Greetings, and welcome to the VARIC's first quarter fiscal year 2026 earnings conference call and webcast. At this time, more participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0 on your telephone keypad. It's now my pleasure. To turn a look over to Christopher Belfiore, Director of Investor Relations. Christopher, please go ahead.

Good afternoon, and welcome to Barracks Imaging's earnings conference call for the first quarter fiscal year 2026. With me today are Sunny Saniyel, 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 Barracks' website at barracksimaging.com. The webcast and supplemental slide presentation will be archived on BRICS' website. To simplify our discussion, unless otherwise stated, all references to the quarter are for the first quarter of fiscal year 2026 and to the year are for the fiscal year 2026. In addition, unless otherwise stated, quarterly comparisons are made year over year from the first quarter of fiscal year 2026 to the first quarter of fiscal year 2025. I would like to remind you that Q1 of 2025 was a 14-week quarter. Finally, all the references to the year are to the fiscal year and not the 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 information, 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 filing, including items 1A, risk factors of our quarterly reports on Form 10-Q, and our annual report on Form 10-K. The information in these discussions speaks 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 be discussing certain non-GAAP financial measures. Beginning with the first quarter of fiscal 2026, we changed our non-GAAP policy with regard to equity method investment. We will provide more detail later in the call. A reconciliation of these changes is presented at the back of our earnings release and slide presentation for the quarter. Our 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 Sonny.

Thank you, Chris. Good afternoon, everyone, and thank you for joining us for our first quarter earnings call. I'm very pleased to announce a strong start to the year. First quarter revenue was $210 million, up 5% year-over-year, and toward the high end of our guidance. Growth in the quarter was driven by strength in our cargo systems business, which contributed to a 17% year-over-year increase in industrial segment revenue. Our medical segment performance was stable year-over-year in what is typically our seasonally light quarter with continued strength in CT and growing engagement around next generation system designs. Non-GAAP gross margin of 34% in Q1 was at the high end of our guidance. benefiting primarily from a favorable product sales mix in the quarter. Looking at a year-over-year comparison, total revenue was up 5% with medical segment flat compared to last year and industrial segment up 17%. Non-GAAP EBITDA of $29 million was up 12% compared to the same quarter last year. Non-GAAP EPS in the first quarter was $0.19, up $0.09 compared to $0.10 last year. Let me give you some insights into sales detail by modality in the quarter compared to five-quarter average, which we refer to as the sales trend. Our medical segment performed well in the quarter, driven by solid demand for X-ray sources, particularly in high-end CT as well as digital detectors. Customer activity and sales pipeline development around new platforms continued to gain momentum. Mammography modality exceeded its sales trend in the quarter. CT, fluoroscopy, and radiography modalities were in line with their respective sales trends, while dental and oncology modalities were below their respective sales trends. Our industrial segment delivered another solid growth quarter, with broad-based strength across multiple platforms and verticals. Global demand for security screening remained strong, driving growth in both cargo security inspection systems and components. We also continue to see positive momentum in our non-destructive testing and inspection business, supported by strength in our high-energy linear accelerators and X-ray tube products, both of which are used in non-destructive testing applications. In addition, demand for photon counting detectors was solid across several industrial verticals and drove growth in our food inspection products. Overall, the industrial segment remains an attractive growth opportunity for the company. We are collaborating closely with customers to address complex inspection problems by using X-ray imaging in real-time manufacturing and finding solutions that were previously difficult or impossible to achieve. At the beginning of December, we attended RSNA, the Radiological Society of North America's annual meeting. This is the world's largest medical imaging exhibition and brings together over 38,000 radiology professionals and medical imaging OEMs from all over the world. RSNA is one of the most important events on our calendar each year because the deep and broad engagement it enables with our customer base. We use the conference to showcase our newest technologies and, more importantly, to work with customers on how these innovations can be designed into their current platforms and future systems. We held more than 150 customer meetings focused primarily on advancing design win opportunities and opportunities to upgrade their systems to our latest technologies. These meetings underscored increased customer engagement with a meaningful emphasis on innovation-driven discussions across all modalities. We view this increased level of activity as a positive signal for future demand. These engagements are translating into a growing pipeline of new business opportunities, which typically lasts for multiple product cycles and support durable, long-term revenue streams. We felt a very strong reception to our new technologies, which reinforces our confidence that the investments we've made in innovation are positioning Varics well for a sustained growth as customers move from technology evaluation to system development and ultimately commercialization. This year at RSNA, we introduced a more integrated modality-based approach to our value proposition. Across key modalities, including CT, general radiography, fluoroscopy, mammography, we showcased Varix's offerings, including tubes, detectors, generators, connectors, heat exchangers, and software as fully integrated imaging chain assemblies and subsystems, rather than as individual components. This modality-based approach represents a meaningful evolution in how we engage with customers. By taking a modality-based approach, we're able to deliver best-in-class performance and attractive total system economics, while also enabling potential faster time to market for customers looking to bring new and differentiated imaging applications to market. We believe this approach further strengthens our position as a strategic partner to our customers and enhances our ability to drive long-term recurring revenue through deeper system-level design wins. We are encouraged by the enthusiastic receptivity to our approach, and we will continue these discussions with our customers with the intention of securing new design wins in fiscal 26 and beyond. Our Lumen family of radiographic detectors combined with our Nexus software was a significant topic of discussions at RS&A. Customers and prospects were very interested in our regional manufacturing strategy, particularly with our factories in India, which they see as critical for their future growth in the region. We also had numerous conversations about our cutting-edge photon counting technologies and the progress that we are making there. For the past few years, our customers have been busy dealing with the fallout from COVID, chips shortages, followed by supply chain crisis, and had to deploy R&D and growth capital towards taking care of maintenance problems. During the 2025 RSNA, we felt that our customers were returning to new product planning mode, and at this RSNA, we felt even more so that our customers were actively engaged in new product development and were in commercialization mode. In summary, RSNA was very positive for us and gave us a good feel for our customers' vision and where they were headed. While these design-in opportunities typically convert over time, several of the discussions we had at RSNA are tied to platforms that are currently already under development, particularly in general radiography modality. We are confident that some of these opportunities will convert this fiscal year with the revenue opportunities as early as fiscal 27. Moving to our industrial segment, our cargo security systems business continues to be a bright spot with multiple installations during the quarter in various countries. In addition, during the quarter, we received multiple orders for different products, including repeat orders from an existing customer. Our customer base has long considered our linear accelerator technology as best in class, and we view repeat orders like this as a testament to our success of deployment and performance of our new systems. We remain engaged on many tender offers and look forward to continued sales success in our cargo systems business in fiscal 26 and beyond. With that, let me hand over the call to Sam.

Thanks, Ani, and hello, everyone. Turning to results for the first quarter, our performance exceeded expectations. Revenues of $210 million were toward the high end of our guidance. Non-GAAP gross margin of 34% and non-GAAP EPS of 19 cents were also at the high end of expectations. Compared to the same period in fiscal 2025, total revenues increased 5% driven by a 17% increase in industrial, primarily from cargo system shipments. Medical revenue was stable compared to last year. Medical revenues were $145 million and industrial revenues were $65 million, representing 69% and 31% of total revenues, respectively. Analyzing regional performance. Americas grew 17% driven by the strength in our industrial segment related to the cargo systems business. EMEA rose 7% and APAC decreased 7% year-over-year. Sales volume to China remained steady, contributing 17% of total revenues, underscoring the continued resilience of our healthcare market position. Let me now cover our results on a GAAP basis. First quarter gross margin was 33%, down 100 basis points year-over-year. Operating expenses were $54 million, down $3 million year-over-year. We reported operating income of $15 million, net income of $2 million, and GAAP EPS of $0.05 per diluted share based on fully diluted 42 million shares. Before I discuss Q1 non-GAAP results, I want to highlight a recent change to our non-GAAP policy. We review our non-GAAP policy annually to determine whether any changes should be made. As a result of this review, we've modified our non-GAAP policy to exclude gains and losses from our equity method investments. In making this decision, we considered a strategic shift at one of our equity method investees and also the fact that we do not control operations of our equity method investments. We determined that including the results of these businesses in our non-GAAP financials no longer provides information helpful to evaluate our ongoing operations. Going forward, this is our approach to report non-GAAP results as well as guidance for future quarters. Reconciliations for each quarter and full fiscal year 2025 can be found in the back of this presentation and earnings press release. Now moving on to non-GAAP results for the quarter. Gross margin in Q1 was 34% at the high end of our expectations, driven by a favorable product sales mix. Gross margins were down 90 basis points year-over-year, primarily due to 130 basis points, favorable impact from refunds of German customs duties and taxes in Q1 of 25. R&D spending was $22 million, a decrease of $1 million year-over-year, and representing 10% of revenues. Please note, Q1 25 included the final payment of $1 million for the transfer of technology from MicroX. SG&A expense was $30 million, down $1 million from Q125 and representing 14% of revenues. Operating expenses totaled $52 million, a decrease of $3 million year-over-year, and represented 25% of revenue. Operating income was $19 million, an increase of $5 million year-over-year, and operating margin was 9% of revenue, up from 7% in Q125. Tax expense was $3 million, flat, year-over-year. Q1 tax rate of 27% was higher than our expectations due to income distribution across entities. We continue to expect full fiscal year 2026 tax rate to be around 23%. percent. Net earnings were $8 million or $0.19 per diluted share, up 90% from $0.10 in the year-ago quarter. Average diluted shares for the quarter on a non-GAAP basis were $42 million. Now turning to the balance sheet. Accounts receivable decreased by $10 million and day sales outstanding increased by two days to 64 days. Inventory increased $29 million to $328 million and days of inventory increased by 34 days to 214 days. The increase in inventory during the quarter will support anticipated demand across industrial segment, including new product ramps and cargo system deliveries. As those programs progress, our aim is to normalize our inventories. Accounts payable increased by $9 million driven by increase in inventory and days payable increased 9 days to 51 days. Now moving to debt and cash flow information. Net cash outflow from operations was $16 million in the quarter, primarily driven by the increase in inventory. We ended the quarter with cash, cash equivalents, and marketable securities of $126 million, down $30 million compared to the fourth quarter of 2025. Gross debt outstanding at the end of the quarter was $370 million, and debt net of $126 million of cash, cash equivalents, and marketable securities was $244 million. Adjusted EBITDA for the quarter was $29 million, or 14% of sales. Our trailing 12 months adjusted EBITDA was $127 million, and our net debt leverage ratio was approximately 1.9 times adjusted EBITDA on a trailing 12-month basis. Now moving on to outlook for the second quarter. Guidance for the second quarter is as follows. Revenues are expected between $210 and $225 million. Non-GAAP earnings per diluted share are expected between $0.15 and $0.25. Our expectations are based on non-GAAP gross margin of 33% to 34%, non-GAAP operating expenses of approximately $52 million, interest and other expense net in a range of $7 to $8 million, tax rate of about 23% for the second quarter, and non-GAAP diluted share count of about 42 million shares. I would now like to hand the call back to Sunny for some closing thoughts before beginning our Q&A.

Thank you, Sam. We are very pleased with a solid start to fiscal 26. Looking ahead, we're encouraged by the depth and quality of the ongoing dialogue that we're having with our medical customers, particularly around innovation and integration of our technologies into their next generation imaging systems. On the industrial side, our close collaboration with customers continues to drive new applications for products across a broad range of verticals, including oil and gas, food inspection, and security screening. Across both segments, this engagement reinforces our confidence in the durability of our customer relationships and the long-term opportunities ahead. None of our progress would be possible without the dedication of our employees and partners around the world, and I want to thank them sincerely for their continued efforts. Together, we are advancing our strategy and strengthening the future of our business. Your commitment and passion continues to make a meaningful difference to Varics. In closing, the combination of a solid execution in the quarter, strong customer engagement around new platforms, and increasing modality-based subsystem collaboration gives us confidence that we are well-positioned as we move forward through fiscal 26 and beyond. With that, we will now open up the call for your questions.

Thank you, and I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question is coming from I'm Larry Solow from CGS. The line is now live. Great.

Good afternoon. Thank you. I guess, Sonny, I mean, first question for you, just kind of high level. You know, you sound pretty optimistic, I guess. Certainly the pipeline stuff sounds great. Maybe you can give us a little more color just on the current environment where we stand today. I know you only give guidance out for one quarter, but you sound pretty just optimistic in general on both sides of the business. So maybe you could, you know, give us a little more at least qualitative outlook for the rest of the year.

Yeah, so let me start with medical, right? We, first of all, in medical, we feel like the headwinds that we faced in 24 and where we had signaled that in the second half of 25 that we would have those behind us. They feel behind us, and our customers continue to show orders, activity. So we feel good that the problems of the past were past them. That's number one. So in general, medical is stable, but within that, we continue to see strength in CT. There's no real anything that I can call out as weakness in CT, and it's strength globally. And we continue to look at medical markets, CT markets, and adoption rates of CT globally. All of that projects a positive indication for us, and our relationships with our OEM customers continue to be strong. That's medical. All other modalities in medical. So that said, China, you know, is stable for us, and China is stable, CT is strong, And all other modalities, we see normal cyclical patterns, nothing that alarms us or anything that I can call out as extraordinary or remarkable. So from that perspective, we feel good about medical for the rest of the year. Same way as I look at industrial, the order pipeline, the order activity, the engagement of our customers is very strong. We saw very strong orders for photon counting and industrial driven, particularly in the food inspection space and NDT, non-destructive testing pipeline and activity remained strong. And then security, of course, we've talked ad nauseum about our traction there. We're very happy with how we're seeing the security orders pipeline funnel growing there. So this is the background for me feeling good about where we are. And then to top it off, you know, look at our S&A, the customer interactions were very different. You know, two years ago in 2024, there wasn't a single R&D conversation. It was all about, you know, one problem after another after another that our customers were facing. And that tone has shifted pretty dramatically. And so as I look at the engagement of the customers and I look at the type of design in opportunities we're looking at, we're looking at opportunities that are not only long range. We're not just talking about photon counting, nanotubes, and forward-looking technologies. We're talking about products that we currently have in the mid-tier, in the value-tier CT systems, and what our customers need in emerging markets where they're going today, tomorrow. So that's why my comment was that we're expecting to close some of those in fiscal 26 with hope that we can get engaged with customers, particularly with radiographic, to ship them products in fiscal 27, 28. So these are the – this is what's going on, which makes me excited.

No, I can feel that too. And you mentioned the India opportunity. I was going to ask you just about India, how it's progressing. I imagine it's still a little bit of a headwind to your business, but it sounds like it won't be for long, and it sounds like it's also creating a lot of opportunities for you. Maybe you can elaborate on that.

I'll let Sam comment on add-on. Let me just start by saying the India factory, as you know, for detectors is open. We're shipping detectors from there globally. These are radiographic detectors, and it is contracting with what we had intended for that site in Vizag. Pune construction is coming along very well, but we're also shipping quite a few tubes that are marked made in India to all over the world. So the activities going on, the new factory for Tube's factory will still take a little bit of time to come online, but there's progress being made, and I feel we're on track. And our customers are – it's resonating with our customers. There's not a conversation that I have with customers where India doesn't come up. And the story is the same. Hey, we want to do business in India. India – we're expanding to India. India is favoring systems that have local content, domestic content, made in India. So we want you to supply us from India. And that becomes a differentiator for them. So this is exactly what we had planned for, and we're seeing that start to materialize.

Yeah. So like Sunny said, there's a lot of excitement from the customer side on our India operations and ability to provide the product from there, not just for India consumption, but also for global consumption. And in terms of the bricks and mortar development in India, essentially one factory is already producing detectors, and we are in the process of ramping up that factory. And the second one, the tubes factory, before we begin to ship tubes from there, it's still another 12 months. Building is largely complete. We are now moving in the equipment. So as we move in the equipment, Then it will be followed by the qualification cycle of the equipment, followed by the qualification cycle of tubes that would be produced from there. And then we would be able to export tubes from there or ship to customers in India. So in terms of actual progress, it is tremendous in India at this time. From a P&L perspective, it is a burden in the sense we are ramping up some inventory. We are ramping up some costs on the P&L. So the P&L is seeing the burden right now, but it is truly an investment, and so that's what you're seeing right now.

Sam, can I just squeeze one more in? Just on the guidance on the quarter, I know you like to give yourself a little room for a wider range, but the low end of essentially all your components from sales down to margin, down to tax rate, are actually kind of in line with this quarter, which was basically $0.20 or $0.19. So why would the low end of the EPS be $0.15 and not $0.20? What am I missing there?

Yeah, so you would notice that we have reduced the range for the EPS as well as revenue. So that is one factor to play over there. But other than that, you know, there isn't anything else there. So maybe I didn't capture your question, or is that what you wanted to?

Yeah, no, I was just saying, like, if you did $210 million this quarter, if I plugged that $210 million in, like, what you did this quarter, basically it's actually above what you did in Q1. No, essentially the low end of all your target ranges are essentially exactly what you did this quarter, and you did 19 cents. So what would drive that down to 15, if you know what I'm saying?

Yes. So this last quarter, we produced about north of 33.5, so 33.6% gross margin. But on the low end, we are baking it with 33% gross margin.

That's fair.

So the guidance is 33 to 34. That's why.

That's fair. Okay, that's fine. That's fair. Okay. No, I appreciate it. Thanks for all the call.

Thank you, Larry.

Thank you. Next question is coming from Young Lee from Jeffrey. Your line is now live.

All right. Great. Thanks for taking up questions. I guess to start, can I ask about the industrial segment a little bit? Is there any incremental disclosures on the cargo orders that you can provide? You know, good to hear about the wins during the quarter and the repeat order. I think last year, you know, quarterly orders ranged from like $14 million to $25 million-ish. Is fiscal 1Q orders still in that range? And, you know, just given the recent strong performance in that business, is it possible that industrials can grow double digits for this year?

Sure. So, Soyang, last year in FY25, we announced more than $55 million of cargo business that we booked. And when we announced that, we were very early in the market and we wanted to say that, you know, we are seeing good traction in that market. going forward our approach towards cargo systems and orders would be that we would not be announcing on every single purchase order that we received we just wanted to say that this last quarter we got business from multiple customers multiple countries multiple units so the traction is pretty strong in terms of overall number you know what really matters is when we ship the product to the customer. So through revenue process, obviously we would be talking about it in terms of our industrial segment. So what I'm trying to say here is that you would not be seeing press release for every single purchase order from us unless it is material and then we need to disclose that specifically. So that's on the order side and how we are approaching. And then I do want to say that this business is tender driven and it is also somewhat episodic in the sense some quarters we win, we can win large amounts and then there may not be any tender that may close in the next quarter, for example. So the business is somewhat lumpy. However, our goal would be to smooth the revenue as much as we can. Of course, we have to keep the customer requirements and objectives first and foremost. And then your last question in terms of industrial business growing double digit. Yes, the potential is certainly there. It can grow. We need to not just win cargo systems orders in a significant manner, but then also our customers would need to want to get that product before our fiscal year ends. So those will be some of the puts and takes for our ability to grow double-digit in industrial this year.

Okay, great. That's a very helpful caller. And then one on China, so 17% of REVs, that's around $35.6 million. It's, you know, one of the bigger quarters in two and a half years. since you previously were expecting flattish to slight growth in fiscal 26. I guess if you just annualize the growth, it's like 10% growth or something like that. Can you maybe update us on your latest thinking on how much China can contribute in fiscal 26?

Yeah, so Yang, China quarterly revenues on a year-on-year basis, They were flattish, like we had said in the last earnings call. And we are expecting China to remain stable, flattish to maybe slight growth, but mostly I would characterize it as flattish year over year. But keep in mind the China dynamic in terms of quarterly seasonality because of Chinese New Year is always somewhat different than the rest of the business. China, typically we've seen stronger in our fiscal Q1, and then because of Chinese New Year, our fiscal Q2, which is the March quarter, China generally is somewhat light. That is the typical pattern out of China revenues. So I would not do Q1 times 4 for China. And I would again say that, you know, from a full fiscal 26 China revenues perspective, we are looking at flat to, flat-ish to minor growth, something like that. Very great.

Thank you very much. Thanks.

Thank you. As a reminder, that's star one to be placed in the question. Our next question is coming from Suraj Khalia from Oppenheimer. Your line is now live.

Hello, Suraj. Sam, Chris, congrats on a nice start to the year. Can you hear me all right?

Thank you, Sarek.

So, gentlemen, let me start out first. Sunny, if I got your comments right at the RSNA, you said there was a lot of discussions about general radiography. Maybe if you could parse it a little more for us, Sunny. What do you think customers are gravitating towards, more price-sensitive products or higher-end products? I guess what I'm just trying to sift through is use this as a proxy of, you know, what the macro-level conditions are and where your consumer sentiment is. Yeah.

So Suraj, we, over the years, we had lost share in radiography. So for us, introduction of new products is a way for us to gain share back. And as you know, we created these low-cost products that are very functionally rich and very, very good products, solid products, and priced very attractively with very good cost structure, also made in India. All of these things combined is what has been attracting our customers. These products, these radiographic detectors are best in class, absolutely best in class. They'll go toe-to-toe with any high-end products that we've made, and some are even better. So with that in mind, there's a lot of interest in this segment, particularly because these are very, very lightweight detectors, and we're targeting segments of the market that can take on these products quickly, both as standalone detectors, but also combined with our software package. We have a product line called Nexus, which is an acquisition workstation, which is ideal for someone trying to bring on a new application to market. If someone wants to bring a new mobile cart to market, the combination of our tube detector, high-voltage connector, and the software gives them an imaging chain that pretty much drops in, so to say. And so there was a lot of interest from customers who are looking at markets like South Asia, India, Indonesia, Latin America, that look at this as part of their analog to digital conversion of their installed base. And it's a very attractive proposition for them. So there are many conversations with those types of prospects. There were also conversations with customers who are our current customers who are looking to expand their radiography portfolio. Post, you know, during COVID, there was an intense amount of purchases of mobile carts and other radiographic, just regular DR systems. And then the industry went through a bit of a digestion in 21, 22, 23. And now we feel like sort of the markets come back to being vibrant on radiographic as well. And the conversations weren't just about detectors. They were about detectors and tubes both. And the question kept coming up, when can we receive these from India? When can Made in India be ready? And so there was a lot of interest from our customers for the global markets.

Got it. And I'll pose my couple of questions together. One for you, Sam. One for you, Sunny. Sam, mid-device segment, flattish. We understand the seasonality. Maybe I missed your comments about the composition within medical devices and the impact on gross margins. If you could just give us some color, that would be great. And, Sonny, for you, obviously, you know, the analysts prior to me also asked about China. How do you plan for China just given the daily, you know, my word, drama that we see on a macro level? What gives you the confidence, really, and any additional color, if you could give us on status of photon counting from a marketing perspective? Gentlemen, congrats again, and thank you for taking my questions.

Thanks. Sam, do you want to go first? So, Suraj, let me start with China. So, you know, we'd go crazy if we changed our plans for China based on what you see here on News Every Day. We look at China in two different ways. Think about China as a geography, right? Japan's a geography, India's a geography, and what does the end market there look like, end user demand? And we look at it from that perspective and see how we're doing, creating products and shipping products to all our OEMs who then sell into China. That's how we look at it and say, are we doing the right things? Are we competitively playing the right way? Are these the right products, et cetera, et cetera? And we stay focused on that as one consideration from a product management perspective. Second, keep in mind, every Chinese OEM, and I call them Chinese OEMs, they happen to be global OEMs who happen to be based in China. They're all selling their products globally. So our traditional OEMs that we refer to as Chinese OEMs, they're not just selling in China, they're selling elsewhere. So we are heads down with them, figuring out how to get our newer solutions, everything designed in for them to win in those global markets. And guess what? Those OEMs are winning in global markets. They are capturing share bit by bit in global markets. And I'm talking about particularly with CT. And in my frame of reference right now, just as an example, is CT. These OEMs are winning CT business globally. So I treat our OEMs that are based in Shanghai and Shenzhen and Suzhou and wherever they are, no different from our OEMs that are in Japan and the U.S. and other parts of the world. So we're really excited to continue to work with them. That has a longer horizon and a longer, I'd say, a different type of a view through the windshield versus the China demand as an end market and what's going on in there. So that's how we see China. So I see Chinese OEMs as critical to our success in India. I see them as critical to our success in Latin America, South Asia, Africa, lots of places. And we look at the value tier segment and how we can work with them closely to increase our value proposition for them and help them be successful in those markets. Photon counting. So, Suresh, that's my response to your question on China. Yeah. And by the way, we're still, you know, regardless of what our president says or regardless what the Chinese premier says, you know, they all have their chatter. But then our relationships with the customers haven't changed much and the orders keep coming in and orders have remained pretty stable and strong and consistent. In terms of photon counting, we're making really good progress. All I can say at this point is the two OEMs that we're engaged with are knee-deep in their product commercialization process. They're in that process of their typical R&D cycles. I cannot comment on what stage they're in or what they're doing. But all I can say is that they're heads down and charging forward full steam. At the same time, our other OEMs are also sort of – that have been engaging with us, continue to engage with us, and are continuing to look – they're looking at the data, and we're in this mode where, you know, there's a bit of dearth of data in the sense that until our first few OEMs come out and expose themselves and talk about their systems, you know, you're not going to – we're going to only be able to share with them the type of data that we generate ourselves, and that's what we're doing. And they're using that to validate and do their own assessment of the technology, and that continues to move forward. So we're continuing to build a pipeline and interest of OEMs. Our goal is to democratize this technology. You know, the early entrants in photon counting CT have targeted the very, very high end of the market. You know, our interest here is to say, what can we do about a large swath of the CT market? And that's that's where we're headed. So think of it as, you know, we're we're we're in the game, but in a different sort of a way.

Got it. And then, Suraj, I'll take your last question for me in terms of gross margin and med device. So, in general, the more the complex product, then the more margins we have, you know, generally because we are providing a lot more value in that given product. So, when it comes to tubes and detectors, et cetera, when it comes in the medical segment, generally the products are more complex in CT and oncology modality, so to say. So our margins are generally higher in those modalities. When it comes to RAD and dental, our margins are somewhat lower, particularly we are having some challenges in addressing the RAD market, radiographic market, while producing the product out of Germany or the U.S. So in RAD, we do have a strategy to produce these products out of India and be able to be competitive in the market while still making good gross margins there. But this is still, at least at this time, for this last quarter, it's a journey in play. And in 12 months, we hope to have a very different story around that with the help of India coming online and fully ramped up. So that's on the gross margin for various segments in medical device. And then on the industrial side, typically we are seeing very good traction and photon counting for industrial applications. and it's a new product, new technology. At the same time, we've talked about it a few times before in terms of our linear accelerators as well as cargo systems. Margins are a bit low when we ship the hardware and when these products, after 18 or 24 months, they go into service, then we are able to capture a higher margin. So in the industrial, I would say service business, as photon counting is higher margin than the rest of the business.

Much appreciated.

Thank you.

Your next question is coming from James Sidoti from Sidoti & Company. Your line is now live.

Hi, good afternoon. Thanks for taking the questions. Sam, can you talk a little bit about inventory? It was up pretty significantly in the quarter. Is that because of the surge in order Chicago inspection systems, and where do you think that number goes over the next few quarters?

Yes. So that's a great question, Jim. So yes, some of the increase in inventory is clearly intentional as we get ready to ramp up cargo systems. And some of our products in cargo are first-time implementation. So we also need to produce the product, ship it over to the customer site, and get its site accepted. So there is a bunch of product which is finished goods and And actually, that site is going through qualification and overall final testing or final acceptance is what we call it. So some of the inventory is because of that. At the same time, given the strength in the business, we are also expanding our factory in Las Vegas. And at the same time, the finished assembly for cargo systems happens in the U.K. So we are expanding at both the places in terms of inventory. And then another reason for the increase in inventory is that we are beginning some of the qualification cycles for detectors in India. So there is inventory over there as well. So between, I would say, primarily cargo systems and the industrial segment, that is what is driving the inventory increase. And then secondarily, it is India. And then there is another factor that there is now more tariff capitalized into the inventory, so that has also driven inventory up a little bit. So I would say our goal would be to bring this inventory down. It should get normalized. I would say inventory is probably $10, $15 million higher, and I would like to see it be brought down by those amounts in the next couple of quarters.

Okay. And in terms of your plans for refinancing, you know, what's the next milestone there? And, you know, can you just give us some color on where you think you'll go? What direction?

Yeah, so just to remind everybody, our high yield debt that is due for maturity in October of 2027, and we would like to refinance it before it goes current, so more than 12 months before its maturity. So the way I'm looking at it is refinance it before October of 2026, which is this year. And so we've been working on it, and we are making good progress there. And so we'll share more information with you as and when it becomes the right time to share, but we've been working on that.

And what's the interest rate on that debt?

So right now it is 7.875% interest rate right now. Hopefully we are able to bring it down with the refinancing, but we'll just have to work on it and announce it and share with you as and when our decision becomes more clear. All right.

Thank you.

Thank you, Jim.

Thank you. We reach into our question and answer session. I'll turn the floor back over for any further closing comments.

Thank you all for your questions and participating in our earnings conference call today. The webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through February 24th and can be accessed at variximaging.com forward slash investorrelations. Thank you, and goodbye.

Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.