Varex Imaging NASDAQ: VREX reported fiscal second-quarter revenue within its guidance range and said demand remained solid across its medical and industrial businesses, while management highlighted a completed debt refinancing and continued investment in advanced imaging technologies.
President and CEO Sunny Sanyal said the company delivered “a solid second quarter in both medical and industrial” as it works to shift more of its business toward advanced imaging and higher-growth industrial applications. Revenue for the quarter was $216 million, non-GAAP gross margin was 34%, and non-GAAP earnings per share were $0.21.
Chief Financial Officer Sam Maheshwari said total revenue rose 1% from the prior-year quarter. Medical revenue increased 2% to $156 million, representing 72% of total revenue, while industrial revenue rose 1% to $60 million, or 28% of total revenue.
Medical revenue aided by CT strength
Sanyal said the medical segment benefited from continued momentum in CT and other mid-tier X-ray sources. Sales in CT and radiography exceeded the company’s five-quarter average sales trend, while oncology and mammography were in line with their respective trends. Fluoroscopy and dental were below trend.
Management also pointed to a growing pipeline of potential OEM projects tied to newer X-ray source and detector products. Sanyal said Varex has seen a steady increase in design-in discussions over the past 12 months, adding that project decisions moving through customer processes could contribute to future recurring sales growth.
Maheshwari said regional performance varied. Revenue in the Americas grew 13%, driven by CT and industrial strength, while EMEA declined 16% and APAC increased 8%. Sales volume to China held steady and accounted for 15% of total revenue. In response to an analyst question, Sanyal said China demand has returned to “more normal, secular type of demand” after prior disruptions tied to audits, stimulus uncertainty and supply chain issues.
Industrial business supported by inspection applications
In industrial, Sanyal said demand was solid for tubes, linear accelerators and detectors used in non-destructive inspection applications, as well as for cargo security inspection systems. He said industrial services also delivered a strong quarter and contributed meaningfully to gross margin expansion, helping offset inflationary cost pressure in some input materials.
Sales momentum in photon counting technology remained strong, primarily driven by demand in food inspection services, Sanyal said. The company also reported good sales of industrial flat panel detectors for general non-destructive inspection and expects broader adoption across industrial verticals as customers seek speed and high resolution in inspection applications.
Varex was also active in cargo inspection systems during the quarter, implementing previously booked orders and booking new deals across multiple countries. Sanyal said the new orders included mobile inspection systems and car scanners. During the question-and-answer session, he described the cargo pipeline as “pretty hefty,” though he noted the business can be lumpy and tender-driven.
Margins, expenses and balance sheet
On a GAAP basis, Varex reported gross margin of 34%, down 240 basis points year over year. Operating expenses were $58 million, up $4 million from the prior-year period. The company reported operating income of $14 million, a net loss of $8 million and a GAAP loss of $0.19 per diluted share.
On a non-GAAP basis, gross margin of 34% was at the high end of management’s expectations, helped by favorable product mix. Maheshwari said the year-over-year gross margin decline was primarily due to higher costs. Non-GAAP operating income was $19 million, down $7 million year over year, and operating margin was 9%, compared with 12% in the prior-year quarter.
Non-GAAP net earnings were $9 million, or $0.21 per diluted share, compared with $0.31 in the year-ago quarter. The quarter included a $1.8 million non-cash charge tied to a decline in the share price of Varex’s equity investment in publicly traded Micro-X. Maheshwari said the company does not adjust that charge out of non-GAAP EPS or EBITDA under its policy.
Varex ended the quarter with $88 million in cash equivalents and marketable securities, down $37 million from the first quarter, primarily due to debt refinancing in March. Gross debt at quarter-end was $351 million, while net debt was $263 million. Adjusted EBITDA for the quarter was $27 million, or 12% of sales, and trailing 12-month adjusted EBITDA was $180 million. Net debt leverage was approximately 2.2 times trailing 12-month adjusted EBITDA.
Maheshwari said the refinancing reduced outstanding debt and lowered interest expense, improving the company’s financial flexibility and supporting investment in the business.
Inventory rises, but company targets reduction
Inventory increased $19 million to $347 million, and days of inventory rose six days to 220. Maheshwari attributed the increase partly to cargo inspection units at customer sites undergoing acceptance procedures and to raw materials being moved to India to support the ramp-up of detector production. He also cited tariffs and some inflation related to memory chips.
Sanyal said Varex expects inventory to decline over the remaining six months of fiscal 2026 and is targeting a $20 million to $25 million reduction. He described the increase as a temporary build to support existing customers and new business areas.
Asked about the company’s India manufacturing ramp, Maheshwari said the detector factory has been completed and production is slowly increasing as product-by-product regulatory approvals proceed. Utilization remains low, but he said Varex expects the facility to be “materially utilized” by year-end and that the current gross margin and operating expense headwind could become a tailwind as utilization reaches roughly 60% to 70%. Sanyal said a separate tube-related facility in India is still undergoing equipment moves and validation and is expected to begin ramping around the start of the next fiscal year.
Guidance and technology outlook
Varex said it now intends to provide full-year guidance. For fiscal 2026, the company expects revenue of $860 million to $880 million and non-GAAP EPS of $0.80 to $1.00. For the second half of fiscal 2026, revenue is expected to rise approximately 3% from the comparable period in fiscal 2025. Maheshwari said the guidance excludes effects from IEEPA tariff refunds.
For the fiscal third quarter, Varex expects revenue of $210 million to $225 million and non-GAAP EPS of $0.15 to $0.30. The outlook assumes non-GAAP gross margin of 33% to 34%, non-GAAP operating expenses of about $54 million, net interest and other expense of $6 million to $7 million, a tax rate of about 23% and a diluted share count of about 42 million.
Sanyal also discussed the company’s technology positioning, citing interest in AI-enabled imaging workflows, smart detectors, photon counting detectors and integrated imaging solutions. He said Varex is engaged with two CT customers on photon counting CT and with eight other medical imaging OEMs developing systems using photon counting detectors across other modalities. He said the two CT OEMs are making steady progress, though their launch plans have not been publicly announced.
Management said macroeconomic pressures have primarily affected costs, material availability, lead times and logistics rather than customer demand. Sanyal said Varex has been able to procure needed memory chips for its detector business, though costs have risen, and that supply chain diversification efforts over the past 18 to 24 months have helped mitigate disruptions.
About Varex Imaging NASDAQ: VREX
Varex Imaging Corporation is a global provider of X-ray imaging components and solutions for the medical, security and industrial markets. The company designs, develops and manufactures a broad range of products that convert X-ray energy into high-resolution digital images. Its portfolio includes X-ray tubes, flat panel detectors, digital sensors, specialty radiographic tubes and related software, all engineered to meet the demanding requirements of original equipment manufacturers (OEMs) in diagnostic imaging, computed tomography (CT), fluoroscopy, mammography, dental radiography and non-destructive testing applications.
The company's medical imaging offerings support a wide spectrum of clinical modalities, from portable radiography systems to advanced CT scanners, enhancing image quality and dose efficiency for healthcare providers.
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