Executive Summary

Q3 FY25 revenue was $203.0M, above the high-end of guidance, with non-GAAP EPS of $0.18 and GAAP diluted EPS of $(2.15) driven by a $93.9M non-cash goodwill impairment .
Medical revenue was $142.1M (-4% YoY) and Industrial revenue was $60.9M (+1% YoY); non-GAAP gross margin rose to 34% from 32% YoY, supported by favorable mix and lower-than-expected tariff costs .
Q4 FY25 guidance: revenue $210–$230M and non-GAAP EPS $0.10–$0.30; management expects FY25 sales growth of ~3% and cited continued cargo systems adoption and normalized China demand as catalysts .
Versus S&P Global consensus, Q3 revenue and EPS materially beat: $203.0M vs $190.3M*, $0.18 vs $0.035*; EBITDA was modestly above $20.0M vs $19.7M* (estimate) (see tables; values retrieved from S&P Global).
Narrative drivers: tariff volatility eased in China (to ~55% mid-quarter) enabling resumed shipments, strong Industrial/cargo demand and product mix lifted gross margin, while the goodwill impairment dominated GAAP results .

What Went Well and What Went Wrong

What Went Well

Revenue of $203.0M was above the high-end of guidance; non-GAAP gross margin of 34% and EPS of $0.18 exceeded internal expectations as mix improved and tariff headwinds were lower than anticipated .
Industrial strength: year-to-date cargo systems orders exceeded $55M with additional $17M orders announced in July; management highlighted vertical integration and ramping UK systems capacity .
China stabilized: customers resumed deliveries after tariffs fell to ~55%, with sales to China ~15% of total and up ~4% YoY in Q3; management noted paused investigations by China’s MOFCOM and steady demand backdrop .

Management quotes:

“Third quarter revenue of $203 million was above the high-end of our guidance… Industrial segment remained strong… Medical revenue in China was better than our expectations.” — CEO Sunny Sanyal .
“Gross margin benefited from lower than previously anticipated impact from tariff related expenses… non-GAAP EPS of $0.18.” — CFO Shubham Maheshwari .
“We have a well established services team… we are prepared to expand these capabilities as the business grows.” — CEO Sunny Sanyal (cargo systems ramp) .

What Went Wrong

A $93.9M goodwill impairment tied to market cap decline drove GAAP operating loss of $(80.7)M and GAAP diluted EPS of $(2.15) .
Tariffs pressured margins: Q4 gross margin guide (32–33%) reflects 100–150 bps degradation from tariffs and lower-margin cargo equipment mix .
Industrial gross margin headwind: equipment-heavy shipments reduce segment margin near-term; service revenue accretion expected ~18–24 months post-installation .

Financial Results

Consolidated Results vs Prior Quarters

Metric	Q1 FY25	Q2 FY25	Q3 FY25
Revenue ($USD Millions)	$199.8	$212.9	$203.0
GAAP Gross Margin %	34.3%	36.0%	33.3%
Non-GAAP Gross Margin %	34.5%	36.3%	33.5%
GAAP Operating Margin %	5.6%	10.4%	(39.8)%
Non-GAAP Operating Margin %	7.2%	12.2%	8.2%
GAAP Diluted EPS ($)	$(0.01)	$0.17	$(2.15)
Non-GAAP Diluted EPS ($)	$0.07	$0.26	$0.18
Cash from Operations ($USD Millions)	$10	$17	$8

Q3 FY25 Actuals vs S&P Global Consensus

Metric	Consensus*	Actual	Surprise
Revenue ($USD Millions)	190.3*	203.0	+12.7*
Primary EPS ($)	0.035*	0.18	+0.145*
EBITDA ($USD Millions)	19.7*	20.0	+0.3*

Values retrieved from S&P Global.

Segment Breakdown

Segment Revenue ($USD Millions)	Q3 FY24	Q2 FY25	Q3 FY25	YoY Change	QoQ Change
Medical	$148.6	$153.8	$142.1	(4)%	(7.6)*
Industrial	$60.5	$59.1	$60.9	+1%	+3.0*
Total	$209.1	$212.9	$203.0	(3)%	(4.6)*

Note: YoY changes per company disclosure; QoQ changes computed from disclosed figures.

KPIs and Balance Sheet Trends

KPI	Q1 FY25	Q2 FY25	Q3 FY25
China Revenue (% of Total)	18%	15%	15%
Days Sales Outstanding (DSO)	68	62	61
Days of Inventory (DOI)	209	190	201
Cash, Cash Equivalents & Marketable Securities ($USD Millions)	$219	$226	$153
Gross Debt ($USD Millions)	$571	$570	$370
Adjusted EBITDA ($USD Millions)	$23.8	$34.3	$28.9

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	Q4 FY25	N/A	$210–$230	New
Non-GAAP Diluted EPS ($)	Q4 FY25	N/A	$0.10–$0.30	New
Non-GAAP Gross Margin %	Q4 FY25	N/A	32–33%	New
Non-GAAP Operating Expenses ($USD Millions)	Q4 FY25	N/A	~50	New
Interest & Other Expense, Net ($USD Millions)	Q4 FY25	N/A	$9–$10	New
Tax Rate (%)	Q4 FY25	N/A	~25%	New
Non-GAAP Diluted Shares (Millions)	Q4 FY25	N/A	~42	New
FY25 Sales Growth (%)	FY25	N/A	~3%	New

Reference: Q3 guidance issued in Q2 (for context) was revenue $180–$200M and non-GAAP EPS −$0.05 to $0.10 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
China tariffs & demand	Q1: China 18% of sales; destocking largely behind; tariff impact uncertain . Q2: 125% retaliatory tariff expected to reduce Q3 China sales by ~$20M; gross margin impact 150–200 bps; mitigation underway (bonded warehouse, localization) .	Tariffs dropped to ~55% mid-quarter, deliveries resumed; investigations paused; China ~15% of sales; stable demand .	Improving stability; lower immediate tariff burden; continued mitigation.
Industrial/cargo systems	Q1: Announced ~$14M orders; outlined systems portfolio and long-run service model . Q2: $25M portal orders; backlog fulfillment cadence 12–18 months .	Additional $17M in orders; YTD cargo systems orders >$55M; ramping UK systems production; service accretion expected ~18–24 months post-install .	Pipeline robust; building capacity; near-term margin drag, longer-term accretive via service.
Gross margin/mix	Q1: 35% non-GAAP GM (benefit ~130 bps German duty refund) . Q2: 36% non-GAAP; one-time German refund ~200 bps; guidance highlighted 150–200 bps tariff impact .	Q3: 34% non-GAAP GM above high end; Q4 guide 32–33% reflecting tariffs and cargo mix .	Normalizing off Q2 one-time; modest pressure near-term from tariffs/mix.
Photon counting	Q1: Active OEM engagements; industrial adoption earlier; 2029 revenue target discussed . Q2: Two OEMs active; industrial progress; commercialization timeline reaffirmed .	Progress with medical OEM integrations; THOR industrial detector GA; 2029 timeline intact; expected ~$150M by 2029 (2/3 medical) .	Steady progress; medical commercialization multi-year; industrial revenue building.
India manufacturing	Q1: Plan to begin radiographic component production in FY25; global supply chain resiliency . Q2: Accelerating India suppliers to mitigate tariffs .	Expect radiographic detectors production around FY year-end; tariff mitigation via localization and bonded warehouse initiatives .	On track; supports cost competitiveness and tariff mitigation.
Capital structure	Q1/Q2: Intent to repay $200M convert in June; restricted cash earmarked .	Convertible notes paid off; gross debt ~$370M; targeting $300–$350M over time .	Deleveraging; reduced interest burden.

Management Commentary

Strategic demand outlook: “We expect a healthy demand environment for both Medical and Industrial segments to drive sales growth of approximately 3% for fiscal year 2025.” — CEO Sunny Sanyal .
China dynamics: “Once the tariffs dropped to around 55%, customers resumed their delivery requests… we were able to accommodate their shipment needs.” — CEO Sunny Sanyal .
Margin drivers: “Gross margin benefited from lower than previously anticipated impact from tariff related expenses and favorable product sales mix.” — CFO Shubham Maheshwari .
Cargo systems strategy: “We are a vertically integrated systems provider… ramping systems production in the UK and investing in demonstration capabilities in the UK and US.” — CEO Sunny Sanyal .
Capital structure: “We paid off our $200,000,000 convertible notes, which reduces our overall debt burden and simplifies our capital structure.” — CEO Sunny Sanyal .

Q&A Highlights

China outlook: Management expects China demand to remain “normal” absent external shocks; Q3 China sales were ~15% of total and up ~4% YoY .
Gross margin guide: Q4 gross margin (32–33%) reflects 100–150 bps tariff impact and lower-margin cargo equipment mix; Q2’s ~200 bps benefit from German duty refunds was one-time .
Photon counting commercialization: Two medical OEMs now in design integration; industrial shipments ongoing; 2029 timeline unchanged with ~$150M revenue target (~2/3 medical) .
Debt and interest: Gross debt ~$370M post convert repayment; guided interest & other expense net at $9–$10M for Q4; targeting debt in $300–$350M range longer term .
CapEx/service accretion: Annual CapEx ~$25–$30M including UK investments; cargo services expected to be margin accretive as installed base exits warranty (~18–24 months) .

Estimates Context

Q3 FY25 beat on both revenue and EPS: $203.0M vs $190.3M* revenue, $0.18 vs $0.035* EPS, and EBITDA $20.0M vs $19.7M*; magnitude of beats suggests upward revisions to near-term EPS and revenue trajectories, though Q4 GM guide implies estimate moderation on margin assumptions (see tables; values retrieved from S&P Global).
With Q4 revenue guide $210–$230M and EPS $0.10–$0.30, consensus may need to reflect lower gross margin (32–33%) and tariff-driven OI&E headwinds offset by stronger Industrial shipments .

Key Takeaways for Investors

Strong operational beat: Revenue and non-GAAP EPS exceeded consensus and internal guidance, driven by Industrial strength and improved mix; monitor Q4 for continued execution even with lower GM guide .
GAAP volatility is non-cash: The $93.9M goodwill impairment drove GAAP losses; focus on non-GAAP margins, cash generation, and deleveraging trajectory post convert repayment .
Cargo systems as medium-term growth/margin lever: Orders >$55M YTD with ramping deployments; expect margin accretion as service contracts kick in ~18–24 months after installs .
China risk stabilizing: Tariff normalization mid-quarter enabled resumed shipments; watch for policy changes, exemptions, and continued mitigation (localization/warehousing) .
Photon counting optionality: Industrial commercialization underway (THOR), with medical OEM integrations progressing; multi-year path to 2029 revenue targets .
Q4 setup: Revenue guide implies sequential growth; margin pressure from tariffs and mix is the key swing factor; any further tariff relief or stronger mix could drive upside .
Balance sheet improving: Lower gross debt and solid adjusted EBITDA (~$28.9M in Q3) support refinancing positioning and potential interest expense decline over time .

Varex Imaging Corp (VREX)·Q3 2025 Earnings Summary