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VI

Varex Imaging Corp (VREX)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 delivered a clean beat vs consensus: revenue $213.0M vs $206.8M*, and non-GAAP diluted EPS $0.26 vs $0.14*; gross margin expanded to 36% on volume/mix and productivity gains .
  • Management reduced near-term outlook due to China’s 125% retaliatory tariffs; Q3 FY25 guidance: revenue $180–$200M and non-GAAP EPS −$0.05 to $0.10, with gross margin expected at 32–33% and China sales assumption ~$10M .
  • Segment performance was balanced: Medical $153.8M (+3% YoY), Industrial $59.1M (+3% YoY); APAC grew +8% YoY on China strength in Q2 before the tariff-induced pause; backlog stood at $316M at quarter end .
  • Positive strategic developments: $25M cargo inspection systems orders add to $14M booked last quarter; photon counting progress with leading OEMs; Canon’s Aquilion RISE CT uses Varex tube .
  • Capital structure actions: company plans to repay $200M convertible notes at June 2025 maturity; restricted cash of $125M earmarked; net debt leverage ~2.1x TTM adjusted EBITDA .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion: non-GAAP gross margin reached 36% (vs 33% YoY) on improved volume, favorable mix, and productivity; CEO: “Higher volumes, improved sales mix and productivity gains drove margin expansion, profitability and cash generation” .
  • Balanced segment growth: Medical revenue $153.8M (+3% YoY) and Industrial $59.1M (+3% YoY); modalities including fluoroscopy, oncology, mammography, dental ran above trend; CT stable; industrial demand strong in security screening and aerospace/auto NDT .
  • Order wins and product progress: $25M cargo systems orders (in addition to $14M last quarter); photon counting detector integration advancing with multiple OEMs; Canon’s new Aquilion RISE CT features Varex tube .

What Went Wrong

  • China tariff shock: 125% tariff on U.S. products led customers to pause deliveries; Q3 impact modeled as ~$20M sales reduction and 150–200 bps GM headwind; EPS effect −$0.15 to −$0.20 in Q3 .
  • Gross margin tariff sensitivity outside China: inputs sourced globally face tariffs of 10–145%; company is passing tariff dollars to customers but expects 150–200 bps GM impact net of mitigation .
  • Radiography softness: radiography was below trend in Q2; APAC strength included China, but China declined 11% sequentially despite +25% YoY, foreshadowing the Q3 pause .

Financial Results

Consolidated Results vs Prior Periods

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$206.2 $205.7 $199.8 $212.9
GAAP Diluted EPS ($)$0.03 $0.19 ($0.01) $0.17
Non-GAAP Diluted EPS ($)$0.16 $0.19 $0.07 $0.26
GAAP Gross Margin (%)32% 33% 34% 36%
Non-GAAP Gross Margin (%)33% 33% 35% 36%
Operating Income ($USD Millions, GAAP)$8 $11 $11.2 $22.1
Adjusted EBITDA ($USD Millions)$24.8 $23.8 $23.8 $34.3

Actual vs Wall Street Consensus (S&P Global)

MetricQ2 2025 ActualQ2 2025 ConsensusSurprise
Revenue ($USD Millions)$212.9 $206.8*+$6.1M; +2.9% (beat)
Primary EPS (Non-GAAP, $)$0.26 $0.14*+$0.12 (beat)

Values marked with * retrieved from S&P Global.

Segment Revenue Breakdown

Segment ($USD Millions)Q2 2024Q1 2025Q2 2025
Medical$148.8 $144.6 $153.8
Industrial$57.4 $55.2 $59.1
Total$206.2 $199.8 $212.9

Geographic Revenue

Geography ($USD Millions)Q2 2024Q4 2024Q1 2025Q2 2025
Americas$68 $66 $65 $69
EMEA$72 $72 $60 $72
APAC$66 $68 $75 $72

Operating Expenses and Cash Flow KPIs

KPIQ2 2024Q1 2025Q2 2025
GAAP OpEx ($USD Millions)$58.1 $57.3 $54.6
Non-GAAP OpEx ($USD Millions)$54.5 $54.6 $51.4
Cash Flow from Operations ($USD Millions)$3 $10 $17
DSO (days)67 68 62
DOI (days)185 209 190
DPO (days)45 49 47
Backlog ($USD Millions)——$316

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q2 FY25$200–$215M —N/A
Non-GAAP Diluted EPS ($)Q2 FY25$0.05–$0.20 —N/A
Revenue ($USD Millions)Q3 FY25—$180–$200M; assumes ~$10M China Introduced; cautious due to tariffs
Non-GAAP Diluted EPS ($)Q3 FY25—−$0.05 to $0.10 Introduced; reflects tariff impact
Gross Margin (%)Q3 FY25—32–33% (includes 150 bps tariff impact) Introduced
Operating Expenses (Non-GAAP, $M)Q3 FY25—~$51M Introduced
Interest & Other Expense (net, $M)Q3 FY25—$9–$10M Introduced
Tax Rate (%)Q3 FY25—~25% Introduced
Diluted Share Count (Non-GAAP, M)Q3 FY25—~41M Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24 and Q1 FY25)Current Period (Q2 FY25)Trend
Tariffs/MacroQ1: headwinds from China destocking subsiding; guidance healthy 125% China tariffs trigger pause; Q3 hit ~$20M sales and 150–200 bps GM; mitigation in-flight Deteriorated near term
Supply Chain/LocalizationOngoing regionalization; inventory DOIs elevated Mitigation via passing tariff dollars, supplier redirection, localization, bonded/free-trade zone options Accelerating actions
Product Performance (Medical)CT steady; modalities improving; cargo orders $14M Record Medical gross margin; fluoroscopy/oncology/mammo/dental above trend; radiography below Mixed positive
Industrial & Security SystemsStrength in cargo/security; +6% YoY Industrial in Q3 FY24 $25M cargo orders, installations over 12–18 months; long-term service revenue expected Building backlog; margin accretive later
Photon Counting/TechnologyQ1 progress with OEMs; cargo portfolio launch Two OEMs in active R&D, broader pipeline; Thor linear array showcased for high-speed 3D Advancing adoption
Regulatory/Legal (China investigations)Not highlightedMOFCOM investigations on CT tubes; company cooperating; no current sales impact Monitoring, neutral near term
Capital StructureQ4/Q1 debt increase; restricted cash raised Plan to repay $200M converts in June; net debt leverage ~2.1x TTM Deleveraging post-repayment

Management Commentary

  • CEO: “Demand remained strong… Higher volumes, improved sales mix and productivity gains drove margin expansion, profitability and cash generation” .
  • CEO: “Due to high tariffs imposed by China on U.S. products, several of our China-based customers have paused purchases, causing us to reduce our outlook for the short term” .
  • CEO: Highlighted Canon’s Aquilion RISE CT using Varex tube; photon counting detectors progressing with multiple OEMs; industrial Thor detector showcased .
  • CFO: Passing tariff charges to customers without markup; working rapidly on operational strategies (bonded/free trade zones) to mitigate customer burden .
  • CFO: Guidance assumptions spelled out (GM 32–33%, OpEx ~$51M, interest $9–$10M, tax ~25%, diluted shares ~41M); Q3 EPS headwind −$0.15 to −$0.20 from tariffs .

Q&A Highlights

  • China exposure: Pause concentrated in high-end CT tubes shipped from the U.S.; customers bleeding down 60–90 days inventory while awaiting potential exemptions; Varex accelerating local manufacturing options in China .
  • Cargo systems cadence: $25M order (plus prior $14M) ships over 12–18 months; deliveries paced by civil works and export licensing; margin accretion expected when installed base moves to service contracts (~2 years out) .
  • India plant: Activities on plan; evaluating accelerated spend and supplier qualification to aid tariff mitigation and regionalization .
  • Interest expense post converts: Expected annual interest expense ~$29–30M; debt post-paydown ~ $370M .
  • Recovery timing: If near-term tariff relief occurs, pull-ins are possible; otherwise, mitigation plans aim for recovery starting Q4 (plan A) or the following quarter (plan B) .

Estimates Context

  • Q2 FY25 beat: Revenue $212.9M vs $206.8M consensus*, EPS $0.26 vs $0.14 consensus*; adjusted EBITDA outperformed company’s prior-year level; margin expansion broad-based .
  • Q3 FY25 guidance implies softer EPS midpoint vs consensus 0.04* due to tariffs; revenue guide midpoint ($190M) broadly inline with consensus $190.3M*; Street models likely to trim near-term EPS and margin assumptions given stated 150–200 bps GM impact and China sales pause .

Values marked with * retrieved from S&P Global.

Consensus Details (S&P Global)

MetricQ2 2024Q4 2024Q1 2025Q2 2025Q3 2025FY 2025FY 2026
Revenue Consensus Mean ($USD Millions)205.2*199.4*202.2*206.8*190.3*835.0*863.7*
Primary EPS Consensus Mean ($)0.21*0.09*0.04*0.14*0.04*0.68*0.81*
Revenue - # of Estimates4*5*4*5*5*5*5*
Primary EPS - # of Estimates3*4*3*4*4*4*4*

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Q2 beat driven by mix/volume in Medical and sustained Industrial demand; margins are structurally improving with productivity gains .
  • Near-term risk: China tariffs create a temporary air pocket in Q3 (lower sales, 150–200 bps GM headwind); mitigation is active and multifaceted; management expects recovery to start by Q4 if Plan A executes .
  • Strategy intact: Cargo systems orders ($25M new; $39M cumulative) build future service revenue; photon counting engagement with top OEMs positions Varex for medium-term growth .
  • Capital structure simplification: Repayment of $200M converts lowers dilution risk and overall debt complexity; monitor net interest trajectory (~$29–30M annual) and leverage (~2.1x TTM EBITDA) .
  • Estimate implications: Expect Street to lower Q3 EPS/margins; medium-term numbers could normalize if China mitigation succeeds; monitor tariff headlines and exemption outcomes .
  • Watch modalities: Continued CT strength and improved fluoroscopy/oncology/mammo/dental are supportive; radiography softness bears watching .
  • Trading lens: The guidance cut tied to China tariffs is the core catalyst; any signs of tariff relief or successful localization could drive estimate revisions higher and multiple expansion.
Bolded beats/misses: Q2 FY25 revenue and EPS were beats vs consensus*; Q3 FY25 EPS guidance midpoint likely below consensus* due to tariffs.

Sources
Press release and 8-K (Q2 FY25): revenue/margins/EPS, segment detail, guidance, cash flow, non-GAAP reconciliations .
Earnings call transcript: modality performance, tariff impacts, mitigation plans, regional trends, backlog, outlook assumptions, Q&A details .
Earnings slides: geographic mix, quarterly metrics, KPIs, guidance assumptions, reconciliations .
Other press release (cargo systems): $25M orders .
Prior quarters: Q1 FY25 press release/slides and Q3 FY24 press release for trend context .