Q1 2026 Varex Imaging Corp Earnings Call

February 10, 2026

Speaker #1: Greetings and welcome to the Varex first quarter fiscal year 2026 earnings conference call and webcast. At this time, all participants are in listen-only mode.

Operator: Greetings, and welcome to the Varex first quarter fiscal year 2026 earnings conference call and webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero on your telephone keypad. It's now my pleasure to turn the call over to Christopher Belfiore, Director of Investor Relations. Christopher, please go ahead.

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

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

Speaker #1: Christopher, please go

Speaker #1: ahead. Good afternoon and welcome to Varex

Christopher Belfiore: Good afternoon, and welcome to Varex Imaging's Q1 fiscal year 2026 Earnings Conference Call. 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 the Q1 of fiscal year 2026, and to the year are for the fiscal year 2026. In addition, unless otherwise stated, quarterly comparisons are made year-over-year from the Q1 of fiscal year 2026 to the Q1 of fiscal year 2025.

Q1 2026 Varex Imaging Corp Earnings Call

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Varex Imaging

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Q1 2026 Varex Imaging Corp Earnings Call

VREX

Tuesday, February 10th, 2026 at 10:00 PM

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Speaker #2: Imaging's earnings conference call for the first quarter fiscal year 2026. 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 and less otherwise stated, all references to the quarter are for the first quarter of fiscal year 2026 and to the year are for the fiscal year 2026.

Speaker #2: In addition, unless otherwise stated, quarterly comparisons are made year over year from the first quarter of fiscal year 2026 to the first quarter of fiscal year 2025.

Speaker #2: I would like to remind you that Q1 of 2025 was a 14-week quarter. Finally, all the references to the year are to the fiscal year and not the calendar year, unless otherwise stated.

Christopher Belfiore: I would like to remind you that Q1 of 2025 was a 14-week quarter. Finally, all the 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 or 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 reports on Form 10-Q and our annual report on Form 10-K.

Speaker #2: Please be advised that during this call, we will be making forward-looking statements, which are predictions or 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.

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 items 1A, risk factors of our quarterly reports on Form 10-Q, and our annual report on Form 10-K.

Speaker #2: The information in these discussions 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 these discussions 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 be discussing certain non-GAAP financial measures. Beginning with Q1 of fiscal 2026, we changed our non-GAAP policy with regard to equity method investments. We will provide more detail later in the call. A reconciliation of these changes is presented at the back of our earnings release and slide presentation for the quarter. Our non-GAAP measures are not presented in accordance with, nor are they a substitute for GAAP financial measures. We provided 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. I will now turn the call over to Sunny.

Speaker #2: On today's call, we will be discussing certain non-GAAP financial measures. Beginning with the first quarter of fiscal 2026, we changed our non-GAAP policy with regard to equity method investments.

Speaker #2: We will provide more detail later in the call. A reconciliation of these changes is presented at the back of our earnings release and slide presentation for the quarter.

Speaker #2: Our non-GAAP measures are not presented in accordance with, nor are they a substitute for, GAAP financial measures. We provided 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: I will now turn the call over to Sunny.

Speaker #3: Thank you, Chris. Good afternoon, everyone, and thank you for joining us for our first quarter earnings call. I'm very pleased to announce a strong start to the year.

Sunny Sanyal: Thank you, Chris. Good afternoon, everyone, and thank you for joining us for our first quarter earnings call. I'm very pleased to announce a strong start to the year. First quarter revenue was $210 million, up 5% year-over-year, and toward the high end of our guidance. Growth in the quarter was driven by strength in our cargo systems business, which contributed to a 17% year-over-year increase in industrial segment revenue. Our medical segment performance was stable year-over-year in what is typically our seasonally light quarter, with continued strength in CT and growing engagement around next-generation system designs. Non-GAAP gross margin of 34% in Q1 was at the high end of our guidance, benefiting primarily from a favorable product sales mix in the quarter.

Speaker #3: First quarter revenue was $210 million, up 5% year over year, and toward the high end of our guidance. Growth in the quarter was driven by strength in our cargo systems business, which contributed to a 17% year-over-year increase in industrial segment revenue.

Speaker #3: Our medical segment performance was stable year over year, in what is typically our seasonally light quarter, with continued strength in CT and growing engagement around next-generation system designs.

Speaker #3: Non-GAAP gross margin of 34% in Q1 was at the high end of our guidance, benefiting primarily from a favorable product sales mix in the quarter.

Speaker #3: Looking at a year-over-year comparison, total revenue was up 5%, with medical segment flat compared to last year, and industrial segment up 17%. Non-GAAP EBITDA of $29 million, was up 12% compared to the same quarter last year.

Sunny Sanyal: Looking at a year-over-year comparison, total revenue was up 5%, with medical segment flat compared to last year, and industrial segment up 17%. Non-GAAP EBITDA of $29 million was up 12% compared to the same quarter last year. Non-GAAP EPS in Q1 was $0.19, up $0.09 compared to $0.10 last year. Let me give you some insights into sales detail by modality in the quarter, compared to 5-quarter average, which we refer to as the sales trend. Our medical segment performed well in the quarter, driven by solid demand for X-ray sources, particularly in high-end CT as well as digital detectors. Customer activity and sales pipeline development around new platforms continued to gain momentum. Mammography modality exceeded its sales trend in the quarter.

Speaker #3: Non-GAAP EPS in the first quarter was $0.19, up $0.09 compared to $0.10 last year. Let me give you some insights into sales detail by modality in the quarter compared to the five-quarter average, which we refer to as the sales trend.

Speaker #3: Our medical segment performed well in the quarter, driven by solid demand for X-ray sources, particularly in high-end CT, as well as digital detectors. Customer activity and sales pipeline development around new platforms continued to gain momentum.

Speaker #3: Mammography modality exceeded its sales trend in the quarter. CT, fluoroscopy, and radiography modalities were in line with their respective sales trends, while dental and oncology modalities were below their respective sales trend.

Sunny Sanyal: CT, fluoroscopy, and radiography modalities were in line with their respective sales trends, while dental and oncology modalities were below their respective sales trend. Our industrial segment delivered another solid growth quarter, with broad-based strength across multiple platforms and verticals. Global demand for security screening remained strong, driving growth in both cargo security inspection systems and components. We also continued to see positive momentum in our nondestructive testing and inspection business, supported by strength in our high-energy linear accelerators and X-ray tube products, both of which are used in nondestructive testing applications. In addition, demand for photon-counting detectors was solid across several industrial verticals and drove growth in our food inspection products. Overall, the industrial segment remains an attractive growth opportunity for the company.

Speaker #3: Our industrial segment delivered another solid growth quarter, with broad-based strength across multiple platforms and verticals. Global demand for security screening remained strong, driving growth in both cargo security inspection systems and components.

Speaker #3: We also continue to see positive momentum in our non-destructive testing and inspection business, supported by strength in our high-energy linear accelerators and X-ray tube products, both of which are used in non-destructive testing applications.

Speaker #3: In addition, demand for photon counting detectors was solid across several industrial verticals and drove growth in our food inspection products. Overall, the industrial segment remains an attractive growth opportunity for the company.

Speaker #3: We are collaborating closely with customers to address complex inspection problems by using X-ray imaging in real-time manufacturing and finding solutions that were previously difficult or impossible to achieve.

Sunny Sanyal: We are collaborating closely with customers to address complex inspection problems by using X-ray imaging in real-time manufacturing and finding solutions that were previously difficult or impossible to achieve. At the beginning of December, we attended RSNA, the Radiological Society of North America's annual meeting. This is the world's largest medical imaging exhibition and brings together over 38,000 radiology professionals and medical imaging OEMs from all over the world. RSNA is one of the most important events on our calendar each year because the deep and broad engagement it enables with our customer base. We use the conference to showcase our newest technologies and, more importantly, to work with customers on how these innovations can be designed into their current platforms and future systems.

Speaker #3: At the beginning of December, we attended RSNA, the Radiological Society of North America's annual meeting. This is the world's largest medical imaging exhibition and brings together over 38,000 radiology professionals and medical imaging OEMs from all over the world.

Speaker #3: RSNA is one of the most important events on our calendar each year because the deep and broad engagement it enables with our customer base.

Speaker #3: We use the conference to showcase our newest technologies, and more importantly, to work with customers on how these innovations can be designed into their current platforms and future systems.

Speaker #3: We held more than 150 customer meetings, focused primarily on advancing design win opportunities and opportunities to upgrade their systems to our latest technologies. These meetings underscored increased customer engagement with a meaningful emphasis on innovation-driven discussions across all modalities.

Sunny Sanyal: We held more than 150 customer meetings, focused primarily on advancing design win opportunities and opportunities to upgrade their systems to our latest technologies. These meetings underscored increased customer engagement with a meaningful emphasis on innovation-driven discussions across all modalities. We view this increased level of activity as a positive signal for future demand. These engagements are translating into a growing pipeline of new business opportunities, which typically last for multiple product cycles and support durable, long-term revenue streams. We felt a very strong reception to our new technologies, which reinforces our confidence that the investments we've made in innovation are positioning Varex well for sustained growth as customers move from technology evaluation to system development, and ultimately, commercialization. This year at RSNA, we introduced a more integrated modality-based approach to our value proposition.

Speaker #3: We view this increased level of activity as a positive signal for future demand. These engagements are translating into a growing pipeline of new business opportunities, which typically lasts for multiple product cycles and support durable, long-term revenue streams.

Speaker #3: We felt a very strong reception to our new technologies, which reinforces our confidence that the investments we've made in innovation are positioning Varex well for a sustained growth as customers move from technology evaluation to system development and ultimately commercialization.

Speaker #3: This year at RSNA, we introduced a more integrated, modality-based approach to our value proposition. Across key modalities, including CT, general radiography, fluoroscopy, and mammography, we showcased Varex’s offerings—including tubes, detectors, generators, connectors, heat exchangers, and software—as fully integrated imaging chain assemblies and subsystems, rather than as individual components.

Sunny Sanyal: Across key modalities, including CT, general radiography, fluoroscopy, mammography, we showcased Varex's offerings, including tubes, detectors, generators, connectors, heat exchangers, and software as fully integrated imaging chain assemblies and subsystems, rather than as individual components. This modality-based approach represents a meaningful evolution in how we engage with customers. By taking a modality-based approach, we're able to deliver best-in-class performance and attractive total system economics, while also enabling potential faster time to market for customers looking to bring new and differentiated imaging applications to market. We believe this approach further strengthens our position as a strategic partner to our customers and enhances our ability to drive long-term recurring revenue through deeper system-level design wins. We are encouraged by the enthusiastic receptivity to our approach, and we will continue these discussions with our customers with the intention of securing new design wins in fiscal 2026 and beyond.

Speaker #3: This modality-based approach represents a meaningful evolution in how we engage with customers. By taking a modality-based approach, we are able to deliver best-in-class performance and attractive total system economics, while also enabling potentially faster time-to-market for customers looking to bring new and differentiated imaging applications to market.

Speaker #3: We believe this approach further strengthens our position as a strategic partner to our customers and enhances our ability to drive long-term recurring revenue through deeper system-level design wins.

Speaker #3: We are encouraged by the enthusiastic receptivity to our approach, and we will continue these discussions with our customers with the intention of securing new design wins in fiscal '26 and beyond.

Speaker #3: Our Lumen family of radiographic detectors, combined with our Nexus software, was a significant topic of discussion at RSNA. Customers and prospects were very interested in our regional manufacturing strategy, particularly with our factories in India, which they see as critical for their future growth in the region.

Sunny Sanyal: Our Lumen family of radiographic detectors, combined with our Nexus software, was a significant topic of discussions at RSNA. Customers and prospects were very interested in our regional manufacturing strategy, particularly with our factories in India, which they see as critical for their future growth in the region. We also had numerous conversations about our cutting-edge photon counting technologies and the progress that we are making there. For the past few years, our customers have been busy dealing with the fallout from COVID, chip shortages, followed by supply chain crisis, and had to deploy R&D and growth capital towards taking care of maintenance problems. During the 2025 RSNA, we felt that our customers were returning to new product planning mode, and at this RSNA, we felt even more so that our customers were actively engaged in new product development and were in commercialization mode.

Speaker #3: We also had numerous conversations about our cutting-edge photon counting technologies and the progress that we are making there. For the past few years, our customers had been busy dealing with the fallout from COVID, chip shortages, followed by the supply chain crisis, and had to deploy R&D and growth capital towards taking care of maintenance problems.

Speaker #3: During the 2025 RSNA, we felt that our customers were returning to new product planning mode, and at this RSNA, we felt even more so that our customers were actively engaged in new product development and were in commercialization mode.

Speaker #3: In summary, RSNA was very positive for us and gave us a good feel for our customers' vision and where they were headed. While these design-in opportunities typically convert over time, several of the discussions we had at RSNA are tied to platforms that are currently already under development, particularly in the general radiography modality.

Sunny Sanyal: In summary, RSNA was very positive for us and gave us a good feel for our customers' vision and where they were headed. While these design and opportunities typically convert over time, several of the discussions we had at RSNA are tied to platforms that are currently already under development, particularly in general radiography modality. We are confident that some of these opportunities will convert this fiscal year with the revenue opportunities as early as fiscal 2027... Moving to our industrial segment, our cargo security systems business continues to be a bright spot, with multiple installations during the quarter in various countries. In addition, during the quarter, we received multiple orders for different products, including repeat orders from an existing customer.

Speaker #3: We are confident that some of these opportunities will convert this fiscal year, with the revenue opportunities as early as fiscal '27. Moving to our industrial segment, our cargo security systems business continues to be a bright spot with multiple installations during the quarter in various countries.

Speaker #3: In addition, during the quarter, we received multiple orders for different products, including repeat orders from an existing customer. Our customer base has long considered our linear accelerator technology as best-in-class, and we view repeat orders like this as a testament to our success of deployment and performance of our new systems.

Sunny Sanyal: Our customer base has long considered our linear accelerator technology as best-in-class, and we view repeat orders like this as a testament to our success of deployment and performance of our new systems. We remain engaged on many tender offers and look forward to continued sales success in our cargo systems business in fiscal 2026 and beyond. With that, let me hand over the call to Sam.

Speaker #3: We remain engaged on many tender offers and look forward to continued sales success in our cargo systems business in fiscal '26 and beyond. With that, let me hand over the call to

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

Sam Maheshwari: Thanks, Sunny, and hello, everyone. Turning to results for the first quarter, our performance exceeded expectations. Revenues of $210 million were toward the high end of our guidance. Non-GAAP gross margin of 34% and non-GAAP EPS of $0.19 were also at the high end of expectations. Compared to the same period in fiscal 2025, total revenues increased 5%, driven by a 17% increase in industrial, primarily from cargo system shipments. Medical revenue was stable compared to last year. Medical revenues were $145 million, and industrial revenues were $65 million, representing 69% and 31% of total revenues, respectively. Analyzing regional performance. Americas grew 17%, driven by the strength in our industrial segment related to the cargo systems business. EMEA rose 7% and APAC decreased 7% year-over-year.

Speaker #2: Everyone, turning to results for the first quarter, performance exceeded expectations. Revenues of $210 million were toward the high end of our guidance.

Speaker #2: Non-GAAP gross margin of 34% and non-GAAP EPS of 19 cents were also at the high end of expectations. Compared to the same period in fiscal 2025, total revenues increased 5% driven by a 17% increase in industrial, primarily from cargo system shipments.

Speaker #2: Medical revenue was stable compared to last year. Medical revenues were $145 million, and industrial revenues were $65 million, representing 69% and 31% of total revenues, respectively.

Speaker #2: Analyzing regional performance, Americas grew 17%, driven by the strength in our industrial segment related to the cargo systems business. EMEA rose 7%, and APAC decreased 7% year over year.

Speaker #2: Sales volume to China remained steady, contributing 17% of total revenues, underscoring the continued resilience of our healthcare market position. Let me now cover our results on a GAAP basis.

Sam Maheshwari: Sales volume to China remained steady, contributing 17% of total revenues, underscoring the continued resilience of our healthcare market position. Let me now cover our results on a GAAP basis. First quarter gross margin was 33%, down 100 basis points year-over-year. Operating expenses were $54 million, down $3 million year-over-year. We reported operating income of $15 million, net income of $2 million, and GAAP EPS of $0.05 per diluted share, based on fully diluted 42 million shares. Before I discuss Q1 non-GAAP results, I want to highlight a recent change to our non-GAAP policy. We review our non-GAAP policy annually to determine whether any changes should be made. As a result of this review, we've modified our non-GAAP policy to exclude gains and losses from our equity method investments.

Speaker #2: First quarter gross margin was 33%, down 100 basis points year over year. Operating expenses were $54 million, down $3 million year over year. We reported operating income of $15 million, net income of $2 million, and GAAP EPS of $0.05 per diluted share, based on fully diluted 42 million shares.

Speaker #2: Before I discuss Q1 non-GAAP results, I want to highlight a recent change to our non-GAAP policy. We review our non-GAAP policy annually to determine whether any changes should be made.

Speaker #2: As a result of this review, we've modified our non-GAAP policy to exclude gains and losses from our equity method investments. In making this decision, we considered a strategic shift at one of our equity method investees and also the fact that we do not control operations of our equity method investments.

Sam Maheshwari: In making this decision, we considered a strategic shift at one of our equity method investees, and also the fact that we do not control operations of our equity method investments. We determined that including the results of these businesses in our non-GAAP financials no longer provides information helpful to evaluate our ongoing operations. Going forward, this is our approach to report non-GAAP results as well as guidance for future quarters. Reconciliations for each quarter and full fiscal year 2025 can be found in the back of this presentation and earnings press release. Now moving on to non-GAAP results for the quarter. Gross margin in Q1 was 34% at the high end of our expectations, driven by favorable product sales mix.

Speaker #2: We determined that including the results of these businesses in our non-GAAP financials no longer provides information helpful to evaluate our ongoing operations. Going forward, this is our approach to report non-GAAP results, as well as guidance for future quarters.

Speaker #2: Reconciliations for each quarter and full fiscal year 2025 can be found in the back of this presentation and earnings press release. Now, moving on to non-GAAP results for the quarter.

Speaker #2: Gross margin in Q1 was 34%, at the high end of our expectations, driven by a favorable product sales mix. Gross margins were down 90 basis points year over year, primarily due to a 130 basis points favorable impact from refunds of German customs duties and taxes in Q1 of '25.

Sam Maheshwari: Gross margins were down 90 basis points year-over-year, primarily due to 130 basis points favorable impact from refunds of German customs duties and taxes in Q1 of 2025. R&D spending was $22 million, a decrease of $1 million year-over-year and representing 10% of revenues. Please note, Q1 2025 included the final payment of $1 million for the transfer of technology from Micro-X. SG&A expense was $30 million, down $1 million from Q1 2025, and representing 14% of revenues. Operating expenses totaled $52 million, a decrease of $3 million year-over-year, and represented 25% of revenues. Operating income was $19 million, an increase of $5 million year-over-year, and operating margin was 9% of revenue, up from 7% in Q1 2025.

Speaker #2: R&D spending was $22 million, a decrease of $1 million year over year, and represented 10% of revenues. Please note, Q1 '25 included the final payment of $1 million for the transfer of technology from Micro X.

Speaker #2: SG&A expense was $30 million, down $1 million from Q1 '25, and representing 14% of revenues. Operating expenses totaled $52 million, a decrease of $3 million, year over year, and represented 25% of revenues.

Speaker #2: Operating income was $19 million, an increase of $5 million year over year, and operating margin was 9% of revenue, up from 7% in Q1 '25.

Speaker #2: Tax expense was $3 million, flat year over year. Q1 tax rate of 27% was higher than our expectations, due to income distribution across entities.

Sam Maheshwari: Tax expense was $3 million, flat year-over-year. Q1 tax rate of 27% was higher than our expectations due to income distribution across entities. We continue to expect full fiscal year 2026 tax rate to be around 23%. Net earnings were $8 million, or $0.19 per diluted share, up 90% from $0.10 in the year-ago quarter. Average diluted shares for the quarter on a non-GAAP basis were 42 million. Now turning to the balance sheet. Accounts receivable decreased by $10 million, and days sales outstanding increased by 2 days to 64 days. Inventory increased $29 million to $328 million, and days of inventory increased by 34 days to 214 days. The increase in inventory during the quarter will support anticipated demand across industrial segment, including new product ramps and cargo system deliveries.

Speaker #2: We continue to expect full fiscal year 2026 tax rate to be around 23%. Net earnings were $8 million, on 19 cents per diluted share, up 90% from $0.10 in the year-ago quarter.

Speaker #2: Average diluted shares for the quarter on a non-GAAP basis were 42 million. Now, turning to the balance sheet. Accounts receivable decreased by $10 million, and days sales outstanding increased by two days to 64 days.

Speaker #2: Inventory increased 29 million, to $328 million, and days of inventory increased by 34 days to $214 days. The increase in inventory during the quarter will support anticipated demand across industrial segment, including new product ramps and cargo system deliveries.

Speaker #2: As those programs progress, our aim is to normalize our inventories. Accounts payable increased by $9 million, driven by increase in inventory, and days payable increased 9 days to 51 days.

Sam Maheshwari: As those programs progress, our aim is to normalize our inventories. Accounts payable increased by $9 million, driven by increase in inventory, and days payable increased 9 days to 51 days. Now moving to debt and cash flow information. Net cash outflow from operations was $16 million in the quarter, primarily driven by the increase in inventory... We ended the quarter with cash, cash equivalents, and marketable securities of $126 million, down $30 million compared to the Q4 of 2025. The gross debt outstanding at the end of the quarter was $370 million, and debt net of $126 million of cash, cash equivalents, and marketable securities was $244 million. Adjusted EBITDA for the quarter was $29 million, or 14% of sales.

Speaker #2: Now moving to debt and cash flow information. Net cash outflow from operations was $16 million in the quarter, primarily driven by the increase in inventory.

Speaker #2: We ended the quarter with cash, cash equivalents, and marketable securities of $126 million, down $30 million, compared to the fourth quarter of 2025. Gross debt outstanding at the end of the quarter was $370 million, and debt net of $126 million of cash, cash equivalents, and marketable securities was $244 million.

Speaker #2: Adjusted EBITDA for the quarter was $29 million, or 14% of sales. Our trailing 12 months adjusted EBITDA was $127 million, and our net debt leverage ratio was approximately 1.9 times adjusted EBITDA on a trailing 12 months basis.

Sam Maheshwari: Our trailing twelve months adjusted EBITDA was $127 million, and our net debt leverage ratio was approximately 1.9x adjusted EBITDA on a trailing twelve-month basis. Now moving on to outlook for the second quarter. Guidance for the second quarter is as follows: revenues are expected between $210 and $225 million. Non-GAAP earnings per diluted share are expected between $0.15 and $0.25. Our expectations are based on non-GAAP gross margin of 33% to 34%, non-GAAP operating expenses of approximately $52 million, interest and other expense net in the range of $7 to $8 million, tax rate of about 23% for the second quarter, and non-GAAP diluted share count of about 42 million shares. I would now like to hand the call back to Sunny for some closing thoughts before beginning our Q&A.

Speaker #2: Now moving on to Outlook for the second quarter. Guidance for the second quarter is as follows. Revenues are expected between $210 and $225 million, non-GAAP earnings per diluted share are expected between $0.15 and $0.25.

Speaker #2: Our expectations are based on non-GAAP gross margin of 33% to 34%, non-GAAP operating expenses of approximately $52 million, interest and other expense net in a range of 7% to 8 million, tax rate of about 23% for the second quarter, and non-GAAP diluted share count of about 42 million shares.

Speaker #2: I would now like to hand the call back to Sunny for some closing thoughts before beginning our Q&A.

Speaker #1: Thank you, Sam. We are very pleased with the solid start to fiscal '26. Looking ahead, we're encouraged by the depth and quality of the ongoing dialogue that we're having with our medical customers.

Sunny Sanyal: Thank you, Sam. We are very pleased with the solid start to fiscal 2026. Looking ahead, we're encouraged by the depth and quality of the ongoing dialogue that we're having with our medical customers, particularly around innovation and integration of our technologies into their next-generation imaging systems. On the industrial side, our close collaboration with customers continues to drive new applications for products across a broad range of verticals, including oil and gas, food inspection, and security screening. Across both segments, this engagement reinforces our confidence in the durability of our customer relationships and the long-term opportunities ahead. None of our progress would be possible without the dedication of our employees and partners around the world, and I want to thank them sincerely for their continued efforts. Together, we are advancing our strategy and strengthening the future of our business.

Speaker #1: Particularly around innovation and integration of our technologies into their next generation imaging systems. On the industrial side, our close collaboration with customers continues to drive new applications for products across a broad range of verticals, including oil and gas, food inspection, and security screening.

Speaker #1: Across both segments, this engagement reinforces our confidence in the durability of our customer relationships and the long-term opportunities ahead. None of our progress would be possible without the dedication of our employees and partners around the world, and I want to sincerely thank them for their continued efforts.

Speaker #1: Together, we are advancing our strategy and strengthening the future of our business. Your commitment and passion continue to make a meaningful difference to Varex.

Sunny Sanyal: Your commitment and passion continues to make a meaningful difference to Varex. In closing, the combination of a solid execution in the quarter, strong customer engagement around new platforms, and increasing modality-based subsystem collaboration gives us confidence that we are well-positioned as we move forward through fiscal 2026 and beyond. With that, we will now open up the call for your questions.

Speaker #1: In closing, the combination of a solid execution in the quarter, strong customer engagement around new platforms, and increasing modality-based subsystem collaboration gives us confidence that we are well positioned as we move forward through fiscal '26 and beyond.

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

Speaker #1: questions. Thank

Speaker #3: We will now begin the question and answer session. If you would 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 Larry Solow from CJS. Your line is now live.

Speaker #3: 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.

Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please. While we pull for questions.

Speaker #3: Our first question is coming from Larry Solo from CGS. Your line is now live.

Speaker #4: Great, good afternoon. Thank you. I guess, Sunny, let me first question for you—just kind of high level, you sound pretty optimistic. I guess certainly the pipeline stuff sounds great.

Larry Solow: Great, good afternoon. Thank you. I guess, Sunny, I mean, first question for you, just kind of high level. You know, you sound pretty optimistic, I guess, certainly the pipeline stuff sounds great. Maybe you can give us a little more color just on the current environment, where we stand today. I know you only give guidance out for one quarter, but you sound pretty just optimistic in general, but on both sides of the business. So maybe you can, you know, give us a little more, at least qualitative, outlook for the rest of the year.

Speaker #4: Maybe you can give us a little more color just on the current environment where we stand today. I know you only give guidance out for one quarter, but you sound pretty just optimistic in general on both sides of the business.

Speaker #4: So maybe you can give us a little more, at least a qualitative outlook for the rest of the—

Speaker #4: year. Yeah.

Sunny Sanyal: Yeah. Hey, Larry. Yeah, so let me start with medical, right? First of all, in medical, we feel like the headwinds that we faced in 2024 and where we had signaled that in the second half of 2025, those that we would have those behind us, they're truly behind. They feel behind us, and our customers continue to show orders, activity. So we feel good that the problems of the past are, we're past them. That's number one. So in general, medical is stable, but within that, we continue to see strength in CT. There's no real anything that I can call out as weakness in CT, and it's strength, strength globally. And we continue to look at medical markets, CT markets, and adoption rates of CT globally.

Speaker #5: Hey, Larry. Yeah. So let me start with medical, right? First of all, in medical, we feel like the headwinds that we faced in '24 and where we had signaled that in the second half of '25, that we would have those behind us—they're truly behind, they feel behind us, and they continue to show. Our customers continue to show orders activity.

Speaker #5: So we feel good that the problems of the past are we're past them. That's number one. So in general, medical is stable. But within that, we continue to see strength in CT.

Speaker #5: There's no real anything that I can call out as weakness in CT, and it's strength globally. And we continue to look at medical markets, CT markets, and adoption rates of CT globally.

Speaker #5: They are all of that projects a positive indication for us and our relationships with our OEM customers continue to be strong. That's medical. All other modalities in medical so that said, China is stable for us.

Sunny Sanyal: All of that projects a positive indication for us, and our relationships with our OEM customers continue to be strong. That's medical.

Larry Solow: Mm-hmm.

Sunny Sanyal: All other modalities in medical. So that said, China, you know, is stable for us and.

Speaker #5: And China is stable. CT is strong. And all other modalities, we see normal cyclical patterns. Nothing that alarms us or anything that I can call out as extraordinary or remarkable.

Larry Solow: Right.

Sunny Sanyal: China is stable, CT is strong, and all other modalities, we see normal cyclical patterns, nothing that alarms us or anything that I can, I can call out as extraordinary or remarkable. So from that perspective-

Speaker #5: So from that perspective, we feel good about medical for the rest of the year. Same way, as I look at industrial, the order pipeline, the order activity, the engagement of our customers are very strong.

Larry Solow: Right.

Sunny Sanyal: We feel good about medical for the rest of the year. Same, same way as I look at industrial, the order pipeline, the order activity, the engagement of our customers is very strong. We saw very strong-

Speaker #5: We saw very strong orders for photon counting in industrial-driven, particularly in the food inspection space. And NDT, non-destructive testing pipeline and activity, remains strong.

Larry Solow: Mm-hmm.

Sunny Sanyal: orders for photon counting in industrial driven, you know, particularly in the food inspection space, and NDT, nondestructive testing, pipeline and activity remains strong. And then security, of course, we've talked ad nauseam about, you know, our traction there. We're very happy with how we're seeing the security orders pipeline funnel growing there. So these are the-

Speaker #5: And then security, of course, we've talked that nauseum about our traction there. We're very happy with how we're seeing the security orders pipeline funnel growing there.

Speaker #5: So these are the this is the background for me feeling good about where we are. And then to top it off, look at our Sanya, the customer interactions were very different.

Larry Solow: Okay.

Sunny Sanyal: This is the background for me feeling good about where we are. And then to top it off, you know, look, at RSNA, the customer interactions were very different. You know, two years ago in 2024... There wasn't a single R&D conversation. It was all about, you know, one problem after another after another that our customers were facing, and that tone has shifted pretty dramatically. And so as I look at the engagement of the customers, and I look at the type of design-in opportunities we're looking at, we're looking at opportunities-

Speaker #5: Two years ago, in 2024, there wasn’t a single R&D conversation. It was all about one problem after another, after another, that our customers were facing.

Speaker #5: And that tone has shifted pretty dramatically. And so as I look at the engagement of the customers and I look at the type of design-in opportunities we're looking at, we're looking at opportunities that are not only long-range.

Larry Solow: Right.

Sunny Sanyal: that are not only long range. We're not just talking about photon counting, nanotubes, and forward-looking technologies. We're talking about products that we currently have in the mid-tier, in the value tier CT systems, and what our customers need in emerging markets, where they're going today, tomorrow. So that's why my comment was that we're expecting to close some of those in fiscal 2026, with hope that those customers that we can get engaged with customers, particularly with radiographic, to ship them products in fiscal 2027, 2028. So these are, this is what's going on, which makes me excited.

Speaker #5: We're not just talking about photon counting, nanotubes, and forward-looking technologies. We're talking about products that we currently have. In the mid-tier, in the value tier, CT systems, and what our customers need in emerging markets—where they're going today, tomorrow. So that's why my comment was that we're expecting to close some of those in fiscal '26, with hope that we can get engaged with customers, particularly with radiographic, to ship them products in fiscal '27, '28.

Speaker #5: So, these are the things that are going on, which makes me excited.

Speaker #3: Yeah, no, I can feel that too. And you mentioned the India opportunity. I was going to ask you just about India—how it's progressing.

Larry Solow: Yeah. And no, I, I can feel that enthusiasm. And you mentioned the India, you know, opportunity. I was gonna ask you just about India, how it's progressing. I imagine it's still a bit of a headwind to your business, but it sounds like it, it won't be for long, and it sounds like it's also creating a lot of opportunities for you. Maybe you could-

Speaker #3: I imagine it's still a little bit of a headwind to your business, but it sounds like it won't be for long, and it sounds like it's also creating a lot of opportunities for you if you can.

Speaker #5: Yeah. I'll let Sam comment on the add-on. Let me just start by saying the India factory, as you know, for detectors, is open. We're shipping detectors from there globally.

Sunny Sanyal: Yeah.

Larry Solow: Elaborate on that.

Sunny Sanyal: I'll let Sam comment on, add on. Let me just start by saying the India factory, as you know, for detectors, is open. We're shipping detectors from there globally. These are radiographic detectors, and it is contracting with our with what we had intended for that site in Vizag. Pune construction is coming along very well, but we're also shipping quite a few tubes that are, you know, that are marked Made in India to all over the world. So the activity is going on. The new factory for tubes factory will still take a little bit of time to come online, but there's progress being made, and I feel we're on track. And our customers are... It's resonating with our customers.

Speaker #5: These are radiographic detectors, and it is tracking with what we had intended for that site in Visag. Pune construction is coming along very well, but we're also shipping quite a few tubes that are marked 'Made in India' to all over the world.

Speaker #5: So the activity is going on. The new factory in for tubes factory will still take a little bit of time to come online, but there's progress being made.

Speaker #5: And I feel we're on track. And our customers are it's resonating with our customers. There's not a conversation that I have with customers where India doesn't come up.

Sunny Sanyal: There's not a conversation that I have with customers that, where India doesn't come up, and the story's the same: "Hey, we wanna do business in India. India. We're expanding to India. India's favoring systems that have local content, domestic content, Made in India, so we want you to supply us from India as a..." And that becomes a differentiator for them. So this, this is exactly what we had planned for, and we're seeing that.

Speaker #5: And the story is the same. Hey, we want to do business in India. India, we're expanding to India. India's favoring systems that have local content, domestic content, made in India.

Speaker #5: So, we want you to supply us from India as a, and that becomes a differentiator for them. So this is exactly what we had planned for, and we're seeing that start to materialize.

Larry Solow: Right

Sunny Sanyal: ... start to materialize. Sam?

Larry Solow: Right

Sunny Sanyal: ... start to materialize. Sam?

Speaker #5: Sam?

Sam Maheshwari: Yeah, so like Sunny said, there's a lot of excitement from the customer side on our India operations and ability to provide the product from there, not just for India consumption, but also for global consumption. And in terms of the bricks-and-mortar development in India, essentially one factory is already producing detectors, and we are in the process of ramping up that factory. And the second one, the tubes factory-

Speaker #4: lot of excitement from the customer Yeah. So like Sunny said, there's a side on our India operations and ability to provide the product from there.

Speaker #4: Not just for India consumption, but also for global consumption. And in terms of the bricks and mortar development in India, essentially, one factory is already producing detectors, and we are in the process of ramping up that factory.

Speaker #4: And the second one, the tubes factory, before we begin to ship tubes from there, it's still another 12 months. Building is largely complete. We are now moving in the equipment.

Sunny Sanyal: Right

Sam Maheshwari: Before we begin to ship tubes from there, it's still another 12 months. Building is largely complete. We are now moving in the equipment, so as we move in the equipment, then it'll be followed by the qualification cycle of the equipment, followed by the qualification cycle of tubes that would be produced from there, and then we would be able to export tubes from there or ship to customers in India. So in terms of actual progress, it is tremendous in India at this time. From a P&L perspective, it is a burden in the sense we are ramping up some inventory, we are ramping up some costs on the P&L. So the P&L is seeing the burden right now, but it is truly an investment, and so that's what you're seeing right now.

Speaker #4: So, as we move in the equipment, then it'll be followed by the qualification cycle of the equipment, followed by the qualification cycle of tubes that would be produced from there.

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Q1 2026 Varex Imaging Corp Earnings Call

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