Varex Imaging outlines stable China outlook and targets growth in Industrial segment for 2026

Earnings Call Insights: Varex Imaging Corporation (VREX) Q4 2025

MANAGEMENT VIEW

* Sunny Sanyal, President and CEO, reported "a strong finish to the year with fourth quarter revenue of $229 million, up 11% year-over-year and at the high end of our guidance." He stated that the Industrial segment achieved its highest revenue quarter ever at $77 million and highlighted that non-GAAP gross margin of 34% was above the high end of guidance, benefiting from higher volume and favorable product mix.
* Sanyal noted, "Our Medical segment saw strong demand in the quarter led by global sales of CT tubes, which were above its sales trend. Sales in fluoroscopy and radiography were also above their respective sales trends."
* He emphasized the successful launch of new technologies in 2025, including photon counting for CT, a radiographic detector manufactured in India, and new cargo systems in the Industrial segment.
* Sanyal shared that "during the year, we booked over $55 million in [Industrial] orders and shipped over 15 systems to several countries, including Mexico, Iraq, Brazil and Saudi Arabia."
* Shubham Maheshwari, CFO, stated, "Revenues of $229 million were at the high end of our guidance. Non-GAAP gross margin of 34% and non-GAAP EPS of $0.37 were above expectations."
* Maheshwari further highlighted, "This marks the highest quarterly contribution of Industrial revenue to total Varex history, a milestone that speaks to the strength of our diversification strategy."

OUTLOOK

* Maheshwari provided first quarter guidance: "Revenues are expected between $200 million and $215 million, non-GAAP earnings per diluted share are expected between $0.05 and $0.25 of profit." He added, "Our expectations are based on non-GAAP gross margin of 32% to 34%."
* Sanyal indicated, "Our customers in China are projecting stronger orders and sales for 2026 compared to 2024 and 2025." He also mentioned, "Customers in China are now saying that they are seeing increased tender activity driven by demand for value tier and mid-tier CT systems to support rural health care expansion plans."
* Investment in India and expansion in other growth markets such as South Asia, the Middle East, and Latin America were outlined as key strategic priorities.

FINANCIAL RESULTS

* Fourth quarter revenue was $229 million, reflecting an 11% year-over-year increase. Medical segment revenue was $152 million and Industrial segment revenue was $77 million.
* Non-GAAP gross margin was 34%, up 130 basis points year-over-year.
* Non-GAAP earnings per share for the quarter were $0.37, up $0.21 from last year. For the full year, non-GAAP EPS was $0.90, up $0.35.
* Cash, cash equivalents, and marketable securities at year-end were $155 million. Net cash flow from operations was $8 million in the quarter.
* Industrial segment accounted for 34% of total revenues, the highest in company history.

Q&A

* Suraj Kalia, Oppenheimer & Co.: Asked about customer concentration and sustainability. Maheshwari responded that top 10 customers have consistently represented 50%-55% of sales, predominantly in Medical, and the company does not break out Medical versus Industrial for commercial reasons.
* Kalia questioned the structural shift with Industrial outpacing Medical and the impact of OEMs' China strategies. Sanyal explained, "Industrial, as a percent of our overall sales, has been growing. So it's approaching 30%, and we expect it will get up to mid-30s." He added that most China business comes through Chinese OEMs, minimizing impact from multinational OEM reorganizations.
* Lawrence Solow, CJS Securities: Sought clarity on full year outlook. Maheshwari said, "We expect full year revenues to grow. We are expecting our Medical business to grow for the year. We also expect Industrial business to grow."
* Solow followed up on China and gross margin trends. Maheshwari noted, "We are seeing China as stable, stable to slight growth," and attributed strong Industrial gross margins to an unusually high proportion of service revenues.
* James Sidoti, Sidoti & Company: Inquired about China revenue, India operations, and gross margin impact. Maheshwari confirmed China was $32 million for the quarter and discussed ramping India detector shipments, with tube production 12-15 months away from launch. He stated India will offer some margin improvement for legacy products but is not expected to drive significant corporate margin gains.
* Anderson Schock, B. Riley Securities: Asked about cargo systems order size and China investigations. Sanyal confirmed both anti-dumping and industry investigations in China "have been paused without any end date, so indefinitely."

SENTIMENT ANALYSIS

* Analysts' tone was neutral to slightly positive, focusing on sustainability of growth, customer concentration, and regional performance. Questions sought clarification on strategic execution and margin drivers, with no overt skepticism or negative sentiment.
* Management maintained a confident tone in prepared remarks and Q&A, emphasizing progress on growth initiatives, operational discipline, and supply chain adaptation. Phrases like "We are confident" and "We continue to advance" signaled assurance.
* Compared to the previous quarter, management’s tone was more optimistic, particularly regarding China and the normalization of global trade patterns. Analyst tone remained consistent, probing for detail but not expressing concern.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter showed a material improvement in total revenue and non-GAAP EPS versus the prior quarter. Industrial segment growth accelerated, representing a higher proportion of total sales.
* Guidance for Q1 revenues and EPS is in line with the prior quarter’s outlook, but the gross margin range is slightly higher.
* Management confidence increased, citing normalization following tariff disruptions and growth visibility in China and new markets. Analysts’ focus shifted from uncertainty around tariffs and demand normalization to growth drivers and execution.
* Strategic emphasis on ramping India production and photon counting technology development remained consistent, but communication around geopolitical resilience and supply chain adaptation intensified.

RISKS AND CONCERNS

* Management acknowledged ongoing challenges from tariffs, estimating a 100-150 basis point impact on gross margin, and noted, "We are charging our customers for tariffs."
* Unpredictable global trade and supply chain disruptions remain a risk, with continued investment in regional manufacturing and diversification as mitigation strategies.
* Exposure to large customers was addressed, with management stating concentration is stable and within historical norms.
* Ramp-ups in India and new technology commercialization were discussed as areas with execution risk, though management expressed confidence in timelines and strategies.

FINAL TAKEAWAY

Varex Imaging closed fiscal 2025 with strong revenue growth, particularly in the Industrial segment, and improved profitability. Management highlighted successful execution of growth strategies, a stabilizing China market, and a ramp in new product introductions and regional manufacturing. The company projects continued revenue growth for both Medical and Industrial segments in 2026, with additional focus on geopolitical resilience and operational efficiency as key priorities for the coming year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/vrex/earnings/transcripts]

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