Q4 2025 Varex Imaging Corp Earnings Call

Speaker #1: Greetings and welcome to the Varex fourth quarter fiscal year 2025 earnings conference call and webcast. At this time, all participants are in a listening-only mode.

Operator: Greetings, and welcome to the Varex Q4 fiscal year 2025 Earnings Conference Call and Webcast. It's now my pleasure to turn the call over to Christopher Belfiore, Director of Investor Relations. Please go ahead, sir.

Speaker #1: A question-and-answer session will follow the formal presentation. You may be placed into the question cue at any time by pressing star one on your telephone keypad.

Speaker #1: If anyone should require operator assistance, please press *0. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Christopher Belfiore, Director of Investor Relations.

Speaker #1: Please go ahead,

Speaker #1: sir. Good afternoon

Christopher Belfiore: Good afternoon, welcome to Varex Imaging's earnings conference call for Q4 and fiscal year 2025. With me today are Sunny Sanyal, our President and CEO, and Sam Maheshwari, our CFO. Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Varex's website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex's website. To simplify our discussion, unless otherwise stated, all references to the quarter are for Q4 of fiscal year 2025, and to the year are for fiscal year 2025. In addition, unless otherwise stated, quarterly comparisons are made year over year from Q4 of fiscal year 2025 to Q4 of fiscal year 2024.

Speaker #2: And welcome to Varex Imaging's earnings conference call for the fourth quarter and fiscal year 2025. With me today are Sunny Sanyal, our President and CEO, and Sam Maheshwari, our CFO.

Speaker #2: Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Varex's website at vareximaging.com. The webcast and supplemental slide presentation will be archived on Varex's website.

Speaker #2: To simplify our discussion, unless otherwise stated, all references to the quarter are for the fourth quarter of fiscal year 2025, and to the year are for fiscal year 2025.

Speaker #2: In addition, unless otherwise stated, quarterly comparisons are made year over year from the fourth quarter of fiscal year 2025 to the fourth quarter of fiscal year 2024.

Speaker #2: Finally, all references to the year are to the fiscal year and not the calendar year unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements, which are predictions and projections about future events.

Christopher Belfiore: Finally, all references to the year are to the fiscal year and not the calendar year, unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements, which are predictions and projections about future events. These statements are based on current information, expectations, and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks relating to our business are described in our quarterly earnings release and our filings with the SEC. Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including Item 1A, Risk Factors, of our quarterly report on Form 10-Q and our annual report on Form 10-K.

Speaker #2: These statements are based on current information, expectations, and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

Speaker #2: Risks relating to our business are described in our quarterly earnings release and our filings with the SEC. Additional information concerning factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including Item 1A - Risk Factors of our quarterly report on Form 10-Q and our annual report on Form 10-K.

Speaker #2: The information in this discussion speaks as of today’s date, and we assume no obligation to update or revise the forward-looking statements in this discussion.

Christopher Belfiore: The information in this discussion speaks as of today's date, and we assume no obligation to update or revise the forward-looking statements in this discussion. On today's call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with, nor are they a substitute for GAAP financial measures. We provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website. With that, I will now turn the call over to Sunny.

Speaker #2: On today's call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with GAAP and are not a substitute for GAAP financial measures.

Speaker #2: We provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website.

Speaker #2: With that, I will now turn the call over to.

Speaker #2: Sunny. Thank you, Chris.

Sunny Sanyal: Thank you, Chris. Good afternoon, everyone, and thank you for joining us for our Q4 earnings call. We are pleased to report a strong finish to the year with Q4 revenue of $229 million, up 11% year-over-year, and at the high end of our guidance. During the quarter, we saw strong demand from our global CT customers and continued to see strength in our industrial segment, which posted its highest revenue quarter ever at $77 million. Non-GAAP gross margin of 34% in Q4 was above the high end of our guidance, benefiting from the higher volume and favorable product sales mix in the quarter. Turning to the Q4 results, total revenue was up 11% year-over-year, with medical segment up 5% and industrial segment up 25%.

Speaker #3: Good afternoon, everyone, and thank you for joining us for our fourth quarter earnings call. We are pleased to report 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.

Speaker #3: During the quarter, we saw strong demand from our global PT customers and continued to see strength in our industrial segment, which posted its highest revenue quarter ever at $77 million.

Speaker #3: 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.

Speaker #3: Turning to the fourth quarter results, total revenue was up 11% year over year, with the medical segment up 5% and the industrial segment up 25%. Non-GAAP gross margin of 34% was 130 basis points higher than that in the same quarter last year.

Sunny Sanyal: Non-GAAP gross margin of 34% was 130 basis points higher than that in the same Q4 last year. Non-GAAP earnings per share in Q4 was $0.37, up $0.21 compared to last year. Looking at results for the full fiscal year, total revenue of $845 million increased 4% compared to fiscal 2024. Medical revenue of $593 million increased 2% year-over-year, and industrial revenue of $252 million increased 10%. Non-GAAP gross margin of 35% was 230 basis points higher than last year. Non-GAAP EBITDA at $122 million was up $33 million from $89 million last year. Non-GAAP earnings per share for the year was $0.90, up $0.35.

Speaker #3: Non-GAAP earnings per share in the fourth quarter was $37, up $0.21 compared to last year. Looking at the results of the full fiscal year, total revenue of $845 million increased 4% compared to fiscal 2024.

Speaker #3: Medical revenue of $593 million increased 2% year over year, and industrial revenue of $252 million increased 10%. Non-GAAP gross margin of 35% was 230 basis points higher than last year.

Speaker #3: Non-GAAP EBITDA of $122 million was up $33 million from $89 million last year. Non-GAAP earnings per share for the year was $0.90, up $0.35.

Speaker #3: We ended the year with $155 million worth of cash, cash equivalents, and marketable securities on the balance sheet, compared to $213 million last year.

Sunny Sanyal: We ended the year with $155 million worth of cash equivalents, and marketable securities on the balance sheet, compared to $213 million last year. Recall that during Q3 of fiscal 2025, we used approximately $75 million of our cash to retire our convertible debt. Let me give you some insights into sales detail by modality in the quarter compared to a 5-quarter average, which we refer to as sales trend. 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 in the quarter, while sales in mammography and dental modalities were in line with their respective sales trends. Sales in our oncology modality were below its sales trend.

Speaker #3: Recall that during the third quarter of fiscal 2025, we used approximately $75 million of our cash to retire our convertible debt. Let me give you some insights into sales detail by modality in the quarter compared to a five-quarter average, which we refer to as sales trend.

Speaker #3: Our medical segment saw strong demand in the quarter, led by global sales of CT tubes, which were above their sales trend. Sales in fluoroscopy and radiography were also above their respective sales trends in the quarter, while sales in mammography and dental modalities were in line with their respective sales trends.

Speaker #3: Sales in our oncology modality were below its sales trend. Our industrial segment posted its strongest quarter ever, as demand for security screening continued to drive sales of security inspections and components globally.

Sunny Sanyal: Our industrial segment posted its strongest quarter ever as demand for security screening continued to drive sales of security inspection systems and components globally. We also saw positive trends in non-destructive testing and inspection in the aerospace and defense and food inspection verticals as our customers continue to find new ways to use our technology to solve problems they were unable to address in the past. During fiscal 2025, we advanced our key growth initiatives, including the introduction of innovative new technologies like photon counting for CT, a radiographic detector for the value segment from our new facility in India, and cargo systems in industrial. In photon counting, during fiscal 2025, we worked closely with our OEM customers as they continued to advance their product development process. We also made significant progress with our photon counting CT project with the Technical University of Munich.

Speaker #3: We also saw positive trends in non-destructive testing and inspection in the aerospace and defense, and food inspection verticals, as our customers continued to find new ways to use our technology to solve problems they were unable to address in the past.

Speaker #3: During fiscal 2025, we advanced our key growth initiatives, including the introduction of innovative new technologies like Photon Counting for CT, a radiographic detector for the value segment from our new facility in India, and cargo systems in industrial.

Speaker #3: In Photon Counting, during fiscal 2025, we worked closely with our OEM customers as they continued to advance their product development process. We also made significant progress with our Photon Counting CT project with the Technical University of Munich.

Speaker #3: In addition, we completed the first stage of our India expansion plans and have begun to ramp up production and shipments of radiographic detectors from this facility.

Sunny Sanyal: In addition, we completed the first stage of our India expansion plans and have begun to ramp up production and shipments of radiographic detectors from this facility. In industrial, we are very pleased with how our cargo inspection systems business performed in fiscal 2025. During the year, we booked over $55 million in orders and shipped over 15 systems to several countries, including Mexico, Iraq, Brazil, and Saudi Arabia. We continue to be focused on establishing our sales channels for cargo inspection systems by building on our strong relationships and reputation for quality and innovation in this vertical. With that, let me hand over the call to Sam.

Speaker #3: In Industrial, we're very pleased with how our cargo inspection systems business performed in fiscal 2025. During the year, we booked over $55 million in orders and shipped over 15 systems to several countries, including Mexico, Iraq, Brazil, and Saudi Arabia.

Speaker #3: We continue to be focused on establishing our sales channels for cargo inspection systems by building on our strong relationships and reputation for quality and innovation in this vertical.

Speaker #3: With that, let me hand over the call to...

Speaker #3: Sam. Thanks, Sunny, and hello

Sam Maheshwari: Thanks, Sunny. Hello, everyone. Let me begin by sharing a breakdown of our revenues for both the medical and industrial segments. Providing this information annually offers valuable context for understanding our performance and the strength of our business. Our medical segment spans nearly all X-ray imaging modalities, underscoring the breadth of our capabilities and market presence. Total medical sales for fiscal 2025 were $593 million, with CT as the largest modality and accounting for 40% of total medical revenue. These CT sales are primarily driven by X-ray tubes, as we currently do not participate in the supply of detectors for this modality. From a geographic perspective, the medical segment remains well-balanced across all three regions, reflecting our strong global partnerships with leading imaging OEM.

Speaker #4: Everyone, let me begin by sharing a breakdown of our revenues for both the medical and industrial segments. Providing this information annually offers valuable context for understanding our performance and the strength of our business.

Speaker #4: Our medical segment spans nearly all X-ray imaging modalities, underscoring the breadth of our capabilities and market presence. Total medical sales for fiscal 2025 were $593 million, with CT as the largest modality, accounting for 40% of total medical revenue.

Speaker #4: These CT sales are primarily driven by X-ray tubes, as we currently do not participate in the supply of detectors for this modality. From a geographic perspective, the medical segment remains well balanced across all three regions, reflecting our strong global partnerships with leading imaging OEMs.

Speaker #4: The slight skew toward APAC in fiscal 2025 was fueled by a recovery in China and increased sales to our top customer, Canon. In fiscal 2025, revenue from our industrial segment grew to $252 million, serving a highly fragmented customer base.

Sam Maheshwari: The slight skew toward APAC in fiscal 2025 was fueled by a recovery in China and increased sales to our top customer, Canon. In fiscal 2025, revenue from our industrial segment grew to $252 million, serving a highly fragmented customer base. The security vertical accounted for roughly 41% of total industrial sales, up from 40% in fiscal 2024. This growth was driven by strong performance in our security inspection systems business, which gained significant traction since its introduction early in fiscal 2025. Our top 10 customers were 52% of revenues in fiscal 2025, and revenue from our largest customer, Canon, grew 6% year-over-year. Turning to Q4, our performance exceeded expectations. Revenues of $229 million were at the high end of our guidance.

Speaker #4: The security vertical accounted for roughly 41% of total industrial sales, up from 40% in fiscal 2024. This growth was driven by strong performance in our security inspection systems business, which gained significant traction since its introduction early in fiscal 2025.

Speaker #4: Our top 10 customers accounted for 52% of revenues in fiscal year 2025, and revenue from our largest customer, Canon, grew 6% year over year. Turning to the fourth quarter, our performance exceeded expectations.

Speaker #4: 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.

Sam Maheshwari: Non-GAAP gross margin of 34% and non-GAAP EPS of $0.37 were above expectations. Compared to the same period in fiscal 2024, total revenues increased 11%, driven by a 5% increase in medical and a 25% increase in industrial, primarily from cargo system shipments. Medical revenues were $152 million, and industrial revenues were $77 million, representing 66% and 34% of total revenues, respectively. This marks the highest quarterly contribution of industrial revenue to Varex's history, a milestone that speaks to the strength of our diversification strategy. Now analyzing regional performance. Americas grew 9%, EMEA rose 16%, and APAC increased 8% year over year. Sales volume to China remained steady, contributing 14% of total revenue, underscoring the resilience of our healthcare market position despite the tariff challenges.

Speaker #4: Compared to the same period in fiscal 2024, total revenues increased 11%, driven by a 5% increase in medical and a 25% increase in industrial, primarily from cargo system shipments.

Speaker #4: Medical revenues were $152 million, and industrial revenues were $77 million, representing 66% and 34% of total revenues, respectively. This marks the highest quarterly contribution of industrial revenue to total direct history, a milestone that speaks to the strength of our diversification strategy.

Speaker #4: Now analyzing regional performance. America grew 9%, India rose 16%, and APAC increased 8% year over year. Sales volume to China remained steady, contributing 14% of total revenues, underscoring the resilience of our healthcare market position despite the tariff challenges.

Speaker #4: Let me now cover our results on a gap basis. Fourth quarter gross margin was 34%, an improvement of 140 basis points year over year, reflecting our continued operational discipline.

Sam Maheshwari: Let me now cover our results on a GAAP basis. Q4 gross margin was 34%, an improvement of 140 basis points year over year, reflecting our continued operational discipline. Operating expenses were $58 million, up $2 million compared to Q4 of fiscal 2024. We reported operating income of $20 million, net income of $12 million, and GAAP EPS of $0.29 per share based on fully diluted 42 million shares. For full fiscal year 2025, gross margin was 34%, up 270 basis points year over year, demonstrating strong margin improvement. Operating expenses totaled $318 million, an increase of $94 million compared to fiscal year 2024. As noted previously, the primary driver was a non-cash goodwill impairment charge of $94 million taken in Q3.

Speaker #4: Operating expenses were $58 million, up $2 million compared to the fourth quarter of fiscal 2024. We reported operating income of $20 million, net income of $12 million, and GAAP EPS of $0.29 per share based on fully diluted 42 million shares.

Speaker #4: For the full fiscal year 2025, gross margin was 34%, up 270 basis points year over year, demonstrating strong margin improvement. Operating expenses totaled $318 million, an increase of $94 million compared to fiscal year 2024.

Speaker #4: As noted previously, the primary driver was a non-cash goodwill impairment charge of $94 million taken in Q3. This resulted in an operating loss of $28 million, a net loss of $70 million, and a GAAP loss per share of $1.70 based on fully diluted shares of 41 million.

Sam Maheshwari: This resulted in an operating loss of $28 million, a net loss of $70 million, and a GAAP loss per share of $1.70 based on fully diluted 41 million shares. Moving on to the non-GAAP results for the quarter. Gross margin in Q4 was 34%, up 130 basis points year over year, primarily due to the higher volume and a favorable product sales mix. For the full year, we delivered gross margin 35%, up 230 basis points year over year and in line with the goal we communicated at the start of the year. R&D spending in Q4 was $24 million, an increase of $2 million compared to Q4 of fiscal 2024 and representing 10% of revenue.

Speaker #4: Now, moving on to the non-GAAP results for the quarter. Gross margin in Q4 was 34%, up 130 basis points year over year, primarily due to the higher volume and a favorable product sales mix.

Speaker #4: For the full year, we delivered a gross margin of 35%, up 230 basis points year over year and in line with the goals we communicated at the start of the year.

Speaker #4: R&D spending in the fourth quarter was $24 million, an increase of $2 million compared to the fourth quarter of fiscal 2024, representing 10% of revenue.

Speaker #4: R&D was $91 million for fiscal 2025, an increase of $4 million compared to last year, and represented 11% of revenue. For both the quarter and the year, the increase in R&D was primarily due to investment in growth initiatives, including security systems in industrial, quarter accounting, and radiographic in medical.

Sam Maheshwari: R&D was $91 million for fiscal 2025, an increase of $4 million compared to last year and represented 11% of revenue. For both the quarter and year, the increase in R&D was primarily due to investment in growth initiatives, including security systems in industrial, photon counting, and radiographic in dental. SG&A expense was $31 million, in line with the Q4 of fiscal 2024 and representing 14% of revenue. For the full year, SG&A expense was $122 million, down $1 million compared to last year and representing 14% of revenue. Operating expenses totaled $55 million, an increase of $2 million compared to the Q4 of fiscal 2024 and represented 24% of revenues.

Speaker #4: SG&A expense was $31 million, in line with the fourth quarter of fiscal 2024 and representing 14% of revenue. For the full year, SG&A expense was $122 million, down $1 million compared to last year and representing 14% of revenues.

Speaker #4: Operating expenses totaled $55 million and increased by $2 million compared to the fourth quarter of fiscal 2024, representing 24% of revenues. For the full year, operating expenses totaled $213 million and increased by $3 million compared to fiscal 2024.

Sam Maheshwari: For the full year, operating expenses totaled $213 million, an increase of $3 million compared to fiscal 2024. Operating income was $23 million, an increase of $9 million compared to the previous year, and operating margin was 10% of revenue, up from 7% in Q4 of fiscal 2024. For the full year, operating income was $80 million, an increase of $28 million compared to last year, and operating margin was 9% of revenue, up from 6% in 2024. Tax expense in Q4 was $2 million or 14% of pre-tax income compared to a $2 million benefit in Q4 of fiscal 2024.

Speaker #4: Operating income was $23 million, representing an increase of $9 million compared to the previous year. The operating margin was 10% of revenue, up from 7% in the fourth quarter of fiscal 2024.

Speaker #4: For the full year, operating income was $80 million, which is an increase of $28 million compared to last year. The operating margin was 9% of revenue, up from 6% in 2024.

Speaker #4: Tax expense in the fourth quarter was $2 million, or 14% of pre-tax income, compared to a $2 million benefit in the fourth quarter of fiscal 2024.

Speaker #4: For the full year, tax expense was $11 million, or 22% of pre-tax income, compared to $1 million in fiscal 2024, or 3% of pre-tax income.

Sam Maheshwari: For the full year, tax expense was $11 million or 22% of pre-tax income compared to $1 million in fiscal 2024 or 3% of pre-tax income. Net earnings were $15 million or $0.57 per diluted share, up 131% from $0.16 in the year of the quarter. Average diluted shares for the quarter on a non-GAAP basis was 42 million. For the full year, net earnings was $0.90 per diluted share, up 73% from $0.52 in fiscal 2024. Average diluted shares for the full year on a non-GAAP basis was 41 million shares. Now turning to the balance sheet. Accounts receivable increased by $20 million and days sales outstanding increased by 1 day to 62 days.

Speaker #4: Net earnings were $15 million, or $0.37 per diluted share, up 131% from $0.16 in the prior year of the quarter. Average diluted shares for the quarter on a non-GAAP basis were 42 million.

Speaker #4: For the full year, net earnings were $0.90 per diluted share, up 73% from $0.52 in fiscal 2024. Average diluted shares for the full year on a non-GAAP basis were 41 million shares.

Speaker #4: Now turning to the balance sheet. Accounts receivable increased by $20 million, and base sales outstanding increased by one day to 62 days. Inventory held steady at $299 million in the fourth quarter, and days of inventory decreased by 21 days to 180 days.

Sam Maheshwari: Inventory held steady at $299 million in Q4, and days of inventory decreased by 21 days to 180 days. Accounts payable decreased by $1 million, and days payable decreased 5 days to 42 days. Moving to debt and cash flow information. Net cash flow from operations was $8 million in the quarter. We ended the quarter with cash equivalents, and marketable securities of $155 million, up $3 million compared to Q3 2025. Compared to fiscal 2024, cash was down from $213 million, primarily due to the use of $75 million to reduce our debt in June.

Speaker #4: Accounts payable decreased by $1 million, and days payable decreased by five days to 42 days. Now, moving to debt and cash flow information, net cash flow from operations was $8 million in the quarter.

Speaker #4: We ended the quarter with cash, cash equivalents, and marketable securities of $155 million, up $3 million compared to the third quarter of 2025. Compared to fiscal 2024, cash was down from $213 million, primarily due to the use of $75 million to reduce our debt in June.

Speaker #4: Gross debt outstanding at the end of the quarter was $370 million, and debt net of $155 million of cash, cash equivalents, and marketable securities was $215 million.

Sam Maheshwari: Gross debt outstanding at the end of the quarter was $370 million. Debt, net of $155 million of cash equivalents, and marketable securities, was $215 million. Adjusted EBITDA for the quarter was $35 million or 15% of sales. Our trailing 12 months adjusted EBITDA was $122 million. Our net debt leverage ratio was approximately 1.8x adjusted EBITDA on a trailing 12-month basis. Over the years, our net leverage ratio has continued to come down. This year's performance marks the lowest level we have reported as a public company. This achievement underscores our commitment to deleveraging and reflects our ability to establish a stable long-term capital structure since our spin-off from Varian. Moving on to outlook for Q1.

Speaker #4: Adjusted EBITDA for the quarter was $35 million, or 15% of sales. Our trailing 12 months adjusted EBITDA was $122 million, and our net debt leverage ratio was approximately 1.8 times adjusted EBITDA on a trailing 12-month basis.

Speaker #4: Over the years, our net leverage ratio has continued to come down, and this year's performance marks the lowest level we have reported as a public company.

Speaker #4: This achievement underscores our commitment to deleveraging and reflects our ability to establish a stable, long-term capital structure since our spin-off from Variant. Now, moving on to the outlook for the first quarter.

Speaker #4: Guidance for the first quarter is as follows. Revenues are expected between $200 and $215 million non-gap earnings per diluted share are expected between $0.05 and $0.25 of profit.

Sam Maheshwari: Guidance for Q1 is as follows. Revenues are expected between $200 to 215 million. Non-GAAP earnings per diluted share are expected between $0.05 and $0.25 of profit. Our expectations are based on non-GAAP gross margin of 32% to 34%, non-GAAP operating expenses of approximately $52 million, interest and other expense net in a range of $8 to 9 million, tax rate of about 23% for Q1, and non-GAAP diluted share count of about 42 million shares. I would like to now hand the call back to Sunny for some thoughts on the year ahead.

Speaker #4: Our expectations are based on non-GAAP gross margin of 32% to 34%, non-GAAP operating expenses of approximately $52 million, interest and other expense net in a range of $8 million to $9 million, tax rate of about 23% for the first quarter, and non-GAAP diluted share count of about 42 million shares.

Speaker #4: I would like to now hand the call back to Sunny for some thoughts on the year.

Speaker #4: ahead. Thank you,

Sunny Sanyal: Thank you, Sam. Looking back, we faced a challenging start to fiscal 2025 due to unpredictable global tariff situation. However, as we had anticipated, our customers' ordering patterns normalized once tariff situation stabilized. Looking ahead, our customers in China are projecting stronger orders and sales for 2026 compared to 2024 and 2025. Last year's uncertainty around the implementation of stimulus programs led hospitals to delay imaging equipment purchases, but this appears to be behind us. 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 healthcare expansion plans. I'm also happy to say that we were recently informed by MOFCOM that investigations regarding CT tube pricing have been paused indefinitely. We are intensifying our efforts to strengthen geopolitical resiliency through supply chain and manufacturing regionalization.

Speaker #2: Sam, looking back, we've faced a challenging start to fiscal 2025 due to the unpredictable global tariff situation. However, as we had anticipated, our customers' ordering patterns normalized once the tariff situation stabilized.

Speaker #2: Looking ahead, our customers in China are projecting stronger orders and sales for 2026 compared to 2024 and 2025. Last year's uncertainty around the implementation of stimulus programs led hospitals to delay imaging equipment purchases, but this appears to be behind us.

Speaker #2: Customers in China are now saying that they are seeing increased tender activity driven by demand for value-tier and mid-tier CT systems.

Speaker #1: We were recently informed by Mofcom that investigations regarding Ct2 pricing have been paused indefinitely. We are intensifying our efforts to strengthen geopolitical resiliency through supply chain manufacturing with regionalization.

Speaker #1: We've also raised prices and are charging our customers for tariffs, together with export-oriented manufacturing and localized or regional supply chains. We have put several measures in place to position ourselves better to withstand current and future trade challenges.

Sunny Sanyal: We've also raised prices and are charging our customers for tariffs. Together with export-oriented manufacturing and localized or regional supply chains, we have put several measures in place to position Varex better to withstand current and future trade challenges. These operational and supply chain initiatives are reinforcing our customers' confidence in Varex as a premier long-term partner. We plan to continue to invest in R&D to strengthen our competitive edge. Looking at other future growth markets such as India, South Asia, the Middle East, and Latin America, we see value tier and mid-tier products in both radiographic and CT playing a critical role in driving our future growth. Our strategy is to lead with innovation while also maintaining cost effectiveness in these segments.

Speaker #1: These operational and operational and supply chain initiatives are reinforcing our customers confidence in Verax . As a premier long term partner . We plan to continue to invest in R&D to strengthen our competitive edge .

Speaker #1: Looking at other future growth markets such as India , South Asia , the Middle East and Latin America , we see value tier and mid-tier products in both radiographic and CT playing a critical role in driving our future growth .

Speaker #1: Our strategy is to lead with innovation while also maintaining cost effectiveness in these segments . Our investments in supply chain , cost effective product designs and expanded low cost manufacturing and India are central to our strategy to drive growth in the value and mid-tier segments .

Sunny Sanyal: Our investments in supply chain, cost effective product designs, and expanded low cost manufacturing in India are central to our strategy to drive growth in the value and mid-tier segments. Our detectors factory in Vadodara, India is ramping up production of our radiographic detectors. We are expanding the site to enable even greater vertical integration to support further product cost reduction efforts. While we continue to advance our photon counting CT detector offering with our anchor OEM customers, we are engaged with additional OEMs to secure design ins. A couple of years ago, we announced a collaboration with the Technical University of Munich to develop a technology demonstrator for our photon counting CT system. Over the past two years, this project has achieved key milestones. We plan to showcase this system for customers at major trade shows in 2026.

Speaker #1: Our detectors factory in Vizag, India, is ramping up production of our radiographic detectors, and we are expanding the site to enable even greater vertical integration to support further product cost reduction efforts.

Speaker #1: While we continue to advance our photon counting CT detector offering with our OEM anchor customers, we are engaged with additional OEMs to secure design ins. A couple of years ago, we announced a collaboration with the Technical University of Munich to develop a technology demonstrator for a photon counting CT system.

Speaker #1: Over the past two years, this project has achieved key milestones, and we plan to showcase this system for customers at major trade shows in 2026.

Speaker #1: Our goal is to demonstrate the value proposition of photon counting CT beyond just higher resolution images. We know that photon counting technology offers potential for more precise material discrimination, and we hope to be able to show clinical value and improved workflow with our capabilities.

Sunny Sanyal: Our goal is to demonstrate the value proposition of photon counting CT beyond just higher resolution images. We know that photon counting technology offers potential for more precise material discrimination, and we hope to be able to show clinical value and improved workflow with our capabilities. This system will also showcase the added value of integrating multiple Varex components such as our high power CT tubes optimized for photon counting detectors, along with our high voltage generator, connectors, heat exchangers. By enabling customers to experience the full capabilities of our X-ray components and photon counting detector technology within a fully functional CT system, we intend to accelerate adoption of Varex's photon counting CT detector offering. 8 November marks World Radiography Day commemorating Röntgen's discovery of X-rays 130 years ago. Since then, X-rays have largely been generated the same way using heated filament in a vacuum tube.

Speaker #1: This system will also showcase the added value of integrating multiple varex components , such as our high . Power CT tubes optimized for photon counting detectors , along with our high voltage generator connectors , heat exchangers .

Speaker #1: By enabling customers to experience the full capabilities of our X-ray components and photon counting detector technology within a fully functional CT system, we intend to accelerate the adoption of photon counting CT detectors.

Speaker #1: November 8th marks world Radiography Day , commemorating Röntgen's discovery of x rays . 130 years ago . Since then , X-rays have largely been generated the same way , using heated filament in a vacuum tube .

Speaker #1: Looking beyond photon counting, we expect nanotube-based cold emitters to enable a new generation of X-ray sources that will drive the development of new imaging applications for decades to come.

Sunny Sanyal: Looking beyond photon counting, we expect nanotubes-based cold emitters to enable a new generation of X-ray sources that will drive development of new imaging applications for decades to come. We are continuing to invest in nanotubes-based cold emitters and are making progress with this technology in collaboration with several innovative OEMs who are developing novel applications. As with any foundational technology, bringing applications to market takes time. We plan to provide more visibility to this technology at trade shows in fiscal 2026. On the industrial segment side, progress on our products and implementations of our systems are on track, and we're planning to scale up production capacity of our cargo systems in fiscal 2026.

Speaker #1: continuing to We are in nanotube based cold emitters and are making progress with this technology . In collaboration with several innovative OEMs who are developing novel applications .

Speaker #1: As with any foundational technology, bringing applications to market takes time. We plan to provide more visibility to this technology at trade shows in fiscal 2026.

Speaker #1: On the industrial segment side, progress on our products and implementations of our systems are on track, and we're planning to scale up production capacity of our cargo systems in fiscal 2026.

Speaker #1: Recently, we shipped a batch of our M6 mobile cargo inspection systems to our European customer, and we are now preparing to implement a rail cargo scanner for our customer.

Sunny Sanyal: Recently, we shipped a batch of our VXM-6 mobile cargo inspection system to our European customer, and we are now preparing to implement a rail cargo scanner for our customer in Latin America during fiscal 2026. The strong customer relationships and brand reputation that we have built over decades is giving us access to key tenders, and we have very good visibility into upcoming cargo systems opportunities through our channels. Overall, we're happy with our performance in fiscal 2025 and are looking forward to another year of solid progress towards our strategic plans in fiscal 2026. These include exiting fiscal 2026 with additional OEM design ins for photon counting CT, ramped up detector production in India, introduction of new products in cargo systems, increased traction with new bendable industrial detectors, and more OEM integration of nanotubes in multi-beam medical applications.

Speaker #1: Latin America. During fiscal 2026, the strong customer relationships and brand reputation that we have built over decades are giving us access to key tenders, and we have very good visibility into upcoming cargo systems opportunities through our channels.

Speaker #1: Overall, we're happy with our performance in fiscal 2025 and are looking forward to another year of solid progress towards our strategic plans in fiscal 2026.

Speaker #1: These include exiting fiscal 2026 with additional OEM design ends for photon counting, CT ramped up detector production in India, introduction of new products in cargo systems, increased traction with new bendable industrial detectors, and more OEM integration of nanotubes in multi-beam medical applications.

Speaker #1: I want to thank all our employees and partners worldwide for their hard work and dedication. Their efforts and flexibility have been instrumental in delivering a solid year and driving the innovation that powers our growth initiatives in medical and industrial.

Sunny Sanyal: I wanna thank all our employees and partners worldwide for their hard work and dedication. Their efforts and flexibility have been instrumental in delivering a solid year and driving the innovation that powers our growth initiatives in medical and industrial. Together, we're building momentum and shaping the future of our business. Thank you, everyone, for your commitment and passion for making this possible. With that, we will now open up the call for your questions.

Speaker #1: Together, we're building momentum and shaping the future of our business. Thank you, everyone, for your commitment and passion for making this possible.

Speaker #1: With that, we will now open up the call for your questions.

Speaker #2: Thank you . Will now be conducting a question and answer session . If you'd like to be placed in the question queue , please press star one on your telephone keypad .

Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment please while we poll for questions. Our first question is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Speaker #2: A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue for participants using speaker equipment, and it may be necessary to pick up your handset before pressing *1.

Speaker #2: One moment, please. Bobby Pall for questions. Our first question is coming from Suraj Kalia from Oppenheimer. Your line is now live.

Speaker #1: Hi ,

Speaker #3: Sam, can you hear me? All right.

Speaker #1: Yes, Suraj. How are you?

Speaker #3: , gentlemen ? Congrats on a strong end to year the . Sunny Sam , one of the comments you made in your prepared remarks .

Suraj Kalia: Sam, can you hear me all right?

Sunny Sanyal: Yes, Suraj. How are you?

Suraj Kalia: gentlemen, congrats on a strong end to the year. Sam, one of the comments you had made in your prepared remarks, we appreciate you giving us some incremental detail, and maybe I got my numbers wrong. Top 10 customers with 52% of sales. If I got that right, could you split it between medical and industrial? You know, how should we think about the sustainability, you know, just given the customer concentration?

Speaker #3: We appreciate you giving us some incremental detail. And maybe I got my numbers wrong. The top ten customers were 52% of sales.

Speaker #3: If I got that right . Could you split it between medical and industrial ? How should we think about the sustainability ? You know , just given given the customer concentration ?

Speaker #4: Yeah . Yes , sir . Roger , thanks for your question . I can I can try to answer that . So the sustainability and for , for a number of years , top ten customers generally for us are in that range , 5,055% range .

Sunny Sanyal: Yes. Yes, Suraj, thanks for your question. I can try to answer that.

Speaker #4: So this number is very much within the range over the last many, many years. The reason we do not break out medical versus industrial, Suraj, is that the vast majority of those top ten customers are medical, and sometimes one industrial customer might be there.

Sam Maheshwari: Generally for us are in that range, 50% to 55% range. This number is very much within the range over the last many years. The reason we do not break out medical versus industrial, Suraj Kalia, is that vast majority of those top 10 customers are medical, and sometimes one industrial customer might be there, and if we begin to break that out, then it can become public information for that one customer, which is not something that customers really want we are doing at this time. That is the reason we do not break it out between industrial and medical.

Speaker #4: And we begin to break that out. Then it can become public information for that one customer, which is not something that, for commercial reasons, we are doing at this time.

Speaker #4: So, that is the reason we do not break it out between industrial and medical.

Speaker #3: Yeah, it's funny. Obviously, for the last two quarters, medical has been somewhat soft, but it has been more than compensated by industrial.

Suraj Kalia: Got it. Yeah, it's funny. Obviously, for the last 2 quarters, medical has been somewhat slow, but it has been more than compensated by industrial. Can you just walk us through what specifically are you seeing some sort of a structural shift? As we enter 2026, do you think, you know, any of the systemic forces could change, you know, as we go through the year, specifically within these two buckets? Gentlemen, thank you for taking my questions.

Speaker #3: Can you just walk us through what specifically are we seeing some sort of a structural shift ? And as we enter 26 , do you think you know any of the the systemic forces could change as you go through the year ?

Speaker #3: Gentlemen, thank you for taking my questions. Specifically, within these two buckets?

Speaker #1: Thank you . Suraj . Suraj . Industrial as a percent of our overall sales has been growing . So it's , you know , it's a it's approaching 30% and we expect it'll , you know , get up to mid 30s .

Sunny Sanyal: Thank you, Suraj. Suraj, industrial, as a % of our overall sales, has been growing. It's, you know, it's approaching 30% and we expect it'll, you know, get up to mid-30s. That is a trend that has been consistent. It has been consistently growing and growing faster than medical. Within medical, any movement between modalities or between China and non-China tends to be largely, I'd say, you know, that volatility is month to month, quarter to quarter, and it moves around. What we have been seeing, though, increasingly, is given the geopolitical situation, more of our non-Chinese OEMs are asking us to ship product to them from our Chinese facilities, from our facilities in Wuxi.

Speaker #1: So that is a trend that has been consistent . It has been consistently growing and growing faster than medical within medical . Any movement between modalities or between China and non-china tends to be largely I'd say , you that know , volatility is month to month , quarter to quarter , and it moves around what we have been seeing , though increasingly , is given the geopolitical situation , more of our non-Chinese OEMs are asking us to ship product to them from our Chinese facilities , from from our facilities .

Speaker #1: Ruchi . So it's very difficult for us to now maintain consistency in , you know .

Speaker #4: . Between

Speaker #1: China and Ex-China within the medical segment because of that phenomenon.

Sam Maheshwari: It's very difficult for us to now maintain consistency in this, you know, between China and ex-China within the medical segment because of that phenomenon.

Speaker #3: Sunny Sanyal give me can I ask another question ? Yes , yes , some just I'm sure you've heard in the news GE is thinking about or there's some speculation about Ben's , you know , kind of selling or divesting their China business .

Suraj Kalia: Forgive me, can I ask another question?

Sunny Sanyal: Yes.

Suraj Kalia: Just, I'm sure you've heard in the news, GE is thinking about or there's some speculation about them, you know, kinda selling or divesting their China business. Siemens Healthineers is splitting out. Any implications for Varex per se? Maybe not in the short term, but how do you see if these happen, do you see any impact to Varex? Thank you.

Speaker #3: Siemens Healthineers is splitting out any implications for various per se. Maybe not in the short term, but how do you see if these happen?

Speaker #3: Do you see any impact to lyrics ? Thank you .

Speaker #1: The vast majority of our business in China comes through our Chinese OBMs. So, from that perspective, these announcements really do not have any significant implications for us.

Sunny Sanyal: Vast majority of our business in China comes through our Chinese audience. From that perspective, these announcements really do not have any significant implications for us, although our non-Chinese OEMs, our global OEMs, do some business in China. We're not anticipating a significant impact from at least a couple of examples that you cited. Secondly, our Chinese OEMs are also, they're also increasingly commercially focused outside of China. At the end of the day, for us, it's all about building our franchise of OEM partners and securing design wins. The geography, while they start in one place, they can all end up in another place.

Speaker #1: Although our non-Chinese OEMs , our global OEMs do do some business in China . So but we're not anticipating a , you know , a significant impact from at least a couple of examples that you you cited .

Speaker #1: Secondly , our Chinese OEMs are also , you know , they're they're they're also increasingly commercially focused outside of China . So the end of the day , for us , it's it's all about building our franchise partners .

Speaker #1: OEM of And securing design wins . And the geography , while they start in one place , they can all end up in another place .

Speaker #1: You know, virtually all of our customers used to be concentrated in one geography, and then they moved globally into other geographies.

Sunny Sanyal: You know, virtually most of our customers used to be concentrated in one geography, and then they moved global into other geographies, and we're seeing that out of our customers in China as well.

Speaker #1: And we're seeing that out of our customers in China as well.

Speaker #5: you Thank .

Speaker #2: Thank you . As a reminder , that Star One to be placed into question queue . Our next question is coming from Larry Solo from CJS securities .

Suraj Kalia: Thank you.

Suraj Kalia: Thank you. As a reminder, then star 1 to be placed in the question queue. Our next question is coming from Larry Solow from CJS Securities. Your line is now live.

Speaker #2: Your line is now live.

Speaker #3: Great .

Speaker #2: Thank you .

Speaker #5: And good afternoon . Good evening . I guess the question . Sorry , Sam . I know you don't give full year guidance .

Larry Solow: Great. Thank you. Good afternoon or good evening. I guess the first question, Sam, I know you don't give full year guidance, and I don't want to make too much of Q1. I know it's seasonally a little bit slower. I guess looks like you have like kind of flat to 8% growth, so mid-single digits for the quarter. I'm sort of presenting that point. Is there anything we could glean from that, you know, the quarter in reference to the full year? Qualitatively, it sounds like things are, yeah, going pretty well, both on medical and industrial. Just trying to get any, you know, high level outlook for the full year you can share with us.

Speaker #5: I don't want to make too much of Q1 . I know it's seasonally , a little bit slower , but I guess looks like you have , like , kind of flat to 8% growth .

Speaker #5: So mid-single digits , a quarter of 4% midpoint . Is there anything we could glean from that ? You know , the quarter in reference to the full year ?

Speaker #5: Qualitatively, it sounds like things are going pretty well, both on the medical and industrial sides. So, I'm just trying to get any high-level outlook for the full year that you can share with the group.

Speaker #5: Sure .

Speaker #4: Larry , let me answer that question . Yes , that's at this point , the demand , the demand environment looks to be solid .

Sam Maheshwari: Sure, Larry Solow. Let me answer that question. Yes, at this point, the demand environment looks to be solid, 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. We are expecting medical business ex-China to grow, and at the same time, we are modeling China to be flattish. That's some additional color that I can provide you for the full year. As you know, and we mentioned that we do not guide annually just for various reasons. That's the color I can provide.

Speaker #4: And we expect full-year revenues to grow. We are expecting the medical business to grow for the year. We also expect the industrial business to grow, and we are expecting the medical business ex-China to grow.

Speaker #4: And at the same time , we are modeling China to be flattish . So that's the that's some additional color that I can provide you for the full year , as you know , and you mentioned that we do not guide annually just for various reasons .

Speaker #4: And so that's the color I can provide . And then trying to glean more from Q1 into the full year , I would say for this coming fiscal year , Q1 and Q3 , comps are somewhat easier for us in the sense because of tariff .

Sam Maheshwari: Trying to glean more from Q1 into the full year, I would say, for this coming fiscal year, Q1 and Q3 comps are somewhat easier for us in the sense because of tariff and this and that, you know, business volumes followed somewhat of an unusual pattern for us. In FY 2025 everything seems to be normal, I would expect through the year, through various quarters, we would see, normal gradual growth through the year as opposed to the.

Speaker #4: And this and that . You know , business volumes followed somewhat of an unusual pattern for us in FY 25 . But in FY 26 , everything seems to be normal .

Speaker #4: I would So expect through the year , through various quarters , we would see normal gradual growth through the year as opposed to the up and down pattern that we saw in FY 25 .

Speaker #4: So I would say Q1 and Q3 have easier comps. Q2 and Q4 have a little bit more difficult comps, but overall we should see.

Sam Maheshwari: up and down pattern that we saw in FY 2025. I would say Q1, Q3, easier comps. Q2, Q4, a little bit more difficult comps. Overall, we should see a gradual growth through the year, as is our typical pattern.

Speaker #4: Gradual growth through the year , as is our typical pattern .

Speaker #5: Gotcha . And China specifically it you're assuming kind of flat or , it in your budget . Not the full year guidance because you're not sharing that with us .

Larry Solow: Gotcha. China piece specifically, you're assuming kind of flat and/or, you know, it's in your budget, not before your guidance because you're not sharing that with us. It sounds like your customers in China expect growth. Although I know you also mentioned that it's a little bit hard to figure out now because you're shipping from China more often than not than you were previously. Any thoughts on that?

Speaker #5: But it sounds like your customers in China expect growth. Although I know you also mentioned that it's a little bit hard to figure out now because you're shipping from China.

Speaker #5: More often than not, than you were previously. But any thoughts on that? Yeah.

Speaker #1: It's .

Speaker #4: It is more and more becoming difficult because our customer is global . Customers are changing their supply to the chains . But extent that what we can model , we are seeing China as stable , stable to slight growth .

Sam Maheshwari: Yeah. It is becoming more and more difficult because our customers, global customers, are changing their supply chains. To the extent

Speaker #4: But given the tariff and all of the uncertainties around the U.S.-China situation, we are modeling essentially a stable and flattish China for the coming year.

Sam Maheshwari: What we can model, we are seeing China as stable to slight growth. Given the tariff and all of the uncertainties around US-China situation, we are modeling essentially a stable and a flattish China for coming year.

Speaker #5: Okay . And I want to just ask an industrial if I can sit in one more question . Fisher . Good , really strong .

Larry Solow: Okay. With industrial, I want to just ask on industrial, if I can slip in one more question.

Speaker #5: Yeah . The the quarter was strong . The year was strong . The quarter was really strong . I would I know a few million dollars could , you know , could jack up those percentages a little bit .

Sam Maheshwari: Sure.

Larry Solow: Industrial doing really strong. Yeah, the quarter was strong. The year was strong. The quarter was really strong, obviously. I know a few million dollars could, you know, could jack up those percentages a little bit. Also, the gross margin was really strong in the quarter. Was there anything, you know, I'm just trying to figure out, I know you have the standalone systems now, but sometimes the mix will actually drive higher revenue on the service side. So that wouldn't be a lumpy higher revenue number. Any color to that, you know, the strong performance, particularly on the margins in the quarter in industrial?

Speaker #5: But also the gross margin was really strong in the quarter . Was there anything . I'm just trying to figure out ? I know you have the , you know , the standalone systems now , but and sometimes the mix will actually drive higher revenue on the service side .

Speaker #5: So but that wouldn't be a lumpy higher revenue number . So any color to that , you know , the strong performance , particularly on the on the margins in the quarter in industrial .

Speaker #4: Sure . I can try to answer that . So you're Larry right , . Industrial gross margins were quite a bit better than our expectations for this past quarter .

Sam Maheshwari: Sure, I can try to answer that. You're right, Larry. Industrial gross margins were quite a bit better than our expectations for this past quarter. You know, we experienced a higher than usual proportion of service revenues on our Linatron install base. As you know, service business is at much higher margin than the hardware equipment gross margins that we experience.

Speaker #4: You know , we we experienced the higher than usual proportion of service revenues on our Linux install base . And as you know , service business is at much higher margin than the hardware equipment gross margins that we experienced .

Speaker #4: So because of that service and time and material , which is generally unplanned service , business experience , so that drove our gross margins higher for the quarter .

Larry Solow: Yep.

Sam Maheshwari: Because of that service and time and material, which is generally unplanned service business experience. That drove our gross margin higher for the quarter. I in order to kind of glean more than that, I think this is a little bit unusual for the industrial business to produce that type of margin. We are shipping currently a decent amount of hardware. I would say that Q4 gross margin is not the norm, but we did benefit from higher as the normal service.

Speaker #4: So I in order to kind of glean more than that , I think this is a little bit unusual . Unusual for the industrial business to produce that type of margin .

Speaker #4: We are we are shipping currently decent amount of hardware . So I would say that Q4 gross margin was is not the norm , but we did benefit from higher than normal service .

Speaker #4: And and then in the . sorry , and I was saying that when I say if you go back two years ago , our industrial margin had much more of a service component to it .

Larry Solow: And, and some-

Sam Maheshwari: And then in the-

Larry Solow: Yeah. Yeah, go ahead.

Sam Maheshwari: Sorry. I was saying that when I say if you go back 2 years ago, our industrial margin had much more of service component to it. At that time, we could do 37, 38-

Speaker #4: And at that time we could do 35 . 37 , 38 , 40% margin . And what I was going to add there is that my comment is more on the near to mid-term , but in the long term , say when you're thinking of , say , two years and stuff , when a lot of this hardware that we are currently shipping into goes service , that should provide a nice gross margin tailwind for us .

Larry Solow: Yeah

Sam Maheshwari: 40% gross margin. What I was going to add there is that my comment is more on the near to midterm, but in the long term, say when you are thinking of, say, 2 years and stuff, when a lot of this hardware that we are currently shipping goes into service, that should provide a nice gross margin tailwind for us, and we would like to see our industrial margin go back up to 38%, 39%, 40%, in that range.

Speaker #4: And we would like to see our industrial margins go back up to 38%, 39%, 40% in that range.

Speaker #5: Right ? exactly what I was That's going . I appreciate that . Thank you . And also appreciate all that color .

Larry Solow: Great. That's exactly where I was going. I appreciate that. Thank you. I'm off. I appreciate all that color.

Speaker #4: Thank you .

Speaker #2: Thank you. As a reminder, that's Star One to be placed in the question queue. Our next question is coming from James Sidoti from Sodium Company.

Sam Maheshwari: Thank you.

Operator: Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from James Sidoti from Sidoti & Company. Your line is now live.

Speaker #2: Your line is now live.

Speaker #6: Hi . afternoon . Good Thanks for taking the questions . So your revenue came in well above my estimate , you know , well above your guidance in the street .

James Sidoti: Hi, good afternoon. Thanks for taking the question. Your revenue came in, well above, you know, my estimate, you know, well above your guidance in the street. Was there anything unusual? Did you pull any sales in from Q1 or anything unusual in this Q4 that led to the revenue growth?

Speaker #6: It would. Was there anything unusual? Did you pull any sales in from the first quarter or anything in this fourth quarter that led to the revenue growth?

Speaker #4: Jim? No, there was nothing unusual here. There always is a little bit of a push and pull driven by our own customers and their freight optimization type of a situation that can happen.

Sam Maheshwari: Jim, no, there was nothing unusual here. There always is a little bit of a push and pull driven by our own customers and their freight optimization type of a situation that can happen, but nothing to speak about in terms of pull-in or push-out. It's just that the demand in both the segments was strong, we benefited from that. We did ship cargo systems in this last quarter, and they can be, you know, $1 to 2 million per system. That can swing the numbers. 1 or 2 systems can increase the number as opposed to tubes or detectors, which are generally in the $50,000, $75,000, in that type of a price range versus one and a half million to $2 million dollar type of a system.

Speaker #4: But there was nothing to speak about in terms of pull-in or push-out. It's just that the demand in both segments was strong, and we benefited from that.

Speaker #4: And also we did ship cargo systems in this last quarter and they can be they can be , you know , 1 to $2 million per system .

Speaker #4: So that can swing the numbers . 1 or 2 systems can increase the number as opposed to tubes or detectors , which are generally in the $50,000 , $75,000 in that type of a price range , versus 1.5 million to $2 million type of a system .

Speaker #4: So , so so that's that's a little bit color more behind , behind the strong performance for Q4 .

Sam Maheshwari: That's a little bit more color behind behind the strong performance for Q4.

Speaker #6: Okay. And I believe you said China was 14% of revenue. So I'm just checking my math. It's about $32 million compared to about $30 million a year ago.

James Sidoti: Okay. I believe you said China was 14% of revenue. I'm just checking my math. About $32 million compared to about $30 million a year ago. Does that sound right?

Speaker #6: You can't stand right .

Speaker #4: That that is correct . This last quarter China was 32 million . Yeah . And a quarter ago I have 31 million . That might just be rounding Jim .

Sam Maheshwari: That is correct. This last quarter, China was $32 million. Yeah. A quarter ago, I have $31 million. That might just be rounding, Jim.

Speaker #6: Yeah. No, I was comparing it to the fourth quarter of fiscal 2024. Yeah.

Speaker #7: Yeah okay .

James Sidoti: Yeah. No, I was comparing to Q4 of fiscal 2024.

Speaker #6: All right. And India, it sounds like you started to ship the detectors. Do you expect those to ramp over the next couple of quarters?

Sam Maheshwari: Yeah. Yeah.

James Sidoti: Okay. All right. India, it sounds like you started to ship the detectors. Do you expect that to ramp over the next couple quarters? When do you expect to start to ship tubes?

Speaker #6: And when do you expect to start shipping tubes?

Speaker #4: Okay . So when it comes to India . Yes , we've started to ship detectors from India . So now the factory , as you just just said , we expect it to ramp up over FY 26 .

Sam Maheshwari: Okay. When it comes to India, yes, that's, we've started to ship detectors from India. Now the factory, as you just said, we expect it to ramp up over FY 2026. We are really excited about that and we'll be planning to ramp that up. Then the tubes factory, that is still under construction, although I would say it is towards the later stages of construction schedule. Once we complete the construction, then we need to bring in equipment and then qualify the equipment, run trial runs, et cetera, and make sure it's all, it's all optimized and qualified. I would say that factory is still now 12 months away from production or from product shipments, 12 to 15 months.

Speaker #4: So , so we are really excited about that . And would be planning to ramp that up . And then the tubes factory that is still under construction , although I would say it is towards the later stages of .

Speaker #4: Construction schedule . So once we complete the construction then we need to bring in equipment and then qualify the equipment run trial runs , etc.

Speaker #4: And make sure it's all optimized and qualified. So, I would say that the factory is still now 12 months away from production, from product shipment 12 to 15 months. But we've made a lot of progress there on the tube side.

Speaker #4: And of course, detectors. It started to ramp.

Sam Maheshwari: We've made a lot of progress there, on the tube side, and of course, detectors, it started to ramp.

Speaker #7: Okay , okay .

Speaker #6: And as the business from India grows, should we see that in growth an improvement in gross margin, or are those lower margin products?

James Sidoti: Okay. As the business in India grows, should we see that in growth, an improvement in gross margin, or are those lower margin products?

Speaker #1: Yes .

Speaker #4: So, as you know, Jim, gross margin has many factors to it, which includes overall cost, new product introduction, as well as what the tariff environment is doing.

Sam Maheshwari: Yes. As you know, Jim, gross margin has many factors to it, which is overall cost, new product introduction, as well as what the tariff environment is doing, and of course, customer concentration, product concentration, and everything else like that. Just isolated to India, there are two aspects in India that are happening. Some of the legacy product that we transfer from Salt Lake City to India, of course, that product will see a pickup in gross margin. That's one aspect of India production. That should see a gross margin improvement. However, the amount of product that we will transfer from Salt Lake City to India is mostly radiographic, and it is a very small proportion of overall revenue. We are talking $10 million, $20 million, $30 million and not more than that.

Speaker #4: And of course , customer concentration , product concentration and everything else like that . But just related to India , there are two aspects in India that are happening .

Speaker #4: Some of the legacy product that we transfer from Salt Lake City to India , of course , that product will see a pickup in gross margin .

Speaker #4: So that's one aspect of India production . So that should see gross margin improvement . However , the amount of product that we will transfer from Salt Lake City to India is mostly radiographic .

Speaker #4: And it is a very small proportion of overall revenue . We are talking 1020 , $30 million and not more than that . So that is a small amount of revenue that ships from India eventually , which is transferred from Salt But Lake .

Sam Maheshwari: That is a small amount of revenue that ships from India eventually, which is transferred from Salt Lake. Our bigger plans from India are to be more competitive in the radiographic segment, sub-segment of our medical segment. As we begin to ship from there, and then as commercial, competitive, and all other dynamics play out, we will be able to provide you more color. Overall, we are thinking that the new business piece is corporate average gross margin, not necessarily a big driver for upward momentum to gross margin. That's the two areas of color I can provide you as it comes to gross margin.

Speaker #4: our bigger plans from India are to be more competitive in the radiographic segment subsegment of our medical segment . And so as we begin to ship from there and then as commercial , competitive and all other dynamics play out , we'll be able to provide you more color .

Speaker #4: But overall, we are thinking that the new business piece is corporate average gross margins, not necessarily a big driver for upward momentum to gross margin.

Speaker #4: So those are that's the two two areas of color I can provide you as it comes to margin gross . Separately outside of as it India comes to overall for color gross margin for the company , you know , we've been doing a lot of work trying to take cost out , trying to pass tariffs related costs to our customers .

Sam Maheshwari: Separately, outside of India, as it comes to overall color for gross margin for the company, you know, we've been doing a lot of work trying to take cost out, trying to pass tariff-related costs to our customers, and we are being successful at that. That is helping our gross margin. Then, as photon counting detector-related products begin to ship and as some of our new products in cardiovascular, et cetera, begin to ship, that should provide a little bit more tailwind to our gross margin. I would say India impact on gross margin is there, but small.

Speaker #4: And we are being successful at that . So that is helping our , our gross margin . And then as photon counting detector related products begin to ship , and as some of our new products in cardiovascular , etc.

Speaker #4: Begin to ship; that should provide a little bit more tailwind to our gross margin. So, I would say the India impact on gross margin.

Speaker #4: Is there . But but small India enables us to grow in the segment for medical . But our cost reduction and other new products actually provide more of a tailwind for our gross margin as we look into late 26 and 27 .

Sam Maheshwari: India enables us to grow in the rad segment for medical, but our cost reduction and other new products actually provide more of a tailwind for our gross margin as we look into late 2026 and 2027.

Speaker #6: All . And then last one for me , R&D and I know that that that expense can move up and down . I think you had a payment to micro X in the first quarter .

James Sidoti: All right. Then last one for me, R&D. I know that expense can move up and down. I know I think you had a payment to Micro-X in Q1. In this quarter, it's up almost $3 million on a GAAP basis from Q2. Was there a non-cash expense in there? Is that the timing of projects? You know, how should we think about R&D? I know you said it'll be up, you're gonna continue to spend on R&D, but should that number continue to rise year over year?

Speaker #6: But in this quarter, it was up almost $3 million on a GAAP basis from the June quarter. Was there a non-cash expense in there?

Speaker #6: Is that the timing and projects? And how should we think about R&D? I know you said it will be up. You're going to continue to spend on R&D.

Speaker #6: But should that number continue to rise year over year?

Speaker #1: So .

Speaker #4: Jim , and R&D , there's a lot of expense that is , you know , engineers like to play with , you know , experiment with materials and everything else .

Sam Maheshwari: Jim, in R&D, there's a lot of expense that is, you know, engineers like to play with, you know, experiment with materials and everything else. Also, we need to buy material to build new prototypes. That is generally not on a linear basis across quarters. It can jump up and down a couple, 1 or 2 million dollars here and there. That's what happens in R&D. What I can say is overall OpEx for coming year, we are planning it to be lower than this last fiscal year. All I can say is that OpEx should be around $52, $53 a quarter for the full year as we go through the year.

Speaker #4: And also, we need to buy material to build new prototypes. So, that is generally not on a linear basis across quarters.

Speaker #4: So it can jump up and down a couple of $1 million or $2 million here and there. So that's what happens in R&D. But what I can say is that overall, opex for the coming year.

Speaker #4: We plan for it to be lower than last fiscal year. So all I can say is that opex should be around $52 million to $53 million a quarter for the full year.

Speaker #4: As we go through the year.

Speaker #6: Okay. All right. Thank you. That's very helpful.

Speaker #4: Yeah . Thank you .

Speaker #7: Jim .

Speaker #2: Thank you . Next question today is coming from Anderson . Shock from B Riley Securities . Your line is now live . Hi .

James Sidoti: Okay. All right. Thank you. It's very helpful.

Sam Maheshwari: Yeah. Thank you, Jim.

Operator: Thank you. Next question today is coming from Anthony Stoss from B. Riley Securities. Your line is now live.

Speaker #5: Thank you for taking the questions, and congrats on a really strong quarter and into the year. So, you mentioned a batch of VXM06 mobile cargo inspection systems to a European customer.

Anthony Stoss: Thank you for taking the questions. Congrats on a really strong quarter and into the year. You mentioned a batch of VXM-6 mobile cargo inspection systems to a European customer and then implementing a rail cargo scanner this year, I guess in 2026. Is there any color you can share on the size of these orders and the timeline of shipping these? I guess, how should we think about growth in 2026 compared to the $55 million in orders in 2025?

Speaker #5: And then implementing a rail cargo scanner this year in 2026. Is there any color you can share on the size of these orders and the timeline of shipping these?

Speaker #5: And I guess how should we think about growth in 2026 compared to the 55 million orders in 2025?

Speaker #1: Yeah , we haven't given specific color around that . That in that detail . We are expecting a growth year out of our cargo systems .

Sam Maheshwari: Yeah, we haven't given specific color around that, in that detail. We are expecting a growth year out of our cargo systems, so maybe I'll just leave it at that. I mentioned the VXM-6, the cargo, and the rail scanner as examples of new products. At this point, for the products that we have set out to build and market in cargo systems, there are portals, gantries, mobiles, car scanners. All of them are the products are there, and they are manufacturable, and we have shipped them to customers, and they've either been installed or in the process of being installed. That was my point about giving the color about these systems.

Speaker #1: So, maybe I'll just leave it at that. I mentioned the M6, the cargo, and the rail scanner as examples of new products.

Speaker #1: So at this point for the products that we had set out to build and market in cargo systems , they were portals , gantries , mobiles , car scanners , they're all of them are are the products are there and they are manufacturable .

Speaker #1: And we have shipped them to customers, and they've either been installed or are in the process of being installed. So that was my point about giving the color about these systems.

Speaker #5: Okay. Got it. And then, did I hear correctly that the anti-dumping investigations in China have been paused indefinitely?

Anthony Stoss: Okay, got it. Did I hear correctly that the anti-dumping investigations in China have been paused indefinitely?

Speaker #1: Yes . There were two investigations . One was the anti-dumping . That's a pricing matter . And the second one was an industry investigation .

Sam Maheshwari: Yes. There were two investigations. One was anti-dumping on the pricing matter, and the second one was an industry investigation, and both have been paused without any end date, so indefinitely.

Speaker #1: And both have been paused without any end date. So definitely.

Speaker #5: Okay. Got it. Thank you for taking our questions.

Speaker #4: Thank you Anderson .

Speaker #2: Thank you. Next question is a follow-up from Larry Solo from KGI Securities. Your line is now live.

Anthony Stoss: Okay, got it. Thank you for taking our questions.

Sunny Sanyal: Thank you, Anthony Stoss.

Operator: Thank you. Next question is a follow-up from Larry Solow from CJS Securities. Your line is now live.

Speaker #5: Just quickly, I know you don't guide to products. So the $55 million in orders that you got for the systems are a little bit more than that.

Larry Solow: Just quickly, I know you don't guide simply to products. The $55 million in orders that you got for the systems or a little bit more than that, for the security screening, I mean, I would assume majority of that has not shipped yet without giving us a number. Is that fair?

Speaker #5: The security screening is that, I mean, I would assume the majority of that has not shipped yet, without giving us a number. Is that fair?

Speaker #1: I don't know if I could say majority. Some of that has been shipped, and a lot of that has not been shipped.

Speaker #1: So .

Sam Maheshwari: I don't know if I could say majority. Some of that has been shipped, and a lot of that has not been shipped.

Speaker #5: Okay. Or here's another way. Would you expect more to be shipped this year than last, than in 2020, or 2026 and 2025?

Larry Solow: Okay. Here, said another way, would you expect more to be shipped this year than last, than in 20?

Speaker #5: Okay , yeah .

Speaker #1: The projects , projects that are in flight that will be will come off of that backlog and then and then within during the year , there'll be orders that we capture depending on the timing , it's likely some of that will also get shipped .

Sam Maheshwari: Yes.

Larry Solow: 2026 than in 2025?

Sam Maheshwari: Yes.

Larry Solow: Okay.

Sam Maheshwari: Yeah.

Larry Solow: Okay.

Sam Maheshwari: The projects that are in flight, that'll be, they come off of that backlog. With it, during the year, there'll be orders that we capture, depending on the timing. It's likely some of that will also get shipped and installed in 2026. We don't have a large backlog, so our cycle time from taking the order to when it ships out of our docks is about 6 months.

Speaker #1: And installed in in in 26 , we don't have a large backlog . So our our cycle time from taking the order to when it gets out of our ships , out of our docks is about six months .

Speaker #5: Okay , right . But that's actually pretty long for you for backlog , right ? Your business generally is not a backlog .

Larry Solow: Okay. Right. That's actually pretty long for you for backlog. Like, your business generally is not a backlog business, right?

Speaker #1: Yeah, component business. Yes.

Speaker #5: So, actually, that's probably, yeah, probably one of the longer cycles for you at least. Right? It is.

Sam Maheshwari: Yeah, our components business, yes.

Larry Solow: It's just like-

Speaker #1: But in a systems business it's not unusual to have more than a year of that type of a lead time . But in our case we can we're at that point where we can get those out fairly quickly .

Sam Maheshwari: From a sy-

Larry Solow: Right. Actually, yeah, probably one of the longer cycles for you, at least, right?

Sam Maheshwari: It is. In a systems business, it's not unusual to have more than a year of that type of a lead time.

Speaker #5: Right ? No , that's a good thing . And just just last question . Just from a general , you know , broad brush tariff impact , there is some on the on the gross margin on the higher cost side , right .

Larry Solow: Right, right.

Sam Maheshwari: We're at that point where we can get those out fairly quickly.

Larry Solow: Right. No, that's a good thing. Just last question, from a general, you know, broad brush tariff impact, there is some on the gross margin on the higher cost side, right? Assuming tariffs don't, let's, you know, probably a tough assumption, but let's say nothing changes from here. Can you just comment, walk us through the impact of tariffs, I guess that may get better as you ship more out of India and China, but any just color on?

Speaker #5: Assuming tariffs don't let's , you know , probably a , a tough assumption , but let's say nothing changes from here . Can you just kind of walk us through the impact of tariffs and I guess that may get better as you ship more out of India and China .

Speaker #5: But I know you just call it on the impact currently. Have a great thanks.

Speaker #7: Yeah , yeah .

Speaker #4: Larry: So we are getting impacted by tariffs on the gross margin line somewhere between 100 and 150 basis points. And now, if those tariffs were not there, we would be clearly at a 35% gross margin.

Sam Maheshwari: Sure.

Larry Solow: You know, the impact currently? That'd be great. Thanks.

Sam Maheshwari: Yeah. Yeah, Larry. We are getting impacted by tariffs on the gross margin line somewhere between 100 and 150 basis points.

Larry Solow: Okay.

Sam Maheshwari: Now, if those tariffs were not there, we would be clearly at a 35% gross margin. With the tariffs being there, and there's a lot of discussion in the Supreme Court and this and that in terms of tariffs, decision, et cetera.

Speaker #4: But with with the tariffs being there and there is a lot of discussion in the Supreme Court and this and that in terms of tariffs decisions .

Speaker #4: Sure .

Speaker #7: Sure .

Speaker #4: Yeah. So there is a little bit of variability to it depending upon where the outcome is. But right now, the tariffs have been flowing through our P&L and balance sheet, etc.

Larry Solow: Sure, sure.

Sam Maheshwari: There is a little bit of variability to it depending upon where the outcome is. Right now, the tariffs have been flowing through our P&L and balance sheet, et cetera, and it's impacting us around 100 to 150 basis points. You're right, in certain situations, reloading, rerouting supply chains, sourcing from higher tariff country to lower tariff country into the United States.

Speaker #4: And it's impacting us around 100 to 250 basis points. And you are right, in certain situations, we are rerouting supply chains.

Speaker #4: From higher tariff sourcing , from higher tariff country to lower tariff country into the United States . And then the finished goods , the only country where I'm aware of that is China , where there is US source product .

Larry Solow: Right.

Sam Maheshwari: The finished goods, the only country where I am aware of that is China, where there is US-sourced product getting tariffed by China at around 10% right now. Some of that benefit can be obtained by us, when the tubes factory in India goes online. That can help, but it's still, maybe I would say at least 12 months away on that side.

Speaker #4: Getting a tariff from China at around 10% right now, so some of that benefit can be obtained by us when the tubes factory in India goes online.

Speaker #4: So that can help. But it's still, maybe I would say, at least 12 months away on that side.

Speaker #5: Okay. Great. Thank you. I appreciate it.

Speaker #4: Thank you .

Speaker #7: Larry .

Speaker #2: Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Larry Solow: Yeah. Great. Thank you. Appreciate it.

Sam Maheshwari: Thank you, Larry.

Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to you for your closing comments.

Speaker #1: Thank you all for your questions and for participating in our earnings conference call.

Speaker #7: Today, the webcast and supplemental slide.

Christopher Belfiore: Thank you all for your questions and participating in our earnings conference call today. The webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through December 2 and can be accessed at www.vareximaging.com/investorrelations. Thank you and goodbye.

Speaker #1: The presentation will be archived on our website. A replay of this quarterly conference call will be available through December 2nd and can be accessed at Varex Imaging Investor Relations. Thank you and goodbye.

Speaker #2: Thank you. This concludes today's teleconference and webcast. We will now disconnect your line at this time. Have a wonderful day.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.