We are targeting at the mainstream CT market. So, towards that outer end of our trajectory that we showed you in the walk, it’s going to be driven by CT. Between now and 2028, it’s going to be 2026, 2027, 2028, it’s going to be driven by industrial and a few other medical modalities. I hope that gives you the color you are looking for. It’s hard for us to go get more specific because there’s challenges in predicting that far out on products that are in design phase with the customers.
Shaymus Contorno: Appreciated. Thank you very much.
Operator: The next question comes from Young Li with Jefferies. Please proceed.
Sunny Sanyal: Hell, Young.
Young Li: Great. Hey there. Thanks for taking our question. I guess to start, maybe to follow up on China a little bit. I mean it sounds like most, if not all, the impact is due to the anticorruption campaign. Wondering if there’s any local competitive dynamics that’s at play there as well.
Sunny Sanyal: No, we don’t see that as the reason for any of this slowdown. The slowdown is substantial slowdown, and as you know, most of our business in China is driven by x-ray tubes. And within x-ray tubes, the majority of our volume comes from the CT systems where we are – it’s a highly engineered product that’s designed in. So, what we are experiencing is a result of our customers not needing the products because their sales have dropped pretty significantly.
Young Li: Okay, great. Very helpful. I guess just a separate question, just related to photon counting. That generates a lot more images and data. I’m curious, is there a software play or AI play for Varex? And how’s your software business doing recently?
Sunny Sanyal: Yes, absolutely. So, photon counting, depending on the application, what you just described, would be certainly true for CT. For CT, first of all, high-resolution detectors and imaging at high frame rates produces a lot of data. Yes, there is. So, the good news is in there that with the high-resolution images, the amount of information that’s now available in these images opens up a lot of opportunities for AI plays and for material discrimination and more precise pinpointing of artifacts and reasons, and to be able to distinguish between one type of artifact versus another. Our software group is very capable with CT reconstruction and applying image processing and techniques to look into and extract more and more information out of the data that’s received.
So, we certainly expect that our software group will continue to benefit from photon counting. We have quite a bit of technology that we offer currently with our detectors for image processing, and those are actually a key part of our photon counting detector offerings. And as we take our products to market for CT, they are certainly playing a role in the image processing and image construction.
Young Li: Got it. Thank you very much.
Operator: [Operator Instructions] Our next question comes from James Sidoti with Sidoti & Company. Please proceed.
James Sidoti: Hi good afternoon and thanks to taking the question. On the situation in China, do you think there’ll be some pent-up demand because of the slowdown in buying now, or the procedures are still getting done, tubes are still wearing out. So, when these restrictions get lifted, do you think there’ll be an increase in demand?
Sunny Sanyal: Yes. So, Jim, procedure volumes are continuing. People need care, they go get care. So, what we are seeing is sales of replacement tubes. And for us, that’s a recurring revenue stream. The pent-up demand is results when we get increased procedure volumes. So, that is, I don’t know whether we can predict that at this point. However, what we believe will drive the return to growth is the continued push to expand healthcare services in China. They have not come off of that. Everything that we hear from our customers is that the Chinese government is continuing to press forward. What is unclear at this stage is what effect the stimulus package that is in the sidelines will have on how that pent-up demand will play out.
We’re not getting much transparency around what hospitals will have to do in order to be able to take advantage of the stimulus program that’s being rolled out. Once there’s more clarity on that, we’ll be able to assess, the trajectory of the demand. But the thing that we have noticed over time is when there’s any a slowdown or stoppage for economic reasons or other reasons, when the demand comes back, the pent-up demand doesn’t go away. It comes back. And the question is whether it’ll be a gradual ramp up, which we think it’s more likely, versus is there going to be a sharp inflow of orders? We don’t know that yet, honestly. So, that’s what, in the next 90 days or so, we expect to get more clarity on that, and we will continue to share that with you.
James Sidoti: Okay. And then can you talk about your options regarding the refinancing the convert? Are you looking at another convert for that, or possibly going with straight debt? When do you need to do it? And how are rates comparing now to the existing loan?
Sam Maheshwari: Yes, sure. So, thank you Jim. So we just recently closed about $175 million of new financing, one is a revolver, $155 million and another $20 million of delayed draw term loan. So, from our position, we feel we are in a very strong position from the liquidity perspective to address the refinancing. So, at this time, the existing convertibles are maturing next June, so June 2025. So, we are going to monitor the situation and make the right decision for us. And we’ll share with you as the Board makes that decision. There are a lot of factors that go into it, including interest rates, stock price, and various other things. So, that’s the way we are thinking about. And then, in terms of interest rates, our current loan is at 4%.
