Greetings! Welcome to Varex Imaging Corporation’s Fourth Quarter and Fiscal Year Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I would now turn the conference over to Howard Goldman, Director of Investor Relations. Thank you. You may begin.

Thank you. You may begin. Good afternoon, and welcome to Varex Imaging Corporation's earnings conference call for the fourth quarter and fiscal year 2020. With me today are Sunny Sanyal, our President and CEO; and Sam Maheshwari, our CFO. To simplify our discussion, unless otherwise stated, all references to the quarter after the fourth quarter of fiscal year 2020. In addition, unless otherwise stated, quarterly comparisons are made sequentially from the fourth quarter of fiscal year 2020 to the third quarter of fiscal year 2020 rather than to the same quarter of the prior year. 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. 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. And now, I'll turn the call over to Sunny.

Thank you, Howard. Good afternoon, everyone, and welcome. Fiscal year 2020 was a productive year for us despite the headwinds created by COVID. First of all, I'm very happy to report that we renewed all of the multiyear agreements with our top 20 customers that became due during the fiscal year. Second, we completed the closure of our Santa Clara facility ahead of schedule and made additional structural changes, which together will result in $28 million of annual cost savings when fully realized. Third, we replaced our existing debt with a capital structure that provides us with increased liquidity and flexibility. And last but not the least, we launched a number of new products. The combination of these and other actions, leave Varex well positioned for future growth once the economy recovers from the impacts of COVID. I'm also very pleased with the performance of our leadership team, our managers and our employees around the world who have navigated the turbulence from this pandemic. And through it all, we continue to fulfill our customers' needs. In the current environment, as we look at our financial performance, we believe our investors will get a better sense of our performance with sequential comparisons more so than year-over-year comparisons. On that note, our fourth quarter revenues were $170 million and were comparable to the third quarter of fiscal year 2020. The revenue mix between our segments was also comparable on a sequential basis. Our margins improved sequentially, largely due to the start of benefits from the cost reduction actions. On a year-over-year basis, total company revenues declined 16% in the fourth quarter due to the ongoing impact from COVID. In our Medical segment, during the fourth quarter, CT tube sales were strong, while sales of our products used in other medical imaging procedures…

Thanks, Sunny, and hello, everyone. As a reminder, unless otherwise indicated, I will provide sequential comparisons of our results for the fourth quarter of fiscal year 2020 with those of our third quarter of fiscal 2020. Our fourth quarter financial results indicate that our sales have stabilized. Fourth quarter revenues were $170 million and comparable to the third quarter of fiscal 2020. Medical segment revenues were $136 million and Industrial segment revenues were $34 million. Compared to the fourth quarter of last year, revenues declined 16% to $170 million from $202 million due to the effects of COVID. Geographically, fourth quarter revenues were $64 million in the Americas, $55 million in EMEA and $51 million in APAC. For full fiscal year 2020, revenues in the Americas were $255 million, $231 million in EMEA and $252 million in APAC. This reflects a geographically well balanced revenue profile for us. Our fourth quarter GAAP gross margin was 27%. On a non-GAAP basis, gross margin was 28%, an improvement of two percentage points from the third quarter of fiscal year 2020. This increase is due to a favorable product mix and initial benefits from cost reduction. R&D expenses in the fourth quarter were $17 million on both a GAAP and non-GAAP basis. This was a decrease of about $2 million from the previous quarter. Fourth quarter SG&A expenses were $41 million. On a non-GAAP basis, SG&A expenses were $31 million, an increase of about $3 million from the previous quarter, largely due to higher year-end audit fees and pension costs in our German operations. Operating expenses were $58 million. Non-GAAP operating expenses were $48 million compared to $36 million in the previous quarter. This $2 million sequential increase was primarily due to higher SG&A expenses that were partially offset by lower R&D spending.…

Thank you, Sam. So looking beyond COVID, we expect demand for X-ray imaging equipment and for our products to rebound once the effect of the pandemic is past us. We are confident that our continued focus on innovation will enable us to position -- expand our position as a market leader across all product lines in our core business. Our goals for the next phase of growth, which we have referred to as Varex 2.0 are focused on accelerating organic growth, improving operating margins through operational transformation and strengthening our balance sheet. With the debt refinancing actions, we've already positioned ourselves with a new capital structure that gives us operating flexibility and strengthens our balance sheet. Our next steps here are to improve our financial performance and lower our debt. To do that, we will continue to drive initiatives to improve gross margin and operating income. Our initiatives -- our investments in the R&D are aimed at enabling Varex to expand its footprint within our customer base as well as for opening new addressable market opportunities with Photon counting detectors and Nanotube x-ray sources. I'm happy to say that we're making good progress in each of these areas of Varex 2.0, and these goals are reflected in our fiscal year 2021 operating plans and management incentives. With that, we will now open up the call for your questions.

[Operator Instructions] Our first question is from Anthony Petrone with Jefferies. Please proceed.

And I hope everyone is doing well and staying healthy. Maybe a couple for Sunny, and then I'll have a few for Sam, as it relates to some of the guidance metrics that you provided, Sam. And so Sunny, maybe from a high level, you gave updates here on where each of the businesses is trending amid the COVID sort of resurgence. And so I guess, at a high level when you consider, in particular, where you referenced Industrial, you are seeing some signs of a turnaround in select areas of Industrial, so maybe describe how you see that trending into '21 from here, in particular, when you consider that we do have a resurgence in some geographies and a lot of key geographies for that matter? And then if you can refer to China, it sounds like its business back to usual. So is that a fair way to describe where China is exiting the quarter? And then I'll have a few follow-ups.

Yes. Okay. So thanks Anthony, for Industrial, the way we experienced the situation is that initially, when the full impact of COVID hit everyone around the April-May time frame, everything stopped, right? So we had lockdowns everywhere and all activity essentially seized. And then airports stopped operating most of their gates and we saw serious slowdown there. So that's how it started out. And then as COVID progressed and as -- what we're seeing now is that the Industrial side of our business and those markets and those different verticals within Industrial are pulling away from -- in their recovery trajectory, they're pulling away from the way. Medical is recovering. And what I mean by that is, look, airports have been shut down. They're going to stay shut down for some time. There's no improvement or degradation there. But meanwhile, in other verticals, as -- as you know, Industrial is very fragmented and there are many sub verticals. As you look at different verticals, they're progressing along different trajectories. So I mentioned electronics and battery inspection. We're seeing continued strength in that area, and there was strength pre-COVID, and it returned to increasing levels of activity. So what we're seeing, what we're anticipating is that within Industrial, it won't be an all or nothing. There isn't -- it isn't tied to one large group of entity's capital budgets like we have that in the Medical side. In the Medical side, we're pegged to the hospital capital budgets globally. However, on the Industrial side, given the fragmentation of the verticals, we're seeing different trajectories. And each -- sorry, different dynamics within each sub vertical, and they have their own little trajectories. So on balance, what we expect is that the government -- all the verticals controlled by government, government spending will continue to move forward. We were encouraged by the tender activity in the cargo screening area where some tenders were finalized, and our OEM customers receive some orders. Similarly, we've continued to see spend on the government side or the activity continue to stay active. And now what we expect is that the other Industrial verticals in food inspection, general manufacturing will continue to evolve on their own. AND even if -- even with the situation with COVID, we're not anticipating a regression in any significant way. So that's the scoop on how we see Industrial evolving during this recovery.

Okay. And then again, a follow-up on the China CT 2 market in particular. So maybe just a follow-up there on where that business is trending, and it does sound like that is sort of completely back to business, pre-COVID levels, is that accurate?

Yes. So we're very happy with our performance in China. And so they were shut down for about eight weeks this year. And when they came back up, they went right back to work, and they caught up with their prior trajectory. So from that perspective, all the things we've said about the China market have continued to play out just the way we have explained it, which is their -- Chinese government continues to make investments in health care. The purchasing of CT continues, and through the COVID pandemic, while we saw an uptick in the buying of CT systems and X-ray systems in a post -- they went through a peak of their own. And beyond that peak, we didn't see the CT market subsiding or anything like that. The trajectory that they want -- that they were on previously appears to have continued. So we are we're happy with the way things are going in China. Our OEMs have not slowed down in their product development efforts. They're continuing on with their plans. Any slowdowns or any delays there are typical to our normal R&D cycles and processes. So for all practical purposes on the Medical side in China, it feels like business as usual.

And then I'll shift gears and get back in queue. Here for Sam, just up on, one on expenses and then one on the guidance range for 1Q. Just when we look at the operating expense level, and I know some of the savings are going to evolve as we head into fiscal '21. When we look at the fourth quarter level, $48 million in OpEx, should we be gradually seeing more savings on that line as we run through fiscal '21? So that would be the first question just how to think of the quarterly cadence on total OpEx vis-à-vis the fourth quarter. And then the second question would be on the guidance range, in particular, for 1Q, it's a $20 million spread on the top line and a $ 0.30 or $0.25 kind of range on the bottom line. And so maybe walk us through the lower end of that range would sort of you kind of factoring in the variables that can drive it to the upper end of the range?

Sure, sure. Let me address your questions one at a time. So in terms of OpEx, we are guiding a significant improvement for Q1 versus Q4. So Q4 was at $48 million. There were certain expenses in there that should go away as we round out the audit and the 10-K filing and all of that stuff. So essentially, we are guiding $44 million to $45 million beginning with Q1. So all the positions that we eliminated in the July, August time frame, they are beginning to use is a big starting from, say, October. So that's why that run rate is going to go straight from 48% to, say, 44%, 45%. And then it should remain at those levels throughout the year. And if you would remember, last quarter, I had guided OpEx for the full year in the range of about $175 million in that range for the year. And say $43 million to $45 million per quarter by Q2 of 2021. So I'm glad to say here that we are already at that range, $44 million to $45 million and that's how that will build up. Some of the other cost reduction initiatives that we've been taking on, for example, Santa Clara and some other position eliminations. You are going to see that benefit in the continuous improvement in gross margin. So we just did 28% and guiding 30% to 31%. And as Santa Clara benefits fully begin to get realized, I expect gross margin to sequentially improve during the year couple one or two percentage points from one quarter to another. So I expect gross margin to be nicely building up during the year based on our initiatives. Then lastly, in terms of your guidance range, yes, so the revenue is $20 million on the top…

Our next question is from Larry Solow with CJS Securities. Please proceed.

Just a few follow-ups. First on Anthony's question. On the cost side, did you see any benefit, I guess, on the, I guess, would be from the closure of the facility in Q4 at all? It sounds like the operating expenses and the headcount reductions were all going forward. But did you get any benefit at all? Or do we still get that full $14 million benefit coming?

So Larry, there were some benefits, but very, very small. The bulk of the benefits would begin to show up from Q1 for the positions that we eliminated. And Santa Clara, the $14 million, I expect half of it because it's kind of a situation where we are ramping the cost savings in a way during Q1, so essentially half of Santa Clara benefits are going to roll through Q1. And when you look at that $28 million cost reduction program, 25% of that is in OpEx and 75% is in COGS or gross margin. And when you look at that, and if you just take simple numbers, Santa Clara is half of it and position eliminations is half of it, so half of Santa Clara is going through in Q1. Remaining will go through completely through the P&L in Q2. And then all of the position eliminations, they would benefit our OpEx in Q1.

Got it. Okay. That makes sense. And could you -- just a question, I know you don't break out the adjusted gross margin between Medical and Industrial. But I just -- I noticed that the GAAP Industrial number was over 41%, so that you never up a non-GAAP 40% number and going back two years. So I'm just trying to -- was there something in that number that unusually about to be benefited?

Yes. So Larry, the way to understand it is that at these low levels, as you remember, in our Industrial business, we have machine sales as well as services. Services are on contracts and all of that. So what happens is these margins behave somewhat erratically when the machine sales are low. And we are really going through a very low period in the Industrial business from a new machine shipments or installation perspective. And that is what explains that type of gross margin behavior there. I would not suggest that the margin profile overall for the business is trending in that direction.

I was actually more concerned that maybe that was a one-timer? Or on the flip side, the Medical margins are worse than I thought potentially. So that's really why, I was just -- yes.

Yes. It's just the mix within the Industrial segment of machines versus service and time and material type of service.

Okay. Okay. No, fair enough. And then just switching gears just to the revenue trends. I realize you're a component business and somewhat down the -- not front end has the elective surgery start to come back you won't see that benefit probably for a little while. So -- but in that vein, elective surgeries that certainly come way off their bottoms. I realize COVID's consensus is not improving anytime soon, although it does seem like in most of the medical world, people are -- maybe there was some pent-up demand that causes, but people are at least trying to get back to, especially for things I absolutely have to do. Have you seen any, at least anecdotally customers that hospitals may start to purchase things as we go out to '21? Will you get any better visibility maybe with capital budgets coming out in the beginning of hospital fiscal years or any better clarity on that? Or are you still kind of very uncertain timing?

Larry, this is sunny. So the activity that our customers are seeing varies by geography and varies modality. So as we mentioned in activity in China has been for all practical purposes, seems like every day normal business. But that's -- so in rest of Asia, rest of Asia is slower. Pre -- before the second wave or these lockdowns that began in Europe, our customers were saying that they were encouraged by seeing increased tender activity. And so there was more quote activity and quotes were going out. And so that was a positive thing, and they were feeling good about it. Now, of course, with these current set of lockdowns that'll probably slow down a little bit because communication slows down, et cetera. And then in Americas, North America -- Americas was slower and slowest. So that's on a region basis. From a modality perspective, what we saw was, mammography was one of -- mammography and dental were the two that initially stopped very quickly, right, because these were in outpatient areas. But then the return also feels like it seems like as a modality, they respond quicker. They stop quicker -- sooner, they really come back faster. So that's how we're seeing so we did see an uptick in mammography. Now that's coming largely because, as you mentioned, as these elective -- I'll just call it mammography screening is elective in that context. As people go back to the offices open up and people go back to their screening activities, the usage of the systems then drives the replacement tube revenues for us. So we've begun to see an uptick in -- as hospitals have become more active and outpatient imaging centers are more active, we're seeing replacement tubes volume picking up. So that's where we're seeing it. In terms of capital equipment purchases, we haven't seen anything conclusive one way or another. But we have seen pockets of increased activity, which are encouraging.

Okay. Just take one on the product side, so you mentioned the Nanotube technology, and you sound very excited about that. When might we actually see some commercialization of this? It sounds like we still -- are we still several years out from that or?

Yes. So Larry, as you look at our -- this is the -- can be a frustrating part of our basis, right? That time to revenue tends to be long. If you look at the product life cycle from the point where we have, first, we developed the foundational technologies. And when we have it, we take into our OEMs and they start evaluating it, and then they start designing their imaging applications around it. And then they bring it to market. So we're at that stage, where we feel good about the foundational technologies. That initial phase of development is moving along very well. And now we're making samples available to our customers who are now characterizing them. And then -- so this R&D process continues on. So directly to your question, frankly, it'll be 2-plus years before we see anyone bring a system to market. But the good news is once they bring it to market in the next 15, 20 years, we stay engineered in there, right? So that's upside?

Yes, absolutely. Yes. That's right. Yes, fair enough. And obviously, hopefully, several, you can swell come to market, and that would be great.

Right.

Yes. Absolutely. Just last question, just on the cost again. I guess the 100 bps gross margin targeted improvement will be a gradual type thing that you hope to sort of reach full run rate as we head into fiscal '22? Is that fair enough? And that would be like a $6 million, $7 million, $8 million type thing, if we just based on run rate revenue?

Yes. So Larry, I think, as I said, we started working on them, but these are -- these things move slowly. I'm hoping that it has a beneficial impact in the second half of fiscal 2021 here. So our target would be that for sure, FY '22 gets the help of a full one percentage point. But I'm hoping even for Q4 of this fiscal year, we are able to get the full percentage point for.

Okay, great. So you'll get some gradual improvement, maybe not in Q1, but maybe a little bit even in Q2, Q3 or if you going to get to that fall level?

We are going to go a little bit slow in Q1, Q2 and then pick up in Q2, Q4. So Q1, Q2, I will not count too much on that.

Our next question is from Suraj Kalia with Oppenheimer & Company. Please proceed.

Sunny, Sam, Howard, I hope everyone is safe and healthy. Can you hear me?

Yes, we can.

So Sunny, a bunch of questions for you and some for Sam. Let me start out on a high level, sunny. Obviously, you guys were forced into a tricky position with this whole nonsensical China tariff thing. Now with the new administration on the horizon, do you anticipate any realignment that potentially could offer some incremental benefits, whether it's in workflow logistics, product streamlining, a locally manufactured product? Any additional color there would be great.

Okay. So let me take that. As you -- so as you might recall, that we got hit by tariffs in the beginning, and we reacted very quickly to that. And one of the things we did was set up local manufacturing. We said today, it's China, tomorrow might be India, somewhere else, how do we make ourselves local for local. So our good news here is that our local-for-local initiative, which is the manufacturing in Wuxi is up and running for detectors and tubes, we've had multiple models, many models of tubes, many models of detectors being built. So in a way, we're in a situation where, at this point, for what we need to sell in China, we feel confident that should there be a reverse -- I mean, if there's a turnaround and it's reversed, that's great. It will be helpful. But if the tariffs continue or if the tariffs increase, we are hoping that what we have done by putting in local manufacturing and local sourcing in China that we will offset some of that risk and create a bit of a hedge for ourselves. That's how I'm looking at it. Hard to tell which way things are going to go with the tariffs. I don't think -- I mean this -- it will be totally speculative for me to say something. I mean, I really don't know. All I can say is we saw that we -- this is not something that would allow for to dog our business in the future, and that's why we took the steps of locals were local like we did.

Fair enough. Sunny, you and I have talked a number of times about your core cato technology. Obviously, there is a lot of buzz about this new approach and potentially paradigm-shifting approach to Photon generation and X-ray generation. So Sunny, you made some comments specifically, if I heard you right, you said it will be ready in two years. You guys are in life cycle testing. Let me frame the question a little differently. How do you balance the cannibalization that could occur of existing versus new sockets with this new approach? Have you all done the internal price points? How would this work? Any color there would be great.

Yes. Yes. So in terms of life cycle testing and those things, those are all stuff that's underway, and they will continue on. So the work that we're doing now is in parallel with that. So now, we're giving these samples of tubes, so to say, engineering samples to our customers. So they can understand how they behave, how they operate, so they can start thinking about what types of applications and modalities would be useful for this. Now, in terms of with this cannibalized existing product line and technologies, look, first of all, I expect -- what I expect will happen out of this is that we will get a lot of new customers. That -- obviously, that's what we would be pushing for. OEMs that didn't use our technologies, and there are people that are lining up to evaluate these are -- I'm really happy to see that a lot of new pins, right? So that's -- from my perspective, that's a good thing. Then in terms of cannibalization of existing technologies, well, there -- that could happen. If one of our existing customers decides that their next version of XYZ modality will use the Nanotube-based tubes. So be it. What we are going to do is to -- we have -- we're not at that stage to have set pricing in those other parameters, but the intent here is that this thing has very significantly different and new value proposition. So I would expect that this would be a net very positive thing for us to rather cannibalize ourselves and put out something that's technologically far superior and brings a lot of additional value and advantage. So it'll be that positive thing for us, even if it replaces our existing product line. Now we still have -- remember, we have that any customer that builds this into their new application still has a very large installed base of the other technologies, right, which we will continue to supply. So this becomes a new in a way a new revenue stream for us for the future. People -- but I guess what I mean is people are not going to retrofit this into an existing product line. It's going to be mainly a new application and a new revenue stream.

Right. No, I get it. I was just curious if you all anticipate any of the existing sockets when the equipment life cycle is up. And the new -- the new machine of the replacement would that incorporate? If and all, it incorporates the coal cathode technology and then there are ramifications for replacement cycle and all that. But I get your point. I guess a couple of follow-ups, if I could, for Sam. Sam, just following up on Anthony's question about the $20 million spread on the top line. I'm not sure I heard about your implicit expectations for the Medical versus Industrial. And the reason I ask is, if I look at the Medical or for that matter, Industrial, right? It isn't clear to me that things have bottomed out, especially on the Medical? But maybe you can sort of give us a flavor of how you are thinking in terms of this guidance? And the second part of my question, and I'll just plug that in now. Sam, you all mentioned about improvements. I was just making notes. You said streamlining existing manufacturing operations. Would this offset any gains from the Santa Clara shutdown? And as I was scribbling notes, what I wrote was about 1% to 2% incremental improvement in gross margins every quarter. So should I think that as we exit next year, we are probably talking gross margins, GAAP gross margins in the 31%, 35-ish-percent range? Or did I get that wrong?

Sure. So Suraj, I'll address your second question first here. So the bit where I talked about, improving manufacturing yields, warranty, et cetera. That's what I think you were referring to. That is incremental to Santa Clara related cost savings. That's one. I do -- and I just want to highlight that, that entire initiative for FY '21 will give us an improvement of one percentage points in gross margin. So I just want to make sure that it is not 1% every quarter. So the way gross margin is lining up here is that, this coming quarter, we have some benefits from Santa Clara shutdown. The following quarter, we would have full benefits from Santa Clara shutdown. And the following quarter, we would have some benefits coming in from our warranty and yields and some of those initiatives. And so that is how gross margin is ramping up. So if you take all of these numbers that I have highlighted here, I think you are going to see that you'll probably be looking at 32%, 33% type of gross margin by the time the year is ending as opposed to, say, around 33% as opposed to 35% that you mentioned. So that is one thing I want to highlight, and these are all non-GAAP numbers. And then coming back to your first question in terms of the top line and the variability around that, in that, Christmas season is coming in and COVID is also flaring up here and there. And this is why we are highlighting a $20 million range on the top line. It is possible that some facilities that our customers have, they may or may not be able to take our shipments. So, so far, there is no such news knowledge that we have, but we are just being cautious about it. And that is why we are giving this range. It's really the known unknown, so to say, at this point, which is what we are incorporating. But in general, our guidance, both for top line and also for our EPS guidance, we track towards the midpoint of the guidance.

Our next question is from Jim Sidoti with Sidoti & Company. Please proceed.

Good. Hope everyone's well. A couple of quick questions. You talked a little bit about the samples or prototypes that you have out in the field now with some of your old young customers, how long does it take for that to convert to orders?

First of all, if it's an existing technology like on existing tubes, existing detectors. Usually, that process is between 12 to -- somewhere between 12 and 24 months. Tubes take longer to integrate. Detectors are usually faster. This is a brand new technology. I think you're referring to our Nanotube based its brand new technology. It's something entirely different and new. So my expectation, Jim, is that it'll take a little longer. First of all, customers have to figure out what the existing can do for them, and they have ideas, then they have to do a lot of design work in redesigning of the modality and maybe a whole different way of thinking about what they're going to do. So it'll take some time. It'll take longer than normal. So we're not putting out anything out there in terms of our trajectory or time lines or revenue trajectories. All I'm saying is that it'll take two to three years for people to bring something to market with this technology.

And Sam, did you indicate whether you think you'll be cash flow neutral, cash flow positive next year? Or did you make any comments regarding that?

I did not make any comments, but I'm happy to provide some color on that. In terms of what our cost reductions in, I think at current levels, after this next quarter passes, we should be cash flow breakeven at these levels, essentially. Obviously, what all we are working on is to reduce costs and improve gross margin, and that should begin to play. But the bigger thing is we would like and we would and everybody does want recovery to happen. So we are nicely positioning ourselves from a cost structure and gross margin perspective to be able to receive the recovery well, and that should really improve the cash flow performance of the business.

Okay. And were there any additional staff reductions in the fourth quarter?

Yes. We -- early in fourth quarter -- sorry, not early, say around mid of fourth quarter, we had about 94 positions that were eliminated in the U.S. So that staff reduction was there. And then a little bit of -- there are a few other small actions that are still being work done. We haven't completed them fully, but they are a minor pace compared to what was done in July, August.

So is it fair to say the bulk of the staff reductions are -- you're past the bulk of the staff productions at this point?

Yes. I think that is very fair to say that bulk of the staff reductions are behind us at this time. That is fair to say.

So I mean if we look at the guidance you gave for the first quarter of fiscal '21, it sounds like you're putting comfortable with the level of the staff like we have right now. I know you don't want to go out and give long-term guidance, but is it fair to say that you think that things are pretty much bottomed out the last two quarters and that you don't expect the business to deteriorate significantly from the level it is right now?

So Jim, in general, we would never say never a green type of a thing, but in terms of our business, look, Q3, Q4, we have that it has stabilized. It has stabilized, although at a lower levels. We are just waiting for the recovery to happen. So I think your understanding or your interpretation is correct. We are not seeing any further degradation of our business. It seems to me we kind of bottomed out, maybe, say, July in terms of the month-to-month performance. And so that's where we are. But at the same time, major piece of recovery, we are still waiting for, and we will be ready for it as it comes. We are taking this time to get our cost structure and gross margin structure all in line. And as top line increases from where we are currently, it should provide a nice tailwind to our overall performance, including gross margin and operating margin.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you for your questions and participating in our earnings conference call for the fourth quarter and fiscal year 2020. A replay of this quarterly conference call will be available through December 1 and can be accessed at the Company's website or by calling 877-660-6853 from anywhere in the U.S. or by dialing 201-612-7415 from non-U.S. locations. The replay conference call access code is 13712445. Thank you, and goodbye.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.