Name: Varex Imaging Corp Q1 2025 Earnings Call
Start: 2025-02-06T22:01:00.000Z

Executive Summary

Q1 FY25 revenue was $199.8M (+5% y/y) with non-GAAP gross margin at 35% (+350 bps y/y), and non-GAAP EPS $0.07 versus $0.06 a year ago. Profitability was supported by favorable mix and productivity; gross margin also benefited ~130 bps from refunds of German customs duties and taxes .
Revenue landed below guidance midpoint due to holiday absenteeism causing ~$4–5M of shipments to slip into Q2; management sees “continued solid demand” into Q2 and guided Q2 revenue to $200–$215M and non-GAAP EPS to $0.05–$0.20, with gross margin 32–34% and OpEx ~$52M .
Industrial momentum continues: Varex announced ~$14M orders for newly launched high-energy cargo and vehicle inspection systems (VXP-6 Portal and VXM-6 Mobile), reinforcing its security screening opportunity and future service revenue tail .
Liquidity strengthened: cash, cash equivalents, and marketable securities reached $219M, plus $124M restricted cash from a December senior secured add-on to address the June 2025 convert maturity; net debt was ~$228M and leverage ~2.4x trailing EBITDA. Management indicated intent to fully pay down the convert, with final board decision pending .

What Went Well and What Went Wrong

What Went Well

Non-GAAP gross margin at 35% came in above expectations, driven by mix and productivity gains; CEO: “Favorable sales mix and productivity gains across both segments resulted in higher than expected profitability and earnings per share” .
Broad-based growth: Medical revenue $145M (+3% y/y) and Industrial revenue $55M (+10% y/y); China sales were 18% of total (~$35M), +7% y/y and +12% q/q, indicating early stabilization .
Strategic wins in security systems: additional ~$14M cargo inspection systems orders expected to be delivered within 12 months, underpinning long-term growth and future services mix accretion .

What Went Wrong

Fulfillment shortfall: Unscheduled holiday-related absences led to incomplete tube production and slipped shipments (~$4–5M) from Q1 to Q2, leaving revenue below the guidance midpoint .
Regional softness: EMEA revenue declined 9% y/y while destocking outside China continued to weigh on Medical in Q1 (though now “largely behind”), constraining near-term growth .
Near-term margin headwind in Industrial: ramping cargo systems are equipment-heavy and margin-decretive until service revenues accrue; management expects accretion once systems reach ~$10–$15M quarterly run-rate and the service mix builds 18–24 months after installations .

Financial Results

Metric	Q1 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$190.0	$206.0	$199.8
GAAP Diluted EPS ($)	$(0.01)	$(1.22)	$(0.01)
Non-GAAP Diluted EPS ($)	$0.06	$0.19	$0.07
GAAP Gross Margin %	30.1%	33%	34.3%
Non-GAAP Gross Margin %	31.0%	33%	34.5%
Non-GAAP Operating Margin %	5.2%	7%	7.2%
Adjusted EBITDA ($USD Millions)	$19.0	$23.0	$23.8

Segment revenue breakdown:

Metric	Q1 2024	Q4 2024	Q1 2025
Medical Revenue ($USD Millions)	$139.9	$144.0	$144.6
Industrial Revenue ($USD Millions)	$50.1	$61.0	$55.2

Operating and balance sheet KPIs:

Metric	Q4 2024	Q1 2025
Cash, Cash Equivalents & Marketable Securities ($USD Millions)	$213	$219
Restricted Cash ($USD Millions)	N/A	$124
Gross Debt ($USD Millions)	$447	$571
Net Debt ($USD Millions)	$234	$228
Cash from Operations ($USD Millions)	$26	$10
DSO (Days)	70	68
DOI (Days)	174	209
DPO (Days)	39	49
Adjusted EBITDA ($USD Millions)	$23.0	$23.8

Notes:

Gross margin benefited ~130 bps from German customs duty refunds in Q1 FY25 .
Non-GAAP reconciliations include intangible amortization, restructuring, and other non-operational items; see tables for detailed adjustments .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenues	Q2 FY25	N/A	$200M–$215M	N/A
Non-GAAP EPS	Q2 FY25	N/A	$0.05–$0.20	N/A
Non-GAAP Gross Margin %	Q2 FY25	N/A	32%–34%	N/A
OpEx ($USD Millions)	Q2 FY25	N/A	~$52	N/A
Interest & Other Expense, net ($USD Millions)	Q2 FY25	N/A	$9–$10	N/A
Tax Rate %	Q2 FY25	N/A	~22%	N/A
Diluted Shares (Millions)	Q2 FY25	N/A	~41	N/A
Revenues	Q1 FY25	$195M–$215M	Actual: $199.8M	In range
Non-GAAP EPS	Q1 FY25	$(0.05)–$0.10	Actual: $0.07	Above mid-point
Non-GAAP Gross Margin %	Q1 FY25	~31%	Actual: 34.5%	Raised vs guide
OpEx ($USD Millions)	Q1 FY25	~$53 (incl. extra week, +$1M Micro‑X)	Actual: $54.6 (non-GAAP)	Slightly above guide
Interest & Other Expense, net ($USD Millions)	Q1 FY25	$7–$8	Actual: $8.7 (GAAP)	Slightly above guide
Tax Rate %	Q1 FY25	~22%	Actual: ~46% GAAP (tax $2.6 on $2.5 pretax)	Higher than guide (GAAP)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2: Q3 FY24)	Previous Mentions (Q-1: Q4 FY24)	Current Period (Q1 FY25)	Trend
China demand & stimulus	Softness persisted; slight sequential uptick; anticorruption campaign extended; limited visibility	Stable at lower levels (~$31M in Q4); cautious on stimulus timing	18% of sales (~$35M), +7% y/y, +12% q/q; still cautious, not attributing to stimulus	Improving sequentially, still uncertain
Destocking normalization	Expect subsiding in early calendar 2025	Expected largely behind by Q2 FY25	“Largely behind us” outside China; order rates improving	Improving
Cargo inspection (systems + components)	Strong demand; cargo equipment mix pressured margins	Continued strength; completed installations; building channels	Announced ~$14M new systems orders; delivery ~12 months; near-term equipment margin below corporate, services accretive later	Expanding orders; margin accretion later
Photon counting detectors	Long-term focus; early industrial uptake; medical adoption slower	Target ~$150M revenue by FY29; expanding applications	Industrial-led adoption; broad OEM interest at RSNA; medical timelines longer	Building momentum
India manufacturing expansion	Expanding presence and footprint; cost leadership	Production start Q3 FY25 for components; two factories; capex ~$25–$30M in FY25	On track; detectors first this fiscal year; tubes following year; global supply strategy	On track
Tariffs/macro	Monitoring impacts; competition from APAC detectors	Unknown impact; diversified manufacturing mitigates risk	Monitoring recent announcements (US/China/Canada/Mexico); no significant direct impact expected yet	Watchful

Management Commentary

Strategy and execution: “Demand in the first quarter was solid… Favorable sales mix and productivity gains across both segments resulted in higher than expected profitability and earnings per share” (Sunny Sanyal, CEO) .
Margins and drivers: “Gross margin of 35%… higher than anticipated… primarily the result of favorable product sales mix and productivity gains… also benefited by approximately 130 basis points from refunds of German customs duties and taxes previously paid” (Sunny Sanyal) .
Security systems expansion: “We have received additional orders… valued at approximately $14 million… portals and mobile systems… expected to be installed over the next 12 months” (Sunny Sanyal) .
China and destocking: “We saw an order intake uptick… fairly widespread… most of this phenomenon is behind us” (Sunny Sanyal) .
Tariffs: “At this time… we do not expect any significant direct impact… However, additional tariffs or retaliatory actions… could change” (Sunny Sanyal) .

Q&A Highlights

China revenue and trajectory: China contributed ~~18% of sales (~~$35M); improvements are encouraging but not stimulus-driven; mix heavily Medical tubes; local-for-local vs export roughly 50/50 and volatile by quarter .
Shipment delays: Holiday-related absenteeism led to ~$4–5M of tube shipments slipping; impact spread across a few orders, not a single large order .
Cargo systems margin profile and scaling: Equipment margins below corporate near-term; services accretive 18–24 months post-installation; accretive at ~$10–$15M quarterly run-rate; delivery on the $14M order expected within 12 months .
Operating expenses: Non-GAAP OpEx expected to decline to ~$52M in Q2 (from $54.6M in Q1), with extra week and final $1M Micro‑X payment in Q1; JV expense elevated in Q1 .
Capital structure: $124M restricted cash raised via senior secured add-on to address June convert; intent to pay down fully (board decision pending); gross debt $571M; net debt leverage ~2.4x .

Estimates Context

S&P Global/Capital IQ Wall Street consensus estimates were unavailable at the time of this analysis due to access limits; we were unable to retrieve EPS and revenue consensus values for Q1 FY25 and Q2 FY25 via SPGI.
Directionally, Q1 results were within revenue guidance and non-GAAP EPS of $0.07 exceeded the guidance midpoint, with non-GAAP gross margin outperforming guidance (~31%) by ~350 bps, implying potential upward pressure on near-term margin and EPS expectations contingent on future consensus updates .

Key Takeaways for Investors

Profitability beat driven by mix/productivity and a one-time customs duty refund; expect Q2 gross margin normalization to 32–34% as refunds roll off and systems mix evolves .
Industrial security systems are emerging as a multi-year growth vector; near-term equipment-heavy mix will dilute margins until service revenue accrues, offering later accretion .
China is stabilizing and improved sequentially; management remains prudent and is not embedding stimulus-driven demand, reducing forecast risk from macro policy uncertainty .
Destocking largely behind outside China; improving orders should aid volumes and scale, supportive of margin recovery through FY25 .
Liquidity and de-risking: $219M cash/securities plus $124M restricted cash and intent to retire the convert mitigate balance sheet risk; monitor board decisions and timing .
Watch inventory build (DOI up to 209 days) tied to demand outlook; execution on security systems deliveries and India ramp will be key to working capital normalization .
Tariffs remain a swing factor; diversified manufacturing (China/Germany/India) and local-for-local strategy provide resilience, but retaliatory actions could pressure export margins .

Citations: Earnings press release and 8-K ; Q1 FY25 earnings call ; Cargo systems PR ; Prior quarters’ calls .

Varex Imaging Corp (VREX)·Q1 2025 Earnings Summary