Varex Imaging Corporation Q2 FY2025 earnings call

• Strong demand in Q2 led to revenue near the high end of expectations. Both Medical and Industrial segments saw year-over-year revenue growth. - Gross margin was 36%, up from 33% in the same quarter last year. - Adjusted EBITDA and non-GAAP EPS in Q2 were $34 million and $0.26 respectively, compared to $25 million and $0.16 last year. - Tariffs impact: China tariffs could negatively impact Q3 sales by ~$20 million, with efforts to mitigate including localizing manufacturing. - Medical segment: Canon Medical Systems introduced a new CT system using Varex's tube; active in photon counting detector tech integration with OEMs. - Industrial segment: Announced $25 million order for cargo inspection systems, with ongoing service revenue potential after installation.

Total revenue in both Medical and Industrial segments were up 3% year-over-year. Medical revenues were $154 million, constituting 72% of total revenue, and Industrial revenues were $59 million, making up 28% of total revenue. Gross margin was 36%, higher than anticipated due to improved volume, favorable product sales mix, and productivity gains in both segments. Cash from operations was $17 million in the quarter.

• Third quarter revenue expected between $180 million and $200 million, with China sales estimated at ~$10 million. - Non-GAAP earnings per diluted share expected between a -$0.05 loss and $0.10 profit. - Assumes non-GAAP gross margin of 32% to 33%, including 150 to 200 basis points impact from tariff-related costs. - Non-GAAP operating expenses expected ~$51 million, interest and other expenses net in $9 million to $10 million range, tax rate ~25%, and diluted share count ~41 million.

• Tariffs could negatively impact sales, with China tariffs potentially reducing Q3 sales by ~$20 million. - Dynamic tariff environment with risks of actual results differing from projections due to various uncertainties. - Impact of tariffs on cost side, with raw materials and components sourced globally subject to tariffs, and need to pass on costs to customers which may face wariness.

Q: Talk about types of orders in China and when paused purchases might resume A: Orders in China continue but with some customers pausing on more expensive tubes shipped from US. Customers have inventory and are lobbying for exemptions, with efforts to mitigate including localizing manufacturing.

Q: Clarity on China revenue and tariff impact A: Majority of China revenue from CT tubes, Q3 impact viewed as temporary with mitigation efforts in place.

Q: Update on India plant and tariff mitigation A: India plant projects proceeding, with potential to accelerate spend to mitigate tariff impacts.

Q: Impact of tariffs on industrial business and margin accretion A: Industrial business has tariff impact on cost side, with inspection business orders taking time to translate to revenue and margin accretion still some time away.

Q: Relief on tariffs and China outlook A: Near term relief could lead to immediate pull-in of product, with recovery expected starting from Q4 if mitigation efforts succeed.