Executives from Varex Imaging (NASDAQ:VREX) outlined the company’s business mix, demand trends, tariff actions, and several growth initiatives during a fireside chat featuring CFO Sam Maheshwari and Director of Investor Relations Chris Belfiore.
Business overview and customer base
Maheshwari said Varex has focused exclusively on X-ray-based imaging for more than 40 to 50 years. The company operates in two segments: medical, which represents roughly 70% of revenue, and industrial, which accounts for about 30%.
Tariffs and mitigation actions
Discussing tariffs, Maheshwari said the company has taken several steps since IEEPA-related tariffs went into effect last April. The primary action has been passing increased tariff costs on to customers, which he said Varex has been successful in doing, though he noted the impact takes time to flow through because it moves through inventory.
Additional mitigation efforts include increasing “local for local” manufacturing—producing products sold in China within its China factory and shifting more European consumption to factories in Europe—while developing local supply chains. He also referenced the use of tariff-mitigation approaches such as bonded warehouses where permitted under rules.
After a recent Supreme Court ruling, Maheshwari said tariff rates have moved lower, which he characterized as directionally positive. However, he emphasized that higher tariff rates are still embedded in inventory and will continue rolling through. He estimated the benefit from lower tariffs could begin to show in the profit and loss statement in roughly four to six months.
Medical demand trends and product development activity
On the medical market environment, Maheshwari said the company monitors discretionary procedure volumes and hospital capital spending, describing both as stable. He added that imaging remains among the top priorities for hospital capital expenditures, citing its role as a high-profit center for hospitals.
Maheshwari said Varex had previously discussed elevated channel inventory related to prior supply chain disruptions, and he stated that issue has been “squarely behind us” for nearly a year. He also pointed to a separate factor in China from about a year ago—hospital audits that dampened purchasing behavior—which he said is now behind the company, with procurement showing stable to slight improvement.
Maheshwari also said new system development activity at major OEMs slowed during COVID and the years immediately following, but has picked up over the last one to two years. He said that increased development activity is positive for Varex because it is a key period when the company’s products are designed into customers’ new systems.
On the industry transition from analog film to digital detectors, he said the shift is largely complete in the U.S., Western Europe, and Japan, but film remains in use in parts of South Asia and certain Latin American countries. He also cited BRICS countries such as Brazil, Russia, and India, and said film still has a meaningful presence in areas including China and Indonesia, leaving room for continued conversion.
India manufacturing initiative
Maheshwari said Varex is building two factories in India focused on radiographic products—one for tubes and one for detectors—targeting a price-sensitive portion of the medical business. He said the company’s pricing in that segment has been high versus competitors out of Asia, contributing to some market share losses in recent years, and that manufacturing in India is intended to improve competitiveness and help regain share.
He said construction and validation for the detector factory are complete and that Varex has begun selling detectors produced there, both within India and for export to global radiographic markets. Utilization is still low because production has only recently started and regulatory processes take time, but he said utilization is improving as the company works with customers to qualify products and secure new orders.
The second India facility, focused on radiographic tubes, is in later stages of construction and is expected to be completed by the end of the calendar year. Maheshwari said revenue contribution from that facility is expected to be a topic for calendar 2027.
Industrial momentum: cargo inspection systems and photon counting
In industrial, Maheshwari discussed cargo inspection systems, noting Varex has long sold linear accelerators or components into security inspection. Around 18 months ago, the company began releasing full cargo inspection systems and pursuing that business more directly. He said customer reception has been strong, aided by Varex’s established brand recognition in the space.
Maheshwari said the company booked $55 million in fiscal 2025 for the new cargo systems and is aiming to book additional orders in fiscal 2026. He described the typical timeline as six to nine months from booking to shipment, followed by roughly 18 months of installation and warranty before service revenue begins. He said service revenue is typically accretive to margins, with service on cargo systems carrying higher gross margins than the rest of industrial.
He attributed demand for cargo inspection to heightened border security efforts and to customs agencies’ increased need to verify container contents against declared manifests in a tariff-driven environment. He also cited studies suggesting only 10% to 12% of global cargo is currently inspected, implying room for expansion.
Maheshwari also discussed photon counting technology, which Varex has been working on for several years since an acquisition. He said industrial applications benefit from high-speed imaging—potentially up to 10,000 frames per second—enabling inspection of fast-moving items such as packaged goods, envelopes and parcels in sorting centers, EV batteries, and food inspection. In medical applications, he emphasized dose reduction and improved image quality, noting photon counting can reduce CT radiation dose by roughly 60% to 70% and enable material discrimination. He said cost is the primary drawback versus existing X-ray technology.
On timing, Maheshwari said Varex is working with two medical customers on photon counting, with work largely completed for one customer while the other is in mid-stage development. He said the first customer is expected to release a system in early calendar 2027, with Varex revenue tied to the customer’s production ramp. He also noted that photon counting CT detectors would be higher-priced components than typical medical components, citing an illustrative range of around $250,000 per detector.
Maheshwari closed by discussing the company’s balance sheet and refinancing. He said total debt stands at $350 million and that the company refinanced into a single five-year term loan, reducing the coupon from about 7.875% to close to 6%. The refinancing included an $18 million debt paydown and, importantly, no prepayment penalty, which Maheshwari said preserves flexibility to reduce debt as cash flow improves.
Looking ahead to fiscal 2026 and beyond, Maheshwari said the most exciting areas are photon counting, cargo inspection, and the India initiative as they move into later stages and begin to ramp at different timelines. He said the primary concern is volatility and uncertainty in the policy environment and the need to continually assess potential impacts and mitigation steps.
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.
