photon counting, I'll ask Sandy to comment here. But in general, not in general specifically, what Tony talked about was photon counting for CT. So that is not a sector that is not a market that we are participating today. So there is no cannibalization that's really new market, new business development for us.
Yes.
Sunny Sanyal
And Larry and everyone in general, the photon counting detectors go into whole new type of applications where someone needs a flat panel or large area detector, they will go with a flat-panel detector and where they need a different type of performance, particularly in high-speed imaging or or that had a different type of dynamic imaging. It still leaves photon counting detectors. So we are not seeing cannibalization or we don't expect cannibalization at this stage between flat-panel detectors and photon counting. So that's one thing I would say within existing customers, these would be new applications, new products. And then, of course, Samsung CT is a brand new space, new addressable market.
Larry Solow
Got it.
I appreciate that clarification.
Thank you.
And thank you, guys.
Operator
Michael to make, Jefferies.
James Sidoti
Hey, guys. Thanks for taking my questions, Mike, Tim here from Jefferies covering for the young lady. Most of my questions have been answered, but just two, please. Can I ask a follow-up on the photon counting on when when do you think this could start contributing to revenue for you guys that we talking in the next two years or longer term? And anything you'd highlight on either pricing from your side or cost kind of easing easing or stabilizing with that globally or in China?
Thanks to take my question.
Sunny Sanyal
I'm sorry, I didn't catch the second part of the question. So we let me answer the first one. So it is going to be cut this cost question. We'll come back to that.
So on photon counting, so there's thereafter, in addition to we talked about CTI. quite a bit about photon counting applications for CT. That is that's a longer duration project. Those are in our typical cycles for these types of projects are about three to five ish type of years more and this being a new technology more on the five-year side. However, we've been working with our customers now for about a couple of years so we're looking at about a three year type of a horizon for when we expect our CT detectors to start contributing in any any measurable volume. So to say between now and then we will see some amounts of prototypes and those low volumes of shipments. There are other applications within photon counting that are that are also being contemplated. Those will also be within that two to three year window, but those are for other modalities. And there you'll see the revenue contribution to be a modest, a large chunk of our photon counting detectors are being sold. A larger proportion of our photon counting detectors are going into industrial food inspection and other applications, high-speed real-time imaging applications and industrial. Those are short cycle. Those are happening continuously, and we're counting on industrial to contribute to the growth of photon counting in the near term.
James Sidoti
Okay.
Shubham Maheshwari
All right.
James Sidoti
That's really helpful. And just reiterate the second question it's just if there's anything on price that you're charging on any pressure on pricing and any change, significant changes in the costs at this time from the supply chain driven issues they are largely behind us.
Shubham Maheshwari
I would say that freight is quite manageable at this time. And from the raw material cost perspective, things have things that began to normalize or they are rather stabilized at this point. We talked about price increases about 12 to 18 months ago. That round of price increases has largely been completed. And other than you know, on a spot basis. We are not embarking upon any new across-the-board price increase type of a campaign at this point, but we are looking at here and there are different situations where we need to work on certain price related initiatives, which we would do and in case inflation picks up much more than what we are planning, then we would address it through a through a campaign of price increases, but that is not front and center for for the situation at this time.
James Sidoti
Okay, great. Thanks very much.
Operator
Thank you. There are no further questions. At this time, I'd like to turn the call back over to Chris for closing remarks.
Great.
Shubham Maheshwari
Thank you.
Sunny Sanyal
I'll now turn over the call to sunny for some final comments as you Chris, in closing, you know, as always, I'm very proud of all the hard work of our employees globally as they work to support our customers every day. We're looking forward to our customer successes with incorporating our technologies and also looking forward to their success this year with new product launches.
So thank you for taking the time to join us.
Today and for your continued interest in Berry.
Christopher Belfiore
Thank you say, and thank you all for your questions and participating in our earnings conference call today is webcast and supplemental slide presentation. Will be archived archived on our website. A replay of the quarterly conference call will be available through February 20th and can be found at Varex Imaging.com forward slash Investor Relations. Thank you and goodbye.
Operator
This concludes today's teleconference. You may disconnect your lines at this. Thank you for your participation.
