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Varex Imaging Corp (VREX)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 revenue was $228.9M, up 11% YoY and above S&P Global consensus ($219.3M); non-GAAP EPS was $0.37 vs consensus $0.18, driven by stronger CT tube demand in Medical and record Industrial revenues; GAAP EPS was $0.29 . Revenue and EPS materially beat estimates, with non-GAAP gross margin at 34% (above guidance high-end), aided by volume and favorable mix .
  • Segment mix: Medical $152.1M (+5% YoY) and Industrial $76.8M (+25% YoY); Industrial contributed 34% of total – the highest quarterly contribution to date .
  • Q1 FY26 guidance: revenue $200–$215M and non-GAAP EPS $0.05–$0.25; additional parameters include non-GAAP GM 32–34%, OpEx ~$52M, interest/other $8–$9M, tax ~23%, diluted shares ~42M .
  • Catalysts: paused MOFCOM anti-dumping and industry investigations in China, stronger projected China orders for 2026, and continued momentum in cargo systems (>$55M FY25 orders, >15 systems shipped) .

What Went Well and What Went Wrong

What Went Well

  • Industrial posted its highest revenue quarter ever ($77M) and achieved unusually strong margins due to higher service mix on the LINAC installed base; management targets long-term industrial margins returning to the high-30s as service mix rises .
  • Medical benefited from global CT tube demand above trend; non-GAAP EPS increased to $0.37 from $0.19 in Q4 FY24, and non-GAAP gross margin rose YoY to 34% .
  • Strategic initiatives advanced: photon counting CT progress (Technical University of Munich demonstrator), detectors ramp in India, and scaling cargo systems capacity in Europe/U.S. .

What Went Wrong

  • Tariffs remained a headwind, reducing gross margin by ~100–150 bps; management is passing tariff costs through and pursuing supply-chain regionalization, but near-term mix (hardware vs. service) and tariffs pressured margins .
  • Customer concentration: top 10 customers were 52% of FY25 revenue; while within historical range, it remains a structural risk (mostly medical customers) .
  • FY25 GAAP optics were impacted by a non-cash goodwill impairment ($93.9M in Q3), resulting in FY25 GAAP operating margin of -3% and GAAP net loss per share of $(1.70) .

Financial Results

Headline metrics (quarterly progression; oldest → newest)

MetricQ2 FY25Q3 FY25Q4 FY25
Revenue ($M)$213.0 $203.0 $228.9
GAAP Gross Margin %36% 33% 34%
Non-GAAP Gross Margin %36% 34% 34%
GAAP Operating Margin %10.3% (GAAP Op. inc. $22M / rev $213M) (39.8)% 8.6%
Non-GAAP Operating Margin %12% 8.2% 10.1%
GAAP Diluted EPS ($)~$0.12 (GAAP net $7M / ~51M shares) $(2.15) $0.29
Non-GAAP Diluted EPS ($)$0.26 $0.18 $0.37
Adjusted EBITDA ($M)$34.0 $28.9 $34.9
Cash from Operations ($M)$17 $8 $8

Notes:

  • Q4 non-GAAP GM is disclosed as 34%; reconciliation table indicates 34.2% .
  • Q3 GAAP margins reflect the $93.9M goodwill impairment .

Year-over-year comparison (Q4 FY25 vs. Q4 FY24)

MetricQ4 FY24Q4 FY25
Total Revenue ($M)$205.7 $228.9
Medical Revenue ($M)$144.4 $152.1
Industrial Revenue ($M)$61.3 $76.8
GAAP Gross Margin %32.6% 34.0%
Non-GAAP Gross Margin %32.9% 34.2%
GAAP Operating Margin %5.3% 8.6%
Non-GAAP Operating Margin %7.0% 10.1%
GAAP Diluted EPS ($)$(1.25) $0.29
Non-GAAP Diluted EPS ($)$0.16 $0.37

Segment revenue breakdown (quarterly; oldest → newest)

Segment ($M)Q2 FY25Q3 FY25Q4 FY25
Medical$154.0 $142.1 $152.1
Industrial$59.0 $60.9 $76.8
Total$213.0 $203.0 $228.9

KPIs and operational detail

  • Regional performance in Q4: Americas +9% YoY, EMEA +16%, APAC +8%; China 14% of revenue ($32M) .
  • Working capital Q4: DSO 62 days (+1 day QoQ), inventory $299M with days down 21 to 180; AP decreased 5 days to 42 .
  • Debt and leverage: gross debt ~$370M; net debt ~$215M; net debt/TTM adjusted EBITDA ~1.8x, lowest since becoming public .

Actual vs. S&P Global Consensus (Q4 FY25)

MetricActualConsensus
Revenue ($M)$228.9 $219.3*
Non-GAAP EPS ($)$0.37 $0.1825*

Values with an asterisk (*) retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 FY25$210–$230 Actual: $228.9 Above mid; near high-end
Non-GAAP EPS ($)Q4 FY25$0.10–$0.30 Actual: $0.37 Above high-end
Revenue ($M)Q1 FY26n/a$200–$215 New
Non-GAAP EPS ($)Q1 FY26n/a$0.05–$0.25 New
Non-GAAP Gross Margin %Q1 FY26n/a32–34% New
Non-GAAP OpEx ($M)Q1 FY26n/a~52 New
Interest & Other Expense ($M, net)Q1 FY26n/a$8–$9 New
Tax Rate (%)Q1 FY26n/a~23 New
Non-GAAP Diluted Shares (M)Q1 FY26n/a~42 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 FY25)Current Period (Q4 FY25)Trend
Tariffs & supply chainAnticipated Q3 sales impact in China (~$20M) and 150–200 bps GM headwind; mitigation via passing tariffs, bonded warehouses, regional manufacturing Tariff headwind ~100–150 bps persists; continuing to pass tariff costs; progress on regionalization (India, local-for-local) Improving mitigation; residual headwind
China demand & MOFCOMChina sales stabilized by Q3; two investigations launched; destocking ended; mitigation underway Investigations paused indefinitely; customers project stronger orders for 2026; modeling China ~flat in FY26 Stabilizing; medium-term constructive
Photon counting (PC)Two medical OEMs progressing; industrial THOR linear array launched; long-term target ~$150M by 2029 (2/3 medical) TUM demonstrator milestones; plan to showcase in 2026; additional OEM engagements underway Execution continues; pipeline building
India manufacturingDetector ramp by fiscal year-end; enables value-tier competitiveness; multi-sourcing strategy Vizag detector ramp under way; tubes factory ~12–15 months from production; modest GM tailwind from transferred products Capacity scaling; cost competitiveness
Cargo systemsOrders $14M (Q2) and $25M (Q2); backlog >$55M; typical 12–18 mo implementation; services accretive after warranty Shipped >15 systems in FY25; scaling capacity; new mobile and rail deployments; strong pipeline Accelerating shipments; future service tailwind
AI/technologyvRad platform commercialized; AI-enabled workflows for radiology practices Continued emphasis on innovation and workflow in imaging; ambient dictation demo at RSNA Expanding AI-enabled offerings

Management Commentary

  • “Fourth quarter revenue reached $229 million, up 11% year-over-year and at the high-end of our expectations…driven primarily by global CT tube sales in our Medical segment, while sustained momentum in our cargo systems business drove a 25% increase in Industrial segment sales compared to last year.” — Sunny Sanyal, CEO .
  • “Non-GAAP gross margin of 34% in the Fourth Quarter was above the high end of our guidance, benefiting from the higher volume and favorable product sales mix in the quarter.” — Sunny Sanyal .
  • “Adjusted EBITDA for the quarter was $35 million…our net debt leverage ratio was approximately 1.8 times adjusted EBITDA…lowest level we have reported as a public company.” — Sam Maheshwari, CFO .
  • “We were recently informed by MOFCOM that investigations regarding CT tube pricing have been paused indefinitely.” — Sunny Sanyal .
  • “Looking beyond photon counting, we expect nanotube-based cold emitters to enable a new generation of X-ray sources…we plan to provide more visibility…in fiscal 2026.” — Sunny Sanyal .

Q&A Highlights

  • Customer concentration and mix: Top 10 customers ~52% of FY25 revenue, mostly medical; company avoids disclosing split to protect commercial sensitivity .
  • Industrial margins: Q4 margin uplift driven by an unusually high proportion of service revenue on LINAC installed base; long-term margin tailwind expected as shipped hardware transitions into service .
  • Revenue drivers and lumpy shipments: Cargo systems units ($1–$2M per system) can swing quarterly totals; Q4 beat was demand-driven across both segments, not pull-ins .
  • China & tariffs: Tariff impact ~100–150 bps to GM; MOFCOM investigations paused; modeling China ~flat for FY26 despite customers projecting stronger orders .

Estimates Context

  • Q4 FY25 beat vs S&P Global: Revenue $228.9M vs $219.3M*; non-GAAP EPS $0.37 vs $0.1825*.
  • Estimate progression indicates consistent beats in Q2–Q4 FY25 on both revenue and EPS, with Q3 affected by goodwill impairment on GAAP, but non-GAAP results above expectations .
MetricQ1 FY25Q2 FY25Q3 FY25Q4 FY25
Revenue Consensus Mean ($)$202.15M*$206.76M*$190.32M*$219.26M*
Revenue Actual ($)$199.8M*$212.9M $203.0M $228.9M
Primary EPS Consensus Mean ($)$0.0367*$0.1375*$0.0350*$0.1825*
Non-GAAP EPS Actual ($)$0.07*$0.26 $0.18 $0.37
Primary EPS - # of Estimates3*4*4*4*
Revenue - # of Estimates4*5*5*5*

Values with an asterisk (*) retrieved from S&P Global.

Implications:

  • Estimates likely move higher for Industrial revenue run-rate and medium-term service-mix margins; near term, Q1 FY26 margin parameters (32–34% GM) may temper EPS models despite top-line resilience .

Key Takeaways for Investors

  • Q4 FY25 was a clear beat on both revenue and non-GAAP EPS vs consensus, with strength in CT tubes and record Industrial contribution; margin improvement YoY despite tariff drag underscores operational discipline .
  • Industrial systems shipments create future high-margin service revenue after warranty periods (~18–24 months), supporting management’s view of long-term margin tailwinds .
  • China risk has de-escalated near term (MOFCOM pause), and management models a flat FY26 China baseline; any stimulus/tender acceleration or supply-chain regionalization gains could be upside .
  • Short term, watch Q1 FY26 margin guardrails (GM 32–34%, OpEx ~$52M) and interest/tax assumptions; EPS guide implies a wider outcome range given mix and tariffs .
  • Medium term, photon counting and India manufacturing scale are strategic levers for product differentiation and cost competitiveness; additional medical OEM design-ins in FY26 are planned .
  • Balance sheet flexibility improved (net leverage ~1.8x); deleveraging and capital structure simplification support resilience through macro/geopolitical variability .
  • Narrative drivers: service mix in Industrial, CT cycle durability, tariff mitigation progress, and PC roadmap execution—these are likely the factors that move the stock, alongside quarterly cargo system shipment cadence .